HC Deb 15 January 1985 vol 71 cc199-282
Mr. Speaker

Before we proceed with the debate, I should inform the House that I propose to operate the 10-minute limit on speeches between 7 pm and 8.50 pm. I hope that hon. Members who are called before 7 o'clock will bear in mind the fact that there is great pressure to speak during this debate. No fewer than 32 right hon. and hon. Members have so far shown their wish to participate. I hope that the House will think it fair to give precedence to those hon. Members who were not called to speak during the regional industrial policy debate on 28 November.

I have selected the amendment in the name of the Prime Minister.

4.28 pm
Mr. Roy Hattersley (Birmingham, Sparkbrook)

I beg to move, That this House condemns the Government's wilful refusal to implement policies which would result in a reduction in unemployment from its present record level and from the even higher total to which it will rise in 1985; and calls upon Her Majesty's Government to concentrate the resources at its disposal on the public sector, thus providing the stimulus which the economy needs in a way which creates the largest number of jobs.

Today's debate concerns three issues, about which the Government and the Opposition are fundamentally and, perhaps, irrevocably divided. For the Opposition the first is a matter of principle. We believe that the overwhelmingly most important national priority at this time is a reduction in unemployment. Unemployment is at a record level and was set to rise even before yesterday's fiasco, and it will rise further and faster because of the increase in interest rates that was announced yesterday afternoon.

To the Opposition, a reduction in unemployment is an objective towards which every aspect of economic policy should be directed. I have no doubt that in his speech the Chancellor of the Exchequer will say that he, too, regards a reduction in unemployment as essential, and that he is working towards that end. If the Chancellor says that in good faith, the Government's policy on unemployment is as ghastly a failure as are their policies in every other economic area. If that is their intention, they have signally, indeed spectacularly, failed to realise it during the past five and a half years. For five and a half years we have been promised that a rigorous application of the medium term financial strategy will produce a certain and irreversible reduction in unemployment. Yet for five and a half years that strategy has produced the diametrically opposite result: a continued and unremitting increase in the number of men and women who are without work. But after five years during which that strategy has failed completely and palpably, all that the Government offer in their amendment today is a repeat of the same old discredited economic clichés. Conservative Members who vote for the amendment will be voting for more of the same; and it is more of the same that has pushed up unemployment, on an accurate and honest assessment, to approaching 4 million.

For us to believe that the Chancellor is remotely sincere in what will be his expressed concern for the unemployed, he must answer one simple question: when does he judge that his chosen strategy for the eventual reduction of unemployment will begin to work? When will the total begin to level off, let alone to fall? When will the unhappy Secretary of State for Employment no longer have to appear on television month after month and describe himself as surprised and disappointed by the monthly unemployment figures? Indeed, the successive disappointments of the Secretary of State, matched only by successive surprises on the same occasions, say little for his judgment but much for his gullibility. We want an honest statement about when the Chancellor expects the strategy, which he has insisted for five years will eventually work, to begin to work.

I suspect that the Chancellor will refuse to give even an estimate of when unemployment will begin to decrease, so let me tell the House what the honest answer would be. On an accurate and honest measurement of present unemployment, it will still be at or above 3 million at the time of the next general election. Several things will happen before then. Lord Young will perform his duties of manipulating the statistics to make the published figures look more acceptable. The Chancellor will invent new excuses. The Prime Minister will counterfeit concern. But by the next general election, we shall have endured almost a full decade of increasing unemployment, and the real figure will still be 3 million or more.

Four years ago, the Prime Minister would have said brashly that unemployment is the short-term price that we must pay for long-term economic success. I should describe some of that success to her today in honest terms, not in the sort of terms that she trotted out at the Dispatch Box an hour ago. Putting aside the present record unemployment, and the fact that her success must be measured against higher unemployment than Britain has ever known, the success about which she spoke includes an annual tax bill that is £22.5 billion more than it was when she took office, manufacturing imports exceeding manufacturing exports for the first time in our history, interest rates still at their 1979 levels despite all the promises of reductions, and the pound at its lowest ever value. We have become—this is one success about which the Prime Minister could legitimately boast—what one commentator described yesterday as a one-commodity economy, saved from national bankruptcy by the gratuitous benefit of North sea oil revenues.

Whenever the Chancellor is reminded of the position in which the public sector borrowing requirement, his hopes for tax cuts, and public expenditure would be were it not for the boon and benefit of North sea oil, for which he can take no credit, he always replies, as he did yesterday, that North sea oil revenues will continue for a good time yet.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

So they will.

Mr. Hattersley

The hon. Gentleman is perceptive to say that, but that is hardly the point. The point is—perhaps even the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has noticed this—that North sea oil revenues have peaked during this financial year. From now on they will be a wasting asset, and to rely on those revenues to balance our books instead of using them to invest in our industrial base and our infrastructure is to make the British economy tragically vulnerable to every external pressure.

The true state of our economy is eloquently demonstrated by the way in which the Prime Minister is driven to the most disreputable use of statistics to give a fraudulent impression that at least part of her policy is working. I shall give three examples. On 10 January, she told me that public investment is at the same level as it was in 1978–79—a claim that is statistically plausible only because the Government have changed the definition of public investment. They have been condemned for doing so by the Treasury and Civil Service Select Committee. That is the value of the Prime Minister's honesty in such matters. Another example from the same day—

Mr. Alan Howarth (Stratford-on-Avon)

The right hon. Gentleman has rightly stressed the importance of honesty in this debate. What contribution to increased unemployment does he believe has been caused by the worst recession for 50 years, by the advent of an extra 1 million people in the labour force in the 1980s, and by the impact of new technology — all factors which it is beyond the scope of this or any Government to control?

Mr. Hattersley

I assure the hon. Gentleman that it is my judgment, and the judgment of almost all objective commentators—[Interruption]—many of whom I shall quote as the afternoon continues — that were the reduction of unemployment the Government's highest priority, the figure would be lower than it is today. When Conservative Members scoff at that fact, they are not just scoffing at me, which is par for the course between Government and Opposition, but are scoffing at the right hon. Member for Old Bexley and Sidcup (Mr. Heath), under whom they were proud to serve when he was Prime Minister.

However, I shall not be diverted from giving two further examples of the weakness of the Prime Minister's case, which she manipulates in a way that I can describe only as statistically fraudulent. On 10 January she said that investment in the economy as a whole is at a peak, but she did not add that it is certain to fall next year as a direct result of Government policy. Investment is high now because of the impending changes in investment allowances, which have brought forward investment, but the policy that increases it this year will be the policy that decreases it next year. It is a sign of the weakness of her case that she takes refuge in such subterfuge.

The Prime Minister did it again today when she told us about the great investment record and the booming economy. I wish that she could have brought herself to answer the question honestly and to admit that, during the past four years, net investment in manufacturing and transport has been in a negative rather than a positive form. These are the facts about the economy, and the Prime Minister does herself no credit by trying to pretend anything different.

These are statistics that the Prime Minister polishes, hones and manipulates to impress her weaker-minded Back Benchers, but, on the evidence of the recent past, they do not impress international opinion or fool international confidence, for the collapse of the pound is in no small measure due to the recognition of the debility of the British economy, for which the Tory Government are responsible.

Mr. George Walden (Buckingham)


Mr. Michael Howard (Folkestone and Hythe)


Mr. Hattersley

I shall give way to the hon. Member for Buckingham (Mr. Walden), who is pointing at me with his left hand.

Mr. Walden

Earlier today, the Leader of the Opposition said the speculation against the pound was irrational. The right hon. Gentleman is now saying that it is an expression of no confidence in the Government's economic policy. Could he elucidate?

Mr. Hattersley

As I understand it, the hon. Gentleman shares my view that John Maynard Keynes had something important to say about economics. The hon. Gentleman will recall that half of Keynes's general theory was an explanation that psychology and economics could not be adequately divided and that what people thought was happening and their impression of what was happening had an enormous effect on the markets, on confidence and on investment. Therefore, the two things go together.

Of course there was a great deal of irrationality about the frantic activity on the exchanges last week and the week before, but equally that irrationality was in part based on what was only to be regarded as a rational judgment about investment prospects. I can explain why that is. Many reasons have been given for the run on the pound. The Chancellor acknowledges only two, the instability in oil prices and the strength of the dollar, but there are two more. I know that my right hon. Friend the Leader of the Opposition will agree with me that these are the rational judgments of hard-headed men who have seen the Chancellor and come to some conclusions, not only from his performance but from what he said.

First, until 11 o'clock on Friday morning, the Government had no exchange rate policy and therefore the market had no idea at what point the Chancellor and the Government would stand and fight. Secondly, and perhaps more importantly, the Government in general and the Chancellor in particular have openly boasted that a continual depreciation, matched with the dollar denomination of the price of oil, would increase the financial adjustment that would enable him to cut taxes. As the Chancellor said that, and as his economic adviser explained in great detail to the Select Committee that continued depreciation and oil being denominated in dollars meant that the Chancellor had more money in his fiscal deficit with which to finance tax cuts, there was a suspicion that the right hon. Gentleman wanted that massive depreciation to meet the demands of his Back Benchers for massive tax cuts.

Mr. Richard Ryder (Mid-Norfolk)

In order to meet his own high standards in honesty, will the right hon. Gentleman say whether he wants a higher or lower exchange rate?

Mr. Hattersley

The hon. Gentleman should not play such palpable games. What I want, and I freely acknowledge that I shall not get, is a different economic policy from the Government. Anybody who believes that I or any of my hon. Friends will fall into the trap of offering tinkerings within the disaster area of the Government's economic policy should improve his tactics. We are calling for a radical shift and change of economic policy. Asking whether there is a better or worse exchange rate, different by 10 per cent. either way, is like asking me where I would like the deck-chair to be placed on the Titanic before it hits the iceberg.

The run on sterling was in part caused by the Chancellor's boast that depreciation gave him more money for tax cuts, but it was caused by other things as well. Just before Christmas, the Chancellor was talking about having £3 billion to distribute. Yesterday, he was not even sure whether he could maintain the £1.5 billion boast. The fact that he has said so many conflicting things and that hardly anybody outside this country as well as inside trusts either his judgment or his statements has had a deeply damaging influence on our prospects.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

Will the right hon. Gentleman quote, with references, the occasion on which he alleges that I said that there would be a £3 billion fiscal adjustment? I have never said anything of the sort on any occasion.

Mr. Hattersley

Immediately after the last debate on public expenditure, the right hon. Gentleman, or his agent, briefed every newspaper saying that he hoped for twice as much as he had previously hoped for. The right hon. Gentleman now only adds to his reputation for saying different things on different days. That reputation has done deep damage to the prospects of our economic recovery. The problems of the sterling depreciation were enormously intensified — building on the absence of any exchange policy and the boast about the advantages of depreciation for tax cuts—by the nervous paralysis that inflicted the Chancellor last week. They were then multiplied by the contradictory briefings that were given one day by the Treasury and on the following day by Downing street.

If the right hon. Gentleman wishes to contradict that, I hope that he will tell me of the errors made in the article by Mr. Samuel Brittan, not always the most devoted supporter of Socialism, which set out the names of the officials who have given the contrary briefings that caused the problem to accelerate towards the end of last week.

The problem was brought to a head by the Chancellor's indecision running up to yesterday morning. About an hour and half ago the Prime Minister changed tack again and tried to brush the problem aside, saying that this was not a sterling crisis but a crisis for all currencies and a crisis from which all countries similarly suffered. Some right hon. and hon. Members might ask what all the fuss and panic yesterday was about, whether the crisis were as small as the Prime Minister had suggested. Others will ask whether the Prime Minister did not know, or whether she simply chose not to tell the House, that when she said that Britain's currency has depreciated against the dollar but so, too, had the European currencies, that sterling has depreciated against European currencies as well. That is the essential, and, I fear, intentional error in the Prime Minister's answer. Sterling has depreciated by one-third against all currencies, not just against the dollar, and for the Prime Minister to pretend that the dollar strength is what caused the crisis on Friday and Monday is to deceive herself or to attempt to delude the country.

The underlying cause for the collapse of sterling is the basic weakness of the economy. This leads to the Opposition's second contention—another contention that divides us from the Government—that the abandonment of the medium-term financial strategy would both reduce unemployment and strengthen the economy. There should be positive measures to improve the employment prospects of the country.

That is why the leader of the Social Democratic party, the right hon. Member for Plymouth, Devonport (Dr. Owen), was silly to spend Sunday afternoon, if the newspapers are to be believed, frantically phoning journalists to denounce what he described as diversions from the assault on the Government. The diversion to which he took particular exception was my proposal for repatriating British capital invested abroad, for increasing investment in British industry, and indirectly as a result of those two things, stabilising sterling values. I say to the right hon. Gentleman that anybody can abuse the Chancellor, as the Daily Mail proved adequately this morning, but what we now need are some positive statements of alternative policy to what the Government are pursuing. We shall certainly not get them from the leader of the SDP since he supports the Government's economic policy. He said on television last night—and I hope that Conservative Members are prepared to cheer—that the economy is now being run better than it has been run for 25 years. He is, in fact, the crypto-Thatcherite against whom the leader of the Liberal party warned.

Dr. David Owen (Plymouth, Devonport)

Will the right hon. Gentleman give us the chapter and verse of this extraordinary statement that was made on television last night? Since I was on television last night and since I said nothing of the sort, I should be grateful to be told the reference. If not, the right hon. Gentleman should withdraw.

Mr. Hattersley

I offer two pieces of evidence. First, I and many of my hon. Friends saw the right hon. Gentleman; secondly, it is reported in detail in today's Daily Mail.

Dr. Owen

If the right hon. Gentleman finds when he looks at a transcript of what I said on television that he is wrong, will he withdraw it tomorrow?

Mr. Hattersley

Of course. In that unlikely event I shall certainly withdraw it, and I take it that the right hon. Gentleman will take appropriate action against the Daily Mail. That is a bargain, is it not, Mr. Speaker? If I can make a sporting metaphor, I think that I have no takers in this.

I want to make one other point to the right hon. Gentleman. He complained that the assault on the Government's management of sterling was not adequate. An assault of some sort we made yesterday afternoon. Unfortunately, the right hon. Gentleman was not present to take part in it. I know exactly where the right hon. Gentleman was. He was down the road arguing that he should be allowed to appear on television more often.

Putting aside these irrelevancies, I repeat that it is the Labour party's view, although apparently not the view of the alliance, that the whole economy would benefit from an increase in real demand.

On 13 December 1984 the Prime Minister appeared momentarily to endorse that view. At the time she was extolling the virtues of tax cuts that the Government were then proposing, and no doubt as the afternoon wears on we shall hear whether the Government's proposition remains. The right hon. Lady said: Reduction of tax can lead to extra jobs, as it leads to extra demand."— [Official Report, 13 December 1984; Vol. 69, c. 1202.] May we be told categorically whether that was one of the Prime Minister's slips or whether, at least at that moment, she meant that an increase in demand was a desirable way of changing the Government's economic posture? [Interruption.] I think that the Prime Minister is saying something — perhaps she would like to say it to the whole House.

The Prime Minister (Mrs. Margaret Thatcher)

An increase in demand as used by the right hon. Gentleman usually means printing money. As he knows, I completely and utterly reject that.

Mr. Hattersley

It is not an answer to my question, but it is an answer to a question. My question was: did the Prime Minister mean it when she said that an increase in demand would create more jobs? On previous occasions she has merely gone on about mini cars being sold, but not enough of them being British. The demand is there, she said. But on 13 December she changed tack and the House, the country and perhaps even the markets are entitled to know whether that was an error, whether it was then intended or whether it has since been withdrawn.

I ask the Chancellor that question specifically: does he believe that an increase in demand is desirable? I must tell the Chancellor—

Mr. Patrick Nicholls (Teignbridge)

Will the right hon. Gentleman give way?

Mr. Hattersley

I have given way a great deal. I look forward enormously to giving way more in a moment, but I think that for the time being I ought to obey Mr. Speaker's strictures and press on so that other hon. Members may contribute.

In the past we have always been told that what would improve employment in the country is not a shift in demand, but a shift in the supply side of the economy. I tell the Chancellor at once that I share his view that radical alterations are needed in the structure of the economy. I want a tougher competition policy. I want new forms of industrial investment. I want more effective training programmes.

Indeed, my complaint about what the Chancellor has to say about the supply side is that the changes that he proposes are so unambitious. They amount to two things. They amount to arcane tax adjustments and to a call for lower real wages. He will tell us—because he always tells us—that lower real wages are the sovereign and certain cure for unemployment. If the Government choose to make a massive boost to demand, I say, as I have always said, that a moderation of wage claims would ensure or help to ensure that the new resources were concentrated on job creation, but in present circumstances when demand is inadequate — and on 13 December 1984 it was inadequate even by the Prime Minister's judgment—a reduction in real wages is an unreasonable proposition and an unattainable objective. To my regret, I suppose there is one area where it may be achieved and that is the public sector where the Government are pressing their own employees to accept a wage increase of 3 per cent. even though the inflation forecast is 5 per cent. or more. But in the public sector a reduction in real wages will not produce any more jobs because the Government will make sure that there is a reduction of jobs throughout that sector.

The Chancellor of the Exchequer knows very well the truth about a reduction of wages in the private sector. It will not happen and it is not worthwhile for him to demand it except, of course, for the fact that to the Government the beauty of advocating wage cuts is the knowledge that they will not come about and the consequent opportunity that provides the Government to blame somebody else for their own failures to reduce unemployment.

Mr. Tim Yeo (Suffolk, South)

Will the right hon. Gentleman say whether he favours higher wage increases and more inflation, and will he further say what effect that will have on unemployment?

Mr. Hattersley

This must be the last time I give way because of the fatuous questions that I am asked. That is not so much a fatuous statement as an admission of inattention. Two moments ago I made it absolutely clear—and I gladly repeat the exact words—that I want to see a massive boost in demand and a moderation of wages which ensures that that boost in demand is concentrated on job creation rather than an increase in money wages. But without the massive boost in demand the wage increases will not be moderated and it is unreasonable to expect that they would be.

Having explained that to the hon. Gentleman as simply as I can, let me go on to say that I suspect that this afternoon in this very area — the supply side of the economy—the Chancellor will tell us that it is necessary to do what we can to cut taxes in a way that is tantamount to holding down wages in order to make possible certain adjustments to the economy. He will go on to say that it is also necessary to cut taxes to alleviate what is fashionably called the poverty and unemployment trap and therefore encourage individuals who previously would have chosen not to work to find jobs. I find that a rather offensive analysis of the psychology of the unemployed.

If the Chancellor is to advocate the view that the unemployment and poverty trap has to be alleviated not by increases in child benefit but by cuts in taxes, I hope that he will read with some care the work done on this subject by the Institute of Fiscal Studies. I shall read its conclusion on this very point: … any Chancellor who rises on Budget Day and claims that by increasing income tax allowances he has made significant inroads into the poverty and employment traps, or started to sort out the nonsensical interactions between the tax and benefit systems, is simply talking ill-informed nonsense. I look forward to hearing the Chancellor of the Exchequer on the subject. In the light of that, I ask him whether, as he can best judge today, he intends to pursue the policy of tax cuts which he outlined in the debate on the Estimates. If so, is he doing so solely to influence the supply side of the economy, or is he still claiming—as he and the Prime Minister have claimed — that by cutting taxes there will be a boost to demand that improves job prospects more substantially, pound for pound, than using the available resources in any alternative way?

We know, of course, that the primary purpose of a cut in income tax rates is to boost the popularity of the Tory party, but I must ask the right hon. Gentleman how he believes that his proposed tax cuts will affect the unemployment figures. Does he believe that there is a better way of using the money at his disposal? I do not think that cutting taxes and letting the unemployed fend for themselves will have the political result that the right hon. Gentleman hopes for and the Prime Minister expects. I share the view expressed or implied by the right hon. Member for Old Bexley and Sidcup that to choose that course would be an insult to the unemployed. I believe that there are millions of voters, including Conservative voters, who have grown more prosperous over the past five years and who would benefit from tax cuts, but who would be revolted by the prospect of their being made more prosperous while the unemployed are left to remain without work.

In my concluding passages I hope to demonstrate that cutting taxes cannot remotely reduce unemployment in the way that the Prime Minister has now taken it upon herself to pretend. I have always argued—and will continue to argue—that direct investment in jobs is a far better way of achieving that aim, pound for pound, than tax cuts. But before I demonstrate that as best I can, I shall consider how much there is available to spend on tax cuts or alternatively on direct job creation.

I assume—I have no doubt that the statement by the Secretary of State for Trade and Industry is intended to contribute to this end—that when the Budget comes along the Chancellor of the Exchequer will find it possible to provide the £1.5 billion fiscal adjustment that is, on his present plans, to be devoted to tax reductions. If the Chancellor wished, he could of course retain the public sector borrowing requirement at its present level—still an appreciably smaller percentage of gross domestic product than is the case with many of our more successful competitors.

After running a long interview with the right hon. Gentleman and a long article by him, The Sunday Times then went on to advocate quite a different course of action which he could take—the spending of £3 billion on job creation and the like. But today I am not even advocating that proposal or cross-examining the Chancellor on it. I am saying that within his own parameters and the terms that he has set himself—or had set himself until Friday—there was £1.5 billion to spend. Conservative Back Benchers who have prepared speeches on the profligacy of the Labour party's proposals had better tear them up for this debate at least, because this afternoon I seek only to argue about how the Chancellor proposes to spend the money that he himself says is at the nation's disposal.

Within the terms of the Chancellor's own policy he could, if he thought it sufficiently important, use the money to act directly against unemployment. As a byproduct of that, without changing the tax income a penny or a pound, he could use some of the £3 billion annual reliefs that have been enjoyed by the better-off to carry out a redistribution within the tax budget and to do something about taking the lowest paid out of tax altogether.

But the Chancellor always chooses the high unemployment option when deciding how to spend his money. When I urged that some of the £1.5 billion should be spent on job creation and when, at a recent Prime Minister's Question Time, I urged that it should be spent on direct investment, the Prime Minister said, "Well, that's all very well, but it would create more jobs if it was devoted to the direct employment creation measures." That might be true but the Prime Minister does not propose to spend the money on that either, but to use it to cut taxes.

There is overwhelming evidence to show that to use the money available to cut taxes would not reduce unemployment by anything like the amount by which it would be reduced if the money was used for direct job creation in two forms. First, the money should be used on the infrastructure. It should be spent on the public sector housing stock and on roads. To spend the money in that way would have two automatic and parallel benefits. Our depleting and collapsing capital stock and our infrastructure would be renewed—and while there was time to do so at a massive but not overwhelming cost. If the Government do not respond to the recommendations of the National Economic Development Office report.. the deterioriation will continue to such a degree that it will become impossible to restore our infrastructure.

In spending money on building houses, recreating roads, moving the docks into the second half of the 20th century and on all the other desirable projects that are in themselves necessary and right, the Prime Minister would be restoring and creating jobs. She could also do that—and should do it—by a programme of direct job creation in the public sector that would similarly have double benefits. This country needs more nurses, more home helps and more people working in the inner cities. To employ them both rehabilitates our social services and puts the men and women thus employed back into jobs.

Mr. Richard Tracey (Surbiton)

I am grateful to the right hon. Gentleman for giving way, because I am mindful that he has now been speaking for more than half an hour. Will he address his mind to the terms of the motion to which he has put his name and tell us what the "largest number of jobs", which is to be found in the motion, means? How many jobs is he talking about? The Labour party has talked of creating 1 million extra jobs. Surely the cash that he has mentioned could not produce that number of jobs. Where will he obtain the extra cash from? What will it cost in extra taxation?

Mr. Hattersley

The hon. Gentleman has not been listening either. I have told him exactly what money I was discussing and what money I was asking the Chancellor of the Exchequer to comment on. The point is not that the hon. Gentleman does me no courtesy but that he does the House no courtesy in wasting time with such frivolous interventions.

I am dealing with the £1.5 billion that the Chancellor of the Exchequer claims to have at his disposal. I am arguing, with the London Business School—once the repository of all economic wisdom — the Institute of Fiscal Studies, the National Institute of Social and Economic Research and even with the figures worked out on the Treasury's own model, that to spend that £1.5 billion to cut unemployment by direct means would in two years cut it by 73,000, whereas to use it to cut taxes would reduce the unemployment total by only rather less than half of that—35,000.

The evidence that I wish to draw to the attention of the House goes further than that. There is a lot of evidence within the Government, from the Department of Trade and Industry, to show that by using the money for direct job creation one is spending the money more directly in the United Kingdom and not dissipating it on imports that create jobs for other people in other countries. The figures of the Department of Trade and Industry demonstrate two or three conclusive points. If money is invested in construction, only 15 per cent. of it finds its way abroad into competitor economies. If money is spent on domestic electrical equipment or textiles, 40 per cent. of it ends up abroad. Those are the sorts of items on which the money will be spent if it is used to reduce taxes.

When the Chancellor of the Exchequer had that point to deal with in his article in The Sunday Times two weeks ago he did not deal with the figures or with the input/output tables of the Department of Trade and Industry. He merely took refuge in some sort of sentimental chauvinism saying that he had hopes and beliefs that the British people would not spend their money on foreign textiles and videos. Before the right hon. Gentleman expresses such hopes and boasts, I wish that he would talk to some of my hon. Friends who represent Lancashire constituencies. They would tell him that the increase in expenditure on textiles that is likely to come about by a reduction in taxes and increased consumption would be forced into foreign markets because of the collapse of the Lancashire textile industry which has been brought about largely by his Government during the past four years. There is no alternative, and to dismiss that fact by romanticism about faith in the character of the British people is to fly in the face of the facts. That is a habit indulged in by weak-minded Chancellors and even weaker-minded boards of prejudiced opinion dressed up to look like objectivity.

The Institute of Directors' policy unit has produced a paper on this subject. The institute says that to allege that taxes contribute more to imports than any other form of public increase in expenditure is a counsel of despair. It may be a counsel of despair, but it is also true. If the Chancellor wants to invest in jobs he will, therefore, use his money in the way that every authority demonstrates creates the most jobs—what the Prime Minister calls the "measures" and what other people want to see by way of direct investment.

My conclusion—I say this with no pleasure but with deep regret for constituencies such as mine in the northern half of which unemployment runs at 50 per cent. among adult males—is that the Chancellor will not change his ways, because they conform to his policy to choose the high unemployment policy and regard the unemployed as a low economic and low political priority.

Two weeks ago, the Chancellor promised the country a budget for jobs. That was not a wholly original phrase, because last year the Chancellor promised the country a budget for jobs. Unemployment has risen remorselessly. I do not know whether the Chancellor's habit of boast one day and counter-boast the next, claim one day and counterclaim the next, is the result of his wish to deceive, the product of the economy being wholly outside his control, or the outcome of his personality which oscillates from the manically aggressive to the depressively incoherent. Having seen one phase of his character yesterday, I assume that the right hon. Gentleman will be breaking the furniture this afternoon. Whatever the Chancellor's mood happens to be, I tell him that it is now widely accepted, as the right hon. Gentleman must know if he has read a single newspaper today, that his Chancellorship has been a disaster for this country. While he remains in office, combining strategic ineptitude with technical incompetence, there is no hope of reducing unemployment.

5.12 pm
The Chancellor of the Exchequer (Mr. Nigel Lawson)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: 'rejects the Opposition's doctrinaire commitment to higher government spending and endorses the Government's determination to pursue responsible fiscal and monetary policies, which, along with its policies to improve the efficient working of the economy, provide the only secure basis for ensuring continuing low inflation, steady growth and rising employment.'.

This debate has been somewhat overshadowed by recent events in the markets. I should like to ask the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) to have the courtesy, at least on this topic, to answer the question put to him by my hon. Friend the Member for Mid-Norfolk (Mr. Ryder) on whether the exchange rate should be higher or lower. It is no use the right hon. Member for Sparkbrook just sitting there with that "Oh to be in Nicaragua look" about him, because in the past he has not hesitated to express views on the exchange rate. Suddenly, when he raises this important issue, he has nothing to say about the exchange rate.

The turbulence in the financial markets recently, especially in the foreign exchange market, results from three main causes. The right hon. Gentleman conceded two of those causes in a broadcast the other day. Those causes are outside the Government's control. One cause is the strength of the dollar. It is important to recognise that, as my right hon. Friend the Prime Minister said earlier today, we are seeing a massive and excessive strength in the dollar. The dollar has reached an all-time high against other currencies besides sterling.

It is interesting to examine what has happened during the whole period since the Conservative party first assumed office in 1979 and to note the movements in sterling against various currencies or groups of currencies. During that five and a half year period as a whole there has been a reduction in the value of sterling of 46 per cent. Against the deutschmark—the strongest of the European currencies—the reduction has been 9 per cent. Against the European monetary system index as a whole the value of sterling has increased by 5 per cent. It is clear from those figures that there has been a massive surge in the value of the dollar. That is causing concern to people throughout the world, including those responsible for economic policy in the United States.

The second phenomenon has been the weak oil market. It is true, as the right hon. Member for South Down (Mr. Powell) and other hon. Members pointed out yesterday, that there are benefits to us from lower oil prices. The plain fact is, however, that the present state of uncertainty only adds to the pressure on sterling, and we no more want an unstable oil market than we want an unstable foreign exchange market. We cannot influence the world price for oil in any substantial way.

We must assess the extent to which the exchange movements which result from those two factors put future inflation measures at risk, because we must always have that point in our sights. There is no mechanistic way of doing that. It is a matter of judging the combination of monetary growth and the exchange rate that will keep financial policy on track. At times this means that we may have to have a lower exchange rate and higher interest rates than we would like. Taken together, there is no risk whatever to the counter-inflation policy; nor, as we have seen from the events in July, is there any threat to the prospect for growth and employment.

Mr. Geoffrey Robinson (Coventry, North-West)

Given that there has been such a minor devaluation against the deutschmark, why is there no panic about the deutschmark, and why is the three-month lending rate in Germany still 7 per cent. as opposed to 12 per cent. here?

Mr. Lawson

The reason is that the Germans have succeeded — I admire their success — in bringing the inflation rate down to a much lower level than we have done. Germany has an inflation rate of less than 2 per cent. That is why the Germans can have that level of interest rate.

The third factor is related most closely to the Opposition's motion. I am afraid that there was a feeling in the markets that the Government had lost their willingness and ability to control their affairs so as to maintain the downward financial pressure on inflation. It is clear from market behaviour that this fear was much stronger overseas than at home, and it is easy enough to see why. Those who deal in these markets do not need to know the truth; they need only play safe. The foreign exchange dealers in the middle east, Europe or the United States cannot be sure that the rantings of the right hon. Member for Sparkbrook will be treated with the contempt they deserve. When they read the newspapers and see that, apparently, the CBI is allied with the TUC at NEDC, they do not realise that the CBI wishes to cut public expenditure. The foreign exchange dealers see only the news of the massive increase proposed by the TUC. They know that, when all the talk is of increasing public expenditure, they had better watch out. They play safe and move into the already excessively strong dollar, and the subsequent slide in the value of sterling can damage inflationary expectations. We come close to a vicious circle, and that is why the authorities' reaction had to be correspondingly robust. That is why we did not merely raise interest rates, but raised them decisively in a high profile way, using the Bank of England minimum lending rate. That instrument was specifically retained for just such circumstances.

Mr. Hattersley

The right hon. Gentleman says that he raised interest rates decisively. Does he mean his first bite on Friday, or his correction on Monday?

Mr. Lawson

I should have more respect for that intervention if at any time prior to the increase in interest rates the right hon. Gentleman had once suggested that interest rates should be increased. The use of MLR was retained for just such purposes, and policy overall will maintain even further downward pressure on inflation, because in no circumstances will this Government take risks with inflation.

The simple lesson is that the millions of people around the world who use sterling for one reason or another will not accept that we can produce a more successful economy simply by providing more public money for this or that project—quite the reverse; and of course they are right. We recall what happened when the newly elected Socialist Government of France attempted to do this not many years ago.

If growth, employment and economic success were simply matters of public expenditure, every country would have a successful economy, because there is nothing difficult about public expenditure. Indeed, they would have even more successful economies by spending more and then more again. I can see why observers from overseas are amazed to hear that there are some in this country who still believe in this ancient form of witchcraft.

I reject equally strongly the idea that we can somehow cut ourselves off from the rest of the world. The 1980s are not the 1960s. We are part of Europe. We are part of an integrated Western world. We play an important part—I hope that it will be an increasingly important part—in the international financial system, which provides income and jobs for our people. The Euro-markets centre on London and foreign banks have their European headquarters here.

We could throw the business away if we wished—clearly the right hon. Member for Sparkbrook wishes us to do so—but there would be plenty of other countries willing to take it on. But even if we were to do it, we still could not put back the information technology lock, which means that there is a market somewhere which can be, and is, actively dealt in 24 hours a day every day. Nor can we alter the fundamental fact that the exchange rate is determined in the modern world by flows of capital of immense size. They cannot be stopped by exchange controls or grotesque devices such as the right hon. Gentleman's latest wheeze to penalise overseas investment; presumably, incidentally, overseas investment in the developing countries as well. We live in an integrated financial world, whether we like it or not, and that is the backcloth to this debate.

Mr. Stuart Bell (Middlesbrough)

The right hon. Gentleman said that we were part of an integrated Europe. If so, why have we not joined the EMS? Is it not simply because the right hon. Gentleman has no exchange rate policy and cannot possibly join a system of fixed parity?

Mr. Lawson

We have not joined the EMS because, on the balance of the advantages and disadvantages—and there are both—we have decided that at present it would not be right to join. So far from not being a member of Europe, the ecu market is more highly developed in London than it is in any other financial centre throughout the European Community.

Meanwhile, the right hon. Member for Sparkbrook persists in arguing—[Interruption.] He does not like listening to any views other than his own; he might have the courtesy to pay attention to what I am saying—that the economy remains in recession and that there has been no recovery. He accused the Prime Minister of some falsification or other, which he was totally unable to sustain. The only falsification which was sustained was his attribution of remarks to myself and the leader of the Social Democratic party, neither of which bore any relation to the facts.

The right hon. Gentleman's interpretation of the economy is extraordinary and is a distortion of the evidence. Output has been rising steadily since the first half of 1981. We are now well into the fourth year of rising output in Britain and that rate of growth has, by historical standards, been most respectable. Between the first half of 1981 and the first half of last year GDP grew at nearly 3 per cent. a year, allowing for the effects of the coal strike.

The right hon. Gentleman talks of boosting demand. There has been no shortage of demand. Indeed, the figures for the last three and a half years, when they are finally in, are expected to show a growth of domestic demand of more than 3 per cent. a year—faster than the equivalent period under Labour.

The balance of demand has also been better. As the House knows, investment—private and public together—has been making a major contribution to growth, and it continues to do so. During the period 1975 to 1979—the recovery period under Labour—consumer spending grew twice as fast as fixed investment. During the current recovery the position has been exactly reversed, with investment growing twice as fast as consumer spending. When final figures are available, they are likely to show that total investment last year reached an all-time record level in real terms, with an increase of 7½ per cent. between 1983 and 1984.

Dr. Jeremy Bray (Motherwell, South)

Will the right hon. Gentleman confirm that during the recessionary period of the Conservative Government consumption fell by far less than investment?

Mr. Lawson

That is true of every recession.

What really upsets the right hon. Member for Sparkbrook is that the economy is set to continue to grow at 3 per cent. A continuation of growth is likely because it is based on sound conditions. That is not just the Government's view. It is the view of the OECD, the annual report of which has just been published and which states, talking about the United Kingdom: Recovery may be rather more durable for it now appears better balanced and it has not been as dependent as in the past on a strong contribution from stock building and an expansionary fiscal policy. That is the verdict of the OECD, and that is right, though that is not all. Rising inflation is the mechanism which, in the past, has brought so many recoveries to an end. The striking feature of this recovery, which marks it out from virtually all upturns since the war, is that we do not face rising inflation.

As the House knows, the reason why we do not have rising inflation is that the Government have persistently pursued financial policies which have supported the recovery of output and declining inflation. Opposition Members have eagerly hung on the words of any commentator they could find who would pronounce the imminent ending of recovery and the onset of recession, and then slavishly repeated those assertions. They have not been short of allies. We have heard it year in and year out ever since the recovery began, but on each occasion they have been proved wrong. They have been wrong mainly because they have failed to understand the key role that financial policy has played in reducing inflation and in supporting the growth of output.

The strength and durability of our recovery is, on the whole, well understood—other than by the right hon. Member for Sparkbrook and his hon. Friends—and it is respected throughout the world. The OECD, some of whose words I have, quoted, has come to recognise it.

Mr. D.N. Campbell-Savours (Workington)

Does the Chancellor believe that the prospect of recovery would be helped by a dollar-pound parity?

Mr. Lawson

No, I do not. [Interruption.] At least Opposition Members get a direct answer from me.

The claim of the right hon. Member for Sparkbrook that there has been no recovery is based entirely on the unemployment figures and, of course, it is a great source of concern to us all that unemployment remains high. It is crucial to understand the fundamental reason for that and for its relationship to the growth of output. Fundamentally, it is due to the strangulation of the economy in the 1970s, the painful visibility of what was hidden for so long, and to the quite unrealistic rates of pay settlements.

By the end of the 1970s the United Kingdom had a large degree of disguised unemployment. Everybody knows that a combination of controls and sluggishness to adjust produced widespread and heavy overmanning in a wide section of British industry.

Mr. Dick Douglas (Dunfermline, West)


Mr. Lawson

That is clear from the statistics of the time. In the wake of the first oil price shock—the hon. Member for Dunfermline, West (Mr. Douglas), who is an expert on the oil industry, will recall this—productivity growth in the non-oil economy was negligible. There was scarcely any growth whatever. Had employers followed the pattern of earlier periods and adjusted employment in line with output, unemployment in 1979 would have been much higher than it was. What has happened over the past five years is that we have seen the painful process of adjusting to realistic manning levels.

Mr. Douglas

If the Chancellor is concerned about the level of unemployment, has he or his officials made any assessment of the opportunity cost of unemployment? Does he accept that it is costing the nation £30 billion to have the level of unemployment at which he is running the economy? That sum has gone for good. That is the cost of the Government's policies.

Mr. Lawson

The hon. Gentleman does not have to tell me that unemployment has a cost. Of course it has a cost, not merely in financial terms, but in social and human terms. The question before the House is: what are the policies that have the biggest chance of bringing unemployment down? That is what we are concerned with. The starkest evidence of the change of trend is the rapid growth of productivity in recent years. This has reflected industry's attempt to recapture the efficiency which was lost in the 1970s. Productivity in manufacturing industry in particular has risen by more than 20 per cent. since 1980. This is excellent for efficiency, and it is good for costs, but, sadly, it is as bad for jobs in the short term as it is good for them in the long term.

Despite the need to adjust, the overall employment situation would have been much better without the damagingly high rates of pay settlements. The Opposition speak of their concern for unemployment but never lose an opportunity to support any action that will lead to higher pay rates. There could be no starker example of the triumph of opportunism over genuine concern for the plight of the unemployed. Despite the damagingly high growth of earnings, employment has begun to rise. The latest published estimates suggest that the number of people in work in the United Kingdom rose in the most recent year for which we have full figures, while employment was still falling in West Germany and in France. Although registered unemployment stands much too high, it is often forgotten that this country has one of the highest proportions of people in work amongst all the major countries, and well above the European average.

A second significant indication of improving job prospects is the recovery of company profitability, where for so long Britain has lagged wretchedly behind its main competitors. For 1984 the Confederation of British Industry now expects companies operating outside the North sea to show a real net pre-tax return of 7½ per cent., while for this year, 1985, it is forecasting a 9 per cent. real return. If this is achieved, it will be the highest rate of return that we have seen in this country since the 1960s.

In money terms, profits outside the North sea were up 20 per cent. in the year to the third quarter of 1984. There could be no better news for the unemployed than that British industry is once again profitable. It cannot be repeated too often that it is companies, not Governments, which create jobs. It is the job of the Government to do their best to create the conditions in which business can flourish and create those jobs.

My answer to a question which the right hon. Gentleman put to me is that I have stressed on many occasions that we do not make forecasts of unemployment. The margin of error involved in such exercises is enormous, but I should like to take this opportunity to describe to the House the route which I expect to have the greatest possible chance of success in reducing unemployment. Inevitably, in the real world, the creation of jobs is a complex process and it is not possible to be too precise about the route through which new jobs will come. Of course, the right hon. Gentleman has no time for these subtleties. To him there is a simple and easy answer. He says that lower unemployment requires higher demand, that demand is unlikely to go fast enough under present policies and, therefore, that the Government should step in and boost demand. I do not think that I am traducing him when I say that that is what he is suggesting. [Interruption.] President Reagan's policy has been to achieve success entirely through tax cuts, which I shall come to later.

The right hon. Gentleman ignores the failure of his suggested approach to work in the past, because it is not for want of trying, and he simply debates the extent of the largest boost that could be made to sound respectable, a figure which differs each time we debate the issue in the House. That is a mistaken approach. Because of the Government's financial policies, we can be confident that there will be sufficient money demand to generate the growth needed to reduce unemployment, provided inflation continues to fall. It is a question not of creating sufficient demand, but of whether the economy works well enough to be able to take advantage of that demand. That is why I have characterised unemployment as a supply side problem, rather than a demand problem; a problem to be solved by micro-economic reform, and not by fiscal irresponsibility.

With a well-functioning, efficient economy it is not difficult to see the route by which unemployment would decline in the years ahead. Inflation would fall, leaving room within the monetary targets for faster output growth. Real wages would grow sufficiently slowly for company profitability to rise to a level that would encourage firms to expand their capacity and enlarge their markets and their work forces. Lower public spending and taxation as a proportion of gross domestic product would help sustain the growth of disposable income and consumer spending and help incentives by removing some of the severe distortions in the tax and benefit system. Throughout industry productivity would rise faster once restrictive practices were ended and obstacles to the use of best practice techniques were removed.

Mr. Robert Kilroy-Silk (Knowsley, North)

Given that we are now in the real world and that in the real world only 6 per cent. of the school leavers on Merseyside this year went into full-time occupation, can the Chancellor say when these measures will provide jobs for the other 94 per cent.?

Mr. Lawson

As I pointed out a moment ago, the number of jobs in the economy is rising. But output per head in the economy as a whole might not improve to quite the same extent, as the more modest growth in real wages would boost employment in the more labour-intensive, and thus lower productivity, sectors. The growth of output would be above the growth of productivity. We would do better than we have in the past in maintaining our share of world trade and imports would not take the same share of domestic demand that they have been taking. We would probably see a faster turnover of jobs as people moved to those activities that best suited their ability, aptitude and skills. We would see more geographical and industrial mobility, and the structure of industry would change towards producing those goods that we were best at producing.

These are the characteristics of a well-functioning economy, and they are the only sustainable route to lower unemployment. The Government's supply side strategy is directly aimed at bringing about these conditions. It has been directed towards removing impediments and outdated controls. It has encouraged companies to adopt new techniques and to meet new markets. In general, it has been aimed at helping markets to work better. It has encouraged conditions which assist growth in output and jobs rather than, as too often in the past, holding them back.

The key aspect of micro-economic policy has been the removal of unnecessary obstacles, particularly those which stand in the way of those seeking work. To that end we have abolished controls on pay, prices, dividends, foreign exchange transactions and hire purchase contracts. We have removed unnecessary planning restrictions on industry. We have strengthened policies to promote competition. We have gone ahead with an unprecedented programme of privatisation. We have introduced the business expansion scheme and the loan guarantee scheme. In this context, one of the things that we suffer from most is that new businesses were not started 10 to 15 years ago which could have made a major contribution to our economy today. That is why it is so important to get them started now. We have reduced the rates of corporation tax. We have instituted the biggest programme of youth training ever. We have tackled the abuses of trade union power.

All that amounts over time to a transformtion of the supply side of the economy. The measures that we have already taken have helped to set us on the path towards a more enterprising economy. But there is more to be done, and there is more to be done by others, too, because the Government can do only so much. The private sector must respond and take the opportunities that have emerged. The demand is there, profitability has improved, and many of the obstacles to success have been removed.

I am confident that we are seeing the first of the rewards from the steps to create a more enterprising economy, and there are more rewards to come.

The right hon. Gentleman's approach is to say that if there are supply side defects these can be overcome by more demand, but it is clear that macro-economic policies cannot on their own make a major contribution to reductions in unemployment over the medium term. Those are not my words but those of the Organisation for Economic Co-operation and Development report. It goes on to say that supply-side measures … are essential in this respect, especially those that reduce rigidities in the labour market". I am glad to see that the right hon. Gentleman nods and agrees that we need to reform trade union law to reduce rigidities in the labour market.

It is simply not possible, except in the very short term, to offset supply side defects by more demand. The only answer is to remedy the defects. It is in that spirit that we must see the debate about public expenditure and taxation.

The choice between public expenditure and taxation has been characterised by the right hon. Gentleman exclusively as a matter of which creates the most demand. That is how he has presented it. But, as I have stressed, Government financial policy is already designed to deliver the right level of money demand. Therefore, the choice must be on the basis of what is best for the supply performance of the economy.

Mr. Hattersley

I believe that the Chancellor is now making a genuine mistake. The choice between public spending and taxation has been characterised by me according to which creates the most jobs. I understand that both create demand. My problem is that one creates demand in Japan, America and Germany. That is the point that I am trying to put to the Chancellor.

Mr. Lawson

Then the right hon. Gentleman must be opposed to any increase in pay, because that might also be spent on imported goods from Japan, Germany and France.

The choice is stark. As a nation, we have to choose between higher public expenditure and higher taxation or lower public expenditure and lower taxation. If a high public spending, high tax economy were the solution to our problems, the United Kingdom would have been the world's economic success story long ago. If high public spending and high taxation were the answer in the 1960s and 1970s, unemployment would not have risen from cycle to cycle and Government to Government. Profitability would not have fallen from cycle to cycle. Productivity growth would not have fallen behind that of other industrial countries, and living standards in this country would not have fallen so far behind those of our European neighbours.

If high public spending and high taxation were the answer in the 1960s and 1970s, our markets would not have been increasingly taken by imports, demand growth would not have outstripped supply performance, and inflation would not have become the curse it did become. Instead we would have prospered. After all, why should there be any end to that transfer of purchasing power from individuals to the state if that is the recipe that is proposed?

There is little difficulty in persuading Governments to tax and to spend. They have always found that very easy and convenient. So where did the policy go wrong? It went wrong because, although Governments may have enjoyed high public spending and high taxes, no one enjoyed the consequences. It was precisely because of high spending and high taxation that the problems that I have outlined emerged. High taxes damage performance and incentives, generate waste of resources, create huge distortions, reduce risk and initiative and banish the spirit of enterprise from our economy upon which everything depends. And it is only lower taxation and lower spending as a proportion of national output that will reverse those pressures.

Mr. Roger Stott (Wigan)

Can the Chancellor tell me and the 24,000 people in Wigan who are currently on the dole how they will be helped if tax cuts are given to the rich, who will benefit from them?

Mr. Lawson

I am talking, not about tax cuts for the rich, but about tax cuts for the population as a whole.

Of course lower taxes do not carry tickets with precise jobs written on them. That is not the way in which market economies work. However, the long-term benefits to employment are real and substantial.

Of course none of our policy denies the role of a worthwhile public sector investment programme. To listen to the right hon. Member for Sparkbrook, one might imagine that the Government had stopped investing in the infrastructure and had ceased all capital expenditure. The facts conclusively demonstrate otherwise. Public sector capital expenditure has remained broadly stable in real terms since 1979, and in addition to the £24 billion of capital expenditure—public sector capital expenditure—in 1984–85, some further £5 billion has been spent on repairs and maintenance classified in the figures as current, but nevertheless restoring and enhancing the very assets to which the right hon. Gentleman referred. The right hon. Gentleman has only to look around him—

Mr. Neil Kinnock (Islwyn)

What about the Confederation of British Industry?

Mr. Lawson

Let me refer to the CBI as the right hon. Gentleman has mentioned it. It is concerned about spending on roads. Spending on trunk roads next year is planned to run at 25 per cent. up in real terms on the figure that we inherited in 1978–79. That is the truth. As for the water industry, it is planning to increase its investment next year by £70 million, a 9 per cent. rise.

Our record is good, even on the blinkered terms of the right hon. Member for Sparkbrook. However, I do not display this as an exercise in statistical machismo, because public spending on infrastructure is not an end in itself. Any particular project has to be justified on its own merits, on the basis of its own rate of return, taking into account the wider economic and social benefits.

The right hon. Gentleman appears to be oblivious to those elementary points. Along with the Trades Union Congress, for example, he urges additional investment in the nationalised industries. Is he not aware of what the public corporations have said about that matter, as reported in the CBI paper entitled "Fabric of the Nation", published last summer? It states that for the present the nationalised industries take the view that, having pushed up their aggregate capital outlays by more than a half in the past five years, from £4,463 million in 1979–80 to £6,757 million in 1983–84, their present levels and patterns of investment spending are broadly consonant with the proper development of their businesses. That is the view of the nationalised industries.

Public sector housing has reduced, but that is because of deliberate Government policy to shift housing from the public sector to the private sector, which is what the people want to see. Let us look at private sector capital expenditure on housing. Last year, in 1984, it was up roughly 20 per cent. in real terms over 1978, the last full year of the Labour Government. Last year it was running at its highest level ever in real terms. Total investment is also running at an all-time high, and we expect it to be higher still this year.

It is a commonplace of our critics to accuse the Government of obsession with theory and dogma. Yet, in the current discussion about whether employment is best served by lower taxes or by higher taxes spent on public spending, it is our critics who are the slaves of theory. To the man in the street it is pretty obvious that in a low tax economy incentives to work, invest, expand and therefore to create jobs are likely to be stronger than in an economy burdened by high taxes.

The man in the street is much more impressed by concrete examples than by econometric models. It is a fact that Japan and the United States — the two most successful economies at creating jobs and wealth—have far lower tax rates than the United Kingdom. Japan takes little more than a quarter of its citizens' income in tax and the United States takes about one third of its national income in tax, whereas we are taking not far short of half our national income in tax. Faced with that evidence, the man of common sense will not be readily convinced that we can become more efficient and create more jobs by burdening our people with taxes to pay for even higher public expenditure.

Our sophisticated critics dismiss all this as vulgar populism. What use is the concrete experience of Japan or America to a man who relies on an econometric computer model to tell him how the real world works?

Mr. Robert McCrindle (Brentwood and Ongar)

Although my right hon. Friend is absolutely right to resist the temptation to see in a large public investment programme the real solution to unemployment, just before he assumes that the only possible alternative is the reduction of direct taxation, will he consider that at least part of any money that he might have to dispense during the Budget might well be dispensed by reducing employment costs—for example, by providing a holiday on employers' national insurance contributions? I am a little worried to find the polarised argument—that it is either one thing or the other—developing. Will my right hon. Friend not ignore the possibility of there being a middle way?

Mr. Lawson

That middle way is much closer to the way that I was advocating. I am glad to have my hon. Friend's support. He will recall that it was for this very reason that the Government abolished the national insurance surcharge — the tax on jobs — which the Labour Government imposed.

For the right hon. Member for Sparkbrook and his erstwhile right hon. Friend the Member for Plymouth, Devonport (Dr. Owen), the computer simulations which they like to quote purport to show that £1,000 million spent on recruiting more civil servants would have six times as much effect on unemployment as £600 million spent on raising tax thresholds. That is what the simulations purport to show, yet no nation in the real world has ever attained full employment, higher living standards or sustained economic growth by taxing productive enterprise to build up its own payroll.

The Government are determined to tackle the harrowing problem of unemployment by the proven, commonsense route of restoring an enterprise economy. That means lower taxes, better rewards for success, fewer restrictions and trade unions being more responsive to their members. It means an education system geared to technical and marketable skills, incentives for new, small and expanding businesses and freedom to own one's home and so be able to move when a better job is available elsewhere. It means converting loss-making nationalised industries from leeches siphoning off resources from elsewhere into new centres of profit and enterprise in the private sector.

Those are the measures, across a broad front, which the Government have taken to transform the British economy. Consistent with the needs of our counter-inflation strategy, those are the policies with which we shall persist.

5.52 pm
Dr. David Owen (Plymouth, Devonport)

The Chancellor has made much of OECD figures. One of the OECD's recent studies has sombre news for Britain. It shows that, of the 20 major industrial countries. our standard of living has slumped to fifteenth. It will not be long, on present trends, before Italy has a higher one. Against that sombre background, we should examine some of the Chancellor's statements.

When recalling some of the Chancellor's previous statements, it is not unreasonable that we should doubt the veracity of what he says and his capacity to predict. On 12 July he told us There is no lack of confidence in sterling … I have every expectation that the fundamental soundness in the economy will be reflected by a resumption of the trend towards lower interest rates".— [Official Report, 12 July 1984; Vol. 63, c. 1400 ] That does not augur well for any of the statements that the Chancellor has made today.

We must deal, first, with the management of the exchange rate. The Government's management of the exchange rate—at the beginning the pound was worth $1.60, it increased to $2.40 and has now plunged to $1.10 —reflects the Lawson style. It is a strange mixture of insouciance, indifference, intransigence and, finally, sheer incompetence. It is on the last that we indict the Chancellor today. In Question Time today, the Prime Minister made much of the fact that no one country has enough reserves to stop money moving around the world. She is right. There is no doubt about that. No country can deal with speculative flows on its own. The indictment of Britain's policy, especially in the past five years, is based on its inability to mobilise other countries, which feel similarly, to get co-ordinated and concerted international action.

The Chancellor indicts himself. He said today—the words would have fallen from his lips with more effect a few days ago — that no one has any interest in an unstable oil market or in an unstable exchange market. The Chancellor has been preaching the virtues of utter non-interference in what he purports to claim is a free market in energy prices, when everyone knows that that is complete nonsense. He has also preached the value of no interference in what he also likes to think is a free market in exchange rates. Exchange rates do not always follow market pressures. They are remarkably brittle and incredibly sensitive to irrational forces. I believe that some of the speculation in the past few days has been irrational. The problem is that that irrationality has been fuelled by the incompetence with which the Government have given signs to the market at home and internationally.

Many things can be done in an attempt to smooth exchange rate fluctuations. I favour moving away from the firm fixed exchange rates of the past. We have all learnt some lessons from the tragedies that resulted from hanging on to fixed exchange rates for far too long. However, other countries have recognised far more than the Government, it appears, that it is difficult to plan an industrial economy without rather greater stability in exchange rate markets. The Government seem not to understand that we have the power—it is not massive—to influence exchange rates instability by acting with other countries.

I should like to put to the Chancellor a few serious suggestions about what he should be doing. He is to go to Washington for a meeting of the Versailles group—the five key finance Ministers who already, under the Williamsburg and London summits, are enjoined to try to introduce greater exchange rate co-ordination and stability. The Chancellor will say that there is nothing that we can do about the strength of the dollar. However, there is a lot that the United States can do about the strength of the dollar and there is a lot that it ought to be doing. Moreover, there is much that Europe should be telling the United States straight about what it should do. Britain cannot achieve that alone as we have not the international or financial weight to carry through such a message in Washington.

It is the Chancellor's duty to tell the Treasury Secretary that we are not prepared to put up with the tight monetary policy that the United States is pursuing and the high interest rates that it involves, and that it is high time that the United States acted to relax its rediscount rate—the equivalent of our minimum lending rate. The Chancellor might say that the United States has no intention of doing that. If so, two things can be done. First, we must mobilise the French and the Germans so that the three European countries at the meeting speak together. That brings me back to asking why the Chancellor persistently refuses to gain the collective strength of being a member of the exchange rate system of the European monetary system.

The EMS is not the solution to all of our problems. Membership of it involves considerable disciplines. Anyone who believes that that is the soft option or that it means that there will be no increase in interest rates to defend the exchange rate is living in a fool's paradise. Those disciplines are broadly sensible ones within which this country can live. Over the past year, the pound sterling has not moved massively out of line with the EMS basket of currencies.

To declare this week our intention to join the EMS would have great value in showing the world that this country wanted a more stable exchange rate; would operate within a collective framework within Europe; and was prepared to accept the disciplines of the EMS.

The Chancellor may say that we cannot go in because the pound is too high against the deutschmark. He has said that we have moved down significantly against the deutschmark in the past few years. People can now argue whether the present rate of the deutschmark is competitive, and that if we are going into the EMS we should try to reach agreement to go in a little lower than the present deutschmark rate. I should like to go in at 3.40 or possibly even a little lower. On the point of entry, we could persuade our European colleagues that we should go in a little lower. That should be done. We should then find within the EMS it much easier to co-ordinate French and German pressure upon the United States to do something about the dollar.

It is interesting to note that the Bundesbank intervened in the market on Friday in co-operation with the Japanese authorities with the yen to sell dollars. They only did a little, but it is possible for Japan, France, Germany and the United Kingdom — other European countries would follow—to sell dollars if the United States still refuses to live up to its responsibilities. It is time that we said to the United States, "You are not just damaging us in Europe; you are doing grave damage to the Third world and the developing countries."

The Chancellor may say that the United States will still resist, that it is strong, and that even if Europe sold dollars in a co-ordinated way we should not be able to bring the dollar rate down. I have my doubts about that.

The Chancellor ignores the other pressure that the United Kingdom has. We are the fifth largest oil producer in the world at the moment. Because our oil is in a rather special category, we have more influence on oil prices than our fifth position might suggest. The Chancellor's stance has been hitherto not to intervene, we must be prepared to say to OPEC that while we had hitherto taken the view—rightly in my judgment—that our interest was not in combining to increase oil prices, and that it was an overall world economic interest to keep oil prices low, so we were not taking part in the cartel, if we were faced with United States' authorities who refused to act responsibly in their world role not just as custodians of the dollar but in terms of their impact across the world economy, we should have to start to intervene in oil prices. [AN HON. MEMBER: "In which way?"] We could reduce our production. That would have an effect also on our revenues. But it is too easy to say that is all right because the oil price is denominated in dollars and a fall in the pound increases our oil revenues. One of the reasons—the Chancellor has used it himself— why sterling has been under such pressure has been the oil price movement.

The Chancellor talks about us having a petro-currency and uses it as an argument against us entering the EMS. There are times when the Government should intervene in oil pricing. We have been much upset in the past few weeks by the actions of Statoil and the Norwegians. If we were to co-ordinate with them, aś I believe we could, rather more effectively, we should have some impact on stabilising oil prices.

The policy of complete "hands-off" and of leaving oil pricing to market forces is wrong as it is in relation to the exchange rate. It is something in which the Chancellor has the power to intervene. He can intervene in two directions. They would both put added pressure on the United States. They would be essentially European pressures and would be in the overall interest of the world economy.

Mr. Alan Howarth

How does the right hon. Gentleman square his desire that there should be some depreciation of sterling against the deutschmark with his proposal that we should rig the oil market so as to increase the oil price?

Dr. Owen

The only way to achieve depreciation against the deutschmark over and above the one of 10 per cent that we have had since 16 January 1984, and the depreciation of 7 per cent. against the French franc—it may be moving down as I speak—is to reach agreement on entering the EMS and on the rate at which we would enter. When entering or adjusting the EMS it has been a common practice to persuade the other countries involved to go in at a rate lower than the current market rate. I know that our European partners will not like that. They would prefer us to go in at a rate even higher than our present one. It is not unreasonable, however, for us to argue that, given the trends and our competitive figures against the deutschmark in comparative industries, we should be a little lower than we are currently—[Interruption.] If the hon. Gentleman wants us to go in at the present rate, that is a reasonable position. I do not know why the Financial Secretary is laughing. That is a legitimate role, and he cannot have it both ways. Half the time, the Treasury has been arguing against our joining the EMS on the ground that we are not competitive.

I wish to deal with the subject of unemployment and the indictment of the Government by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). His quotation was wrong. The interpretation, in fairness to him, was not completely right even by the standards of the Daily Mail. In the comment I was referring to the position of the alliance parties. The end of that quotation states: and the Alliance has got to be the party of the future. The complete quotation is: There is nothing right wing about running the country's economy rather better than it has been for the last 20 to 25 years and the Alliance has got to be the party of the future. The quotation does not relate to what the Government have done. I made it clear—[Interruption.] I agree that it is poorly reported by the Daily Mail, but if the right hon. Gentleman wishes to make the allegation that he has, he should go to the proper text. His veracity was not helped by going on LBC on 27 September and describing me as being passionately in favour of private health and private education. I have never charged a patient in my life, and my children are going through a state education. It would not be a bad start for the right hon. Gentleman if he were a little closer to the truth.

Let us deal with the right hon. Gentleman's prescription for our economic future, and why we should support the Opposition's motion. First, on the point of substance, he is aware that we have long supported increases in public expenditure, but the problem with the motion—it must be coupled with the extraordinary speech that the right hon. Gentleman made on Sunday—is that it is a wholly false prescription for what the country needs. An increase in public expenditure is needed, but there is also a need for an increase in private investment. Infrastructure is not always public. A great deal of public ordering and contracting goes straight to the private sector.

Secondly, there is no shortage of funds for investment. Endless studies have demonstrated that, including one by the former Labour Prime Minister, Lord Wilson of Rievaulx. The money is available, but the problem is that people cannot use it because of the high interest rates. The right hon. Member for Sparkbrook proposes the most extraordinary scheme whereby we coerce funds back from overseas—we force repatriation—create a nationalised bank, and then disburse funds at lower interest rates. There is great virtue in an industrial credit scheme. That proposal has been put forward by my party for some time. We could then channel investment into those areas of technology and industry that are starved of funds at the moment because they cannot afford them. The high interest rates which are the consequence of the Chancellor's action are worrying for industrial investment. There is whole raft of other matters where the Opposition's economic policies are not worthy of support.

I come now to the Government's and the Prime Minister's position on public expenditure. We are asked by the Prime Minister to believe that the current levels of public investment are in some way equal to the levels that were running in 1979. She was at it again last Thursday at Prime Minister's Question Time. But the figures do not bear this out. If one looks at forward investment in the national income and expenditure Blue Book we see that it has progressively fallen since 1973. If we take one particular example—roads—capital investment at 1980 prices has fallen progressively since 1973. It is lower now than it was in 1979. If these were just my criticisms they might be thought to be purely partisan. Yesterday a very interesting speech was made by the chairman of Wimpey in which he said: We have seen over the last five years a gradual deterioration in the availability of work that the Government is prepared to make to the construction industry; reducing from 60 per cent. of total workload in the 1970s to the present level of 40 per cent. We have seen the increase in the power of economists who pursue rigid financial policies which they assure the young people of this country, and the vast number of unemployed, that it will 'come right on the night'". There are numerous industrialists in the country who are bitterly critical of the Government's neglect of the infrastructure. It is no use saying that the infrastructure does not need money to be spent upon it. In the Health Service the Davies report estimates a backlog of £2,000 million worth of repairs which have not been carried out, that half of the building stock in use pre-dates the first world war, that three-quarters of it pre-dates the 1939–45 war and that 88 per cent. of our mental health buildings are over 50 years old. It is not surprising to note that capital spending by the National Health Service as a percentage of total spending has fallen since 1974 from 10 per cent. to 6 per cent.

Mr. Mark Fisher (Stoke-on-Trent, Central)

Will the right hon. Gentleman give way?

Dr. Owen

No. Twenty-five per cent. of secondary schools suffer from overcrowding; 900,000 temporary places are still in use; 25 per cent. of schools still have outdoor toilets; 90 per cent. are lacking buildings for practical subjects such as applied modern sciences. Do not tell me that construction work on some of these projects would not be an investment in our future. It would not suck in imports and it would bring work in the construction industry to some regions where 40 per cent. of construction workers are unemployed. Something has to be done about this.

Where is the money to come from? During the last few weeks we have been debating, to cheers from the Tory Benches, how £3 billion is to be spent upon tax cuts. We must have the courage to tell the electorate that it will be unable to have tax cuts of that sort at the standard rate of income tax and that it is not right to take a penny off the standard rate of income tax.

Mr. Howard


Dr. Owen

The hon. and learned Gentleman must sit down for a second. If we are asked about tax thresholds, there are better ways of dealing with the problems of the disincentives which undoubtedly exist at the lower level of earnings. Ways of improving family support have to be introduced. Child benefit could be increased but it costs money. That may mean postponing tax cuts. It may be that we shall have to face increased indirect taxes. We have not opposed every single increase or extension of VAT. We wish there to be a widening of the base and some increase in indirect taxation. It has to be sensibly applied. It depends upon where the investment is going, exactly the point made today by my hon. Friend the Member for Stockton, South (Mr. Wrigglesworth). If British Aerospace was to be sold off and the money invested in the new industries of the future, we should find it a great deal easier to support that sale.

Mr. Fisher

If the right hon. Gentleman wants there to be a widening of the VAT base, will he tell the House upon which items he would impose VAT?

Dr. Owen

I shall look at the question when it arises. I have made my views quite clear. I am not in favour of VAT on food. We shall look at the widening of the application of VAT or at an increase in the level of VAT when the matter arises—[Interruption.] It is a great joy for the two old parties to go over this ground again. If this country is going to invest in its future and do something about unemployment, people must be prepared to stand up and say that they are prepared to accept some increase in taxation, including indirect taxation. We would not impose VAT on food because we are trying to help those on low incomes. That is why we should increase child benefit and that is why we should not cut the heating allowance or housing benefits. We have to try to share the burdens more fairly. If, however, we are to reduce unemployment there is a cost. It is no good ducking the question. One such cost would be to borrow more than this Government are borrowing, but dangers are involved in borrowing. I believe that the Chancellor will not now have the same room for manoeuvre on the public sector borrowing requirement as he might have thought he had a week ago. Therefore, we have to face the fact that we may have to reduce the amount of money that we put into capital spending. There are other schemes, but they all cost money.

I wish to speak about the restructuring of the national insurance scheme. The national insurance contribution for employers is very considerable. It has been added to by this Government by £700 million more than the savings which Government made by getting rid of the jobs surtax. They have added to employers' costs. I believe that a restructuring and a reduction of that tax would help greatly, particularly if it were geared to helping those employers who are taking people off the long-term unemployment register. There is a massive degree of support for this, but it will cost money.

Again we shall be asked where the money will come from. It will add to the public sector borrowing requirement. It might also mean an increase in interest rates, although I do not believe that it would mean an increase in interest rates as they are at present because they have been jacked up, we are told, by forces outside the control of the Government. However, those Conservative Members who do not wish to face up to the issue of unemployment, who are completely insensitive to the consequences and who are not worried about its social impact will go on producing schemes for tax reductions. I am saying that there should not be tax reductions unless they are specifically and positively geared to creating more jobs.

The most effective way to create more jobs is by a combination of measures. There should be greater investment in the public sector and the private sector, especially in the construction industry—particularly over repairs. I suggest that people should look at what is happening to the secondary roads of our country and their total lack of maintenance.

Mr. Neil Hamilton (Tatton)


Dr. Owen

No, I shall not give way. The hon. Gentleman can sit down and later make his speech in his own way.

The other matter is the restructuring of the contribution made by employers towards national insurance. Preferably there should be an overall reduction in order to ensure that restructuring does not hit even those who are employed in high tech industries but, if not, because there is insufficient money, there should be internal restructuring which would be self-financing.

Thirdly, the community programme needs more money to be spent upon it. This is perhaps the most cost effective way of creating jobs, but it does not have quite the same forward investment potential and does not have quite the same long-term return as insulation or repair of poor housing stock or new capital construction projects. The Government will have to face up to all of these problems. If hon. Members are prepared to let unemployment rise or stay at its present levels, they will look for tax cuts from the Chancellor of the Exchequer and hope that they will win back for them some of the Conservative support which they are losing in by-election after by-election. However, there are others who are determined to get something done about unemployment and who are prepared to ask for a reasonable measure of sacrifice from those people who are in jobs and who are reasonably affluent. That cannot be done at the expense of those people who are already on low wages and at the expense of some of those on pensions and fixed benefits. We must simultaneously do something about them.

I wish that the Chancellor could have presented such a broad approach today. To ask the House, and, through the House, the country, to endorse his economic posture and his economic mess of potage that has surfaced over the past few days is an insult.

I should have loved to believe that the debate—it should have been such a debate—would have combined those critics of the Government's policy across the House of Commons and that we would have had a motion from the Leader of the Opposition for which all of us could have voted which may not have been what he and his party wanted but which was what the country wanted. We would have gladly voted for such a motion.

Mr. David Steel (Tweeddale, Ettrick and Lauderdale)

That is not the Opposition's style.

Dr. Owen

As my right hon. Friend says, that is not their style. Their style is to pursue their own narrow interests at the expense of the national interest. That is not the approach of the two alliance parties.

6.20 pm
Mr. Edward Heath (Old Bexley and Sidcup)

I had the opportunity of addressing myself to the subject of unemployment and Thursday's forthcoming debate on regional development last night in Sunderland, in the north-east. As I had what might be considered satisfactory press coverage, unlike the leader of the Social Democratic party—satisfactory except for The Times and the Daily Express—and as I had wide coverage on television and radio, unlike, apparently, the leader of the Social Democratic party, I intervene tonight with some hesitation. But because of the subject's importance I want to draw some points to the attention of the House.

I must say straight away that I stand here as an avowed advocate of what the Chancellor of the Exchequer described so elegantly as voodoo witchcraft. Perhaps I could explain to the House what I mean by that. It is simply that I regard the present level of unemployment in Britain as appalling. The situation north of Watford is shameful. To go to the north-east of England and find there more than 19 per cent. overall unemployment, to find areas of male unemployment of 30 per cent. or more, and to find in Consett 60 per cent. of juvenile unemployment is to me shameful.

It is particularly heart-breaking when one goes back to an area in which the Conservative party played such a major part in the plan which Lord Hailsham produced in 1963, and which I had the privilege of implementing in 1963–64, which reduced the impact of the loss of 120,000 jobs so that unemployment became less than 5 per cent. That is the first part of what I mean when I say that I am an advocate of voodoo witchcraft. That situation should never have been allowed to arise and is untenable.

Secondly, I mean that public investment now has a major part to play in dealing with unemployment. The Chancellor of the Exchequer will not have expected me to be convinced by anything that he said this afternoon. That I fully understand. I am not really interested in the jibes of the Opposition. It is an insult to those overseas to say they are influenced in their foreign exchange policy by anything which the Leader of the Opposition may have said, either publicly or in the House of Commons. I am not interested in the internecine battles between present and former members of the Labour party. What concerns me is the policy which will deal with the present situation; the strategy which will overcome it, and in a reasonable time.

When a group of young people outside Consett say that they have finished their course and have been unemployed for three and a half years and ask how many more years they will be on the dole before they get a job even if the Government work out a successful strategy, what today can one reply to that? After listening to the Chancellor's speech, what could I say to them that was different from what I said last Wednesday when they put the question to me? It is hardest of all when they say that I am not really interested because the Conservative party does not have many votes in that area and so there is no reason why it should do anything about the problem. That is what we as a party have to face.

Very well, let us look at the situation. We can build on the fact that public opinion now shows itself clearly as having a priority for dealing with unemployment before dealing with tax cuts. It was originally intended that the debate should be on that question. It was the basic question to be dealt with. Public opinion is now quite clear on that. Those who want to go for tax cuts before jobs must prove to public opinion that theirs is the right means. That, so far, they have failed to do.

As has already been said, the debate has been greatly influenced by the present situation of the pound sterling. I want to say one or two things before I come to the important point about the analysis that is being made. Those overseas look at us now—and I have travelled overseas quite a lot in recent months and have experienced it myself—as being a country whose economy is being greatly damaged by a miners strike, for a length of time never previously experienced, and with a Government who, for reasons that those overseas do not understand, appear to be unable to do anything about it. That is a major factor in the way those dealing in foreign exchange look at Britain.

Mr. Tony Marlow (Northampton, North)

That is not the point.

Mr. Heath

It may not be the point, but it is the point for them and as they are dealing in foreign exchange that is what matters to the pound.

Secondly, those overseas, as has already been remarked, have become convinced that we are a one-commodity country. They believe that because they have seen the way that our manufacturing capacity has been destroyed, very largely, looking back, as the result of the pound going up to $2.42. They see that clearly—more clearly, apparently, than some of my hon. Friends behind me.

The last factor which was mentioned by my right hon. Friend the Prime Minister this afternoon, which some of us have been emphasising for nearly four years now, is the drain of capital from Britain and much of Europe to the United States.

The point that I want to emphasise in my analysis is that the decline of sterling is not due to anxiety about the public sector borrowing requirement or the fact that the Chancellor may exceed it by £1.5 billion. He has done that in the past and so has his predecessor without similar damage to sterling. That is not the anxiety at the moment.

The second point concerns money supply. We were told that the last figures might prove to be damaging, but they were nothing of the sort. The Chancellor and the Governor of the Bank of England congratulated themselves on that. There is no reason to believe that the next lot will be damaging.

No, those must not be used as excuses for what has been happening to sterling. Therefore, they must not be used as a reason for not considering Government investment on its own merit in the future because they would just be an excuse for stopping Government investment or preventing it from being expanded.

Mr. Tony Baldry (Banbury)

Will my right hon. Friend give way?

Mr. Heath

No, I am sorry; I want to get on.

The Chancellor mentioned the Japanese level of taxation and said that it is much lower than ours. In fact, the marginal rate is much higher there. But the characteristic of the Japanese system is that its borrowing requirement is infinitely greater than ours and so is that of every other country. Our public sector borrowing requirement is 2 per cent. of our gross domestic product. The German figure is higher than that at 3 per cent. and the Americans at 6 per cent. The Japanese have a high figure. That is the important factor in connection with the PSBR.

As I have said before, those are countries which do not have to support a large public sector. Their Governments are not responsible for ensuring that all the nationalised industries get the investment they require. Therefore, if it is inexcusable to have a 2 per cent. PSBR of GDP, those others are infinitely less justifiable. The plain fact is that the Chancellor has always refused to analyse what is current expenditure and what is capital expenditure in Britain. It cannot be denied that on current expenditure we have a massive surplus and on capital expenditure there is justification for looking after the capital of the people of this country.

I see that my right hon. Friend the Chancellor has now returned to the Chamber. I emphasise again that the reason for the decline in sterling is not related to his public sector borrowing requirement, to any anxiety that he may exceed it by £1.5 billion or to fears that the money supply is out of control, so those arguments cannot be used to try to reduce capital expenditure still further or to block proposals for more capital expenditure.

Mr. Lawson

I apologise for having missed the opening section of my right hon. Friend's speech. On a point of fact, the German public expenditure and budget deficit as a proportion of GDP is significantly lower than ours.

Mr. Heath

That is not the figure that I have. As my right hon. Friend the Chancellor knows, the Germans have rightly been boosting their public expenditure in the present circumstances as investment for their country.

Reductions in taxes as opposed to increased Government investment provide no direct jobs. Jobs may result indirectly if those who have the extra money in their salaries spend it on goods. Those jobs may be in this country or abroad. No direct jobs are provided. That must be plain even to the simplest mind.

Investment in public expenditure for the benefit of the community as a whole provides jobs for those who are now unemployed. Those people will tend to spend their new income on goods produced in this country whereas all the research shows that people already on higher wages and salaries will tend to spend more on imports. We have learnt that from painful experience. Construction and other public works directly create jobs and thus reduce unemployment.

My right hon. Friend the Chancellor has said that such projects should be considered on their merits, and I agree entirely. I could cite a large number of projects which are desperately needed in my constituency in the south. They include drainage and sewerage projects. Despite the sneers of my hon. Friend the Member for Northampton, North (Mr. Marlow), those are vital matters in my area, especially in the old village. Projects of that kind would provide jobs. That is a powerful argument for Government investment rather than tax reductions.

The extent to which my right hon. Friend the Chancellor can produce incentives through tax changes with the £1.5 billion to which he has referred is very limited. Research shows that no tremendous incentive results from such changes. Moreover—my comments on this yesterday have already been publicised and I said the same again this afternoon— it makes no sense to tell people who are unemployed that they need the incentive of tax reductions for those who are in work. Those people want jobs as soon as possible.

Then there is the emphasis on private enterprise. The purpose of improving the country's infrastructure is to improve the opportunities for private enterprise to become more efficient. Any firm north of Watford will confirm that to be more competitive it needs an improved infrastructure. As no one else is capable of achieving that—the provision of infrastructure cannot be privatised—the responsibility rests on the Government to carry out that task, and they should do so.

The argument that Government investment is simply printing money has been advanced again today. It is becoming no more than a parrot cry. What is wrong with using people's savings for Government investment? Every country does that. When the Chancellor says that there is plenty of money around, he is talking about the savings of the people. But what happens to those savings? They can go into Government investment for infrastructure or they can go into private investment. No one could argue that there is insufficient to do both as it is clear that private investment will not be squeezed out by public investment in the present circumstances in the economy, and it is with the present circumstances that we have to deal.

The real danger is quite different. My right hon. Friend the Prime Minister touched on it this afternoon. It is the fact that so much of this country's savings are being drained across the Atlantic in search of high interest rates. That is the danger to us all. One can point to British companies with enormous cash holdings. They are private enterprise companies, but they are not investing in this country. They are putting their money on deposit where they can obtain interest rates above the rate of inflation, and it pays them to do so. Why should they take risks when they can obtain high interest rates simply by moving their money around without taking any risks? That is the real problem.

It is argued that Government investment is throwing away money. That is nonsense. It is a mere slogan, not an intellectual argument. Again, the argument that we cannot "spend our way out of recession" is used to block every proposal to improve the infrastructure. It was the tragedy of the Labour party that the right hon. Member for Leeds, East (Mr. Healey), when he was Chancellor, used that phrase to justify doing what the IMF wanted. The right hon. Gentleman nods in agreement. The Opposition have been paralysed ever since. They have never been able to put forward constructive proposals with any conviction because of that ridiculous phrase. The people's savings can certainly be used for proper investment and every Government in the past used it in that way.

Market activity is constantly emphasised. We must recognise the following facts with regard to sterling. It was believed that the Government had a purely monetary policy from which other things such as interest rates were expected to follow. Sterling could do what it liked, and it is clear that it did just that—rising to $2.2 and now falling to a little over $1.1. We have had to learn the painful way that one cannot operate the market like that. The Germans and the Japanese do not do so. They use the intervention powers of the Bundesbank and the Bank of Japan selectively and effectively—not continuously, but when they can lead speculators and others to burn their figures. We must return to that technique.

With regard to minimum lending rates, too, we are painfully going through the process of learning that one cannot abandon everything, sit back and expect the market to do everything for us. I hope that the Government now recognise that.

One also cannot operate the market when one party is dominant. That applies to both our national and our international affairs. Nationally, it has been strongly argued that we should not take special measures in regional policy but that we should let the market operate. That was based on the complete fallacy that previous investments in the regions did no good. That can be proved to be a fallacy. It has been picked out by many people as a simple argument to use in an endeavour to help the south.

The south, the south-east and parts of London are dominant in the United Kingdom, and the remainder is being allowed to suffer. The dominant part is continuously attracting such jobs as exist. The north-east, the northwest, Scotland and Wales are becoming poorer and weaker, while the south becomes stronger and richer. I am sorry that my hon. Friends think otherwise, but those who know those regions know that this is the case.

The reason for that is that the measures that are being taken are not being co-ordinated, and are not part of a strategy. They use individual incentives in particular areas, which are often damaging. The effect is that firms move from outside an area in to a smaller special area. That is another lesson that we had to learn in the past.

Mr. Michael Forsyth (Stirling)


Mr. Heath

No, I shall not give way.

Mr. John Carlisle (Luton, North)


Mr. Heath

I am sorry, I shall not give way.

In the past we had to learn that if a regional policy was to be followed there had to be an overall strategy for both the regions and the country. A regional policy cannot be followed in specific pinheads because that only damages surrounding areas.

I know that Scotland has had success in some respects, especially in new technology, and it deserves credit for that. The north-east is having success at present in biotechnology. However, it is not providing the number of jobs required to deal with unemployment. Until there is an overall strategy for the regions, we shall not get jobs.

The market is not functioning internationally either because it is being dominated by the United States, which operates regardless of other countries' interests. Tomorrow the Chancellor of the Exchequer will attend a meeting in Washington, but he will return empty handed—he knows it—as will all European countries because the American Administration are in no mood to run their policy in any other way. Even if they wanted to, which they do not, the American people would not allow them to. They would say, "We are walking tall. We are riding high. Look, it has been done by a budget deficit of $200 billion a year and a trade deficit of $130 billion a year, still rising". The United States is living on the rest of the world and it will not stop doing that. The Chancellor of the Exchequer knows that very well.

Mr. Kilroy-Silk

The Chancellor should not go.

Mr. Heath

No, it is right that he should go. Europe should use its combined influence. For that reason, I urge on the Chancellor the view that the United Kingdom should become a full member of the European monetary system. He has never yet given an explanation why we have not become a member. He has always said that there are some reasons for joining and some for staying out. What are those reasons? The Chancellor prides himself on being an intellectual. Could he not for once reveal that aspect of his personality? Then we could form a judgment about the Government's policies. There is every reason for joining the EMS at the earliest opportunity. It may or may not be possible to negotiate, as the right hon. Member for Plymouth, Devonport (Dr. Owen) said, but we should join.

France may be derided. It went through far worse circumstances than we are going through with sterling, and survived them because of the EMS. Moreover, the EMS survived despite France. Why, then, cannot we join and adjust ourselves accordingly? The French followed a policy of reflation at the wrong time because some of their markets were deflating heavily, and, obviously, it suffered. Our job is to join the EMS and to use what influence we have.

Nothing that the Chancellor of the Exchequer has said today will give any hope to the more than 3 million unemployed—in real terms, it is nearly 4 million. When he returns empty handed, what will he do? Are we to continue to allow the United States to live on the rest of the world for as long as it wishes, with massive unemployment in the United Kingdom, millions of unemployed in Europe, and with even greater unemployment and increasing debts in the Third world? Is that all that the future holds for us, or has the Chancellor a policy? If so, will he confide that strategy to us?

The crisis that we all face is how long we should continue to support the United States, with its enormous budget and trade deficits, while it continues its policy regardless of the rest of us. That could never have happened under Bretton Woods; it would have been impossible. However, today there is no regulation in the international financial market. It is foolish and the utmost stupidity. Moreover, it is ruining the United Kingdom and Europe.

The Chancellor of the Exchequer and his hon. Friends must decide what action to take to insulate us from the high interest rates of the United States, which we do not require. Without them capital would cease to flow from the United Kingdom, and we would have capital for public and private investment in the United Kingdom, and some hope to offer those who are today without jobs.

6.47 pm
Mr. Eric S. Heffer (Liverpool, Walton)

I hope that the right hon. Member for Old Bexley and Sidcup (Mr. Heath) will not be embarrassed by what I have to say. Perhaps I can be forgiven for saying that if he continues in the strain of his speech, as I am sure he will, I could easily become what might be described as a Heathite. The only matter on which I disagree with him is whether we should enter the European monetary system quickly. We must be careful and not rush into the EMS, because there are dangers in it for us. All hon. Members who are genuinely worried about unemployment, and all those affected by unemployment, should give the right hon. Gentleman full support for his speech.

I do not understand why the right hon. Member for Plymouth, Devonport (Dr. Owen) said that he could not support the motion. We can always improve motions. All hon. Members will agree that a motion does not necessarily carry everything in it that it should. Today's motion is moderate and can be supported by almost all hon. Members, whether they represent the Labour party, the Conservative party, the Social Democratic party, the Liberal party or other parties. I hope that by the end of the evening hon. Members will find it in their hearts to support the motion and so let the Government know that the House believes that the time has come for a fundamental change in the Government's strategy and policies for dealing with unemployment.

The right hon. Member for Old Bexley and Sidcup was right to discuss how unemployment affects individuals and communities. Too often our debates in the House are unrealistic and seem as though they are taking place in an ivory tower. Some hon. Members are unaware of what is happening to ordinary people in areas of high unemployment. The figures contained in the research note from the Library demonstrate the problems. I shall take as examples some constituencies on Merseyside. In Broadgreen, of a total of 8,049 unemployed, 50.8 per cent. have been unemployed for more than a year. The figure for Mossley Hill is exactly the same. In my constituency of Walton, of 10,397 unemployed 51.9 per cent. have been unemployed for more than a year. Of course, some of them will have been unemployed for much longer than that.

Those hon. Members who are still unaware of the true position should speak to my young nephew, who is a skilled engineer. I had problems in getting him an apprenticeship in the first place. As I had some status, I was able at least to talk to some companies, and he was lucky enough to get the chance of an apprenticeship with one of them. At the end of the apprenticeship he got a job for a year, but then the company for which he worked collapsed. He has been without work for more than a year. Although he is trying to find a job on the oil rigs, or in another part of the country, he has almost no chance of doing so. He is just one of thousands of skilled workers in a similar position. He may eventually get a job on an oil rig or elsewhere, but what about unskilled workers, who have no chance of getting a job?

Mr. David Alton (Liverpool, Mossley Hill)

I endorse the remarks of the hon. Gentleman, but does he not think that it is wrong that youngsters should be encouraged to become Dick Whittingtons and be expected to go in search of a living elsewhere? Is it not outrageous that some youngsters who live in the centre of Liverpool face nothing other than 50 years on the dole?

Mr. Heffer

I agree entirely with the hon. Gentleman. During the campaign for the general election we discovered when we knocked on doors that, more often than not, it was a youngster who opened it. The mother and father may have managed to continue their employment, or the mother may have got a part-time job, and the youngster provided the meal for them when they got home in the evening. What an indictment of a Government who allow our youth to waste in that way.

That is the tragedy of unemployment. I agree with what the right hon. Member for Old Bexley and Sidcup said about being uninterested in the arguments between those who used to be in the Labour party and some of those who are still in it. I could not care less either. I am worried about the unemployed and about what we can do to create jobs for them.

Merseyside has about the highest unemployment in the country. Perhaps hon. Members saw the recent television programme about a small drugs squad in Liverpool moving against a young man who was involved in the peddling of drugs, whose use is widespread on Merseyside. It is the old story of the devil finding uses for idle hands. That is what is happening in those communities. There has been a growth in the drugs traffic because youngsters have no employment and wish to find ways of making money. There has also been an increase in burglaries and in petty crimes.

Unemployment also causes internal tensions in families. Many live in overcrowded conditions, with recently married youngsters living with their parents when they should be living in their own homes. However, they have no chance of buying a home because they are on the dole. Many internal problems can arise between the two women or the two men in a family.

I am sorry that the leading Government figures have left the Chamber. Perhaps they do not wish to listen to what ordinary Back-Bench Members, as opposed to ex-Prime Ministers, have to say. It would not be a bad idea if they listened to some of those who do not hold eminent positions but who have wide experience of the grassroots of the problem. When I go home at weekends, I meet my relatives who live on council estates. I meet people who are suffering. I must tell Ministers that that is what the debate is about. Too many of them live in conditions that make them immune to the realities of life. Ministers cannot continue to show no understanding and compassion. They must take steps towards investment that will create employment in the regions, as the right hon. Member for Old Bexley and Sidcup said.

I should draw the attention of the House to what another section of society, the Quakers, believes. The Religious Society of Friends sent me, and probably other hon. Members, a proposal from the Hertford and Hitchin monthly meeting. I was born in Hertford, and it is delightful to know that people in the south are also worried about these matters. The society says in a letter to the Prime Minister: We note with concern the intention of the Chancellor of the Exchequer (announced on 12 November) to use cuts in public expenditure as a basis for a reduction in personal taxation. Whether or not such a reduction would aid the British economy, as is claimed, we believe that it would be morally unjustifiable to benefit taxpayers at a time when so many people are suffering the indignity of unemployment and poverty, and when the needs of the Third World are so acute. I agree with that.

I think that the right hon. Member for Old Bexley and Sidcup is right in one other respect. On one occasion, the Labour party was arguing that we should reduce personal taxation. All parties have done that from time to time. Dick Crossman said to me, "If we reduce personal taxation, that means that I shall have two holidays abroad a year instead of one." Is it not true that the reduction of personal taxation at certain levels will mean that people will have more holidays abroad, rather than that there will be more investment and employment? Is that not the reality?

Conservative Members do not live in the same world as people like myself. We believe in further taxation, but not the kind of taxation suggested by the right hon. Member for Devonport. I do not know what he wants when he argues for further VAT. He was asked what sort of taxation he was concerned with—was it extra VAT on books, on newspapers, on children's clothing or on holidays? I believe in taxation based on income. That is what is required, not taxation through VAT, although we may have to raise a little taxation through that system occasionally.

I shall finish my speech soon, because we have now entered the 10-minute speech period and I do not wish to take too long. I was all right until 7 o'clock, as that rule comes into force at 7 o'clock, but I shall be fair and try not to go over time.

Today can be an historic occasion. I hope that hon. Members, like the right hon. Member for Old Bexley and Sidcup, who feel strongly about this subject will take a stand. Many Conservative Members have privately told me how deeply concerned they are about the problems of unemployment.

Mr. Patrick Cormack (Staffordshire, South)

Many say it publicly.

Mr. Heffer

The hon. Gentleman is right.

The Opposition motion can be supported by all hon. Members. I appeal to Conservative Members. If they are really concerned, as I am sure they are, about the need to begin to deal with the problems of unemployment, they should support the motion. Let us begin the process of getting young people back to work, although we are not concerned only with young people. It has been proved that the majority of those unemployed are well below the age of 55, and that is a real strength that could be used to build up our industry. This country is either an industrial nation, or nothing. Therefore, Conservative Members should support the motion and not continue to support the absurd nonsense that we have once again heard from the Government Front Bench.

Several Hon. Members


Mr. Speaker

Order. As the hon. Member for Liverpool, Walton (Mr. Heffer) said, we are now in the time for 10 minute speeches. Ten minutes is the maximum time, and if hon. Members are able to speak for a rather shorter time than that I shall be able to call more than 12 Back Benchers in the time remaining until 9 o'clock.

7.3 pm

Mr. Tim Eggar (Enfield, North)

One cannot but respect the passion of the hon. Member for Liverpool, Walton (Mr. Heffer) even if one does not admire the logic of his argument.

Over the past few weeks we have heard much argument about whether the Government should spend the Budget fiscal adjustment on tax reductions or on public expenditure. There is a danger that we have become so preoccupied in taking sides on this argument that we have forgotten that our overall priority must be to work towards a package that has only one objective—the creation of jobs, be that through more expenditure, through tax reductions or through reducing employment costs. I shall look briefly at the various options open to us purely in terms of how the choice between those options should or should not create jobs.

I am not a strong believer in infrastructural expenditure. It is not good in itself. One has only to look at the saga of high-rise building or at the power stations programme to realise that infrastructural spending itself can be wasteful. The two most widely quoted infrastructural proposals—roads and sewerage—are particularly bad examples because they cost a great deal in terms of expenditure per job created.

On the other hand, there is a strong need for additional expenditure on the maintenance, repair and improvement of our buildings. Improvements can be made in the way that we spend money. For instance, there is a strong argument for making sure that improvement grants are targeted on those who really need them. Expenditure on the improvement of the building stock should be a priority for this Government.

Quite rightly, the Government have dramatically increased the amount of money that is spent by the Department of Employment. However, they have increased not only the quantity of expenditure but the quality of expenditure. We have only to look at the move to the youth training scheme from the youth opportunities programme to see that. I hope that my right hon. Friend the Chancellor will make available to my right hon. Friend the Secretary of State for Employment the necessary funds to introduce new initiatives. In particular, I am thinking of extensions to the community programme. Expenditure in this sector is good value in terms of money spent per job created.

There has been much talk about the removal of supply side inhibitions to job creation. Sadly, too much of it has simply been talk. Planning controls, health and safety regulations and employment protection legislation, to list but a few, were all introduced at a time of near full employment. One has to ask oneself whether the pendulum has moved somewhat and whether we should put jobs rather higher than these regulations, some of which are undoubtedly inhibiting job creation.

We need to go further and we need to have rather more political courage than we have shown. For instance, we need to tackle the problems of the private rented sector because it is only by improving housing mobility that we can hope to allow people in Liverpool and other areas to move to where the jobs are, which is largely in the southeast. The Treasury should look not only at the cost in housing benefit but also at the tax and economic activity benefits that would accrue by permitting the private rented sector to grow.

There is also the use of the derelict land register. Should we not be thinking in terms of giving private sector developers the right to force the public sector to sell land for development for housing or industrial purposes?

The job creation test applies not only to the supply side to expenditure but to our evaluation of the tax reductions. If there are to be tax reductions, I share the Chancellor's preference for raising tax thresholds; but I would go further. If we are to tackle tax thresholds, we should also tackle the impact of national insurance contributions and their incentive effect on the lower paid. There is, I think, a case for complete co-ordination of the national insurance contributions with the income tax system. It is disappointing that the social security reviews are not paying more attention to working towards the ultimate goal of complete integration of the social security system and the tax system. In other words, if there is an argument for creating jobs through reducing taxes and increasing incentives, let us not only think in terms of thresholds but let us realise that incentives are affected by national insurance contributions and by the social security system.

It is easy for Conservative Members to take a position in favour of infrastructural expenditure or of tax reductions, yet I say to the Chancellor that we are not considering a straightforward choice: it is not a case of one or the other. We are looking to him to produce on 19 March a Budget package which inevitably will involve trade-offs within the broad current economic framework. But there is only one way in which Conservative Members will judge that package—whether it is the best possible package to create new jobs for our people, whether they be in London, in the north-east or in the north-west. My right hon. Friend bears a heavy responsibility.

7.10 pm
Mr. J. Enoch Powell (South Down)

It is one of our national weaknesses—indeed, it may be a human weakness widely shared—not to recognise our blessings when they come and consequently to fail to seize them, if not to count them. There is an example to hand in the manner in which the dramatic financial events of the last week or two have been received and interpreted. I believe that those events hold out the prospect, admittedly a long-term prospect, of hope for a reduction in the level of the unemployment which both sides of the House agree to accept as intolerable, although neither side of the House has an intelligible doctrine to explain how it may be reduced.

The initial impact of those events was certainly unpleasant. The Chancellor of the Exchequer found that the conjuncture of the anticipated fall in oil prices and the fall in the exchange rate presented him with a difficulty in funding his borrowing requirement. The attraction of lending across the exchanges at an effectively much higher rate of interest than was offering on Government securities threatened the whole basis of the Chancellor's stand against inflation and obliged him to take action to secure the possibility of continuing to borrow from the public to meet his requirement.

It is, incidentally, not only the borrowing requirement as it features in the Budget statement that the Chancellor of the Exchequer has to bear in mind. A large quantity of sight money in the form of national savings, largely held by persons who are in a position to switch their holdings, is very volatile. The Chancellor of the Exchequer therefore was right to take the action which he did when he did, to protect his ability to borrow from the public and save himself from falling into the necessity of borrowing from the banks. It is in my view quite perverse to accuse the Chancellor of inconsistency in raising interest rates in the short term in face of the fall of the exchange rate. His purpose, the background to his thinking, was not at all to massage the exchange rate. It was not an exercise in the control of exchange rates. It was an exercise in maintenance of the capability of the Government in all circumstances to borrow their requirements from the public and not again have recourse to inflationary borrowing from the banks.

But that is the short term. In the long term I believe what is portended is that one at any rate of the causes of high unemployment may be in process of changing.

There are, of course, many contributory causes to that extraordinary phenomenon. Some of those causes are inaccessible to us. Obviously the demographic cause is inaccessible: we cannot manipulate it. Obviously, too, the rise and spread of technological improvement is something which we could not alter even if we had a magician's wand that would bring it to a standstill or reverse it for us. But among other factors there is one which I believe has received insufficient attention. That is the sudden and massive change in the world situation of the British economy from an economy which was in chronic net deficit on current account and net surplus on capital account into an economy in huge surplus on current account and net deficit on capital account. That changeover was bound to impose upon the economic pattern of this country most painful and severe readjustments, which in turn were bound to express themselves in terms of major unemployment.

Of course, the cause—not necessarily the only cause, but the overwhelming cause—of that disastrous—in retrospect one might dare to call it disastrous—turn round was that Britain had become an oil-surplus country. It is true, therefore, that in one sense our oil bonanza lies somewhere near the heart of our economic difficulties. It was that more than any other single cause which made us a surplus country on current account and therefore a deficit country on capital account. We have been hearing in the debate this afternoon lamentations about that deficit on capital account, represented of course by outward net investment from this country—at the present time no doubt outward net investment from this country into the United States.

The impact upon the exchange rate which has been felt has been attributed more than anything else to the expectation of a fall in the price of oil, which appears to be regarded as a potential disaster that the Government ought to do everything in their power to ward off—a continuation of the paradox existing ever since 1973, that Governments, while bewailing dear energy, have clubbed together all over the world to keep the price of petroleum up.

Now this cannot be right for Britain of all countries. Of all countries, Britain stands to gain by cheap and readily available sources of energy. After all, our former industrial greatness was founded on cheap domestic sources of energy. Indeed, we are now watching the agonies of the industry which placed that energy at the disposal of our industrial revolution and the industrial development of the United Kingdom. I say it is an absurdity, a contradiction, for this country to be party to the maintenance of an artificially high price for a source of energy such as oil.

I am not saying the Chancellor of the Exchequer would be wise to come to the Dispatch Box and say so in so many words at this moment, but we in the House not governed by the same inhibitions ought to be prepared to welcome anything that could reduce the price of oil and make cheaper energy available to this country in a form the source of which is now predominantly within our own hands, under our own control and within the ambit of our national economy.

The mere possibility that this might happen, the perceived prospect of this happening, resulted in a marked weakening of the international value of the pound sterling; but that, of course, is only an index of what would happen if we cease to be a current account surplus country and again become a current account deficit country. It is an indication of what we might expect to see if we again became an economy with a net capital surplus, instead of a net capital outflow. Those of us, therefore, who can stand back from the day-to-day management of the Government's finances should welcome the two constellations that have appeared in the financial firmament during the past week.

First, there is the indication of a potential break in the structure that has artificially sustained a false price for petroleum products. This afternoon I was shocked to hear the right hon. Member for Plymouth, Devonport (Dr. Owen) suggest that we might cut our production in order further to force up the price of the source of energy upon which we depend so extensively. Secondly, the fallen external value of the pound has become a symbol and signal of the fact that we may again be poised to become predominantly an industrial exporting country. The inhibitions that have lain upon us for the past six years—the inhibitions of an oil surplus overpriced at a time when this country has been in the unnatural predicament of not needing to exert its full industrial capacity to maintain the flow of goods and services between itself and the outside world — have shown some signs of weakening. We have at last seen some sign of a break in the disastrous weather.

That is not something that will necessarily be welcome to the Chancellor of the Exchequer. But it is something that we here should take seriously. We should be able to state it and expose it to examination in a debate such as this — for indeed it involves the future level of unemployment in this country.

7.21 pm
Mr. Michael Forsyth (Stirling)

I shall address my remarks to the substance of the motion. It is quite astonishing that we should even be debating this proposition after the lessons of history. It is staggering that the hardy perennial and delusion of British political life—that it is somehow possible to create extra jobs through public expenditure—should continue to be put about by comparatively responsible people who once held high Government office. It is amazing, because there is not a shred of evidence to support that view, and so far we have not heard any evidence tonight to support it.

Public investment in whatever form may appear to create jobs, but in the long term it destroys more than it creates because of the resources that it takes from the private sector, which it pre-empts in so doing. Public expenditure to create jobs has been used by successive Governments of all parties in two broad ways. I think first of direct subsidy and De Lorean, Invergordon, Corpach, Linwood, Bathgate and a score of other examples. I am sorry that my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) is not in the Chamber, but, in the case of Bathgate, we dragged British Leyland kicking and screaming to Scotland to deal with the appalling level of unemployment, which stood at 7 per cent. Today, because that industry collapsed as it was uneconomic and should never have gone there in the first place, unemployment stands at 20 per cent. and the community has been destroyed by that attempt to move against the market.

The direct subsidy approach has a familiar pattern to it. We can all find an example in our constituencies. It starts in hope and acclamation. It starts with everyone jumping on the bandwagon and claiming the credit for having brought jobs to the constituency. But, having gone through a period of losing markets, it ends in closure, dismay and recrimination. I am aware of no example to counter that view, and I am surprised that we should even be considering that.

But there are now some people who say that they agree with that, but that they have found a better, painless way. They say that they have something that will work better, and that the answer lies in the Government simply loosening the reins a little and spending more to create demand. I have no doubt that engineering, building and steel and the other lobbies that we have heard arguing for that would benefit, and that they would take on some labour. But at what cost? The cost would be to send false signals throughout the economy which would result in demand for skilled labour, which is already in short supply, and which would create massive distortions.

The hon. Member for Dunfermline, West (Mr. Douglas) asked about the opportunity costs of unemployment. If he was in the Chamber, I would ask him about the opportunity costs that arise from the money taken in higher taxes or, less honestly, in inflation from private enterprise. What about the results of less demand that will come from higher prices? What about the reduction in investment and competitiveness, and the destruction of jobs that comes from taxing the private sector? Public expenditure is made at the price of removing demand from the private sector.

What is so magical about injecting demand through the public sector? If it creates jobs, why does it not also destroy jobs by taking demand from the private sector? The so-called witchcraft that we have had to listen to tonight represents a call for the creation of short-term marginal skilled jobs and for the silent destruction of many jobs in the private sector that are dependent on real demand. The notion that public sector investment would create more employment is defective, because, as my hon. Friend the Member for Enfield, North (Mr. Eggar) said, the cost of capital investment programmes is high in terms of cost per job. If those programmes are financed from taxation or by abandoning job-creating tax cuts. people will cut, or not take part in, several luxury activities. There will be less entertainment, less eating out and fewer people participating in all the things in the economy provided by the service industries that lead to the employment of more people at a lower cost per unit of investment.

Why, then, should we be debating this issue? I suggest that it is because of the nature of Members of Parliament. The incentive for us as politicians is to dance the light fantastic and to whizz up to the north-east with "Newsnight" or whatever to look at unemployment and to argue for increased public spending with the slogans of care and compassion so that we can be seen to be doing something and to be arguing for expenditure to reduce that unemployment even though the reality is that the jobs that are less visible, and that could be created in the hundreds and thousands by small companies and which do not make the headlines, will disappear. They will not be mentioned and will not be the subject of debate on "Newsnight", or the subject of headlines in newspapers. But then there are no votes to be lost in that.

Mr. John Evans (St. Helens, North)

What a lot of drivel.

Mr. Forsyth

The private sector, left to fend for itself and left with the money in its pocket, will invest it far more wisely than any committee or group of politicians haggling over their constituencies would do. It is inherently more expensive and wasteful to command goods and services in the economy with public rather than private money. The hon. Member for St. Helens, North (Mr. Evans) may say that my speech is a lot of drivel, but he should consider the experience in the United States. The jobs there have come not from large firms benefiting from investment arising out of Ronald Reagan's deficit, or any other form of public expenditure, but from entrepreneurial small business. In the past 10 years the Fortune 500 companies have shed more than 4 million jobs, while 20 million jobs have been created by firms employing fewer than 20 people that receive not a penny of public subsidy. It is the United States' experience that jobs come from small business. In 1981–82, 2.6 million new jobs were created by small businesses while large firms lost 1.7 million jobs.

The problem in our economy is not a shortage of demand. My right hon. Friend the Member for Old Bexley and Sidcup got in a muddle about why rich people were buying video recorders and foreign goods while people who were unemployed could not do so. My right hon. Friend must face up to the fact that there is demand in our economy. The key to creating the jobs we all want lies in a micro-economic analysis of the economy and not in a Keynesian or pseudo-Keynesian macro-economic analysis. If we want more people in employment, we need to make it easier and cheaper for business to employ them. We need to make it less burdensome and more rewarding to start small businesses and to make it easier and more advantageous for companies to expand and grow. Companies will then expand and small businesses will be started.

We must heed the arguments put forward by my hon. Friend the Member for Enfield, North, who said that the key lies in removing the barriers to employment —removing regulation, allowing people to move to where the jobs are, and dealing with employment protection. It lies in dealing with national insurance contributions, the wages councils, planning, health and safety provisions, shop hours, licensing, rent Acts, VAT and the tax and benefit system which mitigates against employment. We should be looking to those methods to provide hope for those in the north-east and elsewhere.

7.31 pm
Dr. Jeremy Bray (Motherwell, South)

I shall question later the fundamental beliefs expressed by the hon. Member for Stirling (Mr. Forsyth), but I would first point out that the debate takes place in a context that differs from the one we expected a week ago. An increase of 2.5 per cent. in interest rates will add perhaps £4 billion in a full year to the £16.5 billion for which the Government have already budgeted. Even if only half that amount materialises, it will more than wipe out the surplus to which the Government look forward.

Yesterday's events are bound to have a large effect on the Government's economic policy for next year, especially on public spending. I shall seek to sow some doubts in the minds of Conservative Members about the framework within which the cause and effect works out through the medium-term financial strategy. It may not turn out to be as well conceived as some of them think.

The events of the past few days have not demonstrated the flaws in the operation of the Government's economic strategy. They have demonstrated the defects in the strategy. The problem lies in the volatility of financial markets which, given no steer by the Government, are wildly unstable. The destabilising effect on expectations does the mischief.

Suppose that the foreign exchange market is stable with a 10 per cent. interest rate in Britain. Pressures develop on the pound, so the interest rate is increased, say, to 11 per cent. Money as a store of wealth means that the expected earning power of a sterling deposit increases by 1 in 10. Other things being equal, the value of the sterling deposit increases instantly by 10 per cent. In the short term, that increase in value completely swamps the original increase in the interest incomes stream of only 1 per cent. a year. The interest rate has become irrelevant and has been swamped by the expectations effect to which it gave rise.

But the expectation must be fed. If the Government do not feed that expectation by shaping expectations of the future development of the exchange rate, the longer-term market will be driven by random movements in response to short-term changes in expectations. Those random movements — that drunken walk — will determine the medium-term prospects for the exchange rate and, therefore, for the whole economy.

This classical argument has been advanced for many years, although it has been developed more rigorously and mathematically in present times. The conclusion reached by not only the Opposition but the economic journals must be that the Government should provide some sort of steering. My hon. Friends say, "Good; let the Government intervene."

Reserves are small in relation to trade. At the low point at the end of 1976, United Kingdom reserves of $4 billion were down to four weeks' worth of imports. They now stand at $15 billion, which will finance only eight weeks' worth of imports. Although reserves are small in relation to trade, they are tiny in relation to foreign exchange transactions. Total OECD exports amount to about $4.8 billion a day, but foreign exchange transactions amount to about $60 billion a day — more than ten times the volume of transactions needed to pay for imports on current account.

Total United Kingdom reserves amount to less than two days' worth of the normal foreign exchange transactions in London. If the world had an incentive to take all its foreign exchange transactions through sterling, total British foreign exchange reserves could be exhausted in about six hours. The opportunity for foreign exchange intervention against market expectations is slender.

The Government's response is to say, "It is obvious what to do." The Government say that they should stick to money supply targets and secure a basic equilibrium in the financial markets around which they can operate abroad and at home. If the Government set targets for the exchange rate there is no way they can deliver, and so the Government's credibility is forfeited.

Is there no intermediate position? We should consider what happened yesterday. The Chancellor was so set in his belief about the futility of intervention that, after setting a minimum lending rate, he did not intervene. Therefore, Germany did not intervene, and the markets were left uncertain about the expected effect on the exchange rate. No lead was given.

The oil market has shifted from a deficit in 1976 of £4 billion in the balance of payments to a surplus of £8 billion today. A dollar per barrel change in the oil price reduces the United Kingdom's foreign exchange earnings on the oil trade by about £400 million per annum, or by about 0.5 per cent. of the value of our exports. The fall in the price per barrel of oil from $40 to $27 accounts for a large reduction of 6.5 per cent. in our total export earnings.

If a 1 per cent. change in the exchange rate resulted in a 1 per cent. change in exports, the total fall in the price of oil would justify a change in the exchange rate of, at most, 10 per cent. The fall in the exchange rate that has occurred has already discounted the effect of a fall in the oil price in the United Kingdom to below $10 per barrel. That is quite unrealistic in relation to any conceivable movement in the oil price.

The Government have put the argument qualitatively but have not spelt out the quantitative arguments. What should the Government do? They should give a lead to expectations. The Government are right to distinguish between not having an exchange rate target, and not caring about the exchange rate. But caring and doing nothing are meaningless actions. What are the Government doing? Why are they doing it? The Government are not giving the answers to the foreign exchange markets, so those markets are left groping around.

The Government's broad approach should be to say what they expect will happen, taking account of the fact that private agents will react to their announcement and speculate. If the Government calculate correctly, they will not play into the hands of private speculators.

Better results would be obtained if the speculators saw what was happening and played the game. The financial market would thereby be much more stable. But the Government cannot rely on that. The Government must reckon on the fact that the other agents—private agents and foreign Governments — will go on playing the competitive game. However, the Government can create a situation in which it is in the interests of the other parties to start playing the co-operative game.

On foreign exchange markets, the fundamentals are relative interest rates, rates of inflation, current balances, capital flows and intervention, and exchange rates, of which interest rates and intervention are the instruments.

We could move over smoothly from the present competitive situation to a co-operative solution, in which some parameters are left free, to be adjusted internationally by agreement, for the benefit of all. In the Bretton Woods system that parameter was the actual value of the exchange rate, but there is no reason why it should be. It could be some parameter in an interest rates and intervention rule, or it could be an exchange rate rule which could be adjusted by agreement between nations.

Having once started to play this game, there is a sanction by which nations could be brought to play this game. For if they ceased to play it, they would forfeit the support of other countries for their exchange rates, with drastic consequences to themselves.

My time is up. I plead with the Chancellor and his colleagues to begin to raise these matters in Washington. The right hon. Gentleman will find the most highly developed advocates of them in the research department of the Federal Reserve Board in Washington. If he does not seek allies in the United States, but seeks, rather, the defence of dogma, which is all that he has done today, he will serve this country extremely ill.

7.41 pm
Mr. Richard Ryder (Mid-Norfolk)

I was grateful to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) for allowing me to ask in an intervention during his speech whether he was in favour of a higher or lower exchange rate. He refused to answer my question. I hope that when the hon. Member for Kingston upon Hull, East (Mr Prescott) winds up the debate for the Opposition he will put that matter right.

Failure to reduce inflation further and damp down inflationary expectations could put recovery at risk. Prudent monetary and fiscal policies of the kind that have brought us so far will have to be sustained and, where necessary, strengthened. Those are not my words, nor words plucked from the pages of a Conservative general election manifesto. They come direct from the core of the declaration issued at the end of the economic summit held in London last June.

That declaration was signed by western political leaders espousing such wide political beliefs as republicanism, liberalism, Christian democracy, conservatism and socialism. None of them, from their different political standpoints, could offer instant solutions to the complex international problem of unemployment. Had they been able to do so, I am sure that they would have seized upon those solutions straight away. Those world leaders recognised that reflationary policies could sabotage the careful progress made already and make unemployment worse in the long run.

The occupants of the Opposition Front Bench are perpetrating a hoax on people if they claim that unemployment can be cured quickly. Those who suggest that it can be so cured are not in touch with the realities of government. Their Socialist friends abroad, some of whom are having to grapple with the problems of office on a daily basis rather than dallying in the rhetoric of opposition, are pursuing largely the same economic policies as the British Government.

Only last week the French Socialist Prime Minister, Mr. Laurent Fabius, emphasised that the French Government would continue to curb public spending. He also said that he had no intention of raising public sector wages in a bid to court cheap popularity in the run-up to the 1986 French parliamentary elections. He ruled out pump-priming on the grounds that the Government would put inflation at risk and endanger France's external account. Mr. Fabius stressed last week the importance of improving the competitiveness of the French economy, and has throughout recent months made clear his intention to reduce personal taxation this year in an effort to increase job prospects for young people.

The same pattern is followed in Italy, where there is a Socialist Prime Minister, Mr. Craxi. In a remarkable speech delivered in Trevi just over a year ago, Mr. Craxi said that unless the public expenditure problem in Italy was tackled quickly the whole political and economic fabric of that country would be put at risk. As a result, he doubled prescription charges and cut disablement and supplementary pensions. That was the action of that Socialist Prime Minister. Moreover, in his 1985 budget, published last October, Mr. Craxi gave a commitment to reduce still further the public borrowing requirement in Italy and to reduce the health, education and social security budgets of the Italian Government.

There is a Social Democratic Government in Sweden. I fancy that their politics are closer to the heart of the right hon. Member for Sparkbrook than to that of the right hon. Member for Plymouth, Devonport (Dr. Owen). The Swedish Government have given up subsidising failing industries, and recently one of the country's largest shipbuilding firms was allowed to go into bankruptcy. The Social Democratic Finance Minister, Mr. Feldt, pointed out recently: We have restructured old industries—shipbuilding, textiles, steel and mining—remarkable in a European context. Steel capacity has been halved, special needs restructured…shipbuilding is a fifth of its original size. Mr. Feldt also announced his intention to reduce personal taxation so as to increase job opportunities in his country.

The Socialist Government of Spain is led by a bright young Prime Minister, Mr. Gonzalez. He has made clear his intention to introduce a modern social market economy in Spain with a smaller role for Government in industry and a more flexible labour market. He has also said that he wants fewer barriers to domestic and international competition. Last month, when opening his Socialist party's conference in Madrid, Mr. Gonzalez said: Without a sound economic policy there cannot be a serious social programme. We were not called on to govern in order to distribute scarcity and hunger. He concluded his speech by defending his monetarist approach, which he said was vital to save Spain from crisis.

When the hon. Member for Kingston upon Hull, East winds up, let him say why the policies being propounded by the British Labour party are inconsistent with those being implemented by Socialist Governments in the remainder of Europe. Unless he can do that convincingly, the British electorate will continue to believe that the Labour party's policies bear no element of truth.

The Opposition motion calls for that question to be answered. After all, the right hon. Member for Manchester, Gorton (Mr. Kaufman) conceded shortly after the last general election that Labour had lost because the people did not believe them. In the months to come, Labour MPs also have an opportunity to disprove that and to explain at the same time why their policies are inconsistent with those of their Socialist brethren in Europe.

7.50 pm
Mr. Bruce George (Walsall, South)

The Chancellor concluded his speech in a rhetorical flourish with a mixture of illusion, bravado and what the Russians call dezinformazia. He has rushed off no doubt to stem a further run on the pound caused by his speech. I am sorry that the hon. Member for Plymouth, Sutton (Mr. Clark) is not here. He wrote a work on the British military high command in the first world war called "The Donkeys". Perhaps he has rushed off to do field research for its sequel, because the Government of which he is a member show the same obduracy as the British high command in the first world war, with the same disastrous consequences for the economy.

In his preoccupation with touring the Socialist horizon, the hon. Member for Mid-Norfolk (Mr. Ryder) forgot to read the Sunday newspapers at the weekend, which showed how an ailing company in America, Chrysler, was rescued and put on the road to success by a pro-capitalist President, so perhaps lessons are not learnt so simply as the hon. Gentleman would have us believe.

When I made my maiden speech here 11 years ago, the Walsall, South constituency which I described was prosperous, with unemployment under 5 per cent., with companies producing goods which were required and a town which half a century earlier was called a town of 100 trades. Many of those giants of industry are now but memories. Indeed, in the last few years the area has been struck by a major crisis, the industrial equivalent of the black death, because unemployment is over 17 per cent. Ten years ago unemployment in Walsall was below the regional and national level. Now, with unemployment in real terms higher than perhaps 25 per cent., I wonder where the goodies which have apparently been distributed—the Chancellor talks of more rewards to come—have gone in the few years since he took this job, with such disastrous consequences. No Saatchi and Saatchi public relations man can disguise the extent of the economic disaster that has befallen my constituency and the west midlands.

When one talks of economic crisis, one thinks of Wales, Scotland, the north-east and the north-west. When I became a Member of Parliament over 10 years ago, the west midlands was held to be almost the engine room of the British economy. Measures were taken to siphon industry away from constituencies like mine to so-called less prosperous areas. The decline of the last decade or so has accelerated over the last few years. I would never argue that the crisis in this country began when my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) left No. 10 Downing street, but certainly with the furniture van that brought in his successor there came a rapid acceleration of the decline.

We have seen under this Government an attack on the public sector. I speak unashamedly as a believer in a healthy private sector working alongside a healthy public sector. We have seen public assets plundered. We have not seen great success, as some people claim, with the British Telecom sale. I am one of the 54 million who are not now shareholders, but who until the sale were public shareholders. We are about to see the flogging off of British Aerospace so that the Government may get a little money to squander. Then there is to be the sale of assets such as the construction of warships, a sell-off which will probably be a disaster. The people who are thinking of buying will have to make up their minds in a couple of weeks whether to purchase.

Under this Government the maintenance of an infrastructure assumes a low priority. In my constituency no council house has been built for five years. There are 12,500 on the waiting list and 30,000 outstanding repairs to be done. The local authority, which is Conservative and independent-controlled, put in a bid for £37 million under the housing investment programme. It received £9.6 million. In 1978, the last full year in which we were in office, the allocation was £20 million. Yet six years later it has dropped to £9.6 million. There is a desperate need to improve the infrastructure housing and roads.

In the National Economic Development Council document referred to quite often, there is a reference to the backlog of maintenance and the consequence of delay. It says on page 6: The consequences of delaying required maintenance work can be well illustrated for roads. An average life for a roads' surface dressing may be four-eight years. A failure to renew this dressing…at the appropriate time can lead to the need for complete resurface at a cost per square metre some ten times greater than that for surface dressing. That is a timely illustration of the need to enhance the infrastructure of our economy, not simply because it creates jobs, but because by doing so it cuts the costs that would be involved in future.

The once prosperous area which I represent now has the unemployment level of one of the worst areas. That I deplore. A further disaster that will make unemployment worse is the abolition of the county council in the west midlands. We have an authority which has sought successfully to create jobs. The council recently asked Cambridge econometricians to forecast what would happen by the year 2000 if the Government's policies were to continue. Then it asked the experts to forecast what would happen if different policies were pursued. The research projected that if present policies were pursued employment would fall by 225,000 by 2001. The alternative was not as dramatic as some would have liked to see. It forecast that about 180,000 jobs would be lost. The difference is that under the alternative policy we would see the creation of 127,000 jobs in the service sector, but only 15,000 service jobs if present policies continue. Perhaps there are alternatives. The research at regional level could be repeated nationally. There are agencies of Government, county councils, local authorities and organisations in constituencies which could play an even bigger role in job creation.

In transport, the object of a future Labour Government must be to try to undo the damage that has been done to the infrastructure. There is a need for higher investment in railways. The future of transport should not, as the Government propose in their buses White Paper, be handed over to the private sector, which has shown itself manifestly incapable of meeting demands.

My next point relates less to infrastructure than to substructure. In the west midlands we have suffered recently the effects of past industrialisation. Much of the west midlands has been undermined, not just by the Government's economic policies, but by coal mines which are now defunct, by limestone caverns and by ironstone mines. There are enormous consequences for the sale of houses, house building and factory expansion. In fairness, the Government commissioned a study by Ove Arup to identify what needs to be done. In the west midlands and in my area in particular it is a prerequisite for industrial expansion and for the peace of mind of thousands of people to start infilling some of the enormous holes undermining towns in the black country and the west midlands. Only the Government have the capability to mount that exercise.

The Government have been an unmitigated disaster, not just for the west midlands, but for the country. Most hon. Members who have spoken already have been critical of the pure monetarism that appears to have prevailed over the past few years. It may be easy for my hon. Friends on the Opposition Benches to advocate what might be done should there be a Labour Government. Perhaps it is on the Government side that pressure will he more important for alternatives within the present framework.

The Government strike me as being similar to a character in "The Wizard of Oz" following Dorothy or Margaret, collectively searching desperately for a brain, a heart and courage—courage to recognise the failures of their policies and to accept the recommendations of hon. Members who have spoken and who will speak later. The policies of the Government are in tatters. Before our economy collapses completely, let us not be beguiled by some of the beneficial things that are allegedly happening. Surely there must be a change of policy. I hope that even in a small way the debate will contribute to that objective.

7.59 pm
Mr. John Maples (Lewisham, West)

The worrying thing about unemployment is not just its present level. Despite 3 per cent. growth and the creation of new jobs at the rate of around 25,000 a month, unemployment is not only not going down but is still going up slightly. If those factors continue, with present demographic trends, we are unlikely to see any reduction in unemployment in the next few years. Just about the only encouraging thing about the unemployment picture is that, as an issue, it has now reached the top of the political agenda. That is not surprising because people find it difficult to accept that the Government can do nothing more about the nation's most serious social and economic problem than sit back and wait for things to get better.

I am no economist, but like many other people in Britain I find myself looking at a paradox of massive unmet demand for goods and services existing alongside mass unemployment. Like those other people, I ask myself whether it is really beyond our intelligence and imagination to devise some way of bringing together the unmet demand and idle resources.

On the other hand, those who simply call for a massive increase in public expenditure do not have the answer to the problem. It is difficult to argue that what is wrong with the economy is that there is shortage of demand. Just about the only thing that is booming is retail sales. The money supply is at the top of its target range. To argue that what is needed is a stimulus to demand helps foreign manufacturers rather than our own. At the same time, there are fiscal measures that we could take that would have the effect of creating more jobs without endangering the Government's overall economic strategy, but before looking at some of those specific measures I should like to examine the public sector borrowing requirement because it is central to the way in which the Government see their fiscal stance.

The Government are in serious danger of becoming obsessed with the absolute level of the PSBR. It has become a self-erected totem of fiscal respectability in much the same way as M3 was before, the sterling-dollar exchange rate has been and the balance of payments was in the 1960s. Perhaps it will go the same way. There is a danger that one is looking at a proxy for what is happening in the economy, finding one simple figure and following it.

The danger is that in concentrating on the absolute level of the PSBR the components that go to make it up are ignored. The effect on the economy of the different items of taxation and expenditure that go to make up the public sector's activities is far more important than the arithmetical difference between them. Does the incidence of various taxes encourage output and employment? Do various items of public expenditure help to reduce industrial costs? Is a particular item of public sector investment likely to show a good return? There is an enormous difference between borrowing money to pay increased wages in the public sector and borrowing money to pay for something such as the M25 road, which will have a substantial and beneficial effect in reducing industrial costs. What is important is not the absolute amount of the borrowing but the use to which it is channelled and whether that use is productive and will help to increase output and employment.

My other problem with the concentration on the PSBR is that I find it difficult to convince myself that small differences in the PSBR have much effect on interest rates. This financial year we have seen an overshoot of £1.25 billion in the projected PSBR, which seems to have had little effect on the market and interest rates. I suggest to my right hon. and hon. Friends in the Government that other factors are far more important in determining United Kingdom interest rates — oil prices, American interest rates and the view that is taken by financial markets of the prospects for domestic inflation. All those have a far greater impact on United Kingdom interest rates than marginal differences in the PSBR. I should have thought that £2 billion either way on the PSBR had far less effect on United Kingdom interest rates than a speech by Sheikh Yamani on oil prices or Mr. Henry Kaufman on the prospects for American interest rates.

Therefore, the Treasury has more room for manoeuvre on the PSBR than it thinks it has. If it planned a PSBR of £10 billion for 1985–86, it could do so with no adverse effect on interest rates if—this is an important caveat—the money were to be productively spent and the commitment to sound public sector finance were continued. If the Treasury adopted that stance, together with the £1.5 billion fiscal adjustment, that would give the Chancellor about £4.5 billion with which to construct a job creation package in his Budget. That is what I hope we shall see, because I do not see how one can avoid the conclusion that tackling unemployment must now come before tax cuts or raising tax thresholds; and every fiscal resource that is available to the Government must be directed to creating employment in the private sector directly or to stimulating output and employment by reducing industrial costs.

Particularly on Conservative Benches, but also in general, the debate has tended to be divided into those who think that the problem can be solved by increased public spending and those who think that it can be solved by continuing a tight fiscal stance and having tax cuts. In fact, there are other uses to which room for manoeuvre on public sector finances can be put. I shall suggest some ways in which I think the Government could use the £4.5 billion, or, in their own terms, whatever fiscal room they think they have to manoeuvre, to help to reduce unemployment.

First, I suggest that we have an increased programme of home improvements grants. I suggest the expenditure of an additional £1.5 billion. The net effect on PSBR would be less than £900 million after tax and social security adjustments are taken into account. On generally accepted figures, that could create about 125,000 jobs in the private sector, in work that needs to be done, which is unlikely to be done without help and stimulus from the Government.

Secondly, we should make a start on reducing the non-pay costs of employment. We abolished the national insurance surcharge, which was right because it was a tax on jobs. Why stop there? Employers' national insurance contributions have exactly the same effect. I suggest that the Government use some of the room that they have for manoeuvre for a phased reduction of employers' national insurance contributions, and I suggest lowering them by 1.5 per cent. a year over three years from approximately 10.5 per cent. to 6 per cent. Some 30 per cent. of national insurance contributions paid by employers is effectively paid by the Government because of the number of people employed in the public sector. Therefore, the cost to the PSBR is far less then it would originally appear to be. It is just under £1.2 billion for each 1.5 per cent. reduction. Such a reduction would both create jobs directly in the private sector and, through lower industrial costs, help to stimulate output and employment indirectly.

That leads to another matter that we should consider, which is the possibility of giving direct cash subsidies to private sector employers to employ people. If a married man with two children and a wife who is not working is unemployed, it costs the Government about £4,000 a year in social security benefit. If he were employed at average earnings, the Government's net tax revenues from him would be approximately £4,000 a year. Therefore, the difference to the Government in PSBR terms between his being employed and being unemployed is a staggering £8,000. Surely it makes sense for the Government to pay a private sector employer £6,000, for example, which is around 75 per cent. of the marginal cost of that unemployment, to employ the man on average earnings.

The rates of subsidy would be different for different types of unemployed people, but they could be calculated. I suggest that we consider seriously constructing a temporary system of subsidies, perhaps for net new jobs created in the next two years, with the subsidies being phased out over a period of four years. That would substantially reduce the cost of employment and therefore stimulate the employment of additional people. It would help to lower average industrial costs and thereby stimulate output.

Finally, we must be more aggressive in our industrial and trade policies in promoting the interests of British companies. We cannot sit around and allow British jobs to be destroyed by unfair foreign competition, and we must not allow foreign companies to capture markets by unfair trade practices. Although we have made some progress on that front, we should be more aggressive in the way that the French and Japanese have been in promoting their national interests. We should adopt the same attitude towards our national interests and the interests of our companies and employers.

I have suggested what I believe to be a modest programme of action which would be a start in the process of increasing production and creating more jobs. I do not believe, and doubt whether anyone does, that we can create 3 million new jobs overnight. However, we can and should develop practical and imaginative policies to tackle unemployment. We cannot appear to wash our hands of the nation's greatest social and economic problem.

8.9 pm

Mr. Richard Wainwright (Colne Valley)

I wish that at least one Treasury Minister had been in the Chamber to hear the carefully reasoned challenge of the hon. Member for Lewisham, West (Mr. Maples) to many of the Government's dogmas. I also wish that the time limit allowed me to follow up some of his interesting leads. As it is, I shall speak briefly in support of the Liberal-SDP amendment. It contrasts sharply with the Labour motion, which argues something that we feel bound to oppose—a concentration of all of the resources of Government on the public sector. Our amendment is also in clear contrast to the tired and complacent phrases of the Government amendment.

Today's debate gave the Chancellor a most timely opportunity to show sonic leadership in the new circumstances that result from the exchange rate fracas and the hike in interest rates and the grim prospect for jobs that they involve. Aided by the blurred and blunted approach of the Labour Front Bench, the Chancellor missed that opportunity entirely and fell back on defensive remarks. The responsibility of Government for the level of employment coincides with an equally important duty—their stewardship of public assets. Whether they like the public sector that they inherited is irrelevant to that duty. They also have the historic duty of relieving the poorest in our society. Those are three fundamental objectives that no civilised Government can deny for long and they call for a substantial change in the thrust of Government policy.

If the Government need one, the recent chain of events has given them a good excuse for changing their policy. The Government's lamentably poor stewardship of public assets is a matter of common report from all parts of the country and all types of organisation. It is partly the House's fault as our primitive procedures never give us the opportunity, which every sensible business takes at least once a year, to review the state of our assets. We should as soon as possible have a system under which we do not vote public expenditure nor accept a Budget statement until we have had a comprehensive review of the state of public property.

There is plenty of information, which should have been available much earlier, from various private sources and research organisations such as the Policy Studies Institute, and now from the National Economic Development Council. The latter has drawn attention to a backlog of some £2 billion on hospital maintenance, the appalling state of the public sector housing stock, schools, roads and other assets. At the elementary level of repair and maintenance expenditure, let alone capital projects, the Government are falling lamentably short. Until we start to catch up with the appalling arrears in maintenance, there should be no dividend, as it were, to the shareholders who still have jobs and earn a regular income. No business would be allowed by its auditors to pay a dividend until they had been satisfied that the business was putting enough aside for the maintenance of its assets.

We must also consider proper provision for depreciation, including, in these days of rapid development, provision for obsolescence. We have out-of-date public buildings, especially hospitals, some of which are so ancient and difficult to clean that there is more risk of cross infection than from the disease for which a patient is admitted. They have ancient heating systems such as the one in this House which are prodigal with fuel and damaging to health. We must also consider the state of our housing stock.

I endorse heartily the appeal of the hon. Member for Lewisham, West for greater expenditure on house improvement grants. The Government seem utterly unaware of the plight of those people who, often at the behest of the Government, have recently become house owners, and now find that the entire household is without work and therefore have not the means to put the roof back or to deal with the broken chimney stack. There should be an improvement grant system, means-tested if need be, to enable our housing stock to be kept in reasonable condition.

More than 500,000 blue collar workers in construction industries are on the dole. Training opportunities for young people who should be entering construction industries are lamentably few. It ill becomes the Government to boast, as they have done again today, that they have launched what they call the greatest training scheme ever, when their policies are shamefully reducing the opportunities for training in some of our greatest building firms. For example, the chairman of Wimpey reported only yesterday that, whereas in 1979 he had 976 craft trainees, he now has only 260. His figures are even worse for professional trainees in, for example, design and estimating.

The proper maintenance of our assets and the provision of work and practical training for those who need it, some of whom have been waiting three years, are all related. I am dwelling on housing because it provides the greatest opportunities for lasting jobs. The need is eternal and the work is satisfying. As compared with road construction, which is not my hobby horse, house construction and improvement has been shown by various recent surveys to provide three times as many jobs per £1 million spent as road construction.

We should not be too proud to take lessons from the United States. The Federal Department of Housing and Urban Development has for some years operated urban development action grants. I do not have the most recent figures but, by 1982, that Department reckoned that $2 billion spent in Government grants had generated $15 billion of useful housing and development projects in less prosperous areas—not just the most distressed. There is much to be learnt from how other countries are tackling the joint problems of public need and lack of employment. It is high time that the Government adapted themselves to these present circumstances.

8.19 pm
Mr. Ken Hargreaves (Hyndburn)

As my right hon. Friend the Chancellor of the Exchequer said, the Government have had some success in reducing inflation; a success which has benefited every citizen, employed and unemployed. Unemployment is now the main worry of most people. There is a feeling that the Government are not doing enough to reduce it. Whether that is true, and whether the criticism is fair, matters little. The Government must redouble their efforts to reduce the number of people who are unemployed. They must, in their own interests, ensure that the public are aware of the effort that they are making.

I believe that the Government are interested in reducing unemployment, just as they are interested in keeping public expenditure under control and about promoting owner-occupation for people in lower income groups. Increasing spending on improvement grants is the only way in which the Government can achieve those three objectives at the same time. Money invested in that sector of housing is not contrary to the Government's current economic policies. Spending of relatively small amounts of money now will not just provide jobs in the housing construction industry and in manufacturing, but will reduce the need to spend larger sums later and allow owner-occupiers to remain in the private sector.

In mine and similar constituencies, we improve our present substandard housing and keep it in the private sector, or we allow it to deteriorate still further so that eventually it must be demolished and replaced by council houses at five or six times the cost of improvement grants. That cannot be in line with the Government's public expenditure policy. Given that the Government are rightly committed to widening owner-occupation and to selling council houses, it cannot make any sense to allow existing owner-occupied properties to fall into disrepair, to be demolished and replaced by council houses.

Unless the Government alter course, they will in the long term fail in two of the three objectives that I have mentioned. Even if they are successful in the third—reducing unemployment — they will have ensured the need for a massive surge in public expenditure on housing and a shift back from owner-occupation to public sector housing.

The 1983 Conservative party manifesto clearly said: Our goal is to make Britain the best housed nation in Europe". What is the position today? Given present resources, the chance of even approaching that manifesto promise, let alone achieving it, seems impossible. In England alone over 4 million houses are defective in some way, 2 million of them requiring repairs costing between £2,500 and £7,000. The cost of putting all those deficiencies right was estimated at some £30 billion in 1981.

I realise that the Government have made it a cornerstone of their policy to ensure that public expenditure does not consume too great a proportion of the nation's wealth. Progress towards making this country the best housed in Europe depends upon the provision of a sound economic base and on the creation of productive employment—not just the making of artificial jobs—and I look to the Government to provide a balanced programme for housing, to provide the public finance necessary to pump-prime housing strategy, and to do it in a way which attracts additional private investment to an area of spending which is extremely labour-intensive and in which jobs could be quickly created.

I was greatly flattered last week to receive a letter from the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) acknowledging the fact that I was a Member of Parliament who put common sense first. I am most grateful for that comment, despite the fact that it probably ruined whatever slight chance of promotion I had inside the Conservative party. Having resisted the immediate temptation to join the Liberal party where promotion is much easier to obtain, I have to disappoint the right hon. Gentleman further by informing him that the same common sense tells me that it is as easy for the Liberals, who have never had power, to tell the Government what policies they should follow as it is for the Labour party, which will never have power again, to advise the Government.

Anyone can condemn and criticise, but on improvement grants, for example, such condemnation and criticism come ill from the Labour party, during whose term of office from 1975 to 1979 only 67,000 improvement grants were made each year in England—only half the number made by the previous Conservative Government from 1970 to 1974, and less than one third of the 230,000 made in 1983. Criticism comes equally unfairly from the Liberal party, which kept such a disastrous Labour Government in power.

Conservative Members who recognise what the Government have achieved and who welcome it are entitled to say that they want them to do even more. In my constituency, £223,000 was spent on improvement grants in the last year of the Labour Government. Under this Government we shall spend £1.8 million this year. That is an increase which is greatly appreciated in terms of the number of houses dealt with and the significant effect that it will have on reducing unemployment, but even more needs to be done if we are to make inroads into our severe housing and unemployment problems. It would be disastrous to do less, and a tragedy if we do not take the opportunity to do more.

I hope, therefore, that, while the Government will ignore many of the comments from the Opposition Benches, they will listen to the worries of many of their supporters and provide a reasonable balance between the rumoured tax cuts and increased spending on labour-intensive projects in areas of greatest need, which would do much to reassure people that we are determined to do everything that we can to reduce unemployment.

8.26 pm
Mr. Robert Kilroy-Silk (Knowsley, North)

I wish not to talk about the sterling crisis or economic policy, but to register the despair and despondency felt by thousands of my unemployed constituents. I should not need to do that nor to lay out the bare facts of the level and scale of unemployment in my constituency, but, given that many people in the south and many Conservative Members representing southern constituencies do not know or understand the scale of the problem in areas such as mine, I feel it incumbent upon me to make it clear to them.

I represent a constituency in which more than 10,000 people are unemployed — a 27 per cent. rate of unemployment — where over 6,000 of them are long-term unemployed, and where in the relatively small town of Kirkby, with a population of between 40,000 and 50,000, there are now over 7,000 men, women and young people unemployed. There are a mere 56 vacancies at the jobcentre and no vacancies — nor have there been for several years—at any of the career offices.

In the borough of Knowsley in 1983 only 10 per cent. of school leavers went into full-time employment and last year only 6 per cent. Over half of the 18 and 19-year-olds have never had a full-time job. The overwhelming majority of my constituents leave school, get married and have children while on the dole and they are never likely to have a job. Their youth, their life, their aspirations and opportunities have been blighted, if not destroyed.

Knowsley is a constituency and a borough that has faced a horrendous and unremitting catalogue of factory closures and redundancies, where currently the only economic activity seems to be that of derelict land reclamation which, in effect, amounts to demolishing factories built 10 to 15 years ago and levelling the ground for some other unspecified activity in the distant future.

As every hon. Member will be aware, the figures do not give an accurate picture of the scale, the depth or the terrifying social consequences of unemployment which are currently a reality in parts of my constituency.

It is not just that whole families are unemployed, or that not one person living in multi-storey blocks of flats— perhaps seven, 12 or 14 storeys high—is in full-time work, or that people in an entire street are unemployed. There are two boroughs located in my constituency where only 25 per cent. of the economically active are in full-time employment. As one would expect, the result of such long-term unemployment is massive, demonstrable and conspicuous poverty and deprivation.

The poverty and deprivation are illustrated by a great variety of factors. I shall give two examples. Sixty-eight per cent. of all schoolchildren in the borough are in receipt of free school meals, 61 per cent. of the school population is in receipt of some help with school clothing, 80 per cent. of council tenants, in virtually a 90 per cent. council tenant borough, receive some help with housing benefit and more than 50 per cent. of all households are in receipt of state benefit. We have even reached the stage where Fine Fare is no longer viable in my constituency and has had to close down. We have moved on from the closure of factories, social clubs and the local newspaper to the closure of a supermarket which is selling basic food and necessities. To the despair of the population, it was no longer viable and had to close.

Whole areas of both Kirkby and, more horrendously, Cantril Farm, or Stockbridge village as it is now called, contain shops which are boarded up, which have no goods to sell and which no longer function. Nobody in Maidstone, Dorking or Guildford can have any conception of what it is like to see only three shops open in a purpose-built shopping centre which was created only 10 or 15 years ago: a video shop, a baker's shop and a betting shop. Every other shop has corrugated iron across what used to be its windows. This is more reminiscent of Belfast than of a mainland town in Britain. The despair, despondency and distress caused by this ever-deepening poverty is shown very clearly by the vandalism and destruction of our public assets.

Both in this debate and in other debates many hon. Members have alluded to what might be the social consequences of continuing to tolerate such unacceptably high levels of unemployment. Those social consequences are already evident in my constituency. Very few weeks pass without there being some kind of—I use the term in inverted commas but it is used in the full meaning of its term by the police and other members of the local community — "riot" in one part of the constituency. Young unemployed people now burn down schools. They are burnt down with amazing rapidity in Cantril Farm, for example. They then stone the firemen, the ambulance services and the police when they arrive. It has become their only way of showing their frustration and despair. Perhaps it is also their only means of amusing themselves. The way in which this is being allowed to happen without proper public comment, acknowledgement and debate is frightening. Those in the south who speak about an economic revival through tax cuts have no conception or understanding of the depths of despondency in my constituency and other areas like it.

My constituents are not fools. They know that it does not have to be like that. They know that they do not have to be unemployed and that they could have the same opportunities and advantages as are enjoyed by people in other parts of the country, especially the south. They know that it is foolish to have 40,000 people in Merseyside on the waiting list for hospital treatment while hospitals are empty and nurses and doctors are unemployed.

They know that it makes sense to match the need for medical attention with the available resources and that it is absurd that there should be such overcrowding, inadequate housing and homelessness in my constituency, let alone on Merseyside, while their brothers. fathers, relatives and they themselves are unemployed construction workers. They know that it makes sense to use their skills and abilities in repairing the housing stock. They know that it is absurd that such an inadequate social provision should be tolerated while thousands of their fellow citizens are idle. They know that it is possible to put the two together. They know that a totally different world exists in the south and in other parts of the country and that they have been written off.

It would be both obscene and a betrayal of those people if it should be suggested that economic revival or job creation could be brought about by tax cuts. Even more importantly, we cannot go on telling people that they do not count and that they are worthless. We cannot continue to make them feel that they do not belong to this community, that they have no part to play in our society and that they will never be the beneficiaries. Very soon they will take their revenge, and so they should.

8.35 pm
Mr. John Watts (Slough)

We have heard from the Opposition Benches yesterday's arguments from yesterday's men. I recall that expansion of public spending and borrowing was the Labour Party's prescription for unemployment in June 1983, but their claim that a massive expansion of public spending and borrowing would achieve a substantial reduction in unemployment lacked credibility and lacks credibility now. The seeds of unemployment were sown in those years of rapid growth in public expenditure at a time when the economy was stagnating. As public spending consumed an increasing share of our national resources we saw also the performance of our economy go into inexorable decline. It was to reverse those inexorable trends of rising public expenditure, borrowing and inflation and the continuing economic decline that a Conservative Government were elected in 1979.

In 1983 we were re-elected with a massively increased majority, of which I am happy to be a part, to complete the task of reversing those destructive trends and setting the economy on a soundly based course of sustainable growth. As my right hon. Friend the Chancellor of the Exchequer reminded the House earlier, the economy is now into its fourth year of recovery. That sustained growth has been achieved without any resurgence of damaging inflation. The present policies of the Government, which have given the highest priority to defeating inflation and controlling public expenditure and borrowing, have created an extra 300,000 jobs in the past year.

I am not persuaded that a return to the policy of expanding public spending is likely to produce a more rapid expansion of employment. Indeed, the simulation on the Treasury model of the effect of the £1 billion increase in local authority capital expenditure showed an increase in employment of only 24,000 jobs, at a cost in excess of £40,000 per job. If, as the right hon. Member for Birmingham Sparkbrook (Mr. Hattersley) argued, the whole of the £1.5 billion fiscal adjustment were used in this way, the net effect would be the creation of only 36,000 new jobs. I consider that to be no great prize.

The major achievement of the Government's economic policy has been to combat inflation. I believe that that must remain the first priority. But the achievement has been somewhat more modest when it comes to reducing taxation, even though income tax thresholds have been increased substantially in real terms. When comparisons are made between our economic performance and those of the United States and Japan I find it to be more persuasive that the substantially lower levels of taxation enjoyed in those countries have more to do with their economic success than with any higher level of borrowing.

Reducing taxation must be our top priority. It is not an insult to the unemployed to recognise the need to remove tax disincentives from taking relatively low paid employment. The priority which my right hon. Friend the Chancellor attaches to raising income tax thresholds is right. However, I would also urge him to have regard to another similar disincentive, that which arises from the incidence of national insurance contributions.

I urge him to consider two changes. First, he should change the system whereby the total income becomes liable to contribution once the threshold is crossed. That results in a confiscatory marginal rate of tax and is every bit as much a disincentive to taking relatively low paid employment as is the incidence of income tax.

Secondly, following an argument similar to that advanced by my hon. Friend the Member for Lewisham, West (Mr. Maples), I ask my right hon. Friend to consider providing an incentive by way of remission of employers' contributions to businesses which increase employment. What I have in mind is not an across-the-board reduction in rate or any specific payment of subsidy, but rather a system where perhaps a ceiling is set on the amount that a company would be required to pay in employers' contributions. That should be set at the level paid in the previous year so that the company will have, so to speak, a year's tax holiday from paying the employers' part of the national insurance contribution that related to any increase in its payroll costs.

If that were done, it would not only provide a direct incentive to increase employment, but it would also have the effect of reducing unit labour costs. I am reminded of my right hon. Friend's assertion in the debate on unemployment in October 1984 of the connection between reductions in the level of real earnings and increases in the level of employment in the economy—that for every 1 per cent. reduction in the level of real earnings there is an increase of between 0.5 and 1 per cent. in the level of employment, between 150,000 and 200,000 jobs. A further reduction in employers' national insurance contributions in the way that I have suggested would achieve a similar result.

I commend my right hon. Friend's rejection of siren calls for a return to voodoo high expenditure policies, whether those calls come from the Labour Benches or from below the Gangway. Such policies have not achieved conspicuous success in the past and I have no reason to believe that they will be more successful now.

For my part, I shall continue to support the economic strategy on which I fought and won my election campaign in Slough in June 1983.

Mr. Barry Sheerman (Huddersfield)

The hon. Gentleman will not be here long.

Mr. Watts

Time will tell whether I or Labour Members are right.

That strategy is one of continued lower inflation, firm control of public spending and borrowing, and progressively lower taxation to provide the best recipe for sustaining economic growth and increasing employment opportunities.

8.42 pm
Mr. Austin Mitchell (Great Grimsby)

I do not intend to follow the hon. Member for Slough (Mr. Watts), but his speech was a manifestation of the state of mind that Back Benchers of a faltering Government get themselves into, whistling in the wind to keep their own spirits up. It is potentially a manifestation of the bunker mentality which is coming over the Government as they attempt to talk up a recovery which is faltering. It was never a real surge of growth, but a rather small bounce back from the immense depression and deflation which they inflicted on the economy between 1979 and 1981. If the Government have an economic strategy, it is essentially the belief that since phoenixes rise from ashes, the more ashes we create the better the health of Britain's economy will be.

Nor do I intend to speak at length in praise of the Opposition's motion, because that is so obviously straightforward that there is no more to be said about it. We are in a situation which Galbraith described in the 1950s, which I then thought applied to America rather than to Britain, of private affluence and public squalor. That description is beginning to describe what is happening in Britain under the Government. Thanks to that, there is so much to be done by public spending that the motion speaks for itself.

However, we must emphasise the other side of the story. We need to emphasise the problem of manufacturing and, yes, the problems of the private sector. The Labour party is the only real friend of the private sector, particularly manufacturing industry, in Britain. It is the only party whose policies can provide should be dedicated to provide, and will be dedicated to provide, the climate of expansion, growth, buoyancy and optimism, and the framework which industry needs if it is to expand, to grow, and to bring down unemployment.

The Government, the so-called friend of the private sector, have done the exact opposite. They have inflicted immense damage on industry and the private sector. The Prime Minister's economic policies are not really economic at all. They are a system of morality. The right hon. Lady wants, not growth, but a discipline on the economy. Unfortunately, in a modern, complex, capitalist economy, discipline is the enemy of that which is needed to provide the dynamic for the future — investment. Investment needs the expectation of profit. It needs the climate of optimism and the expectation of growth ahead. All that the Government have generated is depression, discipline and gloom, which are the enemies of the investment that we need to get us out of our difficulties.

The real agency of mismanagement under the Government has been the exchange rate. The value of the pound as against other currencies, the means which adjusts our relationship with the world, is essentially an instrument of economic policy. It is not something to be put aside and neglected entirely; nor is it the phallic symbol which Conservative Governments in the past have seen it as.

It is a test of the stupidity and intellectual failure of so much of British industry that it has not seen the importance of the exchange rate and the importance of bringing that exchange rate down to improve our competitive position in the world and to give to industry and the economy the only boost which can now get us back into a competitive situation. The fall, which has really been a rise in the dollar, should have been welcomed by the Government, and, indeed, by the country, because it was taking us back towards a competitive situation. Unfortunately, the Chancellor lost his nerve and decided to increase interest rates to defend the pound, as if the pound, having been neglected by the Government for so long, was suddenly a sacred symbol again.

Yet the Chancellor has done that just at the moment when the decline against the dollar was opening up substantial opportunities in America to British exporters. We were not seizing them as avidly and successfully as the Japanese or Germans, but the opportunities were there and British industry was responding to them. The right hon. Gentleman is trying to choke off those opportunities, and at the same time he has failed to recognise that the pound is still substantially over-valued against the currencies of those countries which are now our major industrial competitors, particularly West Germany and Japan. We are still substantially over-valued in real terms against West Germany.

At the end of 1976 the Labour Government pledged themselves to the IMF to manage the exchange rate to maintain the competitive position of British industry at home and abroad. Yet the pound is now in real terms about 40 per cent. over-valued against the deutschmark. How can we maintain a competitive position against West Germany? It is no wonder that we are running such a huge deficit in manufactured trade with the EEC—a deficit which this year will almost certainly be over £10,000 million.

We are essentially becoming an industrial and manufacturing colony of West Germany, not a great manufacturing power in our own right, thanks to the way in which the exchange rate has been mismanaged by the Government. The effect has been felt by manufacturing industry. That is where the jobs have gone. That is where the expansion needs to come. That is where our efforts need to be concentrated. To fulfil those efforts we can only use the exchange rate to get us back to a competitive situation.

The surge in unemployment has come, not in the public sector, but in the manufacturing sector of the economy. The jobs have been lost there. The number of jobs lost in manufacturing is almost as great as the total increase in unemployment. In the five years to June 1984 we lost nearly 1,700,000 jobs in manufacturing. That has been the basic cause of the rise in unemployment. In the five years to the second quarter of 1984 employment in manufacturing in the United Kingdom dropped by 22 per cent., compared with a fall of only 7 per cent. in the United States and an increase of about 5 per cent. in Japan. Whether a developed economy loses manufacturing jobs depends upon how the economy is run and with what aim. The loss of manufacturing jobs is a uniquely British failure, caused largely by exchange rates.

The problem is therefore to get the pound down. To do that, we need to spend. Recessions arise from no other cause than a deficiency in demand, which means a deficiency in spending. The only way to get demand up again is to spend. Whether that spending comes from the Government or the private sector is immaterial. The Labour strategy would be a combination of both. There must be an increase in spending to redress the deficiency in demand. In my view, that increase in spending must be financed not just by borrowing and taxation, both of which merely transfer purchasing power from one section to another, but by the creation of additional purchasing power—as has occurred in the United States thanks to the inflow of funds from overseas. Conservative Members who believe that unemployment is inevitable should consider that in the United States that process has created 7 million jobs in little more than two years.

In this country we might need to print the money, but we must have that increase in the money supply to boost purchasing power so as to achieve an expanding economy. With the old-fashioned gold standard, if the economy was depressed gold would flow in, thus enlarging the credit base and increasing the money supply so that interest rates fell and investment picked up. That was an automatic adjustment mechanism. The Government are doing exactly the opposite. Instead of printing the money and expanding the money supply, they have been over-funding and taking money out of the economy, largely so that the Chancellor could achieve monetary targets which were mere fetishes bearing no relation to the economy, as well as helping his banking friends.

Expansion in the sense that I have described may produce a surge in demand for imports, but there is no harm in that if those imports are used to create jobs and investment in this country. Even if they merely reduce the balance of payments surplus, they will bring down the pound, and by bringing down the exchange rate will make industry and the whole economy more competitive. There is no inevitable, fatalistic correlation between being an oil power and going into industrial decline. Whether manufacturing industry declines depends—

Mr. Deputy Speaker (Mr. Harold Walker)

Order. I call Mr. Alan Howarth.

8.53 pm
Mr. Alan Howarth (Stratford-on-Avon)

It is said that the Labour party motion on the supremely important subject of unemployment amounts to no more than a recycling of the illusion that we can spend our way into prosperity and into jobs. The hard-won experience of a generation should have taught us that that is not so, that to concentrate resources in the public sector is to use them relatively inefficiently and unproductively, that a spending boost born out of panic generates few and temporary jobs and that the increases in taxes, interest rates and inflation caused by such a boost are damaging and destroy jobs elsewhere in the economy.

My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) referred to Lord Halisham's expedition to the north-east, but in 1963–64 public expenditure represented 34 per cent. of GDP, whereas in 1983–84 it was 43 per cent. Somewhere in that progression or deterioration we crossed the critical threshold beyond which high and stable employment, which should always be a cardinal objective, is no longer to be had and political stability is even at risk.

It is strangest of all that the Labour party should put down this motion at the very time when the Government, whom the Opposition condemn for heartless stringency, are being given a rather rough time by the markets, which suspect a certain fiscal laxity. One wonders where the pound and interest rates would be if the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) were Chancellor.

I wish to refer briefly to four elements which should be part of our strategy for jobs. I believe that the Government can do significantly more and that there are more levers to pull than my right hon. Friend the Chancellor has recognised.

First, we should renew our attack on inflation and be more consistent about it. It is no coincidence that in the years since the war peaks of inflation have been followed by new peaks of unemployment. The reasons are clear. Inflation saps the profitability of companies, reducing the capacity and willingness of managers to invest. It induces aggression in pay bargaining. It drives up interest rates. In all those ways, inflation destroys jobs.

Unemployment is properly the intense preoccupation of all of us. There can be no Member of Parliament who is not urgently concerned to find ways to reduce unemployment and the unhappiness that it brings. It does not follow from that, however, that we should somehow subordinate our attack on inflation to policies to reduce unemployment. On the contrary, the two are inextricably tied together. I am concerned that the Government have slackened their drive to reduce inflation. It was 3.7 per cent. annualised at the time of the general election. In the year ending last November it was 4.9 per cent., and it is predicted to be 4 per cent., 5 per cent. or even more in the coming year. I am even tempted to suspect that my right hon. Friend the Chancellor has become something of a crypto-reflationist. His last Budget marked a certain shift away from the emphasis on control of public expenditure and the reduction of inflation towards a preference for tax cuts and growth. At that time inflation was predicted to be 4 per cent. in the second quarter of 1985. The autumn statement marked a further shift in the same direction and the prediction rose to 4.75 per cent.

I believe that my right hon. Friend has run certain risks in the reflationary direction. He has made it clear that he is impatient to bring interest rates down — naturally enough, but in my view somewhat impetuously—and he has made it clear that he has been happy to see some devaluation of the pound. He has also held out the prospect of tax cuts. The markets have now made it clear to him that he has dared too much.

It is appropriate that we should now renew our quest for honest money. Unless we have financial stability and money in which people can be confident, our economy will be on shifting sands and less able to generate jobs than it otherwise could be. I suspect that my right hon. Friend the Chancellor of the Exchequer would not disagree with me about any of that.

I agree with my right hon. Friend that if we are to have more jobs we must have lower taxes. High taxation drains the lifeblood from the private sector, which is the source of the wealth of our economy and of our capacity to employ people. I am glad, however, that recently my right hon. Friend has displayed caution about the prospects of tax cuts being deliverable in the spring. I have been worried that tax cuts should be held out as a prospect, not on the basis of securely limited public expenditure, but on the basis of oil revenues at a peak and asset sales, similarly at a peak. We would be left with a structural PSBR too high to be consistent with the requirements of low interest rates, stable sterling and low inflation.

The problem has been that the public sector has been recalcitrant to reform. The Chancellor's strategy has therefore been to hold public expenditure steady in real terms and to allow the growth in the economy to express itself in the private sector. I doubt whether that strategy is politically achievable. Pressures for higher public expenditure surround us at every point on the battle front. I do not believe that our economy is as stably based as the Chancellor posits. A choice must therefore be made. Either we move with great national reluctance down the path to Socialism, along which the Labour party beckons us, or we move towards a Conservative society based on greater freedom and responsibility.

I had hoped that my right hon. Friend would invite the country to debate the role of the state and respective commitments of the public and the private sectors. I had hoped that the debate would be led by the Conservative party in its manifesto at the general election and that it would be developed in the Green Paper on the next 10 years, but that was a disappointing document. It is not too late—indeed, it is more critical than ever—to develop such a debate.

I am in favour, not of sudden or draconian action, but of gradualism. The debate should be conducted in calm, humane and reasoned tones. I do not underestimate the opposition that there would be from vested interests, entrenched orthodoxies, the faint hearted and the factious, but I believe that the debate is necessary.

Notwithstanding my reservations about the difficulties and the unsatisfactory condition that we face in public expenditure, if it is judged responsibly that we have scope for tax cuts this spring, I hope that my right hon. Friend will look for the most employment-effective tax cuts. I shall suggest two.

Many hon. Members have referred to the opportunities that might be found in the reform of the national insurance system. If the threshold for the employers national insurance contribution is raised to £6,000, it will become 10 per cent. cheaper to employ 40 per cent. of British workers. That would make a significant difference. I do not believe that we shall have lower pay settlements as a result of rather bleak rhetoric and exhortation, but if we make it cheaper to employ people, more people will be employed.

Secondly, it is worth mentioning a further valuable opportunity. VAT is levied on firms with an annual turnover of more than £18,700. In 1983–84, 93.3 per cent. of net VAT payments were made by the 24 per cent. of VAT registered businesses with taxable turnovers in excess of £100,000. The benefit to the Exchequer, after the cost of collecting VAT on three quarters of businesses, is therefore very small. At the same time, the administrative burden of completing VAT returns is a drain on small businesses, which should be the main source of new jobs. To raise the VAT threshold for businesses to a turnover of at least £100,000 is, therefore, attactive and should be given high priority.

Thirdly, I hope that the Government will do more to call off the bureaucratic harassment of businesses. It is disproportionately hampering to small businesses, the principal asset of which is the energy of the boss. Yet in this country someone running a small business must put up with a barrage of statutes, statutory orders, European Community regulations, local government regulations and the ministrations of, at the last count, 2,167 quangos. No wonder the contribution to employment by small businesses is less than it might be. I hope that the Government will be willing to consider taking discretionary powers to exempt small businesses from a range of bureaucratic requirements.

I shall not enlarge on the scope that exists for reforming the labour market, which is the fourth area in which our strategy needs to be energetically developed, other than to observe that trade unions, by forcing pay above what the market will bear, and by resisting technological change, are still destroying job opportunities. We must find a fairer balance between employers and unions. Similarly, wages councils are asking for more than the market can bear. That hurts the employment of the young and the unskilled especially.

The Government have no magic wand to wave, but, by pursuing a vigorous and coherent approach in these four areas, they can hasten the structural reform of the economy and bring closer the moment when there will again be enough jobs to go round.

9.3 pm

Mr. John Prescott (Kingston upon Hull, East)

I wish that the hon. Member for Stratford-on-Avon (Mr. Howarth), who has 3,000 unemployed people in his constituency, would visit my area and explain to the 20,000 unemployed there—unemployment has increased by three times since the Government came to office—those sorts of solutions. It is no surprise that the Secretary of State for Employment allowed some of his time to the hon. Gentleman, because he is one of the few hon. Members to support the Government's policy on unemployment.

The debate is about the increase in mass unemployment in the United Kingdom after five years of Tory policies, three of which the Government claim to be years of recovery. It is also about the Government's priority for reducing unemployment. Since 1979, we have witnessed the trebling of unemployment, despite the Government's efforts to massage the figures downwards by recording only those who claim unemployment benefit and those not on Government schemes. The reality is that almost 4 million people are unemployed, which cruelly exposes the Tory election poster, showing queues of unemployed people, which said, "Labour isn't working." That Labour Government could at least claim that they left office, despite an increased working population of 900,000, with 310,000 more people in work than when they came to office in 1974, although I admit that they were extremely dissatisfied with unemployment at 1.2 million. If we enjoyed unemployment of 1.2 million today, that would have been welcomed by most speakers in this debate and by most people outside the House, with the exception of the Government's spokesmen, as was revealed in the deplorable speech of the Chancellor of the Exchequer at the beginning of the debate.

There is clear evidence that since 1979 the Government have contributed directly to increasing by 2.5 million the number of unemployed through their obsession with the public sector borrowing requirement and cutting public capital expenditure, which they believe will secure lower inflation. For every 1 per cent. reduction in inflation since 1979, the Government have contributed to throwing half a million people on the dole in order to create what they call an honest money policy. That honest money policy has been cruelly exposed on the currency exchange market during the past few days.

Mass unemployment was the expected result of such a policy. Indeed, I would argue that it was the Government's intention to create unemployment on that scale as an instrument of policy to achieve lower inflation. Most people predicted that it would happen if they pursued those policies. The policies are being pursued in the name of outdated theories, and are financed solely by the squandering of a massive amount of oil wealth which, a few years ago, everyone believed would be a blessing, but which is now talked of, at least in this debate, as though it were the curse of the British economy. It is clear that oil revenue has financed the experiments with our economy, of which the main cost has been 4 million unemployed.

Today we stand witness to the abject failure of Government policy to increase sufficiently production, demand and investment, which are essential prerequisites for the reduction of unemployment. Earlier today the Chancellor quoted from the OECD report—I hope that he will be able to join us before the debate ends—but he did not quote the essential part of the report that deals with the amount of investment that has been made in Britain. The reality is that the investment per head in the United Kingdom compared to the rest of the OECD countries is worse than that in 18 other countries, and only Portugal and Greece come after us. That is one reason why we have a worse level of unemployment than that experienced by other OECD countries which have also suffered from the world depression.

We have been told today that the Government do not have a bottomless purse of public expenditure to solve this crisis by spending our way out of it. That point has also been made by Labour Members. However, the debate today has been about the availability of resources under this Government. The argument as to whether we are prepared to spend millions or billions to reduce unemployment is not the issue of the debate. As various hon. Members have pointed out, the issue concerns the amount of resources that the Government acknowledged in their autumn statement to be available for either tax cuts or for reducing unemployment.

The essence of the dispute in this debate has been whether the £1.5 billion should be used for public expenditure or given in tax cuts. We know that unemployment can be reduced by either of those courses. The dispute is about whether we can reduce unemployment more by using public expenditure or by cutting taxes. We wish to make it unequivocally clear that any available resources should be used to increase public capital expenditure because that reduces the level of unemployment far more and at a faster rate than by simply giving the money out in tax cuts.

All this is apart from the morality of the argument of whether we should give more money to people who are better off rather than use it to help those who are worse off, those suffering because of the increased level of unemployment. There is also the increased number of those who have been unemployed for over a year, with more than 1 million in that category.

It was interesting to listen to hon. Members and to see how the level of unemployment in their constituencies was reflected in what they said. I am not saying that those hon. Members with low unemployment in their areas had no concern for high unemployment and its attendant problems, but there is a remarkable correlation between a low level of unemployment and the hon. Members who have spoken in favour of the Government's policies. The constituency of the hon. Member for Stratford-upon-Avon has an unemployment level of about 3,500. The hon. Member for Slough (Mr. Watts) represents an area with a similar level of unemployment, and he said that he did not want the Government to deviate from their policies. The Secretary of State for Employment and the Chancellor of the Exchequer have similar rates of unemployment in their constituencies.

However, in my constituency unemployment is 8,000, and my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) has about 10,000 unemployed. In Slough, Stratford-on-Avon, Blaby and Bridgwater over 30 per cent. of the unemployed have been without a job for more than a year. In the Labour constituencies that I have mentioned, over 52 per cent. have been unemployed for more than a year. My hon. Friend the Member for Knowsley, North (Mr. Kilroy-Silk) has 50 per cent. unemployment in some parts of his constituency, with 60 per cent. of the children on free school meals.

The social consequencies of long-term high unemployment have been vividly illustrated in the debate. I calculated the total levels of unemployment in the areas represented by the Labour Shadow Cabinet and those represented by Ministers in the Cabinet. The same relationship is evident. There are twice as many unemployed in the constituencies represented in the Shadow Cabinet as in those represented in the Cabinet. I believe that that has an effect on the Government's attitude in determining their priorities as between tax cuts and public expenditure.

In reading to prepare for the debate, I was strongly impressed by the booklet by the "Weekend World" television programme in which the interview with the Chancellor was reported. The Chancellor said: Thinking that Government can determine the level of employment—that is totally false".

I do not think that any hon. Member has doubted today that the Government can use their resources to increase employment and reduce unemployment. It is a question of whether they have the will and the desire to do so. I think that the Chancellor is completely wrong in adopting the position he has. The Government can influence the level of employment to a considerable degree.

The Chancellor was heard to make disparaging remarks about the computer models by which one can make certain comparisons. He made great play of the Labour party's policy before the election and the effect of devaluation on some of the policies that were drawn from such computer models. If we do not use objective criteria and attempt to evaluate what the models tell us, we shall fly by the seat of our pants, and the Chancellor has not been doing very well this week in making just such judgments. All the information contained in these models and, indeed, in the Treasury's own model, with which we must work quite considerably, shows that from twice to five times the number of jobs can be created by public expenditure programmes rather than by tax cuts. It is a matter for the judgment of hon. Members and particularly of the Government who have the power to decide which course of action they are prepared to take.

Listening to the debate one would think that we were entirely at the mercy of market forces and that it was not Government policy that had created unemployment in the country. Many Conservative Members have regularly and consistently voted for policies which have deliberately increased unemployment, partly in the belief, as the Chancellor said tonight, that the public sector industries are over-manned. Whether that is true or not. one of the consequences of tightening the financial targets and borrowing of those industries is to shake people out. That has taken place on a considerable scale, and Government claim credit for it.

The Government say to the rail industry—and this is what I find most offensive—"Yes, you can have your electrification programme". They do not give the industry more money to improve services or to extend electrification. They simply say, "Throw more people on the dole and that is the way you'll pay for the investment." That is what British Rail is now doing, and the state then picks up the tab for more people on the dole. They do not thereby boost demand but, rather, increase the burden on the Government and on public expenditure in supporting those policies. When one considers what the Government have done in roads, hospitals, education and the water boards—and much of this has been said in the debate—even if the level of public expenditure can be shown to be the same in the capital areas as in 1979, frankly, it is not enough. That is not the benchmark. Unemployment then was at the level of 1 million. Unemployment now is approaching 4 million and is likely to continue to increase. In those circumstances, one has to make a proper assessment of public expenditure.

I advise anybody who has any doubt about the deterioration in the country's infrastructure not necessarily to read the TUC report or to rely on the CBI report, but to read the Neddy report which only this week described the state of the infrastructure—the deterioration in the roads, the costs involved, the running down of the water and sewerage systems, all of which involve national public sector investment to a considerable extent. There is a whole range of choices which can be taken into account in these public expenditure options.

As to voting for tighter financial targets and reducing by £300 million the amount invested in regional policy, we have seen that regional expenditure has created jobs under both Tory and Labour Governments. It might not have produced enough and might have produced them more expensively than others, but there is no doubt that it created extra jobs. But we spent less in real terms on regional policy in 1984 than we spent in 1964, when unemployment stood at 500,000.

Mr. Maples

If public sector capital investment is such a good thing, why did the last Labour Government cut it by 40 per cent. in real terms?

Mr. Prescott

I have to admit that the figures are clear. I do not know about the precise quality of that public expenditure, or whether the figure was 40 per cent., but there were cuts in public expenditure. As a result, there was an increase in unemployment. I shall not run away from the point — how can I? The figures on public expenditure are there for all to see. But the hon. Gentleman will have to accept that public expenditure influences unemployment and that the Government have the choice of using the £1.5 billion that they say is available in that way.

The hon. Gentleman served with me in Committee on the London Regional Transport Bill. He should have realised that supporting that Bill would lead to more unemployment, fewer buses on order, and so on. But all that is now clear. The Bill was enacted simply to save £500 million of public expenditure, and as a result thousands more will be thrown out of work. I just ask the hon. Gentleman to question what he was doing in Committee. The answer is that he was voting for unemployment.

The point about public expenditure on a national level is equally true of public expenditure at the local authority level. We have already heard a lot about housing, roads and so on. Public expenditure is involved in all of those areas, yet the Government have sought, by financial controls, to reduce the amounts of money available to authorities. One particularly offensive effect of the restraints on local authorities is that the local authority enterprise and employment units that have been creating jobs at £3,000 a time have been cut at a time when the Government's enterprise zones produce a job for about £80,000 a time.

Therefore, the Government and their Back Benchers have been voting for constraints on local authorities despite the fact that those authorities can legitimately point to the number of jobs that they have created. Thus, the effects of public expenditure at the local and national level, and on both the public and private sectors, are clear. After all, we have all received letters from the private sector calling for expenditure in the public sector because, in the main, all the orders involved are private orders. Both sectors produce wealth and jobs. The money comes from the Government via the taxpayer.

The House is asked to make a choice in the order of its priorities as between public expenditure and tax cuts. I would be more convinced of the Governments' policies if they believed that we must get out of what some call the old smokestack industries and into the sunrise industries. Last night, a television programme showed miners in Scotland talking in silicon glen. They could not see any prospect of jobs, even if they left the mines. Why? The answer is that the Prime Minister's adviser, Professor Ashman, has produced a report for NEDC that talks about the crisis in our information technology industries. He says that the sun has set on the sunrise industries. Indeed, the Chancellor is reported as saying, "Please don't use such purple prose in my presence." Last night on television he was quoted as saying that, but I do not know whether it is correct.

The Government have put £200 million into information technology and have now ordered a moritorium on investment in it. The Germans have put £800 million into information technology—four times as much. The Government believe in their privatisation programme, but it is a pity that the money that they secured from selling British Telecom—about £4 billion—was not invested in the information technology industries to provide a way forward for the new type of industry needed in this country. I wish that the Government had given to the information technology industries the almost £400 million they gave the bankers to float off the deal instead of paying their friends in the City to privatise an important and essential industry. If the Government had done that, their privatisation programme would have made more sense than feeding public borrowing to support the high level of expenditure needed to maintain massive levels of unemployment.

The Chancellor will go to the United States this week to convince the Government of his policies—I hope that he does better than he did today—and will come back telling us about the importance of the service industries. Britain has increased the number of jobs in the service industries. The problem is that she has allowed her manufacturing industries to collapse, whereas such industries have increased in America, even though they may have been assisted by deficit financing, as the right hon. Member for Old Bexley and Sidcup (Mr. Heath) pointed out. That policy has led to greater growth and lower unemployment in America, but apparently the Chancellor considers that approach to be voodoo economics.

The Secretary of State for Employment makes great efforts to increase training. He claims that the expenditure of £2 billion is a fourfold increase; and so it is. It is, however, a threefold increase on the amount we spend on the dole, but we do not claim that as a success. More youngsters cannot obtain jobs. We massage the unemployment figures, and we must pay for that action. The Neddy report shows how much our major competitors in Germany, France and the United States spend on their labour forces which are already twice as well qualified as Britain's labour force.

Training is desperately needed for the new types of industry in Britain at a time when, according to a CBI survey, every industry is screaming for more resources and skill training. I am a little contemptuous when I hear the CBI say that, because it led the campaign to reduce the number of training boards so that it did not need to pay the levy. The Secretary of State for Employment complains that employers do not pay enough towards training. We knew that in the 1960s, and training boards were set up to make employers face up to their responsibilities.

The Government are even wrong in their attitude to training our labour force. They claim that they are spending £2 billion, but that is not enough. If resources from the £1.5 billion are to be available, much more money could be put into training. That could be done by extending the youth training scheme to provide more quality training for at least two years, as is done by most of our competitors. No doubt some of those ideas are being considered by the Government.

Britain's performance in training has always been poor compared with that of its competitors. The Government are the only body able to change that position, because our industries have refused consistently to do anything about the quality of training. One or two firms may throw in training schemes, but the fact is that there are now half the number of engineering apprentices that there were many years ago.

The Government have abolished the boards that imposed the training levy and have closed the skillcentres. We are desperately short of skills, training places and instructors, and there are plenty of people on the dole who want training. At the Government's behest, the Manpower Services Commission, to meet the obligation to break even financially by 1986, is closing 29 of our skillcentres. Five of those centres are profitable. I never thought that profitable training centres would be closed under a Tory Government. Some of those centres specialise in technology and some in youth training. Some of them are concentrated in the coal mining areas. The skillcentres say to the miners, "Readjust to the new economy. Come out of the uneconomic areas." The training centres, which are supposed to retrain people for the new industries, are being closed down by Government agencies.

We have been reminded of the information on social trends that has been produced this week. It is clear that there is a direct connection between sickness, drinking, smoking and suicides, which have increased at a phenomenal rate, and unemployment. The facts are there to see. Those are the social consequences of mass unemployment. Those consequences are not paid for by Conservative Members. They are paid for largely by the people in areas of high unemployment.

That is the real cost of five years of Tory policies. I am glad to hear talk of some Tory Members deciding to revolt, though I do not expect to see them in the Lobby revolting tonight. I am reminded that following the 1979 general election the Prime Minister, on reaching 10 Downing street—in her "spitting image" voice, reminding one of being invited into the parlour by the spider—quoted St. Francis of Assisi. Her quip was carried in the Daily Telegraph of 5 May: Where there is despair may we bring hope. Today there is little hope for the unemployed, little hope for the sick and the needy, and little hope for those in the wages council industries; and some are suggesting that the councils should be abolished as a means of solving our problems.

Because they are worried about their policies, the Government have made a policy change. They have brought in Lord Young. I am not sure who is now dealing with the problems of and policies affecting unemployment, the Secretary of State for Employment or Lord Young. At present, Lord Young is making most of the announcements. It is clear that he has the prestige spot; he is to appear on the Jimmy Young show on 30 January. Will the right hon. Gentleman have that distinction?

The Secretary of State must agree that Lord Young was the first to advocate that the way to get more youngsters into training schemes, even if they did not want to join them, was to conscript them, suggesting that if they still refuse to join they should have their benefits suspended. That was Lord Young's first idea. His second idea, it seems, is the abolition of wages councils. We are talking about the sort of bodies that are concerned with industrial wages of £50, £64 and so on. I do not know whether the Secretary of State intends to abolish the wages councils, and perhaps he will say tonight whether he intends to notify the ILO of his decision to abolish them.

In any event, why did the right hon. Gentleman not abolish the agricultural wages council? He had an opportunity only last year to do something about that. Is the farming lobby so influential in the Tory party that he does not want to do anything about that council? Or is he concerned only with industrial workers? I am not advocating a reduction in the agricultural council wage; it is little enough that the workers get now. Nevertheless, we should be told why there is a difference in approach— that is, if the Government are proposing to abolish wages councils.

I hear that the farmers have made a 20 per cent. profit this year. I hope that that will be borne in mind when they talk about what their workers are paid. I wish there was as much pressure from Tory Members for giving agricultural workers a decent wage as there is backing for the subsidies given in support of that industry.

Our salvation now appears to rest on small firms. Tonight we have heard how we must get the small firms going again. Are not Tory Members aware that there have been record numbers of bankruptcies, among small and big firms, since the Conservatives took office?

We hear talk of a survey by Lord Young. What is he really doing? I have the documents with me and I gather that he is considering, as a solution to our problems, scrapping the conditions placed on small industries for unfair dismissal, redundancy pay, aspects of race relations, equal opportunities, truck Acts, working environment, maternity leave — [Interruption.] Some Conservative Members may think that such action is jolly good for many ordinary folk, but it is no good for those who work in low-wage industries. That is especially true of industries in which health and safety authorities have warned the Secretary of State that the greatest threat to safety arises in small industries.

After three years of legislation attacking the trade unions, the Government are turning for a solution not to a change in policy but to an attack on the statutory rights and conditions of workers. Parliament gave them those rights and conditions because they were not strong enough as groups of workers to secure them by ordinary trade union negotiations.

After the 1979 election the newspapers told us that the Prime Minister had quoted St. Francis of Assisi: Where there is discord may we bring harmony. Considering her record in government, she should have quoted the part from the prayer that she must deliberately have omitted: Lord make me an instrument of thy peace. The iron lady, who is more concerned with resolution than charity, has no concern for the problems that we face. She is leading us to a society more divided between the north and the south, the rich and the poor. That is the result of the Government's policies.

The motion gives a clear opportunity to the House to vote for public expenditure on capital programmes that everyone outside the Government says will increase employment. To increase employment is the major priority. There must be a clear signal from the House. If it backs Tory policy, it will be saying apparently that the rich are not rich enough and the poor are not poor enough. If the Government continue with this policy, there will be social discord of a kind not seen since the 1930s.

9.35 pm
The Secretary of State for Employment (Mr. Tom King)

The debate has dealt particularly with investment and infrastructure. It has generally been well attended apart from a period in the middle when the Chamber was rather empty. I have considerable sympathy for the hon. Member for Colne Valley (Mr. Wainwright), who suggested that one aspect of infrastructure on which there might be greater investment was the House of Commons heating system. The hon. Member for Kingston upon Hull, East (Mr. Prescott), in his closing speech for the Opposition, made a contribution to try to improve the position; it generated more heat than light on the motion before us.

The motion that the Opposition have chosen to put before the House today condemns what they call the Government's wilful refusal to implement policies which would result in a reduction in unemployment". That is a serious charge to level against the Government. It might have carried greater credibility if it had been moved more convincingly by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who chose to be at his most bombastic and at times abusive to the Chancellor. He delights in a choice of adjectives to describe his opponents. Perhaps the most appropriate adjectives to describe his speech would be flatulent and fraudulent. If we may once again with some pleasure use a cricketing metaphor in regard to the right hon. Gentleman, every question he was asked removed his middle stump; and he showed total incapacity to answer the questions that were put to him.

In his opening remarks the right hon. Gentleman sought to suggest that the debate should be conducted with a high standard of honesty. He went on to allege that my right hon. Friend had suggested that £3 billion of funds and resources were available and then had failed to substantiate that; he suggested it might have been said by his agents.

The motion accuses us of wilful refusal. It is a motion that any opposition could propose in any assembly building in Europe at present. My hon. Friend the Member for Mid-Norfolk (Mr. Ryder), in a well-informed and researched tour of the Socialist leaders of Europe, showed how totally fraudulent was the allegation made by the Opposition. My hon. Friend was able to point to the speech of Mr. Fabius, the Prime Minister in President Mitterrand's cabinet, to the Prime Minister in Spain, to Mr. Craxi and to the difficulties they all face equally in tackling the intractable problem of unemployment.

At the end of his speech, the right hon. Gentleman's case seemed to be based on his policies for investment, taking the infrastructure route, which would create some 36,000 more jobs over a two-year period than my right hon. Friend the Chancellor alleged would be created by the approach of reductions in taxation. That did not seem to me to be a comprehensive approach to what is undoubtedly a major problem, with the appalling levels of unemployment, including long-term unemployment, that we face.

Of course, the debate has been overshadowed by the recent position of sterling, and I believe that the House will accept that that is a clear warning of the limitations in our freedom of manoeuvre in tackling the problem.

My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) described the situation in the north-east which, with parts of the south-west and Ayrshire, in particular in Scotland, faces some of the most appalling problems in unemployment. I would not seek to argue with him in his use of adjectives to describe the appalling nature of the problem. However, the hon. Member for Kingston upon Hull, East did not need to embroider his case by seeking to distinguish between unemployment in constituencies of members of the Cabinet and of the Shadow Cabinet. I have said at the Dispatch Box more times than I care to remember that every Member of the House accepts that the present levels of unemployment are far too high and that unemployment is a major problem.

In approaching the debate and comments made by right hon. and hon. Members, I should like to start not in a divisive sense, but on what I hope is common ground on which we stand. I hope that it is common ground that we must achieve the lowest level of inflation, and that for our industry to be competitive we must have low inflation. I hope that it is common ground that we must see a continuing improvement in productivity and performance in our industry. I hope that it is common ground that we must see increasing investment. I hope that, in spite of some of the remarks by the hon. Member for Kingston upon Hull, East, we have common support for the need to increase the content and quality of training.

I hope that it is common ground that we support the need for substantial investment in infrastructure. I hope that it is common ground that we face genuine problems with the power of the dollar. My right hon. Friend the Member for Old Bexley and Sidcup and the right hon. Member for Plymouth, Devonport (Dr. Owen) commented on the challenge faced by my right hon. Friend the Chancellor in his journey to Washington tomorrow. The House will recognise the vital need for recognition in the United States of the problems posed by its deficit, and I am sure that hon. Members will wish my right hon. Friend god speed in his important mission.

I hope that it is common ground that we cannot isolate ourselves and oil prices in the North sea from world markets. I say to the right hon. Member for Devonport that I agree with the right hon. Member for South Down (Mr. Powell). His suggestion that somehow we would connive with OPEC at an artificial sustaining of a higher oil price was not realistic, and could not be sustained.

This is where the arguments will now lie. I hope that there is common ground that there is ultimately a limit to the level of public expenditure beyond which the Government cannot go without a risk of increasing inflation and even higher interest rates which would be counterproductive in the loss of employment that they would cause. We must ask ourselves what is a reasonable level. That is a Government judgment. The right hon. Member for Sparkbrook carefully went no further than the figure that my right hon. Friend the Chancellor gave in his autumn statement. When considering public expenditure, the creation of employment and the alleviation of unemployment, we must start from the soundest possible base. In the light of the problems of the past 48 hours, it is easy for people to get a misleading impression of the basic strength of the economy.

I was impressed by the adviser to the Senate Finance Committee, who was interviewed on the "Today" programme this morning. He said that there is a feeling in Washington that the fundamentals in Britain are strong and that Britain is basically on a stable path. When asked whether the pound would continue to weaken against the dollar, although he made it clear that his answer was speculative, he said that, although the pound might weaken slightly, there was every reason for it to strengthen.

It is important to be aware of the background. If Opposition Members are worried about unemployment, they must accept that we must have a strong economic base. We have achieved lower inflation. It is now 4.9 per cent., though it must be lower still. That level is still a great improvement. There has also been an improvement in productivity, which is now three times its level between 1974 and 1979. In the past three years, it has been twice that of France and Germany. In 1983 we had the highest growth in the European Community. Although that has been depressed by the miners' strike, the latest forecast is that, in 1985, we shall again lead Europe. The combination of growth and low inflation gives us the best prospects since the 1960s. We have good retail demand and the prospect of high fixed investment, which increased by 8 per cent. last year and is forecast to reach the highest ever level next year.

We have good export volumes. I am sure that right hon. and hon. Members who have suggested that manufacturing exports are dead on their feet will take great pleasure at the 14.5 per cent. increase in manufacturing exports. We now have industries' best profit performance since the 1960s and the longest period of sustained growth since the war. The right hon. Member for Sparkbrook suggested that what I have described is a picture of a weak economy. That opinion does not carry much credibility with anyone who studies the figures.

Against the background of a sound base, we face the problem of unemployment. There must be an improvement in inflation. We must recognise the problems caused by continuing excessively high increases in earnings. We must face problems arising out of the miners' dispute. It is interesting that when Mr. Jimmy Reid lectured the Leader of the Opposition on the Labour party having no alternative but to stand up and fight Scargillism, the right hon. Member for Islwyn (Mr. Kinnock), once again, walked away from the problem and his responsibilities.

We have halted the haemorrhage in the loss of jobs and started to create more jobs. The latest figures show the highest level of vacancies for the past four years. The largest private agency has forecast the best recruitment prospects for five years. There is an improvement in job prospects.

We face a major problem with the increase in the working population and the long-term unemployed, and the biggest industrial and economic upheaval since the industrial revolution. It is against that background that we must determine the best way to face change and bring hope to our people. It makes demands on us all — Government, individuals, and unions. It is the duty of the Government and Opposition parties to tell people the truth and not to perpetrate on them the fraud that there is some easy solution.

Our country is engaged in a critical process of economic and social modernisation … the … people are sufficiently mature to understand that any action leading to recovery requires time and continuity. When one is a Prime Minister or a Minister of whatever political persuasion, there are economic realities and national interests which transcend the political divide. Those are not my words or those of my right hon. Friend the Chancellor of the Exchequer. They are the words of a Socialist Prime Minister of France telling the truth to the British people and talking more directly than any Socialist Member of the House has been prepared to do.

In the present circumstances, the Government have a duty to make the possibilities clear to the people and to help in any way that they can. It is not, as the House has argued today, whether we are for or against infrastructure. My right hon. Friend the Chancellor of the Exchequer made it clear that in the coming year we will have the highest level of fixed investment. There will be some £24 billion of capital expenditure and a further £5 billion of vital maintenance and renewal expenditure. Substantial investment will be made in housing, roads, railways and sewerage. The argument is whether there should be more and whether it is the most cost-effective way to ensure more jobs.

The biggest single extra investment that the Government have made in addition to the more conventional investment is in my Department's programmes. The Government, as the hon. Member for Kingston upon Hull, East mentioned fairly, has quadrupled investment in training, helping people obtain jobs and tackling the skill shortages that exist, where training has a vital role.

Mr. Campbell-Savours

In so far as the community programme is a cheap way of reducing unemployment, can the Secretary of State show some flexibility on numbers and show the way for movement there?

Mr. King

The hon. Member will be aware that at the time of the autumn statement I announced new measures to improve the quality of the community programme to ensure that next year the long-term unemployed would also have the opportunity to train on that programme to help them into work.

There is no question of this Government sitting back and arguing their case from a doctrinaire standpoint.

I have dealt with the suggestion that we are not investing in the infrastructure. On the programme to help the long-term unemployed by increasing self-employment, I announced recently a further expansion of the enterprise allowance scheme. I have made it clear that we are prepared to examine every approach which may help to improve employment. My hon. Friends the Members for Stratford-on-Avon (Mr. Howarth) and for Lewisham, West (Mr. Maples) referred to the contribution which could be made by an adjustment of national insurance contributions. This is a matter to which I have previously referred. I have also referred to deregulation, as has my hon. Friend the Member for Stirling (Mr. Forsyth).

We are anxious to ensure that everything which can be done to help people to obtain jobs is done. We are particularly anxious to help young people to gain employment. We are determined to do what we can to create better opportunities for more people to set up their own businesses. We want to examine how we can further develop the enterprise allowance scheme, which has been such a success. We are determined that every opportunity for employment in all its aspects should be given. We shall examine the ways in which we can help those in our society who are most in need. This requires a contribution from us all. I hope to have the support of every hon. Member and also a substantial contribution from trade unions and employers in order to improve, by training, the skills of the people of this country. There are skill shortages, particularly in new technology.

I have been able to demonstrate the enormously improved profitability of British industry. Because of the problems we face, and because of the contribution that the Government will make, I hope that British industry will be prepared to contribute to the training that is necessary in order to ensure that existing opportunities are taken. Although the volatility of the exchange rate causes certain difficulties, it provides an exceptional opportunity for British industry to maximise its exports and increase the job prospects of the people of this country. I hope that every employer will grasp the opportunities that are provided by the exchange rate. I hope that the unions will recognise the contribution that they can make to the improvement of the productivity of British industry and that they will ensure that we achieve maximum competitiveness.

We debated this subject on an earlier occasion, and I was able to announce a number of measures that the Government had taken to improve the prospects for the long-term unemployed. I said that I did not want people to be under the illusion that this was the end of our approach to the deep-seated problem of unemployment. It is the most difficult and serious problem that faces the Government. On that occasion I made a number of announcements. I said to my right hon. and hon. Friends, and I confirm it tonight, that further work is proceeding on a number of other approaches to the unemployment problem.

To those who seek to criticise us, facing the most difficult and modern scourge of unemployment, I give the assurance that we shall not rest until we see a real improvement for the British people.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 182, Noes 383.

Division No. 64] [10.00 pm
Abse Leo Dobson, Frank
Adams, Allen (Paisley N) Dormand, Jack
Anderson, Donald Douglas, Dick
Ashley, Rt Hon Jack Dubs, Alfred
Ashton, Joe Dunwoody, Hon Mrs G.
Atkinson, N. (Tottenham) Eadie, Alex
Bagier, Gordon A. T. Eastham, Ken
Banks, Tony (Newham NW) Ellis, Raymond
Barron, Kevin Evans, John (St. Helens N)
Beckett, Mrs Margaret Ewing, Harry
Bell, Stuart Faulds, Andrew
Benn, Tony Field, Frank (Birkenhead)
Bennett, A. (Dent'n & Red'sh) Fisher, Mark
Bermingham, Gerald Flannery, Martin
Bidwell, Sydney Forrester, John
Blair, Anthony Foulkes, George
Boothroyd, Miss Betty Fraser, J. (Norwood)
Boyes, Roland Freeson, Rt Hon Reginald
Bray, Dr Jeremy Garrett, W. E.
Brown, Gordon (D'f'mline E) George, Bruce
Brown, Hugh D. (Provan) Gilbert, Rt Hon Dr John
Brown, N. (N'c'tle-u-Tyne E) Godman, Dr Norman
Brown, R. (N'c'tle-u-Tyne N) Golding, John
Brown, Ron (E'burgh, Leith) Gould, Bryan
Buchan, Norman Gourlay, Harry
Caborn, Richard Hamilton, W. W. (Central Fife)
Callaghan, Jim (Heyw'd & M) Hardy, Peter
Campbell, Ian Harrison, Rt Hon Walter
Campbell-Savours, Dale Hart, Rt Hon Dame Judith
Canavan, Dennis Hattersley, Rt Hon Roy
Carter-Jones, Lewis Haynes, Frank
Clark, Dr David (S Shields) Healey, Rt Hon Denis
Clarke, Thomas Heffer, Eric S.
Clay, Robert Hogg, N. (C'nauld & Kilsyth)
Clwyd, Mrs Ann Holland, Stuart (Vauxhall)
Cocks, Rt Hon M. (Bristol S.) Home Robertson, John
Cohen, Harry Hoyle, Douglas
Coleman, Donald Hughes, Dr. Mark (Durham)
Cook, Frank (Stockton North) Hughes, Robert (Aberdeen N)
Cook, Robin F. (Livingston) Hughes, Roy (Newport East)
Corbyn, Jeremy Hughes, Sean (Knowsley S)
Cowans, Harry Janner, Hon Greville
Cox, Thomas (Tooting) Jones, Barry (Alyn & Deeside)
Craigen, J. M. Kaufman, Rt Hon Gerald
Crowther, Stan Kilfedder, James A.
Cunliffe, Lawrence Kilroy-Silk, Robert
Cunningham, Dr John Kinnock, Rt Hon Neil
Dalyell, Tam Lambie, David
Davies, Rt Hon Denzil (L'lli) Lamond, James
Davies, Ronald (Caerphilly) Leadbitter, Ted
Davis, Terry (B'ham, H'ge H'l) Leighton, Ronald
Deakins, Eric Lewis, Ron (Carlisle)
Dewar, Donald Lewis, Terence (Worsley)
Dixon, Donald Litherland, Robert
Lloyd, Tony (Stretford) Robertson, George
Lofthouse, Geoffrey Robinson, G. (Coventry NW)
McCartney, Hugh Rogers, Allan
McDonald, Dr Oonagh Rooker, J. W.
McGuire, Michael Sedgemore, Brian
McKay, Allen (Penistone) Sheerman, Barry
McKelvey, William Sheldon, Rt Hon R.
Mackenzie, Rt Hon Gregor Shore, Rt Hon Peter
McTaggart, Robert Short, Ms Clare (Ladywood)
McWilliam, John Short, Mrs R.(W'hampt'n NE)
Madden, Max Silkin, Rt Hon J.
Marek, Dr John Skinner, Dennis
Marshall, David (Shettleston) Smith, C.(Isl'ton S & F'bury)
Mason, Rt Hon Roy Smith, Rt Hon J. (M'kl'ds E)
Maxton, John Snape, Peter
Maynard, Miss Joan Soley, Clive
Meacher, Michael Spearing, Nigel
Michie, William Stewart, Rt Hon D. (W Isles)
Mikardo, Ian Stott, Roger
Millan, Rt Hon Bruce Strang, Gavin
Miller, Dr M. S. (E Kilbride) Straw, Jack
Morris, Rt Hon A. (W'shawe) Thomas, Dafydd (Merioneth)
Nellist, David Thompson, J. (Wansbeck)
O'Brien, William Thorne, Stan (Preston)
O'Neill, Martin Tinn, James
Orme, Rt Hon Stanley Torney, Tom
Park, George Wardell, Gareth (Gower)
Parry, Robert Wareing, Robert
Patchett, Terry Weetch, Ken
Pavitt, Laurie Welsh, Michael
Pendry, Tom White, James
Pike, Peter Wigley, Dafydd
Powell, Raymond (Ogmore) Williams, Rt Hon A.
Prescott, John Wilson, Gordon
Radice, Giles Winnick, David
Randall, Stuart
Redmond, M. Tellers for the Ayes:
Richardson, Ms Jo Mr. James Hamilton and
Roberts, Ernest (Hackney N) Mr. Austin Mitchell.
Adley, Robert Brown, M. (Brigg & Cl'thpes)
Alexander, Richard Browne, John
Alison, Rt Hon Michael Bruce, Malcolm
Alton, David Bruinvels, Peter
Amess, David Bryan, Sir Paul
Ancram, Michael Buck, Sir Antony
Arnold, Tom Budgen, Nick
Ashby, David Bulmer, Esmond
Aspinwall, Jack Burt, Alistair
Atkins, Robert (South Ribble) Butcher, John
Baker, Rt Hon K. (Mole Vall'y) Butler, Hon Adam
Baker, Nicholas (N Dorset) Butterfill, John
Baldry, Tony Carlile, Alexander (Montg'y)
Banks, Robert (Harrogate) Carlisle, John (N Luton)
Batiste, Spencer Carlisle, Kenneth (Lincoln)
Beaumont-Dark, Anthony Carlisle, Rt Hon M. (W'ton S)
Beith, A. J. Carttiss, Michael
Bellingham, Henry Cartwright, John
Bendall, Vivian Cash, William
Benyon, William Chalker, Mrs Lynda
Best, Keith Channon, Rt Hon Paul
Bevan, David Gilroy Chapman, Sydney
Biffen, Rt Hon John Chope, Christopher
Biggs-Davison, Sir John Churchill, W. S.
Blackburn, John Clark, Hon A. (Plym'th S'n)
Blaker, Rt Hon Sir Peter Clark, Dr Michael (Rochford)
Body, Richard Clark, Sir W. (Croydon S)
Bonsor, Sir Nicholas Clarke, Rt Hon K. (Rushcliffe)
Bottomley, Peter Clegg, Sir Walter
Bottomley, Mrs Virginia Cockeram, Eric
Bowden, A. (Brighton K'to'n) Colvin, Michael
Bowden, Gerald (Dulwich) Conway, Derek
Boyson, Dr Rhodes Coombs, Simon
Braine, Sir Bernard Cope, John
Brandon-Bravo, Martin Cormack, Patrick
Bright, Graham Corrie, John
Brinton, Tim Couchman, James
Brittan, Rt Hon Leon Cranborne, Viscount
Brooke, Hon Peter Critchley, Julian
Crouch, David Hogg, Hon Douglas (Gr'th'm)
Currie, Mrs Edwina Holland, Sir Philip (Gedling)
Dickens, Geoffrey Holt, Richard
Dicks, Terry Hooson, Tom
Dorrell, Stephen Hordern, Peter
Douglas-Hamilton, Lord J. Howard, Michael
Dover, Den Howarth, Alan (Stratf'd-on-A)
du Cann, Rt Hon Edward Howarth, Gerald (Cannock)
Dunn, Robert Howe, Rt Hon Sir Geoffrey
Durant, Tony Howell, Rt Hon D. (G'ldford)
Edwards, Rt Hon N. (P'broke) Howell, Ralph (N Norfolk)
Eggar, Tim Howells, Geraint
Emery, Sir Peter Hubbard-Miles, Peter
Evennett, David Hunt, David (Wirral)
Eyre, Sir Reginald Hunt, John (Ravensbourne)
Fairbairn, Nicholas Hunter, Andrew
Fallon, Michael Irving, Charles
Farr, Sir John Jackson, Robert
Favell, Anthony Jenkin, Rt Hon Patrick
Fenner, Mrs Peggy Johnson Smith, Sir Geoffrey
Finsberg, Sir Geoffrey Jones, Gwilym (Cardiff N)
Fletcher, Alexander Jones, Robert (W Herts)
Fookes, Miss Janet Jopling, Rt Hon Michael
Forman, Nigel Joseph, Rt Hon Sir Keith
Forsyth, Michael (Stirling) Kellett-Bowman, Mrs Elaine
Forth, Eric Kennedy, Charles
Fowler, Rt Hon Norman Kershaw, Sir Anthony
Fox, Marcus Key, Robert
Franks, Cecil King, Roger (B'ham N'field)
Fraser, Peter (Angus East) King, Rt Hon Tom
Freeman, Roger Knight, Gregory (Derby N)
Freud, Clement Knight, Mrs Jill (Edgbaston)
Fry, Peter Knowles, Michael
Gale, Roger Knox, David
Galley, Roy Lamont, Norman
Gardiner, George (Reigate) Latham, Michael
Gardner, Sir Edward (Fylde) Lawler, Geoffrey
Garel-Jones, Tristan Lawrence, Ivan
Gilmour, Rt Hon Sir Ian Lawson, Rt Hon Nigel
Glyn, Dr Alan Lee, John (Pendle)
Goodlad, Alastair Leigh, Edward (Gainsbor'gh)
Gorst, John Lennox-Boyd, Hon Mark
Gow, Ian Lester, Jim
Gower, Sir Raymond Lewis, Sir Kenneth (Stamf'd)
Grant, Sir Anthony Lightbown, David
Greenway, Harry Lilley, Peter
Gregory, Conal Lloyd, Ian (Havant)
Griffiths, E. (B'y St Edm'ds) Lloyd, Peter, (Fareham)
Griffiths, Peter (Portsm'th N) Lord, Michael
Grist, Ian Lyell, Nicholas
Ground, Patrick McCrindle, Robert
Grylls, Michael McCurley, Mrs Anna
Gummer, John Selwyn Macfarlane, Neil
Hamilton, Hon A. (Epsom) MacGregor, John
Hamilton, Neil (Tattoo) MacKay, Andrew (Berkshire)
Hampson, Dr Keith MacKay, John (Argyll & Bute)
Hancock, Mr. Michael Maclean, David John
Hanley, Jeremy Maclennan, Robert
Hannam, John McNair-Wilson, P. (New F'st)
Hargreaves, Kenneth Major, John
Harris, David Malins, Humfrey
Harvey, Robert Malone, Gerald
Haselhurst, Alan Maples, John
Havers, Rt Hon Sir Michael Marland, Paul
Hawkins, C. (High Peak) Marlow, Antony
Hawkins, Sir Paul (SW N'folk) Marshall, Michael (Arundel)
Hawksley, Warren Mates, Michael
Hayes, J. Mather, Carol
Hayhoe, Barney Maude, Hon Francis
Hayward, Robert Mawhinney, Dr Brian
Heath, Rt Hon Edward Maxwell-Hyslop, Robin
Heathcoat-Amory, David Mayhew, Sir Patrick
Heddle, John Meadowcroft, Michael
Henderson, Barry Mellor, David
Heseltine, Rt Hon Michael Meyer, Sir Anthony
Hickmet, Richard Miller, Hal (B'grove)
Hicks, Robert Mills, Iain (Meriden)
Higgins, Rt Hon Terence L. Mills, Sir Peter (West Devon)
Hill, James Miscampbell, Norman
Hind, Kenneth Mitchell, David (NW Hants)
Moate, Roger Speed, Keith
Molyneaux, Rt Hon James Speller, Tony
Monro, Sir Hector Spence, John
Moore, John Spencer, Derek
Morrison, Hon C. (Devizes) Spicer, Jim (W Dorset)
Morrison, Hon P. (Chester) Spicer, Michael (S Worcs)
Moynihan, Hon C. Squire, Robin
Mudd, David Stanbrook, Ivor
Murphy, Christopher Stanley, John
Neale, Gerrard Steel, Rt Hon David
Needham, Richard Steen, Anthony
Neubert, Michael Stern, Michael
Newton, Tony Stevens, Lewis (Nuneaton)
Nicholls, Patrick Stevens, Martin (Fulham)
Norris, Steven Stewart, Allan (Eastwood)
Onslow, Cranley Stewart, Andrew (Sherwood)
Oppenheim, Phillip Stewart, Ian (N Hertf'dshire)
Oppenheim, Rt Hon Mrs S. Stokes, John
Osborn, Sir John Stradling Thomas, J.
Ottaway, Richard Sumberg, David
Owen, Rt Hon Dr David Tapsell, Peter
Page, Sir John (Harrow W) Taylor, John (Solihull)
Page, Richard (Herts SW) Taylor, Teddy (S'end E)
Parkinson, Rt Hon Cecil Tebbit, Rt Hon Norman
Parris, Matthew Temple-Morris, Peter
Patten, Christopher (Bath) Terlezki, Stefan
Patten, John (Oxford) Thatcher, Rt Hon Mrs M.
Pawsey, James Thomas, Rt Hon Peter
Penhaligon, David Thompson, Donald (Calder V)
Percival, Rt Hon Sir Ian Thompson, Patrick (N'ich N)
Porter, Barry Thorne, Neil (Ilford S)
Portillo, Michael Thornton, Malcolm
Powell, Rt Hon J. E. (S Down) Thurnham, Peter
Powell, William (Corby) Townend, John (Bridlington)
Powley, John Townsend, Cyril D. (B'heath)
Prentice, Rt Hon Reg Tracey, Richard
Price, Sir David Trippier, David
Prior, Rt Hon James Trotter, Neville
Proctor, K. Harvey Twinn, Dr Ian
Pym, Rt Hon Francis van Straubenzee, Sir W.
Raffan, Keith Vaughan, Sir Gerard
Raison, Rt Hon Timothy Viggers, Peter
Rathbone, Tim Waddington, David
Rees, Rt Hon Peter (Dover) Wainwright, R.
Renton, Tim Wakeham, Rt Hon John
Rhodes James, Robert Waldegrave, Hon William
Rhys Williams, Sir Brandon Walden, George
Ridley, Rt Hon Nicholas Walker, Bill (T'side N)
Rifkind, Malcolm Wallace, James
Rippon, Rt Hon Geoffrey Walters, Dennis
Roberts, Wyn (Conwy) Ward, John
Robinson, Mark (N'port W) Wardle, C. (Bexhill)
Roe, Mrs Marion Warren, Kenneth
Ross, Stephen (Isle of Wight) Watson, John
Rossi, Sir Hugh Watts, John
Rost, Peter Wells, Sir John (Maidstone)
Rowe, Andrew Wheeler, John
Rumbold, Mrs Angela Whitfield, John
Ryder, Richard Whitney, Raymond
Sackville, Hon Thomas Wiggin, Jerry
Sainsbury, Hon Timothy Wilkinson, John
Sayeed, Jonathan Winterton, Mrs Ann
Scott, Nicholas Winterton, Nicholas
Shaw, Giles (Pudsey) Wolfson, Mark
Shaw, Sir Michael (Scarb') Wood, Timothy
Shelton, William (Streatham) Woodcock, Michael
Shepherd, Colin (Hereford) Wrigglesworth, Ian
Shepherd, Richard (Aldridge) Yeo, Tim
Shersby, Michael Young, Sir George (Acton)
Silvester, Fred Younger, Rt Hon George
Sims, Roger
Skeet, T. H. H. Tellers for the Noes:
Smith, Sir Dudley (Warwick) Mr. Robert Boscawen and
Smith, Tim (Beaconsfield) Mr. Ian Lang.
Soames, Hon Nicholas

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 33 (Questions on amendments):—

The House divided: Ayes 353, Noes 200.

Division No. 65] [10.15 pm
Adley, Robert Currie, Mrs Edwina
Alexander, Richard Dickens, Geoffrey
Alison, Rt Hon Michael Dicks, Terry
Amess, David Dorrell, Stephen
Ancram, Michael Douglas-Hamilton, Lord J.
Arnold, Tom Dover, Den
Ashby, David du Cann, Rt Hon Edward
Aspinwall, Jack Dunn, Robert
Atkins, Robert (South Ribble) Durant, Tony
Baker Rt Hon K. (Mole Vall'y) Edwards, Rt Hon N. (P'broke)
Baker Nicholas (N Dorset) Eggar, Tim
Baldry, Tony Emery, Sir Peter
Banks, Robert (Harrogate) Evennett, David
Batiste, Spencer Eyre, Sir Reginald
Beaumont-Dark, Anthony Fairbairn, Nicholas
Bellingham, Henry Fallon, Michael
Bendall, Vivian Farr, Sir John
Benyon, William Favell, Anthony
Best, Keith Fenner, Mrs Peggy
Bevan, David Gilroy Finsberg, Sir Geoffrey
Biffen, Rt Hon John Fletcher, Alexander
Biggs-Davison, Sir John Fookes, Miss Janet
Blackburn, John Forman, Nigel
Blaker, Rt Hon Sir Peter Forsyth, Michael (Stirling)
Body, Richard Forth, Eric
Bonsor, Sir Nicholas Fowler, Rt Hon Norman
Bottomley, Peter Fox, Marcus
Bottomley, Mrs Virginia Franks, Cecil
Bowden, A. (Brighton K'to'n) Fraser, Peter (Angus East)
Bowden, Gerald (Dulwich) Freeman, Roger
Boyson, Dr Rhodes Fry, Peter
Braine, Sir Bernard Gale, Roger
Brandon-Bravo, Martin Galley, Roy
Bright, Graham Gardiner, George (Reigate)
Brinton, Tim Gardner, Sir Edward (Fylde)
Brittan, Rt Hon Leon Garel-Jones, Tristan
Brooke, Hon Peter Glyn, Dr Alan
Brown, M. (Brigg & Cl'thpes) Goodlad, Alastair
Browne, John Gorst, John
Bruinvels, Peter Gow, Ian
Bryan, Sir Paul Gower, Sir Raymond
Buck, Sir Antony Grant, Sir Anthony
Budgen, Nick Greenway, Harry
Bulmer, Esmond Gregory, Conal
Burt, Alistair Griffiths, E. (B'y St Edm'ds)
Butcher, John Griffiths, Peter (Portsm'th N)
Butler, Hon Adam Grist, Ian
Butterfill, John Ground, Patrick
Carlisle, John (N Luton) Grylls, Michael
Carlisle, Kenneth (Lincoln) Gummer, John Selwyn
Carlisle, Rt Hon M. (W'ton S) Hamilton, Hon A. (Epsom)
Carttiss, Michael Hamilton, Neil (Tatton)
Cash, William Hampson, Dr Keith
Chalker, Mrs Lynda Hanley, Jeremy
Channon, Rt Hon Paul Hannam, John
Chapman, Sydney Hargreaves, Kenneth
Chope, Christopher Harris, David
Churchill, W. S. Harvey, Robert
Clark, Hon A. (Plym'th S'n) Haselhurst, Alan
Clark, Dr Michael (Rochford) Havers, Rt Hon Sir Michael
Clark, Sir W. (Croydon S) Hawkins, C. (High Peak)
Clarke, Rt Hon K. (Rushcliffe) Hawkins, Sir Paul (SW N'folk)
Clegg, Sir Walter Hawksley, Warren
Cockeram, Eric Hayes, J.
Colvin, Michael Hayhoe, Barney
Conway, Derek Hayward, Robert
Coombs, Simon Heathcoat-Amory, David
Cope, John Heddle, John
Corrie, John Henderson, Barry
Couchman, James Heseltine, Rt Hon Michael
Cranborne, Viscount Hickmet, Richard
Crouch David Higgins, Rt Hon Terence L.
Hill, James Morrison, Hon P. (Chester)
Hind, Kenneth Moynihan, Hon C.
Hogg, Hon Douglas (Gr'th'm) Mudd, David
Holland, Sir Philip (Gedling) Murphy, Christopher
Holt, Richard Neale, Gerrard
Hooson, Tom Needham, Richard
Hordern, Peter Neubert, Michael
Howard, Michael Newton, Tony
Howarth, Alan (Stratf'd-on-A) Nicholls, Patrick
Howarth, Gerald (Cannock) Norris, Steven
Howell, Rt Hon D. (G'ldford) Onslow, Cranley
Howell, Ralph (N Norfolk) Oppenheim, Phillip
Hubbard-Miles, Peter Oppenheim, Rt Hon Mrs S.
Hunt, David (Wirral) Osborn, Sir John
Hunt, John (Ravensbourne) Ottaway, Richard
Hunter, Andrew Page, Sir John (Harrow W)
Irving, Charles Page, Richard (Herts SW)
Jackson, Robert Parkinson, Rt Hon Cecil
Jenkin, Rt Hon Patrick Parris, Matthew
Johnson Smith, Sir Geoffrey Patten, Christopher (Bath)
Jones, Gwilym (Cardiff N) Patten, John (Oxford)
Jones, Robert (W Herts) Pawsey, James
Jopling, Rt Hon Michael Percival, Rt Hon Sir Ian
Joseph, Rt Hon Sir Keith Porter, Barry
Kellett-Bowman, Mrs Elaine Portillo, Michael
Kershaw, Sir Anthony Powell, Rt Hon J. E. (S Down)
Key, Robert Powell, William (Corby)
King, Roger (B'ham Wield) Powley, John
King, Rt Hon Tom Prentice, Rt Hon Reg
Knight, Gregory (Derby N) Price, Sir David
Knight, Mrs Jill (Edgbaston) Prior, Rt Hon James
Knowles, Michael Proctor, K. Harvey
Lamont, Norman Pym, Rt Hon Francis
Latham, Michael Raffan, Keith
Lawler, Geoffrey Raison, Rt Hon Timothy
Lawrence, Ivan Rathbone, Tim
Lawson, Rt Hon Nigel Rees, Rt Hon Peter (Dover)
Lee, John (Pendle) Renton, Tim
Leigh, Edward (Gainsbor'gh) Rhodes James, Robert
Lennox-Boyd, Hon Mark Ridley, Rt Hon Nicholas
Lester, Jim Rifkind, Malcolm
Lewis, Sir Kenneth (Stamf'd) Rippon, Rt Hon Geoffrey
Lightbown, David Roberts, Wyn (Conwy)
Lilley, Peter Robinson, Mark (N'port W)
Lloyd, Ian (Havant) Roe, Mrs Marion
Lloyd, Peter, (Fareham) Rossi, Sir Hugh
Lord, Michael Rost, Peter
Lyell, Nicholas Rowe, Andrew
McCrindle, Robert Rumbold, Mrs Angela
McCurley, Mrs Anna Ryder, Richard
Macfarlane, Neil Sackville, Hon Thomas
MacGregor, John Sainsbury, Hon Timothy
MacKay, Andrew (Berkshire) Sayeed, Jonathan
MacKay, John (Argyll & Bute) Scott, Nicholas
Maclean, David John Shaw, Giles (Pudsey)
McNair-Wilson, P. (New F'st) Shaw, Sir Michael (Scarb')
Major, John Shelton, William (Streatham)
Malins, Humfrey Shepherd, Colin (Hereford)
Malone, Gerald Shepherd, Richard (Aldridge)
Maples, John Shersby, Michael
Marland, Paul Silvester, Fred
Marlow, Antony Sims, Roger
Marshall, Michael (Arundel) Skeet, T. H. H.
Mates, Michael Smith, Sir Dudley (Warwick)
Mather, Carol Smith, Tim (Beaconsfield)
Maude, Hon Francis Soames, Hon Nicholas
Mawhinney, Dr Brian Speed, Keith
Maxwell-Hyslop, Robin Speller, Tony
Mayhew, Sir Patrick Spence, John
Mellor, David Spencer, Derek
Meyer, Sir Anthony Spicer, Jim (W Dorset)
Miller, Hal (B'grove) Spicer, Michael (S Worcs)
Mills, Iain (Meriden) Squire, Robin
Mills, Sir Peter (West Devon) Stanbrook, Ivor
Miscampbell, Norman Stanley, John
Mitchell, David (NW Hants) Steen, Anthony
Moate, Roger Stern, Michael
Molyneaux, Rt Hon James Stevens, Lewis (Nuneaton)
Monro, Sir Hector Stevens, Martin (Fulham)
Moore, John Stewart, Allan (Eastwood)
Stewart, Andrew (Sherwood) Wakeham, Rt Hon John
Stewart, Ian (N Hertf'dshire) Waldegrave, Hon William
Stokes, John Walden, George
Stradling Thomas, J. Walker, Bill (T'side N)
Sumberg, David Walters, Dennis
Tapsell, Peter Ward, John
Taylor, John (Solihull) Wardle, C. (Bexhill)
Taylor, Teddy (S'end E) Warren, Kenneth
Tebbit, Rt Hon Norman Watson, John
Temple-Morris, Peter Watts, John
Terlezki, Stefan Wells, Sir John (Maidstone)
Thatcher, Rt Hon Mrs M. Wheeler, John
Thomas, Rt Hon Peter Whitfield, John
Thompson, Donald (Calder V) Whitney, Raymond
Thompson, Patrick (N'ich N) Wiggin, Jerry
Thorne, Neil (Ilford S) Wilkinson, John
Thornton, Malcolm Wolfson, Mark
Thurnham, Peter Wood, Timothy
Townend, John (Bridlington) Woodcock, Michael
Tracey, Richard Yeo, Tim
Trippier, David Young, Sir George (Acton)
Trotter, Neville Younger, Rt Hon George
Twinn, Dr Ian
van Straubenzee, Sir W. Tellers for the Ayes:
Vaughan, Sir Gerard Mr. Robert Boscawen and
Viggers, Peter Mr. Ian Lang.
Waddington, David
Abse, Leo Cook, Frank (Stockton North)
Adams, Allen (Paisley N) Cook, Robin F. (Livingston)
Alton, David Corbyn, Jeremy
Anderson, Donald Cowans, Harry
Ashley, Rt Hon Jack Cox, Thomas (Tooting)
Ashton, Joe Craigen, J. M.
Atkinson, N. (Tottenham) Crowther, Stan
Bagier, Gordon A. T. Cunliffe, Lawrence
Banks, Tony (Newham NW) Cunningham, Dr John
Barron, Kevin Dalyell, Tam
Beckett, Mrs Margaret Davies, Rt Hon Denzil (L'lli)
Beith, A. J. Davies, Ronald (Caerphilly)
Bell, Stuart Davis, Terry (B'ham, H'ge H'l)
Benn, Tony Deakins, Eric
Bennett, A. (Dent'n & Red'sh) Dewar, Donald
Bermingham, Gerald Dixon, Donald
Bidwell, Sydney Dobson, Frank
Blair, Anthony Dormand, Jack
Boothroyd, Miss Betty Douglas, Dick
Boyes, Roland Dubs, Alfred
Bray, Dr Jeremy Dunwoody, Hon Mrs G.
Brown, Gordon (D'f'mline E) Eadie, Alex
Brown, Hugh D. (Proven) Eastham, Ken
Brown, N. (N'c'tle-u-Tyne E) Ellis, Raymond
Brown, R. (N'c'tle-u-Tyne N) Evans, John (St. Helens N)
Brown, Ron (E'burgh, Leith) Ewing, Harry
Bruce, Malcolm Faulds, Andrew
Buchan, Norman Field, Frank (Birkenhead)
Caborn, Richard Fisher, Mark
Callaghan, Jim (Heyw'd & M) Flannery, Martin
Campbell, Ian Forrester, John
Campbell-Savours, Dale Foulkes, George
Canavan, Dennis Fraser, J. (Norwood)
Carlile, Alexander (Montg'y) Freeson, Rt Hon Reginald
Carter-Jones, Lewis Freud, Clement
Cartwright, John Garrett, W. E.
Clark, Dr David (S Shields) George, Bruce
Clarke, Thomas Gilbert, Rt Hon Dr John
Clay, Robert Godman, Dr Norman
Clwyd, Mrs Ann Golding, John
Cocks, Rt Hon M. (Bristol S) Gould, Bryan
Cohen, Harry Gourlay, Harry
Coleman, Donald Hamilton, W. W. (Central Fife)
Hancock, Mr. Michael Owen, Rt Hon Dr David
Hardy, Peter Park, George
Harrison, Rt Hon Walter Parry, Robert
Hart, Rt Hon Dame Judith Patchett, Terry
Hattersley, Rt Hon Roy Pavitt, Laurie
Haynes, Frank Pendry, Tom
Healey, Rt Hon Denis Penhaligon, David
Heffer, Eric S. Pike, Peter
Hogg, N. (C'nauld & Kilsyth) Powell, Raymond (Ogmore)
Holland, Stuart (Vauxhall) Prescott, John
Home Robertson, John Radice, Giles
Howells, Geraint Randall, Stuart
Hoyle, Douglas Redmond, M.
Hughes, Dr. Mark (Durham) Richardson, Ms Jo
Hughes, Robert (Aberdeen N) Roberts, Ernest (Hackney N)
Hughes, Roy (Newport East) Robertson, George
Hughes, Sean (Knowsley S) Robinson, G. (Coventry NW)
Janner, Hon Greville Rogers, Allan
Jones, Barry (Alyn & Deeside) Rooker, J. W.
Kaufman, Rt Hon Gerald Ross, Stephen (Isle of Wight)
Kennedy, Charles Sedgemore, Brian
Kilfedder, James A. Sheerman, Barry
Kilroy-Silk, Robert Sheldon, Rt Hon R.
Kinnock, Rt Hon Neil Shore, Rt Hon Peter
Lambie, David Short, Ms Clare (Ladywood)
Lamond, James Short, Mrs R.(W'hampt'n NE)
Leadbitter, Ted Silkin, Rt Hon J.
Leighton, Ronald Skinner, Dennis
Lewis, Ron (Carlisle) Smith, C.(Isl'ton S & F'bury)
Lewis, Terence (Worsley) Smith, Rt Hon J. (M'kl'ds E)
Litherland, Robert Snape, Peter
Lloyd, Tony (Stretford) Soley, Clive
Lofthouse, Geoffrey Spearing, Nigel
McCartney, Hugh Steel, Rt Hon David
McDonald, Dr Oonagh Stewart, Rt Hon D. (W Isles)
McGuire, Michael Stott, Roger
McKay, Allen (Penistone) Strang, Gavin
McKelvey, William Straw, Jack
Mackenzie, Rt Hon Gregor Thomas, Dafydd (Merioneth)
Maclennan, Robert Thompson, J. (Wansbeck)
McTaggart, Robert Thorne, Stan (Preston)
McWilliam, John Tinn, James
Madden, Max Torney, Tom
Marek, Dr John Wainwright, R.
Marshall, David (Shettleston) Wallace, James
Mason, Rt Hon Roy Wardell, Gareth (Gower)
Maxton, John Wareing, Robert
Maynard, Miss Joan Weetch, Ken
Meacher, Michael Welsh, Michael
Meadowcroft, Michael White, James
Michie, William Wigley, Dafydd
Mikardo, Ian Williams, Rt Hon A.
Millan, Rt Hon Bruce Wilson, Gordon
Miller, Dr M. S. (E Kilbride) Winnick, David
Morris, Rt Hon A. (W'shawe) Wrigglesworth, Ian
Nellist, David
O'Brien, William Tellers for the Noes:
O'Neill, Martin Mr. James Hamilton and
Orme, Rt Hon Stanley Mr. Austin Mitchell.

Question accordingly agreed to.

MR. SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved, That this House rejects the Opposition's doctrinaire commitment to higher Government spending and endorses the Government's determination to pursue responsible fiscal and monetary policies, which, along with its policies to improve the efficient working of the economy, provide the only secure basis for ensuring continuing low inflation, steady growth and rising employment.