§ Motion made, and Question proposed, That this House do now adjourn—[Mr. Goodlad.]
§ 10 pm
§ Mr. Graham Allen (Nottingham, North)
The Government are in a mess and the economy is in a mess, yet because of the magnitude of the crisis no one, least of all Opposition Members, draws any pleasure from the disarray in which the Government find themselves. The events of the past two weeks show that the Government have finally lost control of the economy. However, it is no recent crisis; it comes on top of 10 years of mismanagement, mistaken policies and ideological ineptitude. To put that right, the Labour party needs to win the next election, whatever any passing opinion poll may say. Current polls put us well in the lead, but we cannot depend upon them. We must expose the Government's economic policies to full public understand-ing and ensure that the public are aware of the full extent of the incompetence of the Thatcher Government. By proving that, we can also pick up the pieces of the shattered economy and fashion a viable economy to take Britain towards the next century.
First, we need to dispose once and for all of the myth of the economic miracle. That is relatively simple to do by measuring reality by the accepted indicators of economic success and failure—inflation, the trade balance, the standing of the pound, the level of investment and the interest rate. Every indicator is a chapter heading in the indictment of this Government. The Chancellor once said that inflation was the judge and jury of his economic policy. After 10 years of being the top economic priority of the Government, inflation is now 7.6 per cent. and rising, prices have almost doubled since 1979 and our inflation is the highest of the major industrialised countries. There is no doubt about the jury's verdict—in more than one way it should be a capital sentence. On inflation alone, the claim for an economic miracle is no more than a political junk bond.
On our balance of trade, the Thatcherite destruction of our economic base is evidenced by the world record gap of £22,000 million between what we import and what we export—again, built squarely upon the Government-induced recession of 1979 to 1981, which destroyed a fifth of our manufacturing export potential, and the bribery Budgets that vacuumed in exports from throughout the globe. Quite simply, we are living beyond our means. We are living on borrowings from abroad, drawn in by excessively high interest rates. We are increasingly unable to compete and are now being measured and fitted for a walk-on part in a mere market for other people's goods, while diminishing as a producer in our own right.
Some estimates now predict a deficit of £40,000 million to £50,000 million for next year. The Chancellor, in one of his sweeps of confidence, declared that the deficit was irrelevant as it takes place in the private sector. I can ask him only to heed the words of a small business man who said last week:I beg our party not to argue that a deficit in overseas trade is of incidental importance, self-correcting, easily financed. I don't believe a word of it.Those were the words of the right hon. Member for Henley (Mr. Heseltine). He is right to challenge the Chancellor's bland assertion that the deficit can be financed.
118 What that really means for ordinary people is that the chronic imbalance between imports and exports brought about by Government incompetence can be sustained by a secret tax which has not been authorised by Parliament. That tax is levied on every home owner and business through higher interest rates. For every home owner with a £30,000 mortgage the Lawson tax is an extra £73 a month compared with what was being paid last year. For a small business man with a £5,000 loan the Lawson tax is a £75 addition per month to what was being paid last year. To British industry the Lawson tax is now £250 million for every 1 per cent. increase in interest rates.
Even before that, the income tax cuts were more than cancelled out by the rises in VAT—indirect taxation—so that the average tax burden on a typical family is higher under this allegedly tax-cutting Conservative Government than it was under the previous Labour Government.
For 10 years, the extent of the trade imbalance has been concealed by the God-given gift of North sea oil exports which peaked at £8 billion in 1985 and even last year reduced the real deficit from £21.7 billion to £14.6 billion. Even the invisible earnings, for so long the economic seventh cavalry riding to save the trade deficit, are now themselves cantering inexorably towards the knackers' yard.
The "Concise Oxford Dictionary" describes a miracle as amarvellous event due to some … supernatural agency.This economic disaster, being wholly man-made, or woman-made, cannot qualify as a miracle even under that broad dictionary term.
A further key indicator of the economic miracle, or debacle, is the standing of the pound. We must be thankful that the Chancellor, who has presided over an 11 per cent. devaluation of the pound this year, still has enough of a sense of humour to say to his conference:We Conservatives are not the party of devaluation.That was such a whopper that even the Prime Minister might have smirked at that on the way home.
Since 26 September the Government, who cannot find money for hospitals, schools or adequate pensions, have found £3,000 million to waste in a vain effort to support the price of the pound. To quote a cliché—"It really is not good enough to throw money at these problems."
At my grandfather's knee I heard about the IMF loan of 1976. It is worth remembering that all the political suffering and the anxiety that that caused was for less than what was quietly frittered away over the recent three-week period. When I examine the magnitude and predictability of the economic disaster I am left incredulous at the easy ride that the Government have been given by the commentators and the media.
Many will feel, as I do, that the dislocation of the money markets and the City of London from the real economy of industry, production and work, which is even admitted by the Chancellor, is to continue to be host to a potentially lethal parasite which Britain must at some point either purge from its system or assimilate.
Continuing industrial weakness is the main structural problem in the United Kingdom. To survive as a competitive economy we must invest. Yet by every comparison with our main competitors we are investing less than they are. It is little wonder that our markets are being taken over by their goods.
Investment in new plant and buildings is only now back to 1979 levels. The collapse in training, the shortage of 119 skills and the lack of innovation, research and development and science are symptoms of the lack of investment in our economy. Yet the Government, by using figures which include spending on the acquisition of privatised companies, claim an increase in investment.
Statistically—in this field as in others—the Government sort the wheat from the chaff, and use the chaff. While British industry stands on its own two knees, every other industrial economy is supported and encouraged by its Government. There is massive investment in infrastructure development, transport and capital re-equipment in Germany, Italy and France—indeed, throughout the countries that are our major competitors. Meanwhile my region, the east midlands, cannot even get £95 million out of the Government for the electrification of the midlands main lines, which is vital if we are to make a success of 1992. While this penny-pinching goes on in our economy, Japan is to invest £150 billion in its domestic market.
Even some American economists are now advocating what they call a national competitiveness policy. While Governments throughout the world rediscover and press on with investment-led development programmes, Britain is politically captured in a free-market time warp that is as outmoded and unworkable in its way as any fossilised state economy in the eastern bloc.
The final indictment is interest rates. High interest rates —ours are the highest in industrialised Europe—crucify existing borrowers, as every home owner and every business knows. Even more dire, they put off potential investment, which is critical if we are to rebuild the real economy that is the base on which we must found our long-term prosperity. An increasing amount of industrial borrowing at these punitive interest rates is not investment borrowing for growth; it is distress borrowing to fend off bankruptcy, just as we saw in the period between 1979 and 1981. The record is of a 10-year decline, which can be judged miraculous only by a staggering level of incompetence.
Some Chancellors in the past have unfortunately managed to get inflation up, interest rates high, the pound shaky or the trade gap wide; but they have never done all those things at once. Perhaps that is the economic miracle of which the Government boast. Monetarism does not work—but what a price we have had to pay for the Government's learning curve.
Whatever else he may be, the Chancellor is not stupid: it may have taken him some years, but he knows now that there is another way forward. In the past he has ditched unworkable monetary targets, and now he must ditch some more ideological baggage and move in on our agenda. If he is not allowed to by "She who must be obeyed", he should resign not merely his office but his seat so that Professor Alan Walters can for once observe the constitutional proprieties—that the man who runs the economy in the United Kingdom is normally elected.
What would the Chancellor do if he were free to run the economy sensibly? Obviously he would not start from here; however, within the constraints of the current position, a number of steps could be taken by a Member of Parliament for Blaby, for Henley or—more likely—for Monklands, East. They all revolve round tackling the 120 structural problems of the United Kingdom economy: putting the producer before the financier and the long term before the short term.
First, the pound must be allowed to find its accurate and sustainable international valuation. As well as acting as a stimulus to industry and exports, that would end the colossal losses in reserves that we have seen in recent weeks. Next, the Budget surplus of income over expenditure, currently running at £14 billion, must be used for investment in the domestic economy—in education, training, capital equipment and infrastructure—rather than fuelling the financial markets through the premature repayment of national debt.
Thirdly, we must begin to develop international co-ordination and, in turn, develop exchange stability. In other words, we must try to inoculate the economy as far as possible from currency speculation. That will mean beginning to negotiate on ERM and EMS as the floating pound begins to stabilise.
That assumes that our entry will not be vetoed. The Delors report demands economic similarity and convergence as a prerequisite among European nations for membership. Britain can hardly be said to be in that position. Indeed, the longer that serious negotiation is left, the greater divergence will come. In this area it is not so much that unilateralism has failed as that multilateralism has not yet been tried.
Fourthly, painful though it may be, we must reduce consumer demand to boost savings and build up capital spending by examining and reassessing the top rate of tax cuts of the 1988 and previous Budgets and then by instituting a more sophisticated control of credit than the crude use of interest rates. Such credit management, while apparently revolutionary in Thatcher's Britain, is routine and non-controversial in most continental countries—our partners in Europe.
Fifthly, there must be a major public and political commitment to long-termism by institutionalising lending at lower rates for industry and commerce.
That package may be commonplace in most developed countries and may seem unambitious enough if survival can be said not to be an ambition. But we cannot over-emphasise the extent of the economic disaster that will face the next Labour Government. The extent of that disaster has outrun even the innovations of Labour's policy review, and even more radical solutions are inescapable if we are to manage capitalism effectively enough for it to be the staging post for progress towards our Socialist values.
It may be particularly unpalatable, but so far on these Benches I hear no disagreement that, for the education, training and infrastructure investment to bear fruit, there will be many years during which precious priorities—labour and public spending priorities—will have to be forgone. The extent of our economic crisis and the economic disaster which my right hon. and hon. Friends will inherit will mean that there cannot possibly be any return to business as usual—to the Callaghan or Wilson years of a little change here and there. There will be no leeway for a serious Government to conduct that sort of business.
The Thatcher experiment failed long ago, but it has been camouflaged by North sea oil revenues, by the asset-stripping of public property and by what I must admit has been some brilliant media management by the Conservative Government. But all that is coming to an 121 end. Little of it can be extended any further. For too long my party has allowed the concept of "There is no alternative" to hold sway. Now there is an alternative. The question that remains is whether it will be the present Chancellor or the next Labour Chancellor who implements that change.
§ The Economic Secretary to the Treasury (Mr. Richard Ryder)
The economic picture of Britain just painted by the hon. Member for Nottingham, North (Mr. Allen) is ludicrous. The hon. Gentleman spoke as one who, for the sake of narrow party advantage, seems to resent our success at managing the economy in the past decade. That success has brought unprecedented prosperity to the people of Britain. Britain has gone from beng the sick man of Europe under Labour—the Wilson-Callaghan era—to being one of the most dynamic countries in Europe under the Conservatives.
When we recall what Britain was like in 1979, the scale of our achievement becomes clear. Under Labour, borrowing and spending rose inexorably in its search for growth and higher employment. Living standards barely improved, taxes were high and industry, over-regulated and unprofitable, was unwilling to invest. Excessive interference and controls meant that important markets ceased to work properly, and some hardly at all. Spending and borrowing rocketed. Attempts to fine-tune demand led to inflation of 27 per cent. The trade union barons held the country to ransom. The humiliating consequence of this sad fiasco was that the Labour Government were forced to go to the IMF with their begging bowl.
The situation today is very different. We have demonstrated that the way to generate sustainable economic growth is not through Government meddling in the economy; instead, the Government have let market forces work. We have liberated the private sector from unnecessary controls and regulations and industry has responded to its new found freedom. We have removed large areas of the economy from public control and the tax system has been reformed; it no longer smothers enterprise, but encourages it.
Just as importantly, we have given individuals a greater stake in their own output, through profit-related pay and wider share ownership schemes, but above all by reducing tax rates so that they can keep for themselves more of what they earn; and we have returned vast areas of the economy to the private sector. The end result has been to allow firms to get on with what they are there to do: make the goods that consumers wish to buy.
The result of those policies has been a supply side revolution. Manufacturing productivity has grown, very much faster than in the dismal 1970s and manufacturing output, which fell under the previous Labour Government, is running at record levels and continues to rise. Businesses are at their most profitable for 20 years. Business investment is at record levels, not merely in absolute terms, but as a proportion of total national income. Business investment grew by 17 per cent. last year alone, more than three times as fast as it did during the entire five and a half years of the previous Labour Government.
122 The investment boom is not just a recent development. In the past seven years investment has grown more than twice as fast as consumption, a clear sign that British industry has confidence in the future.
Confidence in the future can be seen in other ways as well. New businesses are being started at a rate of well over 1,000 a week—a new record and a clear sign of the strength of the enterprise culture. It is not just businesses that have benefited. In the past five years, we have created far more new jobs than any other European country. Employment is now at record levels and living standards have been transformed.
The Government's finances have been transformed too. We are now heading for a budget surplus for the third successive year. That is an achievement unequalled in the past 40 years. We are now repaying the national debt and at the same time the success of the economy has allowed us to provide extra resources for priority areas such as the National Health Service.
Putting the performance of the British economy into a world context makes it easy to appreciate the massive turnaround in the past 10 years. Throughout the 1960s arid the 1970s, the United Kingdom grew more slowly than all the other major European countries, in the 1980s we are top of the league. In the 1960s and the 1970s, we were at or near the bottom of the European investment growth league, in the 1980s we are top. During the dismal 1960s and 1970s, we were languishing near the bottom of the productivity growth league, but since 1980 productivity in the whole economy has grown faster than in any other major industrialised country except Japan, and in manufacturing we have beaten even the Japanese.
People and businesses here and abroad are confident that the Government remain committed to tough action against inflation. High interest rates are the only way in which to deal with inflation. We will take no risks with inflation. My right hon. Friend the Chancellor has made it clear that interest rates will stay as high as necessary, for as long as is necessary, in order to bring inflation down. Meanwhile, we fully understand the pressures on people with mortgages and businesses, but they know that inflation must be brought down.
It has been suggested that we should use credit controls rather than interest rates in an effort to slow demand, but in a world of free capital movements and financial liberalisation, credit controls would be unworkable and would be child's play to get round. Nor are consumer credit controls of much relevance to the control of borrowing. No less than 85 per cent. of household borrowing is on mortgages. Trying to reduce borrowing through controls on other forms of consumer credit would, as my right hon. Friend the Chancellor remarked in Blackpool last week, bea vain attempt to get the tail to wag the dog".But these common-sense views on control are not shared by the hon. Member for Dagenham (Mr. Gould), Labour's trade and industry spokesman. No wonder the latest Gould gaffe over hammering home owners puts him at odds with the right hon. and learned Member for Monklands, East (Mr. Smith), the shadow Chancellor. We. are entitled to ask who speaks for Labour on the economy. Is it the hon. Member for Dagenham or the right hon. and learned Member for Monklands, East?
One of their Labour colleagues was quoted in The Independent yesterday as saying: 123This is absolute dynamite. He, Mr. Gould, has not cleared this with the policy review team. The National Executive Committee will want to have a look at this before it goes any further.I should say so. And who better qualified to adjudicate on economic matters on the NEC than the hon. Member for Bolsover (Mr. Skinner), last year's chairman of the Labour party.
Inflation is being beaten. Demand growth is slowing. Retail sales growth over the past year has been only 1¼ per cent. But the current problem should be put into context. The underlying rate of inflation is now lower than the very lowest achieved than in any month under the last Labour Government. The last Labour Government would have given their eye teeth for our present inflation rate; but what would have been good enough for them is not good enough for us.
The hon. Member for Nottingham, North also referred to the trade deficit. The deficit is a private sector phenomenon, the Government's finances are in massive surplus. That means that the current deficit is very different from the deficits of the 1970s or the US deficit of today. The increased deficit is, to a large extent, a result of the investment boom. This boom in private investment will stand us in good stead for the future, increasing both capacity and exports over time. As the IMF has recently said, such a deficit is "efficient and self-correcting".
§ Mr. Ryder
The hon. Gentleman has not given me my allotted time, and I have to complete my speech.
To the extent that the deficit reflects rapid demand growth from both industry and consumers, it will correct itself in time. We have always said that the current account would be among the last indicator to turn round.
§ Mr. Ryder
The vast majority of manufactured goods that enter this country are for investment and production purposes and do not go into direct consumption. That is the answer to the hon. Gentleman's question.
A remarkable transformation has taken place in Britain's fortunes over the last 10 years. We have overcome problems before and we shall do so again. This Government have reversed the remorseless decline in the fortunes of the British economy. The British people are more prosperous than ever and British business is investing more in the future than ever before. These successes, and countless others, could only have been achieved under a Conservative Government. They can only be wrecked by Labour.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-nine minutes past Ten o'clock.