HC Deb 17 July 1990 vol 176 cc866-901

'1. This section shall have effect only in relation to trading companies whose activities consist wholly or mainly—

  1. (a)in the subjection of goods to a process so as to produce finished or partly finished manufactured goods for sale on a retail or wholesale basis and
  2. (b) of activities falling within such classes, groups or activities set out in the Standard Industrial Classification issued by the Central Statistical Office as may be prescribed by way of regulations made under this subsection.

2. This section shall have effect only in relation to accounting periods which end after 31st July 1990 and begin before 1st August 1991.

3. Where this section applies, subsection 24(2)(a)(i) of the Capital Allowances Act 1990 shall have effect as if for 25 per cent. in that subsection there were substituted the percentage specified in subsection (4) below, and subsection 3(2) of that Act shall have effect as if for one twenty-fifth in that subsection there were substituted the percentage specified in subsection (5) below.

4. The percentage specified in this subsection is

Ax25+Bx40/A+B

where A represents the total number of days in the accounting period which either fall before 1st August 1990 or fall after 31st July 1991, and B represents the number of days in the accounting period which fall within the period starting on 1st August 1990 and ending on 31st July 1990.

5. The percentage specified in this subsection is

Ax4+Bx10/A+B

where A and B have the meanings assigned to them in subsection (4) above.'.—[Mrs. Beckett.]

Brought up, and read the First time.

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Mrs. Margaret Beckett (Derby, South)

I beg to move, That the clause be read a Second time.

On Sunday in a television interview, the Foreign Secretary, when discussing some matters of some difficulty and delicacy, was drawn almost in passing into observations on the differences between the economies of our European partners and our own. He referred especially to the German economy, saying that it has, indeed, become more successful than our own by doing the things and taking the steps we failed to do. We know—this has become more apparent in recent days—that we have a divided Government. Perhaps among all the different causes for dissent, the greatest rift is opening up between those who, like the Foreign Secretary and occasionally the Lord President, not only recognise but admit the difficulties of our economy, and those who, like the Treasury Front-Bench team, still assert, in the teeth of all the evidence, that we have had an economic miracle and that our present problems, which even those right hon. and hon. Members cannot completely ignore, are temporary and will be short lived.

I recognise that it is a bit of a cheek for the Lord President to take the high-minded tone as he was presiding over our economy when much of the damage was done, but we must at least give the right hon. and learned Gentleman some credit for admitting his error now.

In contrast, today's Treasury Ministers still seem determined—no doubt, for short-term political gain—to undermine their own and their country's long-term interests by encouraging misplaced optimism. It undermines their own interests because the more they seek to convince people that the difficulties are temporary, the less likely people are to pay attention to their exhortations to cease borrowing and to save. That would all be less important, although worrying, but for the fact that the Government's refusal to acknowledge that there is a problem leads to their rejection of any remedy. That is why we await with considerable interest the reaction to our new clause. It is, indeed, a modest step and should commend itself to any Government, with the slight exception of a printing error in subsection (4) which reads "1990" instead of "1991". I am sure that that will not deflect the Chief Secretary from giving it serious consideration.

The new clause is a modest step. It would alleviate a little the burden of high interest rates on businesses and the additional pressure on them to reduce manufacturing investment. That is just the type of step for which industry is calling. The new clause aims to give temporary additional financial help to companies by accelerating somewhat the capital allowances that they would otherwise have received after 1991 and bringing them forward into 1990 and 1991. It also aims to increase the rate of writing down allowances to 40 per cent., rather than 25 per cent., and 10 per cent. rather than 6 per cent.

As I have said, the new clause is a minor and modest measure. While it does not commit the Treasury to the additional relief in the long term, to which Treasury Ministers have been so resistant, it accelerates the relief that would have been given anyway in later years and gives that relief at a time when the state of the economy is causing particular difficulty and when manufacturing industry and investment is so hard pressed.

One of the most damaging myths of the Thatcher years, promoted so heavily by the former Chancellor, the right hon. Member for Blaby (Mr. Lawson), is that manufacturing is no longer of critical importance to our prosperity. That statement from the former Chancellor of the Exchequer revealed a great deal about his attitude. The reason why he advanced a proposition so ludicrous to most Opposition Members was not even that he believed it himself but that he had to find something to explain away the problems that began to be evident in the mid-1980s following the devastation of our manufacturing industry presided over by the now Lord President. The Chancellor needed to show that the devastation, to which even he had to admit, did not matter too much, so he came up with the idea that it was because manufacturing did not matter so much any more. He argued that the improvements in earnings from internationally tradable services—the so-called invisibles—more than made up for any deficiencies in manufacturing earnings which were apparent even then.

Unfortunately, time has overtaken that argument because invisible earnings themselves are becoming invisible and that excuse is no longer credible even to Ministers who are used to believing or putting forward 10 incredible things a day, particularly at the behest of the chairman of the Conservative party. Now, instead of trying to explain what is happening in terms of the overall record on manufactured trade and the statistics that summarise our position, the Government have taken to talking loudly, rather fast and somewhat aggressively about particular aspects of policy which they claim, if they are particularly selective about their statistics, show some degree of success. Of late, the Chief Secretary has talked about output, productivity levels, exports and so on.

The Opposition certainly welcome any signs of improvement in the vitally important manufacturing trade on which Britain depends for its prosperity, but the selected figures that the Government use are usually, if not always, completely unrepresentative. In fact, they represent a period of recovery from catastrophe rather than a record of success. It is rare indeed for Ministers to dare to examine the entire record of their period of stewardship.

We gain the clearest picture of where the country stands as against our competitors by considering just two of the many confusing different sets of statistics that tend to be put before us in such debates. Those two sets of statistics encapsulate the picture. One set represents the results of our overall performance, never mind the bit on output, productivity or exports. The overall results of our performance in manufacturing is perfectly summarised by our balance of payments deficit. The second set of statistics, which provide the underlying contributory factor behind that balance of payments deficit, are those concerning the levels of investment in manufacturing industry.

Let us first consider the statistics preferred by the Government. I will put them in context to help the Chief Secretary with the argument that he will no doubt advance. The most favourable statistics that the Government can put before us relate to the increase in manufacturing productivity. Some of my hon. Friends argue—I concede that the argument has some force—that if one throws hundreds of thousands of people on to the dole there is bound to be some improvement in productivity. Apart from that, however, we recognise that some improvements in productivity have occurred and we welcome them, even if the pace of such improvements is now, unfortunately, slowing down.

The Opposition argue, with more force, that if investment per capita had been higher in earlier years, productivity improvements might not only have come earlier but have been more soundly based and thus not have needed the impetus of large-scale unemployment. Those are the caveats that one must enter against the best figures that the Government can produce.

We often hear in the House and elsewhere about the increase in manufacturing output. Not so long ago, the Chief Secretary made a speech about the improvements that he has recently witnessed in manufacturing output. He said that in the past three years that output has risen faster than the gross domestic product as a whole. That is fine, but he also went on to say that that

indicated a marked turn-around compared with the historic performance of manufacturing industry That statement suggests to us that whoever else should he consulted about the history syllabus, it should not be the Chief Secretary. The historical record of manufacturing output as a percentage of GDP shows that, from 1948, there was a general gradual rising trend, followed by an unprecedented nose-dive between 1979 and 1981, since when it has been more or less static. There has been a slight improvement on the more or less static record that preceded the latter part of the Government's record, but there is no doubt that output is nowhere near the levels reached between 1948 and the late 1970s. It is rather strange to define the last few years as "historic". The scale of the nose-dive that occurred in the early 1980s is equivalent to between 3 and 4 per cent. of GDP. That is the order of magnitude of our balance of payments deficit and that decline in output is directly linked with it.

We are delighted to note the recent growth in manufacturing exports. It is more than welcome, but there is a long way to go before we can overcome the volume of manufacturing imports, which, between 1979 and 1989, has risen to more than double the rate of manufacturing exports during the same period—the period since the Government came to power. Such are the factors which have contributed to the accumulation of our massive balance of payments deficit that summarises the overall effect of our manufacturing performance.

If we want to take a historic moment from the years of the Government's stewardship it is 1983 when, for the first time since the industrial revolution, manufacturing trade in this country went into deficit—it has continued to decline ever since. Even the appearance of such a deficit is alarming enough for a country that still earns its living, and must continue to do so, by manufactures. The size and scale of the deficit—some £16 billion last year on manufacturing goods alone—is the most alarming feature of all. Equally alarming is our failure to take the steps most likely, even in the very long term, to redress that balance.

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That leads on to the question of investment. Just as manufacturing is the source of our wealth and the engine of growth, so investment is the engine of manufacturing. Our record on investment is worse than appalling—it is frightening. Apart from productivity, the Government's other boast in terms of recovery is of the recovery in company profitability. That is good and my hon. Friends and I are pleased to see company profitability improve, but where did that profitability go? If it went into increased investment at all, it went into increased investment overseas—investment by acquisition rather than investment for growth of the kind being carried out by our competitors. That is the main reason why Britain, in too much of its manufacturing, has lost its competitive edge.

That has not happened everywhere. There are companies in Britain that are world leaders in their fields, and we applaud them. We are delighted to have them and we are grateful for their performance, but it is no coincidence that those companies, the leaders in their fields, are the firms which invest. It is no coincidence that they put money into research and development and into training, and that they plan long term instead of considering investment, as some of the Prime Minister's favourite industrialists do, only if it results in profits in two or three years' time. Nor is it any coincidence, most of all, that those companies plan to expand and grow and not simply to stand still.

The Chief Secretary may be familiar with a study carried out by Warwick university and quoted in the MBA review in June 1989. It suggested that four out of five United Kingdom companies considered that their sales objective should be to defend the status quo and their existing market share. In Japan, four out of five companies considered that their sales objective should be to grow, to overtake and to take the market shares of their competitors.

The Chief Secretary may have had a chance to study papers presented at a recent conference sponsored by the Department of Trade and Industry on innovation in industry and on the needs of high technology. Apart from the many papers that commented in depth on the fact, for example, that we were the only country to cut spending on civil research and development in recent years when our competitors were increasing their spending on those items, a senior industrialist pointed out that some of the most famous Japanese companies took 20 years of planning, investment and expansion to become world leaders in their fields, to take over from previous world leaders—frequently American companies—and that they succeeded, at least in part, because they set themselves the goal rather than to stand still.

The Opposition believe that Britain and British manufacturing industry need most of all to foster a culture of sound management devoted to investment and growth. We greatly regret that that culture has been undermined by the decade of Conservative rule, which instead has fostered admiration of tycoons and asset-strippers and has rather sneered at people who look for long-term prosperity rather than making a fast buck.

The consequences of the lack of that general culture are most evident when we consider our record on investment. Manufacturing investment as a proportion of gross domestic product fell sharply in the recession period 1979 to 1981. Indeed, as a level of expenditure in constant prices, only in the last couple of years has it recovered to just above the 1979 level. But when one examines the position not in terms of constant prices, but as a percentage of GDP—the percentage of wealth available and the indication of the commitment of our country to investment in our future—one sees that it has still not returned to the lowest level achieved between 1974 and 1979.

The Government prefer to talk about business investment, which includes investment in such things as car parks and casinos, rather than about manufacturing investment, but even as a percentage of business investment, manufacturing investment has fallen in recent years by as much as 7 per cent.

I said earlier that many of us would argue that productivity might have improved more soundly and earlier if investment per capita had been at higher levels. Investment per person employed in the manufacturing sector has been so disastrous that among the 18 countries of the Organisation for Economic Co-operation and Development we come 14th, above only one or two immediate neighbours such as Greece and Portugal.

Equally disturbing are the developments in industry, such as the increased number of bankruptcies. I am sure that the Chief Secretary has received the recent Dun and Bradstreet report showing that more than 11,600 firms went bankrupt in the early part of this year and that the pace of failure was quickening. Against that background, the forecast from the Government and others is that our levels of investment are declining while those of our competitors are increasing all the time. That forecast is true both of the Government's favoured business investment and of manufacturing investment. The most recent Confederation of British Industry forecast shows that investment intentions are at their lowest level since 1982, with the balance of future investment intentions at minus 8 per cent.—and the Government's reply to those problems is nothing, absolutely zilch. It has been stated that when the Department of Trade and Industry—for once taking an interest in industry which the then Secretary of State for Trade and Industry did not find out about in time—asked McKinsey and Co. to examine our electronics industry, its report cast doubt not just on the industry's prosperity, but on whether it could survive at all. Yet despite that worrying report on a key sector of industry, the Government did absolutely nothing.

In the 11 years for which the Government have held office, our ability to supply our own need for manufactured goods has steadily declined, and with it the underlying strength of our economy. That has been reflected in our historically catastrophic balance of payments deficit. That is the road to ruin, paved not with good intentions, but with weak excuses.

The Opposition believe, as does most of British industry, that we must take steps of the kind set out in a minor and modest way in the new clause if Britain is not to be left even further behind as our competitors plan, invest and grow to meet the challenges of the single market. More than that, we need a vision for the future—a different culture for manufacturing industry.

The Opposition's vision for manufacturing industry is not a plan to increase company earnings per share by fiddling the accounting rules or having more takeovers. It is not a scheme to push up the nominal returns by delaying much-needed investment or squeezing up profits by cutting back on training. The Opposition's vision is of a British industry which extends its knowledge through research, and expands its capability through training and its output through investment.

That is the reason for the new clause which, if carried, would represent a minor contribution towards helping British industry to continue to invest despite the problems heaped on it by the Government's failures. If the Government are not prepared even to consider such a helpful but minor step, for which the Government and the Chief Secretary know that industry and the Opposition are calling, it will be a clear signal to British industry, to the country and, most of all, to our competitors, that Britain has given up the race for 1992.

The Chief Secretary to the Treasury (Mr. Norman Lamont)

I want to respond briefly to the remarks of the hon. Member for Derby, South (Mrs. Beckett); I shall then listen to other contributions and, if I catch the Chair's eye, I may be allowed to respond to them later.

The new clause is about a short-term acceleration in the rate of tax depreciation for investment in equipment and building by manufacturers and other industries, but the hon. Lady turned the debate into a rather more general discussion of the economy. Many of the issues that she raised have been debated many times before—for instance, at Question Time.

First, the hon. Lady alleged that there had been no improvement in recent years in the British economy. We, of course, refer to the marked step-change in growth. The hon. Lady chose to concentrate all the time on manufacturing—for her, it was the only measure of economic performance. Of course manufacturing is an extremely important part of our economy, but it is wrong to suggest that it is the only measure of economic success.

When assessing overall economic policy, the real measure should be a combination of growth and inflation performance over the decade. Judged by those two criteria, the performance of our economy in the past decade compares well with that of our competitors and better than it did before. That is certainly true of growth. We are going through a lower period of growth now, but even taking account of this year's lower growth rate we shall have grown faster over the past decade than the EEC average, and we certainly compare much better with our competitors in growth terms than we did in the previous decade. So growth is the most appropriate measure to employ.

The hon. Member for Derby, South sought to dismiss the growth in manufacturing productivity as merely the result of de-manning. Of course there was a considerable shake out in the early 1980s, but that just shows how uncompetitive British industry was. There was a strong concealed unemployment element in British industry, and most business men and manufacturers admit that the problems faced up to in the early 1980s had to be faced up to; and that has helped make British industry more competitive and profitable.

I was pleased to hear the hon. Lady acknowledge for once that there has been a considerable increase in the profitability of British manufacturing and business—it is extremely important. Where on earth is investment to come from? It must come from profitability. There are all sorts of arguments in which statistics are bandied about, but it is an indisputable fact that the profitability of British business is, thank goodness, higher than it has been for several decades. That is extremely encouraging.

Mr. A. J. Beith (Berwick-upon-Tweed)

I have been following the right hon. Gentleman's argument closely. He said that we should use two measures of economic performance: growth and inflation. He went on to talk about growth but somehow omitted to talk about inflation, which is not only much higher than that of any of our key competitors but scoops up much more in corporation tax and therefore places a greater burden on industry.

Mr. Lamont

The Government repeatedly make it clear that we regard our inflation as unsatisfactory and unacceptably high. I did not make the usual speech about performance under the last Labour Government because we are always accused of delving too much into the past and of exploiting it. It is, understandably, something which Opposition Members prefer to forget. The inflation record of this Government is incomparably better than that of the Labour Government, but even that is not so relevant as the fact that the policies that the Opposition advance are likely to bring a return to high inflation, especially because of their attitudes to public spending.

The hon. Lady also spoke about investment. She did not say explicitly but presumably believes that the corporation tax reforms that were introduced by my right hon. Friend the Member for Blaby (Mr. Lawson) when he was Chancellor of the Exchequer are inadequate for encouraging investment. When Labour was in power corporation tax was 52 per cent. We have reduced it to 35 per cent. and have got rid of the allowances.

4.15 pm

Is that a good bargain? Is it better for business to have higher profits, a better rate of return and permission to keep more of its profits, or is it better to have a much higher rate of corporation tax which subsidises and provides an incentive by way of allowances to investment? I do not think that there is any evidence that the new system has damaged investment because since it was introduced we have seen strong investment growth.

In the past three years business investment has grown by 40 per cent. Non-residential investment is a higher proportion of our GDP than of the GDP in any other country except Japan. The hon. Lady says that we should talk only about manufacturing investment. I reject that argument, just as I reject the argument that we should talk only about manufacturing when discussing the economy as a whole. We must look at investment in all sectors.

It was amusing to hear the hon. Member for Derby, South say that business investment included car parks and all sorts of "frivolous" investment. It includes important investment in the retail sector and in tourist facilities, some of which employ many people. It is not correct to say that the only investment that matters is in manufacturing. As the hon. Lady said, manufacturing is important, but it is by no means the whole story.

Since the new tax regime was introduced, there has been strong growth in investment. Britain has been enjoying an investment boom. One of the reasons for problems about inflation and on the current account is that the enormous boom in investment has exceeded domestic savings. The suggestion that the new structure introduced by my right hon. Friend the Member for Blaby when he reformed the corporation tax system has damaged investment is not borne out by the facts. If it had damaged investment, we would not have an extraordinary and continuing good record on inward investment. We get a larger proportion of American and Japanese investment than any other country in the European Community. Foreign companies come here for many reasons, and among them is the tax regime. They like the fact that we have one of the lowest corporation tax rates of any country.

When the new tax regime was introduced, Labour strongly opposed it, but I still do not know the Opposition's precise attitude. Of course, Labour has opposed many things in the past. The Opposition seem to jettison everything right, left and centre and nobody quite knows what they stand for. We certainly do not know their stance on capital allowances. I hope that when the hon. Lady speaks again she will make it clear whether she wishes to see a system with capital allowances that subsidises investment through the tax system. Such a system is not necessary to encourage investment. It is not especially desirable, nor does it encourage the best sort of investment.

Opposition Members scoff and laugh at the phrase "quality of investment". When we say that the quality of investment is better today, we simply mean that the rate of return earned on investment is higher than ever before. We want a tax system that does not subsidise people to invest purely in quantitative terms. We want a system that encourages people to retain their earnings and ensures investment in the most profitable areas.

The hon. Lady is right to say that investment is what matters for the longer term, but it must be investment in the right projects and in those that earn the best rate of return. That will do most to underpin the long-term performance of the economy.

The hon. Lady referred to a speech of mine about manufacturing, and I think that it was probably the one that I made to the French Chamber of Commerce. Speaking from recollection, I think that I said that foreign investment in Britain was contributing to the manufacturing base. I evidenced the motor industry which, when the Labour party was in office, had suffered from a remarkable increase of more than 50 per cent. in import penetration. Since then, it has stabilised and there has been considerable foreign investment, not just by the highly publicised Japanese firms—one of which is to invest in the hon. Lady's constituency—but by American companies. I do not think that anyone can dispute that the outlook for the British motor industry has improved beyond all recognition—profitability has improved; industrial relations have improved; the market share has stabilised; and there is much higher investment than for many years.

During that speech, I pointed to the fact that some independent commentators had analysed the position and said that a number of independent reports had been published suggesting that there might be a rise in manufacturing as a proportion of gross domestic product. The hon. Lady is right to suggest that that is a marked difference from the trend during the past few decades, under both Conservative and Labour Goverments, during which manufacturing as a proportion of GDP declined. The proportion of GDP represented by manufacturing in Britain is not markedly different from that in France, Italy or the United States. Opposition Members hark back to a world that existed decades ago, and which I do not think will easily return. However, it is interesting that the independent commentators to whom I referred thought that a small change was taking place on the back of some spectacular foreign investment in, for example, the motor industry.

The debate is really about the tax regime that we want for investment. Do we want a low rate of corporation tax—one of the lowest in the world—that encourages people to retain their earnings and look for the most profitable investment? The hon. Lady implied that that was not the Labour party's view. She said that she did not want companies to retain earnings per share simply for the benefit of shareholders. In fact, that is how companies raise capital from the private market to provide the investment that is needed tomorrow.

Although the hon. Lady made a general economic speech, she did not produce one scrap of evidence that the tax regime and the changes to it have in any way harmed investment. On the contrary, there has been a strong growth in investment since the changes were made. I do not think that there is a good case either to make the hon. Lady's proposal a permanent change—which I think is what she wants—or to implement it just for one year, which is what she was advocating. It would be a mistake to change the tax system just for one year to accommodate slower growth in the economy and in investment.

Mr. Roy Hughes (Newport, East)

I obtained information from the Library showing that, as a percentage of gross domestic product, British corporation taxes are far higher than those of our principal competitors. I was given the following figures: the United States, 2 per cent.; West Germany, 2 per cent.; France, 2.4 per cent.; and the United Kingdom, 6.2 per cent. The Library staff were amazed. Can the Chief Secretary enlighten me on this point?

Mr. Lamont

I do not know whether I can enlighten the hon. Gentleman, but I can attempt to answer his question. This has been a subject of considerable debate. The comparisons depend on what taxes are included. Some comparisons have included social security payroll taxes in other countries. The comparisons are affected also by the rate of growth of profitability. We have cut the rate of corporation tax, just as we have cut other tax rates, and revenues have soared. The profitability of British industry has risen markedly, resulting in a considerable increase in the rate of tax paid by British companies. For the first reason I gave, I would treat the comparisons with caution. It is not a matter of comparing like with like. Japan, which has highly profitable industry, appears to bear a high company tax burden. That is a reflection of its profitability.

I do not believe that there is a case for mucking about with the tax system on a temporary basis. The evidence so far is that the original corporation tax changes have proved to he effective and have stood the test of time.

Mr. Beith

The Government try to have it both ways. They spend some of the time telling us that the rate of corporation tax has been reduced and that business is better off and some of the time telling us that the Revenue is so buoyant from corporation tax that the community as a whole is better off.

Mr. Lamont

What is the contradiction between rate and yield?

Mr. Beith

It cannot be true that business is better off from paying less tax and that the tax yield is greater. The Chief Secretary knows that the revenue that the Government have obtained from corporation tax has increased sharply because of profitability and inflation. I, for one, welcome lower rates of corporation tax, and I have supported the Government when they have lowered those rates. Business is still paying a great deal of corporation tax, so that is a relevant consideration when we look at the level of investment and the extent to which corporation tax might influence it. Obviously, it is only one of the influences, but it could be significant.

The Government are fond of telling us that investment is booming and that we have remarkable levels of investment. The Red Book is full of relatively flowery phrases about our investment record. The Chief Secretary knows, however, that the quality of investment and where it is taking place are contested. The phrase "business investment" includes an enormous range of sectors—manufacturing, finance, business services, buildings, computers and leisure activities—which are of varying significance in terms of helping our balance of payments and their effect on future profitability.

Many analyses have suggested that key manufacturing groups have not been the subject of an investment boom. The Chief Secretary will know of the arguments put by Gavyn Davies in the paper that he presented to the Treasury and Civil Service Select Committee and the points made on similar lines by John Muellbauer in an article in the Financial Times. The latter said: The evidence … here suggests that, with few exceptions, investment has grown more in the sectors in the economy which are more sheltered from international competition and which make a smaller contribution to the balance of payments. John Muellbauer made the interesting point that one manufacturing sector in which there has been increased investment has included paper, printing and publishing. He said: The rise in investment there is partly due to national newspapers moving out from Fleet Street, the spread of free newspapers and the demand for printed material from the growth of financial services"— printing all those privatisation prospectuses and other things that generate so much paper in our society. For that to be about the only major exception to a pattern in which the key areas of manufacturing industry have not attracted major investment is worrying and significant.

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The large increase in investment between 1986 and 1988 was built on the back of an unsustainable credit boom—for which we are now paying the price—and the current levels of inflation date back to that period. Already, the effect of high interest rates seems to be hitting investment and investment intentions have been cut sharply. It is debatable whether the improvements already made will continue.

It can be concluded that the corporation tax structure is worsening the position because of the effect of inflation. Inflation is at a far higher level than that of our competitors, which raises the tax that companies have to pay. Business is paying for the Government's failure to control inflation. Some of the time the Government like to blame business for inflation because they claim that business is being weak in dealing with wage claims; that depends on whether the Government are in a monetarist mood at the time. Business is paying the price for the high level of inflation.

One of the elements that could contribute most to encouraging investment is stability in economic policy and that includes stable exchange rates and stable interest rates. That argues for membership of the exchange rate mechanism, which has been the universal call of business for a long time. It also argues for the mechanisms to ensure stable prices which exist in those countries about which the Government are having such difficulty in their public pronouncements at present. Here we are lecturing Herr Pöhl, saying that he does not know how to handle inflation and that he would not have known how to deal with the kind of unemployment that existed in Jarrow, when Germany has produced a stable price regime out of its independent central banking system.

The stability in Germany is the envy of British business and, in that climate, a great deal of investment is taking place. As the unification of Germany proceeds, German business is especially confident about being able to invest in East Germany because it knows that it would be doing so in the stable economic and political climate of the Federal Republic, with all the assurances that that gives that there will not be sudden and dramatic changes of policy and that there will not be sudden and dramatic changes in the economic management of the country. All that is a result of a German system that brings together a proportional representation election system, and a monetary and financial discipline system. Some members of the Labour party now deride and laugh at that, but it is the key to much of Germany's post-war success and the investment in which German firms so freely and readily engage.

Those who want to lecture Germany and say that we are doing it far better simply have not got the evidence to do so. Neither the Chief Secretary nor Labour Members who wish to do so—there seem to be fewer of them now—have the evidence to make the claim that we know how to operate the system better.

Along with stability, money is of crucial relevance to investment. That will be determined by the success of the Government's economic management. There is at present a debate—partly stimulated by the Government—about short-termism, which is a phrase that occasionally escapes the lips of Ministers. Industry has accused the City of not taking a sufficiently long-term view of investments and has accused the banks of looking for the second-hand value on which to lend rather than for the potential profitability of the investments that industry seeks to make. Clearly, the Government must give attention to that side of the problem as well as to the tax implications of the new clause if we are to make progress.

Alongside that, there should be key public investment in transport if industry is to take advantage of and be able to operate effectively in the single European market, and if industry in the north of England, Scotland and Wales is to operate once the channel tunnel is open on a competitive basis. That is an area in which countries in mainland Europe—and especially Germany—are willing and keen to invest. However, it is an area in which the British Government seem to think that there is something indecent or improper about serious and significant public investment.

There needs to be investment in education and training to give us the work force who can make use of the high-technology investment in which industry needs to engage. The Government's reluctance in those areas is seen by industry to be a handicap.

If all those policies were pursued, would it help to make changes in the corporation tax structure such as those proposed by the new clause? The Labour party's new clause seeks to increase capital allowances from 25 per cent. to 40 per cent. That would enable a firm to set off more of the capital cost of an investment against corporation tax in any one year.

That is potentially an expensive change and I am surprised that the Government did not refer to the cost—perhaps they are saving that for their reply. We could be talking about cost implications in the order of £1.5 billion. That is why we have previously put forward proposals for increased capital allowances on new investment so that we do not take on the large deadweight costs of increasing the allowance for writing down all the existing investment. That would have a stimulating effect, particularly in the present circumstances, and could be undertaken at less expense than the proposals we are considering.

I am sympathetic to the intentions of Opposition Front-Bench Members, but I wonder whether this proposal has been subject to the rigorous examination of all proposals lest they add to the total cost of the Labour party's programme, which is now under such scrutiny.

Mrs. Beckett

I said that this was a temporary measure. I do not have the papers immediately to hand, but I am sure that if the hon. Gentleman reads the clause with care and looks at the dates involved he will find that the cost is more likely to be about £130,000 or £150,000 than the sums he mentioned.

Mr. Beith

I am naturally suspicious about the claim that such a measure can be as temporary as the hon. Lady suggests. Perhaps I am doing her a disservice. Such a short-term change in the tax system would not survive. At the end of the period industry would be crying out for an extension and there would be a great deal of pressure. To be fair, if the period were strictly limited, the costs could be contained on that basis.

A more logical distinction is one that attracts to new investment the higher level of depreciation allowance mentioned in the new clause. The Government cannot continue to be so complacent about investment in manufacturing industry. I should have thought that their experience over the past 12 months with the rate of inflation taking off should have taught them that there is no advantage in claiming that things are better than they are. The Government have spent much of the past few years making exaggerated claims about the economy, some of which were extremely damaging to expectations. If people are told that they will be better off and that the standard of living will improve, they will borrow more because they will expect to be earning more money to pay for it when the day of reckoning comes. Constantly repeating a misleading view about the state of the economy does not do any good and does not encourage us to address the key problems faced by the economy. A little more realism on the part of the Government and an admission that there are problems with investment would be welcome. I am glad that the new clause is before us and I am sympathetic to its objectives.

Mr. Robert Sheldon (Ashton-under-Lyne)

The speech of the Chief Secretary to the Treasury would have been more impressive if it had not been made against a background of a balance of payments deficit of £15 billion to £20 billion, which, I note, he did not mention.

The Government's true record lies in two factors. First, manufacturing industry turned into deficit for the first time in centuries. Secondly, there was the coincidence of the arrival of North sea oil. Those are the economic factors that will determine the way in which the Government are viewed in the future.

I agree with the Chief Secretary about the need to achieve quality of investment. This is a modest measure. I agree with the counter-cyclical argument which was, after all, used by the previous Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson). The right hon. Gentleman introduced a counter-cyclical measure, and very valuable it was. If one tells people that there is to be an investment incentive with a cut-off date, and if one chooses the right time in the economic cycle, one can achieve continuing growth for the future based upon it. That, too, is of value.

The most important aspect lies in the forecasts given in the Red Book at the time of the Budget. In the summary of economic prospects, we read that manufacturing output in 1989 grew at a rate of 4.75 per cent. In 1990, growth is forecast at zero. In the first half of 1991, it is forecast at 0.75 per cent. That is a truly miserable record, and there will be little incentive for anyone to invest in the plant and machinery that are so important.

The Chief Secretary is right to say that we need to look at all investment, but when the right hon. Gentleman said that manufacturing was not the only measure of economic success, he was not according to it the importance that it should be accorded. Financial services have been the glamorous part of our investment and our economy. We had hoped to be the banker of the world. We had hoped to make enormous improvements and extensions. But we must remember that a financial economy rests fundamentally on its manufacturing industry. We seem not to recall that important fact. Britain became a financial centre as a result of the industrial development that took place in the last century and the century before that. New York became a financial centre as a result of the development of America's manufacturing industry. Frankfurt is becoming a financial centre as a result of the development of Germany's manufacturing industry and Tokyo has become a financial centre as a result of the development of Japan's manufacturing industry. There is a time lag in all these matters and the time lag is working against us and in favour of Frankfurt and Tokyo. I do not view that process with pleasure because I understand and accept the importance of having a financial centre. But in organising the structure of our investment and in arriving at an appreciation of the importance of that sector, we should not fail to take into account the basis on which it rests; if we fail to do that, we do ourselves a great disservice.

The Chief Secretary noted that productivity had improved as a result of the removal of concealed unemployment in the early 1980s. I am sorry to say that there was not much waste of energy and activity in Ashton-under-Lyne when the $2.40 pound and 17 per cent. interest rates reduced the number of manufacturing companies by one third. I am talking about medium-sized, reasonably high-tech firms—plenty of companies of the kind to be found in Tokyo and in Germany. Those companies suffered as a result of our economic performance in those years and we must restore to them some of the advantages that similar companies in other countries enjoy.

I am concerned that capital allowances hardly meet the cost of depreciation. In my early years as an engineer, I used to operate a jig borer. It was a very expensive piece of machinery. I do not know how much the comparable model—taking into account the development of that branch of engineering—would cost today, but I would guess about £50,000. At the end of 12 months, one would get £12,500 in capital allowances. What is the profit margin on such equipment? I bet that if one tried to sell the jig borer back to the manufacturer, the salesman or the distibutor, one would not get £37,500 for it. That means that there is an investment disincentive because we have not allowed for the true cost of depreciation. We are giving no incentive at all because we are failing to meet the cost of depreciation. The hon. Member for Lewisham, West (Mr. Maples) shakes his head. I do not think that he understands the size of the profit margins in such industries. The salesmen get paid very handsome sums indeed. As a result, the depreciation costs are not met.

The figures produced by the Financial Secretary at the time of the Budget show how little prospect there is for growth—zero growth is forecast this year. As my hon. Friend the Member for Derby, South (Mrs. Beckett) rightly pointed out, this is just the time when we should be doing something to promote investment incentives. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, there are various ways of doing that. I find it sad that the Government do not appear to understand the nature of the problem sufficiently to come up with some sort of solution. They think that there is no problem. That is most worrying. Once we have realised that there is a problem, we can deal with the matter. The Government's failure to do that will take me into the Lobby with my hon. Friends tonight.

4.45 pm
Mr. Denzil Davies (Llanelli)

My hon. Friend the Member for Derby, South (Mrs. Beckett) said that new clause 2 was a modest proposal. Perhaps it is too modest, but as my hon. Friend and my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) rightly said, it is at least an attempt to give some minor assistance to British manufacturing industry.

The Chief Secretary was extremely euphoric about the economy. Let me remind him that in 1979 the United Kingdom had a balance of trade surplus in manufactured goods. That was in the days of the Labour Government—the days of picking winners, investment grants and 100 per cent. writing-down allowances. But in 1989—the last full year—we had a balance of trade deficit of £16 billion in manufactured goods. Those figures are the best evidence available and they tell their own story. They tell the story of the massive decline in Britain's industrial and manufacturing base during 10 years of Tory Government. The blame for that decline lies at the Government's door and it has been caused by the actions that they have takenmdash;and have failed to take—in respect of manufacturing industry.

Those actions are perhaps too numerous to detail in such a short debate, but I can give one or two examples. My right hon. Friend the Member for Ashton-under-Lyne referred to the years from 1979 to 1982, when the present Leader of the House was Chancellor of the Exchequer. It has been calculated that the right hon. and learned Gentleman managed to obliterate 25 per cent. of Britain's manufacturing industry in those two years.

It is extraordinary to note that when the Tories came to power, mouthing monetarism, in 1979, few of them understood how a monetary system could be operated within the open financial system that we have in Britain. They certainly did not understand the limitations of monetarism. Eventually, the right hon. Member for Blaby (Mr. Lawson) understood its limitations, but it took a long time for the Government to reach that conclusion. Between 1979 and 1982 we had macho overkill monetarism. The body count of factories and industries on the industrial battlefield was horrendous. My right hon. Friend the Member for Ashton-under-Lyne referred to his constituency, but we all have examples from our own constituencies.

While the present Leader of the House was beavering away at the Treasury, Lord Joseph was beavering away at the Department of Trade and Industry dismantling most of the regional incentives, grants and investment allowances that went to the areas where most of Britain's manufacturing industry was located. The Treasury and the Department of Trade and Industry both did their job and, as a result, at least 25 per cent. of our manufacturing base disappeared, never to return.

Let us move on to 1984 and the actions of the right hon. Member for Blaby which are, to a certain extent, the reason for the present new clause. Before the 1984 Budget, we had 100 per cent. writing-down allowances in respect of plant and machinery. If a manufacturing firm invested in plant and machinery in the first year, it could write off the whole cost. However, that did not suit the Government's plans or their view of the way that the economy should operate. Therefore, the Budget provided for 75 per cent. in the second year; in the third year the figure would be 50 per cent.; and in the fourth year the allowance disappeared completely. Now it is 25 per cent., which goes into the pool. The new clause proposes to increase the figure temporarily to 40 per cent.

The right hon. Member for Blaby would have justified what he did. We heard echoes of that from the Chief Secretary, on the basis that it is better to have a lower rate of corporation tax and to eliminate the tax breaks. That is a Reagan view of taxation. However, because most of the allowances benefited more manufacturing industry, the benefit of lower corporation tax in the main goes to the service sector, the financial sector and the south-east. All those areas are less dependent on plant and machinery. That was the effect of what was done in 1984, and that is why pressure was put on manufacturing industry: because it lost the benefit of the allowances for investing in plant and machinery.

We have been told that the Government do not believe in using the tax system for social engineering, and that we must have a level playing field. They have no inhibitions about using the tax system to encourage the business expansion scheme—all that money went into property; to encourage the personal equity plan schemes—all that money went into the stock exchange; or to encourage private shareholding. However, we apparently cannot use the tax system for the social engineering purpose of trying to benefit our manufacturing industry.

Since the 1970s, the Tory party has shown little understanding, sensitivity or belief in manufacturing industry. Those of us who sat in the House throughout the 1970s saw successive Tory Members with some experience in manufacturing and industry being replaced by the estate agents, the so-called financial analysts, the stockbrokers and insurance brokers and the third-rate merchant bankers. Most of them were from the south-east, where there is no tradition of heavy manufacturing or engineering. There was no belief in manufacturing industry and, apparently, no need to examine it.

If the speeches of 1978–79 are read again, they prove very informative. Hon. Members suggested then that Britain no longer needed a manufacturing industry, but would rely on its overseas investments; that it would become a tax haven fit for such people as the Rolling Stones and Tony Jacklin to come back to. The Leader of the House made such a speech in 1978–79. Britain was to be dependent on invisibles, living off those invisibles. We know what has happened. The Government have an extraordinary record: they have destroyed much of our industrial base, and have managed to eliminate the invisibles as well—to the extent that they are now literally invisible. It is no good the Chief Secretary shaking his head. We know that there has been a revision of the figures, but the invisibles are now minute. We have lost our industrial base and the oil, and we do not even have the invisibles. That is the measure of the success of the Government's economic stewardship of the country in the past 10 years.

There may be one final act of mayhem—the exchange rate mechanism, the final solution. There is a case for the ERM and for fixed exchange rates—which I happen to believe in—provided, as the Prime Minister rightly said the other day, that in the end the exchanges can be chained by the actions of a sovereign Government. There is a case for linking exchange rates—as much as possible—with those of our trading partners, especially as 60 per cent. of our trading is now done with the EEC. There is also a political case for the ERM: it is better to be a member, and to try to stop the nonsense of economic and monetary union. However, I doubt whether we can do that.

The Government have said that the exchange rate mechanism is the magic formula—the deus ex machina—that will apparently win them a fourth term of office. Their strategy—if it can be called one—is brutally simple. First, we should march the jolly old pound up to the top of the ERM mountain—the Treasury has been doing its best—and then, a little later, we should march interest rates as fast as we can down the mountain. Of course, with lower interest rates, the British consumer-elector feels better, and spends more on imported goods. The property-owning democracy sees the value of its property increasing and the prospect of unearned capital gain. Everyone is happy again, and people vote for the present Government. Where does that leave British manufacturing industry? It is at the top of the ERM mountain, withering away like the ark on Mount Ararat.

The wheel has come full circle. The curse of the early 1980s seems set to be repeated by the Government in the early 1990s, and British manufacturing industry will again suffer. I would like the Chief Secretary to accept the new clause, but of course he will not, because the Government have no interest in manufacturing industry.

Mr. Roy Hughes

I support the new clause. It essentially concerns capital allowances and manufacturing incentives, and—as my right hon. Friend the Member for Llanelli (Mr. Davies) said—it is a modest proposal.

The new clause illustrates the need to improve the efficiency of our manufacturing industry and to encourage investment, not only in capital goods but in training. Likewise, it points to the need for a major extension of our manufacturing industry. Some seasoned observers would say that we need to increase our manufacturing base by as much as 20 per cent.

We are trying to examine what Government policy is about. I suggested to the Chief Secretary that the Government claim that they have reduced the rate of corporation tax. Let me repeat the figures that I have been given by the Library, which show that British corporation taxes as a percentage of gross domestic product are much higher than those in our competitor countries. In 1988 the figures were as follows: United States, 2 per cent.; West Germany, 2 per cent.; France, 2.4 per cent.; and the United Kingdom, 6.2 per cent. I grant that the Chief Secretary has tried to give me some explanation of those figures.

If the Government are really keen to help our manufacturing industry to grow and become more competitive, they need to turn their attention more decidedly to tax matters.

Taxation, after all, impinges on training, research and development. The Government seem to be reluctant to invest in our universities and polytechnics to produce skilled people and new ideas. It is ideas that bring about the new industries and factories, and provide employment for our people. They help to build the economic strength of our country. We must build and create for ourselves the products that our people increasingly demand. At present we are importing many of those goods.

Not long ago, the Government were claiming that they had achieved an economic miracle. Their claim was illusory: it was nothing more than a South sea bubble. The position is summed up for me by the fact that West Germany has a trade surplus of about £50 billion, while we have a trade deficit of some £16 billion—or even more—in manufactured goods.

A few days ago, a senior Cabinet Minister resigned. He was very critical of West Germany. From my observations, over the past 40 years or so Germany has adopted a most responsible position in international affairs. Perhaps even more important, it has built a highly successful economy. The right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) was the Secretary of State for Trade and Industry. He had an opportunity to do something about Britain's economic position and the difficulties in which it finds itself. Instead, the Government seem to have taken almost a fiendish delight in the destruction of much of our manufacturing industry. It is as though the Government thought that the economy was all about trade union organisation, the closed shop, and so on: the dragon had to be slain. That was their attitude. We had an illustration of that a week or two ago, with the attitude of the former Secretary of State for Trade and Industry to razing Ravenscraig to the ground—the last remaining bastion of the steel industry in Scotland. That has been the Government's attitude. How wrong can they be?

5 pm

Much in British manufacturing industry needed to be put right—I grant that. There was overmanning, inefficiency, poor management and, above all, a failure to invest. For the past decade or so the country has had all the benefits of North sea oil. Germany, with its strong currency and extremely favourable trading position, has had no such benefit. North sea oil revenues were paid out in social security benefits, and the rest has been invested overseas, presumably to fatten up our competitors. That money should have been used to restore the manufacturing base in this country.

The charge to be levelled against the Government is that they have essentially failed the nation. In fact, the more successful that we have become in our quest for invisible earnings, as my right hon. Friend the Member for Llanelli has pointed out, revenue from invisible earnings has tended to diminish. The more success there is, the greater will be the tendency to import manufactured goods, so there is no light at the end of the tunnel.

We have witnessed a major growth in the service industry, which, with great respect, produces nothing tangible. Manufacturing jobs have dramatically declined and, in turn, have tended to be replaced by low-paid jobs, many of them part time and largely for women. We have gone cap-in-hand to the Japanese and the Germans. We have said to them, "Come and invest in our country. Wales in particular at present has all the hallmarks of an undeveloped country." Our trading deficit has got out of hand. The gap will not be bridged by a growth in tourism or by increased efforts on the part of the City of London.

New clause 2, in its limited way, points to the logic of our present situation. Our vast balance of payments problem is due to the size of our manufacturing base. A small base dictates the output of manufacturing industry. When we do not make in Britain the goods that people in Britain want, there is a demand for imports. In our case, the demand is substantial. Whatever gloss or disguise is put on that problem, it brings about the deficit in our balance of payments current account. For any lasting solution, we must rebuild our manufacturing industry. To do that, we need incentives. New clause 2 at least points the way.

We need a favourable exchange rate. We also need a marked decline in interest rates. We must compare our interest rates with those of our major competitors—indeed, they just do not compare. People are not being encouraged to invest. We must examine service costs—for example, water, gas and electricity. All that privatisation has done is to increase charges for those services. A credit boom did not help. Its only effect was to suck in more imports. The Chancellor should now talk to financial institutions and tell them to refrain from advertising and promoting credit.

An impediment to our economic success is the increasing decline of our infrastructure. Firms rightly point to extra cost, the direct result of congestion and difficulty in moving goods around.

Our record on research and development is far behind those of Germany and France. Our investment in training, for example, is reckoned to be only one tenth of that in West Germany. Training must be stimulated and innovation must be encouraged. New clause 2 is merely a pointer in the right direction.

We are to form an integrated single market in the EEC in 1992. Competition will be ever more fierce. We are ill-prepared, and much responsibility for that rests with the Government. What should be an exciting challenge is turning into a serious threat for Britain's whole economic future. Much of the responsibility for that dire situation is directly due to the Government.

Mr. Eric Martlew (Carlisle)

I support new clause 2. As my hon. Friend the Member for Newport, East (Mr. Hughes) said, it points the way, but it is not the solution to the economic and manufacturing decline that we have seen under Governments of both parties in the past 20 years or perhaps even during the latter part of this century. One of the reasons why our manufacturing base has declined is that too few Members of Parliament have actually worked in industry. Too many come from the commercial sector, and too few actually know what it is like to work with out-dated equipment, to have personal skills but not to be given the tools to finish the job. To an extent, that is what new clause 2 is about.

The Department of Trade and Industry in Victoria street has been used as a siding for failed Cabinet Ministers. We saw a perfect example of that during the past week, but I had better draw a veil over that incident or the House will get excited again, although judging by the present attendance I doubt whether that would be likely.

The fact that we have had so many Secretaries of State for Trade and Industry in the past few years raises the question of whether the Prime Minister really regards that aspect of the economy as important. The answer is clearly no. She seems to emphasise trade rather than industry and the latter is allowed to wither. As I have said, the House does not really understand industry because Parliament is based in the south of England, which has not had a great tradition of industry and of manufacturing objects that are useful. The south is very good at manufacturing money, insurance and banking and it is the location for the headquarters of many companies, but it has always been second best to the north in producing goods. Thus, when industry declines, the wealth of the north of England, Scotland and Wales also declines. We never saw the recession here in the south. When I walk through the suburbs of London, as opposed to the inner city areas, I am well aware that there is a great deal of affluence and that, although many people are working, pushing pieces of paper about, very few are actually manufacturing products.

When I worked in industry, I worked for a multi-national company and we used to look at the productivity levels of the various factories in Europe. We often lagged behind Germany, Holland and Switzerland, not because we were less skilled, although training in this country was not given the same premium as in others, but because we tended to be a low-wage economy. When considering investments and assessing how much it will cost to install a new machine to increase productivity, the pay-back time in a low-wage economy is much longer than in a higher-wage economy. That meant that we did not get any investment. Because the Germans were far more highly paid, it was much easier to justify such incentives in the German economy, so Germany tended to get new plant and equipment and its productivity was therefore much greater than ours. That was a tragedy. Indeed, it is a tragedy that low wages do not help the economy of any country. If we are trying to compete with the third-world countries—or even with second-world countries such as Singapore or Taiwan—with a low-pay, low-wage economy, we shall fail. We can succeed only if we are prepared to invest in manufacturing industry to the extent that our competitors in Germany, France, Holland and Japan are investing.

The Minister made great play of the amount of investment that we receive from Japan, Germany and other countries, but when did a British company last buy a Japanese car firm? When did we open a television assembly plant near Tokyo? The answer is that we have not done so. We are trying to attract foreign investment. Our economy is failing in important areas such as high technology. Yet we invest in Taiwan and Singapore. The captains of industry and banking in this country say, "There's a nice low-wage economy—we should be able to make healthy profits if we close our plants here and move them over there." They simply cannot come to terms with the fact that we need to be opening assembly plants ourselves, similar to the Datsun plant in Sunderland. Why are we not saying to British Aerospace, for example, "We should be opening similar plants in Japan and Germany"?

It is difficult for us to export to Japan because the Government have yet again failed to get rid of the unofficial tariffs that the Japanese have erected against us. Although we are exporting, we are not successful. We have to rely on inward investment because the incentives given to our own companies are not great enough.

I was a member of a promotional organisation called Inward in the north-west of England. Our job was to attract inward investment from abroad, but we ultimately concluded that we should open an office in London—if we could get away with it—to try to attract industry from the south-east. To me, that illustrates the great divide between north and south. The south of England was regarded almost as a foreign country, and we felt that we should look there for our inward investment.

There are no incentives to invest. The Budget was supposed to provide an incentive to savers, and we can save only if we earn, and this country in general and its population in particular do not earn enough. If we were earning more, we could save more and invest more, but we are all aware that that has not been the case.

5.15 pm

As my hon. Friend the Member for Newport, East has said, we have probably the least well-equipped work force in western Europe in terms of training. We have failed to give our people the educational qualifications and the skills training that are needed to bring this country into the top rank of manufacturing and industrial countries. We have wasted our time on poor youth training schemes—they are better now—and on employment training, which beautified the countryside when we should really have been equipping our young people with skills to match those of the Germans, the Italians and the French. The Government should have taken a lead in that. Even in eastern Europe, work forces were given skills. That is why, even before there was talk of German unification, no resentment was felt towards the workers who were crossing the Berlin wall because the West Germans knew that those people were bringing with them skills which could be marketed in the west.

My constituency of Carlisle has recently been classed as a "boom town for the 90s" by the Henley Centre for Forecasting. Carlisle is the only city in the north of England to have been put in that category. Carlisle has developed despite the Government's refusal to give it industrial grants, and only because the Labour-controlled council has—with the private sector—developed schemes to make Carlisle attractive.

However, we suffer from one of the problems that has recurred in the debate—a poor infrastructure. We are a long way from the markets that we serve. Our rail service is inadequate. The road service to the south is reasonable, as anyone who travels down the M6 would accept, but the road to Europe—the road from the west of England to the east—is appalling. By any standard, the A69 and the A66 are appalling. I welcome the Government's decision to improve the A 1 to motorway standard, but we shall not see the benefit of that until the Government decide to develop the A66 as a dual carriageway.

That is another example of the way in which the Government are not generally prepared to invest in the infrastructure. My city is doing well not because of its manufacturing base but because of its service base, because it is the regional capital of Cumbria and because we now have a major shopping centre. Unfortunately, however, due to the Government's policies in the past, too many of the shops that are doing well in my constituency are selling goods that have been made abroad. We see the words, "Made in Great Britain" on too few labels. It is always "Made in Germany"—I keep returning to Germany—or "Made in Japan".

The Government and the House must realise that unless we can manufacture more higher-quality goods and sell them abroad, no matter what we do with the exchange rate we shall go bankrupt at the end of the exercise if we do not put our balance of payments right. Great Britain Limited will not cease to exist, but it will cease to be an economic power just as it ceased to be a nation with an empire. We shall sink as Greece sank from being a great power with a major say in what went on in the world to a nation that is regarded as not in the front rank. I do not want to see that happen to Great Britain Limited. Unless we are prepared to take initiatives such as the one in new clause 2, we shall fail.

The new clause is not an answer, but it is part of an answer. In the Budget the Government once again entirely ignored the problem of the decline in manufacturing industry, but we ignore it at our peril. It is easy to make proposals in opposition, but I hope that the next Labour Government will recognise the need to manufacture more, invest in new equipment and re-equip our industries. Let us buy an H registration car for our industry, instead of running it on a B or C registration as we are doing now—let us give our workers the tools that they need so that we can compete equally with the continent and with the Japanese.

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

Until a few moments ago I had not given the first thought to speaking in the debate. I have just attended a meeting with Ministers where we discussed industrial development and its implications for my constituency and the problems there. I do not wish to labour the point about my constituency. I simply wish to say a few words about the importance of measures such as that proposed in new clause 2 and why I believe that they are important.

Ministers will be aware that over the years I have always argued for a market analysis and that a free market in a mixed economy can be harnessed to deal with problems of unemployment wherever they arise in the country. I have never advocated massive state intervention. On occasions I have supported Government measures which I believed would have the desired effect. But there is a huge, gaping hole in the Government's position which persists today and from which I cannot understand why the Government refuse to move. I cannot altogether accept the Government's position, but I see the reasoning behind it. They believe that regional policies are not required in the sense that regional assistance is not necessary or could be reduced. That is not my case, but I understand the logic of the Government's case. They believe that it is not only the level of assistance that draws people to an area of high unemployment and that other factors should be taken into account.

I reject the proposition that the Government should stand idly aside while sectors of manufacturing industry are lost which are significant to the national economy. I wish to give an example that I used in Committee some years ago. It supports my case more vividly than any other example.

I was once a clock manufacturer. After I left the industry about 12 or 13 years ago I took an academic interest in it. I watched the destruction of the British quartz movement manufacturing industry. I saw it move from two firms to one firm and then from one firm to, in effect, the end of the industry. When there was only one firm, I saw the failure of Smith's Industries, which was a big employer in Wishaw in Scotland, to invest in the technology in which the Germans were investing. The consequence was that, in effect, Smiths lost its market. Now it is not even in business.

I use the clock movement and quartz movement industry only as an example. Is it in the national interest to allow companies to lose labour, technology and expertise and allow an invasion of imports? That is the inevitable consequence of the Government's approach to industrial development. In my view, it is irresponsible to proceed on that basis. That automatically makes the case for returning to conditions in which some sort of Government machinery is responsible for defining the areas of manufacturing industry which should be supported by whatever means or mechanism to ensure their survival and, indeed, development.

Under the Labour Government the Government machinery took various forms. There was the Industrial Reorganisation Corporation in the 1960s, the National Enterprise Board in the 1970s and then the National Economic Development Council, which had working parties to deal with various aspects of manufacturing industry and produce policies to ensure industries' survival and investment in them. In microchip technology Inmos is an example of where such a policy might be said to have been successful. One cannot avoid adopting such an approach to the modern economy.

I do not envisage armies of civil servants sitting around in offices making macro-economic commercial decisions on who should invest where and how much. When arrangements such as I have described are restored, I envisage a far greater role for the private sector in terms of manufacturing, distribution, retail, banking or other experience in taking decisions. However, there is a role for people to ease our industry into a position in which it can compete effectively with other countries.

To return to quartz clock movements, it seems that a product of which the Germans can produce tens of millions, the Japanese can produce hundreds of millions and the Koreans and Taiwanese can turn out could be turned out by Britain. Yet those countries send the mechanisms to the United Kingdom. The product could be made by British manufacturers. Why cannot Britain produce its own quartz clock movements? Why must every clock made in the United Kingdom have a Japanese or other foreign movement in it? It is because we have not taken a strategic decision on the clock industry. As I said, I have no family or other connection with the clock industry, but only an academic interest in what happens in so far as it illustrates my case.

Surely a strategic decision should be taken and Britain should have a quartz producer that is capable of feeding case makers throughout the United Kingdom with movements to put in their clocks which they could then export round the world. There would be nothing wrong with that. It would not require the Government to bend an ideological principle or commitment to accept that proposition. It requires some flexibility and understanding that someone, somewhere must take a decision and make sure that resources are available. Whether someone wants to build a factory in the middle of Westminster or in John o' Groats is not a consideration here. We must simply make a decision to ensure that the products are made in the United Kingdom.

The Minister might say, "Leave it to the market." When the Minister replied to me earlier, he said that he subscribed to the market. The market is not capable of taking the decision. While the market might identify the product, it might say that the investment required and the return on that investment was too long-term. No entrepreneur would be willing to enter the market on that basis. That is the dilemma. In many product areas short-term decisions are taken in the knowledge that, were longer-term ones taken, those products would not be viable. In the balance of calculation about how we frame our manufacturing industrial policy, I wonder whether we reasonably consider the longer-term implications of the decisions that should be taken.

We cannot rely exclusively on the market, although we do not want the state to interfere by saying, "Put a factory up there. Here is all the money. It does not matter who you hire." We need the state to put together a package whereby we give birth to industry and the private sector is pump-primed to ensure that the manufacture of whatever product takes place in the United Kingdom in the national interest.

5.30 pm

I have picked on one product, quartz clock movements—what an obscure product—but there are many others that one could cite. If one reads the Monthly Digest of Statistics one discovers areas in which there is a huge gap between the level of exports and imports. One also discovers product areas in which there is a preponderance of imports in the market. Those areas of heavy import penetration should be identified.

I believe that my hon. Friends in the trade and industry team have published some figures that identify particular problem product areas. Those areas should be targeted. I am not asking for massive state funding to get industries off the ground, but the Government should devise policies to ensure that somehow those product areas lift off as centres of manufacturing industry. To some extent, the new clause meets that objective as it is the vehicle for identifying in the Standard Industrial Classification issued by the Central Statistical Office particular areas that might be targeted. I believe that I have not mistaken the aim of the new clause.

In the past nine years we have been utterly reliant on the market to attract industry and, in that time, I have proposed that we should target particular areas to give birth to manufacturing industry. However, we are now moving to a different scenario. On our doorstep in eastern Europe a huge, new economic power is about to develop. In the short term, eastern Europe will offer cheap labour. It also has an absence of traditional trade union areas of restrictive practice. Many of the factories set up in western Europe operate on the basis of green-field sites even within the trade union legislative umbrella. Following the liberalisation of eastern Europe the trade unions created may mirror the trade union structure created in Germany after the war—I understand from my hon. Friends that Britain was largely responsible for that. Trade union development in eastern Europe may more closely mirror the industrial complexion of Germany than of other parts of the world, including parts of our manufacturing base.

New trade union representational arrangements, green-field sites, new plant and development, cheap labour and the pivotal position of east European countries will mean that their industries will have a considerable advantage over companies that locate in the United Kingdom. After all, those countries will have far easier access to Europe's main markets, despite the advent of the channel tunnel. How will Britain compete if we rely exclusively on the market mechanisms to which the Minister is totally committed? To some extent, I share his commitment, but how can we possibly compete?

I understand that reservations have been expressed by some industrialists in West Germany as they appreciate that the drift will be for new plants and factories to develop in Czechoslovakia, Poland and particularly in Hungary. Such developments will also take place in other parts of eastern Europe as they open up. If that happens, how will we compete? In those conditions we might be forced to reassess whether regional policies are required to deal with the problems in areas such as west Cumberland.

In three years' time, when we are through the hoop of at least some of the difficulties that will arise in eastern Europe, for which the European Bank for Reconstruction and Development will take responsibility, capital will be funnelled into eastern Europe to take advantage of the new markets created. I do not think that it will then be easy for the United Kingdom to attract industry to areas such as my own. In those conditions, the new clause would be even more important because at least it addresses the problem of targeting assistance into manufacturing companies. At least that would give us a competitive edge against companies starting up in other parts of Europe, especially eastern Europe.

Although I want eastern Europe to develop, I am extremely concerned about its implications for the United Kingdom, particularly if we have a Government who remain ever wedded, in an unrelenting fashion, to the principle of a free market that is able to respond to the industrial and employment needs of our people. I cannot place my faith in that analysis and I believe that there are some Conservative Members who share my concerns.

The new clause does not require any massive compromise on the Government's ideological stance. I believe that the Government should look favourably upon it. Despite any reservations that the Government may have about the new clause—its wording, the appeal system or the extent to which it can be implemented—were Ministers to say that they took on board its central thrust, I am sure that British industry would respond favourably.

Mr. Norman Lamont

This has been an interesting and wide-ranging debate. The hon. Member for Berwick-upon-Tweed (Mr. Beith) ranged particularly wide and made a real motherhood speech. In a debate that was meant to be about capital allowances, he managed to introduce the channel tunnel, proportional representation and his favourite subject, the ERM, all of which he felt would solve whatever investment problems existed in the British economy.

I am sorry that the hon. Gentleman is not in his place because I wanted to explain why I had not given the cost of the Opposition new clause. It is difficult to give the cost because it depends on how successful the proposal would be in generating new investment. As drafted, it is not restricted specifically to new investment. It would apply to existing investment, so potentially it would have a huge deadweight cost. Disregarding that, if it attracted just new investment, the cost might be about £260 million in 1991–92 and a further £360 million in 1992–93. While the costs are difficult to quantify, if the hon. Member for Derby, South (Mrs. Beckett) were successful in her proposition and it brought forward more investment, the costs would be higher.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made an interesting speech and was concerned that I had not referred to the balance of payments and current account deficit. I did not do so because I had not anticipated the debate being so wide-ranging. I differ from the way in which the right hon. Gentleman views the current account deficit—I do not regard it as the profit and loss account of the nation, as many Opposition Members appear to do. As I have said on many occasions, the current account deficit reflects much more a phenomenon of excess demand in the United Kingdom and not of a loss of competitiveness. If it were a loss of competitiveness, we should not be seeing the extraordinary growth in exports, particularly manufactured exports, that we have witnessed in the recent past, particularly in the past 12 months.

Although the deficit must be reduced, it is much more a symptom of excess demand—of inflation—than of anything else. Inflation is the main problem. When the hon. Member for Derby, South says that we do not recognise the problems, I assure her that we have always recognised inflation as a problem. Indeed, we recognise it much more than the Labour party is prepared to say it is a problem. We are absolutely determined to get inflation down and we regard it as unacceptably high.

Mr. Denzil Davies

Does the right hon. Gentleman accept that a reason for the deficit may be the fact that there is a structural problem in relation to British industry? In large areas of the production of consumer goods, are we not producing because the production is done abroad?

Mr. Lamont

I do not accept that the current account deficit reflects structural problems. The great structural change, to which the right hon. Gentleman refers, that occurred in the British economy took place in the early part of this decade. The structural change in our current account deficit has occurred in the last few years—in the period when demand has plainly been excessive—when the Government responded to the conditions of 1987, a response which, with hindsight, was over-generous. But it is not a structural problem because the structural changes—the loss of some manufacturing capacity, the most inefficient and unprofitable—all occurred in the early 1980s, whereas the phenomenon of the current account deficit is more recent.

The right hon. Member for Ashton-under-Lyne dwelt on manufacturing, and I shall say more about that, but he also played down the role of the service industries in the economy and referred to services as though they were totally dependent on manufacturing. I suggest that that is the wrong way to look at it. Services and manufacturing are interdependent. Some manufacturing industries have a close relationship with service industries. For example, the output of the computer industry is heavily influenced by the demands of the financial services industry. The idea that services are not wealth-creating or are dependent entirely on manufacturing is a myopic and out-of-date view.

5.45 pm

I freely agree that manufacturing is an important part of the economy, but it is no use harking back to an age that is past. In the early part of the century, this country enjoyed about 75 per cent. of the output of the world's textile industry. Had Opposition Members been present over the years, they would have been complaining every decade as that percentage fell, reflecting an inevitable transfer of manufacturing capacity to some of the poorer countries. We should not be against that, as it has been greatly to the advantage of those countries. It was inevitable as poorer countries industrialised and came into the world trading system.

The right hon. Member for Ashton-under-Lyne also felt that the 25 per cent. allowances under the new regime did not match depreciation. As he will recognise on reflection, writing-down allowances of 25 per cent. give an effective eight-year write-off period for machinery and plant, with relief, of nearly 60 per cent. of the cost in the first three years. The rate of depreciation allowed by the tax system compares well with commercial rates of depreciation in most situations. Obviously it varies, according to the assets and from one company to another, and there are also some special arrangements for short-life assets.

The right hon. Member for Llanelli (Mr. Davies) made an interesting and entertaining speech, as he always does. He began by saying that the Government did not understand monetarism, a point that he often makes. I think that he sometimes tries to disguise the fact that he is a true monetarist, as we know from his remarks that interest rates are the best way of controlling monetary growth and that credit controls are ineffective. The right hon. Gentleman, when a Treasury Minister, studied these matters, understood them and drew the correct conclusions. That is why he occasionally feels that he has a licence to attack the Government for not being monetarist enough. I sometimes think that he is trying to cover up his own position.

The right hon. Gentleman felt that the 1984 reforms had helped the service sector as opposed to manufacturing. It is true to a point that, by its nature, the reduction in allowances—which went more to manufacturing—benefited the service sector, but it depends on the profitability of the individual company. The changes gave the greatest incentive and reward to the most profitable companies, including profitable manufacturing companies. That is an important point to make about the new tax regime.

Much of the debate has centred not on the new clause but on the economy. Indeed, it has been an economic philosophy debate about the role of manufacturing in the economy. As I said at the outset, manufacturing is extremely important to the traded sector. But Opposition Members are in danger of disregarding the other three quarters of the economy which comes from non-manufacturing. It is ridiculous to regard all wealth creation as coming from one sector.

I said that if one looked at manufacturing as a share of GDP, one found that the transition in this country, which happened under the last Labour Government—the reduction in manufacturing as a share of GDP—has gone on for decades. It mirrors what has happened in European countries and in north America. The share of GDP represented by manufacturing in this country is comparable with the situation in France and America.

In recent years, however, we have seen some encouraging signs, with remarkable growth in productivity in manufacturing. In the recent past we have also witnessed strong growth in manufacturing investment, which has grown by an average of 8 per cent. per year since 1983, compared with an average of 1.5 per cent. per year under the last Labour Government.

I said that foreign investment had played a part, which illustrates that foreign companies do not regard the tax regime for taxing profits and giving incentives for investment as anything other than attractive. If they did, we should not be doing so well as we have been in attracting foreign investment.

The hon. Member for Carlisle (Mr. Martlew) asked a strange question. He asked when a British firm last took over a Japanese car company. I was not aware that the Japanese had taken over any British car firms. What they have done is to invest in green field sites. Nissan and Toyota have been new green field investments, which should be welcomed by everyone, including the Opposition. I am sure that the hon. Member for Derby, South will agree, since Toyota is in her constituency, that there is no reason why Nissan and Toyota should not be regarded as just as much a part of the British economy as the Ford motor company was in the past.

The hon. Member for Workington (Mr. Campbell-Savours) referred to his earlier speech on clocks, which I remember because I was here when he made it. The clock does not seem to have moved on very much since then. He said that he was in favour of market forces and did not favour interventionism. He went on to say that he favoured only a little bit of interventionism, but that sectors should be identified and there should be a bit of money in the resources. I fear that once we begin that argument, it is difficult not to do so with ever-gathering enthusiasm, as the Labour party does.

The hon. Gentleman also referred to Inmos, although he was not quite sure what it did. He said that we were rather good at it, but it was a complete disaster.

Mr. Denzil Davies

It is still there.

Mr. Campbell-Savours

My right hon. Friend says that it is still there.

The Chief Secretary to the Treasury seems to question the balance between interventions and markets. Why is it that the Japanese target in that way? If they can do it, why can we not do it?

Mr. Lamont

This is not a debate on the Japanese economy.

Mr. Campbell-Savours

But the Japanese do it.

Mr. Lamont

I do not believe that the Japanese pursue the model that the hon. Gentleman describes. It may have been the model in Japan after the second world war; the Japanese may have a different relationship with their banking system, but that is a different matter. However, the relationship between the state and the industry is not as the hon. Gentleman describes it. [HON. MEMBERS: "MITI."] I hear Members on the Opposition Front Bench muttering about the Ministry of International Trade and Industry in Japan, but the role of MITI has changed considerably. The striking factor about the Japanese motor industry is the sheer number of different, competing companies, which is more significant than any alleged relationship with MITI.

There has been much argument about the state of manufacturing industry in this country. I can give no better authority than the director general of the Confederation of British Industry, who remarked a few weeks ago: We enter the 1990s with the supply side of the British economy in comparatively better shape than at any time in our history. No doubt Labour Members will describe that as hype, belief in a miracle and exaggerated Tory propaganda, but it is the considered judgment of the director general of the CBI. I much prefer his opinion to anything that the Labour party has put forward in this debate.

Mrs. Beckett

This has been a most interesting debate. I have a feeling that I may have misled the hon. Member for Berwick-upon-Tweed (Mr. Beith) earlier. I was so amazed by the figures that he gave on the cost of our new clause that I gave an example of the implications that it would have for an individual company. I also stressed that I thought his proposals were completely exaggerated. I am not sure whether I made that as clear to the hon. Gentleman as I would have wished, but no doubt he will deduce it from the record.

When he opened the debate for the Government, the Chief Secretary talked about growth and inflation during the decade, and how the Government's record was good and stood up well to any comparison. As the hon. Member for Berwick-upon-Tweed said, the Chief Secretary did not say anything else about inflation, and we all know why.

The Chief Secretary talked as though growth had been spectacularly higher than at any time in our history. Growth rates during the decade as a whole were no higher than those that we had generally experienced before the initial oil crisis of the early 1970s. Although we were all pleased by the levels of growth achieved, they were not, I repeat, anything to boast about in terms of our general history and the development of the country's economy.

Mr. Norman Lamont

What about our growth rate in the 1980s—was it or was it not above the EC average, and was it or was it not below that in the 1970s?

Mrs. Beckett

From memory, if one leaves out—as the Chief Secretary prefers to do—the figures at the start of this Government's period of office, from 1979 to 1980, the answer is yes. However, once those figures are included and we look at the Government's entire period in office, the picture is different. I made that point earlier. [HON. MEMBERS: "There was no oil."] As I hear from the Benches behind me, there was the minor matter of the large revenues that the Government enjoyed from the North sea which were not available to any previous Government. One must question the Chief Secretary's use of that set of statistics.

The Chief Secretary referred, however briefly, to the problems of the current account and suggested that part of the reason for them was increased investment. He said that investment goods had contributed to the deficit. As I am sure the Chief Secretary is aware, the proportion of imports of goods for investment and production—we accept that our imports are extremely high—is no higher than in the 1970s and early 1980s. If anything, the proportion has declined and many of the goods described in the categories of production and investment are not what most of us would think of in relation to the manufacturing industry. They include X-rays and coconut. I understand that in 1988, for which I have the figures, only 18.6 per cent. of manufactured imports were pure capital goods. Therefore, we can dismiss the argument that it is only the high level of goods for investment that has contributed to our current account deficit.

The Chief Secretary said that there had been a strong growth in manufacturing investment, particularly in the past couple of years. He suggested that some commentators thought that there was a bit of a change and that there would be an even greater improvement in the near future. That is the most extraordinary claim of all, apart from the one that the Chief Secretary has just made and to which I shall return. Manufacturing investment as a proportion of our gross domestic product has declined since 1979 and is still nowhere near the 1979 levels. Even if we consider it in, not quite cash terms but constant prices, it returned above the 1979 level only as late as 1988.

Mr. Andrew Rowe (Mid-Kent)

I had always understood that one of the difficulties about computing the percentage of investment in manufacturing industry was that when vertically integrated companies decided, for example, to hive off their transport function to an independent company, that became, by definition, no longer a manufacturing function. One of our difficulties in comparing the figures is that a great deal of what used to be called manufacturing is now called service.

Mrs. Beckett

That is one of the most spurious arguments that I have heard for a long time. There is no doubt that, under this Government, every section of the collection of statistics has been degraded and, in its use, been distorted. I am quarrelling not with the statisticians, but with the politicians who try to make a case that will not stand up to close examination. However one measures manufacturing investment and compares it with that of our competitors, there is no dispute—not even from the Government—about the figures that I have just given: as a percentage of gross domestic product, manufacturing investment has declined and, at constant prices, it has only just climbed back above the level from which it fell in 1979.

6 pm

The Chief Secretary had the cheek to say a moment ago that since 1983 manufacturing investment has grown by an average of 8 per cent. compared with 1.5 or 2 per cent. under the last Labour Government. I remind him of a recent answer that the Chancellor gave my hon. Friend the Member for Carmarthen (Mr. Williams) which showed clearly what would have happened had the comparatively lower rates continued. I accept that there was a smaller rate of increase, year by year, in manufacturing investment under the last Labour Government. Nevertheless, had that rate of increase been attained by this Government manufacturing investment would be almost £2 billion higher than it is today.

The Chief Secretary then suggested that investment might be improving; we certainly hope so, but we see little sign of that in his or anyone else's forecasts.

The right hon. Gentleman asked whether the Opposition favour tax allowances of the sort trailed in our new clause. I thought that we had made it clear that we favour the use of tax allowances for investment, although we should certainly want them to be well targeted and used primarily by manufacturing industry. There is no difficulty about that, and I am not sure why the right hon. Gentleman thought that there might be.

The Chief Secretary criticised me for suggesting that companies should not seek to increase their earnings per share. Of course, I understand that companies want to increase their earnings per share—that is what the market wants. I pointed out that we do not want companies to do this by fiddling accounting rules or by launching takeovers; we want them to improve their earnings by improving the performance of the company—a rather different point.

Mr. Campbell-Savours

The Minister put a price on the amendment, which reads, may be prescribed by way of regulations made under this subsection". Given that the goods covered are not classified in the new clause, surely it is impossible to price it.

Mrs. Beckett

My hon. Friend is right. The new clause offers scope for careful targeting, which is why it was drafted in that way. To be fair to the Chief Secretary, he said that his costing was something of a guess. We must be kind to the Government; they have to find something to say and their guesses are growing increasingly desperate with every day that passes—

Mr. Campbell-Savours

rose

Mrs. Beckett

If my hon. Friend does not want to he kind to the Chief Secretary, I am happy to let him have another go.

Mr. Campbell-Savours

The Government spread myths throughout the country about the cost of Labour's programme. If they included in their assessment the figure that the Minister gave at the Dispatch Box, it would be a gross misrepresentation. Certain products might be covered at a cost of less than £1 million. It is quite impossible to assess the cost of the new clause.

Mrs. Beckett

My hon. Friend is right.

Mr. Norman Lamont

rose

Mrs. Beckett

If the right hon. Gentleman must.

Mr. Lamont

The hon. Lady gave an astonishing reply to the hon. Member for Workington (Mr. Campbell-Savours). Is she really suggesting different rates of allowances, defined for specific sectors within manufacturing? That is what the hon. Member for Workington suggested, and she knows it.

Mrs. Beckett

My hon. Friend suggested no such thing. The Chief Secretary cannot have been listening. The new clause suggests no such thing, either. My hon. Friend merely suggested that it was important to define carefully the categories within which the allowance might be made, which is not the same as suggesting different rates.

The Minister said that there was not a scrap of evidence that a lack of capital allowances is harming investment. It is one thing to suggest that there has not been a dramatic deterioration in the figures since the abolition of the allowances—although there has certainly not been much improvement, as they are still low. But the whole point of the new clause was to suggest a slight alleviation of the predicament of interest rates being so high. All the statistics and Government and other forecasts for the recent period have shown the problems that industry faces because of interest rates, which are expected to have a damaging effect on investment, and that is what the new clause attempts to deal with.

As to whether the problem will do long-term damage, I remind the Chief Secretary of what the April-May issue of "European Economy" magazine said. The Commission drew attention to levels of investment across the Community and referred to the Community's co-operative growth strategy—and to the fact that across the Community the growth of investment is stronger than the growth of gross domestic product. The Commission hoped for an expansion of 4 per cent. in real terms this year. However, the magazine also says that there has been a marked slow-down in some countries and says of the United Kingdom: In this last country, gross fixed capital formation could actually decrease in 1990. It is significant that the Commission pointed out that that aspect is improving, although not as fast as it would like, in most Community countries; so this is another example of our competitiveness being harmed—and it is already poor.

I referred earlier to the world competitiveness report produced by World Economic Forum. It lists the United Kingdom as a mediocre 12th of 23 countries, with its problems compounded by the fact that we are 16th in the table when measured by per capita investment in education, and 19th measured by the numbers enrolled in higher education. That, too, can only harm our competitive position.

Several of my hon. Friends have made excellent speeches drawing attention to the problems of manufacturing industry which we believe the new clause might, in a small and temporary way, help to alleviate. The Chief Secretary ended by quoting the CBI, and I should like to do the same. The CBI called on the Government to make precisely this sort of assistance for industry a priority in this Finance Bill. The then president of the CBI referred to the danger that investment plans will be undermined by the high cost of capital, the squeeze on profits, and slower growth". He spoke of these risks undermining Britain's growth potential throughout the decade". That is the danger.

Throughout this debate the Chief Secretary has failed to refer to our enormous balance of payments deficit, and it has clearly emerged, as we feared it would, that the Government are not prepared to take steps or to consider measures to alleviate the problems faced by British industry—because they refuse to accept that they exist. One of the worst features of the Chief Secretary's remarks was his pooh-poohing of the idea that manufacturing industry was important. He claimed that the Opposition say that it is all that matters in wealth creation. He must be well aware that, from the point of view of our overseas earnings and our traded sector, it is manufacturing that is the wealth creator and the source of all our wealth. It could be the basis of a secure and successful future for this country, but it is plain that under this Government such a future holds no security.

Question put, That the clause be read a Second time:—

The House divided: Ayes 207, Noes 264.

Division No. 297] [6.10 pm
AYES
Adams, Allen (Paisley N) Foster, Derek
Allen, Graham Foulkes, George
Anderson, Donald Fraser, John
Archer, Rt Hon Peter Fyfe, Maria
Armstrong, Hilary Galloway, George
Ashdown, Rt Hon Paddy Garrett, John (Norwich South)
Ashley, Rt Hon Jack Garrett, Ted (Wallsend)
Ashton, Joe George, Bruce
Banks, Tony (Newham NW) Godman, Dr Norman A.
Barnes, Harry (Derbyshire NE) Golding, Mrs Llin
Barron, Kevin Gordon, Mildred
Beckett, Margaret Gould, Bryan
Beith, A. J. Graham, Thomas
Bell, Stuart Grant, Bernie (Tottenham)
Benn, Rt Hon Tony Griffiths, Nigel (Edinburgh S)
Bennett, A. F. (D'nt'n & R'dish) Griffiths, Win (Bridgend)
Bermingham, Gerald Hardy, Peter
Bidwell, Sydney Harman, Ms Harriet
Blunkett, David Hattersley, Rt Hon Roy
Boateng, Paul Haynes, Frank
Boyes, Roland Heal, Mrs Sylvia
Bradley, Keith Healey, Rt Hon Denis
Bray, Dr Jeremy Henderson, Doug
Brown, Gordon (D'mline E) Hinchliffe, David
Brown, Nicholas (Newcastle E) Hogg, N. (C'nauld & Kilsyth)
Bruce, Malcolm (Gordon) Home Robertson, John
Buckley, George J. Hood, Jimmy
Caborn, Richard Howarth, George (Knowsley N)
Callaghan, Jim Howell, Rt Hon D. (S'heath)
Campbell, Menzies (Fife NE) Howells, Geraint
Campbell, Ron (Blyth Valley) Hoyle, Doug
Campbell-Savours, D. N. Hughes, John (Coventry NE)
Canavan, Dennis Hughes, Robert (Aberdeen N)
Carlile, Alex (Mont'g) Hughes, Roy (Newport E)
Carr, Michael Hughes, Simon (Southwark)
Clark, Dr David (S Shields) Janner, Greville
Clarke, Tom (Monklands W) Jones, Barry (Alyn & Deeside)
Clay, Bob Jones, Ieuan (Ynys Môn)
Clelland, David Kennedy, Charles
Clwyd, Mrs Ann Lambie, David
Cohen, Harry Lamond, James
Cook, Frank (Stockton N) Leighton, Ron
Cook, Robin (Livingston) Litherland, Robert
Corbett, Robin Lloyd, Tony (Stretford)
Cousins, Jim McAllion, John
Crowther, Stan McAvoy, Thomas
Cryer, Bob McCartney, Ian
Cummings, John Macdonald, Calum A.
Cunliffe, Lawrence McFall, John
Cunningham, Dr John McKelvey, William
Darling, Alistair McLeish, Henry
Davies, Rt Hon Denzil (Llanelli) Maclennan, Robert
Davies, Ron (Caerphilly) McNamara, Kevin
Davis, Terry (B'ham Hodge H'l) McWilliam, John
Dewar, Donald Madden, Max
Dixon, Don Mahon, Mrs Alice
Dobson, Frank Marek, Dr John
Doran, Frank Marshall, David (Shettleston)
Duffy, A. E. P. Marshall, Jim (Leicester S)
Dunnachie, Jimmy Martin, Michael J. (Springburn)
Dunwoody, Hon Mrs Gwyneth Martlew, Eric
Eadie, Alexander Maxton, John
Eastham, Ken Meale, Alan
Evans, John (St Helens N) Michael, Alun
Ewing, Harry (Falkirk E) Michie, Bill (Sheffield Heeley)
Ewing, Mrs Margaret (Moray) Michie, Mrs Ray (Arg'l & Bute)
Fatchett, Derek Mitchell, Austin (G't Grimsby)
Faulds, Andrew Moonie, Dr Lewis
Field, Frank (Birkenhead) Morgan, Rhodri
Fields, Terry (L'pool B G'n) Morley, Elliot
Fisher, Mark Morris, Rt Hon A. (W'shawe)
Flannery, Martin Morris, Rt Hon J. (Aberavon)
Flynn, Paul Mullin, Chris
Foot, Rt Hon Michael Murphy, Paul
Nellist, Dave Smith, Andrew (Oxford E)
Oakes, Rt Hon Gordon Smith, C. (Isl'ton & F'bury)
O'Brien, William Smith, J. P. (Vale of Glam)
O'Neill, Martin Snape, Peter
Orme, Rt Hon Stanley Spearing, Nigel
Owen, Rt Hon Dr David Steinberg, Gerry
Parry, Robert Stott, Roger
Patchett, Terry Strang, Gavin
Pendry, Tom Straw, Jack
Pike, Peter L. Taylor, Mrs Ann (Dewsbury)
Powell, Ray (Ogmore) Taylor, Matthew (Truro)
Prescott, John Thomas, Dr Dafydd Elis
Primarolo, Dawn Vaz, Keith
Quin, Ms Joyce Viggers, Peter
Radice, Giles Wallace, James
Randall, Stuart Wardell, Gareth (Gower)
Redmond, Martin Wareing, Robert N.
Rees, Rt Hon Merlyn Watson, Mike (Glasgow, C)
Reid, Dr John Welsh, Andrew (Angus E)
Richardson, Jo Welsh, Michael (Doncaster N)
Rooker, Jeff Wigley, Dafydd
Ross, Ernie (Dundee W) Williams, Rt Hon Alan
Rowlands, Ted Williams, Alan W. (Carm'then)
Ruddock, Joan Wilson, Brian
Salmond, Alex Winnick, David
Sedgemore, Brian Wise, Mrs Audrey
Sheerman, Barry Young, David (Bolton SE)
Sheldon, Rt Hon Robert
Shore, Rt Hon Peter Tellers for the Ayes:
Short, Clare Mr. Allen McKay and
Sillars, Jim Mr. Martyn Jones.
Skinner, Dennis
NOES
Alexander, Richard Channon, Rt Hon Paul
Alison, Rt Hon Michael Chapman, Sydney
Amery, Rt Hon Julian Chope, Christopher
Amos, Alan Churchill, Mr
Arbuthnot, James Clark, Hon Alan (Plym'th S'n)
Arnold, Jacques (Gravesham) Clark, Sir W. (Croydon S)
Arnold, Sir Thomas Clarke, Rt Hon K. (Rushcliffe)
Aspinwall, Jack Conway, Derek
Atkins, Robert Coombs, Anthony (Wyre F'rest)
Atkinson, David Couchman, James
Baker, Rt Hon K. (Mole Valley) Cran, James
Baker, Nicholas (Dorset N) Critchley, Julian
Baldry, Tony Currie, Mrs Edwina
Batiste, Spencer Curry, David
Beaumont-Dark, Anthony Davies, Q. (Stamf'd & Spald'g)
Bellingham, Henry Day, Stephen
Bendall, Vivian Devlin, Tim
Bennett, Nicholas (Pembroke) Dickens, Geoffrey
Benyon, W. Dicks, Terry
Bevan, David Gilroy Douglas-Hamilton, Lord James
Blackburn, Dr John G. Dover, Den
Blaker, Rt Hon Sir Peter Durant, Tony
Body, Sir Richard Eggar, Tim
Boscawen, Hon Robert Emery, Sir Peter
Boswell, Tim Evans, David (Welwyn Hatf'd)
Bowden, A (Brighton K'pto'n) Evennett, David
Bowden, Gerald (Dulwich) Fairbairn, Sir Nicholas
Bowis, John Fallon, Michael
Boyson, Rt Hon Dr Sir Rhodes Farr, Sir John
Braine, Rt Hon Sir Bernard Favell, Tony
Brandon-Bravo, Martin Fenner, Dame Peggy
Bright, Graham Field, Barry (Isle of Wight)
Brown, Michael (Brigg & Cl't's) Finsberg, Sir Geoffrey
Bruce, Ian (Dorset South) Fishburn, John Dudley
Buchanan-Smith, Rt Hon Alick Fookes, Dame Janet
Buck, Sir Antony Forman, Nigel
Budgen, Nicholas Forsyth, Michael (Stirling)
Burns, Simon Forth, Eric
Burt, Alistair Franks, Cecil
Butler, Chris Freeman, Roger
Butterfill, John French, Douglas
Carlisle, John, (Luton N) Fry, Peter
Carlisle, Kenneth (Lincoln) Gale, Roger
Carrington, Matthew Gardiner, George
Carttiss, Michael Garel-Jones, Tristan
Cash, William Gill, Christopher
Glyn, Dr Sir Alan Marshall, Sir Michael (Arundel)
Goodlad, Alastair Martin, David (Portsmouth S)
Goodson-Wickes, Dr Charles Mates, Michael
Gorman, Mrs Teresa Maude, Hon Francis
Gow, Ian Mawhinney, Dr Brian
Grant, Sir Anthony (CambsSW) Maxwell-Hyslop, Robin
Greenway, Harry (Ealing N) Mayhew, Rt Hon Sir Patrick
Greenway, John (Ryedale) Meyer, Sir Anthony
Gregory, Conal Mitchell, Andrew (Gedling)
Griffiths, Peter (Portsmouth N) Monro, Sir Hector
Grist, Ian Moss, Malcolm
Ground, Patrick Mudd, David
Grylls, Michael Nelson, Anthony
Hague, William Nicholls, Patrick
Hamilton, Hon Archie (Epsom) Norris, Steve
Hamilton, Neil (Tatton) Onslow, Rt Hon Cranley
Hanley, Jeremy Oppenheim, Phillip
Hannam, John Parkinson, Rt Hon Cecil
Hargreaves, Ken (Hyndburn) Patnick, Irvine
Harris, David Pattie, Rt Hon Sir Geoffrey
Haselhurst, Alan Peacock, Mrs Elizabeth
Hayes, Jerry Porter, David (Waveney)
Hayhoe, Rt Hon Sir Barney Raffan, Keith
Hayward, Robert Rathbone, Tim
Heathcoat-Amory, David Renton, Rt Hon Tim
Hicks, Mrs Maureen (Wolv' NE) Riddick, Graham
Hicks, Robert (Cornwall SE) Ridsdale, Sir Julian
Higgins, Rt Hon Terence L. Rifkind, Rt Hon Malcolm
Hill, James Roberts, Sir Wyn (Conwy)
Hind, Kenneth Roe, Mrs Marion
Hogg, Hon Douglas (Gr'th'm) Rossi, Sir Hugh
Hordern, Sir Peter Rost, Peter
Howard, Rt Hon Michael Rowe, Andrew
Howarth, G. (Cannock & B'wd) Ryder, Richard
Howell, Ralph (North Norfolk) Shaw, David (Dover)
Hughes, Robert G. (Harrow W) Shaw, Sir Giles (Pudsey)
Hunter, Andrew Shaw, Sir Michael (Scarb')
Irvine, Michael Shelton, Sir William
Irving, Sir Charles Shephard, Mrs G. (Norfolk SW)
Jack, Michael Shepherd, Colin (Hereford)
Janman, Tim Shepherd, Richard (Aldridge)
Jessel, Toby Sims, Roger
Johnson Smith, Sir Geoffrey Skeet, Sir Trevor
Jones, Gwilym (Cardiff N) Smith, Tim (Beaconsfield)
Jones, Robert B (Herts W) Soames, Hon Nicholas
Jopling, Rt Hon Michael Speller, Tony
Key, Robert Spicer, Sir Jim (Dorset W)
Kilfedder, James Spicer, Michael (S Worcs)
King, Roger (B'ham N'thfield) Squire, Robin
Kirkhope, Timothy Stanbrook, Ivor
Knapman, Roger Stanley, Rt Hon Sir John
Knight, Greg (Derby North) Steen, Anthony
Knight, Dame Jill (Edgbaston) Stern, Michael
Knowles, Michael Stevens, Lewis
Knox, David Stewart, Allan (Eastwood)
Lamont, Rt Hon Norman Stewart, Andy (Sherwood)
Lang, Ian Stradling Thomas, Sir John
Lawrence, Ivan Sumberg, David
Lee, John (Pendle) Summerson, Hugo
Leigh, Edward (Gainsbor'gh) Tapsell, Sir Peter
Lester, Jim (Broxtowe) Taylor, Ian (Esher)
Lightbown, David Taylor, Teddy (S'end E)
Lloyd, Sir Ian (Havant) Tebbit, Rt Hon Norman
Lloyd, Peter (Fareham) Temple-Morris, Peter
Lord, Michael Thompson, D. (Calder Valley)
Lyell, Rt Hon Sir Nicholas Thompson, Patrick (Norwich N)
McCrindle, Robert Thorne, Neil
MacGregor, Rt Hon John Thornton, Malcolm
MacKay, Andrew (E Berkshire) Townend, John (Bridlington)
Maclean, David Tracey, Richard
McLoughlin, Patrick Tredinnick, David
McNair-Wilson, Sir Michael Twinn, Dr Ian
McNair-Wilson, Sir Patrick Viggers, Peter
Madel, David Waddington, Rt Hon David
Major, Rt Hon John Walden, George
Malins, Humfrey Walker, Bill (T'side North)
Mans, Keith Ward, John
Maples, John Warren, Kenneth
Marland, Paul Watts, John
Marshall, John (Hendon S) Wells, Bowen
Wheeler, Sir John Woodcock, Dr. Mike
Widdecombe, Ann Yeo, Tim
Wiggin, Jerry Young, Sir George (Acton)
Wilkinson, John
Wilshire, David Tellers for the Noes:
Winterton, Mrs Ann Mr. John M. Taylor and
Winterton, Nicholas Mr. Tom Sackville.
Wood, Timothy

Question accordingly negatived.

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