Manufacturing

HC Deb 09 July 1992 vol 211 cc458-61

4. Mr. Jenkin

To ask the Chancellor of the Exchequer what assessment he has made of recent trends in manufacturing productivity; and whether he will make a statement.

The Chief Secretary to the Treasury (Mr. Michael Portillo)

Manufacturing productivity stood at its highest ever level in April this year.

Mr. Jenkin

Does my right hon. Friend agree that our successful economic policies during the 1980s promoted a vast improvement in manufacturing investment towards that end of the decade? What positive conclusions does he draw from that and from his reply?

Mr. Portillo

My hon. Friend is right to say that manufacturing investment grew by about 31 per cent. from 1986 to 1989. Manufacturing productivity today, as we come out of recession, is higher than it was when we went into recession. That is a reason for having a good deal of optimism about the future.

Mrs. Ewing

In considering the issue of manufacturing productivity, which is vital, does the Minister recognise the role that has been played by workers in manufacturing in reaching targets? Is he aware for example, that 1,300 people are to be made redundant at Ardersier yard in Scotland by the end of September, representing the largest single redundancy measure in the onshore oil engineering industry every recorded in the United Kingdom? If the right hon. Gentleman really cares about productivity and production, will he examine what is happening in the oil fabrication industry and, in particular, consider the possibility of the Government's giving some direction on where the construction of the Claymore jacket for Elf Caledonia is to take place?

Mr. Portillo

I share the hon. Lady's regret about individual redundancies. At the end of the 1980s and at the beginning of the 1990s, we had the highest ever level of manufacturing output, yet about 5 million people were employed in manufacturing, compared with 9 million in the 1960s. Manufacturing productivity has risen steeply and the number of people employed in manufacturing has declined, yet manufacturing output has recently been at its highest ever level. That does not help with the individual redundancies to which the hon. Lady referred, but I want to set the role of manufacturing in the context of the economy as a whole

Mr John Townend

Does my right hon. Friend agree that it has been an enormous achievement to increase productivity at a time of recession, when one would have expected it to go down? To what extent does he think that that increase in productivity has been due to improved industrial relations, with the number of days lost through strikes being at an all-time low? Does he agree that that has been due to the industrial relations reforms introduced by the Conservatives in the past 13 years?

Mr. Portillo

The improvement in industrial relations has played an important part. I am pleased to note that earnings are responding to the economic cycle and that the earnings increase has recently been at its lowest level for 25 year. That means that the prospects for employment growth in the future are much better than they would have been.

Mr. Nicholas Brown

it is something of a novelty to hear a Treasury Minister boast about manufacturing industry, and I congratulate the Chief Secretary on his nerve. Will he confirm that about 2 million jobs have been lost in the manufacturing sector since 1979? In those circumstances, is he now willing to revise his forecast of unemployment at 2.4 million to a more realistic 2.7 million for this year?

Mr. Portillo

I thank the hon. Gentleman for his congratulations, although I do not congratulate him on how carefully he may have been listening to what I said. I go further than the figure that he gave. I have told the House that employment in manufacturing has decreased by 4 million since 1966. We are talking about a very long-term trend in this country under various Governments which has occurred in all advanced industrialised countries around the world. My answer to the hon. Gentleman's question about forecasting unemployment is that the Government make no such forecasts.

5. Mrs. Angela Knight

To ask the Chancellor of the Exchequer what is his latest assessment of the trend in manufacturing investment.

Mr. Portillo

Manufacturing investment rose strongly during the late 1980s and has fallen back during the recession.

Mrs. Knight

Does my right hon. Friend agree that the record investment of British manufacturing companies such as the engineering and lace business in Erewash is now serving those companies well in the difficult world trading climate? Does he agree that the successful conclusion of the talks on the general agreement on tariffs and trade will help world trade and the British economy? Will he press European Finance Minister colleagues to conclude a successful deal—especially the French?

Mr. Portillo

I am happy to join my hon. Friend in congratulating business men and women in her constituency on their investment performance. During the first quarter of this year, business investment rose by 3½ per cent., including a 3¼ per cent. increase in investment in plant and machinery. My hon. Friend is absolutely right to say that a successful conclusion of the GATT round will be in the interests of all of us. As she will know, my right hon. Friend the Prime Minister stressed that point strongly at the Group of Seven discussions in Munich.

Mr. Sheldon

Is it not clear that one of the great barriers to manufacturing investment is the high level of interest rates? Why does the Chancellor of the Exchequer consider himself so bound to act as the poodle of the German Bundesbank on interest rates? Why does he not listen to my hon. Friend the Member for Derby, South (Mrs. Beckett) and think about a reduction in interest rates, which he could well get away with?

Mr. Portillo

First, I repeat to the right hon. Gentleman that, in the first quarter of this year, business investment showed a sharp and welcome improvement. If he considers the underlying rates of inflation, he will find that real interest rates in the United Kingdom are a little lower than those in Germany. He should take that fact into account in his calculations.

Mr. Nicholas Winterton

Coming as I do from a business background, may I ask my right hon. Friend whether he will accept from me that it is time that the Government and the House realised that the British economy is in a serious state, unemployment between now and the middle of next year is likely to rocket through 3 million and that, unless the Government reduce interest rates, they will compound the problems facing this country and hinder its ability to recover?

Mr. Portillo

I believe that my hon. Friend, who is indeed a great friend of manufacturing industry, will be pleased that manufacturing output reached its highest ever level in the early 1990s. He will be pleased at the figures that I have given this afternoon on manufacturing productivity, which was at its highest ever level in April. I do not accept what my hon. Friend says about the rising rate of unemployment. If the Government were to give up trying to control inflation—which I fear is the outcome of what my hon. Friend would like us to do—the economy would be in grave difficulty and we would face much higher unemployment.

Mr. Beith

Does the Chief Secretary realise that the call from the hon. Member for Macclesfield (Mr. Winterton) was relatively moderate compared with the call for a large cut in interest rates that came from the former Prime Minister? What went wrong with the policies which she followed and carried out and which were meant to lead to generally lower interest rates? Was she just plain wrong?

Mr. Portillo

The policies that we followed have led to lower interest rates. Interest rates have been cut on nine separate occasions. They are now 10 per cent. and were previously 15 per cent. That cut has been of tremendous benefit to both business and householders. The right hon. Gentleman is trying to imply that if we had followed a different set of policies, we could have had lower interest rates today. I see no evidence for that.

Miss Emma Nicholson

Does my right hon. Friend agree that, whereas the money supply is under Government control, where that money is lent is wholly under the control of the banks? In the late 1980s some banks lent to businesses that should never have been allowed to get off the ground in the first place. It is ridiculous to suggest that the matter is a Government responsibility—it rests with the clearing banks.

Mr. Portillo

I take my hon. Friend's point. She speaks with the experience of having spoken to some of her business people. Any of my hon. Friends will understand that it is the Government's responsibility to maintain downward pressure on inflation. All our hopes for the recovery of industry in general and for the improvement of our employment prospects rest upon there being absolute certainty that the Government will continue the fight against inflation. I am pleased to say that the markets can have that absolute certainty.

Mr. John Smith

Is the Chief Secretary aware that the most recent report of the Organisation for Economic Co-operation and Development shows that manufactur-ing investment in Britain fell by 11.9 per cent. in 1991 and that, even worse, it is predicted to fall by another 3.8 per cent. during the current year? Is that a satisfactory state of affairs? What action will the Government take to promote manufacturing investment, without which there is no prospect of recovery from the recession?

Mr. Portillo

The right hon. and learned Gentleman has just quoted a forecast, and he is often sceptical about forecasts. I shall give two facts. First, manufacturing investment rose by 30 per cent. between 1986 and 1989: therefore, we are starting from a high base. Secondly, business investment rose by 3½ per cent. in the first quarter of this year, 3¼ per cent. of which was in plant and machinery.