Manufacturing (Productivity)

HC Deb 11 June 1993 vol 226 cc571-607

Question again proposed, That this House do now adjourn.

Mr. Cox

I was explaining to the House that in 1979 more than 7 million people were employed in the United Kingdom manufacturing industry. That figure has now dropped to 4.5 million. Indeed, last year well over 200,000 manufacturing jobs were lost. Our major companies such as ICI, Ford, Rolls-Royce and British Aerospace are now shedding jobs. As my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) said, this country is not taking the action or making the effort required to revitalise our manufacturing base.

The Economist recently published a survey showing that the United Kingdom trade deficit in manufactured goods will reach £17 billion this year, compared with a surplus of £5 billion in 1982. That can be described only as a dramatic and devastating decline over the past 10 years. In April 1993, just a couple of months ago, the Association of London Authorities published a report named "Business Failures in London". It showed that 11,000 more businesses folded than were established in the Greater London area in 1992.

On 28 April, a delegation from the London boroughs, together with London business leaders, went to Brussels to lobby the European Commissioner about European regional aid for London. As a London Member, I find it unbelievable that our capital city has to lobby for European regional aid. All hon. Members should think about that. Against that background, how does London fit with the Minister's claims this morning—and which we hear constantly from Ministers—that there are enormous improvements throughout the country?

I have been privileged to be a Member of this House for 23 years. When I came to the House there were massive employment opportunities in London. Many industrial complexes were offering all sorts of work and making goods that were selling throughout the world. Any hon. Member who doubts the seriousness of the present position in London and, indeed, in may other areas in the south, should read the report in The Economist of the survey by the Henley centre for forecasting. That shows clear evidence of the current position in London.

The Economist states: The Henley Centre report 'The Case for London' argues that London is more than eligible enough for 'special case' consideration under the new criteria for European Community Objective Two Status—the European Regional Development Fund. If successful, the bid could be worth 100 million to London … Henley says that only 17.8 per cent. of London employees work in industry, compared with an EC average of 33.2 per cent. and a UK average of 32.8 per cent. Only 12.7 per cent. of London employees are in manufacturing, compared with a UK average of 23.1 per cent. I suggest that hon. Members take note of another comment in the report—that in the early 1980s seven people were chasing every job vacancy in London; now, 57 people are chasing every one. The report also points out that in the London area during that same period well over 700,000 industrial jobs were lost. That is the background to the plight of London.

The Henley report stated: The London Boroughs Association vice-chairman of policy and resources, Councillor Andrew Boff, who will be in Brussels added: 'It is not often that Labour and Conservative politicians, the trade unions and businessmen come together to speak with one voice. It shows that right across the spectrum there is agreement that London should be given Objective Two status.' As a London Member I would welcome—as I am sure other London Members would—£100 million for London. It would certainly revitalise the areas where there has been the greatest decline. However, I repeat that I find it unbelievable that the capital city of this country has to go cap-in-hand to Brussels to ask for some of the regional development fund. That is the indictment of the people of London against the Government.

In response to Madam Speaker's request for short speeches, I shall not make some of the comments that I had intended to make. However, some comments need to be made. Ministers repeatedly say that they back British industry. Let us consider a couple of recent examples. They really backed the coal mining industry. It was a total commitment to looking after British industry and British jobs. The Minister has a mining background and I grew up in south Wales. He knows that one of the industry's great achievements was its ability to sell mining equipment throughout the world.

I recently met a delegation from Chile, which is holding a large mining exhibition next year. I was asked whether British mining companies would be there. I hope that they will be, but we all know that when a major industry collapses—as, sadly, the British mining industry has done as a result of Government policies—other sectors dependent on that industry do not have long-term prospects.

What about Leyland-DAF? It appears that that company will be saved, but not thanks to our Government. By contrast, our European partners said that they would do all that they could to help any Leyland-DAF bases in their countries.

Many of those who came to the House from an industrial background took great pride in the number of apprenticeships offered to young people. In 1979, more than 150,000 apprenticeships were offered across the whole range of industries. In 1991, the figure was down to little more than 50,000. We are frequently told, as we were this morning, that one of Britain's greatest problems is its lack of a skilled work force—yet year by year, we see a decline in the apprenticeship opportunities offered to young people.

My hon. Friend the member for Newham, North-West (Mr. Banks) and I are members of the British delegation to the Council of Europe and both serve on its social and health committee, which discusses work, social and health issues of crucial importance to this country and to many others. If the Minister is so confident of the Government's achievements, I hope that he will accept an invitation later this year or early next year to address that committee in the same glowing terms that he used today, and say how wonderful everything is with British industry. He would be listened to with rapturous attention.

Before the Minister does that, he ought to do some homework—because high on the committee's priorities would be an explanation from the Minister as to the Government's social dumping policy. The committee comprises parliamentarians from all member states. My hon. Friend the Member for Newham, North-West and I, and Conservative Members who serve on the committee too, are often asked to justify the social dumping that this Government encourage, and which is costing jobs in other member states.

I hope that the Minister accepts my invitation. I assure him that our French and German colleagues are dead keen to know how he justifies the Government's current policy, which is much to the detriment and annoyance of our European colleagues.

The chairman of the 1922 committee, interviewed on radio this morning, was asked about last night's meeting. He said that it was wonderful, and that everybody there fully supported the Prime Minister. He suggested that the Government's real problem is presentation. He said, "Our policies are superb. We all agree that everything is remarkably well now, but our presentation is wrong." Conservative Members know as well as we and the public do that what is really wrong is not the Government's presentation—though I agree that is not good—but the policies that they have pursued for so long.

If everything is so good, why is Britain in such an economic mess? I hope that we shall be told the reasons. Above all, I ask the Minister and his officials to accept my invitation, which I know my hon. Friend the Member for Newham, North-West would also extend, to address the Council of Europe's social and health committee. We look forward to that with great interest. We would not have to say anything, for our European colleagues would have a field day with the Minister.

12.3 pm

Mr. Julian Brazier (Canterbury)

We as a party have an excellent story to tell. I welcome my hon. Friend the Minister to his new appointment. I was privileged to work with him as a Parliamentary Private Secretary for the past year and know what an excellent Minister he is.

Between leaving university and becoming a Member of Parliament, I worked in industry and subsequently for consultants to industry. I welcome this debate not only because of my own background but because, contrary to popular perception, manufacturing forms an important part of employment in my constituency. Canterbury has the world's best leather company. The leather on which we sit in the House of Commons, the leather in the White House and the leather in Rolls-Royces all comes from Canterbury.

My constituency is also the home of the world's number one specialist papermaker, in terms of both turnover and quality. The trading estates in Whitstable, in the north of my constituency, include a company which exports electrical parts to Taiwan, and Amphenol, which is a leading supplier of connectors to the computer industry. At a new Joseph Wilson industrial estate in Whitstable every site has been let despite the recession.

The hon. Member for Tooting (Mr. Cox) made a plea for London. There is a fair regional point to be made in that respect. Because money has been poured, through various forms of selective aid, into the more distant parts of the United Kingdom, London and the south-east have done less well in relative terms in some respects and now have high unemploymnet levels. I hope that the hon. Gentleman will echo those of us in south-east England who argue for development status to be moved from areas that now have low unemployment—although one would not believe that, listening to the whingeing by Members of Parliament who represent those constituencies—and into areas that genuinely need help. Even without that assistance, companies in my constituency are putting in a remarkable performance.

The hon. Member for Tooting spoke about going cap-in-hand to Brussels for handouts. I remind him that he supports a party that, when last in government, went cap-in-hand not for regional development funds from a perfectly legitimate source but to the International Monetary Fund, for a loan to bail out the country.

My speech divides into three parts. First, I shall address the general economic situation and the monetary climate, which is central to manufacturing; areas in which the Government have sought, rightly, to improve our manufacturing performance; and a specialist area of particular interest to me, which is much underrated as a factor in the manufacturing economy.

As to the general economic situation and the monetary situation in particular, we should not delude ourselves that the monetary climate set for businesses is the most important factor in their ability to be successful. We are right to be proud that inflation is at its lowest level for a generation and—when we see deepening recession in the rest of Europe—to be pleased that recovery is under way. In this debate, we have particular reason to take pride in the remarkable achievements made in manufacturing productivity and export growth.

The key monetary question for manufacturing industry and the service sector, but particularly the former, is how we decide which way to move the main monetary lever of interest rates. We have chosen broadly the right criteria. They are the money supply figures, to which I tend to give most weight, the exchange rate and asset prices. I would add labour costs and the position in our key export markets, as that knocks on into capacity and potentially into the scope for non-inflationary growth.

It is clear which way we should move the main monetary lever. The broader measure of money is at a very low level, at 3.5 per cent. growth. It is true that the narrow measure is at the top of our range at about 4 per cent., but I suggest that the range itself is rather tight—and anyway, the narrow measure is falling.

The most important asset prices are those for houses and commercial property. House prices are important because of the influence that they have on the willingness of many households to spend. Our banking sector is so heavily lent to the commercial property sector that commercial property prices are profoundly important to the willingness of bankers to lend. I welcome lower house prices for those young people who want to buy houses and the last thing that I want to see is property price inflation. We should realise that there is no danger of an inflationary take-off in either of those two areas.

The exchange rate fell from its unsustainably high level in the ERM to a much lower level, but it has come back part of the way since then. There is no great fear of an inflationary take-off. Those people who were saying a few months ago that it could happen have largely been proved wrong. What we have seen is that those people in the United Kingdom who are selling imports have had to accept lower margins—they have not been able to increase their prices.

The next item on the list is the situation in our export markets. As I said, we have already seen a fall in demand in most of our main European trading partners and a slowdown in recovery in the United States. That suggests that there may be difficulties that are not of our making. The final matter affecting monetary policy is unit wage costs, which are at an exceptionally good level at present. Indeed, they are falling slightly, which is a remarkable achievement and an important quasi-monetary indicator. The whole list points in the same direction. We should be thinking about easing the money supply, rather than tightening it. If we want one strong case this morning against an independent Bank of England, it is that the Bank of England is saying that the worries are in the other direction at present.

I shall focus more specifically on the manufacturing economy. I suggest that the Government have achieved a remarkable transformation in a whole range of different areas. We have freed up the labour market from the level of strikes that made us the laughing stock of Europe with the British diseases of le "tea-break" and le "time-to-down-tools". We now have the lowest level of strikes for a century. Much more significant than that—because people can say that it is a fear of unemployment and so on —is that just before the recession started we had the lowest level for 20 years.

The hon. Member for Tooting mentioned the decline in apprenticeships. When a large number of apprenticeships were tied in, sadly, to the industries of the past, there was bound to be a decline in the traditional form of apprenticeships, but the expansion in the new forms of vocational qualifications and the availability of training places to all school leavers in the United Kingdom is the way forward.

Export support is another important area. The interim report published yesterday by the Engineering Employers Federation is a thoroughly positive document which commends a whole list of different areas of the Government from the Prime Minister's support to the work of the DTI and many other Departments, including the Department of Employment. In the report, the federation specifically picks out the expansion of ECGD cover as one of the areas on which the Government must be congratulated.

Another area in which the Government are moving policy forward is a new attempt to forge a partnership with industry. No one wants to see us return to the corporatist days of the 1960s and 1970s when we had the absurd situation of Government Ministers and civil servants trying to guess winners and back them. There should be a partnership to discuss a whole range of issues such as training, export support and science and technology. That brings me to the welcome publication of "Realising our Potential" by my right hon. Friend the Chancellor of the Duchy of Lancaster. My hon. Friend the Minister said quite a lot about it and picked out almost exactly the points that I was going to make. Therefore, I will not repeat what he said beyond saying that the annual review is important.

Mr. Cousins

Does the hon. Gentleman share my concern that, alone among the industrial countries, spending on research and development by businesses in the United Kingdom has fallen, whereas in every other industrial country it rose in the 1980s?

Mr. Brazier

The short answer is yes—the longer answer is that the hon. Gentleman should wait about five minutes because I shall come to that point.

Another area in which the Government have assisted industry enormously is tax reform. We have a much lower corporate tax rate and a simplified tax regime. The final item on the long list is the deregulation initiative. I know that my hon. Friend the Minister will sympathise with me on this point. It is important for the deregulation initiative to succeed and be seen to succeed because there is a strong feeling among many business men in my constituency and in constituencies up and down the country that there is a tendency for Brussels and Whitehall to regulate about it if they can see it. The deregulation initiative is exactly what is needed to separate our essential requirements for health, safety and consumers from those that are essentially unnecessary.

Mr. Mark Robinson

Does my hon. Friend agree that cost compliance on new regulation is an extremely important part of the package?

Mr. Brazier

That is a most important point and I am grateful to my hon. Friend for making it.

I shall focus on an area that is underrated in terms of its importance for manufacturing industry in the United Kingdom, although it applies to a lesser extent in some other types of business. It is the issue of ownership. Immediately before I entered the House I worked for a Swedish consulting company. Almost all its clients were in manufacturing industry of one sort of another. I was struck by the strength of the charge—it is a less serious charge now than it was 10 or 12 years ago—that many British industrial companies still have an outlook that is too short. The point made by the hon. Member for Tooting is just one illustration of that.

We have a record of low commercial research and development spending in many sectors, but there are some honourable exceptions. The pharmaceutical and aerospace industries have excellent records on industrial research and development spending. However, too many sectors in manufacturing industry are not spending enough of their money on research and development. On other occasions, I have bored the House by looking at the state of our patent laws. We partially addressed that with previous patent legislation. One reason why the pharmaceutical industry is such a good exception is that its patent law is in a good state compared with other areas, so it had a much better incentive to invest.

In the third and final section of my speech I shall focus on the issue of ownership. The best United Kingdom client that we had in the consulting firm for which I worked was JCB. The reason why it was the best United Kingdom client and was willing to look ahead any number of years ahead was that it had one shareholder. If that shareholder, Mr. Bamford, wanted to take a long-term view, he did not have to look over his shoulder. This is not simply an appeal for family companies—it goes wider than that, although the family business is a vital part of our economy. The recent measures taken by the Government through changes to the inheritance tax law in the past two or three Budgets are important and encouraging.

Mr. Tony Banks

I hope that the hon. Gentleman will develop what he said about Mr. Bamford not having to look over his shoulder, because I thought that the Government's policy was to increase share ownership in the United Kingdom. It is not encouraging news for those people who have bought shares to know that a Conservative Member believes that all companies should be reduced to having one shareholder, unless the hon. Gentleman did not mean to say that at all.

Mr. Brazier

The hon. Gentleman has anticipated almost exactly the point I was next going to make.

I am not arguing just for family ownership. There are several effective ways of owning a company that ensure that it has a long-term perspective. In the capitalist world, the three most common successful ones are, first, family ownership, secondly, widespread individual ownership, with individual shareholders giving the directors a tough time at annual general meetings, and, thirdly, there is a method that is not used much in this country but which is practised widely on the continent: banks can have strong regional links. They take a long-term view and own substantial chunks of companies.

The worst possible form of ownership—unfortunately, there is too much of this in the United Kingdom—is that of the faceless pension fund. The trustees are legally compelled to focus on the immediate financial return. They rarely play an active role in the direction of a company's affairs. They seldom ask tough questions at annual general meetings. They seldom sack directors. That has resulted, in some of our less good companies, in directors being allowed to believe that they are the masters of those companies, not the stewards of the owners. A capitalist system where that is allowed to happen immediately becomes less effective.

The result is that directors vote themselves enormous pay rises, even though they have not earned them by improved performance. I do not begrudge Lord King a single penny of his pay rises, because he made a remarkable success of his business. However, I object to companies whose profits have slumped giving the managing director a 50 per cent. pay rise. That has to be compared with the position in Japan, where directors are often paid modest salaries.

Short-termism can also be seen in scientific research and in takeovers. All too often, one company acquires another company, not to benefit the shareholders but because it enlarges the power base and empire of that company. My former employers carried out a survey of acquisitions within one segment of the European Community which showed that the vast majority of acquisitions did not benefit shareholders except where the acquisitions were in the same business and designed to increase market share.

This is the dog that did not bark. This is the hidden area of industrial policy—the ownership issue. I have two suggestions to make, both of which are fairly radical. First, we should grasp the nettle, use the size of the public sector borrowing requirement as an excuse and end, once and for all, the tax advantages that pension funds have over individual investors. Either we should bring the rights of the person who wants to manage his own savings for retirement up to the level of the pension funds, or we should lower the tax advantages that the pension funds enjoy to the same level as those of the individual saver. We should end the enormous advantage that institutional investors have in the investment markets.

Secondly, we should tighten the law on takeovers. The right way for a healthy market to operate is by companies competing vigorously against each other. Healthy competition is not encouraged if companies are simply allowed to buy up other companies. In some cases. sleepy companies that just happen to be big, for historic reasons, are allowed to buy small but dynamic companies which are then sometimes ruined. A much more difficult climate for takeovers should be created. We have one of the easiest climates for takeovers in the developed world. Having done business with companies in America, which we think of as an extremely capitalist economy, I know that it is much more difficult for companies to be taken over there as a result of the Clayton Act and the Hart-Scott Rodino amendment than it is in this country.

I end by repeating what I said at the beginning of my speech: we hear a lot of gloom and doom from the Opposition. It must be intensely painful for them to see, despite all their gloomy predictions, the British economy recovering while the rest of Europe goes into recession. It must also be intensely painful for the Opposition to see that inflation is down below 2 per cent. They must be very embarrassed by the strong performance of so many good British businesses, including many in my constituency. We have every reason to be confident in the splendid team that we have in the Department of Trade and Industry, which will be playing such an important role in developing this initiative.

12.25 pm

Mr. Tam Dalyell (Linlithgow)

Long ago, in the mists of parliamentary time—to be precise, on a Friday in 1962 —I was given advice by James Chuter-Ede, then aged 80— he of the 1944 Butler-Ede Education Act and, indeed, Mr. Attlee's Home Secretary. "Laddie," he said—he called any hon. Member under the age of 50 "laddie", for he was a figure in a black coat and wing collar and he was a very wise man—"if you want to put an unpopular case before the House, do it on a Friday."

Today I wish to deploy an argument which, I confess readily to the Minister, is as unacceptable to the Opposition Front Bench as it is to the Government: that British manufacturing industry is being greatly disadvantaged by the imposition of United Nations sanctions against two of our best traditional markets, Iraq and Libya.

I had better be candid with the House. If a person has been to a country where a visit might be considered to be controversial, he is wise to make clear to his colleagues the basis upon which he went. I personally paid the £375 air fare to Oman and the £300 that I gave for his organisation, Friendship Across Frontiers, to Riad-El-Taher, a British national of Iraqi origin from Basra who lives in Esher. The £300 covered the 15-hour journey across the desert from Amman to Baghdad and various other things that were necessary during eight days in Iraq.

The Minister ought to be careful before rebuking me for going. The former Conservative Prime Minister, the right hon. Member for Old Bexley and Sidcup (Sir. E. Heath), to whom I reported in some detail, said that he fully approved of my having gone. The Foreign Secretary, who was kind enough to give me half an hour alone in his room, although he asked me a number of searching questions, as one might expect, and legitimately so, said, "Look, I am not criticising you for going." The Foreign Secretary personally made that quite clear. I thank the Leader of the House for declining to denounce me. On 24 May, I received a letter from the Prime Minister: Dear Tam, I understand you rang Alex Allen asking if you and George Galloway could see me following your visit to Iraq. I should have been very interested to hear what you had to say but I am afraid my diary for the next few days is already over-committed. I know you are meeting Douglas Hurd later in the week and I will ask him to let me know what you tell him. If, having seen him, you still think a meeting with me would be useful I would be happy to try and fit one in, I would have thought later on. I am not threatening the Minister because I would not do such a thing, but, depending on what he says in reply to the debate and on any letter that he might write, I shall have to decide whether to accept the kind offer of the Prime Minister.

I did not let any of my colleagues, even my own Chief Whip, know that I was going because the trip would then have been about the British prisoners, which was not the object of the visit. I reported fully for four and a half hours in a debriefing at the excellent embassy in Amman. A great deal of information is available to the Department of Trade and Industry and the Foreign Office.

I say that British industry is disadvantaged because in the Al-Rashid hotel one could hardly get a meal early in the morning without tripping over representatives of Elf Aquitaine, Total, Japanese companies and many other business people wishing to re-establish relations with Iraq. I am sad that our manufacturing industry is likely to be disadvantaged not only now but in the future when the manufacturing industries and representatives of other countries supposedly party to sanctions are taking a very different view.

The French said that they are preparing plans simply for when sanctions are lifted. I hear that Paris is already pouring money into the development of the Majnoom field. It is open to question whether, technically, that is sanctions busting, but my first request is that the Department of Trade and Industry asks its representatives in Amman for their assessment of what other people are doing in relation to sanctions.

What do sanctions achieve? It is not part of this debate, although I would argue it elsewhere, but they are strengthening the position of Saddam Hussein. Sanctions are having the reverse effect from what was intended, apart from being immoral in relation to Iraqi children, the vulnerable and the elderly. Secondly, they are damaging British manufacturing industry. Before 1990, Iraq was one of the United Kingdom's biggest and best markets, partly because many of the Iraqis who were in a position to order were graduates of our universities.

At one point, my hon. Friend the Member for Glasgow, Hillhead (Mr. Galloway) looked around a room containing some 16 people and said, "It is quite clear that I am the only person in this room who is not a graduate of a British university." Our host was a photochemist trained at the University of East Anglia. Graduates came from Manchester university, the University of Manchester Institute of Science and Technology, Leeds, Strathclyde, Bath, Newcastle, Southampton and the London school of oriental studies.

I travelled back from the Shi'ite shrines at Karbala with someone who had been taught at the UMIST of Vivian Bowden and Colin Adamson, professor of electronics, and himself an electronic engineer. He said: "It is all so sad. You have invested as a country more than anybody else in Iraqi graduates. You are not getting the benefit of your investment."

Sanctions have hitherto been all pervasive. For example, there is no carbon for passport forms. There is no lead for pencils, which are not allowed to be imported. If anybody thinks that one went on a jolly, I can say only that in sweltering Basra and Baghad one did not swim simply because there was no chlorine. Chlorine is forbidden as an import.

In pursuing sanctions, it seems that we are going for the windpipe of a society, but, in spite of events, some graduates are still full of potential good will. They point out that they would like to do Britain a favour because Iraqis speak English but not German or Japanese. They have received a training and want to order items that are familiar. Soon the situation will become so bitter that the process will be irreversible.

Let me put it this way; what is a 10 to 15-year-old who sees his brother or sister dying for want of pharmacological products readily available from traditional manufacturers in Britain to think for the rest of his life? I do not want to be maudlin, but I visited two hospitals in which I saw babies expiring for want of medicines that could have been imported. I was shattered. I know that it is said that sanctions allow the importation of medicines, but I found the Foreign Secretary genuinely bewildered about that point.

My certainty is that there is a heck of a shortage of medicines, and large number of babies are dying. I saw it with my own eyes, as did my hon. Friend the Member for Hillhead and the one journalist whom we took with us, Tim Llewellyn who, for nearly a quarter of a century, has been the veteran, hard-boiled middle east correspondent for the BBC. In such a situation, one would not be thinking about resolutions 706 or 712 or any other United Nations resolution if one were an Iraqi; one would have developed a gut resentment.

Anyone who believes that the regime of Saddam Hussein will be toppled by such a policy had better think again. People who were not Baathists but who were part of the biggest and most sophisticated middle class in the middle east are horrified at the propect of the breakdown of law and order which Saddam Hussein and his regime represent. They ask why the situation is allowed to continue. After all, by the winter of 1945 the Marshall plan was under way in Germany and yet we are putting the Iraquis through this.

I wish to raise specific issues. I hope that the Minister will ask into his office Peter Mayne, who, I understand, is the head of the sanctions unit in his Department. I want him to ask about a number of specific items. The first relates to sanctions and agriculture. The disruption caused by the embargo includes the lack of fertilisers, the inability to apply pesticides by aerial spraying, the lack of replacement parts for irrigation, harvesting and processing equipment, the displacement of populations, including migrant workers. The war caused damage to power stations, the disruption of transportation and a reduction in the crops harvest to an estimated 25 to 30 per cent. of the previous year.

An additional problem has been caused by damage to irrigation equipment. Although the extensive rivers system provides an abundant water source for irrigation, the soil salinity is high in the south, requiring proper irrigation and soil drainage practices which are essential to the maintenance of soil facility. Fluctuations in electricity supplies caused by wartime damage to power plants and a lack of spare parts have destroyed many electrically driven irrigation pumps in southern Iraq. While travelling on the road from Kut to Basra, my hon. Friend for Hillhead and I saw that with our own eyes.

Iraq's animal production sector has also been seriously affected by economic sanctions. Veterinary services have been paralysed due to the lack of medicine, laboratory materials and vaccines. Outbreaks of vaccine-preventable rinderpest have plagued herds. We saw some of that. My first question concerns sanctions in agriculture. Will the Department of Trade and Industry have a discussion with Peter Mayne and his colleagues about the effect of those sanctions and whether that effect is part of the purpose of UN policies?

My second question concerns sanctions on arms. The Iraqis put it this way: "The west is in the position of a drug pusher. Do you suggest that you now think that we should have refused to buy the arms that you were so enthusiastically trying to sell us?" The truth is that we, the Americans, the Chileans, the French and the Germans sold Saddam Hussein the wherewithal for mass destruction and then blamed the Iraqis for buying the arms.

I have spent a morning at the Scott inquiry. Undoubtedly, Sir Richard Scott and his colleagues will come to some conclusions. Many of us knew perfectly well that the arms sales were taking place. We acquiesced because we did not want the Iraqis to be defeated by the mullahs, by Ayatollah Khomeini and by militant Iran. The whole circumstances of the beginning of the conflict were complicated.

As Tariq Aziz put it to us in an interview that was supposed to last for half an hour, but which went on at his request for one hour and 50 minutes, "You dined us and we dined you, and then you could not talk to us properly." I am not suggesting, for heaven's sake, that we sell the Iraqis arms. However, the arms issue should not exclude other considerations.

My third question concerns the operation of sanctions and health. I need not repeat the questions in relation to Glaxo about which I want the Minister to talk to his advisers. However, I ask specifically about insulin. I was told by one of my hosts that his 10-year-old daughter had diabetes. He spends his time not in the Iraqi Foreign Office, but scraping around trying to find insulin. At 600 dinars an injection, the cost is crippling. The Iraqis do not have scanners, and syringes have to be used two or three times. As one who comes from the Edinburgh area, I know that if one uses syringes more than once or twice, one expects AIDs to spread, for God's sake. AIDs is now developing in the river valleys—it is a very taboo subject in the Arab world—in a way that never happened before. Disease knows no frontiers. Malaria, which had been eradicated, has been re-established. Paratyphoid is back, kwashiorkor is up 29 times and marasmus is up 24 times. One could go on and on with the statistics produced by the Canadian doctor Eric Hoskins and others.

The sanctions committee, in which the lead Department is the DTI, must consider whether it should really ban radio isotopes for diagnostic equipment, whether it should ban ammonium nitrate and nitrous oxide, which are used in caesarian operations, and whether it should ban anaesthetics. If we do so, we create a major health problem. Almost 100,000 children more than the expected number have died since the beginning of the Gulf war. The post-war death rate is estimated at triple the pre-war rate. Many of the child deaths were due to diarrhoeal disease caused by contaminated water supplies. There has been a resurgence of vaccine-preventable diseases, including polio, diphtheria and measles. Water and sanitation services are absolutely critical. War damage and breakdowns go largely unrepaired because of a lack of vital spare parts and of technological input. The Minister ought to ask the sanctions committee about spare parts, hundreds of millions of dollars-worth of which are required to restore water quality and quantity to their pre-war levels. Sewage is dumped untreated into all major rivers—the source of drinking water. Seeing the pollution of those two great rivers, the Tigris and Euphrates, one can only say, "My God!" We saw towns flooded with raw sewage, increasing health hazards. Environmental damage is severe. I had a briefing from the wife of the director of Kew, but I hardly dared ask about environmental damage for fear that I would get the answer, "You are concerned about birds and animals. What about human beings?" It became so embarrassing that I did not pursue the matter.

The sanctions committee must consider that matter and —for all the United Nations resolutions the fact that on 20 November 1989 the United Nations general assembly adopted the convention on the rights of the child, article 38 of which states: In accordance with their obligations under international humanitarian law to protect the civilian population in armed conflicts, States Parties shall take all feasible measures to ensure the protection and care of children who are affected by an armed conflict. My friend Tim Llewellyn and I talked at length to representatives of the United Nations Childrens Fund, who told us, "We have combative inoculations throughout the world, yet in Iraq, we are encouraging the conditions that create cholera. There are now no inoculations against rabies." Is that really the intention of the United Nations body? I cannot believe that it is.

I come to the question of sanctions and the meat-processing industries. A lot of people who could be called relatively well off—let alone poorer people—have not had meat for three months. The Abu Ghurib milk factory was destroyed and that has had an effect on nursing mothers.

We are creating a generation who will grow up absolutely hating the west. Quite apart from anything else, Iraq has the second largest—and, in future, arguably the largest—oil reserves in the world. To put the matter at its basest—frankly I care more at the moment about the humanitarian issues—we must ask ourselves how our behaviour will help British industry in future.

It would be improper to deploy the political case against sanctions, except by saying—the Foreign Secretary listened carefully and said that he would consider my point —that, if the reason for sanctions is the so-called suppression of the marsh Arabs, the Government should perhaps think again. My hon. Friend the Member for Hillhead and I visited both villages to which we were taken and villages where we were completely unexpected, to which we insisted on going and I can say that I do not believe that such suppression is taking place. I cannot talk about the Kurds, although the Iraqi Foreign Minister said, "There is a Kurdish problem in the north." The impressive Health Minister, Dr. Mubarrak, is himself a Kurdish doctor and, when we were asked to address the Iraqi Parliament we met quite a number of authentic Kurdish representatives. What I am saying is that the whole basis for sanctions is open to considerable question.

What of sanctions and pollution? One sees black smoke belching from the refineries that have been put back together, but there are no separation chemicals for the separation of gas and oil that is necessary. Pollution is leading to a dramatic increase in the abortion rate and in the number of malformed foetuses. In particular, I ask the Minister to relent on the question of the export of nylon thread, which is one of the materials that are really necessary if some kind of anti-pollution measures are to be implemented.

We must also consider the question of sanctions and power cuts. Sanctions have played a direct role in perpetuating low coverage rates and hence in encouraging outbreaks of vaccine-preventable diseases. Freezers, generators and other cold chain equipment damaged or destroyed during the Gulf crisis have, in many cases, still not been replaced or repaired due to restrictions on the import of supplies and equipment.

The ban on commercial air traffic has made the safe and timely delivery of vaccines difficult. Most vaccines and vaccination supplies are brought by truck along the 1,000 km Amman-Baghdad road which potentially affects their shelf life and potency. As I have twice covered that road there and back, I can easily imagine how exceedingly difficult that all is.

Recent vaccination campaigns have reduced the risks of full-scale epidemics, but the expanded programme of immunisation has been weakened due to the war and sanctions and will require considerable material input before it can regain its pre-war status and capacity.

Let me be clear about this. I am not asking for British taxpayers' money. I am asking for a decision to unfreeze assets that are here. Considerable Iraqi-owned assets could be unfrozen. This is not Somalia or one of the many countries in which there are parlous situations and where there is no money. There is money to be had in respect of Iraq. It is a matter of governmental decisions on the unfreezing of assets. It is not a matter of simply trying to ask for more and more from the overseas aid fund.

We must also consider the issue of sanctions and tyres. One sees bald tyres throughout the area and they make transport dangerous. Above all, there is a need for water purification equipment. Chlorine, pumps, motors, control panels, chlorinators, steel collars and pipes, laboratory equipment and various kinds of chemical agents are required.

British industry would be more than willing to supply those items. It has been more than willing to supply some of the learned journals of which Iraqi doctors say that they are starved. It is very difficult for people who have been brought up with sophisticated equipment to find, once they are deprived of that sophisticated equipment, that they must diagnose in an old-fashioned way which they are not used to.

It may be said that all those problems could be solved if Iraq were to accede to certain United Nations terms. Bluntly, having been to the country, I know that no Iraqi Government of any kind, let alone the present regime, could accede to United Nations terms which give the total priority to recompensing Kuwait. As the Iraqis put it, "What is the choice? Dying Iraqi children or fat Kuwaitis?"

Iraq is an ingenious country. The Iraqis repaired the faxes and telexes in southern Iraq and Basra quicker than the Americans did for the Kuwaitis. Perhaps the west does not like the idea of Iraq being a modern nation. Iraq was a modern nation in 1990. If we believe that we will be able to resolve the situation by bypassing the Iraqi Establishment, we must think again.

In respect of Iraq, I conclude with a simple thought. The supply and marketing of much of the world's oil in 20 years' time will be run by the children of those who are suffering as a result of the sanctions now. It is felt more and more that sanctions are being oriented, as the Iraqis put it, "to kill our children." I have a constructive suggestion, and it is the one that was foremost in a two-hour meeting—again, scheduled for half an hour—with the very able Iraqi Foreign Minister. Please do not think for a moment that those who serve Saddam Hussein are thugs or men of little ability. On every occasion, the people whom we met were impressive. That is not only my judgment, it is the judgment of Tim Llewellyn and of Riad El Taher. Indeed, it is the judgment of my hon. Friend the Member for Hillhead.

The Iraqi Foreign Minister asked us to sit down at a diplomatic and trade level and go through point by point ways in which sanctions at least could be alleviated. It would greatly be to the long-term advantage of British industry if that were done.

The hon. Member for Bedfordshire, South-West (Mr. Madel) mentioned Libya. For time reasons, I shall not pursue the point, other than to say that the Libyans believe that more than 800 of their citizens have died because of a United Nations air embargo which was imposed because of the 1988 Lockerbie bombing. It has not been possible, they argue, to send abroad 5,445 critically ill patients—that is, cardiac patients, kidney transplant patients, and patients requiring brain surgery—who would formerly have been transported by air ambulance.

Not only are there the arguments in relation to the motor industry, which were mentioned by the hon. Gentleman, but I will take lessons from nobody on the horror of Lockerbie. I went there. It was cleared up by police from my area. It was the biggest crime against civilians in the western world since 1945. However, the idea that those two accused Libyans sat down in a cafe and said, "What shall we do? Shall we commit that awful crime just by ourselves?" is absolutely preposterous. As Kate Adie put it to me—she had met them—they were footmen. The truth is that that crime was dreamed, up in Tehran, in vengeance for the shooting down of the Iranian airliner by the USS Vincennes. Much of the matter was executed where they had the celebratory party in Damascus, and it looks like scapegoating the Libyans—taking it out on them.

The Government should talk to Dick Morris, the former chairman of Nirex, who is particularly involved in Brown and Root, and other engineering concerns that were doing some business with Libya. British industry would do a great deal more if there were a re-look at the political situation, and this is the time to do it.

For time reasons, I will leave it at that, but I make one plea: look at the sanctions unit and its work in depth in relation to Iraq and reconsider the Libyan situation.

12.57 pm

Mr. Mark Robinson (Somerton and Frome)

It is always interesting to listen to the hon. Member for Linlithgow (Mr. Dalyell). I hope that you will not mind too much, Mr. Deputy Speaker, if we move away from such exotic rivers as the Tigris and the Euphrates and come closer to home and the River Frome, and the narrow focus of the debate.

I congratulate my hon. Friend the Member for Bedfordshire, South-West (Mr. Madel) on the wide-ranging way in which he launched our debate. He touched on many issues that are close to my heart, and I shall relate some of those issues right down to the local level.

I should not have been surprised by the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins). It would be nice just occasionally to hear some rather more constructive opposition. Opposition Members always accentuate the negative. Conservative Members are often accused of harking back to 1979 and to what we inherited then. I should like to hark back to 1974–79, when something called constructive opposition existed. The Opposition would learn a lot, particularly in respect of industrial matters, if they started to balance constructive criticism with some of the good things that are happening to our industry, our economy and our companies close to the ground.

I have the good fortune to represent a constituency with an exceptionally broad-based economy, which includes manufacturing. It is a rural constituency; in the public mind, manufacturing is often associated with large companies and large employers, but that is only one part of the picture. Many small businesses in this country are producing, for the home market and for export.

Somerset has large interests in hi-tech industries, many of which are related, directly or indirectly, to the defence sector. It is worth pointing out that the sheer variety of commercial activity in my constituency and throughout the south-west has left that region especially vulnerable to the sort of far-reaching recession through which we have just passed. I believe, however, that this width of experience and expertise will provide the opportunity for the south-west to bounce back and take full advantage of the economic opportunities that lie before us.

I can understand and sympathise with constituents who have been hard hit by the recession when they approach me and claim that they have seen little or no evidence of the much-touted recovery. I have been careful to avoid issuing advanced green shoots statements, as my experience in banking tells me that it will take time for the optimistic statistics compiled and released by institutions in London or Bristol to come through as hard evidence in boardrooms, pay packets or the high streets of towns and villages.

Still, we have every right, after the gloom and doom of the past three years, to expect a return to confidence—it has started to happen. Now is the time to voice the basis of our optimism. As the Prime Minister has said, it is time for the pessimists to stand aside. The Opposition parties have been content to talk down hopes of recovery; that has become the ingrained attitude of the official Opposition. So it is up to Conservatives to speak up for Britain and ensure that the recovery gathers pace.

DTI figures and those released by the CBI prove that business optimism is returning. More than 70 per cent. of businesses in the south-west forecast that sales growth over the next three years will lead to increased productivity. Most importantly, perhaps, the latest CBI regional trends survey has shown that more manufacturing firms in the south-west than in any period since August 1990 report that capital expenditure on plant and machinery will rise over the next 12 months.

Investments in products and process innovation and in training and retraining is forecast to perform at a similar rate. In fact, expectations of capital authorisations are more buoyant in the south-west than in any other area except East Anglia. For a region in which manufacturing accounts for 21.1 per cent. of GDP and 19 per cent. of total employment, this planning is a critical factor in the south-west's recovery prospects.

Companies are taking advantage of low interest rates and inflation rates—but a word of caution must be sounded. I feel sure that hon. Members on both sides of the House have been approached by business men asking for a sustained period of stability in monetary policy. Industry relies as much as agriculture does on that ubiquitous phrase, "a level playing field". Only that will secure healthy levels of investment in the long term, which is why the success of the European single market, launched this year, is so crucial.

The same principle applies to companies that are taking advantage of our competitive position to trade their way out of recession by increasing exports of manufactured goods. The devaluation of the pound has helped to top up company export order books at a crucial time. As the CBI has pointed out, the situation has recently become more difficult on the continent, where some of our main trading partners are entering recession and where some have followed so-called perfidious Albion and devalued their own currencies to achieve a more realistic and competitive exchange rate. Nevertheless, manufacturing companies in my constituency are adopting a hungrier attitude to potential global exports, and that should compensate for the restrictions in our European markets.

I pay tribute to my right hon. Friend the President of the Board of Trade. The DTI has recently grown in stature and provides more practical help and advice than ever before for manufacturers who wish to expand their sales horizons. The Department also leads high-profile and extremely successful trade delegations abroad. I am sure that that is one of the ways forward and will help us to meet the CBI prediction of an increase in exports this year of 4.7 per cent., rising to 5.5 per cent. in 1994.

Achieving such dramatic results has undoubtedly been helped by Government measures since the autumn to provide an additional £2 billion of help for businesses looking to foreign markets. Paul Lewis,' the export sales manager of Cuprinol, a manufacturer of wood stains and varnishes in my constituency, summed up the new attitude when he said: There seems to be a reawakening of the need to take up our traditional role as a trading nation. That company's exports have increased by 30 per cent. over the same period last year. New markets are being exploited in the far and middle east and in Africa, the Caribbean and Europe, and the company is currently exporting more than at any time in its 60-year history.

I am sure that my hon. Friend the Minister will confirm that that success story is not unique. For the sake of the economy, manufacturing companies such as Cuprinol must be given every incentive and encouragement to continue their efforts.

As I have said, the defence industry plays a vital role in the manufacturing economy of the south-west where a significant proportion of the working population is employed by companies such as Westland helicopters in Yeovil and GEC-Marconi at Templecombe. The latter recently announced 90 redundancies and since 1992 the work force has fallen by nearly 50 per cent. Those depressing figures have resulted from the curtailment of defence expenditure and from the normal process of rationalisation that many companies have had to undergo.

The full impact of those decisions has been felt across a wide range of sectors from mechanical, electrical and electronic engineering companies that are traditionally associated with defence, to other manufacturers such as textiles, clothing, construction and property.

The latest CBI survey for the south-west highlights the potential extent of the knock-on effect. Some 51 per cent. of companies receive some orders destined for the defence sector, even if they are not directly involved in the defence industries. However, companies involved directly or indirectly in the defence sector are reacting positively to changing circumstances. In the defence supply chain, 60 per cent. of companies have been actively developing new markets as their primary response to defence cuts.

In common with other long-established companies, Westland has radically changed its management system and is vigorously pursuing sales abroad for the EH101 helicopter which is manufactured in concert with Augusta. Fifty of those have been ordered by Canada and it is hoped that 16 will be ordered by Italy later this year. The utility order for 25 aircraft for the RAF, which has been outstanding since 1987, should be confirmed. I have made representations to that effect to my hon. Friend the Minister of State for Defence Procurement. This is an advanced multi-capability aircraft developed by a company which is making great advances in management philosophy and techniques in the face of a significant contraction of its traditional domestic markets.

Similarly, GEC-Marconi has won about £62 million worth of home orders this year and has earned £3 million from overseas where prospects for future orders look good, especially for mine-hunting requirements in Korea, Turkey, Spain and Australia. The company has responded to the challenges presented by the sharply constricted marketplace by securing a dominant position in submarine sonar technology. GEC-Marconi is currently seeking to secure the Royal Navy contract for the Trafalgar-class refit with its 2076 sonar system. Success in those projects is vital to the company's development. That is just one aspect of the changes in manufacturing industry, related to the defence sector in the south-west, which require special emphasis.

As the potential marketplace contracts, companies with a highly skilled work force are rightly looking to diversify their operations and to explore new markets where their expertise could prove useful. A recent survey shows that 13 per cent. of companies in the defence sector are actively seeking help in technology conversion. It might be useful to mention a company based in the village of Beckington in my constituency. Systems Engineering and Assessment Ltd. has been using its specialist knowledge and in-depth technical skills in signal and image processing systems, which previously related wholly to the defence industry, to pursue several new markets including space and environmental remote sensing systems and medical ultrasound image processing systems. At the same time, the company is actively looking for niche defence markets.

Despite the difficult conditions of the past four years, that fascinating young and dynamic company has achieved an average growth of 30 per cent. per annum.

The message is clear—market leaders such as Westland and Marconi must be given every chance to prove the worth of their products at home and every encouragement to help them find new markets abroad.

Mr. Cousins

I am interested in the information the hon. Gentleman is giving about the defence industry in his constituency and region. He is no doubt aware that the Department of Trade and Industry aviation committee prepared a defence aerospace technology acqusition plan to secure the future of some of the industries, companies and plants that the hon. Gentleman mentioned. It submitted that plan to the DTI last December, but is still waiting for a reply. Perhaps the hon. Gentleman shares my regret about that and also the feeling that that casts doubt on the Government's serious commitment to the future of those industries.

Mr. Robinson

We would all wish to encourage the Government, the Department of Trade and Industry and the Ministry of Defence to speed up their decision-making processes. That is vital to the ability of companies such as Westland and Marconi to plan their future business. There are lessons to be learnt.

The EH101 helicopter is a first-class product, developed in Britain and Italy, which is way ahead—by eight, nine or 10 years—of any other helicopter of that type and generation. We must have the capacity to go out and sell it. After all, the defence era is no longer one of moving massive armies around the world. As was evident from the private notice question this morning, we need to be able to provide a flexible response as situations evolve, often hour-by-hour or week-by-week.

Over the past three years, the south-west has suffered from an especially large increase in the failure of the previously buoyant small business sector. That has been the most noticeable effect of the recession on my constituency and the south-west generally. However, both the private and public sectors are showing that Somerset still has a great deal to offer to the potential advantage of both local firms and those wishing to relocate to Somerset from outside the county.

An excellent example is provided by Pellextra Ltd., a private development firm which took over the site of a disused tannery at Milborne Port in my constituency. Since 1990, Pellextra has used short, flexible leases in the conversion of the original buildings to attract a wide variety of small businesses, some of which are directly related to large manufacturing companies in the custom that they receive. The site now employs more than 120 people. Examples of new jobs being created—which may come as a surprise to the hon. Member for Newcastle upon Tyne, Central—are apparent all the time. It is a pity that the hon. Member for Newcastle upon Tyne, Central did not mention that when he spoke about job losses. Such an initiative is vital in a rural area with high unemployment. Some estate agents and surveyors tend to turn up their noses at the potential for development in areas that at first glance seem cut off from mainstream centres of urban business activity. The success of companies such as Pellextra demonstrates that that attitude is outdated and misguided.

Rural areas can provide a labour market, good communications and quality of life. Small businesses have every chance of thriving in rural areas, and that will prove vital in the economic recovery of many parts of my constituency, the south-west and the whole country. Small businesses throughout Somerset have also benefited considerably from the positive work of various enterprise organisations, whose activities I shall briefly explain and commend.

Somerset county council has sought to improve communications and to encourage the relocation of manufacturing firms to the area. It is serving an umbrella role for the Somerset training and enterprise council, which has helped to transform the county's enterprise agencies into five district centres from which local businesses can obtain a wide range of advice, and which provides vital services such as business reviews and improvements projects, training and general development assistance.

One district centre is based in Frome—a major town in my constituency which has suffered particularly severely over the past three years, with unemployment currently running at 13 per cent.—4 per cent. above the county average. The recently reconstituted Mendip district enterprise centre can play a pivotal role in the town's regeneration. The new chief executive recognises the need for the provision of a network of business information. He decided to establish a business club to act as a catalyst and focal point for local manufacturers and businesses, where they can exchange information. Although it applied to be part of the one-stop shop initiative, it was not successful at the first attempt. I hope that its work will make it eligible for the initiative when it expands, as I know it will. I hope that my hon. Friend the Minister will take that into account.

The desire for a local business forum was recently proved by the response to a questionnaire sent by that organisation to 600 companies—77 of which replied in the first week. Mendip district council works closely with the enterprise centre, and I am glad that Frome should benefit from the council's plans to continue work on establishing a new industrial site between the existing Marston trading estate and Wessex fields on the edge of the town.

The council is attempting to have the land serviced by a new estate road, which it is hoped will be jointly funded by the private sector and local authorities. Partnership funding must be seen as the way forward, and awareness of that among councils and local enterprise organisations is warmly to be welcomed.

A subject of particular interest and concern to me for some time is over-regulation and red tape, which are harming manufacturing and businesses in the south-west and throughout the country. Earlier this year, I attended a radio interview armed with a pile of documentary evidence of unnecessary rules and regulations supplied by a major employer in my constituency, Butler and Tanner, which is a printing company. I have since been beseeched by numerous firms to consider the regulatory burden with which they are forced, often unnecessarily, to contend.

Recently, I visited Wincanton Ltd., a distribution company which has expanded by an average 11 per cent. over the past few years and now has an annual turnover of £200 million. The company has achieved that success, despite suffering a constant supply of new rules emanating from not just Brussels but frequently from Whitehall—covering everything from health and safety to food hygiene. As the sales director told me, the increased costs that the regulatory burdens entail filter directly to the customer. If companies such as Wincanton Ltd. that consistently do well are suffering from this phenomenon, how much more onerous and costly are such regulations proving to be to those companies that have found recent times much harder?

There is no mechanism in place at present whereby regulations can be subjected to procedural review. Some of the legislation is pre-war and has become bottled up in the system. I was delighted when my right hon. Friend the Prime Minister expressed his determination to tackle the problem. The Department of Trade and Industry is examining more than 3,500 rules to see whether they are still necessary.

I should be delighted to support a Bill aimed at not only jettisoning unnecessary and old regulations but subjecting all new regulations to an automatic system whereby they are scrutinised regularly, either to be retained or abandoned. Such a Bill would gain the overwhelming support of local business men in the manufacturing sector and must incorporate, as I told my hon. Friend the Member for Canterbury (Mr. Brazier), the need for cost compliance to be taken into account in any proposed regulation. Any proposed regulation should be costed so that its impact on the costs of the businesses at which it is aimed can be directly assessed to get a balance between what is necessary and what are the legitimate concerns of those businesses in an age of increased competitiveness. After all, one way to bring unemployment down is to increase efficiency and competitiveness and go out and win markets against competition from others overseas.

I have covered a broad range of issues and concentrated on the evidence of those companies and organisations in my constituency that are showing the way forward. The economic problems that I have illustrated are not unique. As I said, the south-west region has suffered considerably over the past three years. Nevertheless, there is a heartening atmosphere of urgency about the attempt to find solutions, especially in Frome.

My roots lie in Somerset. Sadly, I have witnessed the suffering caused by the recession. However, I have every confidence that I am starting to witness the rebound. The evidence is there. In that context, I am especially looking forward, on Monday, to laying the foundation stone of a new company that has decided to locate in Frome. As my hon. Friend the Minister knows, that is not an exception. There are examples of new businesses, new companies, new developments and new expansions up and down the country. If we want to encourage the confidence of not only business men in the United Kingdom but people overseas who are looking for British products, we must start talking up ourselves and our businesses and get out of the cycle of pessimism into which we have so readily sunk recently. There is a spring in the air and future success will be the greatest tribute to the courage and tenacity of local business men.

1.23 pm

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

The hon. Member for Somerton and Frome (Mr. Robinson) spoke constructively and frankly, and contained in his remarks, inevitably, was a recognition of how business in the area that he represents has been hit hard in the depths of recession. There was also welcome support for the work in which local authorities are engaged, including Liberal Democrat local authorities in the area, and for the spirit of councillors co-operating to do what is best for their area. That is the right spirit of this debate. The depth of the recession and the work of my political colleagues in the area must be contributing to what for him is a worryingly mounting pile of Liberal Democrat votes in the constituency of Somerton and Frome. The recent elections were, of course, a source of great encouragement to us.

The subject of today's debate is improved productivity in United Kingdom manufacturing. It undoubtedly improved during the 1980s. However, it still remains below that of most, if not all, of our main competitors. That shows just how big the problem is. It has been pointed out several times during the debate that the principal factor in improved productivity figures is the lower level of employment in manufacturing industry. There has been a reduction from 7.1 million people employed in manufacturing in 1979 to 4.5 million now. The number of jobs that manufacturing supports has massively decreased, so productivity must inevitably have risen.

The downside relates to the problems for the rest of the economy, which has to cope with the very large number of people without jobs. That is part of the problem which the Government now confront. It is part of the background to all the arguments about potential cuts in public services and to all the problems surrounding the public sector deficit. We have to generate activity in manufacturing and other areas to take up the slack in employment that was created during that extremely worrying period.

When we refer to increases in productivity, Ministers should bear in mind those industries where the productivity increases that were achieved were very hard won, but where disaster now strikes. I refer to three industries where disaster is bound up with Government policy: British Coal, Swan Hunter and the former British Rail Engineering Ltd., now the ABB works at York and Crewe. In all three instances, there have been significant increases in productivity and dramatic changes in labour flexibility. Productivity improvements can be demonstrated, but in every case disaster now faces those who, by their own efforts, achieved productivity increases.

The Minister knows, because of his previous departmental responsibilities, Ellington colliery in my constituency where there have been tremendous improvements in productivity. In other pits, too, there have been dramatic productivity improvements, but the coal review amounted to an appalling disaster for the coal industry and for several pits where significant productivity increases had been achieved.

Those problems have in part been caused by Government policy: for example, the featherbedding of nuclear power and the unfair market position in which coal has been placed. As for Swan Hunter, the absence of a clear and constructive policy to ensure that we have a reasonable diversity of shipbuilding capacity—indeed, any shipbuilding capacity at all—is at the root of the problem. Tremendous productivity improvements were achieved by Swan Hunter and labour flexibility improved enormously. In the past, rigid demarcation lines militated against productivity. Although those demarcation lines were swept away and although tremendous changes in working practices were made, the men who achieved those productivity increases now face disaster.

As for orders for the railway engineering workshops, even though productivity of the industry has improved, anxieties over railway privatisation have led to orders for rolling stock not being placed.

The rise in productivity due to changed labour practices owes something to the changes in the law. We support a number of those changes. We argued for some of them when they were still opposed by the Conservative party. I remember voting for postal ballots in trade union elections and for strike ballots when we were encountering the opposition of both the Conservative and Labour parties. I also recall arguing for the abolition of the closed shop when the Conservative Government were still sending their Solicitor-General to Strasbourg to argue that British Rail was entitled to have and should be allowed to keep its closed shop policy.

Much has changed in the intervening years. It is now generally recognised that a number of key changes in industrial relations law were necessary. Those changes have led to greater labour flexibility. The danger, however, is that we shall go overboard and will end up with basic trade union rights being threatened, an issue to which the Government must give some thought. The changes were necessary to achieve greater labour flexibility, but that flexibility can be affected by all sorts of things.

Another example of an area in which the Government need to be careful is relocation expenses, which will shortly be debated by the Committee considering the Finance Bill. The Minister must keep an eye on it, because, although the matter is dealt with by the Treasury, it is very much a matter for concern at the Department of Trade and Industry. One way in which companies achieve labour flexibility is by requiring or encouraging people to move to where they are needed. In order to do that, companies must contribute to relocation expenses, which are considerable and have been more difficult to cope with at a time when the housing market has been in a bad state. People who are trying to sell a house to move to another area as part of their employment will be in particular difficulty if the Government insist on limiting the ability of a company to meet relocation expenses. If the Government insist on making relocation expenses taxable over £8,000, many skilled workers, middle managers and technical and professional workers will not be able to make the sort of move that is necessary for company flexibility. The Department of Trade and Industry must get involved in discussions with the Treasury, because it is an important issue.

I would not ask for an open-ended arrangement to continue, but companies must be allowed to make reasonable provision for their workers who cannot afford to move. If workers cannot sell their houses for a long period, they must meet accommodation and other costs. The issue was not correctly dealt with in the Budget and the Government must modify it.

The Government can claim some credit for the part of the improvement in productivity which results from greater labour flexibility, but they must also look at areas where productivity can be increased by means that do not involve the loss of jobs. It is a mistake to view productivity simply in terms of what can be achieved by reducing the labour force.

The Government need to show that they can improve their policies on training, the support of research and development and transport infrastructure. Despite the significant improvements in company-based training, we still have an under-skilled work force and such gaps in skills are costing industry much money.

The Government must recognise that great improvements will not be made to our education until they try to carry the confidence and support of those who deliver education—teachers—and of those who are involved in supporting teachers—parents. It is not good enough for the Secretary of State for Education and Ministers acting in support of him to attack teachers' boycotting of tests when he has so manifestly failed to win the confidence of teachers for necessary changes.

That confidence has been fatally damaged by way in which changes have been made. In his opening remarks. the Minister referred specifically to technology in schools. Anyone who has been involved in the teaching of technology knows what a grotesque mess was made of the introduction of technology in the national curriculum. It was hopelessly mismanaged, which is recognised by the fact that substantial changes have been made to the original curriculum proposals for technology. The initial steps for the inclusion of technology in the curriculum involved such a drastic departure from practical skills that the machinery and equipment that had been installed in schools was going to be useless because so much of the effort was going to be switched to theoretical and design work of a pretty vague nature. Encouraging the interest of young people in basic practical and technical skills was rapidly disappearing from the curriculum as a direct consequence of what was done.

Thankfully, changes have been made, but the way in which the original changes were made was extremely unsettling, damaging and wasteful. The objective was right, but the steps taken to achieve it were extremely badly managed.

The Government will have to do much better in administering improvements in the education system and must make greater efforts to win the confidence of those most directly involved.

The hon. Member for Bedfordshire, South-West (Mr. Madel) referred to discretionary awards. In Northumberland, there are no longer any discretionary maintenance awards for a number of important and valuable training courses. Because of financial pressures and the way in which the grants were worked out, the local authority was unable to continue an important part of education provision. I agree that the Government should examine that matter.

I said that training was one way in which the Government could contribute to increased productivity. Another is clearly research and development, especially when directed towards innovation. All parts of industry ask that the Government should direct policy more clearly to the encouragement of research and development. I should be reluctant to have a tax or allowance system which, in a complicated way, tried to direct investment, but research and development is probably one area in which such provision could be made. Broadly speaking, I am not enthusiastic about specific allowances in the corporation tax system. I should prefer a lower rate of corporation tax, a stable tax regime and allowances indexed to inflation so that business knows where it stands, hut research and development probably provides the strongest case of all for some form of fiscal incentive.

There is also more scope for the Government to consider the transfer of expenditure from defence research and development to civil research and development. Proportionately, most of the Government's research and development expenditure has been made by the Ministry of Defence. In view of the reductions in defence spending, we must move some of the effort into the civil sphere.

The Government can also improve productivity by means of the transport infrastructure. Industry knows full well how productivity is damaged by an inadequate transport infrastructure, including roads. However, I do not want to encourage the Government to direct investment into roads to such an extent that they lure on to the roads traffic that should be carried by rail.

Some of the greatest anxieties are caused by the railways. There is so much concern about the privatisation of the railways that it is hard to find anyone who believes that it will work. There is an investment gap in the railway system. A centrepiece of last year's autumn statement was the Jubilee line extension. We were told that it would be a significant boost to industry and to travel in the capital where business loses a great deal of money because of the difficulties of travel. That Jubilee line project is still not under way, so a significant part of the Government's claimed spending on transport infrastructure is not happening.

There are other gaps in the rail infrastructure, for example, on the west coast main line. Britain is in the ludicrous position of struggling to find a way of getting the trains from the channel tunnel to London in between the commuter trains while the French high-speed link is already in place. It would be a laughing matter if it were not so sad and frustrating for companies.

The Government's problem is that they believe that industry's competitiveness can be increased only by the control of labour and wage costs. Figures from the Organisation for Economic Co-operation and Development suggest that labour costs in Britain are already low by international standards. In addition, productivity is low. If wage and salary costs are only about one fifth of industry's costs, control of Wage costs alone will not help. Much has been done to control labour costs and the time has come to examine capital and transport costs, the quality of raw materials and the efficiency with which resources are managed. When a company has reached the limit in containing labour costs, it is time to start examining other problems and getting Government backing to deal with them. Long-term success will depend on tackling those problems.

We must also have regard to energy and resource inputs involved in industrial production. If we measure industrial success only by the reduction of labour costs and productivity per person employed, we shall fail to recognise the looming problem of our dependence on the use of finite resources and on pollution and damage to the environment, which we shall have to stop at some stage. Let us move quickly now to gain the competitive advantage of being ahead in the technology of better use of resources, the technology of energy efficiency and the technology of environmental improvement, where there are tremendous international opportunities.

One of the bodies that have contributed most valuably to our debate about industrial productivity is the Engineers Employers Federation, which has published a great deal of material on the subject. It says: The future success of the whole United Kingdom economy depends crucially on shifting resources into investment in manufacturing industry, technology and infrastructure. It continues: The Government must make this shift of resources the prime objective. It wants the Government to take a long-term view of the direction of industry and technology for 30 to 40 years and to to set their long-term policies accordingly.

Thirty to 40 years is a long way from the 36 hours to which the right hon. Member for Kingston upon Thames (Mr. Lamont), the former Chancellor, referred on Wednesday. Even before the right hon. Gentleman spoke, Ministers must have realised that short-termism is a constant criticism of the Government. It is also a criticism made of the financial institutions, as I shall outline later. The Government are always looking, at the very longest, to the next election—in the case of the present Government, to the day after tomorrow or the following morning's headlines. It is vital that the Department of Trade and Industry especially takes a long-term view and gears policies towards a long-term view.

The Engineering Employers Federation makes a similar point in relation to financial institutions. It says that financial institutions have a short-term outlook, that they seek unrealistically high investment returns and that there is constant pressure for dividend growth, which prevents United Kingdom industries from reinvesting as high a proportion of internally generated cash as is possible in foreign manufacturing industries.

That comment is also strongly made by small businesses and small business organisations. By and large, the bigger companies in Britain do not have a problem raising money or obtaining cash, but they face the problem that the financial institutions press for high dividend returns. Smaller business has a problem raising capital at all. It is locked too much into a system of raising capital on a short-term basis. It is bad for the health of the economy and small business that so much small business borrowing is on a short-term overdraft basis. It exposes small business to high short-term interest rates. It weakens the freedom of the Government to use short-term interest rates, as they have to do at crucial moments as an essential tool of monetary policy, and it inhibits the proper planning of a small business.

In both smaller and larger businesses it is important that we move towards a more stable long-term finance structure. The message for British financial institutions is that it would be much healthier if we saw them involved more in equity in business and if we saw them involved more in an understanding of the longer-term needs of a business. I should welcome the sight of more of the financial institutions on the boards of companies as non-executive directors. I should welcome the sense of commitment, which the German system seems to promote, of financial institutions to the long-term success of business. Some of the banks are beginning to recognise that the preponderance of short-term finance is not good for them or for business. It proved not to be so in the worst years of the recession, when the banks got their fingers badly burnt.

I hope that in both Government and financial institutions we shall see a longer-term approach to the success of companies whose productivity cannot be furthered in the long term if there is immense pressure to produce quick dividends increases or immense pressure to respond to short-term Government policy changes. We need a change of outlook throughout the United Kingdom and throughout the governmental and financial system.

Productivity increases, as we have seen in manufacturing industry over recent years, are clearly welcome, but they are on the narrow base of reducing labour and labour costs. If we are to have sustained productivity improvement, we must have improvements in many other fields, including research and development, training and transport, and we must have a better financial structure within which business operates.

1.44 pm

Mr. Gary Streeter (Plymouth, Sutton)

I am delighted to participate in the debate and to follow the right hon. Member for Berwick-upon-Tweed (Mr. Beith). I did not agree with much of his speech, but I know that, unlike the leader of his party, he is a man of principle.

Earlier this morning we witnessed one of the most unprincipled U-turns in parliamentary history. The right hon. Member for Yeovil (Mr. Ashdown) has spent the past nine months seeking out the cameras and calling for the Government to send our troops into Bosnia to engage in some kind of unrealistic military venture—our boys laying down their lives on the killing fields of Bosnia. Suddenly realising that that policy is unpopular, the right hon. Gentleman came to the House this morning bold as brass and called for our troops to be withdrawn. I am sure that the public will judge that outrageous and unprincipled about-face for themselves.

I am delighted to take part in this important debate about the impressive improvement in productivity in manufacturing industry in recent years. Manufacturing productivity has increased by more than 60 per cent. since 1979. Output per person rose by 5.1 per cent. in 1992. The first quarter of 1993 shows an increase in productivity of more than 7 per cent. Those are impressive increases by any standard, and far greater than those experienced by our competitors.

I want to focus on why those improvements in manufacturing productivity have taken place, on what is going right and on why the most recent figures are even better. Before doing that, however, let me emphasise why productivity is so vital. We are a trading nation. We buy and sell and we make and sell. That is what we do and what we have always done. Our future prosperity depends on the extent to which we can persuade customers, both domestic and overseas, to buy our goods. That is how we create wealth. That is why competitiveness is the key. Our companies must be able to compete on favourable terms with our competitors.

Being competitive means being ahead of the rest in three crucial areas—quality, availability and price. As many hon. Members will remember, British quality used to be a joke. We all remember Leyland cars in the 1960s and 1970s, put together by workers who had been transformed into strike-happy clock-watchers by trade union oppression. Austin Allegros and Morris Marinas are still to be seen waiting for attention at the side of the motorway. That was Labour's Britain. Now Rover is outselling Mercedes in Germany. Is it not interesting to note that the Crown Prince of Japan chose to drive from his wedding not in a Honda but in a Rolls-Royce. British quality is once again becoming legendary throughout the world.

In addition to quality, availability is important. Customers do not want to wait for the goods. They want them now, and if they cannot have them now, they will buy them elsewhere.

If the quality is right and if a product is available, the price must be competitive. That is why productivity is crucial. Our unit costs must be equal to and, it is to be hoped, lower than those of our competitors. It is therefore extremely encouraging that manufacturing productivity is increasing so strongly in the United Kingdom. That will help us to compete, to export and to prosper.

There are two key reasons for the increase—the first is our economic climate. Among all the huffing and puffing from the Opposition, it is easy to lose sight of the fact that the economic framework in which business can prosper has probably never been better. We have low corporation tax, low interest rates, low inflation and a competitive pound. That is a framework not just for recovery but for long-term sustainable growth.

Earlier this week, I spoke to a leading industrialist in Plymouth—not, as some hon. Members may think, a contradiction in terms. I asked him, "What do you want the Government to do to help your business?" He replied, "You have already done it." "Steady as she goes," was the clear message. Manufacturing companies are now able to manufacture cheaply and export aggressively.

The competitive pound gives an opportunity to increase profits for investment or, more likely, to increase our market share abroad. Five million people work in our manufacturing industry which has never been in better shape. The hard work has been done. The blood, sweat and tears of many people and many businesses over the past few years, and the determination of the Government to get the economy right, have brought us to this new beginning: a unique opportunity to be competitive, to increase our market share, to create wealth and to begin a period of sustainable economic growth. Our productivity improvements are an important part of that.

The Labour party has shown itself again and again as having nothing to offer the nation. What happened to the campaign for recovery of the hon. Member for Dunfermline, East (Mr. Brown), which was relaunched on 9 November 1992? We have heard precious little about it since then. Perhaps that is because the hon. Gentleman admitted at the time: We accept that our proposals will increase public spending, but I'm not prepared to put a figure on it. Have Labour Members learnt nothing over all these years?

I once saw a very good musical in London called "The Hunting of the Snark". It was about a group of hapless adventurers who set off to try to locate a mythical beast called the Snark. It reminds me very much of the Labour shadow Cabinet in search of a credible economic policy. Labour Members do not have one, they do not know where to look for one, and they would not recognise one if it bit them on the leg—not, of course, unless John Edmonds told them what it was. We have nothing to fear from Labour.

The Liberal Democrats stand for a united states of Europe. They want to legalise drugs and brothels. That is an agenda which the patriotic, good and decent people of this country will not support. We have nothing to fear from the Liberal Democrats. It is time to recognise and build on our economic strength and to look forwards and not backwards.

In a debate on industry, it would be remiss of me not to mention Devonport dockyard. It is the engine room of the local economy of the far south-west. Even at this late stage in the decision-making process, I call on the Government to acknowledge that Devonport Management Ltd. has won the argument and should win the contract to refit and maintain the Trident boats.

The hon. Member for Dunfermline, East will meet my right hon. Friend the Prime Minister next week in a last-ditch effort to put in a word for Rosyth. He should be ignored. How different his words were in 1984 when he said that the Trident programme … is unacceptably expensive, economically wasteful and militarily unsound."—[Official Report, 19 June 1984; Vol. 62, c. 188.] How could any Government consider rewarding the hon. Member for Dunfermline, East if that was his view? If the Government had followed his misguided thinking, there would he no Trident submarines to maintain. I am sure that his views will now be ignored.

The second reason why manufacturing productivity is increasing so remarkably in this country is, of course, the industrial relations climate that we have put in place over the past 14 years. That is perhaps the greatest contributory factor in productivity increases. What a success story it has been. What tremendous advantages we have made in freeing manufacturing industry from the damaging, high-cost shackles of trade union domination which has blighted post-war Britain.

Those supply-side reforms have been the cornerstone on which productivity improvements have been built. I spent much of the 1980s advising employers around the country how to utilise the excellent Conservative legislation on industrial relations to free themselves of the dead hand of collective wage bargaining, stifling local agreements and restrictive working practices.

In many companies, I saw for myself the negative role of trade unionism, the intimidating tactics of shop stewards, the "us and them" mentality that was all-prevailing and trade union domination which brought inflexibility, a rigidity which was so damaging and a complete disregard of economic reality and of the company's financial position.

That was an expensive package that we simply could not afford. As a result, unit costs soared and productivity lagged. I have never been a great scholar of prehistory, but during the 1980s I saw dinosaurs led by dodos roaming at large in our midst, dragging our country down, plodding towards extinction. Much of that has been swept away in many companies throughout the land.

Now employers and employees talk to each other; they communicate and work together. Now people can be paid on merit and not because of a cumbersome collective bonus agreement. Now employees recognise the importance of productivity gains and beating their competitors. Now managers can devolve responsibility down the line to as low a level as possible. Now people can be genuinely flexible and multi-skilled and not locked into the past. Now people can take pride in their company, contribute their own ideas and work for the prosperity of their company. Now there can be an end to "us and them" and an understanding of team work.

All those things have been made possible by Conservative trade union reform. It is no wonder our productivity is increasing faster than that of our competitors. British companies now have the freedom to compete. Our supply-side reforms are beginning to reap enormous benefits, but we must remain vigilant against any return to trade union power.

I was going to talk about the revolution in the delivery of training and the improvement in management techniques, but I will leave that for another occasion. Productivity is improving, enabling our companies to compete in European and world markets. Of course we have further to go to make up for the wasted years of socialism and trade union domination, but in the past 14 years we have made a tremendous start. We have in place a framework for success to create wealth, to compete across the globe, and to achieve prosperity and peace in a Conservative Britain.

1.56 pm

Mr. Tony Banks (Newham, North-West)

There is something distasteful about the way in which the hon. Member for Plymouth, Sutton (Mr. Streeter) and other Conservative Members constantly attack British trade unions and trade unionists and then lecture us about our links with the trade union movement of which we are rightly proud. At least those links are open, above-board and open to scrutiny by everyone. We are not like the Conservative party—funded by Greek and Hong Kong fascists and crooks both in this country and abroad, and refusing to publish our accounts. When the hon. Gentleman's party is as open about its links with some of the nastier elements of business in this country and abroad as we are with our links with the British trade union movement, democracy will be better served in this country.

It is not often that I find it incumbent on me to leap to the defence of the leader of the Liberal Democrats, but the hon. Member for Sutton attacked the right hon. Member for Yeovil (Mr. Ashdown) by saying that he had changed his position. He should have listened to what the leader of the Liberal Democrats said. He said that, in earlier days, he had urged that there should be intervention into the old Yugoslavia, but the situation had changed dramatically; the time had passed, and now it was time to consider withdrawal because circumstances had changed.

The hon. Gentleman's attack on the leader of the Liberal Democrats was in keeping with his attack on British trade unions. It was wrong, it was inaccurate and it entirely misrepresented both of them. That is the last time that I shall come to the defence of the leader of the Liberal Democrats.

I also listened carefully to the Minister. He said that we should stop talking about the decline in manufacturing industry and talk rather more about the excellence of our manufacturing. Clearly that indicates that the Government have learnt nothing from the disasters of the past. The economic illiteracy within the Government appals me. We heard much from the former Chancellor about short-termism. It actually extends to the Government's economic policy, but I suppose that one should not be surprised by that, as the country is led by a Prime Minister who is a cross between Mr. Pastry and Eddie the Eagle.

I remember that when Lord Lawson in his former capacity used to say from the Dispatch Box—"Do not worry about manufacturing industry, we have service industry to rely on"—Conservative Members cheered him on. They must remember doing exactly that. A report from the House of Lords in 1985 made it clear that services are no substitute for manufacturing because they are heavily dependent on it and only 20 per cent. are tradeable overseas. That was the economic nostrum of the day. Conservative Members supported the idea that the service industries would rescue this country. They have not.

The key to Britain's economic future is manufacturing industry. It is a fact, as my hon. Friend the Member for Tooting (Mr. Cox) said, that between the Napoleonic wars and 1983 we always ran a balance of payments surplus in manufacturing goods. Since 1983, we have been in deficit —and the projected deficit for this year is one of about £17 billion. That is the reason for our economic failure.

Conservative Members must shed the scales from their eyes and recognise the extent of the economic problems facing us. While the deficit has been accumulating, the Government have had the enormous and wondrous benefit of the £140 billion from North sea oil, and the privatisation money. It has all been squandered while manufacturing industry has been allowed to wither.

If we continue on present trends and as North sea oil runs out, this country will be reduced to the status of a banana republic. Output per head in manufacturing industry rose rapidly in the 1987–88 boom. It stopped rising in the early part of the recession and even became negative in the first half of 1991 —but rose by 4.7 per cent. in 1992, reaching an annual rate of increase of 5.8 per cent. in the last quarter". That sounds good. This improvement is useful but seems mainly to have been achieved by drastic cuts in staff, reducing employment even faster than the fall in output. Since the recession began the workforce has cut by 735,000, or 14.5 per cent., whereas output has fallen by about 7.5 per cent. How much better it would be if output had increased while employment had been at least maintained. That is what The Economist had to say about productivity. Of course, productivity has been increased, but only at the expense of a reduction in the work force. It should have come about by an increase in investment.

The Opposition want high employment and high productivity in this country. The Minister repeatedly challenged us to accept that higher productivity was better than higher employment. We do not accept that. The two are not incompatible, and the Minister should recognise that. The key is capital investment. I do not have time to go through all the statistics, but OECD figures show that we are so far behind our main competitors in terms of capital formation that our productivity is not sustainable if the economy expands.

The truth is that Britain's manufacturing base is now too small to cope with the demands being made on it by the domestic economy. The number of manufacturing jobs has fallen from 7.1 million in 1979 to 4.5 million today —a crucial statistic. It is not just a .question of industries changing. Our manufacturing cannot service the needs of our own economy, and that will be shown if and when we manage to achieve any growth.

The statistics really should be studied carefully by Conservative Members before, like Lord Lawson, they claim that some sort of economic miracle has been under way. What is really disturbing about this recession is the fact that, in previous recessions, imports declined; but this time imports have increased, while domestic output has actually fallen. We cannot continue like that.

If there is to be any movement in the economy—I hope that there will be—the people whom I represent will be looking around for jobs. Opposition Members do not want the recession to go on—we have nothing to gain from its perpetuation. Our constituents are suffering. We want some growth in the economy, but we will not go in for stargazing of the type that Conservative Members indulge in.

Between 1979 and 1989, every major sector of British manufacturing suffered from an increase in imports as a percentage of total home demand. That happened in every sector apart from food, drink and tobacco where the proportion remained the same. The implications of that should rapidly become clear. They are that if there is movement in the economy there will be a further upsurge in import penetration, and that in itself will be inflationary.

The balance of payments deficit continues to get worse and that puts pressure on the pound. To defend it, even with free-floating exchange rates, the Government will have to raise interest rates and the whole depressing cycle will continue. None of the Government's past policies or what they intend to do in future will break that cycle.

The President of the Board of Trade made a famous statement at a Tory party conference about intervening before breakfast, lunch, tea and dinner. He will put on a great deal of weight if he has four meals a day. He is not intervening, but manufacturing is being reduced to a skeleton while he is having his four meals a day. The Government have utterly failed British manufacturing and, by so doing, they have utterly failed the nation.

2.5 pm

Mr. Charles Hendry (High Peak)

I welcome my hon. Friend the Minister to the Department of Trade and Industry in which we both worked some time ago. At that time, he had a fairly minor role and I had an exceedingly minor role as an official under the noble Lord Young. I am delighted to see how well all those who worked in that Department at that time have progressed since. The only exception is Francis Maude and it is a great shame that he is no longer in the House. However, he will be with us again before long and we look forward to that. Our other colleague there at that time was Alan Clark. I am not sure what he is doing now, but my hon. Friend the Member for Plymouth, Sutton (Mr. Streeter) is an able successor.

There was a sharp contrast between what the Minister said and the speech by the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins). My father used to tell me that those who can, do; those who cannot, teach; and those who cannot teach go into politics. My hon. Friend the Minister played an important role in mining and the hon. Member for Newcastle upon Tyne, Central was a researcher and lecturer. That is a noble profession, and the fact that the hon. Gentleman followed it explains why Conservative Members will go on doing, while Opposition Members will continue to play politics.

The most breathtaking part of the speech by the hon. Member for Newcastle upon Tyne, Central was the pretence that the firms that invested here during the 1980s would have done so under the last Labour Government and that their decision to come here did not owe anything to the Government's reform, especially our reforms of trade union legislation. Some 41 per cent. of Japanese investment and 30 per cent. of American investment in the European. Community is in Britain. In a survey conducted by the German chamber of commerce, 82 per cent. of German companies here said that they would like to expand their investment in Britain. That shows the success of the Government's record.

During the miserable period of Labour government, car companies were not investing here; they were pulling out because they saw Britain as a country in endless decline with bad productivity and out-of-date working practices which were strike-bound and ineffective and all too often produced second-rate products that did not work. Worst of all, they saw a Government with a terminal desire to interfere in the operations of business and the marketplace.

Britain has moved a long way since then and my constituency is an example of this country's good fortune in having a mixed industrial and commercial base. It also demonstrates how our manufacturing base has survived the recession relatively intact. Some of our companies, such as Ferodo, Street Cranes, Otler Controls and British Aerospace, which is just outside my constituency at Woodford, are world leaders. Their clear message is that recovery is happening. At 7.1 per cent., unemployment in my constituency is high, but even that puts us in the lowest 100 constituencies. Because we have a mixed industrial base and have not suffered in the decline of the manufacturing giants, we have been able to sustain that base. We are all grateful for that.

The past three years have not been just a local success story; they have been a national success story. Even in the teeth of a recession, our share of world manufacturing trade has started to rise. That has built on our growth period during the 1980s when Britain was the fastest growing country in the European Community, It is absolutely clear that we must live, work and survive in an international arena. Germany, Japan, Italy, France, Belgium, Greece, Holland, Spain, Portugal and Austria are all competitors of Britain, but they all have a problem that we do not have—this year their gross domestic products will decline while ours will grow.

Last year, thanks to the Konrad Adenauer Foundation, a number of hon. Members visited the Mercedes factory near Stuttgart. We were told that it wanted to lay off up to 25,000 of the 40,000 people whom it employed. So great is the recession in German industry that such steps have to be taken. There could not be a more stark contrast between that and the growth in our car industry. Last month, United Kingdom car registrations were up by almost 12 per cent. on a year ago; car production in April was 14 per cent. up.

Last week, Toyota opened its plant only a few miles from my constituency. It already employs 1,300 people and, when it is working at full capacity, it will employ more than 3,000. It is the largest-ever investment in this country, without Government support, totalling some £700 million. Seventy per cent. of the plant's products will be for export. In time, that will make a £400 million difference to our trade balance.

The improvement in the car industry has been happening for some time. It declined relentlessly from 1971 to 1981. The House needs no reminding that five of those 10 years were the halcyon days of the Labour Government, when car production declined every year. Since 1981, almost without exception, but with a small drop at the end of the 1980s, car production has risen under the Conservative Government. By the end of the century, it will be at record levels.

The key issue, which was touched upon by my hon. Friend the Member for Sutton, is that of quality. People can now drive around with a Rover badge on their car —it is a sign of pride, not a warning against buying the car. Rover feels sufficiently confident that it is offering a money-back guarantee even to anyone who is dissatisfied with the colour of the upholstery. If it had offered that guarantee a few years ago, it would not have been just the M25 that looked like a parking lot; the M1 and the M6 would have been jammed with Montegos, Austin Princesses and Allegros being taken back to the factory by people wanting their money back. Such is the current reputation of Rover that it can now offer a money-back guarantee.

I am proud to get into my British-designed, British-build Land-Rover Discovery. Every time that I drive it I am aware that a British company is taking on the world and winning. There is a convention among politicians that when we are abroad we do not run down our country. It is sad that all too many Opposition Members, when they are at home, are relentlessly prepared to do so.

Rover showed us what happens when a nationalised industry is returned to the private sector. There is a similar story with other companies, such as British Aerospace at Woodford. Last year, the regional jets that it manufactures captured just over 50 per cent. of the world market in very difficult circumstances. Now, through a joint venture with Taiwan Aerospace, that success will be further built upon and British Aerospace's position will be strengthened. That joint venture would not be possible without the active support and intervention of Ministers at the Department of Trade and Industry—active intervention before any meal that Labour Members might care to mention.

The same is true of other privatised industries, such as British Steel, British Telecom and British Aerospace. British Airways has doubled the number of passengers that it had when it was privatised. Almost all those companies offer a better service to their customers at a lower price. Each and every one of those privatisations was relentlessly opposed, tooth and claw, by Labour. We need no lessons from Labour on how to bring those companies back into profitability and make them successful again.

A few weeks ago, the Financial Times wrote of the Labour party Labour's corporatist interventionist instincts are alive and putting the boot into the free market. Those who throught that Labour had forsaken the profits are dirty, bash big business mentality of the post-war decades are in for a rude awakening. Almost a year earlier to the day, the same Financial Times urged its readers to vote Labour, but now it realises that Labour does not change its spots. It is not an electable party and never will be.

Perhaps we should look more than anything at the example of British Coal, because of the topicality of the coal industry to the debate and to the House. Output per man in British pits more than doubled in the eight years since 1984. The tragedy of British Coal—I speak as one who has contested two mining seats and who has a tremendous affection for the industry and for the people who work in it—is that if productivity had increased as fast in the 1960s and 1970s, its work force would have been sustained and the difficulties that British Coal now faces would not exist.

Since 1979, the Government have supported British Coal to the tune of £18 billion of taxpayers' money, and the subsidy that the Government are continuing to give will ensure that British Coal continues to have a chance to compete. The hon. Member for Newcastle upon Tyne, Central referred to Komatsu in his constituency. It seems all right for a failing British company to be taken over by a Japanese company—so why does Labour not welcome the decision by the Government and British Coal to encourage private sector companies to take over those British pits that do not have a future in the nationalised sector? The sooner that British Coal in its entirety can be returned to the private sector, the better it will be for all.

I come with the message from High Peak that manufacturing industry is not just improving but is in optimistic mood, and is looking forward with determination and in the belief that it can break through the end of the recession. Government policies are working. Industry itself will testify to that, and I urge the Government to continue on their present course.

2.17 pm

Mr. McLoughlin

With permission, I wish to congratulate those of my hon. Friends who participated in the debate.

Mr. Beith

And others?

Mr. McLoughlin

The right hon. Gentleman should be a little patient and not get excited, because I was about to say that other right hon. and hon. Members participated in a debate which—I say this with due deference to the hon. Member for Linlithgow (Mr. Dalyell)—was more wide ranging than I expected, but I will reply to the points that were put to me.

We have slowly dragged out from Labour Members their agreement that there has been a dramatic improvement in manufacturing since 1979. The hon. Member for Newham, North-West (Mr. Banks) said that we do nothing but attack trade unions as the cornerstone of all our ills. I would not go that far, but trade unions must take a big responsibility for the low growth that Britain suffered in the 1970s. In 1979, we lost 25 million working days through strike action, and that did British industry no good whatsoever.

If the hon. Member for Newham, North-West claims that there is nothing wrong with the trade union movement, he is deluding himself and the Labour party, which no longer talks of reversing the trade union legislation that we fought Labour tooth and claw to get through the House.

The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) made some good points about research and development with which I agreed. He quoted my right hon. Friend the President of the Board of Trade, but my right hon. Friend was merely pointing out what still needs to be done. I am not here today to say that everything is fine and nothing more needs to be done. Indeed, many of

my hon. Friends referred to areas in which more needs to be done, including education. Developments in education are wholly important.

The research and development scoreboard shows a welcome increase in spending by companies. In the difficult climate of the past 12 months, spending has risen by 6 per cent.—above the inflation rate—to £6.5 billion, so some changes and welcome increases have been made in research and development. Obviously, I should like to see more of that.

My hon. Friend the Member for Bedfordshire, South-West (Mr. Madel) explained the changes that have taken place in the motor industry, especially at Vauxhall cars. He was right to say that Vauxhall has the same production levels and requirement levels as Toyota and Nissan and is competing with those companies. Those companies have had to reduce their labour force to compete. The hon. Member for Newcastle upon Tyne, Central must accept that Nissan and Toyata are competing with a smaller number of workers than would have been required some years ago. If the British car industry had not made the same changes as Vauxhall and Rover, it would not be competitive today or producing cars. One way for the industry to become more productive was to reduce its work force. The simple answer is that unless companies sell their goods, there is no market and it is no good producing goods that no one wishes to buy.

Wide points were about the whole system of education, the way in which the GCSE was introduced and its importance in changing our education system. I agree with that. It must be admitted that, when the reform was introduced in 1986, there was tooth and nail opposition from various teaching unions. The new exam system got under way only at the insistence of the then Secretary of State, Lord Joseph, in the face of opposition, and was then widely welcomed by the teaching staff. Perhaps that also holds a lesson for us about what needs to be done in the future.

Several of my hon. Friends and the right hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to the importance of the training and enterprise councils. I came to my new responsibilities from the Department of Employment, where I worked closely with those councils and saw the role that they had to take on. A number of TECs have taken forward some imaginative ideas and will have a substantial role in developing local enterprise and training. They were instrumental in the constituency of my hon. Friend the Member for Somerton and Frome (Mr. Robinson). The right hon. Member for Berwick-upon-Tweed tried quickly to link in what his county council was doing.

The hon. Member for Tooting (Mr. Cox) talked about the need for the assisted area map to be reviewed. That is being done and announcements will be made when final decisions are taken. I was sorry to hear the hon. Gentleman talk about social dumping. In some ways, he was saying that the inward investment that we have attracted is social dumping. If he thinks that, he should look at those companies because they have high-quality, good and proper jobs.

Mr. Cox

rose—

Mr. McLoughlin

I am sorry, but I am short of time. I apologise if I have misinterpreted the hon. Gentleman, but that seemed to be the direction in which he was aiming his remarks.

My hon. Friend the Member for Canterbury (Mr. Brazier), in a developed speech, had some fairly radical ideas. That should not surprise us because he often has radical ideas and, sooner or later, some of them are pursued. I shall certainly reread his speech with interest.

I was slightly surprised by one of the points made by the hon. Member for Linlithgow. He referred to the reports that he has made and the people to whom he has spoken since his return. He said that people are amazed that we are still applying sanctions, that in November 1945 the Marshall plan had already been implemented, so why has there been no change? The hon. Gentleman seems to have overlooked the obvious fact that in November 1945 Hitler was no longer around in Germany.

The hon. Member for Linlithgow knows the view of the United Nations on Libya: sanctions are targeted at military equipment and goods relating to civil aviation and are in pursuit of a mandatory resolution that stems from the alleged complicity of the agents of the Libyan Government in the destruction of the PanAm aircraft over Lockerbie. The hon. Gentleman was right to condemn that horrendous crime. At that time, I was a Minister with responsibility for aviation and saw the consequences of the destruction of that aircraft.

As for the sanctions on Iraq, United Nations Security Council resolution 687 permits, under licence, the supply of foodstuffs, medical products and materials and commodities deemed as being essential for civilian use. Any United Kingdom exporter can apply to my Department's sanctions unit for an export licence and for a United Nations letter of clearance, confirming the United Nations sanctions committee's approval of the export of medical products to Iraq. I shall look at the hon. Gentleman's speech and give a considered response to the questions that he put to me. I will ensure that he receives a full reply, either from me or from my hon. Friend the Minister for Trade.

Mr. Dalyell

I asked for a considered response, but I should like to keep open the option that the Prime Minister has kindly given me of going OD see him.

Mr. McLoughlin

If the hon. Gentleman feels it is appropriate, I am sure that he will wish to follow up that invitation.

Like my hon. Friend the Member for Somerton and Frome, I have a large rural constituency. I realise, therefore, that large constituencies are very diverse and that industry is vital to individual towns in such areas. If industry leaves those areas, it can have a devastating effect on employment. Nevertheless, I was pleased to hear my hon. Friend say that he has witnessed an increase in industrial activity in his constituency.

The right hon. Member for Berwick-upon-Tweed referred to relocation expenses. I am sure that he will deal with that question during the proceedings on the Finance Bill. I shall not comment, therefore, on matters that will be debated upstairs in due course.

My hon. Friend the Member for Plymouth, Sutton (Mr. Streeter) made a strong case for Devonport naval dockyard. He knows better than most that no decision has yet been taken. An announcement will be made in due course. I can say no more than that now. Both he and many hon. Members with constituencies in that part of the country have made a strong case, both this morning and on other occasions, for the dockyard. I will ensure that what my hon. Friend said is drawn to the attention of my right hon. and learned Friend the Secretary of State for Defence.

The hon. Member for Newham, North-West said that the Government have adopted a short-term outlook. We have not. I have outlined today the changes in manufacturing productivity over the past 10 years. It has taken time to put into operation some of the measures that we wanted to take, because of the tooth and nail opposition to all the trade union and privatisation reforms that we believe are essential if the economy is to grow and develop. The business activity of many industries was restricted by their being in the public sector, so we have given those industries the freedom of the private sector to make commercial decisions and attract business from elsewhere in the world.

There have been tremendous achievements. Before they were privatised, British Telecom, British Gas and the water companies had to restrict their operations to the public sector. Since privatisation, they have had the freedom to become leaders in world markets, and they have succeeded. I do not, therefore, accept the accusation that we have adopted a short-term attitude.

My hon. Friend the Member for High Peak (Mr. Hendry), who shares a constituency boundary with me, made a number of important points.

Interestingly, when the hon. Member for Newcastle upon Tyne, Central was asked why, if so much is so awful, we had managed to be successful in attracting so much inward investment, there was a numbing silence. He could not bring himself to acknowledge that, in the past 10 years, the Government have put in place the right economic conditions, the right economic climate and the right industrial relations framework to attrack inward investment and to see a growth in jobs—

Mr. Cousins

A growth in jobs?

Mr. McLoughlin

A growth in the amount of jobs available that would not have been available if we had not been as successful in attracting inward investment.

It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.