The Economy

HC Deb 12 March 1993 vol 220 cc1211-81 9.34 am

Dr. Lynne Jones (Birmingham, Selly Oak)

I beg to move, That this House has no confidence in the Government's management of the economy which has simultaneously created the longest recession since the 1930s, an uncontrolled balance of payments deficit and a growing public sector borrowing requirement with inflation only kept down by mass unemployment; regrets that the Government's latest solution to this is further dismantling the welfare state and turning Britain into a low-wage, low-tech economy; and therefore proposes instead to bring the country's financial and military commitments into line with its resources as a medium-sized European power, to curtail the short-termism of the financial institutions and to increase investment in manufacturing to internationally competitive levels by ensuring future policy, including that on taxation, organisation and regulation of financial institutions, exchange rates and interest rates, is dictated by the need to develop the domestic productive economy, not the financial operations of the City of London, harmonising over five years United Kingdom military spending to the European Community's average proportion of GDP, thus eventually releasing £7 billion a year and investing at least an additional £10 billion a year released from the above measures, the reversal of tax cuts to the very wealthy and from an initial and temporary increase in borrowing, in infrastructure and education and in the revitalisation and modernisation of domestic production, thereby laying the foundation for sustained economic growth and the restoration of full employment. I shall begin with a quotation: The ERM is not an optional extra, an add on to be jettisoned at the first hint of trouble. It is and will remain at the very centre of our macro economic policy. That was said by the Chancellor of the Exchequer on 10 July 1992. Between then and 16 September, black Wednesday, the right hon. Gentleman strove, sought, fought and finally yielded. He yielded so fast that he did not even have time to inform his right hon. Friend the Chief Secretary to the Treasury, who on that very day wrote to my hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett) informing him that the Government were as committed as ever to the ERM.

Shortly afterwards, Parliament was recalled and the Prime Minister spoke then of what he considered to be the essential requirements for economic recovery: low inflation, low taxes, free trade and freedom from interference by Government. It is strange that there was no mention of exchange rates or the ERM and no mention, as there is now, about the need to do something about our manufacturing industry. We are back to the well-known monetarist formula.

Of course, those events are well known and have been well documented. They are part of the reason for the motion. The Government's economic policy is in tatters. There have been 14 years of Conservative mismanagement. At the 1987 general election we were presented with the British bulldog, the economic miracle that the Conservatives had brought upon us. That soon collapsed. Before the last election we were told that green shoots were appearing everywhere.

I am reminded of the radio programme that I listened to when I was a child. It was called "Twenty Questions" and the clues were animal, vegetable or mineral. We have had the animal and the vegetable, and we are now left with lead-weighted boots—Government inertia. The Government are transfixed, unable to move, not knowing what to do about the mess that they have brought us to. Conservative Members tell us that it is just a symbol of the worldwide recession; it is happening everywhere.

I should like to quote from an interview on "Newsnight" between the Prime Minister and Jeremy Paxman during the last general election: The Prime Minister: 'The principal cause of the start of the recession was the monetary policy immediately after the stock exchange crash in the late 1980s.' Mr. Paxman: 'You used the words "principal cause" there.' The Prime Minister: 'I think that was the principal cause of the difficulties, yes."' During that interview, perhaps by mistake, the Prime Minister let slip the real cause of the problem that he, as Chancellor of the Exchequer, had a good deal to answer for.

Mr. James Paice (Cambridgeshire, South-East)

Perhaps the hon. Lady will recall that, immediately after the stock exchange collapse, my right hon. Friend the then Chancellor—Lord Lawson—reduced interest rates to prevent the worldwide slump that was universally expected. The then shadow Chancellor, now the Leader of the Opposition, exhorted him to reduce interest rates even further and kept on with that proposal. Does the hon. Lady think that the right hon. and learned Gentleman was right or wrong? Would such a policy have made things better or worse?

Dr. Jones

In addition to reducing interest rates, other policies that the former Chancellor let rip, including major tax cuts, introduced major problems into the economy.

This country was the first to go into recession, a recession which is now the longest lasting since the 1930s. Since our membership of the ERM begun and ended, unemployment has risen twice as fast as it has in the rest of the EC.

The tragedy of all this is that, unlike the recession in the 1930s, the people most affected are our young people. In Birmingham, the unemployment rate among 18 and 19-year-olds is 33.2 per cent. The Government do not even bother to collect the unemployment rate among 16 to 17-year-olds.

In 1992, according to Dun and Bradstreet, 67,767 businesses folded. We are in a mess. I can give a list of jobs lost in the last 12 months in Birmingham: 160 jobs lost to the Carlyle Group, due to closure; 200 jobs lost to Trans-European Airways; 100 jobs lost from the Concentric Group; 100 from George Stubbings; 100 from Proton (UK); 100 from Hills Precision; 135 from Raybone Chesterman; 400 earlier last year from South Birmingham health authority, and another 400 from North Birmingham health authority, and more to come from health authorities; 124 from the BBC; 250 from Avery Guidex. Now, because of Government cuts in local government expenditure, 1,000 people are likely to lose their jobs as a result of problems in the budget of Birmingham city council. Last but not least, 670 redundancies have already been announced from Leyland DAF. This is just in Birmingham alone.

Last year, we had the much-heralded autumn statement. The Chancellor put in a little bit of money here and there, but what he gave with one hand he took away with the other. There have been minor improvements in some of the indicators, but the commentators on industry talk about the recovery being fragile, very modest, pretty anaemic and variable, and say that they are wary of the talk of green shoots.

The autumn statement predicted growth of less than 1 per cent. for this year. The hon. Member for Mid-Staffordshire (Mr. Fabricant) asked the Secretary of State for Employment to make a statement on the effect of the autumn statement on unemployment. At first, the right hon. Lady was evasive, but when the hon. Member pressed her, asking how many jobs would be created as a result of the autumn statement, all that she could say was that it was "hoped" that the autumn statement would protect existing jobs.

The autumn statement did nothing to create jobs. It put a little bit extra money into the car industry, because it resulted in larger car sales, but that was only a modest increase. We wait for next week's Budget to see how the Chancellor will take back the £700 million that he put into industry.

On present predictions, unemployment is expected to remain at 3 million to 3.5 million until the end of the century. Goldman Sachs says that we need an average of 2.5 per cent. growth if we are to keep unemployment at current levels. The Cambridge economic forecast talks of economic growth at a mere 1.7 per cent., and a continued decline in manufacturing.

Since 1990, our gross domestic product has fallen by 2.5 per cent. Other countries have seen the effects of the recession, but in Germany there has been growth in that period of 5.3 per cent. As I learnt in the past few days during a visit to Germany with the Select Committee on Science and Technology, its GDP is 50 per cent. bigger than ours. That of France grew by 6.1 per cent. and that of the EC as a whole by 4.5 per cent.

There is a massive deficit in British trade with Japan, despite the talking up of the odd million pound's worth of sales. There is a £900 million deficit in cars, a £2.7 billion deficit in electrical goods, a £1 billion deficit in computer equipment, a £846 million deficit in telecommunications and sound equipment and a £855 million deficit in white goods.

It seems to the Opposition, and to commentators at large, that the Government's sole economic policy is that of attracting foreign investment. During my visit to Germany, a Conservative Member asked the Economics Minister of Baden-Württemberg, which we were visiting, whether he would welcome Japanese investment in his state. He nodded his head in a declining manner, and the Conservative Member said, "Well, you don't really need it, do you?" They do not need it, but we seem to.

Many people are predicting that our manufacturing sector is now too small to produce sufficient exports to lead our economy out of recession. I have already spoken of the trade imbalance with Japan, and 55 per cent. of our new car registrations are for imports.

There has to be an alternative to the Conservative Government's stagnating policies. The motion sets out that alternative. First, there is an urgent need to look at the short-termism of the financial institutions and to develop policies to ensure that banks and financial institutions work with industry, as we learnt that they do in Germany. In Germany, industrial concerns retain far more of their equity. Their dividends are far lower, they reinvest in their companies, and the banks have a long-term interest. In this country, large companies find it easy to raise equity, but they seem to spend most of it on takeover bids rather than on restructuring industry and developing investment for the future.

The Government have the responsibility for devising a financial structure in which the mistakes of the market, all too evident in the past 14 years, can be minimised and a fiscal policy that encourages investment. The Engineering Employers Federation and many industrialists have commented on the fact that existing tax arrangements have an anti-investment bias. The Government reduced corporation tax, but at the same time dramatically reduced the capital allowance for manufacturing investment. One industrialist called this "supporting the casino economy".

We need to encourage a manufacturing partnership between industry and finance. Businesses should be supported as growing concerns rather than as property collateral. There need to be incentives to invest. This can be done with the banks, perhaps by offering some kind of Government support and guarantees. I hardly dare to say it, but there is also a strong argument for the creation of a nation & investment bank.

When we were in Germany, despite the fact that it has an image of being run by right-wing conservative Governments, I was struck by the fact that they have a socialist approach to some of the market issues. Many of the banks are stateowned. We met representatives of the bank institutions and they talked to us about their policies in partnership with industry.

The German Government support industry. The Minister of the Department of Technology to whom we spoke and his officials were anxious to ensure that we understood that there was a partnership based on market considerations. The firms concerned would usually be asked to put up money themselves in return for Government money on a one-to-one basis. We were all impressed—Government and Opposition Members—by the technological infrastructure, the relationship between firms and the support that is provided, mainly through the state.

We saw the Fraunhofer institutes, which have been set. up to undertake basic research and to study technological applications. At the same time, the institutes work with industry. With some contracts, industry pays; with others, services are provided virtually free of charge to small businesses.

The House of Lords Select Committee on Science and Technology recommended that something similar should be set up in the United Kingdom—the Faraday centres. That idea has not got off the ground, because the Government are interested in encouraging such developments only if there can be funding through the existing science budget. In a recent interview, the Prime Minister made much of the fact that we now have a Cabinet Minister with responsibilities for science. It should be remembered, however, that the science budget was cut as a result of the autumn statement. The Chancellor of the Duchy of Lancaster has advanced no strong argument in support of that budget. He has not said that the budget should be increased to set up the Faraday centres that were recommended by the House of Lords Select Committee.

We have the Link projects with universities and business, but the support for them is a mere £100 million from the Department of Trade and Industry. Even less is provided by the Ministry of Defence, which should be examining ways of diversifying out of defence research.

We saw the Steinbeis institute, which was set up with little public funding. That funding was used as a pump primer. It was offered on a non-profit-making basis. It provides technological advice and services to German industry through centres based throughout Germany.

We saw the Institute for Micro Electronics, which is doing for Germany's industry what the Japanese have done for theirs in the development of microchips. The Germans have decided to fight back and not let the Japanese take over the market. They have decided to develop their own industries. It is a pity that our Government have not adopted that approach.

During the Administration of the then right hon. Member for Finchley, now Baroness Thatcher, Britain's share of high-tech exports fell from 11.2 to 9.2 per cent. That was a reversal of the trend in the 1970s when the Labour Government adopted the sort of policies that have now been developed successfully in Germany. It is—[Interruption.] Conservative Members do not like the truth. They do not like to hear that the economy grew far faster under a Labour Government.

There are so many developments that the Government should be encouraging, many of which depend initially on public investment. That has been demonstrated by the Governments of Germany, Taiwan and Singapore. Indeed, Singapore leads the world in technological infrastructure. It expects to have a national grid of high-tech optical fibres very soon. Other newly industrialising countries are setting up programmes to strengthen their science base. Unfortunately, that is not happening in the United Kingdom, and we are the poorer for it. If we are to compete in the world, we must develop a partnership between the Government and industry to develop new technological projects. We must have intelligent vehicle and highway systems. We must develop information technology and biotechnology. We must provide more training.

The Government talk a great deal about their various schemes. I shall take the youth training scheme as an example. The Government put £56 a week per person into that scheme. Out of that must come the £29 or £35 that is paid to the young person who is receiving training. What sort of quality training can be obtained for that sort of input? When the redundancies were announced at Leyland DAF recently, walking down the line that day with members of the work force were two youth trainees. Their training depended on having an industry where they could get work experience. In any event, they would not have received much training from the paltry amount of money that the Government put into the scheme.

It is becoming increasingly difficult for the TECs to place people on Government schemes in industry so that they might obtain the necessary experience. The Government abolished the body that was responsible for training in the engineering industry and replaced it with a training authority, which has no statutory power to impose a compulsory training levy. The Government are thinking of abolishing the compulsory training levy that is available to the Construction Industry Training Board. That possibility is much feared by the construction industry, which wants the levy to continue. It knows that it needs good-quality, trained people.

We must ensure that people receive high-quality training that leads to proper qualifications. Again, we can learn from the countries of the Pacific rim. Taiwan is rapidly developing its education systems, including higher education. We need skills, but what is happening? Yesterday, we heard of the redundancies at Rolls-Royce. I have already mentioned Leyland DAF. Our most skilled workers are being sent down the line, and the Government sit idly by and let it happen. According to the Organisation for Economic Co-operation and Development, in the 22-country league table of the developed nations skilled workers, we occupy 21st place.

Mr. Oliver Heald (Hertfordshire, North)

The hon. Lady has referred to Rolls-Royce. One of the reasons for that company making redundancies is the significant drop in demand for military aircraft following the end of the cold war. It is proposed in the motion to release £7 billion a year from defence spending. How will that help the Rolls-Royce workers, people in my constituency and the constituents of the hon. Member for Barrow and Furness (Mr. Hutton), who rely on defence spending?

Dr. Jones

I thank the hon. Gentleman for reminding me of the terms of the motion, but I assure him that I am familiar with them. I shall be discussing the issue that he has raised later in my speech.

The motion represents a radical change in our economy. It would lead to a radical increase in investment in a productive economy. We propose to find the extra money by following at least three different routes, which are set out in the motion. It is right that defence cuts are proposed. The three routes include increased taxation for those who have benefited most from the Government's tax reductions. The richest 10 per cent. should pay their share. Taxing those people a little more is unlikely to have any effect on demand within the economy. In fact, money would be re-routed to those on lower incomes and would be reflationary.

We talk about an increase in borrowing. There must be an increase in the short term while we undertake the restructuring of our industry. That means changes in our defence industry.

Mr. Don Foster (Bath)

Is the hon. Lady aware that she has the full support of the Chancellor of the Duchy of Lancaster? During the general election he made the very same point about the need to increase borrowing.

Dr. Jones

It is now widely recognised throughout Europe that we have to spend our way out of recession. That is classic Keynsian economics, and that is what I am advocating this morning.

There has been talk about defence jobs. Since the end of 1991, 2,000 jobs have been lost at the Defence Research Agency; 400 at FM RO Portsmouth; 475 at Portland naval base, with the base to close by April 1996; 250 at RAF Chilmark; and 500 at RNAD Trecwn. The rundown of USAF Upper Heyford commences next year, with the loss of more than 1,000 jobs. More than 100 jobs are to go at Royal Ordnance, with a review pending of the total numbers employed and the number of sites. Some 10,000 jobs have been lost at BAe Military Aircraft; 4,000 at BAe Dynamics; 1,200 at GEC Marconi; 500 at GEC Ferranti; 1,000 at Rolls-Royce Military Engines; 600 at Westland; 2,000 at Dowty; and 700 at Smiths Industries. All those add up to more than 32,000 jobs already lost as a result of changes in defence spending.

What have the Government done about that? Absolutely nothing. They have allowed skilled workers to lost their jobs. We need those skills. We must invest in new technologies and use the skills of those whom the Government are prepared to put on the scrap heap. That is why there needs to be a restructuring of the economy. There can be defence cuts over that period—for example, we could start by cutting the £1.5 billion spent on imported equipment. That would not affect jobs in this country. The cost of each job in the defence industry is about twice the cost of jobs elsewhere.

We are prepared to face the inevitable—that we are a middle-ranking European power. We should be reducing our defence expenditure to the average in Europe; and we should be using the resources released, on a sensible strategic basis, to make the sort of investment being made by the Taiwanese Government. British Aerospace has moved to Taiwan because its Government are prepared to invest—

Mr. Bernard Jenkin (Colchester, North)

Countries in the far east have been so successful because they have extremely flexible labour forces, they do not have strong trade unions and they do not have all the paraphernalia of the European social charter. Is the hon. Lady recommending that we impose on our labour force the same labour regimes that are imposed in the far east?

Dr. Jones

I thought that someone might suggest that. It is the policy being advocated by Conservative Members, who want us to reduce our standards and turn Britain into a third-world country. In fact, third-word countries are improving standards for their workers. Workers in Germany have far better conditions than those in Britain, yet their productive capacity is much higher. Conservative Members constantly talk about abolishing wages councils and minimum wages, as though those policies would be good for employment. There is no evidence that a continual decline in the standard of conditions for the work force leads to greater employment.

I tabled parliamentary questions asking the Government to justify their assertion that a minimum wage policy would lead to loss of employment. In reply, the Government cited 26 references in support of their case. I asked the Library to look into the detail of those references and it transpired that, of those 26 references, only 10 showed some positive link between minimum wages and unemployment. The remainder showed no such link; indeed, they showed the reverse.

When I studied the 10 references purported to show a link between minimum wages and unemployment, one showed that minimum wages could create jobs. There are a number of reasons for that, but they are beyond the grasp of Conservative Members. The Government's answers to my parliamentary questions clearly show that there is no basis for their assertion that minimum wages lead to higher unemployment. On the contrary, they lead to greater buying power within the market and a stimulation of the economy.

Mr. Jenkin

Will the hon. Lady comment on the recent OECD report, which pointed to higher levels of unemployment in France and suggested that there was a firm link between its national minimum wage and the rate of unemployment?

Dr. Jones

There are many other reasons why France has problems with unemployment, including perhaps the fact that it advocates policies not dissimilar to those being advocated by Conservative Members. There is a misnomer in the labelling of European Governments. The French Government purport to be socialist, yet they follow monetarist policies. The German Government purport to be conservative, yet they adopt social market economics.

Ms. Diane Abbott (Hackney, North and Stoke Newington)

Does my hon. Friend agree that one reason why France has such high unemployment is that it is still within the European exchange rate mechanism, with the high interest rates that go with that? On the point about wage levels, it was not a Labour Member or some radical, but the right hon. Member for Old Bexley and Sidcup (Mr. Heath) who said that if Britain signed the Maastricht treaty without agreeing to the social charter, Britain would become the sweatshop of Europe. What sort of future is there for a Britain that competes only on the basis of low-cost labour rather than skill?

Dr. Jones

I agree with my hon. Friend, who makes her point forcefully.

I have referred to the Government's failures and how we should look to the future and begin to restructure our industry. We must increase public expenditure by £10 billion a year. I hope that the Chancellor will advocate such proposals in this Budget next week, but I doubt whether he will. Indeed, he will probably reverse some of the fundamentals of economic success that the Prime Minister mentioned in September—for example, low taxation. Meanwhile, we will continue to press for greater investment.

In the short term, the Government should begin to co-operate with local authorities and halt the cuts that they are imposing on them; they are the cause of concern in many Conservative councils. I understand that the Prime Minister recently met representatives of local councils, including Lady Anson, the leader of the Association of District Councils. He told them that there needed to be a strong role for local authorities. If he wants to convince us that he really meant those words, he could start by reconsidering the budgets imposed on local authorities, which have forced many of them to shed thousands of jobs. I have already said that 1,000 jobs are to be lost in my city in addition to all the other redundancies.

There is an urgent need to invest in housing. The Institute of Housing recognises that there is an £8 billion backlog of repairs to council houses as well as a massive backlog in the private sector, where repairs and renovations are also needed. The institute estimates—and it has been supported in this by no less a person than the Duke of Edinburgh—that we need to build 100,000 homes each year to cope with demand, compared with the current figure of 30,000.

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)

The hon. Lady talks about raising £10 billion of public expenditure.

Mr. Ken Livingstone (Brent, East)

He looks as though he could chip in a bob or two.

Mr. Clifton-Brown

I was interested to hear the hon. Gentleman's remarks on the radio this morning; perhaps he is a convert to the capitalist system.

Will the hon. Lady explain how that £10 billion is to be raised? Surely it was the platform of raising taxes that lost Labour the last general election.

Dr. Jones

The hon. Gentleman could not have listened to what I said. I explained the source of that finance. There will be some increased taxation for those who have enjoyed the biggest handouts from the Government. I was returned at the last general election with the confidence of many people who would have paid higher taxes under a Labour Government. I am totally committed to a progressive tax system that is seen to be fair.

I am concerned that my right hon. and hon. Friends on the Front Bench seem to have gone away from that principle, but it is one to which I hold. The eight people out of 10 who would have been better off under our policies would agree. They would consider that a fairer system than extending value added tax to other items, which it is widely rumoured is in the Chancellor's thinking for next week's Budget.

Mr. Clifton-Brown

When the top marginal rate of tax was reduced from 60 to 40 per cent. the total tax take from that group of income earners increased. Under the hon. Lady's system, she would have difficulty raising the kind of money that she seeks.

Dr. Jones

During that period there were increases—high inflation, increased salaries, and so on. A comparison of British tax rates shows that they are out of line with competitor countries, such as Germany, which have higher tax rates and are doing far better than Britain.

Mr. Jacques Arnold (Gravesham)

I believe that I have the statistics that the hon. Lady is fumbling around for—the proportion of the income tax take paid by those in the top band rose from 25 per cent. of the total to 29 per cent. It is not a question of the absolute amount and inflation, with which the Labour party is very familiar; the point is that the proportion rose. Can the hon. Lady explain that?

Dr. Jones

Income increased, and more people were in that tax band. There is no evidence that the economy has been successful as a result of such tax cuts. The contrary is true.

Mr. Bryan Gould (Dagenham)

Conservative Members might recall, though they would probably prefer to forget—and certainly members of the Government Front Bench do—that to substantiate the argument that tax cuts would provide an incentive a man named C. M. Brown was commissioned by the Treasury to conduct a major study. It was naturally hoped that it would demonstrate the correctness of the Government's views. It did not. We heard nothing more of that study, and I suspect that no Conservative Member has ever read it.

Dr. Jones

There is much accepted wisdom on the Government Benches. Conservative Members think that something is the case, but the facts prove otherwise.

Investment is sorely needed in other parts of this country's infrastructure and would be welcomed by many industrialists. Representatives of the Confederation of British Industry in Birmingham with whom I have talked are totally opposed to the Government's plans for rail privatisation. They want a decent transport infrastructure provided through British Rail, investment, and a countrywide transport policy.

We see instead proposed projects cancelled or postponed. When will the Jubilee line be completed? When will we be allowed to build the midland metro in Birmingham, which is much needed if the council's efforts to improve the city's infrastructure are to be successful? We need a light railway. Incidentally, I would not have advocated the kind of project investment that was made in Birmingham, but those projects were supported by the council's Conservative opposition and sanctioned by the Government.

If that huge investment in the city centre is not to be wasted, it must be followed up with other infrastructure investment. Derelict land could be reclaimed. Projects would create jobs while the kind of restructuring to which I have referred was under way.

Will the Government be bold and advocate such policies to create full employment? That is the only way forward if today's appalling unemployment levels are to fall—and those high levels are all that we can look forward to under current policies.

On 16 September, because the Chancellor would not listen to reason, continued down a blind alley, refused to do what was required and what was on offer to him—a realignment of the pound within the ERM—he was willing to throw £5 billion of taxpayers' money down the drain. It was completely wasted. Let us spend £10 billion to get the economy back on its feet and to get Britain back to work.

10.16 am

Sir Fergus Montgomery (Altrincham and Sale)

I congratulate the hon. Member for Birmingham, Selly Oak (Dr. Jones) on her luck in the ballot, but I cannot congratulate her on much more. As she spoke, I kept thinking, "Come back, Sir Anthony Beaumont-Dark, all is forgiven." We heard this morning only the same old dreary socialist platitudes that we have heard time and again—gloom, doom and despondency. The hon. Lady produced some carefully prepared statements about the economy's fragile recovery. I will quote back to the hon. Lady other carefully prepared statements which give the counter point of view.

Sir Michael Angus, president of the Confederation of British Industry—the hon. Lady bragged that she talks regularly to the CBI in Birmingham—said: The UK economy is starting to grow again…the chances are that this time around, the green shoots will stay above ground."— [Laughter.] Those are not my words, but the view of the CBI president. The Association of British Chambers of Commerce quarterly economic survey stated: The economy has seen an encouraging spurt in export growth which appears sustainable…Business confidence has surged in response to the Autumn Statement, the stability of the fourth quarter and the success of exporters." — [Laughter.] Good news is always greeted with gales of laughter from Labour, while bad news produces longer and longer faces on Labour Members.

Mr. Livingstone

It is amazing to suggest that there has been a surge of business confidence in response to the autumn statement. My constituency has the benefits of a Conservative-controlled council under a Conservative Government. Since the election, there has been a dramatic increase in unemployment in the constituency of Brent, North—which is held by a Conservative—and in the two Labour seats in the south. That unemployment is fuelled by lunatic national policies and massive privatisation and job losses by the council, to produce 25 per cent. male unemployment. If there were any green shoots, the goats have eaten them already.

Sir Fergus Montgomery

If I had realised that the hon. Gentleman was going to deliver his whole speech, I might not have let him intervene. The hon. Lady and her party are still living in the past, which is why last April Labour lost its fourth successive general election and the electorate wiped the smirk off Labour's face in a very convincing way.

Of course unemployment is a terrible problem. I was born and raised in the hungry 1920s and 1930s on Tyneside—

Mr. Livingstone

The hon. Gentleman has done very well.

Sir Fergus Montgomery

I thank the hon. Gentleman —it was mostly due to Conservative Governments. The Opposition Front-Bench spokesman, the hon. Member for Newcastle upon Tyne, East (Mr. Brown) knows the area where I was born very well. There was tremendous unemployment. I was born in the constituency represented by the Opposition deputy Chief Whip, the hon. Member for Jarrow (Mr. Dixon), and I remember as a child watching men standing aimlessly on street corners—a spectre which I have never forgotten. One of the most awful things for anyone to endure must be to be unemployed and desperately want to work; I do not want mass unemployment any more than anyone else.

Unemployment is not a problem in this country alone, although that was the message that the Opposition tried unsuccessfully to put across at the last election. They gave the impression that we were the only country in the world having problems, that everywhere else was a land of milk and honey and only Britain had massive unemployment.

If there is an easy answer, why has no one found it? The hon. Member for Selly Oak talked blithely about France, but there are more than 3 million unemployed there. The French go to the polls this month and I believe that the hon. Lady's French comrades will get a terrible hiding; according to every opinion poll, they are going to be massacred. President Mitterrand will be left in splendid isolation with a right-wing Government instead of his French comrades to support him.

Spain, Canada, Ireland, Finland and Australia all have a higher percentage of unemployment. Tomorrow the Australians will go the polls and the chances are that the Australian electors will tell their Labour Government where to go—I sincerely hope so.

Mr. Nicholas Brown (Newcastle upon Tyne, East)

indicated dissent.

Sir Fergus Montgomery

The hon. Gentleman shakes his head—we could have a bet on it. Perhaps Mr. Keating is playing the republican ticket to distract people's attention from the state of the economy in Australia. Perhaps he thinks that that will do the trick. I believe that the Australians are cleverer than that.

Mr. Nigel Evans (Ribble Valley)

Has my hon. Friend read recent reports about the number of people who lost their jobs and become homeless in Germany, which at one time was the powerhouse of the European Community? Since losing their jobs and homes they have frozen to death on the German streets.

Sir Fergus Montgomery

It is a pity that my hon. Friend did not intervene on the hon. Member for Selly Oak, who was extolling the virtues of what is going on in Germany.

However, it is no consolation for the unemployed to be told that unemployment is a problem the world over. There are some bright spots. A higher proportion of the adult population is in work in the United Kingdom than in any other major European Community country. There is no panacea for unemployment, which is a terrible waste of human resources. The fact that we are paying more and more out in social security benefits is also a terrible waste. If only those people were back at work, we could cut social security payments, they would pay tax and that would help to spark the economy.

I believe that things are in place for economic recovery. Interest rates are down to 6 per cent.—the lowest since 1977 and the lowest in the European Community. Hon. Members on both sides of the House have been appealing for interest rate cuts because they are bound to help industry, small firms and the construction industry, by encouraging people to buy their homes and get things moving there. Inflation is now below 2 per cent.—the lowest since 1967.

I am amazed that the Opposition have attacked us on unemployment. We have already had quite a lot of debate about the effects of the social chapter, of which the hon. Member for Selly Oak is a great exponent. The Prime Minister was absolutely right to opt out of the social chapter of Maastricht because it would increase labour costs and make the labour market less flexible. We should remember that in 1991 Britain attracted one third of all inward investment in the European community. When the Prime Minister opted out, Mr. Delors—who is a pin-up for the Opposition but no pin-up of mine—said that it would set a dangerous precedent, setting up one country as a paradise for Japanese investment. An editorial in The Wall Street Journal about "John Major's gifted leadership"—[Laughter]—I am glad that the hon. Member for Brent, East (Mr. Livingstone) finds that funny. The Prime Minister won the last election, against all the opinion polls and all the trends at the time. Until the last minute, the Opposition were convinced that the election was in the bag, but I could have told them differently. The reaction on doorsteps in my constituency made me certain that we would have another Conservative Government.

Mr. Nicholas Brown

In Altrincham and Sale?

Sir Fergus Montgomery

Even in Altrincham and Sale the majority can occasionally drop, but it did not do so at the last election and it has not dropped since I became the Member of Parliament. The hon. Member for Newcastle upon Tyne, East and I pair with each other in the House of Commons, but I must warn him that if I hear any more of his interjections I shall have to look for another pair.

The editorial in The Wall Street Journal noted: Under John Major's gifted leadership, the UK has opted out of EC social legislation, including labour policy. The message to the world is that an investment in Britain gives access to the single market without the high labour-cost threshold imposed by the social charter. That decision was of enormous value.

I do not dispute that the recession has been deeper and longer than anyone imagined. When I was young my parents always told me that it was important to have a profession because if one was a school teacher, an accountant or a lawyer, one had safety, but that has not happened this time; people who have not been hurt in past recessions have been hurt this time, and it has had a terrifying effect.

Many of our trading partners have also experienced economic downturns. In the year ending December 1992, industrial production fell by 3.2 per cent. in West Germany, 8.5 per cent. in Japan and 3.7 per cent. in France —but in this country it rose, albeit very narrowly, by 0.6 per cent.

The Opposition should forget some of the doom and gloom. If we had less gloom and doom from Opposition Members and if they did more to hail this country's achievements of the past few years it could do a great deal to rebuild confidence in this country. If the hon. Member for Selly Oak forces the motion to a Division, I hope that the House will overwhelmingly reject it.

10.26 am

Mr. Don Foster (Bath)

I am grateful for the opportunity to follow the hon. Member for Altrincham and Sale (Sir F. Montgomery). I congratulate him because he was at least honest enough to acknowledge the depth of the recession and the fact that it is deeper and has gone on longer than he and many others had expected. I congratulate him on acknowledging that unemployment is a human tragedy as, sadly, we have not often heard that view from Conservative Members. I am grateful to him for saying that.

The hon. Gentleman asked us not to refer to what he describes as "gloom, doom and despondency". Many Opposition Members have a major problem—especially since we have been told about the Prime Minister's "gifted leadership"—because we know that if we dare to comment on that "gloom, doom and despondency" we shall be attacked by the Prime Minister during Question Time for talking this country down. I have no desire to do that, as I think that confidence in this country is vital. We know that confidence is an important ingredient in economic recovery. However, we cannot allow that to cloud the issue and we must consider the subject of the motion—the Government's management of the economy. Frankly, if we are to deal with that, there is no way that we can use nice, warm phrases about success and so forth, because the Government have badly mismanaged the economy.

As Conservative Members have said, other countries are facing economic difficulties, but that does not alter the fact that measures could be taken to alleviate, or go some way towards alleviating, our problems. I and my party criticise the Government for their failure to take those measures. Although other countries face difficulties, as we do, we went into the recession long before many other countries and our recession is far deeper than that of many other countries. The blame for that must be laid at the door of the Government.

The future for our economy looks grim. Unemployment is rising. The hon. Member for Birmingham, Selly Oak (Dr. Jones) referred to the large number of national organisations that got into severe difficulties and have had to shed manpower, but an important additional point that the hon. Lady did not mention is that a large number of very small businesses have had to shed staff. My constituency of Bath depends on the small business community. Whatever hon. Members may think about Bath, adult male unemployment there now stands at nearly 17 per cent. I know that the figure is higher in other constituencies, but I am sure it will come as a surprise to hon. Members to be told that adult male unemployment is a problem in my constituency.

Mr. Nigel Evans

At some stage during his speech, will the hon. Gentleman point out that our interest rates are now extremely competitive, at 6 per cent., that inflation stands at 1.7 per cent. and that our exchange rate is extremely attractive, which means that our manufacturers are able to export far more? Will he also point out that in my area of the north-west there is extremely encouraging news? Last Friday, after going to the opening of terminal 2 at Manchester international airport, at a cost of £265 million, I picked up a copy of the Manchester Evening News and saw the headline "Good News" on the front page. The article talked about 50,000 extra jobs being created at Ringway, Manchester; 6,000 jobs in Dumplington; 1,000 jobs in Stockport; and 500 jobs in Tameside.

Mr. Foster

I am grateful to the hon. Gentleman for his intervention. He made the point with which I began—that it is not all bad news. Some improvements are taking place. However, the hon. Gentleman fails to recognise that a successful economy is one in which we have all the things that he mentioned, including low inflation, but also low unemployment and that the Conservative Government have not brought about an economy in which both of those things happen at the same time.

As the motion points out, much of the low inflation that we have achieved has been at the expense of very high unemployment. We need a series of measures to ensure that we achieve a very much lower level of unemployment. That is what I seek. I am sure that that is what the hon. Gentleman also seeks. In this debate we ought to be considering the positive measures that could have been taken and should be taken by the Conservative party. Sadly, there is no evidence that on 16 March, Budget day, we shall hear about the sort of measures that my party believes would stimulate the economy.

Mr. Jenkin

Does the hon. Gentleman not suppose that if it were possible to create prosperity and low unemployment by spending additional money, every Government in the world would automatically increase public expenditure in order to create low unemployment? The fact is that it does not work. It was a Labour Prime Minister who said, in all candour, that the option no longer exists. When will the Opposition parties learn from their own mistakes and realise that the way to create low unemployment is to maintain a low inflation, high incentive and low tax economy?

Mr. Foster

I am grateful to the hon. Gentleman for his intervention. It would be helpful if he were to take the Chancellor of the Duchy of Lancaster to one side and have a quiet word in his ear in an effort to persuade him of his particular point, because both I and my party and the Chancellor of the Duchy of Lancaster believe that at the bottom of a recession there is considerable benefit to be gained from short-term borrowing to stimulate the economy.

The vast majority of people listening to the debate will be amazed to learn that the cost of a single unemployed person is estimated at about £9,200 per annum. If we could get some of those people back to work—and there are measures that could be taken to get them back to work —we should save the cost of their unemployment benefit. The economy would also gain. Those people would then be paying taxes, which would help to pay off some of the increased borrowing that would be required to stimulate job creation. The people listening to our debate cannot understand why such measures are not being taken when so much needs to be done to create jobs.

The hon. Member for Selly Oak referred to the need for further investment in housing, but she did not refer to the fact that there is a £4.3 billion backlog of repair and maintenance work to school buildings and that there is a £1.5 billion backlog of repair and maintenance work to higher education institution buildings. Furthermore, she did not refer to the importance of additional investment in other parts of the infrastructure—in British Rail and the varioius light transit schemes that are being developed in different parts of the country. There are many areas where it would be possible to invest in the economy, in order to create jobs, through initial short-term increased borrowing. In a relatively short period, that investment would generate sufficient income to pay off the debt. Those who are listening to our debate cannot understand why we do not do that.

Before the hon. Member for Colchester, North (Mr. Jenkin) intervened, I was referring to small businesses. Small businesses have a vital role to play in the economy. If we look at what happened after the last recession, we find that between 1985 and 1987 the small business sector —firms employing fewer than 20 people—created 500,000 new jobs. During the same period, companies employing 20 or more people created only 20,000 new jobs. I fervently believe that we should provide much greater support for small businesses, but the Government have failed to do so.

The Conservative party claims to be the party of small businesses. The Advertising Standards Authority ought to look into that claim very carefully. The Conservatives have provided little or no support for small businesses. However, a great deal could be done for them. A reduction in the uniform business rate is vital. Support should be provided for small businesses so that they do not suffer the burden of the late payment of debt. Schemes ought to be set up whereby people from large businesses could be seconded to small businesses to provide them with help.

Mr. Jenkin

The only debate on small businesses that has been held in this Parliament was initiated by a Conservative Member of Parliament. In fact, it was initiated by me. The one thing that small business men want is a low taxation, low interest rate, low inflation rate economy. They certainly do not vote Labour in general elections.

Mr. Foster

I am not sure whether the hon. Gentleman is aware that I was not advocating that small businesses should vote for the Labour party at any general election. I should certainly strongly advise them not to do so. There is another party that I hope they would be willing to support. The hon. Gentleman is absolutely right. He is the only Member of Parliament who has raised this issue in a major debate, but I am sure that he will acknowledge that my party has frequently advocated support for small businesses. We continue to do so. We shall also continue to challenge the Chancellor of the Exchequer to introduce a wide range of measures in his forthcoming Budget statement to support small businesses.

Dr. Lynne Jones

The kind of technological infrastructure that I mentioned in my speech is of great assistance to small businesses in Germany. For instance, one small, highly innovative company that employs only seven people worked with the institutes to which I referred to develop specialised microchips and develop its market needs, which may lead to greater things. Small businesses certainly have such innovative capacity and need the support that I mentioned in my speech.

Mr. Foster

I am grateful to the hon. Lady, who is quite right. Such schemes are available in Germany; but similar schemes are available in Britain to help with research and development and such like. I am sure that she will agree that schemes such as support for products under research —SPUR—and the small firms merit award for research and technology—SMART—need a significant financial boost. Perhaps she will join me in urging the Chancellor of the Exchequer to consider imaginative ways of providing support to small businesses. One of the simplest measures that he could take would be to raise the threshold for VAT.

Mr. Nigel Evans

I am one of the nation's 3 million small business people. We warmly welcomed the uniform business rate, because at least we now know that rates will not increase by more than the rate of inflation. Too many small businesses were clobbered by left-wing Labour and Liberal Democrat authorities. Small business people want certainty about taxation, which they get under the UBR, but we do not want the social chapter, which would increase the costs of small businesses. The minimum wage, which the Labour party advocates, would increase labour costs and price people out of jobs. That is the last thing that small businesses want.

Mr. Foster

I am grateful for the hon. Gentleman's intervention. Perhaps he is the first hon. Member to recognise that not just the Labour party is participating in the debate.

I am also grateful to the hon. Gentleman for making the point that small businesses like certainty in taxation. I assure him that not only small businesses but large businesses and individuals would like some certainty about taxation. The hon. Gentleman is a member of a political party which would have people believe that it has reduced taxation, but, as he knows only too well, the total taxation burden on individuals has risen significantly.

We need only to consider the issue of VAT to realise that that is true. There are three points about VAT that are well worth making. First, people pay a lot of VAT: the average family pays £1,000 a year. Secondly, British people pay much more VAT than they used to: VAT payments have increased by a staggering 178 per cent. since the Conservative party took office. The third point, which perhaps is the most worrying, is that it is undoubtedly the Conservative party's favourite tax. The hon. Gentleman spoke of certainty, so perhaps he would like to intervene again and tell us whether, after 16 March, VAT will be levied at the current level on the same range of goods and services or whether it will change and cause further uncertainty. I am happy to give way if he can answer that question.

Mr. Nigel Evans

I am not the Chancellor of the Exchequer.

Mr. Quentin Davies (Stamford and Spalding)

Shame.

Mr. Evans

I thank my hon. Friend for that. If I were, I would tell the hon. Member for Bath (Mr. Foster) what will happen on 16 March. We have had a general election since value added tax was increased to 17.5 per cent. in which the Government won a fourth seccessive term of office and the Liberal Democrats were smashed because people had no confidence in them. The Labour party, yet again, was consigned to the Opposition Benches.

Mr. Foster

Again, I am grateful for the hon. Gentleman's intervention because he linked the general election with VAT. In the election campaign, the Prime Minister made it clear that he had no intention of raising VAT. I assume from his intervention that the hon. Gentleman at least knows that VAT will not be increased.

The hon. Gentleman spoke of certainty. There is an urgent need for much more openness and transparency in the preparations for the Budget. The hon. Gentleman seems quite content to be unaware of what will be in the Budget until it is announced on 16 March, but I believe that it would be much more sensible if we adopted the example of other countries and held a more wide-ranging debate than is possible under the motion before the Budget. It would help to resolve some of the uncertainties that face small and large businesses and local councils.

Mr. Heald

On the question of tax and small business, does the hon. Gentleman agree that some of the good news that he mentioned is that corporation tax has been reduced from 52 to 33 per cent. —the lowest rate in the EC—and that seven major taxes on small business have been abolished, including inheritance tax on family businesses, which is a real bonus to the small business man? Does he agree that that is good news for Britain?

Mr. Foster

I was more than happy to admit earlier that there are some bright spots, and the hon. Gentleman has referred to one or two others, but, sadly, they do not amount to a great deal because of the decline in the small business sector. A wide range of measures, some of which I have mentioned, need to be taken if we are to provide the necessary support to small and larger businesses by investing in our infrastructure and to begin to reduce unemployment.

We cannot forget the earlier remarks that were made about unemployment. Because of the Government's mismanagement of the economy, unemployment is allegedly standing at 3 million, but if we were using the same calculation that was used only a few years ago the figure would be 4 million. There are 1 million long-term unemployed people, and far too often we have referred to statistics without emphasising that behind each one is a human being and a human problem. We should always remind ourselves of that.

There is now clear evidence about the personal and social problems that arise from long-term unemployment. I am sure that, like me, Mr. Deputy Speaker, you were saddened to read the recent report by the British Medical Association, which stated that there is clear evidence that the long-term unemployed are likely to die younger than those who are in employment. That is a particularly telling point. A bilingual translator who lives near my constituency recently sent the Prime Minister a letter asking, "What can I do to get a job?" The Prime Minister replied, "You had better travel to France and seek one there." That is not good enough. Much could be done by the Chancellor of the Exchequer on 16 March to reduce unemployment. I fear that there is little reason to believe that we shall hear good news or exciting ideas to stimulate the economy from a failed Chancellor of the Exchequer, but I desperately hope that we shall.

10.49 am

Mr. David Lidington (Aylesbury)

I should like to pick up straight away the last point made by the hon. Member for Bath (Mr. Foster) because there can be at least some agreement between our parties. Week after week, every hon. Member is made aware through our postbags and at our advice surgeries of the raw pain of human misery caused to individuals and families by their personal experience of unemployment. However, I fear that there is less agreement on the economic policies most likely to bring about long-term, sustained growth in employment and prosperity for the people of this kingdom.

I, of course, congratulate the hon. Member for Birmingham, Selly Oak (Dr. Jones) on securing the debate —I am sorry that she is not in her seat at the moment—but I part company from her on the remedies that she offered. I listened closely to her speech and, in the long catalogue of slogans, I managed to discern four suggestions that I took to be her policies for economic regeneration. Prominent among them, in her speech and in the text of her motion, as my hon. Friend the Member for Hertfordshire, North (Mr. Heald) said, were cuts in British defence spending. I looked across at her colleagues around her while she made those remarks and observed the horror on the faces of those who leap up at every Defence Question Time and in every defence debate, pleading for defence contracts in their constituencies to go ahead.

Mr. Livingstone

I do not.

Mr. Lidington

At least the hon. Member for Brent, East (Mr. Livingstone) is consistent. He has stayed here, but such was the hon. Lady's advocacy that she has driven out of the Chamber the hon. Member for Kingswood (Dr. Berry), who champions the European fighter aircraft, and the hon. Member for Barrow and Furness (Mr. Hutton), who looks after the interests of the military dockyard in his area. There has even been a switch among the members of the Labour Front Bench so that the hon. Member for Newcastle upon Tyne, East (Mr. Brown) can rush to telephone his local newspaper with an assurance that, whatever Labour's policy on defence cuts, it will not affect the Swan Hunter contract for an amphibious assault ship, which he so ardently demands in every defence debate and Defence Question Time.

Mr. Livingstone

My hon. Friends have left the Chamber to launch the Campaign for Full Employment. They will be right back as soon as they have done so.

Mr. Lidington

The timing has proved most convenient for them.

The second policy that I detected in the hon. Lady's speech was that, as part of the new defence policy and part of the effort to maintain employment here, Britain should stop imports of defence-related equipment. She completely ignored the likely consequences of such a move and the reprisals that would be taken against British exports of defence equipment and other goods. For the hon. Lady to protest, understandably, about redundancies at Rolls-Royce and British Aerospace and then to advocate policies of trade protection displays a misunderstanding of economics which, I am afraid, is characteristic of too many members of her party.

We then heard about the national investment bank, a resurrected ghost from the 1960s and 1970s. I am sure that the hon. Member for Brent, East will tell us that what we really need for economic recovery is for the Greater London council to be re-established. The old ghosts are coming back to haunt us. The De Loreans of the future will take heart from the speech made by the hon. Member for Selly Oak.

Finally, as one might expect, the Labour party was joined by the official spokesman for the Liberal Democrats. It was said that a little bit more borrowing would not harm us but would magically bring about the prosperity and employment which we are all seeking. A mere £10 billion was mentioned; a smidgen we were told. There was no mention of how that money was to be raised although we could perhaps increase the top rate of tax, but only a little. We heard nothing about the consequences of such an increase in borrowing, which would lead to higher interest rates. That would be more damaging to hopes of economic recovery in Britain than any other single development, especially when the recovery is beginning but it is still at an early stage.

Underlying the hon. Lady's speech was the fallacy that it lay within the gift of Governments to bring about full employment overnight. If there were a magic wand or such an easy and painless solution, every member of any party would have seized it immediately. The truth is that it does not lie within the gift of Governments. Jobs and prosperity will be provided by British companies selling high quality goods and services to customers here and abroad at a price that the customers are willing to pay. Governments can help to shape the conditions that make commercial success more likely, but they cannot do the work of businesses for them.

I wish to put the dilemmas facing policy makers in the United Kingdom in an international context. The hon. Lady referred to developments on the Pacific rim. I glimpsed them when I visited that region last summer. Without a doubt, the most important event in the world today is the industrialisation of China, especially south China and the towns along the eastern coast of the People's Republic. In Hong Kong I was told anecdotes of economic growth in Guangdong province ranging between 15 and 20 per cent. a year. Four million people in the Republic are now employed by Hong Kong companies, with manufacturing being transferred across the border to mainland China. Migration is occurring on a scale seen in western Europe in the late 18th and early 19th centuries, out of the fields, away from agriculture and into the infant manufacturing businesses of China.

What is happening is exciting and alarming. We are seeing 1 billion people, the world's largest nation, now following the path already trodden by the likes of Taiwan, Singapore and, of course, Japan. Many countries in the far east are following the path of capitalism and free enterprise which they rightly believe will lead to higher living standards for their people. It is to be welcomed, but it represents a challenge for us.

Those countries have access to very cheap labour and to green-field sites. They have virtually no regulation of business on the ground—for example, of environmental pollution—and they have the low costs associated with countries industrialising for the first time. At the same time, they have access to the latest technology which they can buy off the shelf.

The challenge for western Europe and for the United Kingdom is to adapt our economic policies to take advantage of the opportunities offered by the industrialisation of countries that have hitherto been poor and agrarian and to ensure that our economy is flexible enough to gain new markets, develop new products and find new niches in international commerce so that we keep jobs and prosperity in these islands.

Mr. Mark Wolfson (Sevenoaks)

I am sure that my hon. Friend, like me, is a firm supporter of free trade, but does he agree that, when investigations have been carried out by the European Community into the issue of dumped bicycle imports from China and when such practices have been found to be unfair under EC regulations, we should reasonably expect an immediate implementation of an import tariff? It is a matter of concern to me that that implementation has so far been delayed.

Mr. Lidington

I am not familiar with the details of the case to which my hon. Friend the Member for Sevenoaks (Mr. Wolfson) refers. The general principle that one should strive for world trade to be as free as possible is sound. We should seek an early agreement in the general agreement on tariffs and trade talks. We should try wherever possible to open the markets of the industrialised west to goods and services produced competitively in developing countries, and in central and eastern Europe, because that helps them on the way to prosperity and provides good quality competition for our own industries.

It is right that cases in which the principles of free trade and fair trade are being undermined should be looked into. Sir Leon Brittan is responsible for international trading matters within the Community. He is a committed free trader and I am sure that he will strike the balance correctly in resolving difficult cases such as the one to which my hon. Friend the Member for Sevenoaks referred.

I talked about the opportunities for Britain and the rest of Europe that arise from industrialisation in China and in the far east more generally. It is right to congratulate my hon. Friend the Minister for Trade on the successful mission that he led to the People's Republic of China last year. It is no accident that our exports to China last year rose by one third to £430 million and that half those exports were in British machinery and in British transport equipment which we are selling to help the industrialisation of that country.

We are also marketing our expertise. I found it an interesting vignette both of the entrepreneurialism of British business and of the success of privatisation that Thames Water is now talking to a number of Chinese provincial governments about taking over their water supplies, improving the quality of the water and selling it to industrial and domestic consumers.

Mr. Frank Dobson (Holborn and St. Pancras)

Making a contribution to Communist party funds.

Mr. Lidington

I am afraid that the hon. Member for Holborn and St. Pancras (Mr. Dobson) is behind the times, as always. Thames Water is improving the quality of life for people who have had a poor and wretched existence in past decades. At the same time, Thames Water is strengthening its business, some of which will come back in the form of good profits to benefit this country.

Mr. Dobson

What is the hon. Gentleman's explanation of why Thames Water gave £50,000 to the Conservative party last year?

Mr. Lidington

I am sure that Thames Water gives money to the Conservative party because it believes in sound economic policies which encourage free enterprise to thrive and do not seek to stifle it.

There are challenges as well as opportunities in the changing international climate. Countries that we had previously written off as part of the third world are developing into industrial manufacturing powers in their own right and a new generation of computers and robots is coming into industry and into services in North America and in western Europe.

One of the reasons for the difficulties, especially in constituencies such as mine, where much employment is in service industries, has been that a long and deep recession has been accompanied by structural unemployment—a shake-out in service industries such as banks and building societies as computers have begun to do work hitherto done by human beings. To cope with those two features of life in an international economy that will get more and not less competitive as the 1990s continue, we must develop a work force and an economy that are flexible and adaptable to changes as they arise. These changes will happen whether we wish them to or not.

I have two points for my hon. Friend the Minister which I hope he will take in the spirit of constructive criticism and advice. The first concerns education. I know that my right hon. Friends the Secretaries of State for Education and for Employment are giving much attention to vocational qualifications. From talking to college principals and to head teachers in Aylesbury and the surrounding area, I know that it is a subject about which they, too, are concerned. When I speak to local employers, I find that there is considerable misunderstanding and ignorance about what vocational qualifications mean and about what achievements are signified by a particular certificate or set of initials.

There is an urgent need for the Government, in conjunction with industry, to co-ordinate better their efforts on vocational education and training. They must ensure that students feel that they have achieved something of worth when they come out of their course with a certificate and that employers have available a certificate of quality that will be recognisable throughout industry.

Mr. Don Foster

The hon. Gentleman raises an important point. I am sure that he accepts that there has been a desire for some years among hon. Members of all parties for parity of esteem between academic and vocational qualifications. The hon. Gentleman may be willing to join me in suggesting that one of the ways in which to get parity of esteem and to achieve an understanding of the importance of vocational qualifications is to integrate vocational education within the national curriculum.

Mr. Lidington

I am grateful to the hon. Gentleman and I will consider his proposal with interest. There is certainly a case not for diluting the basic skills and knowledge that the national curriculum requires pupils to attain, but for seeing how the vocational content of some courses could be enhanced, especially at the more senior end of the age range.

The second point for my hon. Friend the Minister concerns the support given to British exporters. As he will know, I spent an enjoyable year working for our right hon. Friend the Foreign Secretary in the Foreign and Commonwealth Office. I am not someone who habitually goes round knocking diplomats. They generally do a good job, to the best of their abilities, on our behalf. Incidentally, I am amused to note that, although the Foreign Office ministerial team is now staffed entirely, I think, by old Etonians, the permanent secretary is a grammar school boy who started his professional life as a teacher for the Inner London education authority.

I fee that we need to look again at the way in which our diplomatic resources and our commercial support are organised. We have too many people sitting around in embassies in Paris and Washington and in the capitals of free economies—people who spend their time writing out dinner table plans and arranging cocktail parties for visiting Members of Parliament—and too few people working in the capitals of countries such as Korea, Indonesia and some Latin American countries. Our business men need more guidance than is currently available to them on how to enter markets in such countries, where Government influence is important in determining who gets which contract. I hope that we can have a reallocation of support from the open economies of western Europe, where our businesses should be able to get an agent and get on and export by their own efforts, to the countries of the far east, Latin America and so on.

My constituency of Aylesbury has traditionally enjoyed high employment. Although unemployment in the town is still lower than either the regional or national average, there is no doubt that it has risen faster and further than previously in the past few years and is hitting people in all walks of life, including those who had not thought that their jobs might be at risk. Notwithstanding that, what local employers and, in particular, the Thames Valley chamber of commerce and industry are telling me now is in contrast to what they were saying 12 months ago. They believe that there are now unmistakable signs of a gradual economic recovery. Exporters—particularly people selling outside western Europe—are reporting a healthier order book. Even people from some property companies—commercial as well as domestic—say that they are receiving many more inquiries now than was the case even a couple of months ago.

What we need are economic policies to ensure that the trends continue and grow stronger. We want them to develop not into a short-lived bubble which will burst in a couple of years' time but into steady, sustainable economic growth, bringing permanent jobs and prosperity for the people of Britain. The lessons of our own history and of international experience teach us that it is a framework of low inflation, low interest rates, light regulation and low taxes which will bring about the economic conditions within which business can thrive. Those are the policies to which the Government are committed and which I am proud to support.

11 am

Mr. Bryan Gould (Dagenham)

I congratulate my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) on initiating the debate and on the terms of the motion, which represents a commendable attempt to strip away self-delusion—about our ability to survive in prosperity without making and selling things that people want to buy, about the capacity of a failing, middle-sized economy to maintain a defence burden appropriate to that of a world power and about the ability of our industry uniquely to survive and prosper without the sort of help from Government that industries in other countries take for granted.

It might be thought that the Prime Minister—if he can be assumed to speak for the Government—has at last recognised the truth of some of those points. In the interview in The Independent, he appeared to renounce the view held by earlier Conservative Governments that we could survive without manufacturing. We have yet to see any sign that either the Prime Minister or the Chancellor has the faintest idea what to do about it, but if they have indeed renounced that view, they have done so in the nick of time.

The decline of manufacturing is well known and I do not propose to rehearse the details of it. Suffice it to say that, as a proportion of our gross domestic product, as an employer of our labour and as a source of investment, manufacturing is in decline. That is not because British people have lost their taste for manufactured goods—far from it—it is simply that they are now supplied by the manufacturing industries of other countries. That is why, under this Government, we fell into deficit on manufactured trade for the first time in our recorded history. That is why we have a huge proportion of import penetration. That is why large parts of our manufacturing capacity have disappeared and why our economy is now narrowly and dangerously based. That is why we are encumbered with a tremendous balance of payments deficit, even in the depths of recession, which must be a major inhibitor to any Government intent on taking us out of recession.

Notwithstanding the temptation to concentrate on recent developments, such as the exchange rate mechanism, it would be a mistake to assume that we have got ourselves into this parlous plight as a consequence of mistakes made in detail and in the short term by the present Government. Those mistakes are there—they are legion and they are damaging—but I am sorry to say that our decline as a world economy goes back a long way further even than the present Government. I believe that we pay the price today—this is not a new point, but almost a commonplace—for an excess of short-termism in our attitude to economic policy.

I want to explore briefly where that short-termism comes from—why it is now so deeply entrenched in our national psyche and has become a matter of cultural attitude as well as economic policy making. One of the first elements in the puzzle is to be found in the long-running conflict between bankers and politicians or democrats as to who should control the economy. As the country which virtually invented banking in its modern form, we have always had a greater propensity than most to listen to the bankers. We have always been more willing to hand over to the bankers control over central aspects of the economy such as the currency. The bankers' cry is always that if the currency is left to politicians, they will debauch it. They say that, in the interests of stability, they must retain control of the currency.

Whenever that argument has prevailed, it has led to the same outcome. One of its earliest manifestations arose in the immediate aftermath of the Napoleonic wars, with the Select Committee on gold bullion. The domination of the argument by the bankers on that occasion led directly to social upheaval and the Peterloo massacre. We caved in to the bankers again in the middle of that century when we gave them a virtual monopoly over the creation of credit. The picture remained unchanged in the present century. Winston Churchill said that he would rather see industry more content and finance less proud, but he nevetheless committed us to the gold standard. The depression of the 1920s and 1930s was the consequence. The same dominance of the bankers has produced two damaging recessions in the past decade.

That major factor is constantly at work, but in our own experience it has been compounded by a peculiarly British phenomenon. As the world's most successful industrial economy, at some point in the 19th century we became an asset-rich economy. We became preoccupied with our assets and created great armed forces to roam the world to give them physical protection. The impact on our economy was even greater. We ceased to concern ourselves greatly with making and selling things that people on free markets wished to buy because we had protected markets and cheap sources of raw material and food.

We became an economy fixated on assets. In the City of London, we created a great worldwide marketplace where those assets could be traded. The value, and stability in the value, of those assets was the preoccupation of our economic policy makers and it still is today. It is the last hangover of the imperial mentality. Without even being aware of it, we still run our economy as though it were the interests of those who are already well off which matter rather than the interests of those who may wish to invest and create wealth for the future.

More recently, we made the mistake of misreading our own economic history. In the Conservative Government of the former right hon. Member for Finchley, it was concluded that if we wished to rebuild the golden days of the 19th century, when we were the world's industrial leader, we should reproduce the circumstances in which that had been the case. Indeed, we heard echoes of that from the Conservative Benches even this morning. Most particularly, it was concluded from that period that Britain was great because entrepreneurs did their own thing, freed from the constraints of government. We were the pioneers: our merchant adventurers and entrepreneurs went out and did things, and no doubt those things were very well done.

Other countries, however, seeing that we had got ahead of them, drew a very different lesson about what was required of governments in order to make up the gap. They realised that to close that gap and eventually to overtake, they needed intervention by government and a partnership of government and industry if they were to make proper, directed and rapid progress instead of the fragmented, stop-start progress which had served us so very well in our pioneering phase. Those countries rapidly learned the way to close the gap and they duly performed much better than we did. We, poor simple naive souls that we are, looking at our history drew exactly the wrong lesson when we discovered that we had a gap to make up. We thought that the way to make up the gap was to take government out of the picture. We now wonder why the gap continues to widen when we so mainifestly failed to learn the lesson from other more successful economies.

Mr. Wolfson

The hon. Gentleman was focusing on our not learning lessons which he argued that other countries had learnt in terms of the need for Government intervention. How does he account for the fact that during periods of socialist Governments in this country since the war—which, mercifully, have been relatively short—we were still subject to stop-go policies and did not make effective long-term progress?

Mr. Gould

I will come to the role of the Labour party and of Labour Governments in a moment, but it is worth observing mildly that under Labour Governments growth rates have been rather higher than under Conservative Governments. That is particularly true of the last Conservative Government compared with the Labour Government who preceded them.

I wish now to consider another modern phenomenon —the body blow delivered to Keynesian economics by the oil price shock in the early 1970s. That knocked the stuffing out of many economists on the left. They then began to say things like, "You can't spend your way out of recession"—as though there were any other way of getting out of a recession. They began to say, "We are all monetarists now." Indeed, under the Labour Government with Denis Healey as Chancellor, the monthly figure of sterling M3—do hon. Members remember that?—was the arbiter of Government economic policy from week to week. Sterling M3 was headline news. If it did not perform as expected, the Chancellor quailed and had to change his policy. Does anyone know what the sterling M3 figure is today? Is it even recorded? I very much doubt it. That is an example of how intellectual fashion can so easily influence even Members of Parliament and so easily set us on the wrong track.

With the revival of what had been thought to be long-dead doctrines of classical economics which we happened to call monetarist, we became convinced that the only thing that the Government could do through economic policy was to establish conditions of monetary stability. Stability was all that mattered. The idea was that if we could choose the level for the rate of inflation or the rise in prices, we might as well choose nil because it made no difference. We might as well have nil inflation and once everyone was accustomed to that, away we would go and the economy would prosper.

As a consequence of our experience over the past 15 years or more, we know that that was nonsense. However, we then took that argument a little further. By that time, even we—the Government and the Opposition—had lost confidence to such an extent in our own prescriptions for the economy—although, of course, we stuck absolutely rigidly to our prejudices—that we were persuaded that they were not actually producing terribly good results. We had lost so much confidence that we thought that the only solution would be to hand over all responsibility for running those policies to someone else. That was the whole purpose of contracting out our economic policy to the Bundesbank by committing ourselves to the exchange rate mechanism. I was not altogether surprised that that step was taken by a Conservative Government, because capital had largely lost any allegiance that it felt to the national economy. In terms of its allegiance, it followed capital itself: it had become an international actor in the economy.

As a consequence, the loyalty of the right quite naturally passed from the British Government to a European or even wider governmental arrangement. I was somewhat surprised, however, that the Labour party endorsed that step. It seemed to me to be absolutely evident that if one simply decreed that one's exchange rate was worth a certain amount and then made the situation worse by decreeing that it was worth more than anyone thought it was worth, one would immediately burden industry with the fact that one was penalising its production and subsidising everyone else's production.

I always think that it is remarkable that I, as a left-wing politician, should be so aware of the importance of price in the market, but there we are—that is the fact. If we insist on pricing our goods out of the market, we cannot be surprised if people do not buy them either in our own markets or internationally.

What is more, as a result of the initial mistake and the burden placed on our industry, a gap develops between what we say that the currency is worth and what everyone knows it to be worth, so we have to try to make up the gap by raising interest rates. To persuade people to hold our overvalued currency, we have to assure the banking fraternity that we are serious, so we start to cut public spending, just as Ramsey MacDonald was persuaded by Montagu Norman to cut unemployment benefit in 1931. It is exactly the same phenomenon.

In the end, such measures begin to weaken the economy. The debilitated economy simply cannot perform up to the level that we have decreed that it should match. The gap between what we say that the currency is worth and the level at which industry is capable of performing becomes wider and wider until eventually it cannot be sustained. That is what happened on 16 September. It was all perfectly predictable. Yet the Government and the Opposition are still committed to exactly the same policy —only this time there is to be no escape. The ERM could at least be allowed to fail painfully and ignominiously, but a single currency and economic and monetary union will allow no such escape.

Mr. David Nicholson (Taunton)

The hon. Gentleman's speech is a tribute to the fact that occasionally leading politicians should spend time in exile so that they can criticise conventional wisdom, but does he agree that his criticism of the ERM was aimed not so much at the ERM in principle as at the level at which this country joined it? Will he also comment on the fact that another supposedly left-wing party—the French Socialist party, which is at present in government and facing elections—is following the very policies that the hon. Gentleman has criticised and apparently crucifying the French economy to low growth, in contrast with the policies of high growth followed by its predecessors?

Mr. Gould

I have been known on occasion to hope that my Front-Bench colleagues, who constantly invoke the example of our socialist colleagues in Europe as a reason for supporting them and their support for economic and monetary union, might observe what that has meant and what it is likely to mean for a French socialist Government and even perhaps for a Spanish socialist Government. The hon. Gentleman makes a valid point. My speech is not intended to be about Europe—it is about economic policy —but, of course, the initial mistake in the ERM was the parity that was chosen. There were at least two further mistakes, one of which was that the obligations were never symmetrical: all the burdens fell on the weaker economies, which had difficulty keeping their currencies in line with the appreciating deutschmark and felt compelled to deflate their economies in a vain attempt to keep pace.

It is no accident that western Europe is the world's unemployment black spot. It is because a monetary policy that may or may not have been suited to the German economy at a particular time has now become the norm for most of western Europe. The second great mistake about the ERM was that, instead of being a perfectly sensible attempt to stabilise exchange rates and to iron out the inevitable volatility of the markets, it became locked in concrete because it became the essential precondition and the bridge that had to be crossed to reach a single currency, so it could not be allowed to be changed in any way.

I return to my thesis, which is that our commitment to the ERM and to a single currency are simply modern-day manifestations of a long-standing and now endemic preoccupation with the short term and with the value of assets, at the expense of the longer-term interests of those who wish to invest in our economy to create wealth for the future. Some people say that I am wrong to maintain that matters such as exchange rates and interest rates are of any importance—we are told that they are merely technical —but an economy that is preoccupied with assets and the short term is one which always has as its objective the holding of the exchange rate at the highest possible level: as its first port of call in policy terms, it will always push up interest rates because if the exchange rate is always held at the highest level, it will maintain the value of existing wealth, at least in principle. In the long term, of course, it cannot work: indeed, it destroys wealth. Politicians are especially susceptible to such beliefs. If the exchange rate is overvalued for a time, we all enjoy a higher living standard than that to which we are entitled, at least for the time being, but the long-term consequences are damning and an economy that is run on that basis will see its productive capacity destroyed.

The same can be said about interest rates: show me an economy with high interest rates and I will show you an economy that is interested in the well-being of those who have money to lend now—assets already—rather than in those who wish to borrow to create wealth for the future. These are important matters and when they have been endemic and entrenched for a century or more, it is futile to pretend that they are just short-term, technical problems.

In terms of my hon. Friend's excellent motion, how can we escape from this long-standing bias in British economic policy making? First, we must re-establish macro-economic policy—an unlovely phrase—as a real factor in managing our economy. We now know that it is not enough for a Government just to set the monetary conditions—even if they knew how to do it, which they manifestly do not: they cannot even decide what definition of money they want to apply, let alone the mechanisms by which they can hold it stable. Even if they could do that, it would still not be enough, because macro-economic policies—that is, demand management, the level of public spending, the management of the exchange rate and the setting of interest rates—all have a direct and potent impact on the real economy and should be judged in the light of the condition of the real economy from one week or month to the next.

Macro-economic policy should be a true Government responsibility which cannot be shuffled off or ignored. If it is ignored, we all suffer. The Government must intervene in these matters. They must have a policy—and so must the Opposition if we want to be taken seriously. We should not just say the excellent things that we do say about long-term investment and training; we should put them in a context in which the macro-economic performance of the economy gives them a chance to work. On the Labour side —I have little hope of the Government side—that means that we should recognise that the projected level of the public sector borrowing requirement at any moment is not just a fixed element but a matter over which we have some control. If we do not want to borrow or impose taxes to finance it, why should we not—in circumstances that will not last for long—say that the public sector might have the possibility to create just a little credit for the purposes of investing, since the private sector creates such vast volumes of credit for the purposes of consumption and importing? No one dares to think of that because people are terrified of being told that it means printing money. I do not care what it is called. We may call it monetising the debt, or underfunding, or whatever. It may not be appropriate for long, but it is appropriate now.

Within a short time, we may find that there is so much money sloshing around that we shall have to look again at credit controls. People do not like the idea of such controls, but that is the basis on which the monetary policy that was so admired for so long in countries such as Germany has been run. Let us use economic policy intelligently and positively to meet the requirements of an economy that performs well. By that I mean an economy that uses all its resources, secures a reasonable rate of growth and achieves equilibrium in its external dealings. That is all that we want and technically it is not all that difficult to achieve.

The hon. Member for Altrincham and Sale (Sir F. Montgomery) spoke affectingly about his childhood in the 1930s. His speech could well have been delivered in the 1930s. He said that there was nothing to be done, that there was no panacea, that unemployment was world wide, that it was too difficult to grapple with and that we had to live with it. That is exactly what was said in the 1930s. We now know, or should know, that it was possible to do something and that something was done. And it could still be done. In the course of setting the right economic context, we could make a real attack on short-termism. Why not change competition law to choke off the mania for mergers and takeovers which has every hall-decent business man looking over his shoulder to see where a bid is coming from? Why not change the accounting conventions which presently provide that any company mad enough to spend money on training or on research and development simply suffers a cash flow problem which makes it more vulnerable to a takeover, rather than producing an asset on its balance sheet?

We should look at the role of pension funds, which are the most important sources of industrial investment in Britian and are likely to become more important. We should cast at least some light on who decides where that money goes. In respect of our second most important asset, our pension rights, can any hon. Member say who made the decision about where our money should be invested? We do not know, but we should, because that would give us a chance to make sure that it was used in the proper interests of the British economy.

As my hon. Friend the Member for Selly Oak said, why not try to develop a system of industrial banking such as that which has served the Germans so well? If the private banking sector will not do it, what option is there but for the public sector to do it? That is hardly a frightening precedent when one looks at the degree of state ownership of banks among our European partners.

Above all, the objective of economic policy must be full employment. It is not beyond our capacity and it is not technically difficult. It is a matter of understanding what is the true role of economic policy. Full employment would not only be the most potent of all instruments of social justice and redistribution of wealth that a Labour Government could bring about; it would also be, even for a Conservative Government, the way to secure some claim to economic success and efficiency.

I am grateful to my hon. Friend the Member for Selly Oak for giving us the opportunity to make those points. I urge not just the Government but the Opposition to restore full employment to its proper place as the central aim of economic policy.

11.38 am

Mr. Quentin Davies (Stamford and Spalding)

The Labour party is so serious in its denunciation of the Government's management of the economy and of its ability to improve on that performance, and in the message that it is putting forward this morning, that it has never managed to field more than six hon. Members on the Opposition Benches throughout the debate, and that has included the statutory Whip or Front-Bench spokesman. That is the background against which we must regard some of the remarks that have been made in the debate.

It is a pleasure to follow the hon. Member for Dagenham (Mr. Gould). It was almost an aesthetically historical pleasure to listen to the hon. Gentleman, because his was the voice of completely unreconstructed socialism, of someone who, perhaps by deliberate choice, has decided to ignore the history and practices of the modern world and all the advances in modern economic theory. He speaks a wonderful language of monetising deficits and credit controls and setting up industrial banks. What I particularly savoured was the view of capitalism as a conspiracy of international bankers. Such phrases have a certain historical resonance to them and it is a delight to come to the House of Commons on a Friday and still hear people using that language, apparently entirely seriously. The hon. Member for Dagenham is joining the right hon. Member for Chesterfield (Mr. Benn) in the museum of Labour party history.

Dr. Lynne Jones

Did not the hon Gentleman notice, during the speech of my hon. Friend the Member for Dagenham (Mr. Gould), the agreement on a number of issues that he raised that was shown by the nodding of heads by Members on the Government Benches?—[Laughter.]

Mr. Davies

If the hon. Lady wishes any guidance from my hon. Friends on that comment, that spontaneous reaction has given it to her. I did not want to ignore the hon. Lady in my introductory remarks. Far from it: I was about to congratulate her on having won the ballot—something which I have never achieved, and of which I am somewhat envious—and on having made a lucid, good-humoured speech in which she gave way to many interventions with great charm and courtesy. I also congratulate her on having produced a remarkable and impressive compendium of political cliches. I have not heard quite such a good one for a long time, and I collect that political genre.

Both the hon. Lady's speech and that of the hon. Member for Dagenham reflect a fundamental fact and an interesting political phenomenon, and that is the modem Labour party's great aversion, in contrast to its predecessor in the first half of the century, to anything that looks remotely like a new idea. Instead, the House hears a regurgitation of all that we have heard not merely in the five or six years that I have been a Member of Parliament but over the past 60, 70 or 80 years. I dare say, Mr. Lofthouse, that the Conservative party can take some comfort from—

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

Order. I hope that the hon. Gentleman will take note of the fact that, while we are all getting somewhat intoxicated by Maastricht, I am sitting in the Speaker's Chair today, because we are not in Committee.

Mr. Davies

I am sorry, Mr. Deputy Speaker. I am afraid that this is becoming something of an occupational disease, which might be called Maastrichtitis. I have noticed in the past few days that a number of my colleagues on boths sides of the House have made the same mistake. That is not an excuse for my making it today, so I apologise. I should have made an effort to avoid that trap into which it is so easy to fall in these difficult times.

We can take some comfort from the confirmation of the essential intellectual bankruptcy of the Labour party, which has been demonstrated, in the nicest and most enjoyable way, by those Labour Members who have taken part in the debate.

It would be common ground between all of us that our great national problem in the past 100 years has been, for most of that time, the failure of our economic performance to match that of the world leaders. I say "for most of that time" because in one decade—the 1980s—we outmatched the economic performance of the rest of the world, with the continuing exception of Japan. During that decade, for the first time this century, our share of the international trade stabilised, our record for growth in productivity was one of the best in the world, and was second best to Spain in Europe, and our growth in real disposable income was higher than that of any other country in Europe, both in and outside the Community. That is a remarkable and impressive record.

Ms Abbott

Does the hon. Gentleman agree that the 1980s was a decade that saw the rapid contraction of our manufacturing base and the increasing prevalence of Tory Members to say that manufacturing did not matter? They said that it did not matter how one earned the money, whether it was by selling goods or financial services. Is the hon. Gentleman one of the sinners who now repenteth, and is he acknowledging that that lack of emphasis on the importance of maintaining our manufacturing base was one of the big mistakes of the 1980s?

Mr. Davies

The hon. Lady is factually incorrect. Manufacturing output increased in that decade. The output of the economy as a whole increased at an impressive rate, so we cannot speak of the 1980s as a decade that saw a decline in manufacturing. Furthermore, for a number of methodical and definitional reasons—[Interruption.] I see that the hon. Member for Newcastle upon Tyne, East (Mr. Brown) thinks that that is funny, but he will have to think through these issues if he is ever to get past the superficial political slogans in which the Labour party likes to deal.

Let me give a specific example. Manufacturing output is calculated as the sum of the turnovers of businesses that are classified as being manufacturing businesses. It is a favourable, and inevitable, characteristic of modern industry that it tends increasingly to specialise in the niches in which it can add real value and to sub-contract those functions that it does not believe are essential to that major purpose. As a result, modern manufacturing businesses this is true throughout the developed world—tend to sub-contract all kinds of high-tech services such as computer and engineering services, lesser-tech services such as maintenance and repair of equipment, and non-tech or low-tech services such as catering, which might have been done in-house previously. As a result, although the activity of manufacturing businesses might be developing at a high rate, that might not be reflected in the relative share in those statistics of manufacturing output and it might appear that manufacturing is declining as a proportion of total output, purely by the fault of the statistical phenomenon.

I notice that the hon. Member for Newcastle upon Tyne, East, who made light of my suggestion that one should look at the methodological background to statements about the share of manufacturing output in total output and other similar economic statements, now appears to be satisfied by my explanation and is generously nodding his head. I hope that I can take a little comfort from that.

Ms Abbott

rose—

Mr. Davies

I have not ignored the rest of the hon. Lady's comments. As for suggesting that manufacturing is less important than other economic activities, I have never adopted such a view and I cannot see the sense of it. As far as I know, such a view has never been put forward on behalf of the Government whom I have the honour to support.

Ms. Abbott

I know that the hon. Gentleman is a distinguished banker and I am a mere Hackney housewife and mother, but when he says that the problems of British manufacturing are purely definitional, all that I can say is this. In the part of west London in which I was born, and with which I am familiar—the great industrial estates going out to the M4—whereas when I was a child there was a whole host of manufacturing and light industry firms there, all that one will find now is warehousing and retail. The problems of those firms in London and the south-east have been not definitional but actual.

Mr. Davies

In the rolling fields of Lincolnshire, an area which I have the pleasure to represent in part, before the war—the time which the hon. Lady was speaking of, and no doubt remembers in great detail—agriculture was almost the only industry. Now we have high-tech businesses. There are electronic businesses, specialist printing businesses and manufacturing businesses of all types, including engineering businesses. If the west of London is an area which manufacturing industry has tended to withdraw from, I am glad to say that Lincolnshire is one of the many areas where it is now thriving.

Mr. Gould

Given the hon. Gentleman's enconium of praise to the success of manufacturing during the 1980s, can he recall the precise date—I cannot, but it was during that decade—when this country's trade manufacturers went into the red for the first time ever? If he can tell us the date, perhaps he will go on to tell us how large the deficit is now.

Mr. Davies

I recall that it was the date when North sea oil became a major factor in our economy. Naturally that displaced the oil that we had previously been importing and brought about a mathematically inevitable rebalancing of the balance of payments.

Mr. Gould

How "mathematically inevitable" has been the balance of payments deficit over the past few years? I think that the hon. Gentleman will agree that at times it has been greater as a proportion of our gross domestic product than that which has ever been sustained by any advanced industrial country in modern times.

Mr. Davies

It is clear that the hon. Gentleman is unfamiliar with the level of our current account deficit. This year, it is likely to be about £10 billion or £12 billion, which is about 2 per cent. of our GDP. That is extremely small by the standards of imbalances, surpluses or deficits in current accounts throughout the world. It is tiny in relation to current account deficit levels that we suffered during the period when, to the great misfortune of the United Kingdom, the Labour party was in power in the 1970s.

Dr. Roger Berry (Kingswood)

Will the hon. Gentleman give way?

Mr. Davies

I shall not keep on giving way. However, I have not given way before to the hon. Gentleman and, as he is one of the few Labour Members who care sufficiently about this subject to bother to turn up for the debate—it would seem from its rhetoric that the Labour party would like to think that in this instance it has a major contribution to make to our nation—I shall give way to him.

Dr. Berry

I am grateful that the hon. Gentleman has given way because he is clearly concerned that we should displace rhetoric for fact. He has obviously been doing that! Will he tell the House the last occasion when, in the midst of a recession, we had a current account deficit of the magnitude that he has described?

Mr. Davies

In the 1970s, is the answer. We had a continuing current account deficit and we were in almost permanent recession during the period when the Labour party was last in government.

Dr. Berry

Will the hon. Gentleman give way?

Mr. Davies

No, I shall not give way. I may give way at a later stage, but I must make some progress.

Dr. Berry

One more time.

Mr. Davies

No. I must continue. I do not think anyone could criticise me for not having given way. What is more, I said to the hon. Gentleman that, though I would give way to him, I would not continue to give way after his intervention. I must return to my argument and not take any more of the time of the House than it would wish me to take.

In the 1980s, for the first time, we escaped from the continuing relative decline of our economy over the previous decades of the century. That was because we had, for the first time since the war, a Government who were prepared to identify and to address with considerable courage and consistency the great weaknesses of our economy.

There was the industrial relations issue. We all know what a terrible incubus that was to us during the 1960s and 1970s. We all know that we now have one of the better industrial relations records in the world instead of far and away the worst among OECD countries. That was an immense achievement in a vital area of the economy.

There was a failure of entrepreneurship in the United Kingdom in relation to the more dynamic economies of France, Germany and Japan, for example. That issue was addressed by the programme of tax reform and deregulation which was introduced in the 1980s, or when the Conservative Government came to power in 1979, and which is still continuing. I know that my hon. Friend the Minister will understand that it has never been more urgent to maintain the momentum of such an extremely important reform of the economy. The results are there to be seen.

During the 1980s, more than 1 million more businesses were created than the number that disappeared. Even last year, at a time of international recession, and a painful one, 400,000 businesses were created. That should give us some comfort. It should make us determined to continue to create the conditions in which people innovate, take risks, invest in the long term and generate the employment and prosperity that our nation will require in future.

The Government tackled another area of the economy where the records of Governments of both parties had been pretty lamentable. We were able to make a substantial change in the 1980s and establish a clear framework for monetary policy. We were able to get away from the debilitating cycle of devaluation that the hon. Member for Dagenham liked so much. It was one of inflation followed by foreign exchange crisis, retrenchment, recession, inflation and further devaluation. I refer to the miserable history of stop-go that characterised the years between 1945 and 1979.

Thereafter, we had the medium-term financial strategy, with its explicit commitment to certain monetary targets. That worked well for much of the 1980s. The framework over most of the past three years has centred on our membership of the exchange rate mechanism. There can be no doubt that our commitment to the medium-term financial strategy and the ERM brought about the reduction in our inflation rate that was so striking in the 1980s, and it has been striking again in the past two years.

We know that one of the great shortcomings or handicaps of the British economy in relation to our competitors—France, Germany, Japan and the United States—has been the constantly high levels of inflation that we have suffered over the decades. It has increased uncertainty, which has undermined investment and confidence in the economy.

Mr. Jenkin

We successfully reduced the rate of inflation in the early 1980s outside the ERM. The Chancellor of the Exchequer at the time, now Lord Howe, used to make speeches about how undesirable it would be for Britain to be in the ERM.

Mr. Davies

With respect to my hon. Friend, whose interventions I always listen to with great attention, there is a certain amount of unreality about his observation. The ERM did not exist when Lord Howe, as he now is, was Chancellor of the Exchequer.

Mr. Gould

Of course it did.

Mr. Davies

I think that there may be confusion between the European monetary system and the ERM, which was developed subsequently. The ERM has delivered the low levels of inflation from which we now benefit. The level now is at an historic low. We should recognise that fact.

A great theme has been notably absent from the debate so far. It would be wrong should it continue to be absent. I refer to the great theme of monetary policy of the official Opposition. We know the monetary policy of individual members of the Labour party, including the hon. Member for Dagenham—print money, high inflation and so on.

Mr. Deputy Speaker

Order. I hesitate to interrupt the hon. Gentleman, but the points that he is making are not really related to the motion. I should appreciate it if he would direct his remarks to the motion.

Mr. Davies

I hope that you, Mr. Deputy Speaker, will agree that monetary policy is a central element of economic policy. Indeed, in many ways it is the determining framework of economic policy. If we are to debate the views of the Opposition on the effectiveness of the Government's management of the British economy, we should at least know what they are proposing for monetary policy. It is clear that we do not know their view on the conduct of monetary policy. They supported Britain's membership of the ERM, but, at the same time, they called for even greater falls in interest rates which would have been inconsistent with our continued membership.

Since Britain left the ERM last September, we have enjoyed great falls in interest rates and considerable devaluation. The Opposition still have not told us whether they approve of that. If they believe that those falls in interest rates and considerable devaluation are good for the economy, it is less than frank—indeed, it is quite churlish—of them not to congratulate the Government on having done something positive for the economy. If, however, they believe that they are bad for the economy, they should frankly advocate putting up interest rates and paying the price of a higher exchange rate.

The uncharacteristic taciturnity of Opposition Front-Bench spokesmen is a matter of national importance which should be investigated during this debate. Even if you do not want me to continue with this theme for much longer, Mr. Deputy Speaker—and I will not do so—I must just say that during our debate we must establish quite clearly that there has been the most monumental lack of frankness from the Opposition on such an important issue of national policy. If the Opposition have the slightest aspiration to be taken seriously as an Opposition, let alone as an alternative Government, they owe it to us to say, here and now, what their view is on this important matter.

12.2 pm

Mr. Ken Livingstone (Brent, East)

I am delighted that we have the opportunity to debate the motion tabled by my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones). Almost all the debates on the economy in this place broadly reflect the Government's view, with the Opposition making points of objection. This is the first time that the left of the Labour party has been able to table a motion that constructs a serious and coherent alternative to the Government's policies.

Part of the weakness of the Labour party in establishing its own economic policy has been that it has not been able to create a coherent total alternative. Indeed, far too often it has agreed with the Government, so that when the Government's policy falls apart the Labour party has to take its share of the blame. For example, it dragged along in the wake of the Government's decision to join the ERM at a grossly inflated rate. The motion provides a coherent alternative and the basis for what has already been an interesting debate. It will become considerably more interesting when we hear from the Government and from Opposition Front-Bench spokesmen. There are divisions within the Labour party, but it is also not outwith public knowledge that the Parliamentary Under-Secretary of State for Technology is a true believer. It will be interesting to see how he squares the circle of what he now has to explain away.

I want to make my position absolutely plain. The single, most important act at the present time must be to scale down the absolutely devastating and deadening level of military spending, which, year after year, decade after decade, has systematically had such a damaging effect on the economy. That is why I am glad that that is spelt out in my hon. Friend's motion. There is a great deal of confusion about Labour party policy on that matter. A few weeks ago, when the Government announced the reversal of some of the very limited reductions in military spending, I was shocked to hear one Labour Member after another complaining that the reversals were not enough and that the Government should have introduced them earlier. The reality is that every year since 1989 the Labour party conference has voted for a specific resolution—it is reiterated in the motion—to reduce the level of military spending in Britain to the European average.

I fail to understand why a nation that is now very much in the lower-middle ranks of European nations should bear a disproportionate burden of military spending. The figures are quite stunning. They come from a neutral and eminently respected source, the Institute of Strategic Studies. That is not in any sense a left-wing body; indeed, it is a right-wing military think-tank which produces comparable statistics and irons out the inconsistencies and the deviousness in many of the figures published by the Government, which give untrue comparisons. The institute's figures are always a couple of years behind because of the length of time it takes to carry out the analysis, but they show that in 1990 the United Kingdom was still devoting 3.7 per cent. of GDP to military spending compared with 2.8 per cent. in both France and the Netherlands, 2.2 per cent. in Germany, 1.8 per cent. in Italy and 1.6 per cent. in Belgium. If we simply said that Britain's commitment to the military security of Europe would be no more and no less than the European average, large sums would be released. No one is suggesting that they could be released in the first year, but over the lifetime of a Government we would phase down our military spending and divert the resources released to more productive sectors of the economy, thereby unleashing both growth and increases in employment. If we restricted our spending to the European average, that would release about £7 billion. If we decided to match Belgium's spending, that would release £11.5 billion.

Mr. Jacques Arnold

What arguments would the hon. Gentleman espouse to the workers in the defence industries in specific Labour constituencies when their jobs are lost?

Mr. Livingstone

I would tell them the truth—that their jobs would be lost anyway. The question is whether we actually plan for that. It is inevitable that military spending will be scaled down. Every one of the countries that I have mentioned have reduced their spending. I accept that some third-world countries are increasing their military spending, but overall there is a decline. Workers producing military goods will increasingly be competing ferociously for a declining market. We should be planning for that by recognising the inevitable long-term trend, retraining the work force and retooling the factories. Then, instead of the workers facing unemployment when some foreign nation decides to reduce its purchases of aircraft and armaments, they will be producing high-tech, high quality goods which can be sold to other nations. Indeed, we might even buy them ourselves rather than importing goods.

The workers in our defence industries are usually the most highly skilled in British industry and they work with some of the most modern plant and equipment. They are exactly the workers who could lead a major reconstruction of British manufacturing industry and begin to recreate the manufacture of goods that we long ago stopped manufacturing. When I first started work, the political debate in Britain was about why Britain's goods were not of the same high quality as those of Germany. That is no longer the argument. In many cases, we no longer produce an alternative in Britain at all. Rather than have defence workers face an increasingly unstable future and be vulnerable to whether or not there will be a war somewhere on the face of this planet, and as other Governments wind down their military spending, I should like those workers to have a future creating new products that will expand the British economy and win export orders that will help to crack the trade deficit.

A couple of years ago, a detailed analysis produced by Cambridge Econometrics and studied dispassionately by House of Commons researchers showed that if our military spending were reduced to the European average and the money saved were used to fund direct investment in industry and social programmes, more employment would be created in the long run. Military spending is the least labour-intensive form of public spending. Provided that the money saved were used to fund infrastructure projects rather than tax cuts, although many jobs would be lost initially, the overall balance would be an increase of 520,000 jobs in Britain by the end of this decade.

Mr. Rod Richards (Clwyd, North-West)

The hon. Gentleman cited the lower proportion of gross domestic product spent on defence by other European countries. Can he say how often those other countries have been invaded this century?

Mr. Livingstone

Without research, I cannot answer the hon. Gentleman, but none of them is in danger of invasion now. Why do we have a British Army of the Rhine—to protect England from the east Germans? We are not only sustaining an Army on the Rhine but paying for it in foreign currency, which makes a further drain on our resources. That is nonsense.

Mr. Jenkin

We read daily in our newspapers that the current democratic regime in Russia is tottering. If that regime were to totter and collapse and a military-style regime were once again in control of Russia with ambitions over the old Soviet Union, might there not be a case for increasing defence expenditure to secure the eastern frontiers of Europe? If the hon. Gentleman agrees, should not we remain capable of responding?

Mr. Livingstone

I have listened to right hon. and hon. Members on both sides of the House, and, overwhelmingly, Conservative Members say that we should not intervene in Bosnia and that it is beyond Britain's capacity to do that, so I hope that no Conservative Member is under the illusion that we could step in and sort out Yeltsin's problems. I do not know how many troops that would take. We know that Russia will not attack the west. Russia is popping over with the begging bowl and Bill Clinton is running around trying to persuade the Japanese to cough up money to sustain that regime. I do not share fears about the fall of the Yeltsin regime. I do not see Yeltsin as a natural democrat. I believe that he has some unpleasant instincts towards strong autocratic rule. He is probably no more democratic than Pinochet. There are much stronger democratic forces in the Russian Parliament.

Ms Abbott

Does my hon. Friend agree that any military action required in response to events in eastern Europe or Bosnia, or anywhere else, ought to take a European form? Conservative Members peddle the pernicious notion that our country is still a world power, as in the days of Yalta. If Britain provides a military force in a peacekeeping or any other role, it should do so side by side with our European partners. We should not assume a role wholly out of proportion with our economic strength.

Mr. Livingstone

My hon. Friend is absolutely right. In the Gulf war the world's leading super-power, the United States of America, could intervene only after securing financial backing from Germany, Saudi Arabia and Japan. Any policing action in Europe or elsewhere in the world should be planned by the United Nations, which is perhaps a little more independent of American interests. The motion of my hon. Friend the Member for Selly Oak has to do with our imperial delusions. My hon. Friend the Member for Dagenham (Mr. Gould) also made mention of that point.

We are living in the past. I blame all previous Governments for that. The failure of the Labour Government in 1945, against tremendous domestic success, was to try to hang on to that imperial image. In debates and at small meetings from which most Cabinet members were excluded, Ernest Bevin, then Labour Foreign Secretary, was saying, "I want an atom bomb with a Union Jack on it, so that I can sit at the top table and negotiate." We must learn to live with the fact that Britain will not be sorting out the rest of the world. I should be delighted if Britain could sort out its own problems over the next 10 years—that would be a major achievement.

Mr. Quentin Davies

If I was a little late for the start of this debate, it was because I could not drag myself away from listening to the hon. Gentleman's delightful performance on "Desert Island Discs". As I listened, I began to think that he had missed his real vocation. Does the hon. Gentleman accept that Labour's failure to adopt a responsible approach to the nation's defences in any circumstances is deeply suspect and that suspicion has greatly increased as a result of the modern Labour party's somersault on the nuclear defence issue?

Mr. Livingstone

As one who has battled to commit my party to a realistic level of military spending, I have found it difficult to persuade members of my Front Bench. I would hardly accuse them of being weak on military spending. They have ignored successive Labour party conference decisions. That is one reason why we could not square the circle in the last general election in respect of how we were to pay for our programme. A monstrous distortion and tissue of lies was rained down on our heads by Conservative Central Office, claiming that Labour was weak on defence. We are simply arguing that our defence expenditure should be commensurate with our real needs, weaknesses and strengths.

Under the United States freedom of information legislation, Central Intelligence Agency advice to successive American Presidents is now available, so it is possible to study all the advice given during the cold war. In the 1950s, it was said that we had a bomber gap. In the 1960s, it was said that we had a missile gap. The CIA's assessment year by year was that there was no prospect of a Soviet attack on the west and no need to make provision for one. Under the old regime and under the present one, Russia wants to sort out its own problems and to construct its own form of society. There was never any serious threat of a cold war escalating into a real war from anything triggered by the Soviet Union. I have cited CIA advice, and I am not aware that the CIA has been taken over by Militant tendency or anything like that.

Mr. Heald

The hon. Gentleman referred to Conservative Central Office propaganda during the general election. The point being made was that if British defence expenditure were to be cut by £7 billion, that is equivalent to the expenditure on the Army, the Royal Air Force and the Royal Navy. I invite the Labour party to say which of those services it wants to get rid of.

Mr. Livingstone

When one is talking about a phased reduction in spending over five years to bring us down to European level, it seems ridiculous to say that that means that we would have to get rid of an entire wing of the service—for instance, keep the Army at its present size, but get rid of the Navy. That sort of nonsense disfigures election campaigns.

Mr. Richards

The hon. Gentleman says that he would introduce a reduction of about £7 billion, phased over five years. Will he be specific? For example, if such cuts took place, how large does he foresee that the Army would be, strictly in manpower terms?

Mr. Livingstone

One would not take such decisions without advice from military advisers about needs. I would do what the Government have not done—I would ask the military for their best assessment of our requirements in the next 10 years and then work out what we could afford. At present, the Government trim a bit off and then add a bit back in response to political pressures and not as a result of planning.

Mr. Richards

The hon. Gentleman said that he would decide what we can afford, and therefore what we should have, which is exactly the opposite of what he said a moment ago.

Mr. Livingstone

One would decide the most that the British economy could sustain and consider the major threats that we face. Frankly, I do not think that we face any threats.

Mr. Dennis Skinner (Bolsover)

We could withdraw British troops from Northern Ireland.

Mr. Livingstone

Yes, we could save £1 billion each year if we came to some more reasonable conclusion about the way forward in Northern Ireland, but I am not particularly interested in that. One would have to debate the realities of that.

We have been caught up in discussions about the drift towards monetary union. I notice from all the opinion polls that the majority of people in Britain think that there should be a defence union because they recognise that there could be major savings. That would have benefits, but the Government are resisting it. It is nonsense to have a lot of little European armies rushing around as though we might one day be fighting one another. I well remember a private remark made by Lord Carrington to a left-wing journalist when they were chatting over a drink after a NATO meeting. My leftie journalist friend asked Lord Carrington why he was so determined to keep the bomb, as it would not deter the Russians. Lord Carrington said, "Of course that is not its objective—while the Frogs have the bomb, we must have the bomb." That is the reality. It is about status, not about any serious military threat.

I must continue rapidly because, with all the interruptions about military spending, I could still be on my feet at 2.30 pm and I would offend a lot of people if that happened.

I have described Labour party policy. In recent debates I know that we have tried to massage that away. We are not talking about cuts that have already been made. The policy was agreed in a vote by more than 80 per cent. at the last Labour party conference, and has overwhelming support outside this building in the rank and file of the Labour party and the trade unions. That policy would release £7 billion, if we take only the average, and that money could be used more productively.

The Cambridge Econometrics report said that if we followed that path and invested the money in other sections of the British economy, we would end up with a net surplus of more than 500,000 jobs. What does that mean? It is not merely the net surplus, but the fact that it would mean 500,000 fewer people on the dole, multiplied by the £9,000 per person that it takes to keep people out of work. I shall not try to do the sums off the top of my head as I shall probably get them wrong, but are we talking about £5 billion?

Mr. Skinner

It is £4.5 billion.

Mr. Livingstone

That is £4.5 billion which could be released for further investment.

The second aspect of the motion is, in many senses, more important. In the short term, much could be done by releasing military expenditure for use in more productive areas, but why do we have that military expenditure? As my hon. Friend the Member for Dagenham said, it is because we want a huge military to protect our overseas assets. It is part of the old imperial tradition. If one owns much of the rest of the world, one wants a big army in case the locals try to take it back, as they did with the Suez canal. That is logic.

One must consider the core of investment strategy in the City of London. The City behaves as though it has no loyalty to the people of this country. Investment abroad is its primary concern. It is prepared to find the money to build a factory in America, France or Germany that it is not prepared to build here. That is not merely short-termism but a psychology within the City which has no loyalty to Britain. One could tow the City of London to the middle of the Atlantic and leave it there. We would be better off without it. Through pressures on successive Governments, the City has been able to structure all British law relating to the economy to benefit its own interests rather than those of the productive sector of the economy.

Mr. Quentin Davies

Does the hon. Gentleman know the net contribution made to our present current account by the City and financial services?

Mr. Livingstone

It is nothing like so important as the hon. Gentleman thinks. I was not joking when I said that we would do better without the City of London, because its distorting effect is much worse than the short-term money that it can earn from overseas investments.

Let us consider the City's track record. It has just had 14 years of freedom under a Conservative Government and it has done exactly what it wanted. The first acts of the Thatcher regime were to loosen all financial constraints on the City. Money flowed out of Britain on a grand scale. Money from North sea oil, which could have been used to modernise Britain and to create a dynamic European economy, was invested abroad. How did the City fare? How did it manage that overseas investment? What did it do? Most of the money was put into property in America and Japan, just before the property market collapsed. Another vast amount was put into the American and Japanese stock markets, just before they collapsed. The high point of the Thatcher strategy of outward investment was a net balance of about £86 billion in 1986. Since then it has declined to £29 billion—it has been liquidated.

If the £120 billion invested abroad during Mrs. Thatcher's time as Prime Minister had been retained in Britain and used to modernise our infrastructure and to create modern high-tech factories, that wealth would still be here generating jobs and wealth. What happened? A lot went to savings and loans and all sorts of barmy schemes throughout the world. The City of London has had a disastrous impact on the British economy.

About a month ago, I went to the opening of an extension of a factory in my constituency called Contactum, which is the last factory in Britain to make the wall sockets into which one inserts plugs. All other wall sockets have to be imported. That factory is tremendously successful and high-tech. There is nothing in it that does not match the best of German and Japanese production. Contactum has continued to invest. I did not need to ask the reason for its success. It is a family firm and does not have shareholders or the structure that burdens so many other British companies, which constantly must look over their shoulders to see whether the shareholders are getting their share.

Mr. John Sykes (Scarborough)

rose—

Mr. Livingstone

The hon. Gentleman should not attack me until I have finished as he might find something even juicier to have a go at.

Investment has been the first call on Contactum's profits each year. Year by year, it has bought the most modern plant and has been able to match our overseas competitors. It is the only British company producing wall sockets which has survived. That is the lesson for British industry in many other firms. Managers have to worry about whether the banks will pull the plug if a nice big cheque does not come out of the profits that year. That is the first call on their profits. During the Thatcher boom years we heard a lot about wages needing to be scaled down.

Mr. John Townend (Bridlington)

I am delighted at the hon. Gentleman's conversion to the importance of the family business. Does he agree that during the period when the last Labour Government were in power family businesses were not looking over their shoulder at the bank manager—but were worried to death lest any member of the family died out of turn and the business had to be sold for estate duty purposes? Under this Government's reforms, whereby shareholdings can be handed from one generation running the business to another generation without estate duty having to be paid, family businesses continue to expand.

Mr. Livingstone

I shall arrange a tour of the factory for those Conservative Members who are interested and I shall leave it to them to try to persuade the people who own and manage that factory to vote Conservative. It was not something that I was going to try, because they did not seem to me to be great fans of the Conservative Government. They do not feel that the Government have any interest in industry. The managing director's speech was almost exactly the same as mine—a fact which came as something of a surprise to both of us.

Ms Abbott

Does my hon. Friend agree that it was typical of the 1980s and of Mrs. Thatcher's attitude to industry that her favourite industrialist was Hanson, who knew nothing about making things or selling things? What he did, time after time, was to buy up going concerns, whether it was Imperial Tobacco or Ever Ready, strip out their assets and their pension funds and then move on. That was her type of industrialist— someone who knew how to play the stock market and how to strip out assets.

Mr. Livingstone

The classic example is the film "Wall Street" which depicted that in its worst excesses. What was the end result? The regime that presided over that attitude in the United States has been defeated by the American people. They have elected a President who says that now it is not a question of competing in military terms; Bill Clinton recognises that we have to compete in economic terms. That is the new world. The reality is that nobody is going to get into a hot war. What we are now into is a much more vigorous trade war.

Mr. Sykes

I am sure that Conservative Members are all interested to see the new economic guru of the Labour party coming among us to dispense his wisdom. Perhaps he thinks that he is David Icke. Even David Icke, in his wildest dreams, could not have dreamt up more schemes that would crucify jobs than the Labour party—schemes such as the social chapter, which would put thousands of people out of work, and the minimum wage, which would put thousands more out of work. How does the hon. Gentleman square that with what he is talking about today?

Mr. Livingstone

The choice facing every modern industrial economy is whether to go high-tech, high wage and high skill or to go low-tech, low wage and low skill. Alone of the G7 nations, Britain has taken the low road. All the other major nations are going high-tech and increasing their training, their investment in education arid their investment generally. They recognise that they have to compete using the skills of their people— and increasingly their intellectual skills. I remember the memorable words of the then Chancellor of the Exchequer, Nigel Lawson, at a City dinner. He said wit h pride that we are becoming a low skill, low wage economy.

The other G7 nations have realised that there is no future in going downwards. There will always be third world nations able to compete successfully against us because they will be able to pay their work force less than we do, having perhaps even more truncated trade union rights than we have. The only route for Britain to take is the high skill, high-tech route. That is why the Labour party, whatever disagreements we may have about individual aspects of the economy, is committed to industrial regeneration and to rebuilding our industrial base.

That brings me to the most devastating point of all. There is talk now about the green shoots or recovery, but let us look at what is happening day by day in our economy compared with the rest of Europe. By the second quarter of 1992, United Kingdom investment had collapsed to 15.4 per cent. of GDP. That was 25 per cent. below the peak of the last British cycle, but already this year our investment is 25 per cent. below that in the rest of Europe. Already this year, we have taken decisions that will lock us into further relative decline, further relative loss of productivity against our major European competitors and further loss of markets.

If we look at what is happening, we have to ask ourselves how we are coming out of the recession. As my hon. Friend the Member for Dagenham said, when was the last time we were in a recession and still running a balance of trade deficit? On every other occasion in the stop-go cycle, when we were at the bottom of a recession we were back in the black. The Government would then start a boom and make a mad dash for the electoral cycle in the hope of being re-elected.

We are running a trade deficit of 2 per cent. of GDP, just under £12 billion, in the depths of the worst recession since the 1930s. As soon as there is any upturn in consumer spending, that deficit will escalate. I predict that before two or three years are out the deficit will probably have doubled and that we shall be running a 4 per cent. of GDP balance of trade deficit which will unleash a major economic crisis, as a result of which the Government of the day will return to the politics of recession to resolve that crisis. People ask me whether I see the green shoots of growth coming. Yes, this year will not be so bad as last year, and next year may be a bit better still, but, after that, we shall be locked into the crisis which will inevitably return because we have again neglected our manufacturing base.

I was delighted by the Prime Minister's interview in The Independent. I wondered what the Government might do structurally and physically to give it effect, but the Prime Minister's recognition that the collapse of our manufacturing base has been a disaster was correct and welcome. It was a tragedy that, because of pressure from the Thatcherite wing of the Tory party, he felt that he had to recant those words at Question Time the next day. Until Britain recognises that there is no short cut out of the recession, other than by sustained investment and the reconstruction of our manufacturing base, we shall lock ourselves into year after year of continuing relative decline.

As hon. Members will have noticed, the motion on the Order Paper is not official Labour party policy.

Dr. Lynne Jones

It is.

Mr. Livingstone

It is Labour policy, but not shadow Cabinet policy. Front-Bench spokesmen tend to ignore a large amount of such motions. I agree with everything that my hon. Friend the Member for Dagenham said, but he suffers overly from tact. He was very tactful in gently chiding Front-Bench spokesmen about what they should say and do. In politics, people notice much better if you kick them hard with a hobnailed boot. Nothing that I am about to say is meant to cause the Front-Bench spokesmen pain. I say it only with the best of motives. I want to see my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) in government and Labour winning the next election. I am sick and tired of our losing elections because we do not get our economic policies right.

Leaving aside the debate on the personal standing of the Leader of the Opposition or on military expenditure, the core issue of the last two elections was whether people believed that we could improve the quality of their economic life. On both occasions, we failed to demonstrate that we could do so and believed that we could secure victory by manipulating the media or holding a rally in Sheffield to divert attention from the fact that the figures did not add up. I do not want us to repeat those mistakes.

My hon. Friends the Members for Bolsover (Mr. Skinner) and for Hackney, North and Stoke Newington (Ms. Abbott) and my right hon. Friend the Member for Chesterfield (Mr. Benn) and other members of the Campaign group did a bit of a disservice to the Labour party in the past few years. We did not rock the boat hard enough. We did not want to be seen to be undermining the leadership and we kept a bit too quiet when we thought that official policies were not adequate. I confess that I listened many times to the shadow Chancellor—the present one and his predecessor—launching devastating attacks on the Tories. I agreed with every word, the Press Gallery was full and it was wonderful stuff. The people of Britain knew that the Tories were useless at running the economy and they wanted to hear what we would do. It is not enough to attack the Tories' mismanagement of the economy. People do not need to be told that they are hurting and that they run the risk of losing their jobs. They know that.

Labour should be saying what we intend to do and how it will be paid for. If we wish to expand investment, we should say where we intend to find the money to do so. In one small way, Mrs. Thatcher was right: she repeatedly managed to explain to the British people that the national economy is no different from the family budget. Of course, some things can be done with the national economy which cannot be done with the family budget. Broadly speaking, however, in the long term a country cannot spend more than it earns. That is our problem now: the Government are borrowing because they are spending more than they are earning.

Mr. Jenkin

How much more did the Greater London council spend than it earned when the hon. Gentleman was in charge of it?

Mr. Livingstone

As I pointed out several times to your father—

Madam Deputy Speaker (Dame Janet Fookes)

Order. Could the hon. Gentleman be a little more careful about his possessive adjectives?

Mr. Livingstone

I apologise. As I pointed out to the then Secretary of State for the Environment, we were much better monetarists than the Government. While I was its leader, the GLC stopped borrowing to pay for its capital programme. We paid for it with revenue year by year. Each year that I was leader of the GLC, we reduced its indebtedness. I do not believe in borrowing one's way out of recession. One can increase borrowing for a limited time for limited objectives, particularly for investment, and if the markets see that that is credible they will sustain it, but one cannot borrow as a substitute for strategy.

When I left, the GLC's debt was less than the day I was elected. I often used to embarrass Mr. Patrick Jenkin, as he then was, by pointing that out and saying that I hoped that one day the Government would be as good monetarists as the old GLC. I remember the lesson that I learned in the mid-1970s when I was a GLC back bencher and interest rates suddenly mushroomed. Because of the scale of the GLC's debt, interest payments were the first call on its resources, which meant the savaging of so many of our programmes. Things were off balance. I am a good old monetarist—you will not get me on that one.

Mr. Richards

The hon. Gentleman said that when he was leader of the GLC he raised increased revenue in order to meet commitments. If he were Chancellor of the Exchequer on Tuesday, how would he increase Government revenue?

Mr. Livingstone

I would increase the top rate of tax to 50 per cent. and aim to claw back money from those who have done very well.

One of the things that I find most depressing is the fact that the Labour party, having gone for a tax policy at the election which hit the average male worker in London who earned £21,000 a year, now appears to be going to the other extreme by talking about no tax increases at all. I want substantial tax increases for the top 10 to 20 per cent. of people who have done so very well under this Government.

Mr. Skinner

Perhaps my hon. Friend could say imediately that, if he were the Chancellor of the Exchequer, he would calculate how much the richest 1 per cent. of people in Britain received in tax cuts during the Thatcher years. He will know that in the first 10 years they received £26.2 billion, which is nearly enough to finance the health service. We would claw it back and ensure that it was used for the health service and for education and to ensure that people had roofs over their heads instead of sleeping in cardboard boxes. Having done that, we would use some to help pensioners and, as a result, my hon. Friend and the rest of us would be elected again and again.

We do not need lectures from the Tories, who are now running an economy which is £50 billion in the red—about £1 billion for each week. At the previous three elections, the Tories told the electorate not to vote Labour because we would borrow, but this Government have done just that on a larger scale than any Government since the second world war. The Tories are the last people to lecture us about how to manage the economy.

Mr. Livingstone

I agree with everything that my hon. Friend has said. We could do more without increasing taxes on ordinary families. The tax burden on ordinary families is horrendous. We have heard a great deal of nonsense about how this Government have been a tax-cutting Government. In fact, they have merely changed the taxes. Income tax has been dramatically reduced at the top and the burden has been placed on value added tax and, for a while, poll tax. Taxation has become more regressive. The Government are taking more tax out of the pockets of the British people now than on the day Mrs. Thatcher came to office. They have been not a tax-cutting Government but a tax-shuffling Government.

I want the restoration of the top levels of tax. We should claw back money from those who have done so well in the last 14 years, and the money should be distributed to pensioners. Another economic fact of life is that if we distribute wealth from from the wealthy to the poorest, the poorest spend it on the things that they need to improve their quality of life immediately. That, in turn, creates employment because they usually spend it on goods that are not imported, whereas the wealthy often spend their money on other things. That is why countries that have the most extreme inequalities of wealth have the most savage economic cycle. The more one narrows the extremities of wealth, the more one can smooth out the boom and bust of the economic cycle.

Mr. Heald

Does the hon. Gentleman agree that pensioners were the fastest rising income group in the 1980s, with a 35 per cent. rise in incomes in real terms? Pensioners have done well under the Conservatives.

Mr. Livingstone

The hon. Gentleman should sit in my surgery on Monday nights and explain to pensioners how well they are doing on £54 a week when they live in London. They would laugh—or perhaps not. My pensioners are quite good, so they would probably string the hon. Gentleman from a lamp post and enjoy that immensely. Pensioners have been some of the main sufferers. The first act of this Government was to cut the link between pensions and earnings so that there is only a link with inflation—but the prices of things that pensioners buy have been rising at well above the normal rate of inflation year by year. Our pensioners are impoverished compared with pensioners in the rest of Europe.

The Labour party must get its figures right for the next election. I want never again to be in the position I was in in 1992. People stopped me on the streets and asked me to explain how Labour's tax policies would affect them. I added up how much better off they would be with our rating policies rather than the council tax and what they would lose as a result of the national insurance contribution cut-off point being wiped away and ended up feeling like an accountant on a street corner. Some people said, "I think I can afford that", whereas others said, "I can't afford that."

We must get the figures clear next time. We must take Mrs. Thatcher's strictures about the family budget and the national economy. If we want to spend more on investment and on training, we must be precise about where we shall make cuts. There are two areas in which we should make cuts. The first is defence, as is said in the motion. Secondly, we should change the patterns of investment in the City of London so that the City becomes subordinate to the national economy and not the predominant factor in it. We are not poor. We have all the wealth that we need to modernise the nation within five or 10 years and to catch up with the leading nations in Europe in terms of the quality of life and what we can do for our people. The problems are the lack of political will and the distorted priorities of the Conservative party.

I ask my Front-Bench colleagues to be precise. I do not want four more years of sound bites and relaunches of policy again and again. I want us to spell out what our macro-economic policy is. We must explain who will pay and where resources will be released. We must explain how many people we shall put back to work. My hon. Friends would do well to consider the Campaign for Full Employment launched today by my hon. Friend the Member for Dagenham. We have come to accept that we cannot have full employment, but that is nonsense. When I was asked recently on "Question Time" what the level of unemployment should be, I said that I thought that we could get it down to a couple of hundred thousand, which was the turnover rate of people going from one job to another. Everyone looked at me as though I was mad. We have allowed the Government and the media to convince us that full employment is a phantom from the past. We went through a long period of technical full employment. I grew up in that system. I remember that in 1961 there were riots outside the House of Commons and the Young Socialists pushed the doors open and got in. The restrictions and barriers were introduced as a result of that riot. Unemployment had reached the horrendous rate of 500,000 and it was inconceivable then that unemployment could go beyond that.

As my hon. Friend the Member for Bolsover (Mr. Skinner) said, we must put people back to work. There is a range of actions that could create jobs. Let us not forget the billions of pounds on which councils are sitting which could be used to create a proper house building programme. In all those areas, we can persuade the British people that we could manage the economy more successfully than the Government. It should not be difficult. We must be far more precise and specific. Sound bites will not work. I hope that no one will be offended by what I have said. I say it because I wish to see us win. I wish to see us begin to transform the British economy, so I intend to be a little more assertive in the coming years than I have been in the past few. I intend to pont out the deficiencies of the economic policy and of the speeches on the economy being made by my Front-Bench colleagues.

12.48 pm

Mr. Mark Wolfson (Sevenoaks)

I am delighted to follow the hon. Member for Brent, East (Mr. Livingstone), who was engaging and totally candid, as he always is.

I congratulate the hon. Member for Birmingham, Selly Oak (Dr. Jones) on her good fortune in securing this debate. She has done us all a service. Her motion has demonstrated to all in the House today and to the country that the left wing of the Labour party is alive and well. Its policies are in good order and I shall be able to assure those of my constituents who suggest that the Labour party now has far more sensible policies and that there is less difference between Conservatives and Labour because the left wing is marginalised that that is not the case at all. I thank those Opposition Members for what they have said this morning because it is important that the country should not forget that the left survives. I wish them well in their campaigns to change what they regard as unsatisfactory policies of those on their Front Bench because their success will assure the continuation of the Conservatives in government.

The motion suggests that, under the Government's economic policy, we are a low-tech economy. What about aerospace, the chemicals industry and pharmaceuticals? Rolls-Royce has been mentioned and is a good and relevant example of a high-tech industry in the private sector that has to be immediately responsive to the need to change its structure when the market changes. In the old days, nationalised industries could never make that response.

When I first became a Member of the House, Sir Anthony Meyer—not, as I think we all realise, a noted supporter of Thatcherite policies—said that he bitterly regretted the fact that, as the Member of Parliament representing Shotton, he had resisted restructuring and job losses at that plant, in the interests, as he thought, of his constituents. Much later, we had a British steel industry which was too large and which had not responded over time to the contraction of the market for steel, so that when the change ultimately came, it was far more dramatic and damaging than it would have been had the industry been more flexible.

Mr. Jacques Arnold

My hon. Friend has referred to Rolls-Royce's response to the market. In fact, the company is responding to significant defence cuts in this country and elsewhere, and any job losses will be as nothing compared with those that would result were the proposals of the hon. Member for Brent, East (Mr. Livingstone) to be implemented.

Mr. Wolfson

My hon. Friend is right. Rolls-Royce is having to respond to two market factors—the decrease in defence demand and the cut in air travel and the present limited demand for aero engines. No company can fly in the face of those two factors if security of employment for those who remain and the health and viability of the company are to continue in the long term.

Dr. Lynne Jones

The hon. Gentleman is referring to nationalised and privatised industries. Is it not the case, however, that, apart from the monopolies, the industries that have been privatised face deep structural problems and falling share prices? In the past, they needed the protection of the public sector to nurture them through difficult times of the kind that they are now facing, with no support from the Government.

Mr. Wolfson

I can in no way agree with the hon. Lady. I cite the steel industry as an example. As a nationalised industry, it was a disaster. No matter how much public money was poured into it, once the market for steel was no longer there, it could not survive. Does the hon. Lady really think that it is a good use of public money to continue to pour it into industries that could support themselves and respond to market demand in the private sector? Public money should go into public services; that is where the Government put it.

I am sorry that the hon. Member for Dagenham (Mr. Gould) has left the Chamber. He made several points and I had sympathy with some of them. The hon. Gentleman and other hon. Members referred to concern about short-termism in relation to the view that the City of London takes of industry. My views coincide with some of the views that have been expressed.

I am uneasy about the fact that there is still—industrialists confirm this—a gulf between the view that the financial institutions take of industry and the view of industrialists of where their future best lies. I should like to see some change in the tax arrangements so that they discourage short-term investment and encourage longer-term investment. I agree with the hon. Member for Dagenham that training and research and development should bear more obviously on the strength and health of a company and its future when it is being considered for takeover or merger.

In its thinking and in what it says to the public, the Treasury should make clear the difference between borrowing money for infrastructure investment and borrowing money for current expenditure. It is vital that the Treasury makes that distinction because a company must also make such a distinction. We now have an electorate which is financially quite sophisticated. The electorate finds it hard to understand why the Treasury does not make that distinction as clearly as it is made in private industry.

In relation to the City, I want to refer to the problem of pension funds. The CBI is addressing the fact that employee pension funds generate a great deal of the money that may be invested on behalf of the members of those funds in such a way that it does not contribute to the long-term financial needs of the industry in which those pension fund members work. Increasingly, companies involved in the provision of pensions will look to investment that contains a longer-term view than is currently the case.

Comparisons have been drawn with Germany. I do not draw a comparison between socialist or conservative thinking in terms of the Governments in Germany or Britain. However, bankers in Germany appear to have a much deeper understanding of and direct involvement in industrial management than many bankers in the City of London.

For many years, I was a personnel director in the City. It was very difficult, if not impossible, for young, developing bankers in the City to be exposed directly to the day-to-day problems, or even the wider strategic problems, of industrial development. That is a weakness in our banking system. There should be more career switching between industry and the City. There is now quite a big switch between the civil service and the City. However, we should focus on a switch in career between industry and the City and not simply between the civil service and the City.

I want now to consider briefly the economy and whether we are turning the corner. I have been something of a sceptic of the Chancellor's claims in recent months that we are coming out of recession. I am not immediately impressed unless there is evidence in my own area and constituency of greater confidence returning. I now see that evidence. Confidence is a key factor. The CBI survey shows that there was more optimism in December and January than there was last October. The survey also shows that there has been a major change in the confidence of small and medium-sized companies, which is now at its highest level since the recession began in 1988. The Institute of Directors holds a similar view. There are clear signs that industrial production in the fourth quarter of 1992 was 1 per cent. higher than in the previous quarter. Those are encouraging signs, although they will not solve , the problem overnight.

I accept that it is likely that unemployment will continue to rise, because new growth in the economy will take a long time to impinge on unemployment. I entirely appreciate the terrible difficulty in human terms of high unemployment and the risk of social disruption. I do not accept the argument, which it may be heretical for a Conservative to advance but I have no fear of advancing it, that crime is not linked to high unemployment. I am not saying that unemployed people are criminals, but young men in particular who have no work and did not have the benefit of apprentice training from older people, as happened in the past, are more likely to get into trouble than those who have jobs and the ability to earn money and, therefore, have a more secure and complete place in our society.

For me and my hon. Friends, just as much as for Opposition Members, unemployment is an evil which we want to eliminate. The argument is about how best to do it; in that context the competitiveness of British industry is crucial. I will give one or two international comparisons. Contrary to what the Opposition have said, our manufacturing industry has performed well. Between 1985 and 1990, manufacturing import penetration grew more slowly in Britain than in any of the other big six economies. The penetration here was 6.7 per cent. compared with more than 10 per cent. in Germany, Italy and the United States. In France and Japan, import penetration was more than 25 per cent.

I accept that we need to reduce import penetration, but the figures demonstrate the increased competitiveness of British industry compared with the other big six economies. That increased competitiveness is largely due to the shake-out in the early 1980s. It is quite wrong to argue that British industry is not competitive. It needs to get much better, but it is stronger than it was at the beginning of the 1980s.

Dr. Berry

Why did the hon. Gentleman choose to start with 1985 and finish with 1989? I seem to recollect that the Conservatives came to office in 1979. This is 1993.

Mr. Wolfson

I accept that during the major shake-out of smoke-stack industries in the early 1980s and the necessary restructuring of large parts of heavy industry there was a decline. As a result of that shake-out, Britain is now far more competitive.

Since 1981, exports of British manufactures have increased by 66 per cent. That is significantly faster than for any of the other economies of the big six. Between 1983 and 1990-1 am taking a wider spread—

Dr. Berry

Will the hon. Gentleman give way?

Mr. Wolfson

Perhaps the hon. Gentleman would allow me to finish the point. Between 1983 and 1990 manufacturing suffered a slight decline as a proportion of GDP, but that decline was mirrored by similar declines in the economies of other members of the big six.

Dr. Berry

I appreciate that starting from 1983 gives a slightly wider spread, but could the hon. Gentleman explain why he did not start in 1979 and finish in 1993? Could it be that he has been reading a copy of the handout from Conservative Central Office and using the statistics in it in the way that a drunk uses a lamp post?

Mr. Wolfson

No. I answered the hon. Gentleman's question clearly. I accepted that a major restructuring of British industry was necessary and essential in those years. Before we came to power in 1979, industry had become grossly uncompetitive as a result of Labour party policies and the unnecessary sheltering of industries from international competition. In particular, nationalised industries always knew that, ultimately, the Government would pick up the tab. That took away from managements in those industries the incentive to be competitive and effective.

Dr. Liam Fox (Woodspring)

Perhaps my hon. Friend would like to point out to Labour Members that Britain's share of manufacturing exports fell faster in the 20 years up to 1982 than at any time in Britain's history, and that that coincides with the period when the Labour party was in office more than at any other time.

Mr. Wolfson

I thank my hon. Friend for that appropriate point.

Dr. Lynne Jones

Will the hon. Gentleman give way?

Mr. Wolfson

No, I shall not give way any more. I have given way quite a lot, and to the hon. Lady, as it is proper that I should.

I welcome the Prime Minister's emphasis on the importance of manufacturing industry because, during some years of the Conservative Government, we did not give it sufficient emphasis. We argued that the service sector would be the major growth sector. We looked to it, and Ministers placed particular emphasis on it, to the detriment of the country's understanding of, and the readiness with which it would give key importance to, manufacturing industry. I am not suggesting that we ever denigrated manufacturing, but I welcome the fact that we are now putting the health of manufacturing industry higher on the agenda. I am sure that my hon. Friend the Minister will emphasise that point when he sums up the debate.

1.7 pm

Dr. Roger Berry (Kingswood)

I do not want to spend too much time criticising the Government's economic record—that is far too easy—but, before I speak about where we might go from here, I want to make one or two factual statements, because the record should be clear and not misrepresented.

We have unemployment on a scale comparable to that of the 1930s. It is not just that we have 3 million claimants—11 per cent. of the labour force—with that figure rising every month for the past 30 months and accelerating over the past half year. For reasons that I shall not go into in further detail, if we measure unemployment on the basis that the Government inherited in 1979, there would be 4 million on the dole. Unemployment now is on the scale of that which was suffered in the 1930s. It is an horrendously serious issue and it must be taken on board.

The Government's record on economic growth is miserable. They have the worst record of any post-war Government. If we resist the temptation to start in 1983 or 1985 and to stop in 1989 and, instead, examine the Government's record from 1979 onwards, over the 14 years the rate of growth has averaged 1.5 per cent. a year. Under the most recent Labour Government, it was 2 per cent., and it was 2.4 per cent under the Labour Government who preceded that Administration. It is astonishing—I note that my statement has not been challenged—that the Government continue to peddle the myth that they have a good record, and even more astonishing that so many people continue to accept it.

The hon. Member for Stamford and Spalding (Mr. Davies), who is no longer in his place, talked about a recession under the Labour Government. We were told that he would abandon rhetoric in favour of facts and hard argument. The hon. Gentleman was clearly off the wall. I asked him when last, in the midst of a recession, we had such a large trade deficit. I have not examined the pre-war period, but, since the war, there has not been any time when we have had a trade deficit of the present magnitude. It is the worst recession since the 1930s.

The second worst recession since the 1930s was from 1980 to 1982, a period just before the statistics begin in the Government's handout. Even then, we had a current account surplus. It is impossible for anyone who is honest about these matters to disguise the fact that our trade deficit is a chronic problem.

Dr. Lynne Jones

Is it not also true to say that never in our history since the keeping of records had we had a manufacturing deficit until 1982?

Dr. Berry

It is true that there had not been such a deficit since the industrial revolution. My knowledge of economic history does not go back to pre-Tudor times. Perhaps there was a deficit during the stone age.

When we talk about the Government's economic record, we are immediately accused of talking Britain down. During Tuesday's debate on unemployment in the manufacturing sector, we were told repeatedly by Conservative Members that those of us who highlight the facts of the recession and Britain's economic crisis are talking Britain down. I started to count the number of times Conservative Members made that comment, and I ended up counting the number of times that the Secretary of State for Employment did so. The Secretary of State made the comment on 17 occasions, about once every two minutes. I have taken account of the right hon. Lady's long interventions, some of which my right hon. and hon. Friends remember rather well. Every two minutes the defence is used that we who point out the facts are talking Britain down.

The Government's records on unemployment growth and trade are the worst of any Administration since the war, and when we point that out we are blamed for making things worse.

Dr. Liam Fox

As the hon. Gentleman is so keen on pointing out what the Conservative Government inherited in 1979, perhaps he will take into account the fact that when the Labour Government were in office the inflation rate averaged 15.5 per cent. Perhaps he will tell us what effect that had on the incoming Conservative Government in terms of growth potential.

Dr. Berry

If we compare that level of inflation with the various rates that were experienced in other comparable advanced industrial economies—

Dr. Fox

Because of oil price hikes.

Dr. Berry

I am grateful to the hon. Gentleman for reminding me. The House will recall that I compared the Government's growth record of 1.5 per cent. with the Labour Government's record of 2 per cent. I forgot to say that the Labour Government had to face two oil price hikes and did not have the benefit that this Government have enjoyed of £100 billion of North sea oil revenue. It is astonishing how incompetent the Government have been, but we are not supposed to talk about it. If we do, we are talking Britain down.

I suppose that I am not supposed to talk about 1,400 more redundancies at Rolls-Royce in Bristol, which will affect many of my constituents. If I do so, I shall be accused of talking Britain down. I suppose that I am not supposed to say that there is record unemployment in my constituency—indeed, it has trebled over the past three years. I am not supposed to say that. We are not supposed to state the facts and ask the Government to respond. The Government's lame excuse is always that we are talking Britain down.

Mr. Heald

The motion suggests a £7 billion cut in defence spending. How would the hon. Gentleman's constituents in the defence industry like that? Mine would not like it.

Dr. Berry

People in my constituency and, indeed, throughout Bristol recognise the vulnerability of their jobs to defence cuts. They want the resources currently being devoted to defence spending to be transferred slowly to non-defence civilian manufacturing. Year after year, under this Tory Government, thousands of jobs are destroyed at Rolls-Royce and British Aerospace in Bristol. The savings from the defence reductions must be reinvested in manufacturing industry so that those companies and others like them are given support.

In our debate yesterday, I could not help but reflect—my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) remarked on it—that 20 years ago the then Prime Minister, the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), took Rolls-Royce into public ownership because market forces could not be left to run loose and destroy the company. There is a little ditty about that which goes: The people's flag is deepest blue; We've nationalised Rolls-Royce for you; And when the profits rise again; We'll flog the buggers back again"— which is what they did. That previous Conservative Prime Minister recognised that the aerospace industry both depended on and deserved Government support.

I hope that nothing that I have said suggests that I am anything other than enthusiastic about the Government adopting a far more interventionist and supporting policy towards Rolls-Royce. That is what I said yesterday, it is what I have said today, and it is what I shall continue to say.

With such massive unemployment, it is difficult to understand the Government's grotesque indifference to unemployment, which has become so commonplace. Their justification for paying so little attention to mass unemployment, other than to devise ways of reducing the figure while not creating any jobs, has been that they had to eliminate inflation. They said that that should be the prime target of economic policy and that everything else would follow from that.

By whatever device—tight monetary policy, medium-term financial strategy or an overvalued exchange rate, the latest device—apparently we have only to control inflation and there will be growth and full employment. We are still hearing that story. It is a simple economic argument; indeed, it is so simple that it is staggering in its economic illiteracy. There is no evidence that smashing the economy, closing factories and putting people on the dole results in low inflation—anyone can do that—and, hey ho, almost immediately there is rapid growth and full employment, with inflation just happening to stay at its low level. It is extreme Mickey Mouse economics.

On every occasion that the Government have deflated the economy to reduce inflation there has been higher unemployment—which, in the infamous words of the Chancellor, is "a price worth paying". My constituents do not think it is a price worth paying.

The trading performance of the British economy is a major structural problem. The Government are antagonistic towards public sector borrowing, but they have a cavalier attitude to private sector borrowing. Conservative Members claim that the 1980s, was a wonderful, triumphalist period of Thatcherism. During that time, private consumption as a share of GDP increased by a record 7 per cent.

Virtually all of the growth then was accounted for by an increase in consumption, essentially because it was financed by borrowing. We started with the North sea bonanza and towards the end of the 1980s, there was financial deregulation, easy credit and booming property values, all of which resulted in an unsustainable consumer boom. That economic recovery was financed entirely by borrowing—borrowing from overseas and private sector borrowing within the country.

The Government's strategy today, as in the past, is based on borrowing. In fact, the Government would be delighted if consumers picked up their plastic cards, shot out to the high street and borrowed a lot more money, so injecting some demand into the economy. They see that as the only way to get the economy moving again.

As the autumn statement made clear, investment will not increase significantly over the next 12 months and nor will exports. Therefore, something must happen to engineer economic recovery. The Government desperately want an increase in consumer borrowing with more indebtedness to the private sector, on the back of which they hope there will be an increase in demand. I do not believe that that will be easily forthcoming. Nor do I believe that it is the way to fund an expansion of the economy and to secure the investment that is desperately needed to sort out the supply side, to which the Government are fond of referring.

The Government's own projection of a 1 per cent. growth in output over the next 12 months guarantees that unemployment will increase, and will continue to increase. Indeed, their projection shows no reduction in unemployment by 1996. That is the scale of the problem. Their policy is that unemployment should continue to rise, so that by 1996 there will still be 4 million people unemployed, although, after massaging the figures, they will say that the figure is nearer 3 million. That is unacceptable.

Although important supply-side measures must be adopted, we must also invest in capacity and skills and improve our export performance. In the short term—the next 12 months—an increase in demand is absolutely necessary just to stabilise unemployment, let alone reduce it. According to the Government's own figures, that will not happen unless they step in and boost demand.

It is clear that, over the long term, 2.5 per cent. growth a year is required simply to stabilise unemployment, let alone bring it down. Growth of just 1 per cent. next year will not even stabilise it. Consequently, it is inevitable that an additional £10 billion to £15 billion needs to be injected into the economy as soon as possible to stabilise rising unemployment.

Unlike my hon. Friend the Member for Brent, East (Mr. Livingstone), I am not a hard-line monetarist. I am quite prepared to say that it makes sense to borrow £10 billion to £15 billion to fund investment in our economy with the object of reducing unemployment. If, on a wet Tuesday, the Chancellor can borrow £7 billion to prop up an overvalued pound, we can borrow £10 billion to £15 billion to invest in the economy and to create jobs. If anyone feels that that is unacceptable, I agree with my hon. Friend the Member for Dagenham (Mr. Gould)—of course the Government can create credit.

In summary—I can see that the Front-Bench spokesmen are anxious to enter the debate quite soon—the important fact is that the Government's strategy is dependent on injecting demand into the economy, but it will fail miserably because demand will not occur on a significant scale. We do not want a consumer boom. We need to invest in the economy for long-term growth. Therefore, it is the Government's responsibility to finance that investment.

The only conceivable way in which we can return to full employment in a reasonable time is with a Government who consider the supply side and deal with macro-economic policy, which involves rejecting the ludicrous idea that it is good for consumers and the private sector to borrow to finance their expenditure but that it is madness for Governments to do so. That is a nonsense which is costing us jobs and billions of pounds in national income.

I am grateful to my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) for tabling the motion, which has given many of us the opportunity to tell the Government that there is an alternative strategy and that, at some stage, someone will have to pick it up and run with it.

1.25 pm

The Parliamentary Under-Secretary of State for Technology (Mr. Edward Leigh)

Following on from those remarks by the hon. Member for Kingswood (Dr. Berry), I am sure that the House is grateful to the hon. Member for Birmingham, Selly Oak (Dr. Jones) for giving us the opportunity to see that the left wing of the Labour party is still alive and well, and as dangerous as it ever was.

The debate was foreshadowed in today's edition of The Guardian, in an article headed, "Labour faces challenge from the Left on economic policy", which informs us that the Leader of the Opposition and his shadow chancellor … will today face the first organised challenge to the front bench's new economics … The launch"— of the Full Employment Forum— will run in parallel with a rare debate in the Commons today in which leading leftwingers"— such as the hon. Members for Dagenham (Mr. Gould), for Brent, East (Mr. Livingstone) and for Selly Oak— will criticise both Government and Labour economics. We have heard some very interesting speeches.

I am sure that, as always, the House listened with great care to the hon. Member for Dagenham, who, characteristically, gave an intelligent and interesting discourse on our economic history.

As always, we listened with great care and attention to the honest thoughts of the hon. Member for Brent, East. I am sure that he often speaks for the true voice for the Labour party, if Labour Members were as committed as he is to principle, but clearly less committed to holding office in any future Labour Government—if there is one.

I am sure that the House is grateful to the hon. Member for Brent, East for some wonderful remarks, which we shall treasure and which will no doubt figure in some future Conservative campaign guide. For instance, he told us that "the weakness of the Labour party is that it has not been able to construct any viable alternative to the Tories." I think that those were his words. He told us that "their jobs," referring to employees in the defence industry, "are going to be lost, whatever we do." I do not know whether he has told that to his hon. Friend the Member for Barrow and Furness (Mr. Hutton), who was with us briefly. The hon. Member for Brent, East also told us "Yeltsin is no more democratic than Pinochet" and that there were more democrats in the Russian Parliament. We miss that sort of robust debating style, which we used to enjoy when Michael Foot was Leader of the Opposition. It was back today, and we have had a wonderful day.

Mr. Nicholas Brown

Speak for yourself.

Mr. Leigh

I hope that the Hansard reporters picked up that sedentary remark. Conservative Members have enjoyed the debate, anyway.

For the second time this week, Opposition Members have offered the Government a welcome opportunity to explain our approach to transforming Britain's underlying industrial performance and the fact—which the Opposition cannot deny, in the welter of facts that we have been given today—that our productivity, output and exports have grown substantially since the Government came to office in the late 1970s. It was a time when Governments tried to manage demand instead of encouraging efficiency and enterprise. As my hon. Friend the Member for Colchester, North (Mr. Jenkin) reminded us, even then that approach was becoming discredited. My hon. Friend also reminded us that even a Labour Prime Minister said that that option no longer existed. However, I noted what the hon. Member for Dagenham said about that. Obviously that is his point of view.

We recall that, at that time, unions were obsessed by demarcation disputes and hindered the introduction of new technology and modern working practices, that social goals had priority over industrial regeneration and that massive subsidies cushioned state-owned industries from competition. As my hon. Friend the Member for Sevenoaks (Mr. Wolfson) reminded us in his excellent speech, an industrial welfare state grew up that sapped the spirit of British enterprise which had given us a worldwide industrial lead in the 19th century. Public spending ballooned out of control, as this motion and the left wing of the Labour party invite us to allow again. Taxes rose higher and higher, stifling the incentive to work harder. No wonder that the United Kingdom's share of world trade continued on its downward path.

I remind the hon. Member for Brent, East that we were running a visible trade deficit in 1975. Not surprisingly, in the 1960s and the 1970s we continued to sit at the bottom of the EC output and productivity growth leagues.

As my hon. Friend the Member for Stamford and Spalding (Mr. Davies) reminded us, we had to change things. No one else seemed to want or dared to tackle vested interests, but we were prepared to do so. From the early 1980s, the Government have rejected the easy road of inaction and muddling through. As my hon. Friends have reminded us today, we have transformed the environment for business activity. We have carried out the policies that my hon. Friend the Member for Aylesbury (Mr. Lidington) urges us to do in the second motion on the Order Paper and which he urged us to do in his speech. His motion refers, as he did in his speech, to creating a climate of low inflation, low taxation, deregulation and free trade. I will deal with all those points in my speech.

Industry's response has been remarkable. I salute our manufacturers for the way in which they have grasped the new opportunities. I believe that they have given a real testament to their confidence in our policies, for since 1981—the trough of the last recession—United Kingdom manufacturing output has risen by over a fifth, manufacturing investment has grown by a third and manufacturing productivity has grown by two thirds.

Dr. Berry

Can the Minister explain why he chose to start not with 1985 or 1983, as his colleagues did, but with 1981? What is wrong with 1979 when this Government came to office?

Mr. Leigh

If one is trying to establish credible economic statistics, surely it is wiser to compare the trough of one recession with the trough of another recession. That is why I referred to 1981.

In the 1980s, United Kingdom productivity grew faster than in all other major industrialised countries, after decades at the bottom of that particular league.

Dr. Lynne Jones

rose—

Mr. Leigh

I shall give way in a moment to the hon. Lady. Perhaps she will allow me to plough on a little, after which she can intervene.

The United Kingdom is doing very well in overseas markets, too. We export a quarter of what we produce. Despite the recession, United Kingdom export volume, excluding oil and erratics, is at an all-time record. In the last quarter, it was up 5.5 per cent. on the previous year, despite the world slowdown. As a result, the United Kingdom's share of world trade has at last stabilised after three decades of decline. Export volumes are expected to increase further this year. Small firms, the lifeblood of the economy, have shared in this revival. I shall now give way to the hon. Lady.

Dr. Lynne Jones

Surely the Minister ought to grasp the basic mathematics—that a large percentage of a small figure is still a small figure? If Japan, for instance, were to increase its exports of cars to this country 1 per cent. and we were to achieve a similar increase in our exports, we should have to increase them by 10 per cent. Surely the Government ought to tackle that issue.

Mr. Leigh

What the hon. Lady and her hon. Friends continually fail to grasp is that if we look at all the economic statistics—at productivity, which has increased by two thirds, and at exports, output and investment—they show a rapid rise in the 1980s. They all show us outperforming our competitors in France and Germany.

Mr. Gould

rose—

Mr. Leigh

I see that the hon. Gentleman wishes to intervene.

Mr. Gould

I have been trying to understand one small aspect of the Minister's case. He suggests that the 1980s was a decade of great economic achievement. Why, as he has just made clear, have his Government—uniquely, as far as I am aware—the luxury of being able to compare the trough of one recession with the trough of another in the same term of government? How did that happen?

Mr. Leigh

Of course, the hon. Gentleman forgets our inheritance in 1979. He forgets that up to 1981, we had four years of any average inflation rate of 15 per cent. He forgets that we were a strike-ridden country, with virtually no confidence in our industries. All those underlying structural weakenesses of the British economy had to be addressed, and were successfully addressed by the former Prime Minister.

The hon. Member for Bath (Mr. Foster)—the only Member of the Liberal party who has spoken in the debate, but who, sadly, has now left—made a special play for small businesses. I remind him that by the end of 1990, about 400,000 more businesses were operating in the United Kingdom than in 1979. British business has shown every confidence in our policies, just as we have had every confidence in its ability to respond. As the climate for business in Britain became more attractive, business overseas started to notice the remarkable and radical changes that we had made and came here in droves. [Interruption.] It is all very well for Opposition Members to laugh, but we have the No. 1 record for inward investment in Europe.

In 1991, the United Kingdom accounted for 36 per cent. of the stock of United States investment and 40 per cent. of Japanese investment in the EC. The United Kingdom remains the preferred location for foreign investment in the EC.

Ms Abbott

Ministers speak increasingly of inward investment nowadays. Is not one of the reasons why we attract so much inward investment the fact that we speak the English language, which has nothing to do with Government policy? Is not that inward investment problematic in two ways? First, it is predicated on low wages—only 44 per cent. of wages in Germany—which cannot be a long-term basis for our being competitive. Secondly, many components are imported. Although our exports of Japanese cars and televisions are increasing, we have a huge trade deficit because we are an assembly point. The value-added component construction is carried out overseas.

Mr. Leigh

The hon. Lady is right to say that many aspects influence the decisions of potential inward investors and that language comes into it. But there are other factors, such as the skill of the work force, the technology that is available in a locality— for instance, particularly in the lowlands of Scotland, which has an unrivalled record in attracting inward investment—the infrastructure and the Government's economic policies, which reassure the inward investor that he will not be unduly hassled by social controls, that he will pay relatively low taxes and that he will be free to get on and run his business. However, the hon. Lady tries to explain away our record of attracting inward investment, the fact remains that it is there. The Labour party experiences great difficulty in explaining why we have been so successful in attracting inward investment.

Inward investment has helped to reinvigorate key United Kingdom sectors such as vehicles, office equipment and chemicals. It has brought to Britain the latest technology and the best international management practice and has offered tough competition for our companies to measure up to.

Does the hon. Member for Newcastle upon Tyne, East (Mr. Brown) support our commitment to inward investment, because we have received conflicting signals, such as from the hon. Member for Selly Oak, who seemed to pour cold water on inward investment, from what is stated in the motion and from what was said at the TUC? We want an unequivocal welcome and acceptance for potential inward investors from the hon. Member for Newcastle upon Tyne, East, which would do a tremendous amount for our economy. My right hon. Friend the President of the Board of Trade asked the same question in our debate earlier this week and, again, we heard the mealy-mouthed response that is always given.

We look forward to hearing from the hon. Gentleman because inward investment is associated with thousands of jobs, which would otherwise go elsewhere in Europe. Is that what the motion means by the need to develop the domestic productive economy"? If so, our policies will no doubt be endorsed by both sides of the House.

What caused the transformation? Our policies dealt with all the factors affecting our industrial performance. For example, people around the world have now forgotten the British disease—strikes—because we reformed the unions, making them more democratic and accountable. As a result, in 1991 we had the fewest days lost through strikes since records began a century ago. We restored to managers a renewed confidence to manage. We lowered tax rates substantially for businesses and for individuals. We cut corporation tax from 52 per cent. in 1984 to 33 per cent. now—that is the lowest rate in the European Community or the G7 countries—so companies were left with more to invest. We reduced the basic rate of income tax from 33 to 25 per cent. People have found that extra effort brought extra rewards, as my hon. Friend the Member for Aylesbury reminded the House.

Mr. Jenkin

I wish to draw my hon. Friend's attention to a firm in my constituency, which could benefit from further encouragement, through the tax system, to invest in research and development. We do not allow expenditure on near-to-market research and development to be offset against tax. It must be capitalised and, effectively, companies pay tax on the amount before they are able to invest it. Could my hon. Friend draw the problem of the family-run, surgical equipment manufacturer, which exports a substantial amount of its production, to the attention of my right hon. Friend the Chancellor of the Exchequer, if not before this Budget, for a future Budget?

Mr. Leigh

I shall certainly draw that issue to my right hon. Friend's attention. We are close to the Budget, so I am not sure whether it would be wise for me to comment now. If he can change his statement even at this late stage, he might do so. Who knows?

Dr. Lynne Jones

Is the Minister not aware that many manufacturers and the Engineering Employers Federation have said that the Government's tax policies have been antagonistic to industrial investment? He referred to the reduction in corporation tax but did not mention the fact that, at the same time, there has been a reduction in tax allowances for investment. The Government gave to those companies that were not investing in manufacturing the same tax advantages as the companies on which we depend to invest for the future. That does not help industry.

Mr. Leigh

If the hon. Lady thinks that her proposals in the motion are not antagonistic to investment and industrial confidence, I do not know what world she is living in.

I have much more to say, but I must get a move on or all the excellent work that I have done in preparing for the debate will have to be curtailed so that other hon. Members can participate.

I conclude by saying a few words about what we have heard from Labour Members today. They spoke of the damage that they believe the Government have done to the economy, so I shall respond by saying how much damage Labour is doing to the economy, even in opposition, and how much more damage it would have done if it had not been humiliated by a record fourth election defeat.

In the past 14 years, Labour has had a problem getting anyone to listen to it about the economy. We should all be grateful for that. However, one group is listening to Labour. It is not the unions, which do not have to listen as they tell Labour what to say in the first place. The people who cannot help hearing what Labour is saying, because it is saying it so loudly and so often, are the foreign business men thinking of investing in Britain, the potential foreign investors whom the Labour party is doing its damnedest to deter and discourage. That is pure madness.

Labour cannot keep its mouth shut, as we have seen and heard today. The minute a Labour Member got up to speak, the words just slipped out. None of them could help it. They said, "Britain can't do this", "Britain can't do that", and "We are a low-tech economy." That is not the image of Britain or of British industry which I see when I travel around as a DTI Minister, but such words slip naturally from Labour Members' lips. Perhaps talking Britain down is an involuntary reaction of Labour Members; some sort of congenital disease or socialist sickness that has spread to the past masters of doom and gloom on Labour's Front Bench.

Anyone who has been involved with the DTI in the past couple of years has seen it all before: the hon. Member for Dunfermline, East (Mr. Brown), who could wipe the smile off one's face at 100 paces, and the hon. Member for Glasgow, Garscadden (Mr. Dewar), who would find it difficult to be happy even if he won the pools. We were hoping for a little more jollity from the hon. Members for Dagenham and for Brent, East but, unfortunately, we did not get it. Perhaps the hon. Member for Newcastle upon Tyne, East will oblige.

Labour's answer to the problems that the recession has brought was revealed last week in its party political broadcast. I hope that in your busy life, Madam Deputy Speaker, you had a chance to see it. It was an expensive production. Who knows how many staff at Walworth road lost their jobs to pay for it? It was an extremely expensive way in which to say, "Things are terrible. Somebody ought to do something about it, but don't ask us. We don't have a clue." I see Opposition Members laughing—they believe that too.

Labour does not believe in policies any more, as the hon. Member for Brent, East reminded us; it just believes in sound bites. That is precisely what the hon. Gentleman told us this morning. In the party political broadcast, Labour did not offer us a single policy to get us out of recession. It was just motherhood and apple pie—more motherhood than a maternity ward and more apple pie than Mr. Kipling.

No wonder Labour was singing the blues in that television broadcast. Labour's absurd and damaging policies and ideas have been comprehensively rejected across the globe. As my hon. Friends have reminded us today, those policies are sinking in France, scuppered in Spain and scrapped in Sweden. Even in the United States, President Clinton, whom many Opposition Members seek to emulate—not, I hasten to add, the hon. Members for Brent, East and for Dagenham—is urging the need for responsible fiscal policies and cuts in health spending, and not for more increases in spending.

Labour still does not seem to have caught on. It is a long time since the political boatman cried, "Come in Labour, your time is up." Yet Labour still refuses to listen. Labour Members are still out there, defiantly paddling away when everyone else has gone home without them. Poor old Labour, stuck in the middle of a lake and pretending to have a good time, whistling the old tunes to keep its spirits up all the time. Night time approaches; will Labour never see the light?

Britain is on its way back and the Labour party knows it. Labour Members cannot stand it because good news for Britain is bad news for Labour. Labour's pious words about the need for recovery carry about as much conviction as Woody Allen taking up a new career as a child minder. Labour is desperate for the recession to carry on as long as possible because it knows that if the economy goes up, its opinion poll ratings will go down.

Why does Labour find it so difficult to hail the £1 billion contract won by GEC to build one of the world's largest power stations in Hong Kong or the £448 million contract won by Thames Water to build a new water plant in Turkey—all in the past few months? Is it so difficult for Labour to welcome the fact that half the firms in Europe's top 50 are British or to celebrate the transformation that has taken place in our motor industry, the backbone of British manufacturing strength?

No one would be more pleased than I to see Labour organising rallies around the country, not to spread its message of doom and gloom, but to encourage firms to make the most of the huge advantages of having the lowest interest rates in Europe, the lowest level of inflation for 25 years and the lowest level of business taxation not just in Europe, but across the industrialised world. We are beginning to see why the Labour party finds it difficult to come up with anything positive. Labour knows that recovery would not have been possible if it had been elected. It is no longer just Conservative Members who say that. Labour's own Front-Bench Members are admitting that as well. Let us think about it for a minute.

Before the election, Labour told us that it had a package that would bring recovery and that within four weeks, it would be in the Treasury implementing its shadow Budget for recovery. The hon. Member for Newcastle upon Tyne, East was going to be there. As we all know, the business men and voters of Britain had other ideas and Labour Members were left to languish on the Opposition Benches for four more years.

What have Labour Members been up to these past 11 months, when they have not been talking Britain down, that is? Have they been consolidating the measures that they said would deliver recovery or fine-tuning the policies that the Leader of the Opposition said would win them the election? As we have been reminded today, what has happened is just the opposite. Labour Members have been shedding their election policies like a moulting cat. No sensible business man believed that Labour would achieve recovery through the largest tax increase in history. That was what lay behind the shallow promises of the shadow Budget.

The shadow Chancellor has now admitted in The Guardian that perhaps further increases in taxation would be mistaken. The Leader of the Opposition has gone further. Speaking in Paris—talking Britain down again-he said that he thought that it was economic madness to contemplate increases in taxation on ordinary taxpayers. That statement has been severely criticised today.

I have recently completed a series of regional seminars and have talked to more than 200 companies—real companies. I find so much to be proud of in this country —so much entrepreneurial flair, inventiveness, sheer competitive spirit, enthusiasm and success. The House of Commons delights in cynicism and even despair, as has been evident this morning. Let us take pride in our country and in our world-beating industries—chemicals, pharmaceuticals and high technology.

As I have toured industry and met industrialists during my two years in my present job, I have found people calling on the Government not to pick winners but to back winners. That is what we are doing. We have been asked to help spread good technology and best practice around industry and better exploit our scientific and academic excellence. That is what we are doing at the Department of Trade and Industry. Commerce works as effectively as water flowing down hills as long as we do not seek to dam its creative entrepreneurial energies but, rather, to promote and encourage them.

We in Britain have so many advantages—our unique geographical position as an entrepot between Europe arid the Americas, our commitment to free trade and our championship of it in Europe, our language and our inventiveness. In partnership with industry, we shall lead Europe out of recession with lower inflation, with lower taxation and with lower labour costs than our competitors-and with a competitive currency. As socialists struggle to find not so much a new identity as any identity, our approach will succeed.

Let us then raise the banner of confidence in this country—as my hon. Friends have done today—and resist Labour Members' efforts to haul it down. Let Labour d[o its worst; we shall do our best.

1.51 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East)

It is a little ambitious of the Minister to seek to take credit on behalf of the Conservative party for Britain's unique geographical position. He has had a unique opportunity 10 defend the Government's record on the management of the economy, yet his peroration seems to have run away with the rest of his speech. He spent most of his time not attacking the Labour party for what it had done in the past —he left that to his Back Benchers—but attacking the Labour party for what he believed it would have done in the future had it won the general election.

The motion before us is specific. It refers to the Government's conduct of economic policy. The Minister is here today to defend that conduct, and it is significant that he manifestly failed to do so.

Two main themes emerged from Conservative Members' speeches: first, the Labour Government had been bad for the country and were probably responsible for all our present ills—overlooking the fact that Labour went out of office in 1979; secondly, if one was looking for good news Conservative Members could forecast good news, though could not actually tell us any good news but only forecasts of good news. The hon. Member for Stamford and Spalding (Mr. Davies) was the exception. He managed to redefine the evidence so that it could be presented as good news. I have to tell him that it could not plausibly be presented as such.

I congratulate my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) on initiating a stimulating and vigorous debate which has given the Government the opportunity to fulfil a responsibility that they have been shirking since Christmas—to come to the House to defend their economic policies. It is because Treasury Ministers have been shirking that responsibility since Christmas that I was somewhat surprised that a Department of Trade and Industry Minister should have shirked it again today. The evidence tells against him. The current recession, which inspired today's debate, has been the longest in the post-war period. We have now had some 10 quarters —two and a half years—of negative economic growth. It has been not only the longest but the most severe recession that Britain has endured for a long time.

The Organisation for Economic Co-operation and Development estimates that the output gap, the difference between actual and trend gross domestic product, suggests a waste of between 6 and 7 per cent. of GDP. As a measure of unproductive capacity and waste of resources in the economy, we are being advised that the results of the present recession absolutely dwarf those of previous recessions. Even the particularly severe downturns of 1974–75 and 1980–81 saw output gaps of 3 per cent., which is less than half the current level.

I have never been so worried about the state of the economy in my country. If I express those fears on my behalf and on behalf of my Opposition colleagues, that does not mean that we are talking Britain down. There is a tendency among Conservative Members to assume that the interests of the country and those of the Conservative party are the same. They are not. It is perfectly legitimate to express fears for the country in which we all live and to attack the Conservative party at the same time. I believe that the economy will not and cannot recover all the output that has been lost over the past two and a half years. The present recession has a permanent, enduring and negative effect on the size of the economy. The growth path has not just been through a cycle; it has shifted permanently lower.

Firms faced with such a large fall in output and such a sustained recession are cutting capacity instead of waiting for an elusive recovery. Firms have gone bankrupt. Others have scaled back, not just temporarily but by scrapping and not mothballing unused productive potential. The latest growth forecast figures were available to the House this morning. The Minister will be particularly interested in what those figures reveal. We now know that the percentage change in GDP since the beginning of the recession in the second quarter of 1990 is 3.5 per cent. in the negative. In terms of billion pounds per year in 1992–93 rates, that is a loss of £21 billion.

That is the range of the problem confronting us. The Minister claimed that the Government had transformed the business environment. I should like to tell the House how Trade Indemnity—the United Kingdom's leading independent credit insurer, as it tells us-believes the business environment has been transformed. According to Trade Indemnity, 30 per cent. of United Kingdom firms are now working at half capacity and there appears to be no evidence of recovery in the United Kingdom economy. It says that construction failures rose 9 per cent. quarter on quarter and that service industry failures rose by 6 per cent. quarter on quarter. It also says that business failures in the northern region, the region which Conservative Members often claim somehow survives the recession more satisfactorily than other regions, rose by 19 per cent. quarter on quarter, providing the worst figures in the country. According to Trade Indemnity, prospects for the economy still appear weak and the danger of United Kingdom businesses being unprepared for the upturn in the economy is severe.

On 16 February, Peat, Marwick McLintock announced that there was an 8.2 per cent. rise in liquidations between 1991 and 1992. That is the scale of the problem. The Minister should have addressed that problem, but he did not. It is the Labour party's contention that the root cause of our problem is the failure to take investment seriously. I must tell Conservative Members that that is not something which divides this side of the House but something which we have in common: we believe in investment in our nation's industrial base and in the potential skills and abilities of our fellow citizens.

The Government should be leading the effort to rebuild our industrial base and to renew our public services, but they deliberately and wilfully march off in the opposite direction as though recession were somehow good for the national soul. As that former Chancellor who left the present Prime Minister with the unenviable heritage of 15 per cent. interest rates and 11 per cent. inflation once said, "If it isn't hurting, it isn't working." As the Prime Minister invites us to consider his inheritance when he became Prime Minister, it seems only fair that we should consider the inheritance of the present Chancellor when he assumed that post. Just because no one on either side of the House has said anything favourable about the present Chancellor in this debate, that does not mean that he does not have the same right as the Prime Minister to complain about his inheritance.

If no one else will stand up for the Chancellor I suppose that it falls to me to do so—because he has a defence. As my hon. Friend the Member for Dagenham (Mr. Gould) said, the Chancellor did not choose the rate at which we entered the exchange rate mechanism; nor did he choose the timing, which was just before the annual meeting of that key factor in the management of international economic affairs, the Conservative party conference. The present Chancellor did not impose ruinously high interest rates on British industry; nor did he maintain them for such a long time; he was only the Chief Secretary at the time and, as the present Chief Secretary would no doubt confirm, that means that he should not be blamed at all. The Chancellor's defence should be to say loud and clear, "I think that you have to consider, first, my inheritance as Chancellor: we had 15 per cent. interest rates and inflation was just under 11 per cent.—what to do, what to do?"

People who moan about the mess that they have inherited usually go on to demonstrate how things have got better since they took over. Is such a defence open to the Prime Minister and his Chancellor? The United Kingdom's economy has shrunk by 3 per cent. since the Prime Minister took office. That failure to achieve growth has happened under the regime of the Prime Minister who reportedly told The Independent that "growth" was the happiest word in the English language. I suppose that we could say that that puts love, sex and money in their place. Each to his own.

The hon. Member for Altrincham and Sale (Sir F. Montgomery) spoke about the OECD's forecasts for the five years from 1989 to 1994. The OECD forecasts that the average growth of the G7 economies will be 9 per cent. Over that time, the British economy will have grown by less than 1 per cent. That clearly shows that the problem has a particular and peculiar British dimension that the Government should address. Investment in Britain has collapsed. It fell by 14 per cent. in the past three years and the Government forecast that it will grow by only 0.25 per cent. this year.

Private credit agencies have told us much about business failures. The Conservative party, the party of enterprise, has presided over the destruction of the enterprise for which the Conservatives claim to stand. The United Kingdom recorded 62,000 business failures in 1992, compared with 47,000 in 1991. That is an increase of 31 per cent. on 1991, which itself recorded a rise of 65 per cent. on 1990. The Conservatives are the party of business failure rather than business opportunity.

The housing market has also been hit by the recession. United Kingdom house prices have fallen by 7 per cent. since the recession began, leaving many families trapped in homes that are worth less than their mortgages. In the depths of a recession one would have thought that the balance of payments would give the Government at least some joy and that they could point to some cause for optimism. That is not possible either. The latest figures for December 1992 show the biggest monthly rise in the balance of payments deficit for two and a half years. It is a rise of £1.5 billion, which is up on November and three times the figure for December 1991.

The end of the year figure for 1992 was £12 billion, That is despite cheaper exports and more expensive imports. Given its position on the economic cycle, that figure shows that there is something structurally wrong with our economy. Did the Minister say a word about that? He did not.

Probably the most important issue and certainly the most important for the parliamentary Labour party is what all this means for our people in terms of jobs and the country's employment base. Does any Conservative Member recognise the following quote?

The scourge of unemployment has afflicted the industrialised world more harshly than at any time for 50 years. Britain has suffered as acutely as any country. If any Conservative Member would like to intervene to say where that quote comes from, I shall be happy to give way. No one does. It is from the Conservative party manifesto of 1987, the manifesto on which Conservative Members fought the 1987 general election. That, and the subsequent text, gave the clear impression that the Conservative party was to reduce unemployment, but nothing of the sort has happened. Since the Prime Minister took office, unemployment in the United Kingdom has increased by 1,290,300, from 1,704,800 in October 1990 to 2,995,100 in January 1993—an increase of 76 per cent. The unadjusted figures for the same period show an increase of 83 per cent.

Mr. Jenkin

There have been Conservative Governments who have reduced the rate of unemployment, but naturally no Conservative Government have ever promised to abolish the economic cycle. Can the hon. Gentleman draw the attention of the House to a single Labour Government who have left office with a lower rate of unemployment than that which they inherited from their predecessors?

Mr. Brown

The hon. Gentleman is trying to apply to me a test that the Minister and other Conservative Members who took part in the debate would not accept for themselves. When they were asked about the periods that they accepted for the statistics that they used in the debate, they would say that a fair starting point was 1985 or 1981. If one examines closely the record of the last Labour Government and makes allowances for the disastrous overhang that they inherited from the Anthony Barber boom regime which preceded them and for the oil crisis, it is fair to conclude that unemployment was being reduced as they left office to just below 1 million.

We all know that there was a disastrous upturn when the nature of the Government changed in 1979. The Labour party and the last Labour Government can take some pride in their record on employment, but the Conservative party can take no pride on that issue. Indeed, it seems to be the Conservative view that it should not be an issue for government at all, except as an aspect of policy on inflation. It is noticeable that when the Conservative Government claim to have inflation under control we have massive unemployment and, when they begin to think that they should do something about unemployment, inflation starts to go up again. That has been a persistent problem for the Conservative party in government and I have yet to hear a convincing response from Conservative Members on that issue.

Mr. Jenkin

Will the hon. Gentleman give way?

Mr. Brown

I do not wish to eat into the time of other hon. Members who wish to contribute to the debate, but I will give way to the hon. Gentleman a second time.

Mr. Jenkin

I am grateful to the hon. Gentleman. It is fair for the Conservative Government to take credit for the fact that in the United Kingdom a higher proportion of the population are in full-time or part-time work than is the case in virtually any of our European competitors. Will the hon. Gentleman at least give us the credit for that?

Mr. Brown

The hon. Gentleman should come to my surgery on a Saturday morning or a Friday night and explain that to the substantial number of my constituents who are out of work. They do not want to know that other people are in work. They want to know why they cannot have a job. It is not that they do not want to work—they want a job.

Let me say a little more about the sort of jobs that Conservative Members seem to support. There are 29 claimants chasing every vacancy, and regional variations are substantial. The experience of the 1980s tells us that many of the long-term unemployed withdraw from the labour force during a recession and do not find their way back during recoveries. Many of the 1.6 million people who have lost their jobs in the past two and a half years may never return to the labour market. That is a human tragedy and one which is a direct result of the policies that the Government have pursued. The Labour party, in opposition and in government, is committed to bringing that to an end. The enduring cost of the recession in scrapped capital and labour is likely to be about 3 per cent. of GDP or £20 billion a year of lost output.

Conservative Members have talked about low wages in other economies, such as that of Taiwan, as a cause for the success of those economies. They did not mention Taiwan's massive and intelligent industrial investment. Nor did they mention Taiwan's strong manufacturing base. They did not tell us about Taiwan's strong commitment to education, including industrial education, and to training. There are more students in higher education in Taiwan, as a proportion of the population, than in the United Kingdom. The Conservative party and the Government seem to believe that by keeping British citizens poor the economy will recover. We have heard much from Conservative Members about the importance of keeping wages low. They argue that, somehow, that makes people rich, but I do not follow the argument.

I shall give an example that has been provided by a Conservative party supporting newspaper, the Newcastle Evening Chronicle, in an advertisement for a job. I think that Conservative Members will like my example because it is the sort of job of which they approve. The job is for a chauffeur-handyman to work in a large house in the Gosforth area. The applicant must have a clean driving licence and at least one letterheaded reference relating to a similar job. The job requirements are chauffeuring locally, travelling long distances and looking after the upkeep of the house. He must have some gardening experience and some painting and decorating experience. There will be daily yard sweeping and gravel raking. He will be required to go out to undertake many odd jobs, including walking the dog and purchasing the shopping. The applicant will be expected to wash and valet the cars. There are many more duties. Understandably, a polite and patient manner will be required. The hours from Monday to Friday are 8.30 am to 6.30 pm. The successful applicant must be available to be on call for 24 hours if necessary. The pay is £150 a week. Despite the requirement to be on call for 24 hours, the advertisement states that some overtime might be available. Finally, it is a necessity that the applicant has his own car. I expect that Conservative Members think that that is a good job. The real test is not political ideology but whether any of them would apply for the job. Would any of them undertake it for £150 a week? We know that they would not.

At least that job was in the country, which is more than can be said for the jobs of those who run our pensions at the Department of Social Security offices at Longbenton. Apparently the Government are proposing to dismiss those workers—and to have the details of about 22 million pensioners sent by satellite transmission to the Philippines so that workers who are paid about 38p an hour can undertake the work instead. That might lead to a saving of money, but it means the permanent loss of jobs in our economy. Not content with seeing manufacturing jobs go abroad, the Government are planning to see how many service sector jobs can be sent abroad as well. What they expect the economy to consist of and what they expect people to live on once they have done that, they do not tell us. There was an opportunity for the Minister to explain that to us, but he did not take it.

The Government's failure to intervene in just about any area of the economy was starkly demonstrated this morning with the collapse of the Taurus system and the subsequent resignation of the chairman of the stock exchange. That is a matter for both the Treasury and the Department of Trade and Industry. Surely the Minister could have said something about the Government's response to that significant event. If other major trading centres can run computerised trading systems, it is pathetic if it is not possible to get such a system running in this country. It is important that Taurus is in place and that it comes on stream. The failure of the private sector to manage this for itself should be of great concern to the Minister, yet he did not mention it. I shall give way to him if he wants to say that the Government take the matter seriously and intend to intervene directly to ensure that Taurus does come on stream.

Mr. Leigh

The tone of the debate on that issue was perhaps sent by the hon. Member for Brent, East (Mr. Livingstone), who told the House that in his view the City of London should be towed away and put in the middle of the Atlantic.

Mr. Brown

The City will note that the Minister felt that he could safely respond to my hon. Friend's remark but not to the point of greater interest to those who work in the City and believe that Britain has a future in the financial services sector—the importance of Taurus. Many people outside the House would have expected the Minister to say something more constructive and to deal with the heart and core of the issue, rather than with my hon. Friend's theoretical threat.

Reference has been made to the 1988 top rate tax reduction, which many of my right hon. and hon. Friends feel contributed to the country's current problems. Those reductions were accompanied by lower interest rates—though not for very long—and by substantial credit relaxations. Dynamic young Conservatives lectured in the late 1980s on the need for "gearing"—the Conservative code for borrowing up to the hilt. The Conservative party's heroes of that time were the Reichman brothers, Mr. Godfrey Bradman, and others who were supposed to turn base metal into gold.

We were told that there would a trickle-down effect —that giving the rich more money to spend would somehow help the rest of us and stimulate economic growth. All that Conservative policies stimulated was asset price inflation, and interest rates quickly increased. There were 10 successive quarters of negative growth. The policy designed to produce economic growth was at least partly responsible for exactly the reverse occurring, paralleled by a massive rise in unemployment and in the public sector borrowing requirement. As Chancellor of the Exchequer, the Prime Minister spoke of wealth trickling down through the generations. The Conservative Government's achievement is to ensure that debt will go trickling down through the generations—debt incurred at least in part not for investment but for pre-election tax cuts.

If the experience of the late 1980s taught us anything, it was that giving money to the rich to help the rest of us is not just idiotic but positively damaging. Negative growth, rising unemployment and a massive deficit are the peculiarly British dimensions to the present crisis. Output has fallen 3 per cent., while that of our competitors is still growing. Unemployment in Britain is rising twice as fast as in competitor countries. Consumer spending has fallen 2 per cent. below the level of two years ago and investment 15 per cent., while imports have risen 4 per cent. The only real increase in demand is the recession-led 8 per cent. rise in public expenditure since 1990–91. I have not noticed the Chief Secretary to the Treasury taking credit for that—presumably it was his predecessor's fault.

The challenge facing the Chancellor on Tuesday is whether he will take the measures to get this country back to work. As my hon. Friend the Member for Dagenham rightly said, the Chancellor must focus on employment as a key issue in the management of the British economy one which requires the attention of the Government. However, the Prime Minister's recent statements in the House do not give us much hope for the future. When asked about employment at Leyland DAF, he said that matter was for the receiver. That could be an epitaph for our manufacturing base.

This country needs investment in its infrastructure and in the skills and abilities of our fellow citizens. It also requires investment in our public services. Many hon. Members have spoken of the need for Britain to become a clever country. I say to the House that it will never do so while we have a stupid Government.

2.18 pm

Mr. John Townend (Bridlington)

I shall have to disappoint the hon. Member for Newcastle upon Tyne, (Mr. Brown), because I am happy to support my right hon. Friend the Chancellor of the Exchequer and his policies. It is strange that the hon. Gentleman did not mention that this country—which, according to the Opposition, is in a terrible mess—exports a greater proportion of its gross domestic product than any other industrialised nation.

When we debate the economy, we must look around the world, because what happens in the rest of the world has a great effect on this country. Apart from the United States of America, where a floating dollar and high interest rates have produced significant growth, the outlook is pretty bleak. Japan, after a stock exchange crash and the collapse of property values, is teetering on recession. But Europe is the disaster area. That is bad news for the British economy, because Europe is now our largest market. Germany, led by Chancellor Kohl, has mishandled reunification. As a result, Germany's public debt is increasing, interest rates are high, unemployment is rising and the recession is deepening.

The countries that remain in the exchange rate mechanism have interest rates at a level appropriate not for their economies but for the German economy. France, with low inflation, has the highest real interest rates in history and has been driven into recession; unemployment stands at more than 3 million and the socialist Government will be thrown out lock, stock and barrel.

The situation is even worse in Italy, which is in a mess economically and politically. Corruption and mafia influence permeate big business and the political parties. It is not a pretty sight. In Spain, unemployment is rising, the prestige of the socialist Prime Minister is falling and that country, too, is in a mess.

Let us consider the situation in this country. We have the lowest inflation rate in my lifetime. Because we are no longer in the ERM, we have a competitive pound, the lowest interest rates in Europe and low corporate and personal taxation. We enjoy first-class industrial relations, with the number of days lost through strikes the lowest for years. Because we opted out of the social chapter, industry has the advantage of not being weighed down by the social costs of Europe.

Our stock exchange is buoyant. It is always ahead of the game when it comes to the economy—just as the bookies are at election time. We have all the ingredients for a successful economy once the recovery gathers speed. The Government deserve proper credit for that.

Let us consider how things would have been if a Labour Government had been elected last summer. Does the Labour party, never mind anyone else, really think that, under a Labour Government, inflation would be as low as it is today? Labour made it clear that it would have kept Britain in the ERM. There would have been realignment, but interest rates would be higher than they are now and the pound would not be as competitive.

In the general election, Labour was honest in saying that it would increase the burden of taxation. Industry would have carried the burden of not only the social chapter but a minimum wage. Tens of thousands more jobs would have been lost and many more businesses would have gone bankrupt. The result would have been disastrous. There would have been no recovery and this country would have been stuck with the deepest recession this century.

There are three outstanding problems and we should not make any secret of them: a large budget deficit, a big balance of payments deficit and high unemployment. Two of those problems are interconnected—unemployment and the balance of payments deficit. High unemployment is not caused just by recession. It is made worse by the deferred effect of the computer revolution. That is noticeable throughout the financial services industry, banks and insurance companies. Even with a strong recovery, those jobs will never come back.

While I fully support the Prime Minister in our need to expand our manufacturing base, we must be clear that it will not provide jobs, although it will provide wealth. The new robo-factories will not provide all that many jobs. Service industries, and small businesses in particular, will have to provide them. A large hotel will employ many more people than many manufacturing industries and, if it provides services for international tourism and earns foreign exchange, it is just as important to our economy.

Unemployment is interconnected with our balance of payments deficit. Our problem is not so much the fact that our exporters are not successful; it is the amount of goods and services that we import. If we could make significant progress in winning a larger share of our own market, we would help to solve both problems. I can tell my hon. Friend the Minister quite openly that the Government have to be prepared to cheat for our industry in the way that the French cheat for theirs. We also need a change of culture among many of the buying public, as many of them still think that it is best or smarter to buy foreign goods.

Since 1979, British industry has made great strides, as many of my hon. Friends have said. Whereas 10 or 15 years ago, one might have argued that British goods were not competitive or of the right quality, today many British goods are of the best quality in the world and are competitively priced. Yet we still have a prejudice against them. I think that Dixons, the large retailer, sells videos that are made made in this country but sold under a Japanese-sounding name.

My constituency is an example. I represent more pigs than people, because the largest pig production in the country is in my constituency and we produce the finest pigmeat in Europe. Although our bacon was not of the highest quality 15 years ago, I defy anyone today to find bacon of a higher quality or more competitively priced than English charter bacon. Is it not a disgrace that 50 per cent. of bacon bought in retail outlets is from Denmark or Holland? My wife cannot buy British bacon in our local shop. The retailer told her that the cash-and-carries stock only Danish bacon.

I could speak for some considerable time on how to deal with the budget deficit, but I am delighted that the Government have made it clear that it is their number one priority to deal with that problem in the next year.

Because of the problems that we have faced in the past few years—no one denies them—it has become fashionable to write off our economic success of the 1980s, which was based on two pillars of economic policy. The first was progressively to reduce the budget deficit and to bring it into balance—fiscal rectitude, which is something that I have believed in all my life. The second was to reduce inflation by controlling the money supply and letting the pound float.

I am delighted that the Government have returned to those two fundamentals. We have a floating pound and our situation has improved enormously since September. Inflation is low and we are paying more attention to monetary targets. I am convinced that if we stick to those policies our prosperity will return and, as a result, we shall be able to have a long period of non-inflationary, sustainable growth, which will be of the utmost benefit to our people. In this world of changing circumstances, it is clear that economic might, not military might, is all important.

The Chancellor of the Exchequer has done a magnificent job in rescuing our economy. I hope that he will set out his strategy in his Budget and that when he introduces his December Budget it will be clear to everyone that this country has recovered.

2.29 pm

Mr. Oliver Heald (Hertfordshire, North)

I am pleased to have this opportunity, just for a few moments, to make one or two points from what was going to be a fairly long speech—

Mr. Livingstone

rose—

Mr. Heald

I shall give way to the hon. Gentleman.

Mr. Livingstone

Does the hon. Gentleman agree that, far from the Chancellor having—

It being half-past Two o'clock, the debate stood adjourned.