HC Deb 31 October 1996 vol 284 cc772-4
4. Mr. Amess

To ask the Chancellor of the Exchequer what economic factors he expects to improve industrial output over the next 12 months. [311]

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

Industry will benefit from the most favourable combination of economic circumstances for decades—living standards are rising, business and consumer confidence are high, United Kingdom firms are highly profitable and are competitive in overseas markets, investment is rising, inflation is low and the public finances are under firm control.

Mr. Amess

Does my right hon. and learned Friend agree that Britain's strike record last year was the best since records began and that statutory recognition of trade unions, as proposed by the Labour party—a power that unions have never been given in the past—would pose a new danger to Britain's industrial output, particularly in Basildon and Southend, West?

Mr. Clarke

I never fail to point out to our European partners that not only do we not have the social chapter but, because we have adopted more flexible labour market practices at a local level, we have the best industrial relations record we have had this century and a very much better record than anywhere on the continent. I agree with my hon. Friend that it is extraordinary that new Labour has put forward proposals on trade union recognition and the dismissal of strikers which go far beyond anything that old Labour tried to do in the 1970s, and that that poses a great threat in Basildon and elsewhere.

Mr. Sheldon

Is the Chancellor aware that there is widespread disappointment in industry at his decision to increase interest rates? The result has been the greatest degree of uncompetitiveness in the pound sterling with, as a consequence, declining exports and problems for the balance of payments. That is a pure consequence of what happened yesterday.

Mr. Clarke

The decision taken yesterday received a much better reception from most people than it has done from the right hon. Gentleman. Most people in British industry know that the key thing now is to keep in place for the next few years the combination of circumstances that I have just described and not to throw it away by allowing inflationary pressures to build up and threaten our progress.

The right hon. Gentleman should be in a better position than most of us to point out the lessons of the past. When he was a Treasury Minister, we were used to double-figure interest rates and double-figure inflation. We lost control and threw away any advantages that British industry might have had. That was the result of mismanagement under a former Labour Government, which the Conservative Government do not intend to repeat.

Mr. Nicholas Winterton

Although I share to an extent the view of the right hon. Member for Ashton-underLyne (Mr. Sheldon) that a rise in interest rates is not helpful, I appreciate why my right hon. and learned Friend has done that and I hope that he is proved right. Does my right hon. and learned Friend accept that one way in which he could ensure that industrial output improved would be to avoid any further cut in infrastructure expenditure, which is so important to industrial efficiency, and that he and his Department should encourage investment in industry further by considering an improvement in capital allowances?

Mr. Clarke

Of course I accept that an increase in interest rates is in itself never welcome news for those in manufacturing industry, with whom my hon. Friend is so concerned. However, people in manufacturing industry all realise that monetary policy has to be adjusted to protect against inflation. They have seen from what happened the last time I increased interest rates that, if one acts in good time on a modest scale, inflationary pressures are snuffed out and interest rates move within a narrow band while inflation generally stays low. That is the best assurance for the future.

I take on board my hon. Friend's representations about the importance of infrastructure investment. That is right. We should sustain the necessary level of investment in infrastructure for our long-term good, and my hon. Friend the Financial Secretary's replies on the private finance initiative show that there are new and better ways of delivering better-quality infrastructure products at better value for money for the country.

Mr. Milburn

Given all the claims that the Chancellor has just made about industrial output and the rosy picture that he painted of the British economy, will he explain why national income per head is higher in Germany and France in a downturn than in Britain today? Will he also explain why, far from being the enterprise centre of Europe, Britain is ninth out of 15 in the European prosperity league? After 17 years of failure, will not the British people rightly conclude that enough is enough?

Mr. Clarke

I welcome the hon. Gentleman to his position on the Opposition Front Bench. He, too, is making his debut—like my hon. Friend the Exchequer Secretary. My hon. Friend, unlike the hon. Gentleman, has chosen the right moment in our economic performance to join the Front Bench. I commiserate with the hon. Gentleman—it was bad luck to become a Treasury spokesman for an Opposition party when the economy is doing so well. I hope that a fresh face will produce fresh league tables—that may come later.

Of course, Germany and France are currently showing higher incomes per head than we are—they have done so for years and years. But we are now outperforming them; we have faster growth than they have and our unemployment is falling from a level that was already below theirs. We are catching up and we shall overtake them. We shall double living standards in this country in25 years, unless the hon. Gentleman and his right hon. and hon. Friends have the chance of getting into office and ruining the economy in the next few months.

Sir David Madel

Does my right hon. and learned Friend agree that, with continuing low inflation, three-year wage deals should become the norm in industry and should also be extended where the Government are the employer?

Mr. Clarke

I find that proposition attractive, but each individual case must be addressed on its merits and all cases must be subject to the usual discussions that take place over wage settlements. My hon. Friend highlights one aspect of becoming used to being a low inflation country. People are still getting used to the apparently low levels of their pay settlements. People receive a 3 per cent. pay settlement, which makes them better off, but some still hanker after a 10 per cent. settlement, which actually made them poorer when we were a high-inflation country. The annual wage round, annual bidding and the expectation of an annual pay change go back to the days when we first encountered hyper-inflation and Governments had pay policies—that was when the ritual got under way.