Competitiveness

HC Deb 02 April 1998 vol 309 cc1397-401

5. Jacqui Smith

If she will make a statement on the impact of the Chancellor's Budget measures on the competitiveness of British companies. [35977]

The President of the Board of Trade and Secretary of State for Trade and Industry (Mrs. Margaret Beckett)

The Budget will have a positive impact on the competitiveness of British companies. Business needs economic stability, which my right hon. Friend the Chancellor made a key theme of his Budget statement. The Budget also contained a number of practical measures to promote competitiveness through long-term investment and enterprise, such as further cuts in corporation tax rates, the abolition of advance corporation tax and the reform of capital gains tax. The Budget will also encourage work and create a fairer society.

Jacqui Smith

I recognise the challenges that British business faces as a result of the high value of the pound, but does my right hon. Friend agree that the clear differences between the Government and an opportunistic and inconsistent Opposition are shown in their respective approaches to the issue? The Opposition are proposing short-term panic measures, with little economic rationale or consistency, whereas the Government have, in the Budget, reduced corporate tax, reformed the tax system and cut regulatory burdens, all of which will improve the long-term competitiveness and success of British business.

Mrs. Beckett

My hon. Friend is entirely right. She identifies a major theme of the Chancellor's approach and of the policies that he has already implemented. Unlike the Conservative party, we do not merely talk about the long-term national interest; we act to secure it.

Mr. Breed

There has been much concentration on the problems that exporting companies face as a result of the current value of the pound, but have the Government considered the problems of companies that are competing against imported products, which are now obviously much cheaper? Such companies find themselves at an extreme disadvantage.

Mrs. Beckett

We take account of all aspects of the impact of the level of sterling. The hon. Gentleman will know that we believe that we should strive to make the exchange rate not only stable but competitive. He will also be aware that it is not easy in the short term for Governments to influence these things. It is right, however, to take measures to create long-term stability, and that is what we are doing.

Mr. Alan W. Williams

Will my right hon. Friend initiate discussions not only in her Department and with the Chancellor, but in Cabinet, about the strength of sterling, which has become Britain's primary economic problem? Does she recall that between 1979 and 1981, when the pound became a petrol currency, 2 million jobs in manufacturing industry were lost as a result of its overvaluation? Moreover, between 1989 and 1992, the pound was valued in the exchange rate mechanism at DM2.95, which was not competitive and produced a second recession. Now that the pound is valued at DM3, Britain is again not competitive. That is a vital problem—we cannot achieve economic stability when sterling is at this level.

Mrs. Beckett

I understand my hon. Friend's concern, and he is entirely right to draw attention to the Conservative party's record. Manufacturing output has risen, on the latest figures, despite the difficulties that he identifies.

Mr. Redwood

Has the President of the Board of Trade now read the Budget documentation, which shows that the corporation tax changes will cost British business £4.6 billion more—not a cut, but an increase—over the lifetime of this Parliament? Has she seen that the national insurance changes mean a big increase in the cost of employing anyone other than those on low pay? Does she not realise that that is taxation by stealth, and taxation of jobs? Does she not see that it is taking money away from companies that desperately need it for research and development and for investment for more jobs at a time of unprecedented pressure on manufacturing?

Mrs. Beckett

I take the right hon. Gentleman's point about companies needing money for investment and research, which is why the Government are taking steps to give them incentives to support both investment and research and development, which is more than the previous Government did.

The right hon. Gentleman asked whether I had looked at the Red Book and the figures for the changes in corporation tax over the lifetime of this Parliament. He must be well aware that, while the changes in corporation tax will have an impact in the short term, in the long term there will be a substantial reduction in payments of corporation tax, of the order—from memory—of £2 billion a year. That is why the Budget's overall impact has been so warmly welcomed by business.

Mr. Sheerman

My right hon. Friend will know how widely British businesses, and especially those who are engaged in innovation and investment with universities, have welcomed many of the measures in the Budget. Will she continue the pressure from her Department to get a deal similar to the overseas development deal, whereby if individuals or companies put money into university research they get a partnership, in the form of a tax bonus or some tax back, that will encourage the vital growth of innovation that links private sector business with our excellent university research capacity?

Mrs. Beckett

I know that my hon. Friend plays a huge role in promoting British manufacturing and research and development. He will be aware of the many steps that the Government are taking to encourage industry, and people in the science and engineering base in universities and beyond, to work together, including the announcement of the university challenge programme in the Budget. I entirely share the view that that is important and will promote Britain's long-term competitiveness. I assure him that we shall continue to act in that way.

6. Mr. Baldry

What assessment she has made of the impact of the value of sterling on the competitiveness of United Kingdom exports. [35978]

Mrs. Beckett

The Government understand the difficulties that exporters face as a result of the level of sterling, but competitiveness depends on a range of factors. The Budget introduced several measures to create a tax system that promotes entrepreneurship and long-term investment. My Department is working in partnership with business to address other issues central to the competitiveness of British industry.

Mr. Baldry

Is the President of the Board of Trade aware that many hon. Members will have received a briefing today from the aluminium industry, representing companies such as Alcan in Banbury, which says: Many exporting companies are now at or beyond the point of zero margin, a situation compounded by the fact that some traditional Far East markets have disappeared completely. Increases in interest rates continue to exacerbate the situation"?

It is hardly surprising that yesterday's Financial Times found that the west midlands is a heartland on the brink of recession. The Birmingham chamber of commerce reports that exports from Birmingham companies are still at "dangerously low levels". [HON. MEMBERS: "Reading."] I am surprised that Labour Members—

Madam Speaker

Order. The latest report from the Modernisation Committee allows hon. Members to quote, so the hon. Gentleman is perfectly in order.

Mr. Baldry

I am sorry that Labour Members are so apathetic about what is happening in Birmingham and what its chamber of commerce reports: that while the pound stays so strong, exporting companies in Birmingham and the west midlands will remain on the brink of recession. What do the Government intend to do to ensure that this country is not driven into recession because of the Chancellor's unwillingness to take any action on the level of the pound?

Mrs. Beckett

I listened with care to the hon. Gentleman and, of course, I have considerable contacts, though I have not seen the Alcan report to which he referred. Of course we understand the concerns expressed in many parts of the country, although, as I pointed out, manufacturing output has just risen again. It is interesting that he and other Conservative Members express such concern about the level of sterling and its impact on manufacturers. Where was he when, under the previous Government, sterling reached levels that it has not yet reached today when the then Chancellor was shadowing the deutschmark? Where was he when interest rates rose to 15 per cent.? Clearly, he was not on the Opposition Benches.

Mr. Skinner

I wonder whether we can get to know exactly what the Tory policy is on the pound. They seem to be gradually coming round to the view that they want a weak pound. I would like to know from my right hon. Friend what are the values of a weak pound. The Tories devalued after black Wednesday, 16 September 1992, when they lost £10 billion in an afternoon, and never went near a betting shop. The Chancellor of the Exchequer sent for a radio to find out what was happening outside on the stock exchange. The Prime Minister locked himself in the lavatory. I do not want to go back to those days. Will my right hon. Friend say what are the values of a weak, devalued, Tory pound?

Mrs. Beckett

My hon. Friend makes some powerful points with his customary verve. I feel entirely unable to answer on behalf of the Conservative party. We gave the right hon. Member for Wokingham (Mr. Redwood) the opportunity in a debate only a few days ago to say what the Conservatives' policy was and what they proposed should happen. I had the distinct impression, from what he did not say, that their policy was to put up taxes, which he is perhaps unwilling to admit. We are well aware that the Conservative party had no answer for these issues in government any more than it has in opposition. As I am sure my hon. Friend knows, 70 per cent. of the increase in the value of sterling, about which Conservative Members now complain, took place under their Government before the general election.

Sir Peter Tapsell

As a Member who at the time publicly opposed the policy of shadowing the deutschmark and joining the exchange rate mechanism, may I ask the right hon. Lady if she would have a quiet word with her esteemed colleague the Chancellor of the Exchequer and explain to him, as I tried to do in the early days of this Parliament, that if control of fiscal policy is separated from that of monetary policy by putting fiscal policy under elected politicians and monetary policy under appointees, whether economists or bankers, the invariable and inevitable result must be higher interest rates and lower taxes than would otherwise be the case? The ultimate price for that is paid in manufacturing and unemployment levels.

Mrs. Beckett

I respect the hon. Gentleman's record in drawing those concerns to the attention of his colleagues, but he talked of record interest rate levels. We are not remotely near the levels—

Sir Peter Tapsell

Not yet.

Mrs. Beckett

Not yet? We are at less than half the level of interest rates under the previous Government. On whether such a course inevitably leads to lower taxes, I have too much respect for the hon. Gentleman's ability and experience not to know that he is perfectly aware that fiscal measures can encompass more than taxation. Indeed, I recall that, over many years, he has called for fiscal measures to tighten public expenditure. I believe that not even he is complaining about the tightness of public expenditure or the management of the fiscal stance under this Government.

Mr. Winnick

The value of the pound is rather high and is undoubtedly causing difficulties, not least in the west midlands, and my right hon. Friend will no doubt take that very much into consideration, but do the Government need any lectures from the Conservative party, during whose 18 years in office 2.5 million manufacturing jobs were lost, not least in the west midlands? Surely they are the last people to lecture us on job losses.

Mrs. Beckett

My hon. Friend is right. The difficulties in the west midlands under the previous Government, of which he rightly reminds us, arose as a result of deliberate Government policy in seeking to drive up the level of sterling and keep it high. We saw exchange rates, interest rates and job losses then that we are not seeing today.

Mr. Redwood

The Government tell us that they are creating a stable and competitive exchange rate. [HON. MEMBERS: "What's your policy?"] I will tell hon. Members our policy: promote savings, do not tax them. That is what the Government need to do at the moment. Yet so far under the Labour Government sterling has risen by 11 per cent. against the deutschmark and by more against other important European and Asian currencies. The pound is clearly uncompetitive at those levels, as any industrialist will tell the right hon Lady. So will she tell us what today's policy is? Is it to make the pound stable at those uncompetitive levels or does she wish to make it competitive by getting it down from those levels? How does she intend to do either? The truth is that it is out of control and the Government are destroying manufacturing as a result.

Mrs. Beckett

I find it extraordinary that the right hon. Gentleman has the gall to carry on like that when he knows perfectly well that he was a member of a Government who drove interest rates to levels twice those that we see now and saw sterling, as a deliberate act of Government policy, at levels above those that we see now. Yes, our policy is to promote long-term stability and to have in that long term a stable but competitive pound. Long-term interest rates, as a result of what the Government are doing, are lower than short-term interest rates. That is a clear sign that we are going in the right direction. The record of the Conservative party on these matters is absolutely catastrophic and it is extraordinary that it has the gall to raise it.