HC Deb 06 April 1998 vol 310 cc82-131 7.14 pm
Mr. Deputy Speaker (Sir Alan Haselhurst)

I must tell the House that Madam Speaker has selected the amendment tabled in the name of the Prime Minister.

Mr. John Redwood (Wokingham)

I beg to move, That this House notes the TUC forecast of 200,000 job losses in manufacturing resulting from this Government's economic policies, the fact that so many manufacturers have to make representations about export and trading problems, the absence of a stable and competitive exchange rate, the damage done by tax increases imposed on business and the forthcoming wage and labour relations problems coming from the Government's social and labour law agenda; and urges the Government to put the interests of manufacturing business higher up its agenda, changing policies before factories close and jobs are lost.

It gives me pleasure to speak to the Opposition motion, and to oppose the Government amendment.

Labour's policy is hurting, but it is not working. Manufacturing is being gravely damaged. Exporters are losing orders; industry is teetering on the edge of recession. Every day brings more bad news. Today's industrial output figures show a further drop in activity. ICI has forecast a £120 million profit collapse, thanks to the level of sterling. Vickers is experiencing difficulties in obtaining repeat export orders, thanks to the level of the pound. Royal Doulton has announced 330 job losses, and has blamed the exchange rate. British Steel has said that 10,000 jobs must go owing to the state of the currency. Last week, one of the nation's big caravan companies, ABI, went into receivership, blaming the impact of the pound.

Only a few weeks ago, the President of the Board of Trade went to the caravan exhibition. She told exhibitors there that she was their champion. Some champion! She should have noticed during her visit that Labour's policies for business were damaging. She should have found out that those people did not want all the extra taxes. She should have discovered that sterling was crippling their exports. She has done nothing about the problem, and today she owes the industry an apology and the House an explanation.

The President of the Board of Trade should explain why she has remained silent throughout the first stages of an industrial collapse, and she should tell us what she intends to do about the high level of the pound. I see that the right hon. Lady is frowning. I wonder whether she frowns because she is completely ignorant of the state of British manufacturing industry, or because she does not know what to do about it. It is no good exuding tea and sympathy, as some new Labour variant of beer and sandwiches. Industry expects the President of the Board of Trade to come up with some answers.

Mr. Barry Sheerman (Huddersfield)

My right hon. Friend the President of the Board of Trade is probably frowning at the cheapjack motion that we are discussing. Twenty years ago, under a Labour Government, 3.6 per cent. of gross domestic product was invested in plant and machinery—in industry. When the Conservatives left office last year, the figure was down to 2.6 per cent. Before that, it had been consistently hovering just above 2 per cent.—lower than the figure in any other industrial nation. What does the right hon. Gentleman say about that record of 20 years of failing to help British manufacturing investment?

Mr. Redwood

During our 18 years in office, we gave manufacturing much more encouragement than the present Government have during the past 10 months. We did not tax manufacturing as this Government are; we did not try to wreck manufacturing by introducing an independent Bank of England, and fiscal policies of the kind introduced by this Government. The hon. Gentleman would be well advised to listen to manufacturers in his constituency, and to speak up for them in the House rather than accepting the brief on the pager and making foolish interventions.

Mr. Ivor Caplin (Hove)

As the right hon. Gentleman has mentioned the Bank of England, perhaps he will tell us whether he thinks that the present Government's policy of independence would be reversed if there were ever another Tory Government.

Mr. Redwood

The hon. Gentleman may wish to note that the legislation concerned has not yet gone through the House, and that we oppose it. Indeed, the Chancellor has jumped the gun: he went ahead with the policy without notifying the House in the first instance, and then, having notified the House, went ahead without the necessary legal backing—backing that he is seeking. The Conservative party opposes that legislation.

As the hon. Gentleman knows, many foolish measures are going through the House, and many more may do so over the next couple of years. My right hon. Friends and I will decide which we can and should repeal when we get nearer to the time to write our manifesto. We may well be able to surprise the hon. Gentleman by giving him the answer that he thinks I cannot give tonight, but he must accept that it would be foolish for us to say at this stage what measures we shall repeal when so many more measures are likely to be presented by the Government.

Mr. Andrew Lansley (South Cambridgeshire)

Did my right hon. Friend see the Chancellor of the Exchequer's Budget Red Book forecast that the rate of increase of business investment is set to halve between 1997 and 1999?

Mr. Redwood

My hon. Friend makes an extremely powerful point, to which I was coming. Of course investment is forecast to plummet under this Government, just as savings are going down. They are hitting savings and investment—the two usually go together—which is the opposite of what they said before the election they would achieve. Labour Members look so glum because they know that the Government are delivering exactly the opposite of the fine words that they offered industry in the run-up to the general election. Does the Secretary of State want to go down in history as a Labour Secretary of State who presided over factory closures, more short-time working and more job losses? That is what the TUC is predicting, let alone independent forecasters or Her Majesty's Opposition.

In the 1980s, a leading Labour commentator said:

The problems of our manufacturing industries remain, and in these circumstances can only get worse". He added:

it is our ability to produce manufactured goods and to compete in our own and in world markets that is central to our industrial and economic performance. Those words are quite right today, and I wish that they would be repeated—they were written by the commentator-turned-Chancellor who is now at No. 11 Downing street.

Will the Secretary of State remind the Chancellor of his fine words in opposition about how important manufacturing is to our economy? Will she find the strength, at least in the privacy of Government, to condemn the lethal combination of the past two Budgets and the independence of the Bank of England, which is forcing adjustment and the policy against inflation on to manufacturers? They will have to slim down or close down.

Before the election, the Prime Minister agreed with the Chancellor, but that was a long time ago, and we know that they have since bickered and fallen out. Before the election, the Prime Minister said:

Britain won't live by services alone. It needs a manufacturing base". After the election, the Prime Minister—a rare visitor to the House—has done nothing to help manufacturing. He is deaf to the pleas of manufacturers about huge tax increases, about the level of sterling and about their having to close factories and go on to short time because of the export position.

Dr. Nick Palmer (Broxtowe)

I am a little puzzled by the right hon. Gentleman's remarks. He appears to be arguing simultaneously that taxes should go down to help industry and go up to help the pound. Which does he favour?

Mr. Redwood

It is a complete fiction for Labour Members to say that Conservative Members believe that taxes must go up. We believe that savings must go up. The way in which to promote savings is to cut taxes on them instead of putting more and more taxes on savers. That huge error of the past two Budgets was underwritten by the Chancellor's error in taking money out of the tills and cash registers of businesses.

Yvette Cooper (Pontefract and Castleford)

Is the right hon. Gentleman saying that he wants to cut taxes on saving and increase borrowing?

Mr. Redwood

I am saying that the economy would be much healthier if taxes on saving were cut and the tax breaks that we left the Government were restored. More natural tax revenue would come in without the increase in rates, which the Government have wrongly imposed. Higher tax rates are necessary if enough manufacturing is killed, which is what the Government are doing, because a generator of additional tax revenue is being destroyed. They are distorting the economy against their interests and against those of the nation.

Labour Members always make two replies when Conservative Members stick up for manufacturers.

Dr. George Turner (North-West Norfolk)

Will the right hon. Gentleman give way?

Mr. Redwood

I shall tell the hon. Gentleman what he is about to say, and he can think of something else. Labour Members tell us that we have no right to stick up for manufacturers because some businesses were damaged and jobs were lost in 1991 and 1992.

Fiona Mactaggart (Slough)

Will the right hon. Gentleman give way?

Mr. Redwood

I shall make this point and then give way, as I always do.

Labour Members are right to say that mistakes were made in that period, and that damage was done. The Conservative party has apologised for those mistakes; more important, we have learnt from them.

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


Mr. Redwood

The Leader of the Opposition made a fulsome apology for the exchange rate mechanism difficulties, from which the Conservative Government and this Government should have learnt. Unfortunately, this Government have not learnt from that experience, and have amnesia about the early 1990s. Over the Conservative years, that was the only time that I remember the Labour Opposition supporting the economic policies of the day. Why do not Labour Members apologise and show that they have learnt something from the experience? They are foolish to keep highlighting it.

Dr. George Turner

I am glad that the right hon. Gentleman publicly apologised for the industrial scars that he left in my constituency—factories in King's Lynn closed and have still not reopened. Does he recognise that, under this Government, we are experiencing the smack of a firm Chancellor who is determined that interest rates will not go to 15 per cent. and that saving rates will not go down to 6 per cent., which are the figures over which the right hon. Gentleman presided?

Mr. Redwood

That is a helpful intervention, because it illustrates the point: mistakes were made in the early 1990s and many factories have not reopened, which is why we say to the Government, "Don't let it happen again." Do the Government at least have the decency to accept that they fully supported those policies and have still not apologised or implied that they have learnt anything from that experience?

Fiona Mactaggart

I find it odd that the right hon. Gentleman is suggesting that what happened in the early 1990s was a tiny blip. Between the election of the Conservative Government in 1979 and the election of the Labour Government, manufacturing industry in Slough did not decline by only 5 or 10 per cent. By the time that I was elected, manufacturing industry in the town was a third of what it had been. That is the Tory legacy. Let us not pretend that there was a little blip at the beginning of the 1990s; there was devastation, and many people in towns such as Slough lost their livelihoods as a result.

Mr. Redwood

There were enormously successful economic conditions throughout most of the 1980s and after we came out of the exchange rate mechanism. In the Conservative years, the motor industry was restored to some of its former glory after the devastation of the 1970s and the Labour Government. The figures that the hon. Lady produces for Slough are incredible. I know Slough fairly well; there was not a two-thirds decline in manufacturing activity over the Tory years. She should visit it more often; if she did so, she would realise that a large number of successful new-generation businesses came to the town and created considerable prosperity.

Mr. Andrew Reed (Loughborough)

The right hon. Gentleman knows from the right hon. Member for Charnwood (Mr. Dorrell), who is sitting close by him, that Loughborough suffered throughout the 1980s. I can give him the job figures: a brush factory employed 6,500 people when the right hon. Member for Charnwood was elected in Loughborough in 1979. It was the largest employer in the town, but it now employs only 2,500 people. That is what happened in the 1980s, and I hope that the right hon. Gentleman will apologise to every one of those people who lost their jobs, whom I meet regularly on their doorsteps because I live in the constituency.

Mr. Redwood

I trust that the hon. Gentleman recognises the great advances made by Conservative policies in new industries such as communications, high technology and computing, which came to this country or grew here in the 1980s and the middle 1990s. We are worried that even some of them, let alone the more traditional industries, are under threat from the Government. Labour Members would be well advised to discuss the present and the future, rather than go over the past, which has been much debated in the House and with the electorate at large.

Mr. Peter L. Pike (Burnley)

Will the right hon. Gentleman say exactly how many industries closed in that appalling period between 1991 and 1992, and how many thousands of jobs were lost throughout the country? Will he say exactly what job he was doing at that time?

Mr. Redwood

I should be happy to research the answer to those questions after the Labour party has apologised for its part in those events.

The Labour party also says that, in the long term, everything will work out fine. It says that its policy is based on a stable and competitive exchange rate. Do Labour Members not realise that the long term is made up of a series of short terms? Even the fig leaf of their policy is blown away in the foreign exchange hurricanes that have been raging.

The President of the Board of Trade owes business a new policy. Are the Government out to create a stable currency at this very high level, which business thinks is uncompetitive, or are they out to create a competitive currency, which in the eyes of business should be at a lower level? She must concede that the Government cannot have a stable and competitive currency. Why do the right hon. Lady, the Chancellor and all those on the pager service keep mouthing this nonsense about having a stable and competitive exchange rate, when it is clearly unstable and uncompetitive?

Let us consider how unstable the currency has been. Since Labour came into office, the pound has risen 9 per cent. against the French franc, 10 per cent. against the deutschmark, 20 per cent. against the drachma, 55 per cent. against the Malay dollar and 62 per cent. against the Thai baht. Those are our competitors, and they will undermine our manufacturers.

Ms Oona King (Bethnal Green and Bow)

Will the right hon. Gentleman confirm that 70 per cent. of sterling's appreciation took place under the Conservative Government? Does he recall ever complaining about that at the time?

Mr. Redwood

It is true that sterling rose in the latter months of the Conservative Administration. It is also true that many manufacturers would now like to get back to that level, because they think that that would be a fair level for their businesses. What I am talking about, and what the hon. Lady should be concentrating on, is the huge increase in the value of the pound against certain Asian currencies and the substantial increase against continental currencies since Labour came to office. If Labour Members do not know that that has happened, heaven help this country. They should read the financial pages and understand the difficulties that the high rate of sterling is creating.

Labour Members may think that the good news is that we can take cheaper foreign holidays, which is true. However, the bad news will be counted by every British leisure business in fewer foreign visitors, and by every exporter in fewer foreign orders.

Mr. Geraint Davies (Croydon, Central)

If the right hon. Gentleman were in government, what would he do about the yen, which has reached a six-and-a-half-year low? Does he deny that the value of sterling is linked to the Asian economies, the yen, the prospects for the euro and the recession in Europe? Is he in the isolationist world of fish-and-chip-shop Britain?

Mr. Redwood

I do not know where the fish and chips came from, but we are some way from enjoying them tonight, as there is much debating to be done. The Opposition believe that the problem of Japan should be handled by Governments collectively working through international bodies. We would support any sensible measures that the Government proposed in that connection. I shall come to the problems of euroland, because they are relevant to the present position.

Why is the pound so strong? The Governor of the Bank of England has warned that fears of a weak euro are partly to blame. He is right. The Leader of the Opposition has pointed out that a fudged euro does not help. He is obviously right. People around the world who are looking for a good investment are worried that the new euro may be weak or may be strained by the failure of Europe to keep to the requirements of the Maastricht treaty.

The Prime Minister has made two contradictory statements about this crucial issue. He has said that the euro must not be fudged. The Opposition agree with that proposition. He has also told us that Britain cannot object to all 11 candidates going ahead in the first wave, yet most of them can do so only with a liberal helping of fudge. Will the President of the Board of Trade clear up that confusion? Does she agree with the Prime Minister that a weak and fudged euro makes sterling more attractive, and of itself adds to the misery of British industry? Does she agree that a lot of fudge is required to pretend that Italy and Belgium, which have both borrowed more than twice the limits permitted in the treaty, have qualified for the single currency? Will she persuade the Prime Minister to do something about that when he goes to important meetings to settle these issues?

Is the President of the Board of Trade aware that the 15 European Community countries have borrowed £660 billion more than is permitted under the Maastricht treaty? That does not include Britain, because it is below the reference level. Has she any idea how the member states that want to go ahead with currency union will repay £660 billion in the next couple of years in order to qualify, or does she think that the treaty requirements do not matter?

Does the President of the Board of Trade agree that, as Sweden is ruled out because it has not belonged to the exchange rate mechanism for two years, Britain is ruled out for the same reason? What do the Government intend to do about Britain' s membership of the exchange rate mechanism? Will she explain how Ireland qualifies, given that its currency has been too strong for the exchange rate mechanism and has recently had to be revalued? Is that not fudge in the prime ministerial sense of that word? If not, what would be fudge? Perhaps the right hon. Lady will take us into the Government's sweet shop and tell us.

How do the Government intend to influence Europe for the better, as they believe that expressing any different opinion from the rest will, in the Prime Minister's words, cause "mayhem"? The truth is that the Prime Minister will wield no influence whatever over decisions on the single currency.

Yvette Cooper

Does the right hon. Gentleman's concern about the single currency mean that he has now abandoned the position, as set out in his book, that the role of Britain should be to try to derail the system and to ruin the single currency before it starts? If so, should we expect a further softening of his position on the single currency in the future?

Mr. Redwood

I am delighted that the hon. Lady wishes to give my book the publicity of the Hansard record: it is very gracious of her. If she looks at the date of that book, she will see that it was addressed to the Conservative Government at a much earlier stage in the development of this scheme. It was good advice for those days, given where we then were. I shall explain shortly the advice of Her Majesty's Opposition in the new circumstances, and I hope that she will be patient, because I shall tell her what she wants to know.

According to the Prime Minister, we have the prospect of mayhem if we try to influence matters, but he has also said that he does not like fudge. It has, in effect, already been decided that 11 countries will go ahead with liberal helpings of fudge. That is against the Government's stated policy, it is against Britain's interests and it is against Europe's interests, yet the Prime Minister thinks that he can do nothing. He will do nothing and he admits that he will have no influence. What a tragedy for Europe and for our country.

Mr. Denis MacShane (Rotherham)

It has taken the right hon. Gentleman nine minutes to get on to his favourite theme of Europhobia, which is miles away from the motion on the Order Paper. As he is in the mood for apologies, will he take the opportunity to apologise for the gratuitous and unpleasant insult he offered to Chancellor Kohl, on whom the business men of Britain conferred the freedom of the City of London? Is the right hon. Gentleman capable of saying sorry in any language for that insult?

Mr. Redwood

I offered no insult to Chancellor Kohl, so I have no need to apologise. The hon. Member for Rotherham (Mr. MacShane) clearly does not like the fact that his Prime Minister is isolated at the Euro X meeting. The Prime Minister will be isolated in his indecision over this matter: he will be isolated by his prevarication and British industry will suffer as a result. That is central to the debate, but the hon. Gentleman does not seem to understand the argument. The Governor of the Bank of England has warned that a fudged euro is one of the pressures leading to a strong pound. Surely the Prime Minister should want to sort that out by taking the fudge out of the euro and helping to relieve some of the pressure on sterling.

Why will not the Prime Minister warn Europe that fudging will cause damage, as the German central bank has done? Why will he not go to the meeting and say that only those countries that meet all the requirements can be allowed in? He could congratulate Luxembourg and Finland: I am sure that they would be very happy together. Has he read the Commission's convergence report, which is a devastating document that finds problems in the case of all the other member states?

Of Italy, the Commission says: There must be an ongoing concern as to whether the ratio of government debt to GDP will be 'sufficiently diminishing and approaching the reference level at a satisfactory pace' and whether the sustainability of the fiscal position has been achieved. In other words, Italy does not meet the requirements. Similar words are used of Belgium. The Commission states: the debt to GDP ratio is far above the 60 per cent. reference level. Going along with a mechanism that one cannot bring oneself to join without explaining one's reservations is not impressive or statesmanlike, and it is certainly not heroic. It is weak and pathetic, and it leaves Europe to fudge. My argument is certainly in order, because part of the strength of sterling relates to the lack of Government policy on the issue of the single currency.

At a time when British manufacturing is on the rack, business is offered lectures by the President of the Board of Trade on how it should do better. The Foreign Office offers business an exhibition of how cool Britannia is or should be. The odd bouncy castle in Whitehall will not win back the lost markets that were destroyed by economic policies. I do not mind watching middle-aged men trying earnestly to re-create their youth, but I object to Ministers trying to do it at public expense. It is not seemly, and it is not helpful to British business.

Business does not need rebranding by the Government: it needs backing. It does not need subsidies and sympathy: it needs a sensible exchange rate policy, and to get that we need a sensible tax policy that backs savings rather than undermines them. It should not take too much money from manufacturers who need it to invest in the future. There is no point in lecturing business on the need for new products and new investment while taking £25,000 million away from business over the lifetime of this Parliament. It is no good the Government saying that they want business to succeed while taking away the means to do so, and there is no point in saying that there will not be a return to boom and bust when the Chancellor has the distinction of creating boom and bust at the same time.

In July 1997, the Chancellor let the cat out of the bag in one of his Budget texts. He stated: There is now an imbalance between strong growth in the consumer and service sector and weak growth in the manufacturing and exporting sector. All his actions then and since have reinforced that crisis rather than tackling it or making things easier. It is not just the weakness of the fudged Euro-currencies that is causing trouble, because, at home, a hole was dug by the Chancellor when he took business money away and let the consumer spend and spend. He told the Bank of England to sort it all out, but it has its hands tied behind its back.

As usual, Labour Members will doubtless want us to answer the question, "What can be done?" There is a threat of more inflation: that is why the Bank increased the interest rate. I do not blame it for the problem, unlike some of the Chancellor's friends and spin doctors who, when an independent Bank was created, decided that everything that went wrong would be the Bank's fault and everything else would be the joy of the Chancellor.

I liken the Bank's problem to that of someone who is asked to play golf and given only a driver. He will find it an exceedingly difficult game. The Chancellor holds the other clubs, and he has put the player's ball in the bunker. No wonder the Bank is finding it difficult to get the ball out with only a wood. When an economy is as distorted as this one, with services in boom and manufacturing in decline, irons and a putter as well as drivers are needed to get out of trouble and hole the ball. The Chancellor does not seem to understand that, and lets his advisers blame the Bank.

Mr. Geraint Davies

Does the right hon. Gentleman accept that, although about a quarter of exporting manufacturers have had a turndown in orders, they have lower input costs for raw materials? The domestic market is booming, about a third of manufacturers are showing major growth, and employment continues to rocket. Manufacturing is not doing badly at all. After all, there was a trade surplus last year.

Mr. Redwood

The hon. Gentleman is half right. Much of the consumer sector has been booming, but manufacturing is in trouble. He should understand that. Today's industrial output figures and the statements from the companies that I have been citing and others show that exporters are in grave trouble. Asian and continental companies are coming into the home market and undercutting domestic manufacturers who would otherwise be able to sell products in our domestic market.

Mr. Lansley

The hon. Member for Croydon, Central (Mr. Davies) quoted some figures. Birmingham is a centre of exporters. Has my right hon. Friend observed that Birmingham chamber of commerce and industry in its announcement of its recent survey results on 1 April stated that not only were exporting companies on the brink of recession, but that the slowdown in the home market for manufacturers was another legacy of the high pound? It stated: a third of companies listed overseas competition as being of major concern".

Mr. Redwood

I am grateful to my hon. Friend. I did not see that quotation, but it is an effective example for my case.

There are two ways in which to take some heat out of the domestic and service economy without having to put up interest rates and sterling. One way is to tax consumption rather than manufacturing, and the other way is to promote saving. The Opposition support the savings route. We recommend a big savings package from the Chancellor. He should reverse the tax on pension savings. He could increase the interest and the tax-free allowances on national savings. He could make the tax relief on ISAs more generous and encourage an answer to the welfare review that would draw on the Conservative scheme for a second pension based on proper savings. He should sell more long-dated bonds to mop up surplus money, instead of issuing short-dated paper.

Those are positive proposals, which we mean well because we want to see our country and our manufacturers do well. Labour Members would be wise to listen carefully to our sensible proposals. The Chancellor should tell the markets that he intends to lower inflation by encouraging more saving. While he is about it, he should lift the threat of higher wage inflation resulting from the Government's legislation.

The economy faces difficult times. Many businesses and individuals are doing well while manufacturing is in grave trouble. There are still worries about inflation at a time when industry is on the brink of recession. Only this Chancellor could pull off that unique double. I say to Labour Members, "I do not expect you to back me or to praise my views. By all means follow the Whips and the spin doctors and make your routine criticisms of past Conservative policies if that makes you feel better. But understand that your manufacturing constituents in fear of their jobs and people who fear for their businesses expect you to speak for them. You have a duty in this debate to tell the Government before it is too late of the threat to industry from the high pound. If you do not do that, you will find it difficult to face yourselves tomorrow morning, you will have let down your constituents, and you will have failed to do your job."

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

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: deplores the Opposition's attempt to criticise the economic management of the Government as a feeble attempt to cover up their own appalling record of economic mis-management; notes that under the Conservatives Britain slumped in the world prosperity league, saw the slowest period of growth since World War II, saw higher average inflation than in any other major industrialised country bar Italy, and had the lowest level of investment of any of the 24 OECD countries; also notes that the Conservatives left office with manufacturing investment lower than it was when they came to power, left Britain's share of world trade at its lowest ever, gave Britain a deficit on manufacturing trade for the first time ever, saw thousands of manufacturing firms go under due to their boom and bust policies, more than doubled the level of unemployment in their period in office, and left behind not a golden economic legacy, but an economy and public finances facing real difficulties; congratulates the Government on its prompt actions such as promoting the competitiveness agenda and fostering investment in R & D and innovation, and creating an open and transparent framework for monetary and fiscal policy to secure a platform of stability for growth and employment; and notes that the Government is addressing the problems which the Conservative Government left behind with positive practical proposals to take the nation into the 21st century. This is a truly remarkable day and an even more remarkable debate, because in their motion the Leader of the Opposition and the shadow Chancellor, let alone the shadow President of the Board of Trade, are all calling for manufacturing to be higher up the Government's agenda and for a change of policy

before factories close and jobs are lost. That is incredible. Where have they been for the past 18 years?

Where were they 10 years ago when the then Chancellor of the Exchequer, as a deliberate act of policy, drove sterling above the level that it is at today? Where were they when Britain registered the first deficit in trade on manufactures since the industrial revolution; when interest soared to 15 per cent., twice today's rate; when factories closed; and when jobs were lost the length and breadth of Britain as a direct result of deliberate Government policy?

The then Chancellor told us that manufacturing no longer mattered. At that time they were in direct control of interest rates, a policy that the right hon. Member for Wokingham (Mr. Redwood) says would solve manufacturing's problems. They were in the Government and some of them were in the Cabinet. When the interest rate was 15 per cent. the right hon. Gentleman, who claimed a little bit of amnesia, was a Minister in the Department of Trade and Industry. He now presumes to attack us for an interest rate that is half that level. He asked why I had not spoken out against high interest rates. Where was he? What did he say about interest rates and about manufacturing when interest rates were at twice today's level?

Mr. Barry Jones (Alyn and Deeside)

May I remind my right hon. Friend that, when the shadow President of the Board of Trade was Secretary of State for Wales, he did nothing at all?

Mrs. Beckett

I know that the right hon. Gentleman rarely visited Wales—so it might have been a bit difficult to do anything there. Today, the right hon. Gentleman has claimed that the Government were wrecking manufacturing by giving independence to the Bank of England. All I can say is that the previous Government managed to wreck manufacturing without giving independence to the Bank.

Before the general election, when the exchange rate was climbing, most hon. Members who signed today's motion were in the Cabinet. As my hon. Friend the Member for Croydon, Central (Mr. Davies) said, two thirds of the recent increase in sterling occurred in 1996 and 1997—preceding not only the Government's election but the decision to place handling of interest rates in the hands of the Bank of England and business tax changes. It is therefore difficult to decide whether the Conservatives' belated discovery of the importance of manufacturing represents a deathbed conversion, or simply mass hypocrisy, based on complete memory wipe.

I do not attempt to tag the entire Conservative party with that label, as there were always honourable—although only a few—exceptions. Although some men and women in the Conservative party supported British manufacturing However, they were lone voices crying in the wilderness in their party's utter neglect of—and sometimes outright hostility to—manufacturing.

Mr. Owen Paterson (North Shropshire)

Will the right hon. Lady give way?

Mrs. Beckett

Indeed I will, although the hon. Gentleman was not one of the exceptions.

Mr. Paterson

As someone who spent the 18 years of the Conservative Government travelling the world, selling abroad for British manufacturing industry—unlike virtually every Labour Member—I bitterly resent the crass and ignorant comments on Conservative policies, which enabled British industry to turn itself round. Will the right hon. Lady tell the House whether British industry is happy and can prosper with a deutschmark rate of 3.05?

Mrs. Beckett

I am not sure where the hon. Gentleman was selling his exports, but he certainly was not in this country seeing the demise of British manufacturing industry. Indeed, because of the policies pursued by the Conservative party, we sometimes feared the almost complete extinction of British manufacturing industry.

Down the years, Conservative Members who supported British manufacturing industry called, as we called, for recognition of the damage being done by the boom and bust cycle resulting from the crass incompetence of Tory economic management. They called, as we called, for support for policies encouraging long-term investment, particularly in research and development. They called in vain.

Mr. Paterson

Will the right hon. Lady give way?

Mrs. Beckett


Under the Conservative Government, manufacturing investment fell—

Mr. Paterson

Will the right hon. Lady give way?

Mrs. Beckett

I shall not give way again to the hon. Gentleman, but will wait for another Conservative Member to intervene. His previous intervention was not so impressive as to make me feel inclined to listen to him again.

Mr. Philip Hammond (Runnymede and Weybridge)


Mr. Lansley

Will the right hon. Lady give way?

Mrs. Beckett

Not for the moment.

Under the Conservative Government, manufacturing investment fell to an all-time low. Expenditure on research and development fell compared to that of our competitors. As a proportion of our economy, manufacturing dropped by one quarter. Factories closed, and jobs were lost in their millions. None of the Conservative Members who have just intervened in the debate were in the House in that period. Presumably, all of them were out in the country, hopefully in some prosperous undertaking. Where they were not was in the House, watching British manufacturing being destroyed by the activities of the previous Government.

Mr. Lansley

I am grateful to the right hon. Lady for giving way on this occasion, if not on previous ones. She seems very keen to explain to the House her views on what is happening today. Will she therefore be sure not to move on without telling us about today's announcements on precisely what is happening in manufacturing output and production output? What figures have been announced today, and what view does she take of them?

Mrs. Beckett

I shall deal with that later in my speech.

After the first recession under the previous Government—I realise that Conservative Members wish not to think about their record in government, but they will have to—in the early 1980s, manufacturing output did not return to the level that they had inherited until 1988. In their second recession, in the early 1990s, manufacturing output fell again. In their entire period in office, manufacturing output grew annually on average by only 0.5 per cent.

The instability that devastated output also discouraged long-term investment, which lays foundations for the future. As a share of gross domestic product, manufacturing investment fell to its lowest level since 1955, and it rose again by an average—in the previous Government's entire period in office—of only 0.5 per cent. a year.

It is very important to keep putting those simple facts on the record: first, because the Conservative party—as usual—is trying to rewrite its history; secondly, and more importantly, because it is part of the context in which the British people and British manufacturers should judge the credibility of Conservative Members' comments in this debate. They should be judged not only on the worth of their current proposals but on their record in office.

Mr. Sheerman

Some of us have been puzzled by the Opposition's opening speech, in a debate chosen by the Opposition, as they have spent so little time dealing with the issue of the United Kingdom's core manufacturing capacity. Does my right hon. Friend accept that the fact that only 9,725 robots are currently being used in British manufacturing—compared with 400,000 in Japan, 55,000 in the United States and 48,000 in Germany—is the mark of the sophistication of our manufacturing industry? Over 20 years, the previous Government left us with very little of that sophistication.

Mrs. Beckett

My hon. Friend has a long and honourable record of campaigning for British manufacturing. He is entirely right to identify the many difficulties that were left to us by the previous Government.

The previous Government's record stretches over 18 years, whereas this Government's record extends over fewer than 18 months. However, in that short period, we have begun to tackle the deep-seated ills besetting British manufacturing industry. The very action of which Conservative Members now complain—placing control of interest rates in the hands of the Bank of England—was taken to foster confidence in the long-term stability of economic management. In the run-up to the general election, that confidence was damaged by the political manipulation of interest rates by the previous Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who preferred to risk higher inflation, and the damage that that would cause, than to risk political unpopularity.

Long-term interest rates are already lower, and only the crassly irresponsible would suggest that a return to the boom and bust over which the Conservatives presided would be in Britain's interests.

We have not only taken that major step to promote stability, but our commitment to stable economic management, to a sound framework for discipline in public finances, to a reduction of public sector debt—which the previous Government ran up to unmanageable levels—are helping to create a sound and stable framework in which business can take decisions based on long-term judgments.

Mr. Crispin Blunt (Reigate)

If our public sector debt is at unmanageable levels, how can the Prime Minister support the applications for euro membership of all those other countries?

Mrs. Beckett

Unlike the right hon. Member for Wokingham, I shall not spend all my time in this debate talking about Europe rather than British manufacturing industry. However, I shall deal later in my speech with the point raised by the hon. Gentleman.

The decision to abolish dividend tax credits, the agreement—responding to calls from business—to abolish advance corporation tax, the introduction and continuation of enhanced capital allowances for small firms, cuts in corporation tax rates and changes in capital gains tax will all help to stimulate and support the investment that British manufacturers need for long-term success. Our commitment on business tax rates over this Parliament and our consultation paper on research and development both embody an approach sought by manufacturers for so many years, which, under the previous Government, they sought in vain.

Sir Robert Smith (West Aberdeenshire and Kincardine)

As the right hon. Lady is talking about stability and long-term investment, does she accept industry's estimates that about 20 per cent. of manufacturing investment is connected to activity in the North sea oil industry? Does she also realise the concerns among many of those in the contracting sector about the instability caused by the Chancellor's continuing indecision in his plans for oil taxation? Those concerns are affecting investment decisions, which may be put off for another year.

Mrs. Beckett

With respect to the hon. Gentleman—who takes a great interest in those matters—he must be aware that that industry has itself asked for consultation on the Government's proposals for taxation, and for its views to be taken into account. Furthermore, the industry specifically asked for the Chancellor not to introduce changes in the North sea regime without consultation, as the previous Government did. Therefore, I understand the point that the hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) makes, but he will recognise that it is a bit of swings and roundabouts in that respect.

Mr. John Bercow (Buckingham)

Will the President of the Board of Trade acknowledge that higher interest rates, increased business taxation and a soaring pound damage British industry, in some cases lethally, depriving businesses of export orders and getting rid of jobs? If she acknowledges that, why does she not have the decency to admit it, instead of skirting around the subject for the first 13 minutes of her speech?

Mrs. Beckett

I am not skirting around anything. The hon. Gentleman clearly has not been listening. Apart from anything else, I have pointed out how much more damaging was the record of his party in government. Interest rates were at twice the level that they are today.

Mr. James Cran (Beverley and Holderness)


Mrs. Beckett

I am going to get on a little further, if the hon. Gentleman will forgive me.

Mr. Redwood

Will the right hon. Lady give way?

Mrs. Beckett

Of course.

Mr. Redwood

The President of the Board of Trade is all charm, as always.

I am delighted that the right hon. Lady now agrees that the policies of her Government are damaging. She has just said that she thought that Conservative policies were more damaging, but she has conceded that the policies that this Government are following are damaging. Does she agree with the TUC forecast that 100,000 to 200,000 jobs will be lost as a result of the Government's policies in manufacturing, and is she or is she not going to do something about it?

Mrs. Beckett

I have had a chance only briefly to check on the figure that the right hon. Gentleman gives, but I think that he will find that he has added together two figures in the TUC's forecast that are not meant to be added together. It is not making the forecast that he claims. Nor did I say that I accepted that the Government's policies are damaging British business; I do not accept that. What I did say was that I accepted that there is concern, understandably, about the level of sterling and of interest rates. However, I pointed out that interest rates were at twice today's level when he was at the Department of Trade and Industry.

Mr. Cran

Will the right hon. Lady give way?

Mrs. Beckett

I am sorry. I must get on a little more. I will give way to the hon. Gentleman perhaps a little later.

Mr. Cran

Will the right hon. Lady give way?

Mrs. Beckett

No, not at this moment. Sorry.

Apart from the tax framework that we have begun to deliver, British manufacturers have also long sought further investment in education, in skills and in transport infrastructure. Slowly and steadily, that too is beginning to flow. The new deal, the university for industry, the emphasis on lifelong learning, the investment in education for the early years, the improvement in standards—

Mr. Cran

Will the right hon. Lady give way?

Mrs. Beckett

No. In fact, if the hon. Gentleman does not give me a moment to finish this paragraph, I will not give way to him at all.

The improvement in standards, the extra money for schools, including for long-needed capital investment—all those sit alongside other measures in the recent Budget such as investment in the transport infrastructure and the university challenge fund, a new venture capital fund, to encourage development of the new ideas flowing from British universities.

Mr. Cran

Will the right hon. Lady give way?

Mrs. Beckett

I was willing to give way to the hon. Gentleman, but, as he is persistently and rudely interrupting me, I am afraid that I no longer intend to do so.

Mr. Cran


Mr. Sheerman

On a point of order, Mr. Deputy Speaker. What sort of rules do we have in this Chamber, where someone who sits as a Whip one moment is sent by the Front-Bench spokesperson to sit behind him and barrack and intervene on a Labour Member, who is making a serious speech about manufacturing industry?

Mr. Deputy Speaker (Sir Alan Haselhurst)

There has always been some flexibility on these matters for the Opposition.

Mr. Cran

On a point of order, Mr. Deputy Speaker. Since when has even a Whip not been able to stand and speak for his constituency? In this case, I wanted to ask why—

Mr. Deputy Speaker

Order. The hon. Gentleman has been here long enough to know that that is a totally bogus point of order.

Mrs. Beckett

I am extremely grateful to my hon. Friend the Member for Huddersfield (Mr. Sheerman) because he has answered a little problem that was puzzling me. When the hon. Member for Beverley and Holderness (Mr. Cran) began to intervene, I was slightly surprised because I did not remember seeing him sitting there, and I almost accused him of not having been in the debate, but I thought that that was unfair and that I must be mistaken. However, my hon. Friend has answered the mystery for me. The hon. Member for Beverley and Holderness was here, but not in that place.

Mr. Cran

Will the right hon. Lady give way?

Mrs. Beckett

No, I will not.

Within the DTI, one of our first steps was to set up the partnership with British companies, including British exporters, which we promised before and during the last election. The early establishment of the export forum allowed us to draw on the experience and expertise of British exporters. We reversed the wildly unpopular decision to abolish trade fair support, accepted its recommendations for a more focused effort in the key markets that they identified, put in place the largest programme ever of trade fairs and trade promotion campaigns, and recently published a package of proposals that are specifically targeted to help the small exporter.

All that is especially relevant to manufacturers, because they represent the lion's share of our international trade. That trade has undoubtedly been and could continue to be affected by the strength of sterling. The picture, however, is far more patchy—and hence more difficult to read and judge for its policy implications—than the Conservative party pretends.

Mr. Howard Flight (Arundel and South Downs)

The right hon. Lady went through the economic history of the past 20 years. Does she accept, as most economists do, that the recessions of the early 1980s and early 1990s were caused primarily by the overvaluation of sterling? That is the very point that Conservative Members are seeking to make: the risk of an overvaluation of sterling can cause precisely what we went through before, which is not stability.

Mrs. Beckett

I do not think that the hon. Gentleman has been listening. Although I understand the concern about sterling's level—the Government have made it plain that, although we want a stable sterling rate, we also want a competitive rate—it is not just for Conservative Members to make that complaint, as they took interest rates to twice today's level and sterling to above today's levels.

Mr. Cran

Will the right hon. Lady give way?

Mrs. Beckett

I will not give way to the hon. Gentleman.

Mr. Cran

The right hon. Lady is frit.

Mrs. Beckett

I am sorry, but I do not even remember precisely who the hon. Gentleman is, so the notion that I am frightened of him is extraordinary.

Although exports of goods fell—in value and volume in January—on the latest figures, they are still running above the levels of a year ago; in volume, in fact, exports are a full 6 per cent. up. Although the deficit on trade in goods with the world as a whole rose over the past quarter from £3.5 billion to £4 billion, with a fall in exports and a slight fall in imports, in that same period, the deficit with European Union countries fell. It was the deficit with non-EU countries that rose. An important part of that patchy picture is that against, for example, the dollar, sterling has remained relatively steady. It is against EU countries that it has risen so much and so sharply.

Mr. Cran


Mr. Paterson


Mrs. Beckett

I give way to the hon. Member for North Shropshire (Mr. Paterson).

Mr. Paterson

If the right hon. Lady had read the Evening Standard tonight, she would have seen that industrial production has dropped for the sixth month out of seven, but will she please go back to my first question, which she has not yet answered? Is she happy with an exchange rate of DM3.05 to DM3.10 to the pound, and what representations is she making to the Chancellor, whenever she meets him, on that?

Mrs. Beckett

I have dealt with the hon. Gentleman's point repeatedly and I do not propose this second to return to it, although I may do so later in my remarks.

As I say, the point is that sterling against the dollar has remained relatively steady, yet that is the sector of trade that has fallen. Trade with EU countries has certainly not been affected in the same way, although it is against the currencies of EU countries that Conservative Members complain sterling is too high.

I do not suggest for a second that that means that sterling's level against the deutschmark and other EU countries' currencies is unimportant. I point out just that the picture is more complex and not entirely clear. Even the factors influencing manufacturers' costs do not give us a simple picture. The official statistics suggest that the overall price of raw materials and fuels that are used in manufacturing has fallen by a sixth over the past two years and by a tenth over the most recent year. Moreover, according to the most recent statistics, manufacturing output has little changed. In fact, over the past quarter, it was higher than a year ago and, in March, it grew at the fastest rate since May 1997. New orders also grew.

The March CBI monthly trends survey shows that the balance of manufacturers expecting to increase output over the next four months has risen slightly to reach the highest levels since October, and the CBI's forecast projects growth both in exports and manufacturing output over the year. Nevertheless, it remains the Government's long-term objective to achieve a stable and competitive exchange rate. We shall continue to pursue the policies that have already been outlined, in the belief that they will contribute to achieving that goal.

But what about the prescription urged upon us by the Conservative party? First, what is it? The shadow President of the Board of Trade says that the Government should do three things: first, they should take back control of interest rates; secondly, they should reverse the changes made in business taxation; and thirdly, they should take steps to increase savings. Let us take them one by one.

The first suggestion is a move to take back control of interest rates so that they can, I presume, be reduced, in the hope—

Mr. Oliver Heald (North-East Hertfordshire)

Hear, hear.

Mrs. Beckett

That is extraordinarily helpful. The hope is that that will reduce the level of sterling. Yet again, that runs the risk of weakening the fight against inflation and reawakens precisely the spectre of boom and bust that characterised the right hon. Gentleman's party's record and decimated British manufacturing in the 1980s and 1990s.

Secondly, the shadow President of the Board of Trade calls on us to reverse any and all steps taken in a balanced package of taxation changes, including the windfall tax, which laid the foundation for the new deal, and for increased investment in skills and infrastructure—all things that manufacturers want carried out. Presumably they would all have to go. [Interruption.]

Mr. Deputy Speaker

Order. I am sorry to interrupt the right hon. Lady, but I have to tell the hon. Member for Beverley and Holderness (Mr. Cran) that sedentary comments are not an acceptable substitute for proper interventions, and the right hon. Lady has refused to take any interventions from him.

Mrs. Beckett

If the shadow Secretary of State resists all our changes in business taxation, he must be calling either for a still greater tightening of public expenditure—no more money for health and education—or for increases in VAT or personal taxation. There is simply "no other 'ole to go to".

In fact, the right hon. Gentleman claimed today that there were two ways to tighten the economy other than through interest rates and sterling. He claimed that they were merely to promote savings or to tax consumption—that is presumably to extend or increase VAT, which we all know is the Conservatives' tax of choice. Of course, that is the tax policy that the Tories pursue but do not admit in advance. There cannot be much doubt that, given half a chance, they would put VAT on fuel back to the 17.5 per cent. that they proposed, and slap VAT on a range of other items.

Mr. Redwood


Mrs. Beckett

I am happy to give way to the right hon. Gentleman if he will deny that.

Mr. Redwood

The Opposition have made it clear that we are not proposing any taxes on consumption—we are proposing improvements in savings. I do not know how many times we have to say that, but it is clearly our policy. Of course I and my colleagues are recommending a lower level of public spending than the Government—one has only to consider the number of things that we have opposed already which have needlessly been consuming public expenditure, including all the referendums, devolution administration and so on. They are all things on which we would not have spent money.

Mrs. Beckett

I am grateful that the right hon. Gentleman is confirming that he supports a lower level of public expenditure than the Government are prepared to allow. He may claim that he is going to save money on things like referendums but, viewing the record of the Tory party, most of the British public will recognise that what they are talking about means not pursuing the increases in health and education spending which this Government have introduced.

I had not forgotten that the right hon. Gentleman's chief answer was that the Government should increase savings. It seems to be his main, if not his only, solution. He has expressed concern—for example, in the Budget debate—at a predicted savings ratio of 9 per cent., but, as was pointed out in an intervention, the savings ratio fell to 6 per cent. under the Tories. The right hon. Gentleman claimed that savings as such are falling; in fact, they are going up.

Let us take the right hon. Gentleman's prescription at face value. What steps is he proposing to stimulate savings? The usual incentives would generally be higher interest rates. That would be consistent with the Tories' record—including their record when the right hon. Gentleman was at the DTI—but it seems unlikely to reduce the level of sterling. Today he called for more interest to be payable on national savings, and for more generous tax allowances. That of course means a fiscal loosening, while those who have argued that the Chancellor is not doing enough are arguing for a fiscal tightening. It is certainly contrary to what most commentators who criticise my right hon. Friend, as the right hon. Gentleman has done, are saying. The right hon. Gentleman's prescription makes no sense.

Let us consider what might follow if we were to take the prescription at face value. It rests most heavily on the call on the Government to cut interest rates and, in order to do so, to take back control over them. As has been pointed out several times today, two thirds of the rise in sterling took place before interest rates rose, and while interest rates were in fact controlled by the previous Government. There is certainly a widespread and increasingly strong view that it is a combination of the Asian crisis and nervousness about the soundness of the euro which is attracting investors into sterling, because Britain will not be in the first wave.

The right hon. Gentleman spent most of his speech talking not about manufacturing industry but about the euro. If he agrees with those who argue that one of the things that is putting pressure on sterling is the fact that Britain is not going in, should not he be calling for an early announcement that Britain will go in? That is the logical outcome to the argument that he deploys, and I am surprised that he failed to notice that that is where 10 minutes of his speech were taking him.

Mr. Redwood

The right hon. Lady was not listening to what I said. I said that it was a fudged euro that was putting the extra pressure on sterling, as the Governor of the Bank of England identified. Going in at this high level of sterling would simply lock British exporters into a prison from which they could never escape, and it would mean that we never recaptured the industrial activity that is already at risk.

Mrs. Beckett

I am not advocating going in at this point or at this level of sterling. It is the right hon. Gentleman's argument that leads inexorably to the conclusion that that is one of the ways to weaken the pressure on sterling. The Liberal Democrat party may be somewhat unrealistic in ignoring the clear statement of the Governor of the Bank of England that Britain could not go in in the first wave as a result of the folly in government of the Tory party, but at least it is consistent in so arguing.

The message of the right hon. Member for Wokingham is muddled, inconsistent and, frankly, crazy. It risks the worst of all worlds. A politically driven interference with interest rates would certainly foster inflation, and if, as some of the evidence suggests, it is not Britain's interest rates but Britain's absence from economic and monetary union which is driving up sterling, it would also fail to bring down the exchange rate as he suggests—yet another double whammy.

The Conservatives have tabled an opportunistic motion, based on an unconvincing argument and on the assumption that the rest of the world suffers from their amnesia. Their record on British manufacturing is appalling, their prescription at best ludicrous, and at worst damaging. They offer sound without substance. Their arguments and policies put them where they are now and, on the evidence of this debate, will keep them there for years.

8.17 pm
Mr. Richard Page (South-West Hertfordshire)

I am a vehement and ardent supporter of manufacturing, and my record over the past 18 years proves it. I have never forgotten that this country's wealth was based on the industrial revolution and the manufacturing that flowed from it, although, at times, various Governments have taken their eye off the ball.

I believe that the Department of Trade and Industry is the second most important Department of Government. The sophisticates will have us say how important the Department of Social Security, the Department for Education and Employment and the Department of Health are because they spend billions of pounds, but I am always conscious of the fact that it is the manufacturing sector that creates the wealth that enables them to spend that money.

There has been some swapping of reminiscences, but I remember being in the House during the humiliating visit from the International Monetary Fund to bail out the Government when they got their spending out of kilter with their income. As the President of the Board of Trade said, quite correctly, we have to look forward and not rewrite history, although I think that for quite a few Members of Parliament the temptation to do just that will prove irresistible.

I said that some Governments take their eye off the ball, but I do not include the previous Government under the premiership of my right hon. Friend the Member for Huntingdon (Mr. Major), with my right hon. Friend the Member for Henley (Mr. Heseltine) as President of the Board of Trade. During that time, there was a welcome return to focusing attention on manufacturing, competitiveness and quality of production.

The current Government are losing out a bit. I do not blame the Ministers at the Department of Trade and Industry, because, with the exception of Lord Simon, who seems to have vanished without trace, they have little manufacturing managerial experience. That is not their fault, and we cannot blame them for it, but if they had had experience, they would have seen the warning signs about manufacturing a few months earlier.

I shall not trample over the ground covered by my right hon. Friend the Member for Wokingham (Mr. Redwood) on the strong pound, but I should like to counter the simplistic argument that, because Germany and Japan have learnt to live with a strong currency, so should we. We can, but it must be on the same time scale.

In 1984, the exchange rate was DM3.74 to the pound. Compared with the current rate, German manufacturers have had to deal with a 1.5 per cent. per year to strengthening of the deutschmark since then. Taking the value of two or three years ago, that figure rises to 3 per cent. Our manufacturers have had to swallow a 25 or 30 per cent. strengthening of sterling over the past couple of years. No manufacturer can claw back that increase through productivity improvements over such a short time. With our interest rates running at twice the level of those of most of our major competitors, that is a double blow.

This debate is important, because it underlines the basis of our economy and how it will develop in the coming years. The Conservative motion correctly concentrates on those issues. The Government amendment is largely a tendentious account of the past, with some wishful thinking for the future. It does not recognise the serious problems that the British manufacturing sector faces, and it does not come up with any proposals to tackle those problems.

It is in nobody's interests to ignore the facts. There has been—dare I say it—a lot of infantile shouting across the Chamber, which has not contributed greatly to the debate. After 1992, our manufacturing output increased year by year. Unfortunately, there are now signs that it is peaking and starting to go the wrong way. If everything was marvellous, we would not be reading in the papers about the difficult choices facing General Motors and its work force in the United Kingdom. To make matters even more complicated, wage costs continue to rise as the sterling price of exports runs into trouble.

In 1994-95, and in the latter part of 1996 and the early months of 1997, output grew strongly. Gains in productivity were secured and unit costs came down. However, there are now problems with our output. There could be stagnation or a decline in productivity. Those trends can be reversed only if manufacturers consider ways of trimming the size of their work force, laying off those who have recently left the unemployment register. We do not like that uncomfortable truth, and I am sure that Labour Members do not either.

It is no good saying that the problem can be addressed through an open and transparent framework for monetary and fiscal policy. The Governor of the Bank of England has been given control over the one lever with which to control monetary policy without a matching fiscal policy from the Chancellor. That is less than sensible. It will prove to be another financial theory that bites the dust.

Mr. MacShane

The hon. Gentleman is making an interesting and constructive speech. Does he accept that my right hon. Friend the Chancellor has taken £17 billion out of the economy? Does the hon. Gentleman think that he should have taken £20 billion or £25 billion? Does he agree with his Whip, who said, "Hear, hear," when the abolition of the Monetary Policy Committee was suggested, with control over interest rates reverting to Whitehall? That is not a provocative question. I am genuinely interested in the hon. Gentleman's response, because I respect his point of view.

Mr. Page

The hon. Gentleman makes a fair point. The Chancellor has bitten into the economy in the wrong place. We wanted to cool the activities in the marketplace, to reduce internal inflation. The Chancellor has put an extreme burden on industry, which will work its way through with the double whammy of high interest rates and a high exchange rate.

I am not surprised to read reports that the Chancellor is hoping that the Bank of England will give a signal later this week that interest rates have peaked and will not rise further. That has all the characteristic subtlety of a Treasury spin doctor. Unfortunately, it is too late. Manufacturers will intensify switching production abroad, because—as I think we all accept—the exchange rate is too high.

We should skip all the childish banter and get to the reality. AG Holdings, our largest drum manufacturer, is moving production to France. The engineering group Haden Maclellan will buy half its paint shop components and one quarter of its fasteners abroad. Others will follow those two. That means that jobs are being exported from the United Kingdom, helping the economies in other countries rather than ours.

Mr. Geraint Davies

If things are so bad, how does the hon. Gentleman explain the fact that last year we had the first trade surplus since 1985, and the largest since 1982, at £4.5 billion? In 1996, we had a deficit of £1.8 billion, when, as others have pointed out, 70 per cent. of the sterling appreciation had already occurred. The hon. Gentleman seems to be describing a different world from that in which we are living.

Mr. Page

I do not know whether the hon. Gentleman has ever worked in business or industry. He should know that there is a time lag in business. The current figures should show what will happen tomorrow if measures are not put in place to correct them. We believe that the higher rate of sterling will have a damaging effect on manufacturing. That effect will intensify unless action is taken to rectify the situation. Action a few months ago would have reduced the pain. Action now will reduce the pain. However, if we go on blindly, there will be further unemployment and even more pain. We are trying to point out delicately that something should be done.

Mr. Davies

The hon. Gentleman might be interested to know that a week ago I had lunch with the chairman and chief executive of Nestle, which exports £300 million of produce. They pointed out that, while the level of sterling obviously causes difficulties for their export business, the Government's long-term policies are correct to create a healthy context for buoyant growth for Britain in the global economy.

Mr. Page

I hope that the hon. Gentleman had a satisfactory and enjoyable lunch. Nestle is a large company with plants all over the world. Undoubtedly it will take certain strategic decisions. Many British-based companies do not have the same options and flexibility as larger companies. The hon. Gentleman does not help his cause by pleading on behalf of a large multinational. With the high rate of sterling, our splendid record of inward investment is starting to dip. Companies abroad are not going to invest in Britain. A year or so ago, however, we had the enviable record of the highest investment percentage of any European country.

The fundamental problem we must face cannot be tackled by the old sticking-plaster approach of Labour Governments, yet that is exactly what is beginning to be contemplated. Ordering electricity generators to buy up to 30 million tonnes of coal from UK producers, irrespective of prices on the world market, will not help the productivity of British producers or make them more competitive. Labour Members should remember that, when the Conservatives came to power in 1979, we were putting our hands in the taxpayers' pockets for £50 million every week, and that, now, approximately £50 million is being given to the Exchequer in taxes.

We have heard a great deal about the Government's policy towards the young and the young long-term unemployed. I am concerned that any benefits that might flow from such a policy will be offset by what is happening with the high price of sterling. I was therefore not surprised to read that, when Mr. Christopher Kelly, the Treasury's head of economic briefing and analysis, was asked whether the manufacturing sector was likely to go into recession, he replied that the Treasury was forecasting zero growth this year. Today, a report by the Centre for Economics and Business Research Ltd. said: Strong pound means a mini-recession and rising unemployment.

It is therefore not surprising that the TUC expects unemployment to rise by 200,000. Perhaps figures are being added together, but as far as I am concerned, the figure is 200,000 unless somebody can prove that the TUC did not make such a statement. If such a number of jobs were lost, there would be further deterioration and we would go into a downward spiral, as opposed to the virtuous upward spiral that the Conservatives achieved, giving the Labour party its golden legacy.

If we start on such a downward spiral, Labour Members will be back to the old routine. They will be calling for full-scale programmes to stimulate public expenditure and to help the economy to generate growth—whatever the implications for inflation. Unless The Times is mistaken today, there are already Cabinet splits, with mention of the Deputy Prime Minister and the Secretary of State for Education and Employment, whose names are of course attached to the Government amendment.

The sad fact is that, despite all the Government's fine words, they cannot escape from the economic cycle that they have created. They have happily tightened taxes on business in the past year, while allowing sterling's rise to weaken our export performance and increase the attractiveness of imports. Now the Government are caught between those two rocks of contradiction, and we shall see unemployment rise and companies fail. It is no good Labour Members throwing their hands in the air and claiming that it is all somebody else's fault. Undoubtedly, they will all go into the Lobby to vote for the Government amendment.

I think that it was the playwright Alan Bennett who said that he had always felt that the past was over, that somehow he had missed it, and that now it was starting all over again. New Labour will find that the spectre of old Labour has not been exorcised, but is alive and well. The strong pound might give the Prime Minister a little extra spending money in Tuscany this summer, but driving our manufacturing into recession is too high a price to pay.

8.33 pm
Mr. Denis MacShane (Rotherham)

I am very pleased to follow the hon. Member for South-West Hertfordshire (Mr. Page), who was a most excellent Minister in the Department of Trade and Industry—that is not quite what I said at the time—but, alas, does not represent his party's Front-Bench policy. That is a great shame.

We heard a magnificent speech from the right hon. Member for Wokingham (Mr. Redwood), who has left the Chamber. His speech was one of a valiant shadow Foreign Secretary, since two thirds of it was on Europe. His speech was also one of a valiant shadow Chancellor of the Exchequer, since he told us what the Chancellor should do. I wish the right hon. Gentleman well in the reshuffle. Perhaps, instead of a job share, he can combine both posts and fit everything into his head. His speech was not remotely about British manufacturing or remotely relevant to the motion.

As I am a great friend of the Trades Union Congress, I am very pleased that the Conservatives pray it in aid. Conservative Members ought to look at the TUC's prognosis that, on a simple linear projection—we can all do that—200,000 jobs could be lost in manufacturing and services. Only 90,000 of those could be in manufacturing over the next two years, which, although that would be 90,000 too many, has nothing to do with the poorly worded motion.

The past is another country. I agree with the hon. Member for South-West Hertfordshire that running over it is not helpful. In the previous debate, we were taken right back to the White Paper "In Place of Strife", and we have had a run around what happened in the 1970s, 1980s and 1990s. I shall try not to do that, although it is rather difficult to avoid just the teeny-weeniest tip-toe back—not too far. I am a reasonably new Member—there are many new Members—and what happened under previous Governments can be left in the past.

We need to consider the fact that the significant rise of sterling that is worrying us all took place between May 1996 and May 1997—when it rose by 20 per cent. As the hon. Member for South-West Hertfordshire rightly said, we cannot simply pray in aid the German, Swiss, Dutch or Japanese experience of living with a strong currency over time. Believe me, I am taking us into the 1970s and not trying just to make an anti-Conservative point; as everybody knows, I am a bipartisan kind of fellow.

We have suffered from a yo-yo currency. Between May 1990 and May 1997, under two Prime Ministers and four Chancellors, the rate between sterling and the deutschmark changed no fewer than 87 times. No business person can seriously plan or deal with that. The dollar was relatively stable. There was a great deal of money to be made by the George Soroses of the world or on for-ex trading, but for the business man, the manufacturer, who was trying to plan his output and draw up a macro-economic plan that would make sense, such permanent instability was one of the most damaging factors.

British Steel, of which I know something as one of its biggest plants is in my constituency, saw a massive 50 per cent. drop in profits, from £1.1 billion to £450 million, when they were announced halfway through the summer. In other words, its profit hit was a result of the previous Government's policies.

Dr. Palmer

Conservative Members are quite persuaded of my hon. Friend's point about the need for stable exchange rates, because they were pressing the President of the Board of Trade to quote an exact rate that she would think appropriate—DM3.05, DM3.02, or whatever. If that is what they want, they clearly want a fixed exchange rate.

Mr. MacShane

Playing the game of what the rate should be is interesting and useful—we do it with our children—but I am not sure whether it is a realistic contribution. We must create the conditions across the economy that back manufacturing and achieve what may be an impossible double goal—stability and competitiveness.

I put these questions regularly to the right hon. and learned Member for Rushcliffe (Mr. Clarke), when he was Chancellor, and to his minions at the Treasury, and answer came there none. He said that the free markets decide. In March 1997, he said that he did not control the value of the pound. That is official Conservative policy, and is no different from the remarks of the putative shadow Chancellor, the right hon. Member for Wokingham.

When the right hon. Member was asked whether he would renationalise the Monetary Policy Committee—whether he would abolish it and send all the economists and Dr. DeAnne Julius back to work—and bring control of interest rates back to the Treasury, the hon. Member for North-East Hertfordshire (Mr. Heald) seemed to agree, while the right hon. Gentleman shook his head vigorously. I thought that it was a cardinal virtue of modern Tory faith that there should be independence for the Bank of England. I invite Conservative Members—we have some experienced business people and City experts in the Chamber—to raise their hands if they think that the Monetary Policy Committee should be abolished and control returned to the Bank of England. The House has the answer it deserves.

If that is not an answer, what is? I am passionately in favour of manufacturing. The right hon. Member for Wokingham made some unpleasant and snide remarks about Powerhouse UK and the bouncy castles now open in Horse Guards parade. I ask my hon. Friend the Minister for Science, Energy and Industry to stretch the public sector borrowing requirement by a little to provide free passes for all hon. Members. I went there on Sunday, and I was delighted to see the creativity, the new talent and the energy of which British manufacturing is capable.

One of the great myths with which we have to deal—what we may call the Lawson myth—is that trading a pound, and making a pound by trading a pound, is just as good for the economy as making a thing and making a pound by selling the thing. I am not sure whether the hon. Member for leather goods—the hon. Member for North Shropshire (Mr. Paterson)—would agree with that philosophy, although some of the experts in rentier capitalism did very well under the Lawson philosophy. That is complete and utter rubbish. The thesis that we are entering a so-called "weightless economy" in which all that counts is the service industry is not supported by the facts.

Britain imports and exports six times more in tonnes of goods than it did 30 years ago. If one looks through our newspapers and magazines, what does one see? The pages are full of advertisements for things; for goods such as the hon. Member for North Shropshire and his company make—I did not mean any offence in my remark. Long may the British leather industry flourish.

Mr. Flight

Will the hon. Gentleman give way?

Mr. MacShane

To an expert in the field, of course.

Mr. Flight

Will the hon. Member acknowledge that, in a world of relatively free trade, goods will be produced where the cost is lowest, and that the mixture in countries such as Switzerland of good international services with industry is perhaps ideal? The argument that one is more virtuous than the other is not valid.

Mr. MacShane

I am glad to see that, even without a beeper, the hon. Gentleman is completely on the new Labour message. That is exactly the point which the Prime Minister and the Chancellor make all the time. I know a little about Switzerland, which is a good example. Some 10 per cent. more of Switzerland's working population are in the manufacturing sector. A strong manufacturing sector is what supports strong financial, service, insurance and banking sectors.

I want some re-balance and an end to the Lawson years. We must refuse to embrace the new, fashionable and pernicious thesis of the weightless economy. I want a commitment to manufacturing—which, I must say, was not in evidence during the Conservatives' period in government. Over the past six years, Britain's manufacturing exports have increased more than the export of services. We are a wonderfully creative and talented country, capable of making wonderful new products.

The hon. Member for Arundel and South Downs (Mr. Flight) is a proponent of the Adam Smith theory of free trade and comparative advantage. It is remarkable that the hon. Member for South?West Hertfordshire prayed in aid the example of a company that moved to France, when, only a few hours ago, we heard that nobody would go to France because the social and labour costs were too high.

Where are many of the goods that we buy in our giant shopping centres manufactured? Most of the computers are made in Taiwan, whose GDP per capita is a bit lower than that of the UK. However, it has a statutory minimum wage set at 70 per cent. of average industrial earnings in Taiwan. I am not remotely suggesting that such a recklessly high figure should be put into the debate here. A huge number of goods are imported from Singapore and Hong Kong, as was, where the GDP per capita?the standard of wealth of those countries?is above that of the UK. It is a myth that manufactured goods only belong in low-wage economies.

Mr. Charles Wardle (Bexhill and Battle)

Before the hon. Gentleman waxes too eloquent about the economic success of Taiwan—like him, I greatly admire that country's achievements—will he remind the House that a great deal of what Taiwan sells is now made by their cousins in Fukien province on the mainland at very low wage rates and low direct labour costs, and is then brought to Taiwan and exported to the rest of the world, contributing to Taiwan's success?

Mr. MacShane

Alas, I have visited Taiwan only once—although I have travelled and worked widely in Asia. I was deeply impressed by the remarkable combination of technological know-how and a commitment to manufacturing on the island, in addition to the sub-contracting that takes place. As someone who believes passionately in free trade, I support those developments.

Mr. Michael Colvin (Romsey)

The hon. Gentleman has just referred to Taiwan's high technology. Not only is Taiwan facing higher unit labour costs—which is why so much of its manufacturing is now done in mainland China at one twentieth of the cost it would be in Taiwan—but it lacks some of the high technology. That is why the developing countries of the far east are trying hard to attract from the west the advanced technology that will enable them to combine lower wage costs with high technology. If that happens, we will have a problem in the west.

Mr. MacShane

I was born an optimist and I shall die one. I have confidence in our country and in its abilities, and in the abilities and talent of the west to continually move upstream. At the same time, we must not ignore the fundamental contribution that basic manufacturing makes.

I mentioned steel, a subject to which I shall return at the end of my speech. I represent a steel constituency, and steel is a profoundly environmentally friendly product. It now involves the latest technology. If one visits a steel mill, one does not see men cowering in front of furnaces, although the plants are still tremendously dramatic places to visit. Now, the majority of the men sit behind computer screens. That is exactly the sort of high-tech industry in which we need to invest, but it has not had the backing of the country as a whole—again, I say this on a bipartisan basis—that it deserves.

I will briefly suggest three measures to support manufacturing. First, we must continually invest in training. In Edinburgh the other week, I was impressed to hear Hans-Olaf Henkel, the president of the German employers federation, who is a great fan of the deregulated, flexible labour market in Britain, make a powerful speech saying that the one thing that the Germans would never give up was their commitment to training. Whenever I or my hon. Friends have argued for an equivalent commitment by employers to training in this country, we have been told that we would be imposing an unbearable additional cost on them.

I am delighted that the new deal contains a strong training component and excited by the concept of the university of industry. When it gets off the ground, it will help to connect many of our skilled people.

Mr. Hammond


Mr. MacShane

I mean no discourtesy to the hon. Gentleman, but I want to allow other hon. Members to speak in the debate, so I want to finish my remarks.

The second necessary development is to break the centralised power of London over so much of our economy. One of the most exciting aspects of the new Government has been the move towards decentralisation. I welcome the creation of regional development agencies. Like the successful economies of the world—the United States, with 50 states setting their own tax levels and attracting their own investment, Germany with its Lander system and Switzerland, with its 24 cantons—we must have a local economic response and give my region of South Yorkshire, for example, the power to control more of its economic destiny. Watch us take off if that happens. We have to break completely with the centralised Tory state set up in the past 20 years.

Thirdly, we need a relationship with Europe. I have no doubt in my mind that the contribution from the shadow President of the Board of Trade was disgraceful—that obsessive, bubbling Europhobia burst its banks. We need a relationship with what is loosely called Euroland—that is now the technical term for the countries entering European monetary union—and it will require a fundamental decision by the people of this country.

A great signal was sent last May, when the Europhobic policies of the Tories were utterly rejected at the ballot box, and the Chancellor sent good signs in his statement in November. What has been the reaction of the Conservative party? Instead of grappling with that debate, we read—

Mr. Paterson


Mr. MacShane

If the hon. Gentleman will forgive me, I will not give way, as I want to finish my speech.

We read in The Daily Telegraph today that a group of rather elderly, anti-European business men are setting up a new campaign against European monetary union. Who is to launch their conference? The Leader of the Opposition. Once again, the Europhobic virus is uncontainable in the Conservative party. I see that Conservative Members are waking up and becoming excited at that. We need to sort out our relationship with Europe.

Mr. Paterson


Mr. MacShane

No, I will not give way. The hon. Gentleman had a chance to speak, and I have given away generously.

I urge Ministers to look hard at what needs to be done for our steel industry.

Mr. Bercow


Mr. MacShane

I am sorry not to give way, above all to the hon. Gentleman, but I have not given way to his hon. Friends, and I must treat hon. Members equally. I must sit down in a minute or so.

I appeal to the Minister who is to reply to look seriously at what needs to be done to back one of our most modern industries. The British steel industry could set on extra shifts. Last Friday, I met a nuts and bolts manufacturer from the Rotherham-Sheffield border who is hiring new people because the company has the orders. The evidence about this famous recession is far from clear. If we can get certain parameters of a pro-manufacturing policy in place, our firms will take off.

We are setting targets for education and for health. I would have no problems with the development of a long-term infrastructure target for the United Kingdom. The other day, I was astonished to find that I had to climb up the steps from the tube to King's Cross and on up to St. Pancras station, as there was no escalator. It placed old people, those with children and the wheelchair-bound in an impossible position. Surely there cannot be another railway station in Europe that requires people to climb up on foot. Let us have a proper 10-year infrastructure investment plan.

I am shamelessly patriotic on this subject, so let us also have an encouragement not to fly the flag overseas, as the Department of Trade and Industry and the Foreign Office do that together very well, but to fly it internally, so that, where possible, without breaking tender or competition rules, people can be encouraged to buy British-made products. I was delighted to see that Mr. Paul Smith had one of his suits in Powerhouse UK and would urge all hon. Members to let go of their Armani suits and put away their German—made Boss suits and buy Jasper Conran and Paul Smith. I try to wear Mr. Conran as often as I can—I wish that I could afford to eat in his daddy's restaurants.

We also need cheaper energy prices. That is one of the big problems facing manufacturers and, again, it is an inheritance—I can feel myself being dragged back to the subject of history. The way in which the energy utilities were privatised gave the domestic consumer privileges, but industry was heavily sacrificed.

We also need to encourage partnership politics in industry. I must pay tribute to a union with which I work—the Iron and Steel Trades Confederation, which works well for the British steel industry. In 15 years, it has not had one strike. Unfortunately, all we heard in the debate two or three hours ago was the old adversarial language of them and us—"Treat 'em mean; keep 'em keen"—and hire and fire politics. We need a new approach to partnership in manufacturing industry, particularly in the steel industry.

In conclusion, I must make a rather odd appeal, perhaps one that runs against the adversarial nature of the House, which is that, where possible, we should find common cause, particularly on our relationship with Europe and EMU, and on reforming the way in which our country is governed and administered, so that people in the regions can support manufacturing without some giant development plan, which never works, as we have seen. We should give up the ideology that manufacturing does not count—the ideology that says that only service industries count and that we can live in a weightless cyberworld. We should back our creative industries, but we should not forget that steel exports amounted to four times the exports of all the music industry of the United Kingdom put together.

British steel workers do not smoke dope or snort coke, they are not called Rumbaba and do not dump pails of water over the head of the Deputy Prime Minister, but they are working hard for Britain, just as our car workers are, by exporting £8 billion-worth of steel last year, along the lines of partnership, a positive engagement with Europe and a commitment to regional development. If my hon. Friend the Minister could encourage those ideas and policies, British manufacturing will win in the next century.

Mr. Tam Dalyell (Linlithgow)

On a point of order, Mr. Deputy Speaker. Could you draw to Madam Speaker's attention the fact that out of a two and three quarter hour debate, the first hour and three quarters has been occupied by four speeches? Can that be right for the House?

Mr. Deputy Speaker (Mr. Michael J. Martin)

That is not a matter for the Chair.

8.58 pm
Mr. Charles Wardle (Bexhill and Battle)

I intend to be brief, but I agree with the hon. Member for Linlithgow (Mr. Dalyell). I do not want to waste too much of my time in responding to the hon. Member for Rotherham (Mr. MacShane), but, in talking about the Bank of England's freedom to set interest rates, he missed the point—the question is not whether allowing the Bank of England that freedom is right, but whether the Government's fiscal policy is aligned with that freedom.

The President of the Board of Trade spoke scornfully about past boom-and-bust cycles, but she gives the same hostage to fortune as the Prime Minister does time and again. Unless they heed the warnings of major—and many smaller and medium-sized—British manufacturing companies about the strength of sterling, they will find themselves in precisely such a cycle.

I remember the 1970s as well as 18 excellent years of Conservative rule. During much of the 1970s, I was involved in manufacturing in the west midlands. Labour Members should remember the conditions that obtained between 1976 and 1979, and remind themselves of a book written by the then general secretary of Association of Scientific, Technical and Managerial Staffs, Clive Jenkins—it was called "The World of Work", I think—in which he predicted, before the winter of discontent and the 1979 general election, that unemployment would rise in the early 1980s to 6 million as a result of the collapse of manufacturing industry. To believe that what happened was all down to Conservative policy is to ignore the facts.

Over the past 25 years, there have been seismic shifts in world manufacturing, prompted by inflation, the technology revolution and the emergence of highly competitive third world and Pacific basin suppliers operating with dramatically lower direct labour costs than have proved possible in the strongest European economies.

In the world recessions of the early 1980s and at the start of this decade, the best British manufacturers survived. They embraced the realities and exploited the advantages that the changing scene presented. Leaner, fitter and hungrier companies thrived in the Conservative climate of market liberalisation, privatisation, less regulation, less Government intervention, high inward investment and—by the mid-1990s, at least—rapid growth in gross domestic product, with low inflation and falling unemployment.

Since last May, however, there have been worrying signs that the positive scenario for British industry that was created by the Conservative Government is being drastically undermined. First, the Government have an instinct for intervention. Secondly, there are fundamental flaws in their economic policy. Thirdly, they fail even to try to check the European scramble to introduce a single currency without sufficiently stringent disciplines over economic convergence.

New Labour may have consulted its focus groups and learnt that business-friendly noises are what voters want to hear, but the Government's actions have not been business-friendly. Signing up to the social chapter was only the beginning. Social partnership is a euphemism for Government dictating how employees and employers should interact, instead of allowing them to get on with it themselves. Conservative Members will certainly strongly challenge the much-heralded "Fairness at Work" White Paper when it is published next month.

The threat of a return to the bad old days of a Government-enforced system of employee representation in the workplace will destroy hard-won competitiveness and job security. The fact that the Government are pressing ahead with the National Minimum Wage Bill defies belief—unemployment in the rest of the European Union demonstrates the dangers that will befall the British economy if the minimum wage is pitched at anything above a nominal level.

Similarly, the enthusiasm for business improvement districts and town and city improvement zones points to a return to the weaknesses in the previous Labour Government's thinking in the late 1970s, when companies that were arbitrarily excluded from the geography of development zones were tempted to close factories, disrupt local communities and move into those zones because of the artificial inducement of Government subsidies. The only result was that one town's gain was another town's loss, with no obvious benefit to British industry as a whole. Equally, giving local authorities a freer hand on business rates will have a disruptive effect, as it did in the late 1970s.

The proposals for the board membership of regional development agencies will mean that industrialists will be in a minority on those boards, and so unable to prevent the rubber-stamping actions of the RDA directors, who will do the Government's bidding for yet further intervention. Why, for example, change the role of English Partnerships, which has done so well nationally, or be tempted to intervene in the Invest in Britain Bureau? Why suck into the RDAs the job done so well by the Rural Development Commission, which has been so successful in promoting micro-industrial development in rural areas?

Worse still is the Government's assumption that industry will somehow benefit from Government-sponsored working parties. I remember a Minister saying that the Government were seeking ideas about the way in which Britain could become more competitive, but industry needs not another export forum or talking shop, but simply the freedom to get on with its job of wealth creation with as little bureaucratic interference as possible.

Much has been said this evening about economic policy, so I shall be brief. The Government's pre-election pledge not to touch income tax has already begun to look short-sighted. The Chancellor's raid on pension funds and the added cash flow pressure that he has imposed on business—by proposing that advance corporation tax be collected quarterly—were misguided and mistimed. At the very time that he has given the Bank of England a free hand, he has failed to encourage savings or to dampen consumer demand, much of which is now being directed towards imports that are artificially cheap as a result of the strength of sterling.

The Prime Minister's words at the weekend about helping Japan and the rest of Asia rang hollow. He and the Chancellor seem unprepared to face up to the dangers of an imminent recession in United Kingdom manufacturing that will arise because of their failure to co-ordinate their fiscal policy with interest rate management at the Bank of England, despite the fact that, compared with Japan, Britain relies on exports for twice the percentage of its GDP.

Labour Members seem to suggest that the European single currency will have no effect on British manufacturing industry, but that is not so. The Government's failure to speak out during the UK's presidency of the European Union about the dangers of a headlong rush to monetary union, with insufficient concern about economic convergence, will create a weaker euro, which is bound to be preyed on in the currency markets. The effect will be economic stresses and tensions among member states that are certain to impinge on Britain's trade with the rest of Europe, at the very least.

One has only to imagine the plight of a hypothetical single Pacific currency. It would have been undermined by Japanese economic failure, having first been softened up by the related problems in South Korea, Indonesia, Thailand or Malaysia, and then it would have gone through the floor, dragging down good regional economies along with bad ones. Unless the EU deals with the structural deficiencies in its member economies that are being masked by a lax interpretation of convergence criteria, further trouble lies ahead.

We should also consider the conflict of interest that faces so many EU countries that are determined to introduce the single currency without delay. That is the conflict between growing unemployment and the need for a tougher fiscal stance. Many influential voices in Germany, France and elsewhere in the European Union recognise the rod for their own back that is being created by politicians and bureaucrats hell-bent on political union via monetary union and the single currency.

Our priority should be not scepticism about Britain's fate in the single currency, but the effect on British industry of the economic instability and tension that are bound to follow the first wave of entrants into the single currency if they disregard the prerequisite of genuine economic convergence. The Government's failure to get that message across to our EU partners during Britain's. presidency bodes ill for British industry.

The Government make brave noises, but fail to understand the realities of the sharp end of line management in British industry, and the wealth creation that goes with it. Their failure to resist interventionist temptations, their muddled economic thinking and their inability to say boo to the rest of Europe when boo should be said, will create further problems and destroy British competitiveness.

9.9 pm

Mr. Brian Cotter (Weston-super-Mare)

The Conservatives are to be congratulated on securing this important debate. The Government forecast growth in manufacturing output this year of only zero per cent. to 0.5 per cent., and with the very strong pound, the risk is that there could even be a mini-recession in manufacturing this year, with falling output. The situation in Asia has increased the risk, and makes it all the more important to debate the prospects for manufacturing industry.

However, that is where my congratulations to the Tories end. No one can forget their record in government over 18 long, hard years. I did not get elected to the House to forget that record, which affected not only my constituents but myself, as managing director of a manufacturing company in the plastics industry.

The nation experienced a severe slump in 1980-81, with substantial exchange rate over-valuation, and a recession in 1990–92. Both busts were caused by irresponsible Conservative policies, and they led to muscle as well as fat being lost from industry. It was hypocritical of the Conservatives to table the motion, when many members of the shadow Cabinet agreed to the implementation of the measures that led to the decimation of manufacturing industry.

The Tory record does not hold up. So bad were the Tories at promoting British manufacturing that, in 1993, after 14 years of Tory rule, manufacturing output was at the same level as it had been 20 years earlier, in 1973. Between 1979 and 1981, manufacturing output fell by 18 per cent. in real terms. There had not been a similar collapse in industrial output since 1920-21. All that from a party that has consistently claimed that the economy is safe only in its hands.

The facts get worse. The motion refers to employment in manufacturing industry, but the hard fact is that manufacturing employment fell by 2.682 million jobs between 1979 and 1996; four jobs in every 10 disappeared under the Tories, yet they call on the Government to change policies

before factories close and jobs are lost. If we Liberal Democrats did not know better, the startling arrogance of the official Opposition would almost beggar belief. This is not the first occasion in this Parliament when they have made U-turns on policies.

Those statistics represent the average. Let us consider the worst years. In 1980–81, 650,000 manufacturing jobs were lost; in 1982, another 320,000 were lost; and in 1983, another 307,000 went down the drain. In only three years, an astonishing 1.277 million jobs were lost in manufacturing.

Mrs. Thatcher's monetarist policies created those losses, and many of the current shadow Cabinet supported them at the time. In 1981, she said:

Of course I am deeply concerned about the plight of the unemployed and those businesses which are suffering severely. We shall do everything we can to help them. What we cannot do is change our essential strategy. It was a strategy for job losses. It was her inflexibility that caused so many to suffer. The Government should learn from her crucial mistakes.

Those episodes were caused largely by exchange rate over-valuation and instability. In the early 1980s, sterling rose by 18 per cent. against the deutschmark, in spite of higher UK inflation. That is why the Liberal Democrats regard the current situation so seriously. In the past 18months, sterling has risen 30 per cent. on a trade-weighted basis, which has had a profound effect on our manufacturing industry.

Figures released today show that manufacturing output is down. In the three months to February, output fell by 0.5 per cent. compared with the previous three months. Just over half manufacturing industries have shown decreases in production, as I know from my company. There was a 1.8 per cent. decrease in the output of the textiles, leather and clothing industries; 1.6 per cent. in chemicals and man-made fibres; and 1 per cent. in the pulp, paper, printing and publishing industries. The signs of impending danger are there. The Government have a duty to listen seriously to the manufacturing industries, and to take action to avoid a devastating repeat of 1980–81 and 1990 to 1992.

The Government talk much about stability. We welcome operational independence for the Bank of England, and the fiscal stability code. Both those policies were in our manifesto, if not in Labour's. We applaud the Government for adopting our policies. Meanwhile, the Tories are hopelessly incoherent on the Bank of England. They have already been asked, and I ask again, whether they would take back political control over interest rates. We would like to hear their answer. The former Conservative Chancellor berates the new monetary system in the UK while supporting the single currency, which would also require an operationally independent central bank.

The Tories clearly have much thinking to do, but so do the Government. To tax and interest rate stability, we must add exchange rate stability. That is why a clear decision for early economic and monetary union entry would be advantageous to Britain and to industry.

Mr. Flight

Not at this rate.

Mr. Cotter

Such a decision would cap the pound's rise and help industry. Businesses are irritated by the lack of a clear timetable for the single currency. The hon. Gentleman says, "Not at this rate." Had the steps I described been taken at the right time, we would not have the present rate.

The Government should have done a better job on fiscal policy. They claim to have tightened fiscal policy, but most of those measures will not cool the consumer boom in the short term. Raising extra taxes on savings and businesses may seem like good policies, but they are bad economics.

The consumer taxes that the Chancellor has spoken of are modest, or offset by other measures. When asked by the Treasury Select Committee last week to list the actions that he has taken to dampen consumer demand, he could point only to a reduction of mortgage tax relief, which is only just taking effect; a reduction in tax relief via the married couple's allowance, which will take place in 1999; higher stamp duty on highly priced properties; and a higher petrol tax.

Those measures will have only a limited effect on consumer demand. We are back to having only one mechanism. Interest rates alone are being used to dampen the economy, at the cost of a stronger pound and higher costs on industry.

Is the Chancellor feeling somewhat chastened after strong criticism from the Engineering Employers Federation? If not, he should be. The EEF is right to say that the Treasury is "not listening enough" to industry about the damage that the strong pound is doing to UK manufacturers. The EEF also agrees that the problem should be tackled through taxes targeted at the consumer—otherwise, it predicts, up to 50,000 jobs will be lost in the engineering sector alone.

What should the Government do? We Liberal Democrats have consistently argued that money should be devoted towards training and education. The hon. Member for Rotherham (Mr. MacShane) made a constructive speech, the tenor of which we can support. He spoke about crossing the political boundaries to come up with solutions, the importance of training and education, and the important role that rural development agencies should have in future in regeneration at local level. He also spoke of adopting a rational approach to the European Community.

I fully support many other initiatives, including the foresight initiative, which links science and technology with industry, although many are now saying that it is underfunded. I am glad to see the Government embarking on a programme to help small businesses with exports, but we Liberal Democrats believe that, overall, the Government should have made a stronger commitment toward a single currency.

I could make other constructive points, but I conclude by saying that tonight we have debated a cynical motion from a party that has neither principle or policy. The Conservatives' suggestion that labour standards should be undermined is unacceptable to Liberal Democrats. It may be a bitter pill for the Tories to swallow, but the previous Conservative Government were responsible for much of the decline of manufacturing industry.

However, the Labour Government must learn that flexibility is not a weakness; they must learn to listen, and to change course if a disaster for our manufacturing industry is to be averted. The Chancellor needs to get to grips with a problem that requires the minds and application of politicians of all persuasions, people in industry, trade unions, the City and every other institution that is engaged in productive activity. These are early days for the Labour Government, and they have a chance to develop our economy to support manufacturing industry. We shall judge them on their record, and on their response to the situation we face today.

9.21 pm
Dr. Nick Palmer (Broxtowe)

I have noticed in previous debates on industry the curious fact that few leading Conservatives have any personal experience of manufacturing industry. Let us look at the backgrounds of the six signatories to the motion in the dim and distant days before they fell on evil times and became professional Conservatives.

The Leader of the Opposition, the right hon. Member for Richmond, Yorks (Mr. Hague), was a business consultant. The shadow Chancellor, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), was an oil analyst. The shadow President of the Board of Trade, the right hon. Member for Wokingham (Mr. Redwood), was an investment adviser. The right hon. and learned Member for Folkestone and Hythe (Mr. Howard) was a barrister, as was the hon. Member for North-East Hampshire (Mr. Arbuthnot). The right hon. Member for Wells (Mr. Heathcoat-Amory) was a farmer, an accountant and a finance director.

All those professions are extremely respectable—if I had a daughter who wanted to marry one of them, I should say, "By all means. My son-in-law the oil analyst—why not?"—but it is curious that the parliamentary Conservative party is unable to find a single manufacturer in its ranks to sign the motion.

That might explain why the previous Government and the current shadow Cabinet have managed to get so far out of touch with British industry. I shall not go into the question of sterling, because almost all the other speakers have addressed it; but I have spoken with many managers in Broxtowe, and I should like to say a couple of words about the other points on the charge sheet assembled by the Opposition.

The motion claims that managers are worried about taxes, but not one of the Broxtowe managers to whom I spoke cited tax as an issue that worried them—on the contrary, they feel that the reduction in corporation tax is helpful to industry. Taxation does not appear to be a problem for them.

The motion also alleges that managers are alarmed by social and labour law legislation. None of the Broxtowe managers has evinced any such concern, with the exception of a firm run by an exclusive Christian group called the Brethren, which believes that the Bible forbids it to recognise trade unions. If Conservative Members wish to promote that group, that is fine, but I have not heard them mention it. Perhaps they are saving that argument for the wind-up speech.

The hon. Member for South-West Hertfordshire (Mr. Page) made an interesting point. He said that he wondered whether, in the present regime, overseas companies would wish to pursue inward investment in Britain.

Unlike the sponsors of the motion, I have recent experience of management in a large overseas-based multinational manufacturing company. I spoke to the chairman after seeing advertisements placed in the local press by the former Conservative Government, which said that companies should invest in Britain because our wage rates were low and there were few restrictions on employers.

I felt a little ashamed that we should be openly advertising ourselves as an ideal home for sweatshops, but I asked the chairman whether those arguments would persuade him to increase UK investment. His reply was revealing. He said that, other things being equal, lower wage rates were welcome, but that, at that time, there were two problems in Britain which were significant barriers to investment: the poor state of infrastructure, especially in the universities; and the low average quality of education, which made it hard to get the staff needed for high-quality precision manufacturing.

Given that background, I whole-heartedly welcome the new Government's focus on creating an environment for education and training that surpasses that of our foreign competitors. I particularly welcome the emphasis on support for research and development, which the Minister for Science, Energy and Industry has made his own.

British business needs four things from Government, regardless of the Government's political complexion. First, it needs a stable economic environment focused on long-term growth, as emphasised so many times by the Chancellor. Secondly, it needs an education system that delivers the expertise needed for competitiveness. That is the focus of the policies put forward by the Department for Education and Employment. Thirdly, it needs a financial environment that rewards enterprise and venture capital investment, as stressed by the Minister for Small Firms, Trade and Industry when we debated that matter a few weeks ago. Finally, it needs a social and environmental policy framework that makes clear what is expected of it, and is not subject to constant change. That is another commitment of this Government.

The new Labour Government are committed to all four elements, which is why business in Broxtowe, as in Britain in general, is predominantly behind the Government as they take our country into a future that matches the industrial glories of the past.

9.28 pm
Mr. David Heathcoat-Amory (Wells)

It was kind of the hon. Member for Broxtowe (Dr. Palmer) to go into the biographical details of those who signed the motion, but he was wrong to assert that none of us has manufacturing experience. He mentioned that I have a business background, but I spent 10 years in manufacturing before coming to this House, and am now a director of a manufacturing company, an interest that I am proud to declare in such a debate.

More generally, almost all my right hon. and hon. Friends who signed the motion have more manufacturing and business experience than the entire Department of Trade and Industry Front Bench. Therefore, Conservative Members think that we know what we are talking about, and we have heard some excellent speeches from my right hon. and hon. Friends this evening.

We have on our hands a betrayal of everything for which Labour said they stood when in opposition. We are used to broken promises from Labour on taxation, but their betrayal of the manufacturing interest is probably the greatest. When they were in opposition, no speech made by Labour Members was complete without reference to the central importance of the manufacturing sector. They always called for lower interest rates, more investment, intervention of one sort or another, but now that they are in office, they have no strategy whatever. That has been noticed not just by hon. Members on the Opposition Benches, but more generally.

I was interested in a debate in another place last week, in which Lord Paul—a new Labour peer—finished his speech by saying:

There is a cynicism creeping into the minds of UK manufacturers that this Government are indifferent to the fate of manufacturing industry".—[Official Report, House of Lords, 1 April 1998; Vol. 587, c. 298.] That has been shown again this evening.

The President of the Board of Trade, in her somewhat petulant and shrill speech, showed that she had no idea whether she was on the side of those who still believe manufacturing to be important, or whether she thinks that manufacturing is no longer sufficiently cool to engage the interest of Ministers. I personally thought that it was one of the weakest performances from the Dispatch Box that I have ever heard on a subject of this importance. It showed the shallowness of the Government's entire approach. They have no strategy.

On reflection, perhaps we should not be too surprised at that, because one of the first things that the Government did, four days after the general election, was to give away the power to decide interest rates—a central lever of the economy. When the Chancellor of the Exchequer transferred the decision-making power to the Bank of England, he did so without telling the House, without consulting anyone outside, and in defiance of what was in the Labour manifesto.

In Labour's business manifesto, which we all know was more important than their main manifesto—

The Minister for Science, Energy and Industry (Mr. John Battle)


Mr. Heathcoat-Amory

I give way to the Minister.

Mr. Battle

Will the right hon. Gentleman say whether he prefers that decision? Is it not the case that many companies, including his own, welcome it?

Mr. Heathcoat-Amory

I shall come to the attitude of companies in a moment. I make the point—it is interesting that the Minister does not deny this—that, in its business manifesto, Labour said that it would set up an advisory committee in the Bank of England, but that decisions would continue to be taken by the Treasury; so it was another broken promise when, four days after the general election, the Chancellor transferred these powers to the Monetary Policy Committee of the Bank of England, in advance of any legislation.

We warned of the dangers, and the confusion that we predicted in the Monetary Policy Committee has occurred. It has broken up into two unarmed camps: the hawks and the doves. The hawks believe that further increases in interest rates are required. The doves believe that interest rates should remain the same.

The Monetary Policy Committee's discussions are conducted semi-publicly, but it has raised in the minds of economic commentators and the markets the probability of further interest rate rises to come, which has further strengthened the pound and further damaged exporters and the manufacturing sector generally. That point was graphically made by my hon. Friend the Member for South-West Hertfordshire (Mr. Page), who has long experience of these matters. We are the fifth biggest trading nation in the world, and markets that are relinquished by the failure to compete on price are difficult to re-establish.

Dr. Palmer

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

Will the hon. Gentleman forgive me? He has made his speech. I hope to reply to some of his points in due course.

There are reports that the Government, and more specifically the Cabinet, have split on this issue into those who still believe that something should be done about manufacturing, and those who do not. The attitude of the President of the Board of Trade remains a mystery.

We also warned at the time that there was a danger that monetary policy would diverge from fiscal policy; that the MPC would have an overriding concern to counter inflation by higher interest rates, while the Chancellor and the Government would pull policy in another direction. Those warnings came not just from my party, but from other parties. Indeed, I recognise one or two Labour Members who made precisely the same points.

The Government did not listen. That is hardly surprising, because Labour Members do not take the House seriously any more: they never attend debates such as this. But it has happened again. There is now a divergence between what the Chancellor, in two Budgets, has done in regard to taxation—and in regard to savings in particular—and what the Monetary Policy Committee is trying to do in the Bank of England.

In those two Budgets, we have seen an attack on savings. The £5 billion raid on pension funds—which is now to be an annual event—is the precise opposite of what the Government should have done last year. They should have encouraged savings, especially in the light of the huge windfalls that consumers were receiving from building societies and insurance companies following flotations.

The Government compounded the problem with the muddle over tax-exempt special savings accounts and personal equity plans. They relented on that, and we had a U-turn; but individual savings accounts will still be subject to an annual limit that is less than half what people can currently save through PEPs and TESSAs. By taxing savings and deterring savers, the Government put all the burden of the anti-inflation strategy on to the Bank of England. That is why we have had five interest rate rises since the election, and an uncompetitively high pound. It has been bad for mortgage holders, bad for investment and bad for exporters.

All that is described in the finer print of the Red Book—the Financial Statement published at the time of the Budget. It is laid out in the Red Book that the savings ratio is

expected to decline over the next three years. The Red Book also mentions business investment, about which we have heard so much criticism this evening. Apparently it has been

rising as a share of GDP since 1994. So much for the assertion that it fell constantly during our term of office.

The Red Book also states:

Overall, business investment is forecast to decelerate this year". Decelerate" is one of those wonderful words that actually mean something different. "Decelerate" really means that business investment will be cut this year. It is one of the understatements for which the Treasury is famous. On page 95, the Red Book says:

the outlook for the traded goods sector is difficult … with imports of goods in the fourth quarter of 1997 up 10¾ per cent. on a year earlier. There we have it. We know that the Prime Minister has not read the Red Book, but we have. We know from the Chancellor himself that savings are set to decline, that investment is set to decline, that imports are going up, that industry is contracting, and that the Government's inflation targets—even on their own figures—will not be met until the end of next year.

We have a highly distorted economy. Services and consumption are buoyant, while manufacturers and exporters are on the brink of a recession. In today's debate, one or two hon. Members said that everything would be all right, because we now have stability. Indeed, the Chancellor has said more than once that he wants to end the cycle of boom and bust. He has done so by having both simultaneously: we have a boom in the consumer market, and a potential bust—certainly, we are on the brink of a bust—in the manufacturing and exporting sector.

There is another point, which again has been made by my hon. Friends. According to the Governor of the Bank of England, about half the rise in sterling can be attributed to the weakness of the euro. In other words, sterling is now a currency of refuge. Quite simply, a fudged euro will be a weak euro, which means a relatively strong pound.

What are the Government doing? Nothing. Despite holding the six-month presidency of the European Union, neither the Prime Minister nor the Chancellor of the Exchequer shows the slightest interest in ensuring that the treaty convergence criteria are adhered to. The Bundesbank report lays out the fudging in graphic detail. Italy will have to run a budget surplus of 2.2 per cent. for the next 10 years to reach the required 60 per cent. debt level, but it is not even planning a balanced budget, so the chance of meeting the entry criteria is extremely remote.

The Prime Minister says that a range of criteria must be considered. Cannot the Government understand that fudging the entry criteria may do terrible, or even irreparable, damage to our manufacturing industry? If the Prime Minister and the Chancellor do not at least try to insist during their chairmanship of meetings that treaty requirements must be adhered to, we shall conclude that their reputation as European fixers is more important than their aim of preventing damage to the constituent economies of the European Union or that of the United Kingdom.

Damage is caused directly to the manufacturing sector not by the high value of the pound, but by taxation and regulations. My hon. Friend the Member for Bexhill and Battle (Mr. Wardle) graphically described the damage caused by over-regulation. I must mention the £20 billion extra tax burden on British industry laid out for the duration of this Parliament, the pensions tax, the early instalments of corporation tax, the double increase in diesel duty, and the stamp duty increases, all of which hit businesses harder than home owners and add to the burdens on the manufacturing sector when the Government have announced a welfare-to-work programme that relies on such firms to deliver jobs.

The Government have the cheek to claim credit for the competitiveness, flexibility and success that British firms have built up over the past 18 years, but trade union reforms, privatisations and the creation of a dynamic and flexible labour market were opposed throughout by the Labour party. The only reform or policy it supported was our entry of the exchange rate mechanism. The Conservative party has learnt the lesson about that, but the Labour party has not.

The Government have been lucky. They have inherited a golden legacy, but their response is to tax savings and businesses, to regulate and to interfere. Alongside that is neglect of and indifference to the damage that is being caused by the strength of the pound—almost fatalism about it.

If there is even a vestigial concern among Labour Members about the manufacturing sector, they should show it by joining us in the Lobby.

9.43 pm
The Minister for Science, Energy and Industry (Mr. John Battle)

After 11 years as a Member of Parliament, I am amazed at the Opposition's new-found interest in manufacturing—although it is welcome.

Conservative Members have used the word "manufacturing" as a cover for a debate on the euro: most of the speech of the hon. Member for Bexhill and Battle (Mr. Wardle) was against the single European currency, and the right hon. Member for Wells (Mr. Heathcoat-Amory) resigned as a Treasury Minister before the last election because he disagreed with the then Chancellor's policy—but tonight he said how marvellous it was. After a cursory introductory reference to manufacturing, the shadow President of the Board of Trade moved on to his usual hang-up with the euro. The debate has been a run-out for the Eurosceptics, in case they find that their leader is backsliding again. It is a little late in the day for Conservative Members to promote manufacturing, given the fact that, for almost two decades, they deliberately ran down, if not wrote off, the manufacturing sector.

The hon. Member for South-West Hertfordshire (Mr. Page) was a Minister at the Department of Trade and Industry. In my 10 years in the House, I do not recall him mentioning the word "manufacturing" in his speeches, yet he claims that he regularly reminded us that manufacturing created the wealth that the nation needed.

Mr. Page

Would it be convenient for me to send the hon. Gentleman copies of all my speeches on manufacturing, and would he please acknowledge receipt of them?

Mr. Battle

As the President of the Board of Trade said, one or two lone voices in the Conservative party spoke up for manufacturing, but the hon. Gentleman was not one of them. I should be delighted to receive the full raft of his speeches in the House on manufacturing, because I am confident that he did not make many.

When the noble Lord Young was Secretary of State for Trade and Industry, he was challenged on Tory policies that undermined manufacturing. In my own city of Leeds, engineering, printing and textiles provided employment for more than 100 years. In the early 1980s, he advised great manufacturing centres such as Leeds to abandon manufacturing and to concentrate on services. His immortal words were that the centres of manufacturing would thrive if only more people would eat out. That was his policy. He advised us that we would economically survive by cutting each other's hair and eating at McDonald's. In the meantime, there was a slump in manufacturing from 52 per cent. of the economy to 22 per cent.

I am glad that, late in the day, the Conservatives are telling us that manufacturing is crucial to economic prosperity. We have known that for decades. Some of the industries to which my hon. Friend the Member for Rotherham (Mr. MacShane) referred were written off by the Tories as traditional, but the steel industry has moved towards the 21st century with new technology. What did we get from 18 years of Conservative government? We had bust, boom and bust again: short-term expediency rather than long-term commitment. Manufacturing under the Tories was hammered by two savage recessions, and damaged by an unsustainable boom in between.

The Tories kept telling us that their macro-economic policy was set within a medium-term financial strategy. The problem with the objectives of their monetary and fiscal policies was that they changed with bewildering frequency. Nowhere was their confusion greater than on the subject of exchange rates. First Chancellor Nigel Lawson went, and then Norman Lamont resigned. The Tories believed that the exchange rate would find its own level, and that it was an important indicator of monetary conditions. That led to the shadowing of the deutschmark. Then they argued that we could not buck the market, and they joined the exchange rate mechanism. Two years later, we were ejected from the ERM at a cost to the country of £10 billion in a single afternoon. They now have the nerve to tell us about economic policy.

As a result of the confusion, the pound went on a rollercoaster ride. Under two Prime Ministers and four Chancellors, the rate of sterling against the deutschmark changed a mere 87 times. That is the Tory record.

Mr. Hammond

Does the Minister acknowledge that there is an immediate problem for manufacturing industry? What advice would he give to manufacturing companies that are on the brink of having to make substantial redundancies because they are becoming uncompetitive? That is happening now, not in history.

Mr. Battle

I shall willingly deal with the hon. Gentleman's point if he will allow me to continue my speech. We should put it clearly on the record where the Conservative party comes from, because the boom and bust cycle that it created between 1989 and 1993 cost us 1 million manufacturing jobs. The last thing that the industry wants now is a return to those short-term, boom-bust, stop-go policies of the past.

The Conservative Government did little to promote manufacturing, and many of their actions were damaging. As a result of 18 years of Conservative Government, manufacturing shrank by a quarter in relation to the economy as a whole. Some 2.5 million jobs were lost, and the Conservative Government were totally indifferent to that. They did not say a word about manufacturing.

Of course we fully recognise the worries of manufacturers about the current exchange rate. I met representatives of the worsted textile industry in my constituency on Saturday. We appreciate that they are under pressure, but it is accepted that we need a stable and competitive framework over the medium and longer term. We have the right policies to achieve that. I recall the freely given and much publicised expert advice in the months before the general election. What did all the experts advise and agree on? They claimed that the only certainty other than death if a Labour Government were elected was that the pound would sink. They said that it would go through the floor.

The experts all predicted a fall in the pound consequent on the election of a Labour Government. To be fair, there was some precedent. Every previous Labour Government have come under incredible economic pressure, and everyone expected downward pressure on the pound. Conservative Members spelled that out day after day in the election campaign. What has happened? Who predicted that a Labour Government would face the problem of the pound being too strong?

The Conservatives do not know where they stand on the issue. On 30 October 1989, just after Nigel Lawson resigned, the then Prime Minister, now Baroness Thatcher, declared on television:

I like a strong pound. Now the shadow President of the Board of Trade campaigns for a weak pound, but at that time, he claimed that Baroness Thatcher was right. He has obviously changed his mind. Conservative Members with their selective amnesia seem to forget that sterling's value against the deutschmark increased by 20 per cent. between May 1996 and May 1997. Some 70 per cent. of the present increase is due to the actions of the Government at that time, and, of course, we have inherited that sterling time bomb.

Mr. Graham Brady (Altrincham and Sale, West)

I am sorry to interrupt the Minister's rampage through history. Is he not aware—I presume from his complacent performance that he is not—that some of my constituents with businesses in Trafford Park are already laying people off because of the Government's policies? They will not be satisfied by the complacent remarks of the Secretary of State and the Minister. Will the Minister tell us what the Government intend to do about that problem?

Mr. Battle

Some of us recall the lay-offs in Trafford Park under the previous Government. No doubt the hon. Gentleman will remember the words of a former Conservative Chancellor who, just before the election, said: We have a floating exchange rate at the moment and, for that reason, I do not control its level. Finance Ministers do not control the level of exchange rates in today's deregulated … markets."—[Official Report, 13 March 1997; Vol. 292, c. 491-92.] We are entitled to ask Opposition Members whether they agree with that or whether they now take a different view. As usual, they are at sixes and sevens. Some of them say, "Join the EMU early," while others are mortally opposed. Some say, "Put taxes up," while others say, "Put taxes down." Some say, "We want further fiscal tightening," while others say, "Not any more." They are all over the place—deeply divided, uncertain and never sure which way to face. Their position is muddled, inconsistent and incredible.

Mr. Paterson

The Minister's historical rant is simply not good enough. [Interruption.] People working in businesses and on farms are worried sick that they will become unemployed because the Minister and the Secretary of State will not give the Chancellor a clear recommendation about what will do manufacturing good. At what level would they like to see the exchange rate?

Mr. Battle

I seem to recall that today's debate is on an Opposition motion.

In 1995, the right hon. Member for Wokingham (Mr. Redwood)—during his perennial leadership campaign—said: at my first Cabinet meeting, I'd ask what could we cease doing". After demonstrating that smack of firm, threatening leadership, he went on to declare: Those who answer well will have good prospects under me. There we have it. The right hon. Gentleman may regale us with his empty rhetoric, but he will do nothing.

What action would the right hon. Member for Wokingham take? He mutters about savings, but—despite those mutterings—the personal savings ratio is rising under our Labour Government. Would he tighten even further the Government's fiscal stance, and cut spending on education and health? Is that what he is telling us? Would he increase personal taxation? He is a do-nothing man, whose practical advice is worthless.

Mr. Heathcoat-Amory

The hon. Gentleman mentioned the savings ratio. May I refer him to the Government's own document—the Red Book—which clearly shows the savings ratio peaking in 1997, falling in 1998, falling further in 1999 and falling even further in 2000, when it runs off the map?

Mr. Battle

That intervention was made by a man who was a Minister in a Government under whom savings fell to 6 per cent. Tell us about it.

The Government understand the worries of manufacturers. Moreover, since day one, we have been providing an environment in which businesses can prosper. We have cut the main corporation tax rate and exempted small and medium-sized companies—about which some hon. Members have expressed some concern in this debate. We have reformed capital gains tax, and established a new enterprise investment scheme. We are investing in skills and training, and have established a university for industry. We have also introduced a university challenge fund. We are introducing major initiatives to get investment in research and development and to encourage longer-term investments. We shall stick with our strategy, and not be bounced by cribbing Conservative Members—who have not a clue what to do, and cannot even make up their own minds.

Long-term investment rates are already lower, and manufacturing output is holding up. Yes, although we share some concerns with industry, we are determined to build a stable economic framework and to break the boom-bust cycle.

Mr. David Prior (North Norfolk)

Will the hon. Gentleman give way?

Mr. Battle


I should like to know how Conservative Members have the gall, nerve and bare-faced cheek even to mention manufacturing. The right hon. Member for Wells mentioned cynicism. However, Conservative Members—who belong to a party that is without principle or policy—have tabled a cynical and opportunist motion. Conservative Members cannot even make up their minds what to do on those matters. For them to table that motion really takes the biscuit. In government, Conservative Members worked to eliminate manufacturing, although they did not mention that today.

I got the impression from the speech of the shadow President of the Board of Trade that he wants to set our exchange rate in a vacuum, as if we could do that in the context of a world economy. Such a desire is simply bizarre, and a case of, "Don't adjust your brain; there's a fault in reality."

Our policies are designed to rebuild our manufacturing base and to ensure that it has a future. I hope that hon. Members will reject the cynical words in the Opposition's motion, which are simply a cover to allow the Eurosceptics another ride. Conservative Members' interest in manufacturing is as shallow as the words of their motion.

I urge hon. Members to vote for the Government's amendment, which states how our policies will rebuild our manufacturing base and establish skills and training, which are a factor in our manufacturing's ability to compete. Our policies will ensure that there is investment in research and development, which declined under the previous Government. They left office with less investment in research and development than when they came to power. It is our policies that will rebuild our manufacturing base and ensure that it has a future, not the cynical opportunism that we see in the Conservative party motion. I recommend the amendment in the name of my right hon. and hon. Friends.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 135, Noes 333.

Division No. 245] [9.59 pm
Ainsworth, Peter (E Surrey) Clifton-Brown, Geoffrey
Amess, David Collins, Tim
Ancram, Rt Hon Michael Colvin, Michael
Arbuthnot, James Cormack, Sir Patrick
Atkinson, David (Bour'mth E) Cran, James
Atkinson, Peter (Hexham) Davies, Rt Hon David (Haltemprice)
Baldry, Tony Day, Stephen
Bercow, John Dorrell, Rt Hon Stephen
Beresford, Sir Paul Duncan, Alan
Blunt, Crispin Emery, Rt Hon Sir Peter
Body, Sir Richard Faber, David
Boswell, Tim Fabricant, Michael
Bottomley, Peter (Worthing W) Fallon, Michael
Bottomley, Rt Hon Mrs Virginia Flight, Howard
Brady, Graham Forth, Rt Hon Eric
Brazier, Julian Fowler, Rt Hon Sir Norman
Brooke, Rt Hon Peter Fraser, Christopher
Browning, Mrs Angela Gale, Roger
Bruce, Ian (S Dorset) Garnier, Edward
Burns, Simon Gibb, Nick
Butterfill, John Gill, Christopher
Cash, William Gillan, Mrs Cheryl
Chapman, Sir Sydney Gorman, Mrs Teresa
(Chipping Barnet) Green, Damian
Chope, Christopher Greenway, John
Clappison, James Grieve, Dominic
Clark, Rt Hon Alan (Kensington) Hague, Rt Hon William
Clark, Dr Michael (Rayleigh) Hamilton, Rt Hon Sir Archie
Clarke, Rt Hon Kenneth Hammond, Philip
(Rushcliffe) Hawkins, Nick
Hayes, John Prior, David
Heathcoat-Amory, Rt Hon David Randall, John
Horam, John Redwood, Rt Hon John
Howard, Rt Hon Michael Robathan, Andrew
Howarth, Gerald (Aldershot) Robertson, Laurence (Tewk'b'ry)
Hunter, Andrew Roe, Mrs Marion (Broxbourne)
Jack, Rt Hon Michael Rowe, Andrew (Faversham)
Jackson, Robert (Wantage) St Aubyn, Nick
Jenkin, Bernard Sayeed, Jonathan
Johnson Smith, Shephard, Rt Hon Mrs Gillian
Rt Hon Sir Geoffrey Shepherd, Richard
Key, Robert Simpson, Keith (Mid-Norfolk)
King, Rt Hon Tom (Bridgwater) Soames, Nicholas
Laing, Mrs Eleanor Spring, Richard
Lait, Mrs Jacqui Stanley, Rt Hon Sir John
Lansley, Andrew Steen, Anthony
Leigh, Edward Streeter, Gary
Letwin, Oliver Swayne, Desmond
Lewis, Dr Julian (New Forest E) Syms, Robert
Lidington, David Tapsell, Sir Peter
Loughton, Tim Taylor, Ian (Esher & Walton)
Luff, Peter Townend, John
Lyell, Rt Hon Sir Nicholas Tredinnick, David
MacGregor, Rt Hon John Trend, Michael
McIntosh, Miss Anne Tyrie, Andrew
Maclean, Rt Hon David Viggers, Peter
McLoughlin, Patrick Walter, Robert
Madel, Sir David Wardle, Charles
Major, Rt Hon John Waterson, Nigel
Mates, Michael Wells, Bowen
Maude, Rt Hon Francis Whitney, Sir Raymond
Mawhinney, Rt Hon Sir Brian Widdecombe, Rt Hon Miss Ann
May, Mrs Theresa Wilkinson, John
Moss, Malcolm Willetts, David
Nicholls, Patrick Winterton, Mrs Ann (Congleton)
Norman, Archie Yeo, Tim
Ottaway, Richard Young, Rt Hon Sir George
Page, Richard
Paice, James Tellers for the Ayes:
Paterson, Owen Mr. John M. Taylor and
Pickles, Eric Mr. Oliver Heald
Adams, Mrs Irene (Paisley N) Browne, Desmond
Ainger, Nick Burden, Richard
Alexander, Douglas Burgon, Colin
Allan, Richard Butler, Mrs Christine
Allen, Graham Caborn, Richard
Anderson, Janet (Rossendale) Campbell, Alan (Tynemouth)
Armstrong, Ms Hilary Campbell, Mrs Anne (C'bridge)
Ashton, Joe Campbell, Menzies (NE Fife)
Atherton, Ms Candy Campbell, Ronnie (Blyth V)
Atkins, Charlotte Campbell-Savours, Dale
Baker, Norman Canavan, Dennis
Ballard, Mrs Jackie Cann, Jamie
Barnes, Harry Caplin, Ivor
Battle, John Casale, Roger
Beard, Nigel Caton, Martin
Beckett, Rt Hon Mrs Margaret Chapman, Ben (Wirral S)
Begg, Miss Anne Chidgey, David
Beith, Rt Hon A J Chisholm, Malcolm
Bell, Stuart (Middlesbrough) Church, Ms Judith
Benn, Rt Hon Tony Clapham, Michael
Bennett, Andrew F Clark, Rt Hon Dr David (S Shields)
Benton, Joe Clark, Dr Lynda
Bermingham, Gerald (Edinburgh Pentlands)
Berry, Roger Clark, Paul (Gillingham)
Best, Harold Clarke, Eric (Midlothian)
Blears, Ms Hazel Clarke, Rt Hon Tom (Coatbridge)
Blizzard, Bob Clelland, David
Bradley, Keith (Withington) Clwyd, Ann
Bradshaw, Ben Coaker, Vernon
Brake, Tom Coffey, Ms Ann
Breed, Colin Coleman, lain
Brown, Rt Hon Nick (Newcastle E) Colman, Tony
Brown, Russell (Dumfries)
Connarty, Michael Hoon, Geoffrey
Cook, Frank (Stockton N) Hope, Phil
Cooper, Yvette Hopkins, Kelvin
Corbyn, Jeremy Howarth, Alan (Newport E)
Cotter, Brian Howarth, George (Knowsley N)
Cranston, Ross Howells, Dr Kim
Crausby, David Hoyle, Lindsay
Cryer, Mrs Ann (Keighley) Hughes, Ms Beverley (Stretford)
Cummings, John Hughes, Kevin (Doncaster N)
Cunliffe, Lawrence Hughes, Simon (Southwark N)
Cunningham, Rt Hon Dr John Humble, Mrs Joan
(Copeland) Hurst, Alan
Cunningham, Jim (Cov'try S) Hutton, John
Dalyell, Tam Iddon, Dr Brian
Darling, Rt Hon Alistair Illsley, Eric
Darvill, Keith Jackson, Ms Glenda (Hampstead)
Davey, Valerie (Bristol W) Jackson, Helen (Hillsborough)
Davies, Rt Hon Denzil (Llanelli) Jamieson, David
Davies, Geraint (Croydon C) Jenkins, Brian
Davies, Rt Hon Ron (Caerphilly) Johnson, Alan (Hull W & Hessle)
Davis, Terry (B'ham Hodge H) Jones, Barry (Alyn & Deeside)
Dean, Mrs Janet Jones, Mrs Fiona (Newark)
Denham, John Jones, Jon Owen (Cardiff C)
Dewar, Rt Hon Donald Jones, Dr Lynne (Selly Oak)
Dismore, Andrew Jones, Martyn (Clwyd S)
Dobbin, Jim Jones, Nigel (Cheltenham)
Donohoe, Brian H Kaufman, Rt Hon Gerald
Doran, Frank Keeble, Ms Sally
Dowd, Jim Keen, Alan (Feltham & Heston)
Drew, David Keen, Ann (Brentford & Isleworth)
Dunwoody, Mrs Gwyneth Kemp, Fraser
Eagle, Maria (L'pool Garston) Kennedy, Jane (Wavertree)
Edwards, Huw Kilfoyle, Peter
Ellman, Mrs Louise King, Andy (Rugby & Kenilworth)
Ennis, Jeff King, Ms Oona (Bethnal Green)
Fatchett, Derek Kingham, Ms Tess
Fearn, Ronnie Kirkwood, Archy
Field, Rt Hon Frank Kumar, Dr Ashok
Fitzpatrick, Jim Laxton, Bob
Fitzsimons, Lorna Lepper, David
Follett, Barbara Leslie, Christopher
Foster, Rt Hon Derek Levitt, Tom
Foster, Michael Jabez (Hastings) Lewis, Ivan (Bury S)
Foster, Michael J (Worcester) Liddell, Mrs Helen
Foulkes, George Linton, Martin
Fyfe, Maria Livsey, Richard
Galbraith, Sam Llody, Tony (Manchester C)
Galloway, George Lock, David
Gardiner, Barry Love, Andrew
George, Bruce (Walsall S) McAvoy, Thomas
Gerrard, Neil McCabe, Steve
Gilroy, Mrs Linda McCafferty, Ms Chris
Godman, Dr Norman A McCartney, Ian (Makerfield)
Godsiff, Roger McDonagh, Siobhain
Goggins, Paul McDonnell, John
Golding, Mrs Llin McFall, John
Griffiths, Nigel (Edinburgh S) McGuire, Mrs Anne
Griffiths, Win (Bridgend) McIsaac, Shona
Grocott, Bruce McKenna, Mrs Rosemary
Grogan, John McLeish, Henry
Hall, Mike (Weaver Vale) McNamara, Kevin
Hall, Patrick (Bedford) MacShane, Denis
Hamilton, Fabian (Leeds NE) Mactaggart, Fiona
Hanson, David McWalter, Tony
Harman, Rt Hon Ms Harriet McWilliam, John
Heal, Mrs Sylvia Mahon, Mrs Alice
Heath, David (Somerton & Frome) Mallaber, Judy
Henderson, Doug (Newcastle N) Marek, Dr John
Henderson, Ivan (Harwich) Marsden, Gordon (Blackpool S)
Hepburn, Stephen Marsden, Paul (Shrewsbury)
Heppell, John Marshall, Jim (Leicester S)
Hesford, Stephen Marshall, —Andrews, Robert
Hewitt, Ms Patricia Martlew, Eric
Hill, Keith Meacher, Rt Hon Michael
Hoey, Kate Meale, Alan
Hood, Jimmy
Michael, Alun Sheerman, Barry
Michie, Bill (Shef?ld Heeley) Sheldon, Rt Hon Robert
Michie, Mrs Ray (Argyll & Bute) Singh, Marsha
Milburn, Alan Skinner, Dennis
Mitchell, Austin Smith, Angela (Basildon)
Moffatt, Laura Smith, Miss Geraldine
Moonie, Dr Lewis (Morecambe & Lunesdale)
Moore, Michael Smith, John (Glamorgan)
Moran, Ms Margaret Smith, Llew (Blaenau Gwent)
Morgan, Rhodri (Cardiff W) Smith, Sir Robert (W Ab'd'ns)
Morley, Elliot Snape, Peter
Morris, Ms Estelle (B'ham Yardley) Southworth, Ms Helen
Morris, Rt Hon John (Aberavon) Spellar, John
Mountford, Kali Squire, Ms Rachel
Mudie, George Starkey, Dr Phyllis
Mullin, Chris Steinberg, Gerry
Murphy, Denis (Wansbeck) Stevenson, George
Murphy, Jim (Eastwood) Stewart, David (Inverness E)
Norris, Dan Stewart, Ian (Eccles)
Oaten, Mark Stinchcombe, Paul
O'Brien, Bill (Normanton) Stoate, Dr Howard
O'Hara, Eddie Stott, Roger
Olner, Bill Stringer, Graham
O'Neill, Martin Stuart, Ms Gisela
Öpik, Lembit Stunell, Andrew
Organ, Mrs Diana Sutcliffe, Gerry
Palmer, Dr Nick Taylor, Rt Hon Mrs Ann
Pearson, Ian (Dewsbury)
Pendry, Tom Taylor, Ms Dari (Stockton S)
Perham, Ms Linda Thomas, Gareth R (Harrow W)
Pickthall, Colin Tipping, Paddy
Pike, Peter L Todd, Mark
Plaskitt, James Touhig, Don
Pope, Greg Trickett, Jon
Powell, Sir Raymond Truswell, Paul
Prentice, Ms Bridget (Lewisham E) Turner, Dennies (Wolverh'ton SE)
Prentice, Gordon (Pendle) Turner, Dr George (NW Norfolk)
Prescott, Rt Hon John Twigg, Derek (Halton)
Primarolo, Dawn Twigg, Stephen (Enfield)
Quin, Ms Joyce Tyler, Paul
Quinn, Lawrie Vaz, Keith
Rapson, Syd Vis, Dr Rudi
Raynsford, Nick Wallace, James
Reed, Andrew (Loughborough) Walley, Ms Joan
Reid, Dr John (Hamilton N) Wareing, Robert N
Rendel, David Watts, David
Robertson, Rt Hon George Wicks, Malcolm
(Hamilton S) Williams, Rt Hon Alan
Rogers, Allan (Swansea W)
Rooker, Jeff Williams, Alan W (E Carmarthen)
Rooney, Terry Williams, Mrs Betty
Rowlands, Ted Winnick, David
Roy, Frank Winterton, Ms Rosie (Doncaster C)
Ruane, Chris Wise, Audrey
Ruddock, Ms Joan Wood, Mike
Russell, Bob (Colchester) Woolas, phil
Russell, Ms Christine (Chester) Wray, James
Ryan, Ms Joan Wright, Anthony D (Gt Yarmouth)
Salter, Martin
Savidge, Malcolm Tellers for the Noes:
Sawford, Phil Mr. Clive Betts and
Sedgemore, Brian Mr.Robert Ainsworth.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

MADAM SPEAKER forthwith declared the main Question, as amended, to be agreed to.


That this House deplores the Opposition's attempt to criticise the economic management of the Government as a feeble attempt to cover up their own appalling record of economic mis-management; notes that under the Conservatives Britain slumped in the world prosperity league, saw the slowest period of growth since World War II, saw higher average inflation than in any other major industrialised country bar Italy, and had the lowest level of investment of any of the 24 OECD countries; also notes that the Conservatives left office with manufacturing investment lower than it was when they came to power, left Britain's share of world trade at its lowest ever, gave Britain a deficit on manufacturing trade for the first time ever, saw thousands of manufacturing firms go under due to their boom and bust policies, more than doubled the level of unemployment in their period in office, and left behind not a golden economic legacy, but an economy and public finances facing real difficulties; congratulates the Government on its prompt actions such as promoting the competitiveness agenda and fostering investment in R & D and innovation, and creating an open and transparent framework for monetary and fiscal policy to secure a platform of stability for growth and employment; and notes that the Government is addressing the problems which the Conservative Government left behind with positive practical proposals to take the nation into the 21st century.