The Economy (Hansard, 23 June 1989)

HL Deb 23 June 1989 vol 509 cc413-6 413

§ Lord Dormand of Easington asked Her Majesty's Government:

§ Whether they are satisfied with the state of the economy.

§ The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, the UK economy is performing very well. It is now well into the eighth successive year of sustained growth, at an annual average rate of over 3 per cent. Investment in 1988 was the highest ever recorded as a percentage of national income. Manufacturing productivity has risen during the 1980s faster than in any other major industralised country.

§ Lord Dormand of Easington
My Lords, one can believe anything if one believes that. Does the Minister recall that when we on this side of the House complain about the high level of unemployment we are constantly told that the number of unemployed is falling every month and that that is an indication of the success of the Government's policies? The Prime Minister and the Chancellor as recently as last week repeated—and I quote—that the Government's overriding objective is to bring inflation down. But inflation has been rising now for more than a year and we have been told that it will continue rising until the spring of next year. Can we therefore assume, in the light of the Government's own top priority and their own criterion, that in fact their economic policies are a miserable failure?

§ Lord Brabazon of Tara
No, my Lords. With regard to the noble Lord's first point about unemployment, the figure is now well below 2 million. Unemployment has fallen continuously for 34 months in a row by over 1.25 million. The fall in unemployment is the longest and largest since the war. Combating inflation must remain the Government's top priority and that is why interest rates stand where they are.

§ Lord Mellish
My Lords, is the Minister aware that, in replying to the Question about the economy, his Answer that everything is fine and on course has somewhat shattered some noble Lords? If that is so, can he explain the results of last Thursday? Does he recognise that high mortgage rates are destroying the hopes and dreams of the party opposite and can he say when it is likely that ordinary people who are buying their own homes will have a better chance?

§ Lord Brabazon of Tara
My Lords, of course one regrets the extra burden that is placed on home buyers through interest rates. However, higher inflation 414 would be much more damaging. I do not accept the forecast quoted by the noble Lord, Lord Dormand that inflation will continue to rise until next spring. I believe that we shall see a fall before then.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that most of his supporters would be very disappointed if he were to be satisfied with the state of the economy? There is always room for improvement. He has done an excellent job as a member of a government that have produced the results that he has outlined. One could never satisfactorily answer the deliberate political dissatisfaction that the other side feels it is its duty to express.

§ Lord Brabazon of Tara
My Lords, I am grateful to my noble friend for his encouraging remarks.

§ Lord Grimond
My Lords, we understand from the Minister's initial Answer that in fact the Government are well satisfied with the economy. But does he agree that that is a little complacent? There have been some improvements, particularly for those at the top of the pile, but are the Government really satisfied with the rate of unemployment coupled with the distribution of the increased wealth and inflation? Is it not time that they found some new remedies as clearly the current ones are failing to deal with what most people consider to be a rather unsatisfactory situation?

§ Lord Brabazon of Tara
My Lords, all regions in the country have benefited from the fall in unemployment. Long-term unemployment has fallen faster than unemployment as a whole, and fallen in all the regions. So far as concerns the Government's policies, their position is plain: interest rates will be kept as high as is necessary for as long as is necessary to reduce inflation.

Lord Bruce of Donington
My Lords, the Minister has expressed the Government's satisfaction. Are he and his noble friends satisfied with a situation in which this country finds itself with an increasing trade deficit presently running at over £15 billion a year? Is he genuinely satisfied with a situation in which, in order to retain short-term funds in this country to cover the deficit, the Government are being forced to put up interest rates which now cost our industry and commerce an extra annual sum of £2.5 billion? Will the Minister confirm his satisfaction with that imbalance? Does he countenance the continued incursion of overseas goods into our own markets by the steady increase in import penetration?

§ Lord Brabazon of Tara
My Lords, the main reason for the deficit is the surge in investment in the United Kingdom which has not been matched by an increase in saving. Capital has therefore been invested from abroad with the current account deficit as the inevitable counterpart. It may encourage noble Lords to know that only one quarter of the growth in the value of manufactured imports between 1987 and 1988 was accounted for by consumer goods, with the remainder, fully 415 three-quarters, made up of goods for production and investment.

Lord Bruce of Donington
My Lords, is the noble Lord satisfied with a position where, in order to increase investment in our own industries, we are no longer capable of producing goods ourselves but have to import them from abroad?

§ Lord Brabazon of Tara
My Lords, manufacturing investment in this country grew by 4.5 per cent. last year to reach its highest ever level. Our manufacturing output in the first quarter of this year was at its highest ever level. I hope that the noble Lord will be encouraged by those figures.

§ Lord Molloy
My Lords, will the noble Lord agree that the Euro elections and the by-elections indicate that people believe that we are entering into a grave summer of discontent? It behoves all of us to prevent any serious damage to the economy. We must never do what the Conservative Party did in 1979 when the Labour Government resisted what they called irrational demands. They received no support from the Tories. The Tories used the situation as a political excuse to damage the Labour Party and the country.

§ Lord Brabazon of Tara
My Lords, I feel that the results of the election in 1979 and the subsequent record-breaking levels achieved by the economy speak for themselves.

§ Lord Cledwyn of Penrhos
My Lords, would not the noble Lord be well advised to take a rather more prudent and balanced view of the economic situation and to tell both sides of the story? Is it not the case, as my noble friend Lord Bruce has said, that the trade deficit is likely to be a record figure in our history? Does that not mean that we are living well beyond our means? What will the Government do about it?
Has the noble Lord noted that the CBI has said that a further increase in interest rates would be most profoundly damaging to British industry? These are factors that the Government must take into account. Will the noble Lord advise us what they will do about these matters?

§ Lord Brabazon of Tara
My Lords, I do not accept that we are living well above our means, as the noble Lord has put it. We are in a situation with a budget surplus of record-breaking proportions. Interest rates will have to remain as high as is necessary to bear down on inflation. Inflation is more damaging to industry than high interest rates.

§ Lord Dormand of Easington
My Lords, is the Minister aware that I am not the slightest surprised that in his Answer to me he should underplay the Government's failure to control inflation? However, will he confirm that our present rate is 8.3 per cent? Will he confirm that the average of the Group of Seven is 4.4 per cent? How does he explain the difference when this is the country that has performed the economic miracle?

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§ Lord Brabazon of Tara
My Lords, the current underlying inflation rate, excluding mortgage interest payments, is considerably below the overall RPI. It is currently 6 per cent. It is still too high. That is why our main priority is to reduce it. It is lower at the moment than in any month under the previous Labour Government and compares with their average rate of over 15 per cent. and a peak of 27 per cent.

§ Baroness Oppenheim-Barnes
My Lords, does the Minister recall that in 1978 the Deputy Leader of the Labour Party called a press conference to celebrate the fact that inflation was down to 9 per cent.? If that was a cause for celebration, why are we now complaining about a rate of inflation of 8.3 per cent.?

§ Lord Brabazon of Tara
My Lords, my noble friend makes a very good point.

§ Lord Peston
My Lords, does the Minister remember that in 1974—the last time that his party left this country in a mess—the Labour Government were given a balance of payments deficit of £3.5 billion to deal with? The deficit is now £16 billion. Can he tell us the approximate size of deficit that in a year or two he will be asking the next Labour Government to clear up?

§ Lord Brabazon of Tara
My Lords, I fear that that question is unlikely to arise.