Orders of the Day — Development Areas (England)

Part of the debate – in the House of Commons at 12:00 am on 7th December 1971.

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Photo of Mr John Pardoe Mr John Pardoe , North Cornwall 12:00 am, 7th December 1971

However many debates we have had, the unemployed still remain unemployed, and there are rather more of them. I would have thought that whether it was England, Scotland or Timbuctoo unemployment in this country was worth the presence of the Chancellor of the Exchequer and the Secretary of State for Trade and Industry. The Secretary of State for the Environment is no substitute for either of those right hon. Gentlemen. Indeed, I cannot think what he is a substitute for.

The debate has been to a large extent a "whodunit" on unemployment. I do not want to indulge in too many recriminations because this is not the first Government to have got their economic forecasts wrong. Nor can we discuss unemployment in the development areas entirely separately from the national picture. All of us must realise that the first incentive to any firm to move to a development area is shortage of space or shortage of labour in the overcrowded area from which it proposes to move. It does not start to look for investment incentives or other aids until it has reached the point at which it feels the need of space or labour. It is essential, therefore, that we make some comments on the national position.

There seems to be in some parts of the House and, indeed, among some economists a feeling that there is a mystery about unemployment and about low investment. The Secretary of State for Employment is the arch proponent of this mystery. He raises his hands in despair and wonders how on earth it came about. I do not think there is any mystery. Unemployment is at its present level because successive Conservative and Labour Governments have deliberately set out to create it. There is no doubt about this; they created it through the squeeze which was introduced by the Labour Government before devaluation when they tried to stave it off, and after devaluation, and the squeeze was continued by the present Government when they came into office, until a short time ago when they conducted a complete volte-face. We have had seven years of stagnation and seven years of very high interest rates; and high interest rates are designed to keep investment down and to stop employment from growing. There is indeed a perplexity among some economists why we have this unemployment, and there are even those who ask whether Maynard Keynes was wrong.

It is perhaps erudite to question a fundamental economic truth, but Keynes knew only too well that there is a period of time which elapses between reducing taxes and increasing credit and the subsequent employment. He said this very clearly: It is not easy to revive the marginal efficiency of capital, determined, as it is, by the uncontrollable and disobedient psychology of the business world. It is the return of confidence to speak in ordinary language which is so insusceptible to control in an economy of individualistic capitalism. He showed clearly that he realised that this at least would take time.

The question now is, what should be done about it? How is unemployment to be brought down? I have already said that we cannot possibly do this in the development areas alone. We can only do it, or only begin to do it, by getting unemployment down in the country as a whole and so creating that demand for labour and space that will get the economy in the development areas going. The change which we must make is one related to exchange rates, because if the Chancellor is going back to fixed parities unemployment will be with us for ever and anon.

The right hon. Gentleman made an explicit statement about the economy on 2nd December, when he said in reply to his right hon. Friend the Member for Taunton (Mr. du Cann): I said in my statement that the discussion which we had was concerned with the conditions necessary for a return to fixed parities. It is the view of all the members of the Group of Ten that this should be the ultimate aim."—[OFFICIAL REPORT, 2nd December, 1971; Vol. 827, c. 672.] I hope it is not the view of the present Government, because if it is they are going to perpetuate low investment and unemployment. I put a question to the right hon. Gentleman on 23rd November asking whether he was aware that the floating pound was about the only sensible policy in the economic field which the Government had so far pursued and that to ditch it now would be a total disaster. He said he disagreed, and that if one discussed it with businessmen and others who took decisions one realised that the uncertainty created by the present situation was one reason for the lack of confidence which we were experiencing.

A return to fixed parities would mean one thing and one thing only to businessmen thinking of moving to development areas. They would be certain that when the Government came up against the next balance of payments crisis they would resort to a credit squeeze and tough fiscal policies and would stop expansion. That is what is holding back investment, and that is what is really creating this uncertainty. We shall get no sustained growth and no sustained business confidence unless the Chancellor makes a statement very shortly at the next Group of Ten meeting that this country will stick to a floating exchange rate, come what may.

The second thing which the Chancellor must do to increase investment immediately is to get rid of the uncertainty which exists in businessmen's minds as to whether Bank Rate has reached its lowest level. Too many people are staving off investment decisions in the belief that Bank Rate may drop another 1 per cent. or so this Thursday, next Thursday, some time, never.

I would say, with the Economist, that there is no level of Bank Rate which I would regard as too low. A 3 per cent. rate would at least convince business that it was not going any lower and would get investment going rapidly. If these two things are done nationally, there are enough tax cuts in the pipeline to get growth going.

We have a great responsibility. At last, for the first time for probably a decade, we have a chance of at least three to four years' uninterrupted 5 per cent. growth. But the Chancellor seems to be behaving like a man lost in the woods. He has finally given up going round and round and has gone to sleep; he wakes up to find himself in another part of the woods facing a signpost pointing the way to go—and he refuses to believe it.

Britain has had a lucky break, and I do not want the Government to spoil it. When that expansion gets going, the problem of the regions can be solved, but we must then question whether the existing regional incentives will ensure that the regions will get a satisfactory share of the increased growth which will undoubtedly come if these policies are adopted.

I do not want to overstate the problem of the South-West. The hon. Member for Bodmin (Mr. Hicks) has already outlined some of these problems. Since November, 1968, the number of men unemployed in the whole region—I share the hon. Member's views about the geographic and economic nonsense of a region extending from Gloucester to the Scilly Isles—has risen by 50 per cent., but the number unemployed in the development area has risen by 33 per cent.

I would not describe that figure as "only" 33 per cent., because it is a substantial rise, but at least the difference between those two figures may show some sign that the measures of regional development which have been taken over the last six or seven years are paying off to a limited extent.

But the present Government have enormously reduced the effectiveness of the incentives introduced from 1966 onwards and they cannot run away from the fact. In June, 1970, the disparity between the investment incentives in the development areas and the non-development areas in the United Kingdom was the widest in Europe; today, after the 17 months that this Government have been in power, it is the lowest disparity in Europe.

That is the magnitude of what they have done in this short period. They must have set out to do this intentionally. They have intentionally sabotaged the wherewithal that the regions were given in that short period of five years in the latter part of the Labour Government to get themselves up by their own bootstraps.

How have the Government done it? First, there was the October Budget, which replaced investment grants with less generous depreciation allowances. They followed that in July with a cut in corporation tax and a strengthening of the depreciation allowances in non-development areas from 60 per cent. to 80 per cent. Unless this disparity is widened immediately, the development areas will not get the benefit of any growth which is coming to the country as a whole.

The first requirement is that the Government must return to investment grants. It is extraordinary that a Government which came to power committed to negotiating our way into Europe should at almost the first stroke have destroyed one aspect of European regional policy which they will inevitably have to accept when we get in. They are busily preparing to launch us on the value-added tax because that is part of European policy—rightly or wrongly—but they have already dismantled the investment grants to which they will have to return when we get in. The Government did this, of course, for a purely political reason, to cut nominal public expenditure. But it is only a book transaction and it is enormously affecting the economic efficiency of the development areas.

Second, the Government must announce that they will keep the regional employment premium. The hon. Member for Bodmin suggested that it was not very important to the South-West development area. I beg to differ. It is immensely important to the manufacturing industry in the South-West. I agree with him about incentives to service industries but do not want to perpetuate a situation in which that very small percentage of the employed population which he quoted is employed in manufacturing industry. I want to extend it, and if the hon. Gentleman wants sustained employment all the year round he must also want to extend it.

A possible variation on the regional employment premium is that the Government should pay a part of the money now being given in this way to people in the development areas as an allowance for getting to work. One of the major disincentives in an area of low incomes like Cornwall is that if one subtracts from income the high cost of getting to work—because there is no public transport, it is virtually mandatory to have a car—one is left with a net return for getting out of bed and going off to a day of eight hours or more which is less than if one did not go to work at all. My suggestion would be a very effective incentive to labour in the South-West, particularly because of is rural character.

A good deal of money has been ploughed into public works, and the Government are continuing to do this. I question the effectiveness of some of this expenditure. The Government were very critical of their predecessors' waste and criticised the high cost of creating a new job. Perhaps in some cases they were right. Some of the projects which were announced in a recent package by the Chancellor were magnificently described by the Economist last week as "boondoggles". Whatever that means, it signifies my attitude to them—[Laughter] It is onomatopoeic, anyway.

I am also concerned about the Government's policy towards public works contracts for local firms. In a list of recent capital works in Cornwall, the lowest tenders amounted to £3,354,000 and they were tendered by non-local firms. The same jobs were tendered for by local firms and their total amounted to £3,673,000. So there is a difference of £319,000—in other words, less than 10 per cent.

I am advised that those jobs would have required 735 men over 18 months. The difference amounts to £5·56p. per week per man. Some of the outside firms use local labour, but even then 25 per cent. of those employed are in administration and tend to come from head office. But a large number of these firms did not use local labour at all; they brought in the labour from outside. And wherever they get their labour, the profits go outside the area.

I should like to refer to those who will remain unemployed whatever we do, particularly the older unemployed. I am thinking in particular of two cases from my constituency. The first is of a 62year-old mining engineer of many years' experience and strong physique, who was forced to return to England for family reasons. The moment anyone knows he is 62, he cannot get a job. Therefore, he is unemployed and lives on supplementary benefit. He would rather have his pension than, as he sees it, beg for supplementary benefit. I believe that he should have his pension and that we should reduce the age of retirement.

The second case is that of a manager aged 59, retired forcibly for health reasons with a small occupational pension. He will get the dole for one year and then will have to go on supplementary benefit. He has already obtained a summer job for the summer of 1972, for 16 weeks, so he will get the dole during the winter—but only for three years because, euphemistically, he has "opted" for seasonal employment for three years. He has not opted for it: he has been forced into it. In Cornwall, he has no option. There is no other kind of employment and we should ensure that people of this sort are paid the dole in the winter months.

When I look at the future, I am not over-depressed for the economy of the nation as a whole. However, we are increasingly London-oriented and even if growth comes there will still be a basic regional problem which we shall not solve unless we reverse this London orientation and bring power back to the people.

The Government must change their development area policy or these areas will not share in the prosperity which is coming. If they do not change this policy, they will be ensuring that when growth comes, the resources of labour in the development areas will be wasted because the boom will be brought to a halt by the bottlenecks for labour that will build up in the overcrowded areas.