We have just heard a characteristically lucid and powerful speech from the right hon. Member for Down, South (Mr. Powell). I am not sure that I agreed with any of his arguments, but I agreed with one of his conclusions: what he said about the rate of interest was profoundly true.
The right hon. Gentleman was wrong, however, to deprecate the language of crisis. We do face a crisis, and the speeches from both Front Benches today were below the level of events. It was foolish of the hon. Member for Cornwall, North (Mr. Pardoe) to flagellate himself into a state of hysteria about the nature of the crisis. It can and must be overcome, but it will not be overcome unless we admit that it is a crisis.
We have to start by recognising that this is not a crisis of the last three or even the last 30 years. It is a century old. This country started to lose its industrial supremacy 100 years ago. There were debates in this House at the end of the last century in which hon. Members described how our rivals in Germany and the United States were beginning to overtake us because their industries were more efficient and productive.
The facts of life were masked for a long time. We had the huge captive market of the Empire and the huge foreign investments made by our ancestors. We were lucky enough to ally ourselves with the strongest Power on earth in two world wars, and therefore ended on the winning side.
However, in the last 25 years reality has been steadily catching up with us and for the past 15 years or so the crisis has been in its acute stage. We shall not begin to put our house in order as a nation unless we recognise that fact.
If we are not just to get out of the immediate problems of the balance of payments and the public sector borrowing requirement but to do so in a way which deals with the underlying sickness of the British economy which has been with us for a century, the first essential is to recognise that the Government's strategy has not worked. I hate to have to say that. I take no pride or joy in saying it. I have supported the Chancellor of the Exchequer for the past year. I believe that he was on the right lines and still believe he was right to try the strategy he tried. But we have to face facts. His strategy has not succeeded and has not overcome the crisis that we face.
In essence the Chancellor has tried to do four things: first, to moderate the rate of inflation, partly by a rather mild incomes policy and partly by a rather mild monetary policy; secondly, he has tried to borrow abroad to finance our balance of payments deficit until the benefits of the devaluation of sterling come through and until North Sea oil starts to flow; thirdly, he has tried to borrow at home to finance the public sector borrowing requirement, which he has been unwilling to reduce more rapidly because he is afraid of the conseqeuences for employment; fourthly, he has held out the promise of growth in the longer term, to be achieved by selective State intervention and by a partnership between Government and both sides of industry to promote investment.
These have been the central elements in the Government's strategy. We have to recognise, I believe, that it is no longer possible to combine all four at once. We now see that a public sector borrowing requirement of the present size simply cannot be financed without rates of interest that destroy the Chancellor's own industrial strategy and make it impossible to achieve the growth and investment central to our salvation in the longer term.
Secondly, it has become clear that we cannot finance the balance of payments deficit by borrowing abroad—here I part company with the right hon. Member for Down, South—without seeing an unacceptable fall in the exchange rate. I agree that, in pure theory, the exchange rate is nothing more than a neutral equilibrator, if that is the phrase, but in an economy like ours with huge foreign balances and apt to face acute problems of confidence, a fall in the exchange rate can be self-generating and can lead to real and unnecessary cuts in standards of living. That has become clear over recent months.
The alternative to an unacceptable fall in the exchange rate, if the balance of payments deficit remains at its present size, is to maintain confidence by means of monetary squeezes, which jeopardise investment and growth.
Thirdly, it is becoming clear, if the reactions of my constituents are anything to go by, that public support for the Government's incomes policy, which must be a critical part of their fight against inflation, will not be forthcoming unless the country is given some reason to believe that the Government have a coherent strategy for the medium term. The events of the past month have greatly shaken public confidence in that respect. Unless the Government reappraise their strategy and think again, they will not achieve what my right hon. Friend the Member for Battersea, North (Mr. Jay) rightly said was an absolutely essential ingredient in any sensible policy over the next 12 months—namely, an effective stage 3 of the incomes policy.
We must face the fact that, for these reasons, the Government's strategy has to be reappraised. The question is what kind of alternative is needed. The aims are clear.
First, it is necessary to maintain a rigorous anti-inflationary monetary policy. If we go back to the rates of inflation which obtained a year ago, we might as well reconcile ourselves to industrial suicide. Secondly, I believe that we must transfer resources to the balance of payments more rapidly than we have been doing. Thirdly, we must somehow do all this without jeopardising business confidence in growth in the long term and without jeopardising the confidence of ordinary working people in the possibility of the Government's strategy succeeding.
It will be difficult to achieve those three aims. I believe that success will be impossible unless the Government present a coherent package of measures to the nation and the House. The worst of all worlds is to be forced, little by little, into successive measures of austerity which never finally deal with the problem. That is part of the difficulty that we have faced during the past two years. It must be a comprehensive strategy which will involve every section of the nation in sacrifices, both material and ideological, if we are to have any hope of getting out of the mess.
What are the ingredients of the package which I think the Government should bring forward in the coming weeks and months? First, we must get back to lower interest rates. Whatever else is right, it cannot be right to maintain interest rates at this penal level. That must be the first aim of Government policy. I accept that the Chancellor of the Exchequer had no alternative but to do what he did last week. But the first aim must be to get interest rates back to a more reasonable level.