Wales (Economic Situation)

Part of the debate – in the House of Commons at 12:00 am on 22 June 1978.

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Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke 12:00, 22 June 1978

I was referring to the then Mr. George Brown's economic plan. I know that the right hon. Gentleman's plan for Wales was very important, but it was not the only plan produced by the Labour Government at that time. It is an interesting commentary on planning that the right hon. Gentleman has apparently forgotten that grandiose exercise in national planning. A plan as specific in its remedies as Plaid Cymru's must involve direction of labour as well as of companies. I have no reason to believe that that kind of isolationist, directed economy is likely to produce better results than one which is left to free market forces. Indeed, the experience of the twentieth century suggests precisely the opposite.

I do not believe that it is the proper function of Governments—at least in a free society—to impose an exact pattern or to build to a precise blueprint of that kind, and I am sceptical about the outcome.

Goverments can affect the balance in the relationship between the productive and the consuming parts of the economy. In Wales, the Government have the power decisively to affect the balance between a weak private sector and a top-heavy centralised public sector, which, for historic reasons, is concentrated on the declining industries.

Governments, by their policies, can play a large part in deciding whether we are to have a vigorous, innovative, energetic, high-production, high-wage, expanding economy, with the strength to provide improved social benefits, or a rigid, protected, immobile, stagnant, low-production, low-wage economy, providing worse social benefits. The Government, by their policy decisions of the last few months, have shown that they have opted for the latter rather than for the former, and have revealed the stark contrast between what they and the Conservative Party offer to the British electorate.

For two years the Government told us that to cut public expenditure was impossible and that to do so would drive up unemployment. Along came the IMF and forced them to do it, and unemployment began marginally to fall. Last spring, having taken measures that could have put us on the road to recovery, they threw them all away and got the balance wrong by increasing public expenditure again and resisting tax cuts which could have revitalised the economy. The June financial crisis and the fourteenth Budget became inevitable with the decisions on public expenditure earlier in the year.

In simple terms, the Government destroyed confidence in the market and found that they could not borrow. That is where the balance of the Welsh economy is principally wrong at present. It is wrong in terms not of industrial structure but of the relationship of income to expenditure. On top of all the borrowing of recent years, we suddenly had a commitment to increase public spending at more than twice the Chancellor's most optimistic estimate of the growth in the economy, with the market well aware that his previous estimates had proved wildly over-optimistic. Therefore, the confidence of the market collapsed. As a result, we had the credit squeeze and, above all, the increase in the employment tax.

Once again, the wealth-creating part of our society is being squeezed to accommodate the Government's expansionist follies. Once again, on the Chancellor's own admission, the liquidity of our largest companies is being bled when they should be poised for fresh investment. For many small businesses the credit squeeze will be the straw that breaks the camel's back.

I am told that Welsh industry has taken it very badly, that the harshest comments are being made, and that it has had a very bad effect on confidence. The most cautious estimate of the Welsh CBI is that the measure will destroy 3,000 jobs in Wales. That figure would be higher, it says, but for the Welsh over-dependence on public sector employment. But it is as well to remember that the tax applies to public sector jobs too, and I believe that the impact will be greater than the CBI estimates.

It seems incredible that at a time when we are trying to encourage job creation in the regions, the Government should impose an extra tax which will fall most severely on labour-intensive sectors. It is a striking fact that gross expenditure on the special employment and training measures at present being operated will be just over £500 million in the current financial year, while the extra tax is taking £500 million away from industry.

There is growing complacency among the Government about the current unemployment figures. We must be thankful for any improvement, but it would be wrong to imagine that things are getting better for Wales. Unemployment there this June is about 7,000 higher than it was in June last year, and almost 13,000 higher than in June the previous year. Between June and July last year unemployment in Wales jumped by 12,400 as the schoolleavers came on to the register. A jump on a comparable scale this July would put unemployment perilously close to the 100,000 mark. When we take account of redundancies already announced, and the effect of the Chancellor's recent tax on employment, the prospect that that figure will be reached remains horrifyingly real.

The Government claim credit for the success of their emergency measures. They say that they have saved between 50,000 and 60,000 jobs in Wales. But there is a world of difference between temporary employment and genuine long-term jobs. In the present desperate situation, job creation and work experience schemes have an essential and important part to play, just as do analgesics in medicine. Undoubtedly it is also true that the more these schemes can be directed towards preparation for future employment the more valuable they will be. I shall have something to say about that in the Welsh Grand Committee next Wednesday.

In spite of all that, the jobs provided under these schemes remain very much second-best for those involved and they disguise the real scale of unemployment. That remains a black indictment of Labour's economic record in the past few years.

I should have liked to comment on the latest of a long stream of rather unreliable industrial production figures, but apparently the computer has broken down, and the latest statistics that are available take us only up to the end of last year. These figures, which were pretty poor, showed that last year we were producing less than in 1976, that we were producing less than in 1974, in the three-day working week, and substantially less than at the peak of production in 1973.

Since then, I will be told, there has been something of a recovery in consumer spending as the pre-election boom-let gets under way. The CBI in Wales tells me that overall it can detect only a slight upturn. It describes conditions as patchy. It points out that some sectors, notably steel, are still doing badly, and it says that it can detect no long-term optimism. The order books of industry do not stretch very far ahead.

So, after four and half years of Labour Government, there still seems to be no real prospect of a break-out from the era of stagnation, low production and high unemployment that has characterised, and indeed, always characterises, the years of Socialism.

We live in a world in which industry is debilitated by high taxes, made complacent by subsidy and burdened by bureacracy. We live also in a world of rapid change. There is a terrible danger that economic plans will act as a barrier to change, that a particular concept of a balanced economy will stultify, that political pressure will provide the temptation to resist changes which are an essential forerunner of new growth.

The Government's role in all this, in industrial terms, must be to protect people against the too violent impact, in social terms, of change, to provide a developing infrastructure for the future, to provide assistance for those who are setting up or moving, and to do that by reacting flexibly to economic rather than to political demands.

It is because I believe in regional policy in those terms and because I am impressed by the realistic approach of those involved in Wales that I have become a convert—belatedly, I freely admit —to the Development Agency concept, and would pursue regional policies based on it.

Above all, what we must do is to create a general economic climate for high levels of production, high wages and high profits. We believe that that will he done not by Socialist or Plaid Cymru planning but by releasing the energies, enterprise and skill of individuals. We must recreate incentive, allow people to keep more of what they earn, restore differentials, and cut direct taxation at all levels.

The real hope for future jobs in Wales lies not with grandoise plans for a balanced economy but in the hundreds of small and expanding businesses that can react through the market to changing demand and provide a living, flexible and dynamic economy and in Government policies that recognise that it is their prime duty to create the climate in which those developing businesses can succeed. It is that approach that offers the best hope for the Welsh people.