Industrial Situation

Part of the debate – in the House of Commons at 12:00 am on 13th February 1979.

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The Minister of State, Department of Industry (Mr. Alan Williams):

I congratulate the hon. Member for Owestry (Mr. Biffen) on his performance. It is a pleasure to see him on the Front Bench again. Regardless of the philosophical differences between us, no one on this side doubts the genuineness of the positions which he holds. For that reason, we pay considerable attention to what he says. We may not arrive at the same conclusions, or start from the same points, but we recognise that what he says merits attention.

I was somewhat disappointed that the right hon. Member for Leeds, North-East (Sir K. Joseph) did not mention any positive policy in his speech. I am sure that it would have been welcome in the country as a guide to the positive aspects of his thinking. We received many a penance for past errors and we detected a new-found obsession with chicken farming, but in terms of his long-term thinking there was very little guidance. I should have welcomed the right hon. Gentleman's recognition of his past errors more if I were not so worried about those that he would like to commit in future.

It is imperative, and it has been a feature of the debate, that we must not allow short-term situations to divert us from long-term objectives and opportunities. I think that it is accepted on both sides of the House that we still need to defeat inflation. It is essential to recognise the magnitude of the clawback that this country has made in three years from a 25 per cent. level of inflation to 8 per cent. Whatever differences there may be on approaches to the problem, it is remarkable that that has been achieved by consensus, without a statutory incomes policy, more successfully than any attempts under our Administration in the 1960s or the Conservative Administration in the early 1970s under statutory incomes policies. There is an important lesson here—that, in a democracy, consensus is always to be preferred to compulsion. I hope to return to that aspect in another context later.

The hon. Member for Oswestry said that relaxation of prices was an important prerequisite to increased profits. I disagree with him in the sense that it is essential that we make a break in the psychology of inflation which is now gripping the country. One can make a breakthrough in the monetary levels of inflation, but people still take a retro spective view of expectations. Therefore, it is important that we should not fuel this psychology of inflation, this high level of expectation. I submit that if the hon. Gentleman had his way and increased prices, that would add to the pressure for even higher rates of pay settlement.

As I said, that must remain a priority if we are to solve this country's problems, to remain competitive and to enable our major contractors to compete and tender. For example, the hon. Member for Oswestry referred to enormous contracts in China. Many are medium and longer-term contracts and take time to fulfil. Therefore, it is imperative for manufacturers who are competing to be able to work from a reasonably predictable cost base.

The hon. Gentleman referred to interest rates. I share the hope that I suspect he has that the current level of interest rates will be short-term. Industry tends to ignore any short-term level of interest rates and to take the long-term view.

We would at some stage be pleased to know the views of the right hon. Member for Leeds, North-East on interest rates and how they fit into his monetarist approach. He was singularly coy on that matter today. But I note that, disastrous as 14 per cent. was said to be by the hon. Member for Oswestry, the minimum lending rate reached 13 per cent. in November 1973, before we faced the world recession and oil crisis. Therefore, it seems mildly hypocritical of Opposition Members to bemoan policies pursued by this Government which the Conservative Government pursued in far less difficult circumstances.

Equally, it is important that, in the current atmosphere of difficult and perhaps even soured industrial relations, we should not take measures which risk turning what we all hope is a short-term manifestation into a permanent confrontation. If, as has been suggested in the press, there is a risk to investments from the uncertainty generated by the current situation, the uncertainty would be massively greater if it were thought that the current situation was likely to be perpetuated.

That is why I and many of my Labour colleagues are concerned with the approach of the right hon. Lady the Leader of the Opposition, who wishes to take the route of legal sanctions. As far back as the Betteshanger case and in the recent case involving the Pentonville five, we have seen the difficulties that face Governments who try to pursue this route as a means of controlling industrial relations.

The right hon. Member for Leeds, North-East said that as a nation we must avoid adversary economics. However, the impression given to the country is that the right hon. Lady is hell-bent on a long-term confrontation with the trade union movement, and that is a real danger to industry.

As for the long term, there is common ground in our objectives. Both sides of the House have agreed that we wish to attain a high growth rate and a high productivity economy with high incomes for the work force. But the trade unions must understand that high incomes without productivity mean only lost markets, higher domestic inflation and increasing unemployment.

My hon. Friend the Member for Bristol, North-East (Mr. Palmer) said that the roots of our present difficulties go deep into our economic and industrial history. The goal of growth, high incomes and high productivity has eluded every post-war Government. The combination of balance of payments circumstances and Britain's role as a reserve currency holder has led to our growth being cut time and again through sterling crises. The consequent economic see-saw, which became known as stop-go, discouraged investment by the manufacturer because he could not predict the long-term rate of return. It encouraged the trend of taking on a work force to meet the rise in the market, and troughs were dealt with by shedding the same work force. This created doubts among the work force about investment and new equipment. Therefore, the cycle generated by stop-go has led to under-investment and under-utilisation of investment. It has also resulted in low wages and low productivity.

Let me come to the effect of North Sea oil. North Sea oil—and on this matter the hon. Member for Oswestry and I are at one—is a buffer against currency pressures which have diverted successive Chancellors of the Exchequer under various Administrations whenever they have attempted to go for growth in the past. It gives major advantages to our nation, and, since I speak as a Minister with responsibilities for inward investment, I find that this aspect is a major factor for overseas companies. Those companies are aware of the fact that in the mid-1980s we shall be the only OECD country that will be self-sufficient in energy and that we shall be the EEC's major source of energy.

The discovery of North Sea oil has given us time and resources, but it has not given us the solution to our difficulties. We have an opportunity—but no more than an opportunity—for sustained growth. Therefore, we must not just utilise North Sea resources but must try to maximise them. This is why we give high priority to downstream development.

Let me deal with the hon. Gentleman's comments on petrochemicals. Nobody wishes industry to make investments that will not be viable or productively useful. The fact is that the whole of the petrochemical industry has been taken by surprise by the rapid fall in demand for its products, and surplus capacity has been a feature not just of Western European countries but of many advanced countries.

The aim of maximising the added value from the North Sea is a key element in the industrial strategy. Manufacturing has been given top priority in our allocation of resources. The industrial strategy is based on a voluntary planning process—which is anathema to the right hon. Member for Leeds, North-East. It is a tripartite process, fully supported and advocated by the CBI and the TUC. In a nation which has been beset by the inability of one part of industry to talk to another, it is peculiar for the Opposition to think of setting aside one of the few areas in which constructive communication has been taking place throughout the years about the present and future state of industry.

The aim must be to improve long-term competitiveness and ensure that investment matches opportunities. In the last two years we have seen a small turn around in our fortunes in relation to trade, partly as a result of the combined efforts of industry. Our share of world trade has risen. In the last 12 months, we have seen an increase of 3 per cent. in our GDP. But to take advantage of the opportunity that exists I believe that we must carry on with the fullest tripartite discussion, reach down further into industry, and talk to the decision makers.

I contrast this approach with that of the Conservative Government in the early 1970s. In July 1971, the then Chancellor of the Exchequer, now Lord Barber—the right hon. Member for Leeds, North-East, as well as the Leader of the Opposition, were members of that Government—removed all credit controls without any consultation with industry and without any attempt to establish whether industry had the capacity to meet the demand that would be generated. My discussions with industry indicate that it has never forgiven the then Chancellor and that Administration for that incredible error of communication and judgment.

Within a year, an extra £100 million worth of cars was being sucked into this country. Within two years, imports of domestic electric appliances had doubled. In conjunction with the removal of these credit controls, the right hon. Gentleman committed what would now be almost an original sin, judging from the comments of Conservative Members. In 1970, the growth in money supply was 9·5 per cent. In 1973, by the time they left office, it was 27·5 per cent. Yet the Conservatives lecture to us about the control of the money supply.

The result was that although in 1970 the Tories inherited the best opportunity to attain growth that we have had in the post-war period, they squandered it. In 1971, the surplus on balance of payments was £1,090 million. Yet within two years, as a result of the money supply activities and the credit policy of the then Conservative Government, a £1,000 million surplus had been turned into a £1,000 million deficit.

In 1974, we were left to contend with a £3,500 million deficit. Yet they ask us why we have not attained a higher rate of growth in the economy. They left us to contend with the world recession, with the oil crisis, with their three-day working week, with a historically high level of deficit, and with inflation that was running at 17 per cent. during their last six months of office and at 22 per cent. in their last month of office. Superimposed on that, we inherited the threshold pay deal, which had a major inflationary effect. That we had to fulfil, although it had been introduced by the previous Conservative Government.

I now turn to the question of high productivity and higher incomes. It is imperative for everyone to accept that we must create wealth in order to consume it. It is wrong to fear productivity. There is a tendency for far too many people to fear productivity and the job loss that might ensue from it. If we do not invest in the latest technology there will be no jobs for anyone, as the whole unit will become non-competitive. The Department of Employment carried out a study, based on the years 1950 to 1973, of the 10 industries which had the largest productivity increases in this country. It found that all of them increased their employment. The statisticians and economists in my Department carried out a study over 10 years of those countries which attained the highest levels of efficiency. All had managed to maintain their levels of employment. There is an important lesson here in terms of our own future.

While productivity is low, on average, in this country, it is not universally low. There are many instances where companies attain internationally competitive levels of productivity. Companies such as Cummings Engines, Honeywell, and many international firms will say that they are able to attain levels of productivity in this country equal to those that they attain elsewhere. However, all too often that is not the case.

I turn from the point raised by my hon. Friend the Member for Basildon (Mr. Moonman) about management.

Why is it that some of these international firms achieve the international levels of productivity that other firms cannot achieve, when they are both using the same labour force? The sector working parties identified that higher productivity was essential in most sectors of industry. I must reiterate this point to the Opposition, who see productivity purely as a function of labour. Productivity is a relationship between labour and capital investment. That was recognised by one hon. Member for Colne Valley (Mr. Wainwright) in his comments about investment.

In a National Institute for Economic and Social Research paper last year, it was shown that the average British worker had only £1,000 of capital equipment back-up. The German worker has £2,000 and the Japanese worker £2,500 of backup. The French worker has a back-up of from £2,500 to £3,000. That of the United States worker is £3,000 to £3,500.

I hope that the right hon. Gentleman is about to ask the question that I think he will ask.