First, Mr. Deputy Speaker, I congratulate you on your appointment. It is a pleasure to see you in the Chair.
Secondly, I congratulate the hon. Member for Berkshire, East (Mr. MacKay) on his return to the House. I remember our confrontations of four years ago when he was a Member in previous incarnation. In those four years the country has become poorer and unemployment has trebled. Manufacturing production has fallen by one fifth and the hon. Gentleman has not aged a bit. Clearly, his economic views have not changed from the views that he propounded four years ago, either. Like his Government, he has learnt nothing and forgotten nothing — which does not augur well for the economic problems that Britain is about to face.
Thirdly, I congratulate the Chancellor. He has taken over, rather like a receiver taking over bankrupt stock, from the most disastrous Chancellor that Britain has had since the war and probably this century. The previous Chancellor has gone, as Foreign Secretary, to face on the international scene the consequences of his policies—high interest rates that have produced the international debt crisis that the developing world is facing, domestic deflation which has meant a depression of the demand for primary produce of the developing countries, and the collective refusal to act to take the world out of a depression for which he was partly responsible as Chancellor.
The previous Chancellor has moved on, leaving the right hon. Member for Blaby (Mr. Lawson) to cope with the consequences of his policy which the Saatchi and Saatchi-isation of politics describes as the consequences of success. In fact, they are the consequences of disastrous failure. They are the consequences of the tragic decline that Britain has experienced in the past four y ears under the previous Chancellor's policies. The right hon. Gentleman takes over as Chancellor with the sky black with chickens coming home to roost from the policies of the past four years.
In welcoming the Chancellor I have no great hopes that he will learn the lessons of the past four years. It is true that he is not a theoretical, doctrinaire, dogmatic monetarist. He is worse. He is a monetarist who makes it up as he goes along with the same enthusiasm with which, as editor of the Spectator in the 1960s, he espoused expansion and devaluation. He is the principal author of, and the sole remaining believer in, the medium-term financial strategy, and that qualifies him for the epithet of still being crazy after all these years.
The Chancellor will find that there is no escape from the consequences of his legacy. In some ways the previous Chancellor attempted to wriggle out from the strict rigours of the medium-term financial strategy like a middle-aged man wriggling out of a corset. He had managed to escape in part, but it will now be fitted back again. He was able to escape in part because the election victory that the Government have just enjoyed was in large part a consequence of denouncing the Labour party's expansionary policies when they were unveiled by my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) only to grab them and use them for their benefit to get the Government returned.
Labour Members have consistently advocated an expansion of the economy and a devaluation strategy for the pound sterling. In fact, the Government have massively increased domestic credit. There has been a huge domestic credit expansion over the past 15 months. In the 15 months to the end of March the domestic credit expansion was some £20,709 billion. In other words, it was twice the increase in the money supply and twice the rate of increase in the money value of output.
There has been that massive increase in domestic credit during that period, more than double the amount needed to finance current transactions. There has also been a substantial devaluation and fall in the pound sterling. Both of those policies, which the Government denounced when they were put forward by the Labour party as portending the onset of economic disaster, were seized on by them as auguries of recovery, because the credit expansion triggered off asset speculation, particularly in the price of shares, to the benefit of the Government's friends. Indeed, during the past 18 months there has been a dramatic increase in the price of shares and some movement towards an increase in the price of houses.
The fall in the pound sterling meant a recovery in demand, and apparently better export prospects. When those two things were happening, the Government seized the opportunity to go to the country in a general election. Unfortunately, they did not allow those two policies to affect the economy's underlying problems, because there was no fall in interest rates, which would have allowed the domestic credit expansion to channel through into investment, and thus into growth and jobs. It was frittered away in asset speculation. The Government also began energetically to attempt to reverse the devaluation in the pound sterling. Indeed, the pound has been pushed up since March by about 10 per cent. In other words, the increase in the value of the pound against European currencies in a few weeks is higher than the common external tariff that we would have to face if we came out of the Common Market. The Government told us that that tariff would cost 2 million jobs, yet they have let the pound rise to a higher level than the tariff barrier that we would have to face. Thus, there has been an increase of about 10 per cent. with, apparently, not a care for the consequences for industry.
We now have a new Chancellor of the Exchequer who must cope with the consequences. I am fearful for the future of interest rates, because although the Government proclaim their intention and determination to reduce interest rates, all the signs are that with the money supply figures, the economic situation and the moving American economy as they are, interest rates in Britain will rise. Whether those who voted for the Government were householders, borrowers in hock to the bank, possessors of hire purchase contracts or industrialists wanting to borrow, they should know that the automatic consequence of a Government who put money before people, who manage the economy through money supply figures, and who believe that sound money is more important than the real economy of jobs and production, is high interest rates prolonged into the future, with all their crippling effects on the economy and all the consequences in terms of overvaluation of the pound sterling.
The constant prating from the Conservative party about competitiveness, and making ourselves more efficient and productive, completely ignores the chain tied by the Government to the foot of our competing manufacturing industry by the continuous overvaluation of the pound sterling, which is going on even now. The pound is still enormously overvalued compared with our principal competitors. We cannot be exposed to the blast of industrial competition and free trade with the Common Market while at the same time carrying the burden of that overvaluation. We could perhaps have one or the other, but we cannot have both at once because that is disastrous for the manufacturing economy of jobs. That is another of the chickens that must come home to roost.
Perhaps more immediately important is the balance of payments problem that the country has suddenly, but predictably, run into as a result of this Government's policies. During the past four years we have seen a rapid erosion of our industrial base, source of the manufacturing exports and international trade that we rely on for survival in the world, to pay for our imports and to provide jobs in this country. That has been decimated during the past four years and we are now seeing the consequences in the looming balance of payments problem. Indeed, the problem will get worse, because as the manufacturing base declines, imports will rise remorselessly, particularly if they are encouraged, as they are, by an overvalued exchange rate. The Government have wasted the God-given benefit of oil, which gave us the potential to expand, and was like an overdraft facility to allow us to do what we have never been able to do since the war—to grow continuously and to invest. It has been frittered away on a flood of manufactured imports, which have destroyed jobs in Britain, and the tax benefits have been used for the unemployed thus created.
Conservative strategy has been deliberately to depress and deflate the economy, destroying jobs as a discipline to the work force. The consequences we face include a balance of payments crisis. Whereas other countries have managed to build up their exports and competitiveness in such a way as to survive the increases in oil prices, we have frittered away our opportunity and the deflation which the Government have gone in for voluntarily, even enthusiastically, as a discipline on the workers will be forced on them again as a consequence of the balance of payments crisis which their policies are creating.
Imports will continue to grow because our manufacturing base will continue to decline as a result of Conservative policies, and as it declines, our ability to pay our way in the world will decline. That is the most depressing consequence of the four wasted years under the previous Chancellor of the Exchequer.
Even more alarming is the inevitability of cuts in Government spending, or increases in taxation, as a result of the policies that have been pursued. We do not need leaked papers from the Cabinet, the Think Tank or the Chancellor of the Exchequer to tell us—it is common sense—that we cannot finance an increasing burden of taxation to pay for unemployment. Each person unemployed costs about £5,000 a year in taxes not paid in and benefits paid out. That cannot be financed on a shrinking productive base.
The only way in which the current burden of expenditure for the welfare state, defence and everything else can be financed is by expanding the economy, by beginning to rebuild British industry and by the country generally starting to grow. But if the Government try to finance all of that on a declining productive base, they will have to go in for cuts.
In that context, it was interesting to see how cunning the Conservatives were during the election campaign by producing a manifesto that was full of escape clauses. How dilatory were the media and the pundits who, while busy hounding the Labour party in respect of its policies, did not ask what would be cut, if the Conservatives became the government again, as a result of the inability of Britain to finance an increasing burden of taxation on a shrinking productive base. That question was never asked and the Conservatives were allowed to get away with it. It was one of the most feeble efforts by the media to ask questions at election time.
Cuts are now inevitable and the new Chancellor of the Exchequer will have to clean up the mess if he is to continue his predecessor's policies, which are bound to mean further industrial decline and more cuts. We in Britain need a new beginning. We need a new Chancellor with a new insight and a determination to expand and rebuild so that we can compete in the world and support the burdens of the welfare state. Instead, we have a new Chancellor who believes in the strategies that produced this ruin in the first place. If we have had disaster up to now, it will be disaster cubed as a consequence of the Conservatives' failure to change their policies.
That disaster will lead on inevitably to decline. There is no conceivable way that the policies of the present Government can lead to the national greatness, growth and economic expansion that they have been promising. How can a policy of depressing investment and cutting expenditure on research, design, development, training skills and everything else that is necessary to make a country competitive in the world lead to growth, expansion and jobs? From where are the jobs to come, anyway? It is impossible for the policies to lead anywhere except to decline.
The policies of the Government will lead the country into a semi-retired—one might call it a Denis Thatcher — economy, in which those with wealth benefit and grow fat and those who produce the wealth are thrown into idleness as resources are wasted and productive capacity closes down. The country will then continue to decline, posturing in the vainglorious attitudes of the Prime Minister.
The Government tell us that we are an example to the world because we are about to expand. In fact, we are the laughing stock of the world, because we are destroying our manufacturing industry, the only factor that will allow us to survive, expand and carry the burdens of the welfare state. The country wants the welfare state and it is something that any advanced and respectable society must have. It is one of the inevitable consequences of the 20th century. It is everyone's right and we cannot finance it without investment. Industry, on which all else rests, is being destroyed or has been destroyed. That which remains will be destroyed as a consequence of the Government's policies.
The CBI has sat back and sung supine hymns of praise. In effect, it has told the Government to continue with the medicine. There can be no greater love than that a man shall lay down his firm for his prejudices in the way that British industry has been doing for the past four years. There can be no greater incompetence either.
This is not altogether the fault of industry. The fault lies with the Government, who knew nothing about industry or jobs. They might have known about law, financial manipulation. advertising and public relations. They knew nothing about the real world of industry, jobs, people, under-employed resources and waste of lives. We know the consequences of their policies and they will continue. They are felt by the people that Labour Members represent. Conservative Members who are grinning so asininely and sitting on their fat fortunes do not feel the consequences. But they will, for they lead remorselessly to decline and disaster.