Of course, competitive exchange rates may or may not have a stimulating effect. They can provide an opportunity but they do not guarantee success, as the hon. Gentleman knows. I shall refer later to the ingredients and the roots of the present expansion.
So the first point, I repeat, is that the boom is not deficit-financed. It is not one of the pre-election booms that roll off the tongues of some critics. Secondly, I do not believe that the boom is consumption-led, as some hon. Members have suggested. It is true that revenue from VAT is rising, and this is creating a good revenue cushion for my right hon. Friend. But revenue from corporation tax also is rising rapidly. That revenue is derived from rising profits, on which taxes are paid. If hon. Members say that this is to do with the candy floss end of the economy, they should examine some of the figures relating to the changing texture and content of imports. If hon. Members examine the latest figures, they will see that capital goods imports are rising, whereas finished manufactures and consumer goods have been running at a reasonably flat level.
Capital goods imports, raw materials and the basic ingredients of an investment-led recovery are beginning to show up in the import figures. I advise those who dismiss this as another consumer-led boom riding on the back of an enormous credit expansion to look at the details. They will possibly revise their judgment about what is driving the present expansion phase forward. It is important to get that point clear.
Another of the points made by the hon. Member for Dagenham — the right hon. Member for Sparkbrook makes this point ad nauseam—is that the present stage is not only consumer-led but is sucking in imports, and that, if there are further personal tax cuts, they will add to the level of consumption and suck in more imports. This appears to be one of the Opposition's arguments against having tax cuts in the Budget. That is a misplaced judgment and a piece of absurd defeatism.
Why should it be assumed that, if there is increased demand in the British economy—there is no guarantee that tax cuts will necessarily all go to demand; some might be saved — it will lead to more jobs in Cologne or Tokyo, as the right hon. Member for Sparkbrook said? That is a miserable, defeatist attitude. It is typical of Opposition Members' attitudes with which we have had to deal. There is no reason why one should not begin to see an economy which has had the supply side changes that ours has had, being capable of responding. It is. I am not the only person who believes that it is. I suspect that my right hon. and hon. Friends also believe it.
The Bank of England published a good passage on this subject in its quarterly bulletin. The Bank of England is not noted for adopting a very optimistic attitude towards the capacity of the British economy to expand, but on page 21 of its February quarterly bulletin it said:
The strength of exports, and the recent rise in imports of capital and intermediate goods and raw materials, suggest that domestic output will respond to the buoyant growth of domestic demand.
That is austere banker's language for saying that the supply side capacity of the economy is now very flexible and well developed and that if there is an expansion of demand, because of tax cuts, there is every possibility that that demand will be met not by sucking in imports—a trite phrase that has been borrowed from so-called independent forecasters by Opposition Members — but by the British economy. The British economy is now capable of responding to that demand. That is another reason why the artificial boom thesis is very shallow. Those who utter it have not examined the facts.
Thirdly, unlike past very rapid expansion phases, I do not believe that this one is balance of payments constrained. I have already mentioned the changing nature of the import pattern. The export scene is also looking quite healthy and there is an enormous growth in interest, profits and dividends from overseas. As my right hon. Friend the Chief Secretary to the Treasury said with great vigour and accuracy this afternoon, that is all set to produce a vast, continuing and rising inflow that will help substantially to offset the trade deficit.
It is very interesting to watch this unfold, because a great many economists failed completely to notice that this would happen. The reason that some of them failed to notice that it would happen was that they were carried away by the persuasive political myth, much peddled by the Opposition, that North sea oil receipts had been wasted. Therefore, economists who were inclined to believe that myth had their eyes turned away from the fact that in reality gigantic overseas investment has taken place, which has put this country into the position where it is the second biggest creditor nation on earth after Japan. It has provided us with a huge annuity — an inflow of income that will last long after all the oil has gone and that will increase in size.
This is not just paper money that evaporates; it leads to demand for new products and new jobs in Britain. That, too, is beginning to have an effect inside the British economy and it makes the pattern of growth far more sustainable than those which, in the past, ended in balance of payments crises. Again, therefore, the trite prediction that this is an artificial boom that will end in a balance of payments crisis is unfounded. It cannot be sustained by that kind of argument.
I am not even convinced by the other assertion that we have heard again and again from Opposition Members, that this is all to do with the south-east and the rich south. If hon. Members examine the flow of orders that is following this remarkable phase of expansion, they will see that the order books are beginning to fill up at last—I am delighted that they are—in the midlands, the northeast and the north-west. They will also notice—again unlike previous expansion phases—that instead of the productivity increases of a few years ago fading away, they have, if anything, accelerated. We are now looking at staggering figures of productivity in this expansion phase which put us in the same league as the Japanese and German miracle economies — indeed, which put us, according to the latest figures, above the Japanese and German levels of productivity. I put those points to Opposition Members who dismiss the present expansion phase as temporary and unsustainable. It is important for them to understand that that is not so.
This phase of expansion does not come from artificial manoeuvres or from the use of "demand bellows" by my right hon. and hon. Friends in Whitehall. On the contrary, they are engaged in a shrinkage of Government borrowing to some of the lowest levels, in proportion to gross domestic product, in the Western world. It does not come from that source at all; it comes from the supply side reforms that have been pushed into this economy, in the teeth of bitter criticism and with much struggle and difficulty, in the last seven years.
Those supply side changes are evident now, in derestriction and deregulation, much better industrial relations and greater readiness to invest. They are beginning to bear fruit. They show that the British economy is capable of taking advantage of its competitive sterling exchange rate without it ending in soaring costs, renewed inflation and the loss of competitiveness, just when we thought that we had gained it. For that reason, the case for additional tax cuts to reinforce this process is very strong.
There are of course many other reasons for tax cuts as well. Opposition spokesmen say that they are against tax cuts. I am completely baffled by that statement. In one breath they say, with some justification, that the overall burden of taxation, if measured in this way or that, may have risen, yet in the next breath they say that they want tax cuts to be reversed and that taxes ought to be higher still. Why do they not understand that a man on 75 per cent. of average earnings, with two children and earning about £160 a week, pays 34 per cent. of that £160 a week—a very tight budget for a family with two children—straight back in tax, national insurance and other forms of taxation? Why do they not take pity on the hardship that that kind of arithmetic causes? Why does not the Social Democratic party take pity on the kind of hardship that is caused by those figures? Is it not concerned about the hardship that is caused by high taxes on low incomes? It baffles me that again and again Members on the Opposition Benches dismiss the idea of tax cuts and that they have put into the amendment to the motion the statement that they want tax increases. If they are concerned about hardship—