State of the Economy

Part of the debate – in the House of Commons at 4:36 pm on 25th October 1988.

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Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 4:36 pm, 25th October 1988

I shall give way when I have made a little progress with my speech.

At the same time, we have every reason to believe that a fairly tight policy on public expenditure will be conducted by a Government who have declared that their policy is that public expenditure should diminish as a proportion of GDP year on year. Nobody has ever said when that policy is supposed to come to an end. Perhaps one day the Chief Secretary will tell us at what point the steady year-on-year diminution of public expenditure as a proportion of GDP is supposed to end. It has been held out as the objective of the Government for no particular reason.

In given circumstances, too high public expenditure can obviously be dangerous, but there is no particular merit in reducing public expenditure steadily year by year, least of all in circumstances where there are compelling reasons to see some of the benefits of increased prosperity go into public investment—some into public services and some into areas that will promote industrial competitiveness. One of the consequences of the Government's attitude to public expenditure has been squalor in parts of the public services—the National Health Service is the most obvious and most often quoted example—and a continuing weakness in areas which are of importance to industrial competitiveness, of which training is an obvious example. All the surveys show far higher levels of qualifications, training, higher education, and craft skills in our main industrial competitors than in Britain. The Government should make a far bigger effort in that direction.

Another consequence of the Government's attitude to public expenditure is likely to be the squeeze on child benefit, which has already been discussed, and is likely to lead to further problems for some of the poorest people. The freezing of child benefit is an odd interpretation of the Government's manifesto pledge. They certainly made no effort at the time to show that that was the appropriate interpretation.

I stressed to the Prime Minister today, and I stress again to Treasury Ministers, that they believe in incentives. Child benefit is one of the few means of getting help to poor families which does not at the same time sharpen the teeth of the poverty trap, which is what a switch to means-tested benefits is likely to achieve. I do not believe that the Government have undertaken the kind of review that would enable them to devise an alternative to child benefit which does not sharpen the teeth of the poverty trap and lead to a situation where those at, and just above, current benefit levels find that for every pound that they earn they lose substantially by the loss of whatever the alternative is for child benefit.

That illustrates a number of long-term problems that will remain if the Government do not pursue more sensible policies. They should equip industry through more expenditure on research and development and a more skilled work force, thus providing an adequate infrastructure. It requires some care, but selected private investment could be less inflationary and generate fewer imports than the current boom in private sector consumption.

The Government are exacerbating other long-term problems by not tackling them. The housing crisis requires attention, both to the overall financial system under which housing is supported and to what is happening to public sector and other kinds of rented housing. The Chancellor made one nod in the direction of reducing some of the subsidies at the top end of the housing market in his action on multiple mortgages, but—at the Prime Minister's insistence—he left untouched tax relief on mortgage interest at the top rate of tax. Nobody who has studied this sector can seen any sense in that. I do not believe that the Chancellor can either. This is another thing that has continued to fuel the rapid rise in house prices.

A wider problem lies in the rented sector. Rented housing is so difficult to obtain and so expensive in many parts of the country that it is a serious bar to labour mobility. When industry attempts to improve its competitiveness, it constantly comes up against that difficulty. It finds attracting skilled workers from other areas extremely difficult when those workers cannot obtain housing. Part of the answer to that problem is to encourage more widely spread development, rather than concentrating it in the south-east. There must be some opportunity for people to move around the country to obtain jobs, especially those who wish to do so, but present housing finance does not allow that.

Another long-term problem is that the Government are not creating a climate for real business growth. A large proportion of the development and growth now taking place is dependent on the inflation of property values. One can see that vividly illustrated by the Royal Ordnance factory saga. The short-term growth potential lies in the opportunity to sell land that has acquired considerable value because of planning permission.

That paints a rosy picture for a number of companies, but it does not provide a climate for stable long-term growth. A number of other elements are necessary for industry to have a stable environment. As the Chancellor has said, one of those elements is exchange rate stability. If that is so, why do we continue to refuse to put Britain into the exchange rate mechanism of the European monetary system? It is because that is one of the things that the Prime Minister cannot personally bear to contemplate.

In the Chancellor's Mansion House speech there was a phrase which I took to be yet another coded reference to his desire to get Britain into the EMS. When talking about European economic co-operation, he said: I would like to see that co-operation taken further. We continue to have a Government who are divided on economic policy in relation to Europe. In fact, they are even more divided on European policy than we had reaised earlier. Before the Prime Minister's Bruges speech, most people assumed that there was a broader consensus about Britain working with Europe on the development of an economic policy than there now appears to be. I was never more surprised than to find in the Division Lobby last night such a large number of Conservative Members apparently supporting the Single European Act—with varying degrees of enthusiasm in the wake of the change of climate in which the Prime Minister seems to have induced in her party on that issue.

The Chancellor had the opportunity to go down in history as the Chancellor who presided over years of clear improvement in Britain's economic performance. Advantage could have been taken of that improvement as well as capitalising on special advantages, such as our oil revenues, to build for the future. I regret to say that the right hon. Gentleman's years as Chancellor will not be looked upon in that light. The OECD report that the right hon. Gentleman quoted gives too rosy a picture. When we look back upon the right hon. Gentleman's Chancellorship, it will be clear that some changes have led to greater productivity and greater competitiveness, but that the opportunity was lost to create the conditions for an enterprise society in which success was widely shared.

We have sought to add to the Labour party motion, which is sensible so far as it goes, a clear reference in our amendment to the need for an enterprise society and the need to work together in Europe to develop common economic policies and common economic institutions. Such co-operation would enable us to prosper.

I must congratulate the hon. Member for Dunfermline, East (Mr. Brown) who had to step into the unfortunate breach left by the right hon. and learned Member for Monklands, East (Mr. Smith), to whom we all wish a speedy recovery. The speech of the hon. Member for Dunfermline, East was strong on denunciation. I should hate to come across the hon. Gentleman in an angry mood in some kirk session ravaging against the evils of our society, but unless all parties commit themselves to international remedies and greater European cooperation, we shall not see the achievements which the Labour party's motion seeks.

There are many things that we need to do if our industry is to be properly equipped to take advantage of new European developments. Unless we have direct rail links from the north of England and Scotland, through the Channel tunnel and into Europe, industry in those regions will be unable to share in the potential greater prosperity. If we learn later this week that Sunderland Shipbuilders is to close, there will be no basis for that industry's future. One or two companies may remain, but we shall lose the opportunity to share in future growth.

The Chancellor had considerable advantages over many of his predecessors. In his Mansion House speech the right hon. Gentleman chose to quote some of his past remarks when he was a teenage scribbler. That career need not have stood in the way of a successful chancellorship. The Chancellor now finds himself under attack from many directions, not least from within his own party. At the end of the day, I believe that the verdict on him will be that he has missed the opportunities—opportunities that the Government should have recognised—to build for a more sustainable future.