The speech opening the debate from the hon. Member for Dunfermline, East (Mr. Brown) would have gone down well in a debating chamber if the audience had no knowledge of economics or economic policy. Sadly for him that was not the case today, and I suspect that that is why he did not give way when some of us tried to help him understand the statistics that he was abusing. He simply failed to admit that the economy is intrinsically extremely healthy. It is not only Conservative Members who state that. The most recent survey from the OECD highlighted the supply side impact on the economy of the Government's policies which have been most important in our progress since 1979.
In comparison with 1979, we now have a shrunken state sector; a public sector budget surplus; less interference in industry; fewer regulations and controls; lower personal and corporate tax rates and fewer tax-induced distortions. The restoration of the market economy has been supported by a reduction in trade union restrictive practices and the deregulation of the labour and financial sectors.
That is an extremely good record, of which we can be justly proud. It has had some very important net effects. For example, Opposition Members have not noticed that investment in this country is ahead of consumption. That is a key indicator. Manufacturing investment in the past 12 months has been up 18 per cent. Productivity is high and likely to stay high. It is important to analyse imports in the latest trade figures because imports of capital goods rose 4 per cent. during the past three months, and that increase in investment shows that the continuing increase in productivity is likely to be secured.
If it is true—I concede that it is—that in our economy consumption has run ahead of domestic supply, who is borrowing more and saving less? It is clearly not industry. Industry has restored cash balances. There was a net real rate of return for industry of just over 9 per cent. in 1987, the highest for 20 years—a significant factor which should be taken into account when considering the impact of interest rates. In 1987, according to the latest figures, corporate savings were £46 billion out of a total of £69 billion of trading profits—a remarkable percentage.
Therefore, industry is not likely to be as damaged as it was before by higher interest rates. It may be that they will cause industry difficulty with its exports because of an increase in the value of sterling, but higher interest rates are more likely to force companies to restrain their wage increases and in those circumstances they will not find their export opportunities damaged. Some Opposition Members would find it instructive to look closely at the policies of Ludwig Erhardt in Germany in the 1960s when he pursued policies that had a similar virtuous effect on German exporters.
It is also important to note that industry is hurt several times more by a 1 per cent. increase in wages than by a 1 per cent. increase in interest rates, something that I hope industrialists will bear in mind if they ever try to complain to the Chancellor about his current policy.
Secondly, is it the Government who are borrowing too much and spending too much? The answer is no, because the public sector surplus is £10 billion and there is a declining trend in public expenditure as a proportion of national income. That gives expenditure programmes greater flexibility without an increase in total spending because of the reduction in debt servicing costs. That is an important point, which again seems to have escaped those Opposition Members who have spoken today.
Thirdly—here I accept that there is a difficulty—there is the private sector. In the past three years the personal savings ratio has fallen from 10 per cent. to 4 per cent. That fact alone has led to a 2 per cent. per annum rise in consumption. I understand that, as my hon. Friend the Member for Fulham (Mr. Carrington) said, the figures may be unreliable and Tim Congdow has recently done some interesting work on the personal and corporate savings ratios. But there is no doubt that the Government's overall thrust should be to tackle the increase in personal consumption.
I support the use of higher interest rates. That policy is also supported by Professor Alan Budd, whose recent work has shown that in the short run high interest rates nowadays bear more heavily on consumption than on investment. He also demonstrates that income tax changes unequivocally bear more heavily on consumption than investment, but they take a long time to do so and to do a deflationary job. Therefore, the Government's interest rate policy is the right one.
Several Opposition Members bemoan the fact that the Chancellor cut the highest rates of tax, thus stimulating the economy in the long term. But even if one assumes that the £1 billion that was raised from tax cuts went entirely in consumption this year, it would have had only a marginal effect on the current balance of payments problem. Opposition Members have things completely out of perspective. I wish that they would try to look at the figures in the right context.
There is another weapon that the Chancellor can use and I hope that, given the time that interest rates will take to bite properly into personal consumption, he will be able to look at this at the next Budget. Like other right hon. and hon.Members, I am referring to savings.
It is especially important when trying to encourage personal savings to promote investment in risks—in other words, equities. Let me be controversial and ask the Chancellor to look closely at whether we should allow the £30,000 mortgage relief to be available on share investments as well. Let me ask the Chancellor to look closely at the personal equity plan and dramatically to change the limits that are currently imposed on it. Will the Treasury consider profit-related pay and, instead of making it possible to have a cash bonus, make those bonuses payable in shares, particularly in shares in the company for which people work?
I have recently written a pamphlet "Fair Shares for all the Workers" urging employee share ownership schemes. The House will be glad to know that I do not have time to read it out, but I hope that they will avail themselves of the copy that is in the Library. Employee share ownership schemes are an important way not only of increasing the access to capital investment by the British people, but of giving them a greater commitment to the success of the company for which they work, and I commend them.
Saving encouragement should be used to bring the personal sector in line with the prudence shown by industry and Government. The economy is fundamentally sound. We have a problem with personal consumption and that has caused a difficulty on the overall balance of payments. But it is clear that we have a Chancellor who is prepared to take the right action when the statistics show that it needs to be taken, and who will not throw away the tremendous developments that Britain has made since 1979 in freeing the economy and giving the British people not only a pride in their country but an ability to participate in it through the wider share ownership and other schemes that the Government have introduced.