Orders of the Day — The Economy

Part of the debate – in the House of Commons at 8:46 pm on 29th November 1988.

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Photo of Mrs Teresa Gorman Mrs Teresa Gorman , Billericay 8:46 pm, 29th November 1988

I wish to contribute to the debate from the perspective of someone who spent 15 years of her working life before coming to the House in business. I started a business from scratch and worked it up producing goods, selling them, importing, exporting, understanding the significance of the value of money, and buying and selling foreign currencies in order to trade.

There has been much talk today based on political or economic dogma, whether it is Marxists who believe that one should control everything, including exchange, the Keynesians who believe that one can manufacture money and create businesses out of that, or the monetarists who believe that one can manipulate the money supply to control the economy.

I started my business in the early 1970s and lived through the horrors of the rampaging inflation experienced under the Labour Administration. Wilson's weasel words about the pound in our pockets not being devalued are carved on my heart because at that time I was heavily involved in importing bits and pieces and I suffered badly. I almost lost my business as a result of that economic interference. Therefore, I am no lover of Government interference in the economy.

The tremendous success that our Government have achieved in righting the economy was predicted on the degree to which they left the economy alone. They reduced tax rates so that people could make their own decisions about what to do with their money. The Government abolished exchange controls, which was a brilliant move by my right hon. Friend the Chancellor's predecessor. It freed people to spend money in the world market as they saw fit. The golden thread that has run through our economic success has been lack of intervention in economic matters. It is for that reason that it troubles me that we have now taken to the "touch on the tiller" mentality, which is what altering the interest rate is about.

We are in danger of impaling ourselves on that dogma. It is extremely important to take stock of the effect that such an idea is having on our business community. Business is about producing and exchanging goods. In reality it does not matter whether it takes place with foreigners or within our domestic market. It is nonsense to suggest that exporting has some intrinsically greater value than does selling goods domestically. That is like saying it is better to sell in Billericay than in Birmingham, Bradford or anywhere else. It is a subjective judgment of what economics and the economy, the business world, is all about.

If I had to buy foreign currency to purchase goods abroad, the money markets would adjust their values accordingly. If I wanted to buy an Hitachi television set, that would be taken into account by those who deal in currencies. To create artificial values for currency is to interfere with the natural market process. To try to tie the rudder of a ship so that it can no longer steer between the rocks is very dangerous. The same is true of trying to control exchange or interest rates in the interests of balancing the economy.

The concept of the balance of the economy is absurd. It really does not matter whether, at any particular time, we export more than we import or vice versa. If the economy is left to settle, it will balance itself. The level of the exchange rate—the value of money—shows what the world market thinks about the way our economy is going. That is what should decide the issue. To try to control that pivot point create difficulties.

Why are we trying to control the economy? Is it because of inflation? We all know, because my right hon. Friends the Prime Minister and the Chancellor have said so often, that inflation is created by politicians, not by business men, the greedy consumer who wants to buy more goods. or even trade unionists. It is an artificial extension of the money supply. Only the Government, by reducing the difference between their expenditure and taxation, can do anything about that. Trying to manipulate people's buying habits—which, to some extent, we are doing by raising the cost of money—will not succeed. We should allow exchange and interest rates to float and then the economy will balance.

We have heard a great deal about the need to increase savings. It has been said that raising interest rates will somehow induce people to save more. Japan faced many economic problems during the 1950s. In an attempt to encourage savings, which I accept is an important aspect of a healthy economy, it exempted interest on savings from taxation. That had a stunning effect on the level of savings which, in turn, produced the capital on which the success of the Japanese economy since then has been based. In addition, the then Japanese Chancellor reduced and stabilised the rate of taxation to a flat rate of 30 per cent. Those are the sorts of measures that will bring the economy into balance.

I do not believe that manipulating interest rates is the way out of what we perceive to be a dilemma, although I do not think that there is a balance of payments crisis. We have a healthy economy and we have put more money into people's pockets. People naturally want to spend it, which in turn increases the domestic market. Of course, some of that money will be spent abroad, and there is no great harm in that. It is not a tragedy. The Japanese do not eat the money that they obtain from our buying their goods and services; they do not stick it in a box under the bed—they spend it in Britain by investing in factories or buying our goods. They exchange it in the money markets for other currencies. It is absurd to suggest that there is something intrinsically bad about importing goods.

Increasing interest rates causes many difficulties for the business community. Big businesses may well have large savings, but small businesses are almost always working on overdrafts. Before my right hon. Friend thinks of raising interest rates again, I ask him to consider the basic policy of the economist Hayek, whose views I greatly respect, which is to allow the exchange and interest rates to float.