Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 8:36 pm on 25th April 1989.

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Photo of Mr Pat Wall Mr Pat Wall , Bradford North 8:36 pm, 25th April 1989

According to the radio today, the CBI sees some signs that high interest rates are beginning to slow down the economy and hopes that will bring down the rate of inflation, which, even excluding mortgage payments, means we have the sixth highest of the seven major European countries. It is interesting to note that in real terms, excluding inflation, interest rates are the highest they have been in this country since the Napoleonic wars. Perhaps that gives a clue to how the Chancellor sees his present role, as the Napoleon of the British economy, the revolutionary tax reformer. Like Napoleon, the right hon. Gentleman normally stood with his hands in his jacket. However, Napoleon Bonaparte won real victories before his eventual defeat and exile. The Napoleon of Blaby's victories have been somewhat illusory, though he also, I suspect, will go into political exile.

The CBI also sees prospects of a reversal in the rising rate of inflation and—with illusions—holds on to the belief that it can contain the increase in ex-factory prices to 5 per cent., the present rate. That is in conflict with the evidence of the retail sales figures and the money supply figures. However, even the CBI has no faith whatsoever in the Chancellor's ability to tackle the balance of payments problem. It makes the point that a decrease in the rate of inflation will lead to further losses of manufacturing jobs and in the wealth-creating section of the economy. Already the figures from the textile industry, which is often a barometer for the rest of the economy, show a growth in redundancies in the knitwear and other sectors.

The Chief Secretary today boasted yet again of the Government's achievements in economic growth, productivity and production. I would like to look at each of those aspects of the British economy.

The British economy has grown less than its major competitors since 1979, despite the bonus of North sea oil, which was worth about £18 billion a year in the mid-1980s and is worth about £7 billion a year now. Since 1979 the average annual rate of growth has been 1·8 per cent.—a miserly figure, even compared with the 2½ per cent. rate of growth under the last Labour Government which has been much maligned by Treasury Ministers. Manufacturing output fell by 14 per cent. between 1979 and 1981 and did not return to its 1979 level until 1987. In the same period manufacturing output increased by 38 per cent. in Japan, 25 per cent. in America, 16 per cent. in Italy and 12 per cent. in West Germany. Although the 4 per cent. increase in output in the past two years is above that of our major competitors, the figures I have quoted illustrate that Britain has a long way to go to compete with our major competitors.

The Chief Secretary boasted a productivity growth rate of more than 4 per cent. between 1979 and 1988—which is higher than that of our major competitors. But Britain is still 25 per cent. behind the EEC average in terms of productivity and still further behind Japan and America.

In 1988 investment per worker stood at £3,000 per head —lower than all our major competitors and only half the investment per worker in Japan. Even if we had a slave society worse than the restrictions that the managerial counter-revolution have placed on the conditions under which people work in recent years, investment in new machinery and new methods would always win and that is lacking in the British economy at present. Between 1979 and 1987 investment in industry rose by only 9 per cent. —less than half the increase in consumer spending. Manufacturing investment is still slightly below the level it reached in 1979. The annual rate of growth in capital stock—that is machines and plant— between 1979 and 1986 was only 11/2 per cent. which is about half that of Britain's major competitors.

The Government's investment in real terms in schools, hospitals, housing, roads and general economic infrastructure has fallen by 50 per cent., and is likely to fall by a further 6 per cent. in the next two years. Without taking into account the decline in oil and energy revenues between 1985 and 1988, manufacturing exports rose by 23 per cent. while imports increased by 48 per cent. That created the balance of trade deficit, which is continuing to run at an annual rate of more than £20 billion per year. The net outflow of private capital of £6·3 billion in the first nine months of 1988 plus a further outflow of £5·6 billion in portfolio investment abroad amounts to almost £12 billion in nine months. That, in addition to the balance of trade deficit, shows that if there were a run on the pound—which could happen given the general rise in world interest rates and the poor performance of the British economy—even the Chancellor's much-vaunted currency reserves of £30 billion would be under serious threat within a year.

The Finance Bill and the Government's economic prospects cannot be considered in isolation from the rest of the world. The massive $155 billion America budget deficit, the further $130 billion American trade deficit and the massive surpluses in Japan and West Germany have created a total imbalance in the world economy. In America there is the added problem of corporate debt to finance huge takeovers. Many American loan banks have gone into default and in the next five or 10 years could cost the American Treasury anything between $50 billion and $150 billion. The world's major capitalist economies are in a far from rosy position. In addition, there is a continuing problem of Third world debt with a net outflow from poor countries to rich countries of $46 billion last year. Therefore, the situation is very different from the picture that the Government have painted of the British economy and the major world economies.

Although the world economies avoided a recession after the stock exchange crash more than a year ago, by cutting interest rates and priming the economy, that policy is now being reversed. Interest rates are rising and productivity and growth are falling. That brings us back to the situation which one would normally have expected to follow the stock exchange crash—the possibility of a growing trade war and a recession and all that means in terms of human misery.

I conclude by drawing a comparison between the Government's claims and what really happened which was so well explained by my hon. Friend the Member for Leeds, West (Mr. Battle). The top 100 millionaires in Britain gained more from last year's Budget than the bottom 1 million people in Britain. Under this Conservative Government the top 1 per cent. of people in Britain received a 55 per cent. increase in income while the bottom 10 per cent. have lost 8 per cent. of their income. The Government represent a class-divided society. The world economy is split so that, even in so-called boom years, billions of people live in absolute poverty and a tiny handful live in riches. I believe that that is becoming increasingly apparent and that a democratic Socialist society which controls and shares its wealth evenly will become more and more desirable in this country and throughout the world.