Economic Policy

Part of Opposition Day – in the House of Commons at 7:54 pm on 31st October 1989.

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Photo of Graham Allen Graham Allen , Nottingham North 7:54 pm, 31st October 1989

There has been some speculation that the former Chancellor of the Exchequer resigned because of the actions of the Prime Minister or Sir Alan Walters. That is not my view. The former Chancellor of the Exchequer resigned having read the Treasury's economic forecast for next year. It is one thing for a Chancellor to carry the economic can when he is in charge of economic policy and another to be the fall guy for someone else's economic policy. The Treasury forecasts that were prepared for the Autumn Statement were available for the Chancellor to see. There was no need for a crystal ball—he read the book and got out from under. Much of the forecast information was probably available in the summer recess; all that was needed was the opportunity artificially to up the stakes on his excuse—Walters—and get out with as much political kudos as he could muster.

Of what was the ex-Chancellor of the Exchequer frightened? What do the Treasury forecasts predict? As they are not available to Members of this place, the nearest that we can get is the London business school survey, which was published yesterday and which predicts slow down, poor growth, deceleration in output, rising inflation, falling investment and increasing unemployment—welcome to the Treasury, Mr. Major! In addition, there is a world record trade deficit, the highest inflation in industrial Europe, the highest interest rates of any of our G7 world competitors, a devaluing pound, a reducing share of global manufacturing and money market hysteria which makes lemmings seem laid back. That situation, plus the Treasury's forecast of further deterioration into recession, explains with clarity why the ex-Chancellor of the Exchequer baled out when he did.

Parliament has been a mere spectator. Oddly enough, the debate shows why we need a more democratically elected second Chamber. It underlines once again that the House is failing in its constitutional duty of holding the Government to account. That is more evident and more desperately necessary in economic policy than in any other area. No statement on the economy has been volunteered to the House by the Government since before the Summer recess. No emergency debate was granted after that recess despite the magnitude of the crisis. It has been left to the official Opposition to use one of its Opposition days to drag the Chancellor of the Exchequer to the House. In years to come, this week will be remembered as a constitutional rather than an economic crisis.

Where is the Prime Minister in all this? We all know that the right hon. Lady lacks confidence in the House. That is evidenced by the few occasions when she makes statements, compared with the number of times her predecessors did. Unquestionably, the Prime Minister holds the House in contempt, but we are told now that the bunker mentality has gone so far that when the Cabinet met last week it did not even discuss the exchange rate mechanism, the European monetary system or the crisis involving the Prime Minister and the Chancellor of the Exchequer.

Without agreeing to it, we have seen the development of a twisted presidential system in which Parliament and the Cabinet can be disregarded and in which no written constitutional checks can be brought to bear. Where President Nixon's Erlichman, Haldeman and Dean could be exposed, an impotent and decorative House of Commons cannot even gain access to Powell, Ingham, Griffiths and Walters. The Mother of Parliaments, like the mother in "Psycho", sits as an ancient and obsessively preened skeleton—permanently in the dark.

We criticise the City of London for being distant and irrelevant to the "real economy", but we in this place must demand to be more than an irrelevant sideshow to the real political life of the country, which we have allowed to gravitate wholly to the Government and the press conference. That is an issue to which the Labour party must give a great deal of thought.

In the short period that remains to me in this debate, should like to dispel some Tory economic myths peddled by the Prime Minister and her yes-men. Those myths were nicely summarised by the Economic Secretary to the Treasury when he replied to the Adjournment debate which I raised on the state of the economy on the first day following the summer recess. I am sure that he will forgive me if I use his script as the basis for some comments.

First, he talked of generating "sustainable economic growth" over the past few years. Where is that growth? The growth that we have experienced has been generated by consumption. During 1988, the gross domestic product grew by 8 per cent. while production increased by only 5 per cent. An article in today's edition of the Financial Times tells us that there has been a rise of 23 per cent. in the number of business failures since the same period in 1986. Insolvency practitioners say that that is the tip of the iceberg. Perhaps that is the iceberg to which the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson) referred.

The head of the Price Waterhouse insolvency arm says: The situation is now worse than in the run up to the two previous recessions. Market forces have not delivered investment to Britain. There has been a collapse of manufacturing and we have seen massive investment abroad. Short-termism has strangled British enterprise.

The Government then talk of "a supply side revolution." At least there is some truth in that. There has, indeed, been a supply side revolution. For 100 years we have largely supplied our economy from home production. Now our supplies are coming increasingly from abroad. That is indeed revolutionary, but it is commonly known as a balance of payments crisis.

The Government spokesman went on to say that manufacturing productivity is growing. Manufacturing as a percentage of GDP is falling and the reason for the growth in productivity is due entirely to the bankruptcies in the period 1980–82. Inefficient manufacturing companies were eliminated from the calculations so that average productivity rose. In cricketing terms, the Conservatives have taken all the bowlers out of the batting averages and declared that the team now has a higher average. In that statistical essay, the Chancellor, who I understand is a cricketing fan, appears as the blue bearded wonder.

Then the man from the Treasury said: Businesses are at the most profitable for 20 years. The surge in profits stems from an economic boom generated primarily by credit-financed consumer spending, which has worsened inflation. The outlook for profit growth is for a sharp downturn as economic growth slows and costs rise. Industry has taken advantage of the improved profits in order to one-time profit-take rather than to invest in their businesses and ensure continued growth.

The Government have also referred to "unprecedented prosperity". If they are referring to the unprecedented consumer spending of the past five years, which has been credit driven, including mortgage borrowing, they are correct. However, all the surveys show that such a period is about to end and turn into a long period of slow economic growth, high inflation and Britain having the highest interest rates in Europe. The chickens are coming home to roost and many are deeply affected by the salmonella of decayed monetarism.