Orders of the Day — The Economy

– in the House of Commons at 3:37 pm on 28th November 1989.

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Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East 3:37 pm, 28th November 1989

Before I call the right hon. and learned Member for Monklands, East (Mr. Smith), I must announce that I have selected the amendment in the name of the Leader of the Opposition. I have also selected, for a second Division, later in the evening, the amendment in the name of the right hon. Member for Yeovil (Mr. Ashdown).

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

On a point of order, Mr. Speaker.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. I am still on my feet.

There is great demand to take part in this debate, which is the final day of the debate on the Queen's Speech, so I propose to put a 10 minute limit on speeches made between 6 pm and 8 pm but, as I have said on previous days, I hope that those called before and after that time will stick broadly to that limit.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

On a point of order, Mr. Speaker. May I revert to the point of order made by my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh), as this is a matter of interest to the House? When an amendment calling for full-blooded Socialism, withdrawal from Northern Ireland and the repeal of all trade union legislation has been tabled, is it not right, as the eyes of the country are upon the splits in the Labour party, and as the amendment appears to have precedents, that the House should be given an opportunity to vote on it and the country should be given an opportunity to see the division in the Labour party?

Several Hon. Members:

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Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. Let me deal with one point of order at a time. The order in which amendments appear on the Order Paper is immaterial to my selection, which I have already announced.

Mr. Eric S. Heifer:

On a point of order, Mr. Speaker. While I understand the efforts being made by Conservative Members to suggest that there are splits in the Labour party, I must say that some of us would welcome the opportunity to vote on what we believe.

Several Hon. Members:

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Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I hope that this is not a continuation of this spurious point of order, because—[HON. MEMBERS: "It is not spurious."] I have announced my selection, and I cannot go back on it.

Photo of David Wilshire David Wilshire , Spelthorne

On a point of order, Mr. Speaker. May I ask you to reconsider that selection, in view of the comments of the hon. Member for Liverpool, Walton (Mr. Heller)? Should not the public have the right to know how many other Opposition Members are full-blown Socialists?

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Let us get on with the debate; then no doubt we shall all hear.

Photo of Mr Barry Field Mr Barry Field , Isle of Wight

On a point of order, Mr. Speaker. You are most jealous in guarding the rights of Back Benchers. It has come to the House's attention and that of the nation that the hon. Member for Liverpool, Walton (Mr. Heller) feels compelled not to stand at the next general election

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. I have already dealt with this matter and announced my selection. Arguments on this issue can be advanced when we get to the debate.

Photo of Mr John Smith Mr John Smith , Monklands East 3:43 pm, 28th November 1989

I beg to move, at the end of the Question, to add: But humbly regret that the Gracious Speech seeks to continue economic policies which have caused the largest balance of payments deficit in our history, the highest interest rates among the leading industrial nations, and the highest rate of inflation of the principal countries in the European Community; and call on the Government to adopt a strategy for the regeneration of British Industry, and in particular its manufacturing sector, based on a commitment to regional economic development, support for the introduction of new technology through the promotion of research and development, and a sustained investment in education and training to reverse the appalling skills deficit which continually undermines the prospects of economic recovery. I should like to begin with a word of apology to the Chancellor of the Exchequer. In all the flurry of events consequent upon the resignation of the former Chancellor and the ups and downs of recent weeks, I fear that I omitted formally to congratulate him on his accession to his new, and most recent, high office. It occurred to me today that I could and should put that omission right in the first economic debate in this Session of Parliament. So I extend my congratulations to him.

There is another reason why I should take the opportunity now. Events on the Government Benches continue to move apace. The hon. Member for Clwyd, North-West (Sir A. Meyer) is clearly a force for glasnost and has caused an outbreak of what I can only describe as democratic fervour in the Conservative party, and it seems to be as heady a brew there as it is in eastern Europe.

After glasnost, as we know, comes perestroika. That opening of the political Pandora's box can afflict even those who thought that they were previously unassailable. So I can understand the feeling of nervousness and uncertainty that is evident in the behaviour of Conservative Members.

So concerned are they by the political as well as the economic events, that the Prime Minister has sought to reassure them that the election will not be held next year or even the year after that.

Photo of Mr John Smith Mr John Smith , Monklands East

Even the Prime Minister, despite some confusion about her own ambitions—to which I heard a reference from my hon. Friend the Member for Walsall, North (Mr. Winnick)—and which has left most of us bewildered, will have to face the electorate, and however reluctantly, at the latest in 1992.

These are all signs of a Government who have lost the confidence of the people and are running scared. They have lost the confidence of the people because of the economic situation which they have created. At the end of 10 years of Thatcherism, we have, at £20 billion, the highest balance of payments deficit in our economic history, we have a rate of inflation higher than any of our European competitors, and we have the highest interest rates among the leading industrial nations.

Photo of Mr Timothy Devlin Mr Timothy Devlin , Stockton South

In view of what the right hon. and learned Gentleman has been saying, may I ask how he explains recent polling evidence that, even when the Conservative party is in the doldrums, more people have confidence in it to solve the nation's economic problems than they have in the Labour party?

Photo of Mr John Smith Mr John Smith , Monklands East

The hon. Gentleman makes a highly selective interpretation of some parts of polling data. I hope that he will take fully on board the fact that the latest poll I saw showed the Labour party 13 points ahead of the Conservative party in the estimation of public opinion. That might just weigh with him in his consideration of events.

The Government have lost the confidence of the people, and, what is worse, we seem set to enter the 1990s, as the Autumn Statement makes painfully clear, with the prospect of low growth, rising unemployment, falling investment and, even after all that, a balance of payments deficit at the end of the year predicted at £15 billion.

Those who might have hoped for early relief from the burden of high interest rates, including the millions of people who are locked in mortgage misery, will note with concern from the Autumn Statement that it appears, as City and press commentators have noted, that the Government assume that interest rates will remain at about their present level for at least the year ahead.

The Chancellor says that next year will not be easy. Does he think that 1989 was easy? Does he think that people found it easy to find £70, £80, £90, £100 extra each month to pay for the homes in which they live? Sadly, the millions in mortgage misery are paying the price of the Government's failed economic policies.

There is little recognition in the Gracious Speech of the true nature of Britain's economic situation. Last year the Gracious Speech told us that the Government's policies would "bear down on inflation". The Government went on to assure us that the problem was only a "temporary blip" on the path to zero inflation. A year later, we see what credence we can attach to such glib denials of reality.

But, then, complacency is the hallmark of this Government, and nowhere more so than in their persistent refusal to recognise the gravity of the balance of trade deficit, which has been deteriorating steadily throughout the decade. It may have been masked in the early years by the windfall benefits of North sea oil—a bounty of £78 billion, which the Government have never properly acknowledged—but relentlessly, as the Government's neglect of manufacturing industry was perpetuated, the deficit has grown, until 1989 we find ourselves with a record level of £20 billion in the balance of payments.

Each year, it has been under-estimated by a complacent Government heedless of the consequences of their policy. They were heedless, too, of the warnings given years ago about what would happen if they persisted. It has been a commonplace in the speeches from Opposition Members that the neglect of manufacturing industry would lead inexorably to balance of payments problems. I shall remind the Government that the same message was given to them from another source and from another place. Just over four years ago in 1985—significantly half way through the present decade—the House of Lords Select Committee on Overseas Trade in a special report warned the Government of the neglect of Britain's manufacturing industries.

The report said: Unless the climate is changed so that steps can be taken to enlarge the manufacturing base, combat import penetration, and stimulate the export of manufactured goods, as oil revenues diminish, the country will experience adverse effects". It went on to identify as among those adverse effects: an adverse balance of payments deficit of such proportions that severely deflationary measures will be needed. It predicted the risk of the economy stagnating and inflation rising, driven up by a falling exchange rate. Seldom has there been such a chillingly accurate prediction.

Photo of Julian Brazier Julian Brazier , Canterbury

Will the right hon. Gentleman give way?

Photo of Mr John Smith Mr John Smith , Monklands East

Let me finish this point.

It unfolded in anticipation the reality of Britain's economy today. So let us have no excuse from the Government that they have been somehow blown off course by unexpected events or adventitious circumstance. They did not listen then, just as they do not listen now.

The Government's reaction to the considered and careful reasoning of the Select Committee was given by the former Chancellor the right hon. Member for Blaby (Mr. Lawson) in his Mansion house speech of 1985. Not one to mince his words, the former Chancellor rounded on their Lordships and said: The Government wholly rejects the mixture of special pleading dressed up as analysis and assertion masquerading as evidence which led the Committee to its doom-laden conclusion. The style and manner of that attack will be familiar to students of the Government. All criticism is gracelessly repelled and all critics immoderately abused. They are always ready to ignore the messages and shoot the messengers.

The House is well able to judge who was right, in the light of the outturn of events. The Government ignored the threat to manufacturing industry and under-estimated and dismissed the balance of payments consequences. We now know that the House of Lords Select Committee was devastatingly accurate and the Government were completely wrong. We are experiencing an adverse balance of payments deficit of record proportions—the highest in our economic history. Are not interest rates at 15 per cent. a severely deflating measure? The economy is stagnating. Leaving oil aside, it was forecast to grow in the Autumn Statement by only three quarters of 1 per cent. next year. Inflation is rising—it has risen to a six-year peak—and the exchange rate has fallen by 10 per cent. against the basket of currencies since the beginning of the year. Those are precisely the forecasts made by the House of Lords Select Committee in 1985.

One might have thought that a Government would have been chastened by such an experience, but there is no sign that any lessons have been learnt.

Photo of Mr John Smith Mr John Smith , Monklands East

I will give way to the hon. Gentleman in the hope that at least one Conservative Member might have picked up the point.

Photo of Julian Brazier Julian Brazier , Canterbury

The right hon. Gentleman has mentioned the rate of inflation four times already in his speech. Will he tell the House whether at any time in the future he expects the rate of inflation to reach the average level that it was under the previous Labour Government?

Photo of Mr John Smith Mr John Smith , Monklands East

I thought that it might occur to Conservative Members to make such a point. It occurred to me also when I was reading the Prime Minister's contribution during the Gracious Speech debate. On 21 November the Prime Minister said: When growth has been too fast, inflation re-emerges. It emerged in 1973 and it has re-emerged now."—[Official Report, 21 November 1989; Vol 162, c. 28.] The House should note the significance of that. Inflation emerged in 1973, before the 1974 Labour Government were elected. It was there with the Barber boom, just as it is here with the Lawson boom.

It is not only that: Conservative Members conveniently ignored the oil price throughout the entire 1970s. They also conveniently ignore the fact that they have had almost the lowest commodity prices on record throughout the 1980s. Above all, since the Prime Minister, whom most of her colleagues follow slavishly, has given the clue that all this happened in 1973, her colleagues should amend their scripts accordingly.

Photo of David Clelland David Clelland , Tyne Bridge

Will my right hon. and learned Friend help the hon. Member for Canterbury (Mr. Brazier) to further his education by telling him that, when the Conservative Government headed by the right hon. Member for Old Bexley and Sidcup (Mr. Heath) came to power in 1970, the rate of inflation was 5·9 per cent. and that, when they retired in 1974, it was 13·1 per cent. and rising fast?

Photo of Mr John Smith Mr John Smith , Monklands East

I am grateful to my hon. Friend. A great deal of education is required about the history of inflation in this country; if for no other reason, this debate is helpful in that respect.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Why does the right hon. and learned Gentleman continue to criticise the performance of British manufacturing industry when its profitability is higher than it has been for 25 years, its investment has risen by 40 per cent. and its productivity has risen by 20 per cent. over the past three years, when manufacturing exports are up by 11 per cent. on the figure a year ago and by 40 per cent. in comparison with 1985—the year to which the right hon. and learned Gentleman referred? Why does he continue to run down British manufacturing industry?

Photo of Mr John Smith Mr John Smith , Monklands East

I do not want to run down what is left of British manufacturing industry; I want to run down the Government who put such obstacles in its way. It might have occurred to the hon. Gentleman that there is something regrettably wrong with the situation in this country—

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley

Will the right hon. and learned Gentleman give way?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I cannot give way to the hon. Gentleman when I am answering another hon. Member. The hon. Gentleman should expect me to answer his colleague properly before he tries to intervene.

The hon. Member for Beaconsfield (Mr. Smith) knows perfectly well that there must be something wrong with our manufacturing sector. Many of the leading figures point out constantly that the present size of our balance of trade deficit is a major factor in the highest balance of payments deficit in our history.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

As the right hon. and learned Gentleman is a Scottish Member like me, he will realise that one of the major exporting industries in the United Kingdom is the whisky industry, which today is doing better than it has ever done. He will be aware that the distilleries that closed under the Labour Government are now reopening. He will also realise that the £1,000 million-worth of exports by the Scottish whisky industry is a record. That is what is happening under this Government. Perhaps he can explain how it can do that if the Government are so wrong.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

The hon. Gentleman puts a fetching point to me. I am unlikely to disagree with anyone who seeks to find solace in whisky, especially as it is, as the hon. Gentleman stresses, such a genuinely important industry and an important contributor to our balance of payments and to employment in the United Kingdom. I wish it every success. However, I regret that, over the full scope of the manufacturing sector, in far too many areas, we are in a trade deficit which should not have been allowed to occur.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I will give way once more, and then perhaps I might be allowed to proceed with my speech.

Photo of Gerald Howarth Gerald Howarth , Cannock and Burntwood

Does the right hon. and learned Gentleman agree that the trade deficit is accounted for in large measure by the individual spending decisions of our fellow citizens? Does the Labour party plan to introduce import controls across the board or is the right hon. and learned Gentleman content simply to tell his right hon. and hon. Friends that they should stop buying French cars and do as I do and drive a British car?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I do not know whether the hon. Gentleman wants to be congratulated on his personal purchasing decision. However, it will not do for the Government to try to shuffle off the responsibility for the balance of payments deficit on to private individuals. In far too many areas, people who want to buy British cannot because there are no British goods available because our manufacturing sector has become so small that there is very little in the way of choice: there are no British goods in the shops to combat imports. In the interests of choice, apart from economic success, the hon. Member for Cannock and Burntwood (Mr. Howarth) should be supporting the policies advocated by the Labour party.

Of course, even after all that experience, Government economic policy is still characterised by complacency and confusion. Despite resignations and reshuffles, the Government's economic policy remains obscure and muddled. In ringing tones in the public expenditure debate on 9 February, the present Chancellor said: the first economic duty of government is to safeguard the value of the currency".—[Official Report, 9 February 1989; Vol. 146, c. 1154.] [HON. MEMBERS: "Hear, hear."] "Hear, hear," I hear from Conservative Members sitting behind the Chancellor. On the day the Chancellor spoke, on 9 February, sterling was DM3·27; now, it is DM2·80. No wonder there is scepticism about the Government's commitment to the policy which the Chancellor has articulated on their behalf.

The markets have known all along, and still believe, that the Prime Minister, schooled by Sir Alan Walters, does not want to manage the exchange rate at all, on the view that one cannot buck the market.

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

Will the right hon. and learned Gentleman give way?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I have repeatedly given way to Conservative Members. I must make some progress.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I will not give way to the Member for Stamford and Spalding (Mr. Davies). I have made it crystal clear, and I make it clear again, that I do not intend to give way to the hon. Gentleman at present. Perhaps if he will remain in his seat I could make some progress in this debate. Many hon. Members want to speak and I should not take too much time.

The same degree of confusion appears to extend to the other first duty of Government—the control of inflation. One wonders why the new Chancellor has been so coy about accepting that inflation should be his judge and jury. On at least two occasions he has reminded us that those were not his words—perhaps a case of "Read his lips, don't read mine." The Government's problem is their loss of credibility over the whole range of their economic policy. They once professed to have a medium-term strategy. Hon. Members remember the heady days when we were told that the MTFS would provide a stable financial climate for business and that stability was to be brought to the disordered world of our finances so that virtuous businesses could plan ahead with confidence.

Earlier this year, the new Chancellor, the then Chief Secretary, sought to explain the policy to small business men. He said: Government policy now operates in a medium-term framework, which gives individuals the confidence to plan ahead. He was speaking on 24 May, the very day when interest rates rose to 14 per cent. He omitted to warn them of that increase or the subsequent increase to 15 per cent. in October. So much for the confidence-inspiring medium-term financial strategy. It is no more than an addiction to rising interest rates.

The Government still peddle the myth of an economic miracle and will resort to any device to attempt to wish away economic reality. When the balance of payments monthly deficit first began to exceed £1 billion, at Prime Minister's Question Time the Prime Minister herself dismissed the figures as a "freak". But as, in month after month ever since, the average monthly deficit was significantly above £ 1 billion, a new explanation for the freaks had to be found. The device which the Government hit upon would have pleased Lewis Carroll—stand the problem on its head and declare it to be a success. The deficit was not a problem at all. Indeed, it was but a sign of success.

Into the fray went the present Chancellor, again as Chief Secretary. On 27 April 1989, in a speech to the American Chamber of Commerce, rather than attribute the deficit to the consumer boom, an error into which many other commentators appear to have fallen, he declared: the main reason for the balance of payments deficit is the dramatic surge in investment. We have often heard such arguments since. For example, British industry is merely pausing to re-equip itself for the next great leap forward.

That argument cuts no ice with the Opposition. To refute it in detail, I quote the analysis prepared by the City firm, Greenwell Montagu Research, entitled "The UK and Its Love of Imports: How the Deficit Arose", which was published in May of this year. In a detailed study of the composition of the balance of trade, meticulously analysing imports in each category of goods under the standard international trade classification, it concluded: The deterioration in the trade deficit is across virtually all categories of goods. It is certainly not true that the deterioration is due, as the Chancellor"— that is, the former Chancellor— would have us believe, to an investment boom. Greenwell Montagu Research showed that true investment goods, which it defines as categories 71 to 74 in the standard trade industrial classification, which means power generating machinery, specialised industrial machinery, metal working machinery and general industrial machinery, have accounted for a little over £3 billion of the £25 billion deterioration in the trade account since 1981. Just as the claim that the deficit has been caused by an investment boom is bogus, so is the claim that the rise in business investment has transformed the capacity of the British economy, and especially of its manufacturing sector. The truth about the Government's claim is that they constantly seek to obscure the facts about manufacturing investment with hype about business investment—we hear it every day of the week. The real increase in investment is overwhelmingly concentrated in the service sector. There has been greater investment in retail distribution, in banking, insurance, finance and related services. In contrast, manufacturing investment is only marginally higher than the level inherited by the Government 10 years ago, in 1979. Imagine that—manufacturing investment is hardly higher today than it was 10 years ago.

The fundamental point that the House of Lords Select Committee on Overseas Trade begged the Government to appreciate but which they have constantly failed to appreciate, is that manufacturing is not only the basic wealth creator in this country, but also the crucially internationally tradeable sector of the economy. I remind the House that, at page 82 of its report, the House of Lords Select Committee stated: service industry cannot substitute for manufacturing because many services are dependent on manufacturing and only 20 per cent. of services are tradable overseas". The same point was made in an important article on the United Kingdom's investment record, which was published in the Financial Times on the 8th of this month by Mr. Andrew Glyn, an economist at Corpus Christi college, Oxford. He stated: it would be fantasy to believe that finance and business services can take over from manufacturing and generate the foreign exchange necessary to pay the import bill". In this House, however, we are more accustomed to hearing of fantasies rather than facts when Government economic policy is being justified. What else but a sense of fantasy could have led the former Chancellor to claim in the Budget debate of 1988 that Britain was experiencing an economic miracle similar to that enjoyed by Japan and previously experienced by West Germany?

The first thing that needs to be done is to abandon such illusions. We need a fresh start. Rather than seeking, to maintain the pretence of a busted medium-term financial strategy, we need to build a medium-term industrial strategy that will modernise and expand Britain's manufacturing capacity, so that by wealth creation we can secure the prosperity of the nation and provide the public services that are so vital to the community's quality of life.

Such a strategy must encompass the whole nation. Britain cannot afford the north-south divide or, to put it another way, cannot operate properly by cramming so much of our economic activity in the overcrowded and congested south-east, to the prejudice and harm of the rest of the nation, as well as of the south-east itself. Therefore, a vigorous and determined regional policy is required, not only in the interests of fairness, but to deploy the under-used resources and the unemployed people who have potentially so much to contribute to the process of wealth creation—[Interruption.]

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Some of the Conservative Members making interventions from sedentary positions would be better employed listening to some of these obvious truths about the British economy. They do not like the truth, but in this free Parliament they are going to get it, whether they like it or not. I give way to the hon. Member for Gainsborough and Horncastle (Mr. Leigh).

Photo of Edward Leigh Edward Leigh , Gainsborough and Horncastle

The right hon. Gentleman has talked about making a fresh start, so may I help him by referring him to the four new taxes proposed in the Labour party's policy document? I refer to the two local taxes that already appear to have been dropped, and to the payroll tax, as well as to the tax on unearned income. As two of the taxes have already been dropped, may I take it that the battlecry of the Labour party is no longer "Meet the Challenge: Make the Change", but "Dodge the Issue: Ditch our Tax"?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

The hon. Gentleman has spent a long time rehearsing that intervention; perhaps the kindest thing I can say is that it needs a little more rehearsal.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Perhaps the hon. Gentleman will allow me to answer the point raised by the hon. Member for Gainsborough and Horncastle (Mr. Leigh). A lesson in courtesy would not go amiss among some Conservative Members—not so much to me as to their hon. Friends who have been so good as to ask me a question.

The hon. Member for Gainsborough and Horncastle has a sauce to talk about new taxes. What is the new tax afflicting our people from one end of the country to the other? It is the poll tax. Those of us with constituencies in the northern part of the kingdom, in Scotland, know only too well what lies in store for the people of England and Wales. I am being kind in restricting my comments to the poll tax, as what amount to a water tax and an electricity tax will also come the people's way as a result of the privatisations.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

No, I shall not give way.

We cannot be content with the range of our manufacturing activity. In too many areas, as is being increasingly recognised, Britain has either no presence or one that is too weak to make a real impact in the competition of export markets or in competition with imports at home. That is the very point to which the hon. Member for Cannock and Burntwood (Mr. Howarth) inadvertently drew attention in a previous intervention. Let us remember that we have a deficit of more than £2 billion in information technology industries alone.

It is the unavoidable responsibility of Government, as recognised by so many of our competitors, to work in partnership with industry to see that Britain is properly placed to develop the new products and the new processes on which we may have to depend in the fiercely competitive markets of the 1990s.

The neglect of research and development, and particularly the neglect of product development, must end. Above all, we need a wholly new commitment to education and training. For 10 years, our system of industrial training has been in relentless decline. Modern economies are talent-based, and success in the 1990s will go to the countries that can mobilise the skills of their people—all their people.

That is why the French train three times more people to craft-level qualifications than is done in the United Kingdom. Each year, the Germans train 600,000 young people on three-year industrial courses offering vocational qualifications at the end. In Britain, employment training is under-subscribed by one third and, on average, offers a six-month training period only with, at best, just credits towards vocational qualifications. According to the British Chambers of Commerce, skills shortages now affect 46 per cent. of manufacturing businesses in the United Kingdom.

In the face of those facts, how can anyone argue that training is satisfactory in Britain today? How can the Government justify the public expenditure programme that they recently brought to the House, which cuts the amounts available for training in industry?

If we set ourselves the ambition, we could create the best educated and trained work force in western Europe. I believe that the nation would respond to a Government who drove forward to achieve such an ambition.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I hope that the hon. Gentleman will forgive me, but I shall not give way; I am about to conclude.

Sadly, that ambition will not be achieved under an Administration whose vision is so limited and whose concept of the future is so hopelessly flawed by their restricting ideology and their policy failures.

The Gracious Speech shows that little has been learnt either about the challenges of the 1990s or the failures of Thatcherism in the 1980s. Britain needs not just a change of Prime Minister: it needs a Labour Government.

Photo of Mr John Major Mr John Major , Huntingdon 4:13 pm, 28th November 1989

I am grateful to the right hon. and learned Member for Monklands, East (Mr. Smith) for his kind opening remarks. May I take this first opportunity to welcome warmly the hon. Members for Derby, South (Mrs. Beckett) and for Brent, South (Mr. Boateng) to the Opposition Treasury team? I am sure that the right hon. and learned Gentleman will miss his hon. Friend the Member for Monklands, East—

Photo of Mr John Smith Mr John Smith , Monklands East

For Dunfermline, East (Mr. Brown).

Photo of Mr John Major Mr John Major , Huntingdon

I beg the hon. Gentleman's pardon. The right hon. and learned Gentleman and his hon. Friend are perhaps the two most famous men to come out of Scotland since Burke and Hare, and it is perhaps understandable that I mixed them up. I know that the right hon. and learned Gentleman will miss his hon. Friend. Above all he will miss him because his hon. Friend has gone to shadow the Department that the right hon. and learned Gentleman regards as the real heart of economic policy. Some time ago, when the right hon. and learned Gentleman was the Opposition spokesman on trade and industry, he said: the Treasury has been too dominant in the whole area of economic and industrial policy. What has been lacking is an important economic department based on the Department of Trade and Industry. The right hon. and learned Gentleman has not yet retracted that. His hon. Friend the Member for Dunfermline, East is now the Opposition spokesman on trade and industry, and presumably the right hon. and learned Gentleman, who is the shadow Chancellor, is subordinate to him.

Although the right hon. and learned Member for Monklands, East may wish to downgrade his role, the shadow team remains as interesting as ever. In that context, I shall turn to the hon. Member for Derby, South (Mrs. Beckett), who has recently joined that team. She has spent a considerable part of her career distancing herself with some clarity from precisely the policies that the right hon. and learned Gentleman so frequently advocates. Hon. Members will recall that, not long ago, the hon. Lady said: None of the arguments for staying in the EEC can be sustained. As I understand it, that is not the position of the right hon. and learned Gentleman. The hon. Lady also said that the EEC was a prime obstacle to the policies that the Labour party wants. There is no doubt that the hon. Lady will bring variety to the Opposition Front Bench. While the right hon. and learned Gentleman tours European capitals, the hon. Lady will remain at home planning our exit from the Community.

Photo of Mr John Major Mr John Major , Huntingdon

In that case, I am surprised to find the hon. Lady here.

The right hon. and learned Member for Monklands, East had a great deal to say about the problems that we face. Much of his speech requires an answer and I shall deal specifically with that. He had little or nothing to say about a practical and worthwhile solution. He undervalued our industrial performance and said little to acknowledge the improvements that have been made in recent years. He does not help his party or anyone else by playing down the achievements of business and industry in recent years.

The right hon. and learned Gentleman conveniently overlooks the fact that total investment is at an all-time high and that an additional 69,000 businesses have been created in the first 10 months of this year alone. He did not acknowledge at all the fact that 2,750,000 more people are in work than six years ago—the greatest creation of jobs by a considerable amount of any nation in the European Community. Perhaps the right hon. and learned Gentleman does not wish to give the Government credit for that. I understand that, but he might offer some credit to the business men and the people who have created that success in the last few years.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee

When the previous Chancellor of the Exchequer departed from office, we were informed that the policies would remain unchanged. Since then, the effective rate of the pound has declined by 4 per cent. Is that a continuation of policy?

Photo of Mr John Major Mr John Major , Huntingdon

The central core of our policy has been, and remains, our intention to hear down on inflation and to reduce it as speedily as possible. That is precisely the policy that I shall continue to follow, for I share the view of my right hon. Friend the Member for Blaby (Mr. Lawson) that inflation is now higher than we wish it to be. It is imperative that we use every mechanism at our disposal to bring inflation down: that was my right hon. Friend's policy, and it will remain my policy.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

My right hon. Friend will know that, day on day, exchange rate variations—even those in the European currencies in relation to the pound—are becoming quite substantial. As many of those depreciations must inevitably feed into the rate of domestic inflation, I wonder whether my right hon. Friend feels that we would have been worse off or better off over the past two days had we been full members of the exchange rate. In my view, there can be no doubt of the answer: we would have been better off.

Photo of Mr John Major Mr John Major , Huntingdon

At present, that is, I think, unprovable. The fact is that we are not a member of the EMS, and we shall not become a member until the conditions set out at the Madrid summit by my right hon. Friend the Prime Minister are met. There is no doubt that we shall join then, but there is much to be done before that day arrives—not all of it by this Government.

Photo of Mr Tony Banks Mr Tony Banks , Newham North West

I am grateful to the right hon. Gentleman for giving way. We ex-Lambeth councillors must stick together.

Opposition Members genuinely want to see the good side, but if it is so good, why—after 10 years—is our inflation rate higher than that of any of our major European competitors, and why have we the highest balance of payments deficit on manufactured goods? We merely want to know why that has come about.

Photo of Mr John Major Mr John Major , Huntingdon

I am surprised that the hon. Gentleman should think that that constitutes ex-Lambeth councillors sticking together. The differentials between the performance of this country and that of the rest of Europe have narrowed dramatically between 1979 and now. Over the past 10 years, we have experienced a higher compound year-on-year growth than any other nation in the European Community. That is a matter of undoubted fact, which the hon. Gentleman may care to bear in mind.

Photo of Geoffrey Robinson Geoffrey Robinson , Coventry North West

Is the Chancellor not aware that that growth has come from imports and service industries? Does he not realise that, far from being the enemy of manufacturing industry, the Opposition are its greatest supporter?

Is the right hon. Gentleman not aware that the whole problem arises from the attitude of his predecessor, who said that he could see no difference between a job in service industry and one in manufacturing industry, and who could not perceive that service industry was largely dependent on manufacturing industry? That attitude has bred a culture of maximum short-term gain, in which the spivs of the City are against long-term investment in our manufacturing industry. That is what is wrong with the Government's outlook, and until they correct it, manufacturing industry will decline yet further.

Photo of Mr John Major Mr John Major , Huntingdon

I think that the hon. Gentleman has a cheek. He should remember that Jaguar is a good deal better off today than it was when he was running it some years ago. The figures that I quoted were for output growth, in which we have a better record than any of our partners in the European Community. The hon. Gentleman should not seek to downgrade that record.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

Does my right hon. Friend remember that, in the 1970s, when faced with the problem of high wage inflation in the economy and difficulties with the balance of trade, the Labour party—the friend of manufacturing—decided that the way out was to increase employers' national insurance, with the iniquitous employers' national insurance surcharge? Does he believe that that would be the right way in which to proceed today, or does he agree that it was responsible for sending our manufacturing competitiveness spiralling downwards?

Photo of Mr John Major Mr John Major , Huntingdon

I recall those historical sins of the Labour party. More relevantly, however, I also recall that—for all that Labour Members say about manufacturing industry—manufacturing output fell between 1974 and 1979. Against that background, the right hon. Gentleman should perhaps be a little less forceful in his criticism of the present Government for the changes that have taken place in the wider economy.

Photo of Stuart Bell Stuart Bell , Middlesbrough

Before he leaves the subject of the exchange rate and interest rates, let me remind the Chancellor that his right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) coined the phrase, "the sole golf club in the Chancellor's bag". The Chancellor said in reply to an earlier question that he would use every possible mechanism in relation to the exchange rate. Is he saying that the "single club" policy has now been discarded? Are there now other mechanisms with which to control the exchange rate? Is the right hon. Gentleman prepared to allow it to continue to fall, and, if not, what preventive measures does he propose?

Photo of Mr John Major Mr John Major , Huntingdon

If the hon. Gentleman had listened carefully to what I said in the Autumn Statement, he would know that I made it absolutely clear that we shall maintain a firm monetary and fiscal policy to bear down on inflation. I believe, and there should be no doubt about it, that we need to bear down on and to reduce inflation, which I shall try to do. He may not understand the impact of a firm monetary and fiscal policy, but I shall deal with that and other matters later for him.

Photo of Mr John Major Mr John Major , Huntingdon

If hon. Members will forgive me, I should like to make progress. I have given way generously.

Insofar as the right hon. and learned Member for Monklands, East addressed what I believe to be the principal problem that we face—inflation—he simply attacked the methods that we are using to curb it, without suggesting any practical alternative. He attacked the medicine but, alas, neglected the disease. He did not overcome his chronic reluctance to reveal his policies in any detail, although I shall be able to help him with that later, as I have now had the opportunity to read with some care the Labour party's policy review.

The burden of the right hon. and learned Gentleman's speech was that, over the past 10 years, little or nothing has been achieved, and that nothing has changed in our economic performance. If that genuinely is his view—I doubt that it is—he has a selective memory. Ten years ago, we had an economy in which the market was strangled by regulations and controls. There was a large, hopelessly inefficient and loss-making nationalised industry sector. There were controls on prices, dividends, and pay. There were controls on how much the average holidaymaker could take abroad, which had to be stamped in his passport before he could go abroad. All those controls have gone. At that time, they had control of just about everything, except inflation, borrowing and debt, which were uncontrolled by the Labour Government.

We have moved from that, which is why I reiterate, without qualification, what I said in the Autumn Statement—that the British economy enters the 1990s incomparably stronger than it entered the 1980s, and nothing can hide that reality.

Photo of Mr Tony Benn Mr Tony Benn , Chesterfield

I am listening intently to what the Chancellor is saying. Will he say what the time scale would be for the reduction or disappearance of the balance of payments deficit if present policies, which he supports, are followed? In the end, that will be an important factor. Will he give his estimate of how long it will be before that deficit disappears?

Photo of Mr John Major Mr John Major , Huntingdon

I share the right hon. Gentleman's wish to see the trade gap diminish, and I made that clear some time ago. It has not been the fashion of the Government or their predecessors to forecast the trade gap beyond a year. I made a clear forecast in the Autumn Statement of what I think will happen to the trade gap next year. I forecast that it would fall from this year's level of £20 billion to £15 billion. I shall make a further forecast in next year's Autumn Statement, but at present it would not be productive to go further than that.

Over recent years, economic growth in this country has been good in historical terms and by international comparisons. Throughout the 1980s, it has been faster in the United Kingdom than in all the other European Community countries.

I do not hide for a second the short-term difficulties that we face, but the policies to deal with them have been put in place and remain in place. The problem that confronts us is to get inflation down. At present, it is too high, and bringing it down will not be easy. Inflation tends to be stubborn, and that will take time. The path from one month to the next will not necessarily be smooth. It may be erratic, not least because of the effect of including mortgage interest payments in the retail price index. For example, next month the recent increase in mortgage interest rates may be reflected in an unnecessarily high retail price index figure.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

The Chancellor has turned to the very point that I wanted to ask him about. It is surely no use for him to complain about the statistical problems of including mortgage interest rates in the retail price index when cost-push inflation is led by pressure for wage increases from people whose mortgages have rocketed at such a rate, because of high interest rates, that they must plead for higher incomes. Given that position, how can the right hon. Gentleman hope to conquer inflation with a high interest rate policy? Why is he not looking for the sort of external disciplines, such as the exchange rate mechanism, that would enable him to get interest rates down?

Photo of Mr John Major Mr John Major , Huntingdon

The hon. Gentleman misstates what we have said previously about the RPI. We have said that it is an unreasonable comparator between this country's inflation rate and those of other countries which, with the exception of Canada and Eire, do not include anything remotely approximating to mortgage interest rates in their retail price indexes. That means that the comparative figure looks noticeably worse in this country simply because of the separate methods of calculation.

Photo of Mr John Major Mr John Major , Huntingdon

I have given way quite generously and a large number of hon. Members wish to cach your eye, Mr. Speaker, so I fear that I shall not give way.

To bring inflation down, we are clear that a firm monetary and fiscal stance remains necessary. We have one in place, and we will keep it in place. I expect to do that for some time. That will be so, because the only way to bring inflation down is to keep policy tight, which means keeping interest rates high as long as we need to do so and taking account of a range of monetary indicators, including the exchange rate. That is not a popular message but, in my judgment, it is essential.

Tight monetary policy should also contribute to a narrowing of the trade gap, by slowing the excessive growth of demand. Of course, to reduce the deficit, our exporters need to do well too, and the signs on this front are far more encouraging than they have been for a considerable time. In 1989 so far, our manufacturing exports have been up 11 per cent. on the same period a year earlier. It now looks as though the United Kingdom's share of world trade will have risen in 1989, which is the clearest possible demonstration that British industry can compete and is competing successfully in world markets. I expect further strong growth in exports next year and a slowing in imports as home demand continues to respond to the tight policy which we now have in place.

I must say bluntly that there is no known easy way to get inflation down. I have carefully considered the potential alternatives to high interest rates, but the more I have looked at them, the less convincing they have become. Nothing illustrated this more clearly than the difficulties that the Labour party had when it flirted with the fashionable idea of reintroducing credit controls. When Labour did so—

Photo of Mr John Major Mr John Major , Huntingdon

The Leader of the Opposition says that Labour is not flirting with that idea. The hon. Member for Derby, South (Mrs. Beckett) said on television that the Labour party had not made up its mind about the issue. I am pleased to hear that the Leader of the Opposition is in favour of credit controls. I am delighted to hear him confirm that.

Photo of Mr Neil Kinnock Mr Neil Kinnock Leader of Her Majesty's Official Opposition, Leader of the Labour Party, Member, Labour Party National Executive Committee

The Chancellor said a moment or two ago that there was no known alternative to his policy of trying to squash out demand by very high interest rates. There is a known alternative, which permits a country to control the amount of credit extended in order to bring down demand without hammering industry by pushing up costs, and belting every home buyer. Why does not the right hon. Gentleman try one of the known ways that will not harm the economy in the way that his policies will?

Photo of Mr John Major Mr John Major , Huntingdon

The right hon. Gentleman clearly does not understand that making credit scarce puts up the price of credit; it does not bring it down. He also does not understand that he has just described the classic way to create the mortgage queue so beloved of the Labour party.

When the Labour party considered credit controls, it was far from clear what it meant by them. The hon. Member for Dunfermline, East, who, alas, is not with us at present, told us that we could not have credit cards—at precisely the moment that the Labour party introduced its own credit card. The Labour party clearly does not understand that little personal borrowing is done on credit cards, so that would not work.

Scarcely was that interview over than the hon. Member for Dagenham (Mr. Gould) popped up to tell us that the Labour party did not intend to concentrate on credit cards, but wanted to restrict new mortgages. A little thought persuaded Labour Members that such a policy would be unpopular—as it would be—so the right hon. and learned Member for Monklands, East entered the fray to say that he did not mean to do anything about credit cards or mortgages—or anything else, as far as I can see. Instead, he would apply a little moral pressure by having a quiet drink with his friends in the City. So much for a brief flirtation with policy.

The truth is that credit controls are not the right answer. Not only were they unfair, inefficient and damaging to industry when they were last used, but in today's competitive and open markets—and especially in the absence of exchange controls—they simply could not work. Artificial controls on bank lending would not work. We tried them before and they failed.

Photo of Mr John Major Mr John Major , Huntingdon

The right hon. Gentleman might find it wise to wait a minute.

Such controls would be even more ineffective in today's open and deregulated markets.

We are not alone in drawing that conclusion. The United States and Germany have rarely, if ever, relied on credit controls such as we have had. Italy and France have moved to eliminate their controls recently, and even Denmark and Sweden, which traditionally have highly regulated economies, are ridding themselves of credit controls.

Perhaps the most interesting case is that of Australia, which has a Labour Government. If they thought that credit controls could work, they would certainly have introduced them rather than face the present 20 per cent. interest rates. But as their Labour Finance Minister explained to me only last week, they have quite logically concluded that credit controls are a non-starter and they will have nothing to do with them. Only the British Labour party still lives in the 1960s and wants solutions that have been tried before, and have failed.

Photo of Mr Spencer Batiste Mr Spencer Batiste , Elmet

Does my right hon. Friend agree that the only net beneficiaries in an attempt to introduce credit controls would be the European banks, which would take a significant market share away from British banks?

Photo of Mr John Major Mr John Major , Huntingdon

My hon. Friend is entirely right. Perhaps that is part of the new-found Europeanism of the Leader of the Opposition.

The simple fact is that we need to discourage borrowing and to encourage saving, and there is no ducking that. Nothing does that more effectively than interest rates. Our policies are right and, in my judgment, the only policies that we can pursue satisfactorily. There is no simple alternative. We need to be patient for a while, but there is no doubt that the policy is working. The evidence is mounting: retail sales have slowed considerably, the housing market has cooled down and the money supply, although just outside its target range, has slowed from earlier in the year. In short, there is comprehensive evidence that the policy is working, and I see no reason to change it.

Photo of Mr Patrick Duffy Mr Patrick Duffy , Sheffield, Attercliffe

If, as the Chancellor has said, the policy is working, how does he explain the gloomy forecast of the Confederation of British Industry yesterday that, with investment slumping, the economy hovers on the brink of two years of recession? How does such a forecast encourage any of us to believe that the narrow manufacturing base, which was the burden of the concern of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), will be expanded? Unless that happens, we cannot narrow the trade gap.

Photo of Mr John Major Mr John Major , Huntingdon

There are several points to make on that matter. First, I gave a perfectly clear-cut response in the Autumn Statement, and I advise the hon. Gentleman to read it. Secondly, the manufacturing base has flourished and will continue to do so, providing that we are able to achieve and maintain firm control of inflation, as we are determined to do.

Photo of Mr John Major Mr John Major , Huntingdon

No. If the hon. Gentleman will forgive me, I have been over-generous in giving way.

I shall not set interest rates higher than necessary for longer than necessary, but nor do I intend to reduce them until that can be safely done without risk to inflation. To do so would simply lengthen the time before we can return to the steady and sustainable growth that we are determined to have in the 1990s.

Nor will there be any backsliding whatever from the sound fiscal policies which have been the characteristic of this Government, throughout its 10 years in office. In case anyone misinterprets, I say that not as a Budget hint but simply to reinforce the fact that, like both my predecessors, I favour a tight fiscal position, both as an essential buttress against inflation, and because of the innate desirability of reducing Government debt rather than adding to it and leaving the next generation to repay it. Our policies mean that, by the end of the current financial year, we shall have made debt repayments of £30 billion in the space of just three years.

The advantages of our strong fiscal position are self-evident and important for the future. The latest public expenditure plans, which I presented to the House just two weeks ago, show debt interest payments running at £18 billion a year. Had we continued borrowing at the rate that we inherited in 1979, that annual burden would have been, not £18 billion but more like £30 billion a year, a saving of £12 billion. That is a conservative estimate of the saving that we have made. It may have been a great deal larger.

We have saved more than half the total amount that we spend on the Health Service every year—or, to put it another way, more than the combined budgets of the Department of Trade and Industry, the Department of Employment, the Ministry of Agriculture, and the Department of Transport. That is the scale of the improvement to our public finances of the policies that we have followed in the past 10 years.

Photo of Mr John Major Mr John Major , Huntingdon

With the possible exception of Japan, no large nation in the world can match the current strength of our public finances.

Photo of Graham Allen Graham Allen , Nottingham North

The Chancellor of the Exchequer talks as if he has just assumed his responsibilities, as indeed he has. Is he aware that there has been a Conservative Government for 10 years, at the end of which we have the highest inflation rate in industrialised Europe, rising interest rates, which will probably rise further in the near future, the largest trade deficit of any industrialised country and the highest inflation of any G7 country? Does he agree with the right hon. Member for Blaby (Mr. Lawson), who is no longer with us, that inflation should be the judge and jury of this Conservative Government?

Photo of Mr John Major Mr John Major , Huntingdon

The hon. Gentleman left out many items from his catalogue. We have had the highest growth of investment, the highest growth of debt repayment, the highest rate of growth in the European Community and much else besides. He should not join his right hon. and hon. Friends in playing down what industry and commerce have achieved.

Photo of Mr John Major Mr John Major , Huntingdon

No. I shall not give way.

The fact that so much has been achieved and that we have such a strong fiscal position explains precisely why we could increase by £2·6 billion the resources of the National Health Service for the coming year, why we shall double spending on national roads by 1993, why we can afford an extra £250 million for a new initiative to tackle homelessness, and why we can spend a further £500 million on resources for higher education, not to mention the £1·5 billion extra for capital spending by central Government and public corporations—a remarkable increase in real terms of 10 per cent. on the current year.

Photo of Mr John Major Mr John Major , Huntingdon

As a result, it is now clear for all to see that the services that people want and the investment that builds for the future are safe with this Government as they never were under Labour in the 1970s.

Photo of Mr John Major Mr John Major , Huntingdon

With his usual fairness, the hon. Gentleman will appreciate that I have given way generously in the past few minutes.

Equally importantly, we have been able to increase spending on priority areas, while sticking absolutely to the ratio of public expenditure planned and determined over a year ago. Public expenditure control is firm and will remain so, now and in future.

But impressive as our public-sector record is, it is not the whole story of the economy. Not only is the public sector preparing for the future, the private sector is doing so, too. In the past decade, total investment has grown much faster than previously. In the 1960s and 1970s, we were at the bottom of the growth league. In the 1980s we have been at the top of the European investment league. Business investment has also grown more than twice as fast in the 1980s as it did in the 1970s. Last year it stood at £58 billion—a record level of 14·75 per cent. of national income—and it has risen further this year.

There is yet a further point. There is no point in investing in plant and machinery to produce goods that nobody wants to buy. We learned that in the past. In the 1970s, much of the investment that actually took place was driven not by genuine commercial considerations but by tax avoidance. But since the changes in corporation tax in 1984, that has ceased and investment has increased, not to exploit tax breaks but to reap genuine commercial opportunities and to earn real profits.

If anyone doubts the importance of considering the quality of investment as well as the quantity they should reassure themselves by examining investment in eastern Europe. In countries such as Poland, Bulgaria, Romania and the Soviet Union, investment accounts for around a quarter or more of national income, significantly more than in this country or other advanced industrial countries. But has it been successful? Has it made a real contribution to the welfare and success of these economies? The lesson is—the Labour party should learn it—that inefficient investment for its own sake gets one nowhere; that is why the quality of our investment is so important to our success.

Business today is in far better shape than it was ten years ago. It is far better able to tackle—[Interruption.] Opposition Members do not like it, but they know that it is much better. After a decade of rising productivity and rising profitability, industry is far more able to handle a tougher year in 1990, and, beyond that, to face the next decade with confidence.

In the 1990s, the economic environment will be very different from that of the 1960s, 1970s and 1980s. We should see the completion of a single market in Europe. Demand from eastern Europe—for so long suppressed—should increase dramatically. They will need modern machinery and consumer goods. All those developments represent genuine opportunities for British industry and commerce. I have no doubt whatever that the revival in British enterprise puts us in an ideal position to exploit future challenges, but our objectives will remain the same: sustainable growth, stable prices, lower taxes and better public services. I have no doubt that these are achievable and deliverable in the 1990s.

I do not believe for a second that the enterprise that has been revived under this Government will evaporate just because interest rates are high for the time being. What would destroy enterprise would be a return to the policies that failed so dismally when the Labour party introduced them.

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The Chancellor has made his position clear, and it must be respected.

Photo of Mr John Major Mr John Major , Huntingdon

A return to the past is precisely what the Labour party is offering in its policy document, "Meet the Challenge, Make the Change". It is subtitled: "A New Agenda for Britain", although the introduction by the Leader of the Opposition rather spoils that. He admits that, far from a new agenda, we have looked back to gain inspiration from the great accomplishments of the past. Mercifully, he does not tell us which accomplishments, but he is accurate to say that his party has looked back—straight back to the policies of the Wilson Government.

The right hon. and learned Member for Monklands, East is shy about his policy document. He rarely mentions it—very wisely. I have read it and know why he rarely mentions it. It promises a "power house" designed to develop a new proactive role providing continuity, consistency and commitment. Would the right hon. and learned Gentleman care to tell us what that gobbledegook means?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman should not persist when the Chancellor has made his position known.

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I am requiring hon. Gentlemen to resume their seats.

Photo of Mr John Major Mr John Major , Huntingdon

I am sorry that the hon. Gentleman is so upset, but if he listens he may learn something.

All hon. Members will be reassured when they learn that this brand new policy document says that its—

Photo of Mr Andrew Faulds Mr Andrew Faulds , Warley East

Tell us about the pound.

Photo of Mr John Major Mr John Major , Huntingdon

Good gracious: fresh from his triumph as Carver Doone, the hon. Gentleman interrupts us again, having woken from his slumbers.

The policy document says—

Photo of Mr Andrew Faulds Mr Andrew Faulds , Warley East

Tell us about the pound.

Photo of Mr John Major Mr John Major , Huntingdon

I think that the hon. Gentleman's mechanism has got stuck. Perhaps the hon. Member for Hackney, North and Stoke Newington (Ms. Abbott), who is sitting beside him, could rewind him and he would move on.

The policy document states—

Photo of Mr Andrew Faulds Mr Andrew Faulds , Warley East

Tell us about the pound.

Photo of Mr John Major Mr John Major , Huntingdon

That was one of the worst auditions that I have ever heard.

The document tells us that its task will not be to pick winners. Losers, perhaps, as before. Instead of a Department of Economic Affairs, Labour now promises A new Department of Trade and Industry, which will have an equal, if not superior, status to that of the Treasury. Instead of a national plan, Labour will now treat us to a "medium term industrial strategy". Instead of George Brown, we shall have Gordon Brown; otherwise, it is all the same.

Photo of Stuart Bell Stuart Bell , Middlesbrough

On a point of order, Madam Deputy Speaker. We are considering the Queen's Speech and this is the Government's defence of their record. Could you direct the Chancellor of the Exchequer to defend the Government's record?

Photo of Mr John Major Mr John Major , Huntingdon

A few minutes ago, the right hon. and learned Gentleman told us—

Photo of Mr Harry Ewing Mr Harry Ewing , Falkirk East

On a point of order, Madam Deputy Speaker. This is a serious matter. Millions of people are worrying how they can meet the expenditure of Christmas as well as their mortgage payments and every other item of expenditure in their household budget, yet the Chancellor is—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman is a considerable parliamentarian, and he knows that that is not a point of order for me.

Photo of Mr John Major Mr John Major , Huntingdon

A few minutes ago, as the House will recollect, the right hon. and learned Gentleman said that the country needed a Labour Government.

Photo of Mr John Major Mr John Major , Huntingdon

Perhaps I should say that again, to see if there is more support on the Labour Benches next time.

It is entirely reasonable to examine the policies of this putative Opposition. If they will not tell us about those policies, we must tell people what their policies are, whether they like it or not. There are further nostalgic references to Wilsonian policies. There will be an investment bank.

Photo of Mr Andrew Faulds Mr Andrew Faulds , Warley East

What is the right hon. Gentleman's next job?

Photo of Mr John Major Mr John Major , Huntingdon

I promise I shall not understudy anything that the hon. Gentleman has in mind.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

On a point of order, Madam Deputy Speaker. I wish to raise with you what is clearly emerging as a hat trick post-television. That is that Ministers endeavour to speak until live television finishes. In the light of that—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I am on my feet. I am prepared to deal with the point of order, which I am sure I have understood. The length of the Chancellor's speech has nothing to do with the Chair. He should be allowed to make progress. If there were fewer interruptions, he could do so.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

Further to that point of order, Madam Deputy Speaker. This is a procedural point. In the light of that evidence, is it not time for the Procedure Select Committee to look at the length of ministerial speeches?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

If the hon. Gentleman feels that this matter should be raised with the Select Committee on Procedure, he has the answer in his own hands. I suggest that he raises the matter with that Committee.

Photo of Mr John Major Mr John Major , Huntingdon

Perhaps the Procedure Committee could look at organised disruption while it is about it. In the last film in which I saw the hon. Member for Warley, East (Mr. Faulds), he played the part of a mounted Boer, and he played it well.

Photo of Mr John Major Mr John Major , Huntingdon

I have given way frequently, and I shall not give way to the hon. Gentleman.

We are offered "new investment products", but what will they be? If they are any good, why do they need an investment bank? Labour does not tell us. Anyway, I thought from the policy document that Labour was not going to pick winners. Apart from the policy being nonsense, it is nostalgia in a big way—nostalgia for the National Enterprise Board and the Industrial Reorganisation Corporation, both of which made a distinguished contribution to the near-fatal collapse of the British motor car industry. The whole policy echoes the past—the Meriden co-operative, Messrs. Solemn and Binding and the social contract. No wonder Labour members are trying to disrupt these proceedings. They do not like this. It is no wonder that the Leader of the Opposition wrote: We have looked back to gain inspiration from the great accomplishments of the past. Back is certainly true, inspiration I am not sure about, and accomplishments is surely wrong by any reasonable judgment.

We have a decade of solid, clear-cut achievement behind us. By contrast, Labour holds the record of failure—whether it is failure to make British industry successful, failure to bring prosperity to the regions, failure to reduce unemployment or failure to control inflation. We on this side of the House have policies that will work for the future. Labour has policies that failed in the past. Between them, there is only one choice to be made, and I invite the House to make it.

Photo of Mr Harry Ewing Mr Harry Ewing , Falkirk East

On a point of order, Madam Deputy Speaker. I apologise to the hon. Member for Berwick-upon-Tweed (Mr. Beith), but I must stress that this afternoon we have seen an absolute abuse of the House of Commons. I am telling you frankly, Madam Deputy Speaker, that there are enough of us in the House with sufficient experience to deal with such tactics should they be repeated. I am warning the occupants of the Chair, in the kindest possible way, that unless they take control, or the Select Committee on Procedure takes control, we will take control.

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

I am sure that the hon. Gentleman means his remarks most kindly. As he knows, he has the solution in his hands and I am sure that hon. Members who feel strongly about this matter will raise it in the appropriate quarter. Mr. Alan Beith.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

It seems quite clear that if the Government cannot use up every moment until 5 pm, the baying hordes on the Labour Benches will succeed in doing so. Labour Members are trying to shout loud enough to ensure that the Liberal Democrats are not heard at all. No doubt they will continue to do so, just as I shall continue to try to ensure that all points of view can reasonably be heard in the House. I am sure that you, Madam Deputy Speaker, feel that it is your job to do likewise. [Interruption.]

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I should be obliged if the House would now settle down so that the hon. Member for Berwick-upon-Tweed (Mr. Beith) may be heard.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Thank you, Madam Deputy Speaker.

We have experienced a great deal of political knockabout this afternoon but little about what either the Conservative or the Labour party intends to do about the economy. It was always a possibility that when the new Chancellor took up his responsibilities we might have a little more realism and honesty than hitherto about our economic prospects. There was at least some sign of that in the Chancellor's economic forecast. The right hon. Gentleman forecast a £20 billion trade deficit, which he hoped would fall to £15 billion, and more than 7 per cent. inflation. Today, however, he again allowed himself to give some very rosy forecasts. The real situation is a great deal more serious. The right hon. and learned Member for Monklands, East (Mr. Smith) gave us another denunciation of Government policies but little suggestion of what the Opposition would do about the economy.

The Gracious Speech tells us little about some of the most important aspects of the economy. It does not say whether the Government intend to make further tax cuts. The Chancellor had to appear on Channel 4 to say that they intended to do so, but probably only just in time for the general election. The Gracious Speech does not mention the Government's earlier objective of zero inflation. It refers to economic and monetary co-operation in Europe but abandons the Government's treaty commitment to European monetary union, which was the subject of the previous Chancellor's recent paper. There is confusion in the Gracious Speech about the Government's European objectives.

The Prime Minister has said that "uncertainty about anything connected with the Government is not good". We all know what she was referring to, but the assertion extends beyond that matter. We now have uncertainty about the Government's policy on Europe and uncertainty about their exchange rate and monetary policies. Are the present high interest rates determined by pressure on sterling or by domestic monetary conditions? Will they increase if sterling falls? We still do not know, and there remains confusion at the heart of Government policy.

The Government's anti-inflation strategy has been mistaken at crucial moments. When inflation was led by demand—by too much money chasing too few goods—the Government were boosting demand by tax cuts and the promise of tax cuts and by their changes in the mortgage tax relief system. Now that inflation is led by wage pressures, the Government are pushing up interest and mortgage rates, leaving wage negotiators fighting for a better deal and for cost-of-living increases because the people whom they represent have had to face large increases in their mortgage repayments. That is especially significant now that home ownership is so much more widespread because, quite rightly, many more people are now buying their own homes. High interest rates mean high inflation because wage bids are forced up by the severe pressure on people's finances.

Clearly, we need action to make lower interest rates possible. That requires an external framework, and the European monetary system makes just such a framework available. The Government must also halt the privatisation price increases, which will feed through and have a massive affect on inflation. Water and electricity prices are to rise steeply as a direct result of the privatisation measures that the Government are implementing this very day. There ought also to be measures to boost saving. We save less than our competitors, and the Government have at their disposal the means of increasing tax incentives designed to attract more people into saving—not to give more tax relief to existing forms of saving, but to attract new savers.

What prospect will industry have of tackling the balance of payment problem if the Government do not invest to help it? Industry's export record is good. In that respect, the Government's forecast, which I doubted, proved reasonably accurate. They forecast substantial increases in exports because of a switch in capacity from the home market. There has been an increase in exports in the past year, and industry is to be congratulated on it. But what is the other side of the coin? The Government expected imports to decrease and that has not happened.

Although demand has remained constant, import penetration has continued to be high and British industry has not been able to meet the needs of its home market. It will not be sufficient for us to increase our export success if we cannot supply our home market to a considerable extent.

The Government should be investing in training a more skilled work force. Yet some of the most significant cuts outlined in this year's public expenditure statement were cuts in training—in the budget of the Department of Employment. The Government express pride that they have reduced expenditure in this vital area when they should be increasing expenditure on training.

The Government claim that because fewer people are out of work, we do not need as much training. What nonsense. The main aim of training should be to provide those in employment with better skills. We need to train unemployed people so that they can get jobs, but that is not the end of the story. There is an urgent need for investment in training. Industry must play a part in that investment but it will not take place unless the Government make more effort to play their part in the process.

We shall need much more transport investment than the Government are committed to, to enable industry to get to the market—especially the industries of the north of England, Scotland and Wales, which will be denied effective access to the Channel tunnel and east coast ports unless we invest more in transport. The measures are available. The Government have the means at their disposal. They have the means to turn round the balance of payments. If those measures can be combined with the lowering of interest rates we shall have some prospect of improving our economic situation. The Queen's Speech does not live up to that challenge.

On Europe, the Gracious Speech speaks with the voice of a Prime Minister who cannot accept any external discipline on her policies. Was it not striking that, when the former Chancellor revealed in his resignation speech that he had proposed to the Prime Minister that there should be a more independent central hank, the Prime Minister moved swiftly to make it clear that the proposal had been consigned to the wastepaper basket? She is a Prime Minister who can brook no discipline over her conduct and control of power. She demands the freedom to devalue the currency and to print more money—the freedoms that would be restricted if we became full members of the European monetary system and had a more independent central bank, whether British or European. Why does the Prime Minister want the freedom to devalue the currency and to print money? It shows that she rates the retention of power more highly than the achievement of policy objectives that she is supposed to hold.

The Liberal Democrats have tabled an amendment to the Loyal Address. I hope that many hon. Members will find it attractive, because it moves on from the vague phrases of the Gracious Speech and sets out clearly our aims—that we ought to have a clear commitment to early entry into the exchange rate mechanism … to provide a firm framework for the exchange rate and the battle against inflation, to permit lower interest rates and to ensure that this nation is the leader rather than a spectator in the development of European unity. I expect the hon. Member for Clwyd, North-West (Sir A. Meyer)—the stalking horse—to be first through the Lobby in support of the amendment. Perhaps he could conduct his campaign meeting in the Division Lobby if other hon. Members who support him go with him.

I fear, however, that the pressure on some Conservative Members and the letters to their constituency chairmen, may mean that some of them dare not vote in favour, even though it is such an explicit commitment to something of which the Government were once in favour. Therefore, I am prepared to offer a certificate to any right hon. and hon. Member who comes through our Lobby tonight, to say that it will not be taken as a sign that they intend to vote for the Prime Minister in the subsequent secret ballot. The certificate can be sent to their constituency chairmen to protect Conservative hon. Members.

I hope to see many Conservative Members in our Lobby. I expect to see the right hon. Member for Blaby (Mr. Lawson) and the right hon. Member for Old Bexley and Sidcup (Mr. Heath). The right hon. Member for Blaby has spoken recently in favour of the principles behind the amendment and the right hon. Member for Old Bexley and Sidcup has been in favour of them for many years.

I do not see why the official Opposition should not vote for the amendment. I welcome their conversion, and particularly that of the Labour Front Bench to the European monetary system.

The right hon. and learned Member for Monklands, East (Mr. Smith) did not say whether he was prepared to support the amendment. He did not say anything about the EMS in his speech. Perhaps the conversion process is not complete, and I am asking too much. It is not too much to ask the hon. Member for Durham, North (Mr. Radice), but it may be too much to ask the hon. Member for Dagenham (Mr. Gould) to vote in favour of the principle that we should get into the European monetary system quickly.

I hope to see many of those right hon. and hon. Members in the Division Lobby tonight—or are they prepared to sit back and watch Britain miss the boat again, as it has done so many times on European issues?

I think that discussions on this matter may be taking place on the Opposition Front Bench now—

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I would rather save any intervention for the right hon. and learned Member for Monklands, East. Perhaps he is able to clarify the position, but I think that discussions may still be continuing as to whether they are allowed to vote for the amendments tonight—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman who has the Floor has made it clear that he does not intend to give way at this stage.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Since the debate on the Gracious Speech began a few days ago, and since the opening speeches, there have been further dramatic changes in eastern Europe. The Prime Minister welcomed those changes, as we all did. Indeed, she goes further—she claims credit for most of them, and that may seem strange to the people in eastern Europe who have fought so hard for many years. What a strange picture that conjures up. We all welcome the changes: multi-party politics; the prospect of coalition Governments; decentralised power; protection for human rights and new constitutions; demonstrations in the streets; strikes; trade union activity in support of political causes; freedom of information, including press conferences given by the security forces; church leaders becoming involved in politics; challenges to the existing party leadership. The Prime Minister welcomes all of them, but only as long as they do not happen here. Those things should also be happening in Britain.

In eastern Europe there is a move away from repression towards liberal democracy. There is a long way to go, but it is an important move. In Britain, under this Prime Minister, we are moving in the opposite direction.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup 5:12 pm, 28th November 1989

I offer my warmest congratulations to my right hon. Friend the Chancellor of the Exchequer on his appointment. He holds one of the three great departmental offices in Britain, and that is an immense responsibility.

I cannot help wondering what the millions of people who will see the Chamber tonight on television will think. People with mortgages, who find that the interest rate has almost doubled since they took out their mortgages—what will they think? All those people who have to give up their houses, or have them seized from them—

Photo of Mr Barry Field Mr Barry Field , Isle of Wight

Will my right hon. Friend give way?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

No, I shall not. I propose to carry on my own speech in my own way throughout.

What do those individuals, whom we have encouraged to start their own enterprises, think as the bankruptcy rate goes ever higher? What did the business men from larger enterprises think, when they left the Confederation of British Industry conference, about their future and what the Government are doing about it?

The public will watch a knockabout show once, but they do not usually go back to the same show again. They are not interested in what the Labour Government were doing from 1964 to 1979, or in what the Government were doing 10 years ago, as detailed by Opposition Members. They want to know in detail what their future will be, and how they should respond to it—that is natural. I suggest that it is our responsibility to deal with the problems in that way.

When my right hon. Friend the Chancellor refers to the past, or when Opposition Members intervene on that basis, they should be accurate. It is not accurate to say that the regional development schemes put forward directly after the second world war and carried through until the present Government, were a failure. It is complete nonsense. I see my right hon. Friend the Chancellor shaking his head, but I must tell him that it is indeed nonsense.

One of the most successful parts of British industry at the moment is the high technology industry in new towns in Scotland, and Scotland should have every credit for that. That industry would not be there without the incentives that were offered to business men to go there. The decisions as to which industries went to those places, how they set up firms and how they are run were taken by business men and not by Governments or Departments. We gave them the incentive that made it profitable to carry on a business and to provide jobs. I ask my right hon. Friend the Chancellor not to repeat accusations which can so easily be disproved. I am sorry to see that he still shakes his head—he took no part in those operations and obviously did not see what happened.

The hon. Member for Tyne Bridge (Mr. Clelland) mentioned inflation in 1973. It would have been more accurate to point out that we had to cope with a quadruple increase in oil prices which followed us through the 1970s, and the highest price for imported raw materials that we have ever known in Britain. It is ridiculous to try to learn lessons from that unless we take account of all the circumstances as they occurred.

There are two things which disappoint me in my right hon. Friend the Chancellor. First, he has boxed himself in on two vital aspects of policy. One is interest rates, which are said to be the only way to deal with the economy, and the other is going for lower taxation than we have at present. Most observers analysing the situation agree that the sudden descent to a 25 per cent. tax rate by the previous Chancellor had a considerable amount to do with the position in which we now find ourselves. There is a lesson to be learned from that.

Photo of Mr Neil Hamilton Mr Neil Hamilton , Tatton

Will my right hon. Friend give way?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The right hon. Member made it clear at the beginning of his speech that he was not prepared to give way.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

Until my right hon. Friend's predecessor did so, no Chancellor has declared in the House that he would not increase taxation under any circumstance and that he was determined to reduce it. Other Finance Ministers recognise that circumstances may arise when it is necessary to increase taxation so as to influence the economy in the way that they wish. I am sorry that my right hon. Friend has boxed himself in on those two issues, which are important for the handling of the economy.

The other methods of handling the economy which my right hon. Friend the Chancellor dismissed so bluntly are limitation of credit and influence on the amounts of credit available. It is untrue to say that that policy was a failure—at the time, it was immensely effective. My right hon. Friend says that he no longer has the means to do that, but I disagree with him. Perhaps the Governor of the Bank of England no longer exerts influence in the City. That may be why my right hon. Friend's predecessor put forward the argument that there should be an independent Bank of England, similar to the independent Bundesbank, but I do not accept the whole of that argument.

I believe that it is still possible for the Governor of the Bank of England to use his influence in the City. People say that that is no longer possible because of the abolition of exchange control, but that is a simplification of the situation. There are many foreign banks in London now, but if the Governor wishes to exert his influence they have to accept it. They know perfectly well that they are licensed, and if they do not do as the Governor insists their licence will be in danger. [Hon. Members: "Rubbish!"] I ask my hon. Friends to stop their chattering. If they think it is possible to live here and get the credit they want anywhere in the world, let my right hon. Friend the Chancellor try doing it—it just does not work in the way that has been described. If he was determined to deal with the excess of credit through action by the Governor of the Bank of England and allied means, I believe that he could be effective. He has asked for proposals. He should consider that one in detail and not dismiss it out of hand as having failed for the first 40 years, since the war. We should also consider other means of dealing with the problem.

There are two aspects of the emphasis on the repayment of debt that I wish to mention. First, if there is repayment of debt, the money goes back into circulation. It is the repayment of gilts. Unless it is borrowed to the same extent, that puts pressure on the economy as a whole. It is bound to do so. Everyone with whom I have discussed the matter agrees. That is another issue that could be dealt with perfectly well by my right hon. Friend the Chancellor.

The second thing that worries me is that those borrowings were made by our predecessors to insure for our future. The boast now is that we are not doing that. We are not insuring the future for other generations. Anyone who has travelled around Europe and North America knows that Britain has the worst infrastructure in the western world. I welcome my right hon. Friend's contribution through the expansion that he announced in his Autumn Statement, but when we compare that with the rate of inflation—and when we compare what that money can achieve with what is required—we see how much is lacking. I stress the comparison with how much is required. That is why the citizen says, "Yes, I get all these increases, and I am told that there are billions of pounds more, but my needs are not being met."

Yesterday, the Secretary of State for Health mentioned my constituency and said that a consultant had complained. In fact, the management committee of the Bexleyheath health authority complained. For the next three months, until next year, only emergency cases are being taken for operations. My constituents say that that is not good enough. In the summer, my attention was drawn to the case of a lady who has lost the sight of one eye and whose sight in the other is failing. Her doctor told her that he would consult the hospital and get her an appointment. She duly got one—for 16 June 1990.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I have to point out that that lady is 95 years old. Despite what we are doing, the genuine requirements of the citizen are not being met. We as a party must show that we are following a course which will ensure that they are met.

There is another fundamental fallacy here—that everyone must become more efficient. The usual answer is to pluck someone who knows nothing about the job and put him in, saying that he is now a manager. In the hospital service, the more efficient one becomes—in my constituency, Queen Mary's hospital is immensely efficient and acknowledged to be so—the more money one requires, as more patients are seen and they spend a shorter time in hospital. The result is a need for more money— [Interruption.] I am sorry if my hon. Friends are not interested in Bexley—[HON. MEMBERS: "We are."] I nave described a fundamental misunderstanding concerning the NHS.

Another thing that worries me immensely about the attitude towards money concerns privatisation. I imagine that most right hon. and hon. Members were horrified when, after the Deal tragedy when the Royal Marines band was bombed, we heard that the guards had been privatised. To me, that is utterly unacceptable. As a party, we have always believed in effective defence. If someone is in the Army, his job is to defend himself and not to get private citizens to do it, even in peace. I do not believe that the change is justified, and I am even more horrified to learn the extent to which it is going on. This cannot possibly continue if we are to have an effective answer to the terrorism that we face.

For my right hon. Friend the Prime Minister to say, "Don't blame us for not having a proper military guard—blame the IRA for attacking us" is not justified in a war of terrorism against the British people. We cannot say, "They will not go for the soft spots," because we know that they will go for any spot they can find. That is clear from recent experiences in Europe and especially in Germany.

Italy and Germany have dealt with terrorism. We have had it for 20 years, but we have still not dealt with it, and the information that we have for dealing with it is inadequate, as proved by the number of occasions when we have been taken off guard and people have suffered. That is what is happening in Northern Ireland, in mainland Britain and in Europe.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

Will my right hon. Friend give way?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

No.

For the past 10 years I have urged that this country should become a full member of the European monetary system. I still urge that course—[Interruption.]

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee

On a point of order, Madam Deputy Speaker. Is it right for Conservative Members who do not like what the former Prime Minister is saying to barrack and heckle when they are sitting directly behind him?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

The hon. Member is quite right. I hope that the House will settle down. We need only one debate at a time in the Chamber.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

My right hon. Friend the Chancellor says that he wants to keep inflation down. He is absolutely right to want that but the policies being pursued at present are increasing inflation. Becoming a full member of the European monetary system even five years ago would have helped to decrease inflation. Looking back five years, on the criteria that have been laid down it would have been perfectly possible for us to join.

Photo of Bill Cash Bill Cash , Stafford

Will my right hon. Friend give way?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I have already said that I shall not give way.

Had we been in the European monetary system, the pressure on inflation would have been far greater. When the Prime Minister lists so many conditions that have to be met, she is saying that we are worse than the lowest of the 11 who have accepted the situation—[Interruption.] She is saying that we cannot go in, but that they can go in and be successful. She is saying that Germany can be immensely successful, that France can be successful, that the others can be successful but that we cannot and that we must wait until the last moment.

Then we are told that joining the EMS affects our sovereignty. Christopher Johnson, one of the best commentators on economic affairs, said in an article: if sovereignty is nothing more than the right to make one's mistakes in ignominious isolation, then it is hardly a prize worth having. That is right.

Photo of Mr Ronald Brown Mr Ronald Brown , Edinburgh Leith

Will the right hon. Gentleman give way?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The right hon. Member for Old Bexley and Sidcup (Mr. Heath) has made it absolutely clear many times that he will not give way.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I assure the hon. Member that I am not a stalking horse in any sense.

Now we are told that to be isolated is to be leader. I can say in all modesty in those circumstances that I must be the greatest leader of all time—and it is not a position that appeals to me. It is obvious that the greater part of our organisations and the greater part of the Cabinet believe that we should already be in the EMS, that we are being held out for only one reason and that the quicker we get in, the better.

I was glad to hear the Foreign Secretary say that we would not go back to an EFTA position. He had to say that only because the whole line of the Bruges speech was about going to EFTA. Chancellor Kohl and President Mitterrand saw that clearly, and that was the reason for President Mitterrand's statement. They are determined to go on their own, regardless of us, unless we are prepared to make our contribution to a full Community.

For me, a full Community is a situation in which we do all that we can together for our own advantage. Why should we have turned down help for our old age pensioners merely so that we could say, "No, we are not forced to do it, so we shall insist on doing it or not doing it ourselves"? The result is that we do not do it, and we all suffer. I believe that the great majority of people in Britain want us to be in a Community in which we can share as far as we possibly can.

As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, the developments in eastern Europe have been remarkable, and we cannot judge how it will all finish. Already the question of the unification of Germany has arisen. I use the word "unification" rather than "reunification" because reunification raises the question of going back to pre-1939 boundaries, and that strikes fear into the hearts of the Poles and Czechs. On unification, however, Chancellor Kohl has today set out the three stages on which he believes that it can be achieved. He obviously cannot set a timetable, but he has stated what West Germany will do.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

At present, a large part of the German public.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The right hon. Gentleman knows the meaning of my question.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

We shall see what happens after the next election. If anything, the SDP is more strongly in favour because it does not believe that eastern Germany will be Christian Democrat. It believes that it will be non-Communist but Socialist, and that would greatly increase its influence. So it is a united country wanting to have Germany united.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I shall explain why to the hon. Member for Bolsover (Mr. Skinner), who always listens to me with great patience. Many people in Europe and in the United States will be intensely worried about such developments and from the defence point of view some will ask whether it is a clever move by Mr. Gorbachev to get eastern Germany into a position from which it can tell western Germany, "Yes, we will join you, if we both become neutral." The impact of that on NATO and on the defence of Europe would be immense, but I do not believe that he is as clever as that. When we look at the other situation, in which western Germany is still in NATO and in the Community, people then worry lest Germany have a dominant economic position in the Community and in Europe.

The only answer to the fears of those in Europe and elsewhere about a united Germany is to have a stronger, more tightly bound Community. That involves all aspect, of the Community. It also involves Britain taking a lead now and playing a constructive part in the formulation of the Community and its policies to ensure that a western Germany, even an enlarged united Germany, cannot be considered a danger to the rest of us. It concerns those of us who lived through the 1930s and who fought through six years of war as much as anybody else that that should not happen. Nor are we prepared to see a situation in which we again split up into a mass of little nation states. There are those who say, "Hold up Community progress, let eastern Europe get its own house sorted out individually, and then we shall be a nice lot of individual countries again." I am not prepared to accept that. Nor do I believe the British people are willing to accept it. The risks are far too great.

I repeat that the answer is a stronger, more united Community, and we must play our part in achieving that. It has proved to be the attraction for eastern Europe and is one reason why they have thrown off Communism. They want to adopt a system closer to that of the Community and they want to get the benefits that they see. The people of East Berlin and East Germany saw that more clearly than anyone else because it was going on next door in West Berlin and West Germany.

For those reasons, I urge the British Government and the Chancellor to play their part in going for full membership of the European monetary system. If we have a common currency, West Germany will be more tightly bound into our system. If we have a central bank—with, as I believe, democratic control—western Germany, or a united Germany, will be more tightly bound into the Community and into our continent. That is the next stage. We have no time to waste if we are to go on to help the people of eastern Europe when they become democractic. We can help them. The Americans will not like giving them a great deal of investment—they never have—but we can help.

We must not, however, allow that to take our minds off the problems of the Third world, which is the other big danger because the problems of the Third world are emerging again. In Ethiopia there are again hundreds of thousands of starving people. The Third world still needs the attention of the Community, but we must become more prosperous so that we can help eastern Europe in its development. Above all, we must have a Community which is tightly bound together so that later we can consider the future membership of what will then be free and democratic countries.

Photo of Alan Williams Alan Williams , Swansea West 5:36 pm, 28th November 1989

It is more of a pleasure to speak following the right hon. Member for Old Bexley and Sidcup (Mr. Heath) as a speaker than as a Minister. When I went to the Department of Prices and Consumer Protection in 1974, I had to pick up the results of the accelerating inflation that the right hon. Gentleman had left us, with his threshold agreements.

Indeed, it amused me to hear the Chancellor trying today—as did the Secretary of State for Trade and Industry last week—to rewrite history, trying to pose horrors of the 1960s as being implicit in the programme that the Labour party is putting forward. The Chancellor referred to the Department of Economic Affairs and to the National Enterprise Board. We heard the same last week from the Secretary of State for Trade and Industry, who said: Does the Labour party remember the Department of Economic Affairs? I remember it. I was in it. He went on: Does it remember the National Enterprise Board? They, too, were set up to 'develop strategies and identify priorities for industry'. Where did they leave British industry?"—[Official Report, 22 November 1989; Vol. 162, c. 122.] I am happy to tell the House where they left British industry. At today's prices, they left British industry with a balance of payments surplus of £5 billion a year, and the Conservatives were the beneficiaries of that. Not only did they leave the advantage of the equivalent at today's prices of a £5 billion a year balance of payments surplus, but they did it having inherited from the Conservatives a deficit of £5 billion. So if the Government want to go back to the days of the Department of Economic Affairs and the National Enterprise Board, we should not run from that but run to the record books and throw the figures back at the Government.

I am today having a fascinating maiden speech experience, in that I am making my first Back-Bench speech after 22 years on the Front Bench, where I served mainly in economic areas. I therefore feel it appropriate to contribute on a narrow aspect of the issues that are dominating our worries today. I want to talk about what I see as the squandering of a unique and unrepeatable opportunity that Britain had during the 1980s.

I want to fit the events about which we are now worried into a longer-term context, as I genuinely believe we are seeing the return to a problem that has beset the United Kingdom since the second world war—the stop-go syndrome. For the Chancellor and other Ministers to describe what is happening now as a blip either reveals that they have been grossly misled or is an attempt by them to grossly mislead.

We are facing a balance of payments crisis of unprecedented proportion. We must remember that we emerged fom the second world war into an era of balance of payments crises for reasons that I do not need to go into, and which most of us understand. So intransigent were the problems that we faced, as far back as the mid-1940s, that for the next 35 years they beset successive Governments. Every time there was a bid for growth, the drawing in of raw materials and semi-manufactures led to pressure first on the balance of trade, then on sterling, then on the Bank of England to inervene, next on the Government to raise interest rates and then on the Government to introduce credit squeezes. After the go, the stop would inexorably be applied, and we would be in a period of deflation.

That was bad enough, but the consequences produced what we have all come to know as the British malaise—low investment, bad industrial relations and low growth. They produced low investment because manufacturers were determined that they would not be caught again. They were told by successive Chancellors and Prime Ministers that if they invested, this time the dash for growth would be the real one, and then subsequently, as the brakes were applied, they found that they had surplus capacity and high servicing charges. As a result, they became cautious and in turn created the second problem—poor industrial relations. They began to use labour as a capital substitute. As we went for growth, instead of investing, as our competitors were doing, we took on labour and started overtime. When there was a cut back and deflation, we cut labour and overtime.

Consequently, the era of industrial confrontation was born. Out of that hire and fire economy emerged the British sickness—low investment, bad industrial relations, lack of skills and low growth. While we were trapped in that syndrome, our competitors—the United States, the EEC and Japan—were enjoying continuing growth. Every time we touched the accelerator and our gear slipped—as inevitably happened as the brake had to be applied—the gap between us and our competitors widened.

Nowhere was that gap revealed more clearly than in the car industry. Over a period of 30 years, as was revealed in The Sunday Times this weekend, car production in western Europe increased by 375 per cent., whereas in Britain it increased by 15 per cent. Until the late 1970s, we were always bedevilled by the threat of a balance of payments crisis and of stop-go.

Then came a unique fortuitous but finite opportunity for us. It came in the form of North sea oil which brought the double boom of resources, but more importantly—although this has tended to be ignored or not recognised—a shield for the first time against the very balance of payments pressures which had forced every Chancellor to apply the brake.

For the first time, we had time—we had a decade. During those 10 years, which are just expiring, as a result of the overseas sale of North sea oil and gas and the import substitution that it represents, we have had a balance of payments windfall of £128 billion. It was our only chance to go for growth. In addition, it provided resources for the first time—which the Government could use if they wished—of an extra £70 billion in windfall revenue. That money could have been used to modernise industry and update technology, for innovation, growth and investment.

The Government inherited that possibility in 1980, at a time when manufacturing investment in Britain was already at the highest level it had ever attained in the entire post-war period. They had the platform on which to build. Manufacturing investment was at an unprecedented high and the resources were available to boost that investment further. What more could any British Government have asked for? What an opportunity was presented to them.

How did they use that opportunity? The guilty man is sitting on the Treasury Bench. How did the present Leader of the House use it in what he described as his first "opportunity Budget"? This Government, like so many Governments, made their errors in the first six months and spent the rest of their term trying to undo them.

In his first Budget, the present Leader of the House unleashed policies that cut manufacturing industry by 20 per cent. and manufacturing investment by 41 per cent. We had the resources to sustain output at that time, but he cut it. For the entire life of this Government, while they have had that finite resource, instead of manufacturing investment soaring it has only just got back to where it started. In the process, that manufacturing industry, which, as I said, had already been cut back by 20 per cent. in capacity, lost £18 billion in investment which it would have had if the Government had sustained the level of investment applying when they took office. No Government since the war have ever had such an opportunity.

Now, 10 years on, the Thatcher miracle can be seen for what it is—the miracle that never was. Despite that £128 billion balance of payments windfall—it is important to emphasise that figure—at the end of this year the Government will have a net balance of payments deficit for the decade of £15 billion. The existing £15 billion deficit and the £128 billion balance of payments bonus that they had show that the Government have under-produced goods and services on a monumental scale—£143 billion. That is the cover that they have had from the North sea. It is the price which we have had to pay for the destruction of industry and the cutting of investment. The other day the Secretary of State for Trade and Industry had the cheek to say that there was no supply side problem—there is just a gap of £143 billion.

Now oil is declining. Britain has never known failure on such a scale. Future historians will look with wonder and horror at the Government's failure and at the failure of the right hon. and learned Gentleman the present Leader of the House and the Prime Minister to seize the one and only opportunity we have had since the war to break out of the vicious stop-go cycle. It was not a decade of lost opportunity because "lost" implies that there might have been an element of chance in it. It was a decade of squandered opportunity.

The Prime Minister and the Leader of the House are like a family who won the football pools and two years later were bankrupt. Britain won the pools when we found North sea oil and that £128 billion-worth of resources for the country. However, because of doctrinal bigotry, lack of understanding, refusal to consider alternatives and a neglect of the evidence, the Government in their blindness allowed the North sea oil—all the £128 billion—to run back into the sand from whence it came. Now, £128 billion later, we are back where we started: there is pressure on sterling, a brake on growth and firms are revising investment programmes downwards.

The peak riches of the North sea are behind us. There is no rescue for the Government. I submit that we are seeing not an isolated blip, but a return to that inexorable cycle: thanks to the Government's ineptitude, we are back on to the old stop-go treadmill.

Photo of Mr Michael Grylls Mr Michael Grylls , Surrey North West 5:50 pm, 28th November 1989

The right hon. Member for Swansea, West (Mr. Williams) was a very distinguished and charming Labour Minister. He has made a very interesting speech, as we would have expected; he has been a friend of mine in the House for some time and I hope that he always will be. Although his historical analysis was right when he referred to the British disease of the 1970s, he was on dangerous ground when he carried his analysis through to the present day.

Some Opposition Front-Bench spokesmen, including the right hon. and learned Member for Monklands, East (Mr. Smith) today and the hon. Member for Dunfermline, East (Mr. Brown) in the debate on industry last week, have tried to decry what some people, although not I, have described as the British miracle. It was foolish to do that, and inaccurate.

It would be more accurate to refer to the changes that we can contrast today with the scene described by the right hon. Member for Swansea, West. Those changes have occurred not as a result of a miracle, but thanks to sensible and practical policies. Those policies have been followed in many other countries with great success over the years. However, somehow Britain failed to follow them in the decades before the 1980s.

We owe a great debt of gratitude to my right hon. and learned Friend the Leader of the House. When he was Chancellor of the Exchequer, he laid the foundation for the first conquering of inflation and for the many tax changes that he introduced on the supply side. Those have been important factors in strengthening the British economy.

I know that this is a partisan debate; that is normal, and probably right. However, it does not do the debate any good for the Opposition to decry any or all of the Government's achievements. Perhaps people do not want to give the Government credit, because that is not within the partisan mood, but they should at least give credit to British industry, which has changed itself beyond recognition within the past 10 years. That does not mean that everything has been done, because there is plenty more to do. Perhaps there should be almost a bipartisan view about what needs to be done in future.

The right hon. Member for Swansea, West tried to accuse my right hon. and learned Friend the Leader of the House, a former Chancellor of the Exchequer, of squandering an inheritance. That is lunacy. The right hon. Gentleman is normally a very good debater, but such accusations do him no good.

We must consider the fact that British industry has quadrupled its productivity. It has doubled its profits, and 1,500 new firms are starting up every week. Before, we were losing small firms. There was a net loss, but there is now a net gain. That is the sign of a very successful economy.

No doubt Opposition Members would say that that is not enough, and I would agree. I want to see British industry double and treble those figures. However, if we continue the policies that we have pursued over the past 10 years, we are entitled to state that those figures will rise. Those figures have been achieved because the economy has been growing and we have made important supply side changes. There have been changes in taxation and unnecessary regulations have been removed to encourage entrepreneurs to get up and start new businesses.

Photo of Diane Abbott Diane Abbott , Hackney North and Stoke Newington

If the number of new firms is a sign of success, what is the record level of bankruptcies a sign of? Will the hon. Gentleman enlighten us?

Photo of Mr Michael Grylls Mr Michael Grylls , Surrey North West

The figure that I gave was a net figure. In three or four months, the figure may go up or down. It is a forecast. However, so far that net figure has been increasing.

Interest rates are a great worry to many independent businesses. However, we should not simply decry the great success caused by the supply side changes which have been the basic foundation of growth which is the important success in our economy. It would be wise of us to recognise the huge turn-round.

No doubt the right hon. Member for Swansea, West will remember as I do that, under the Labour Government and in the early years of the Conservative Government, we still faced huge losses in several nationalised industries. British Steel reported losses of £500 million. British Leyland was always in a disastrous state. There was always a crisis around the corner and BL representatives visited Ministers and Back Benchers to explain the latest disaster. Leyland has been successfully returned to the private sector, and we hope that it will thrive and become stronger and achieve the exports that it deserves. Similarly, I hope that British Aerospace is successful.

The transformation of the nationalised industries has been very important. We are all aware of the success story of British Telecom. Mercury, a new telephone company, is gradually expanding and bringing much-needed competition into the telecommunications market. That competition has helped to create new firms in the telecommunications business. When we had one dominant nationalised industry, it was difficult for new firms to enter the marketplace. The market has been opened up and there is a strong regulator in the shape of Oftel to encourage competition. New gadgets are being invented daily in the telecommunications world and British Telecom is one of the world's leading companies in that area.

I do not want to refer to Europe at length today, as other hon. Members have done that already. However, anyone who says that Britain is behind hand in being a good member of the Community must be aware that we were the first to open up our telecommunications to procurement Communitywide. We are entitled to ask other Community countries when they will open up their markets so that British firms can try to win orders to supply their telecommunications companies. In that respect—and I believe in many others—Britain has been a very good European and has been leading the way in deregulating.

In surveying the general scene of industry and commerce. I want to refer to the smaller industrialists. Now that we have had such an improvement in British industry generally, it is time to see whether we can give more encouragement to the typically smaller industrial firm. I want to refer to a firm of a size that is typical in West Germany and which has been the backbone of the German industrial scene and largely responsible for West German industrial success. It is a small industrial firm with a turnover of about £1 million.

Typically, such a firm would spend about 50 per cent. of its turnover on materials and associated costs. When interest rates go up, such a firm faces a double squeeze —a squeeze by customers, who may take up to two extra weeks to pay, and a squeeze by materials suppliers, who will restrict credit by two weeks. That firm's overdraft could then go up from £100,000 to £160,000. The firm is squeezed by the higher borrowing and, sadly, by a lack of understanding on the part of too many of our high street bank managers who inadequately understand the needs of a smaller independent business. Some of them are trying to change, but matters are not as good as they should he. A firm which is faced with such a squeeze must cut back somehow and hope to ride out the substantial extra cost of borrowing or of working capital.

We can look to Germany and Japan for a solution. Although we have rightly removed general subsidies in nationalised industries and our other great industries, which should be and are now standing on their own feet, there is an argument for helping and encouraging a small industrial firm with a turnover of £1 million. That argument has been accepted in Germany and Japan, where such firms are given a differential rate of interest.

No doubt Opposition Members will say that the hon. Member for Surrey, North-West has taken leave of his senses and is asking for some form of subsidy. Of course subsidies have not yet been totally removed from the economic scene. They have not been removed from housing or from pensions—indeed, they are prevalent. There is an argument for seeing how we can help this sector of our industry, because it would be an investment for the future. I hope that hon. Members who do not like general subsidies will not be derisive.

Unlike large firms, a small industrial company cannot borrow on the Eurodollar market, for example, or in some sophisticated way through the City of London. Generally, it can borrow only through its own bank in the way that I have described. When we try to defeat inflation with high interest rates, we must try to help such companies. Therefore, I hope that the Government will look at this matter. We should not rush into it, but we should study what is done in several other countries, such as Germany and Japan, and see how we can help such firms. They comprise part of our still weak industrial life. They were seriously weakened over the 1950s, 1960s and 1970s by too much taxation and regulation, and they are not yet strong enough. I want them to be helped to get on to their feet.

Photo of Mr Tony Benn Mr Tony Benn , Chesterfield

I do not know whether the hon. Gentleman is aware that the exact scheme that he proposes was put up by myself as Secretary of State for Industry, but it was turned down as a breach of the treaty of Rome. The right hon. Member for Old Bexley and Sidcup (Mr. Heath) had an interest relief scheme which was 1 per cent. below the going rate to help industry in Scotland. The Commissioner in Brussels said that it was illegal, and it was abandoned. As a pro-European, the hon. Gentleman must take account of the fact that everything he has suggested would be deemed illegal.

Photo of Mr Michael Grylls Mr Michael Grylls , Surrey North West

I do not think that that is right. Any subsidy must be negotiated with the Commission—that is quite correct—but the scheme is in place in West Germany, and it is approved. I am not suggesting what the necessary mechanism is, but the issue must be looked at.

Let the House be clear that independent business is immensely stronger than it was 10 years ago. It is a thousand times better off, largely because of the supply side changes that have been brought about by the Government. My right hon. and learned Friend the Leader of the House has played his own distinguished part by means of reductions in personal and capital taxation. They have made it easier to pass a firm from one generation to the next, which is essential if a firm is to grow from one generation to the next. A firm should not need to be taken over when its proprietor retires or dies. The situation is much better than it was. The Government's initiatives have given great encouragement to independent firms.

The additional venture capital that is around today was scarcely known about 10 years ago. The Government's loan guarantee scheme has helped firms to get on their feet. All that has at last given Britain an opportunity to have a strong, independent firm sector. That will be the central part of our future economy. There is no doubt that 99 per cent. of British industry is wholly behind the Government's efforts to put inflation at the top of the agenda and to conquer it. That must be correct.

Hon. Members will agree that, when inflation goes up again, the Government will succeed in dealing with it. We dealt with it in the early 1980s and in 1985, and we will defeat it in 1989–90. It is not a disease that can be cured once and for all and never reappear. That would be too easy. Every business man knows that no business goes along in a straight line. Of course there are ups and downs. That is exactly what happened throughout most of the industrialised world in the past 10 years. Inflation has ebbed and flowed. Today's inflation could do much more damage than the damage that was done by interest rates. The damage is painful but it is not terminal. However, inflation is terminal for the independent business. There is no doubt that business will support the Government's efforts to bring inflation under control.

I am delighted that my right hon. Friend the Chancellor has come back to hear my last words. [Interruption.] I am sure that he will hear them. Business men will support the Government's worthy aim of getting rid of inflation. They can then look forward to expansion and to continuing the growth that has been the hallmark of the decade of the Conservative Government.

Several Hon. Members:

rose

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I need to remind the House that the Standing Orders now require speeches to be limited to 10 minutes.

Photo of Mr John Evans Mr John Evans , St Helens North 6:07 pm, 28th November 1989

The huge strike in Czechoslovakia yesterday and the strikes that have taken place in other eastern European countries over the past few weeks would be illegal in Great Britain. They would be illegal because they were political strikes against the Government. Such strikes were outlawed by the Employment Act 1982. They would be illegal also because they were called without ballots. For British trade unionists, such actions were made illegal by the Trade Union Act 1984. If the Government's new employment Bill is enacted, they will be illegal because they are unofficial.

We welcome the developments in eastern Europe and the movement towards freedom and pluralistic democracies. But it is easier for workers in eastern European countries to take industrial action than it is for workers in Thatcher's Britain to take industrial action. The Opposition do not believe that arguments about freedom stop at the Berlin wall. I will examine one or two issues which are basic to freedoms in this country, and which the Queen's Speech clearly ignored.

The Gracious Speech does not recognise the level of poverty in Great Britain. It does not mention the poverty of millions of our fellow citizens, nor the contribution to that poverty which has been made by the appallingly low social security benefits which the Government have created. Nor is there any recognition of the disastrous under-funding of Britain's local authorities or of the demise of many of their services, which manifests itself in many of our towns and city centres being left unswept and frequently looking like pigsties. Nor is there any commitment to the major improvement in the National Health Service that a massive majority of the British people want to see and for which they are willing to pay.

On a constituency note, I draw the attention of the House to a petition that I have received from the St. Helens and District Society for the Deaf, protesting that there is no provision in the forthcoming broadcasting Bill for improved facilities to enable the deaf to enjoy television programmes. I beg the Home Secretary to correct that omission before presenting the Bill for its Second Reading.

Most significantly, nothing in the Queen's Speech recognises the economic problems that 10 years of Thatcherism have created for towns such as St. Helens. As I have only limited time, I shall concentrate on the one Bill that the Government claim will be beneficial to Britain's economic performance—the new employment or trade union Bill. When the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), downed ledgers a few weeks ago, the Prime Minister got a taste of had industrial relations. The Chancellor obviously found his working conditions intolerable and walked out.

It is ironic that, just weeks later, the Government have announced a Bill to outlaw unofficial industrial action. They should be well aware that disruptive action, whether the resignation of a Chancellor or a lightning strike in a factory, happens when trust breaks down and when conventions or agreements are unilaterally broken.

The Government's Green Paper "Unofficial Action and the Law" is symptomatic of the inability of the Secretary of State for Employment to grasp that basic fact. In many ways, the Green Paper is misleading, fundamentally misconceived and frequently economical with the truth. Paragraph 1·1 states: The reform of industrial relations law since 1979 has made a vital contribution to the improvement in our country's economic performance. One wonders to which country it refers. Perhaps no one has told the author that interest rates are at their highest for eight years; that the balance of payments deficit is heading for £20 billion; that inflation is nearly 40 per cent. above the European average; that Britain's training and education programmes are among the worst in the Economic Community; that Britain is teetering on the brink of a recession; and that unemployment is set to rise again. But of course, the Secretary of State for Employment knows that very well. The so-called "economic miracle" is a mirage. So that, as things go from bad to worse, the Government can attack workers' rights as the scapegoat for their own economic mismanagement. The Government make the mistakes, but the workers get the blame.

The new trade union Bill marks a major change in emphasis from previous Employment Bills. Until now, we have always been told that the nation's real enemies were the trade union bosses. Trade union bosses, the Tories claimed, were power-mad barons who conscripted workers into closed shops against their will, bullied reluctant workers into strikes and used the workers as cannon fodder to satisfy their own lust for power.

To rescue the workers from their clutches, the Government have banned the post-entry closed shop. They have given workers "rights" to elect union leaders in the expectation that the workers' well-known moderation would kick the militants from office. Unions have also been prevented from disciplining any worker who defies a lawfully called strike.

However, the Tories have suddenly changed direction. There is now a new enemy within—ordinary trade union members. Despite the compulsory ballots, the alleged decline of the closed shop, and the election of responsible leaders, the workers are still not docile enough for the Tory party. The new bogeyman is unofficial industrial action. Paragraph 1·2 of the Green Paper states that the great majority of strikes in Great Britain have always been unofficial. Paragraph 1·3 states: Most unofficial strikes arise over local issues which have not been taken through the agreed procedure for dealing with disputes". Of course, the Government are interested only in those bits of the truth that bolster their own arguments. They do not tell us what is behind 95 per cent. of those "local issues". In fact, the cause is almost always unilateral action by employers or managers who arbitrarily breach agreements by riding roughshod over the work force on such things as wages, conditions, safety or union recognition, or by sacking workers unfairly. In other words, it is invariably an employer who ignores the agreed procedures for the avoidance of disputes.

So what do the Government propose to do about their concern for good industrial relations? Again, they attack trade unionists. They are certainly not proposing penalties for guilty employers who provoke industrial action. The Government condemn workers for not abiding by procedures. Employers, however, are not only free to do as they please, but will now be given even greater freedom to attack their employees.

Under a heading "Extending Trade Union Responsibility", in chapter 2, page 4 of the Green Paper, of which the Nazi propaganda Minister Goebbels would have been proud, the Government will force trade unions to repudiate any unofficial action. Trade union bosses will have to coerce their members back to work no matter what their employers' provocation. Secondly, if workers do go on unofficial strike the Government will give the employer the legal right to sack the so-called ringleaders. Thirdly, if any striker is sacked, industrial action, even backed by a secret ballot, in support of his or her reinstatement will be unlawful.

In paragraph 2·10, the Government say that action is unofficial where there has not been a ballot. If these proposals become law, trade unions will be accountable for the actions of every member. The only way to escape large fines would be for the union to repudiate any and every unofficial action. If a union does not repudiate its members in writing, employers and their customers could get injunctions forcing the union to call off the action. If the union could not comply, it would face fines and sequestrations.

The Government do not make it clear how a union can force workers to return when they are on unofficial strike. It could mean that, to escape legal action, unions would have to expel striking members or dismiss full-time officials deemed to be supporting strikers or withdraw credentials from shop stewards. Difficulties will arise if a walkout occurs over, for instance, the dismissal of a shop steward, which was later endorsed by a secret ballot.

At paragraph 2·11, the Green Paper states that the union could accept liability for industrial action, in which case the union would need to hold a proper secret ballot of all its relevant members. Although the Green Paper is silent on the matter, it implies that while the ballot is being held the union would be obliged to get its members back to work—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. It really hurts me to have to call an hon. Member to order, but we are now within the 10-minute rule.

Photo of Mr John Evans Mr John Evans , St Helens North

Yes, I appreciate that, Madam Deputy Speaker.

What is required is co-operation between Government, employers and workers. The Gracious Speech makes no mention of that, but that is what we require—

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 6:17 pm, 28th November 1989

The debate on the Gracious Speech this year is inevitably taking place against the background of the dramatic events in eastern Europe. I was rather struck by a phrase—one might almost say a slogan—that was used in our earlier debates on the Gracious Speech. I refer to the expression, "Today we need borders, not barriers." That is a good way of summing up the present position. Clearly, it is vital that the barriers should come down between the various countries of eastern Europe and those of us in the West. That is particularly important, not least from an economic point of view.

However, while I share the euphoria at recent events, I also share considerable concern about the potential dangers. The argument for maintaining borders at the moment—whatever may come at some time in the future—is important. That point is worth stressing because it is against that background that we need to look at both the European situation and the general economic position.

It is true that this debate on the economy, at the end of the debate on the Queen's Speech, is never satisfactory, not least because the wind-up speech must cover the entire debate. Although my right hon. and learned Friend the Leader of the House can cope with the various economic arguments made, tonight he must cover a broad area.

We have had two recent debates on the economy. An extremely good one on an Opposition Supply day and one when we discussed European harmonisation. We have also had the Chancellor's Autumn Statement. The Treasury and Civil Service Select Committee is still in the course of taking evidence—last week it took evidence from Treasury officials, yesterday it took evidence from the Chief Secretary and next week it will take evidence from the Chancellor. My Committee has not yet reported nor has it had an opportunity to look in depth at the implications of the Autumn Statement, which no doubt will be debated in January. In that sense we are in limbo, so I shall confine my remarks to a couple of specific points.

I believe that the action taken by the Chancellor on the economy has been right, not least with regard to the rate of interest and the fiscal policy. Those actions are having the desired effect. Although I understand the concern expressed about the balance of payments, the figures year on year, three months on three months or month on month are showing an improvement. The year-on-year and three-monthly comparisons, of course, show an improvement because exports have gone up faster than imports. The latest monthly figures show exports up and an actual reduction in imports, and that is a reflection of the success of Government policy. We must all hope that those policies continue to operate in that manner.

From time to time my Committee has produced a crude analogy of the Chancellor—the present and the previous one—on a tightrope between inflation and unemployment. It is apparent that the danger of the Chancellor falling over on to the inflation side was greatly exacerbated by the failure of the official forecast to anticipate just how rapidly the economy was moving, not least when action was taken following the stock exchange crash of 1987. The danger is that, because that forecasting error was due largely to the huge expansion in consumer credit, when interest rates began to bite, the forecasts could be in error in the other direction. If that happens, my right hon. Friend the Chancellor will not realise the extent to which deflationary pressures are operating within the economy. That matter is of considerable concern.

More particularly, however, I am concerned about a rather technical point with regard to the use of interest rates in relation to fiscal policy. We continue to run an enormous budget surplus with no clear precedent. We must ask to what extent that reflects the tightness or looseness of fiscal policy given the Government's approach which involves a policy of so-called fully unfunding that surplus. We must ask whether there is some scope for action on public expenditure and so on that has not yet been undertaken.

One simply cannot get rid of the surplus. That would be grossly irresponsible, but we must take into account the relationship between that surplus and the policy of fully unfunding. I have come to the conclusion that the answer depends on whether one adopts a monetarist or a Keynesian approach. A monetarist may question, given the policy of fully unfunding, whether it makes any difference if one runs a budget surplus of £15 billion or £5 billion. That is a relevant question—whether the size of the public sector debt repayment makes any difference. A monetarist may say that the aim of policy, as defined by the Government, is to leave the size of bank deposits unchanged. Since bank deposits are effectively insulated from changes in the PSBR, a monetarist would say that there is no difference. He would argue that there would be no difference to aggregate demand because the money supply or interest rates do not change. The only change is in the composition of aggregate demand as the contraction of public expenditure is offset by the expansion of the private sector as long-term interest rates fall. That happens because when the Government buy in gilts their price goes up and the rates go down.

A non-monetarist—or, for want of a less pejorative expression, a Keynesian—would argue that the fall in long term rates is unlikely to offset fully the contraction in the public sector. They would argue for example, that the fall in long-term rates is likely to be small because if the public sector is operating a surplus some other sectors—the private or overseas sectors—must he operating a deficit. If those sectors in deficit borrow in the bond market the long-term interest rate will not he so low as expected by monetarists and private expansion will be stifled. Consequently, Keynesians would argue that the fiscal policy does have an overall effect, because pulling the purchasing power out of the economy has the overriding effect and they would argue that the monetary effects are relatively small.

At the moment I do not believe that we are clear, nor is the Chancellor clear, what the true impact of the fiscal policy is when it is backed up by the policy of fully unfunding. We are faced with an unprecedented situation and we have not analysed the situation correctly. Does the size of a fully unfunded surplus matter? We must appraise carefully whether there is some scope for changes in public expenditure or in taxation that have not been recognised previously. The answer turns on which analysis one adopts. I do not expect the Leader of the House to give me that answer tonight, but we should know which of those policies have been adopted.

Although I remain strongly of the view that control of public expenditure is of overriding importance, that raises the question of what the Government's spending priorities should he. My maiden speech was about whether pensions should he given, as of right, to the over-80s left out of the national insurance scheme. I subsequently introduced a private Member's Bill—I was lucky enough to come first in the ballot—but the Labour party, to its eternal disgrace, filibustered all through the Thursday night and stopped the Bill coming to a vote on the Friday. I am happy to say that the first thing that happened when we come to office in 1970 was that we gave pensions, as of right, to that group.

I believe that there is a close analogy between that group and war widow pensioners. All war widow pensioners get the basic pension, but those who claimed after the deadline when the so-called occupational scheme was introduced also get a substantially larger sum on a separate scheme. Because it is an occupational scheme, we are told that it cannot be made retrospective. In many respects that is the same argument as that advanced regarding over-80s pensioners.

The war widow pensioners who are excluded from the occupational scheme should at least be entitled to that part of the pension that is not covered by contributions. I advanced the same argument for over-80s pensioners and so last week I tabled a question to ask what part of the occupational pension scheme for war widows was covered by contributions. The reply stated: The armed forces pension scheme is non-contributory" —[Official Report, 13 November 1989; Vol. 160, c. 32.] The whole lot comes out of the defence vote. The only argument for the other side was that the pay of those who claimed after the 1973 deadline was cut to represent notional contributions. It is ridiculous to suggest that their pay was then lower than that received during the war. I went into the forces after the war and my pay was four shillings per day. That is an absurd argument.

Despite all the restraints on public expenditure, I hope that my right hon. Friends at the Treasury will consider carefully the close analogy between the position of war widows and the over-80-year-olds, as the arguments are almost the same.

Photo of Mr Tony Benn Mr Tony Benn , Chesterfield 6:28 pm, 28th November 1989

From listening to the debate and especially the right hon. Member for Worthing (Mr. Higgins) the implication is that economic policy is a subtle seminar about the management of an unchanged economy.

I am sure that the right hon. Gentleman, in common with me, has had people come to see him at his surgery who have waited a long time for medical treatment or those who have become homeless. The other day, a young girl came to me who had been thrown out of her house by her father on her 16th birthday. He had broken her nose because she was pregnant. She was living on the streets and stealing to live. She was denied a place on the youth training scheme because she was before the probation service.

In common with many hon. Members, I have had people come to me because they are suddenly in huge arrears with which they cannot cope as a result of the new housing benefits regulations. It is no good saying to them, "Are you basically a monetarist or a Keynesian?" Economic policy is about the aims and objectives of society; it is not just a discussion between financiers in the City about who can run the economy best. I acquit the right hon. Member for Worthing of that charge, but there are many people who speak as though we were only discussing whether industry was profitable.

Other objectives in society should be the concern of the Chancellor. One is that everybody should have useful work at a living wage. People should have a home in which to live. The benchmarks by which to judge the success of economic policy should be: is there proper provision for education; are the schools provided with books; is there an adequate health service or do people have to try to jump the queue by opting for private medicine; will people be able to enjoy dignity when they are old? If the only criterion set is the profitability of companies that are still in business, we are missing the whole point of economic policy.

We have been told to look at reality, and I think we should. Although many hon. Members have spoken about the new situation in eastern Europe, the Chancellor never mentioned defence expenditure. Next year, he will have to find £21 billion and his great new reality did not include the possibility that reducing defence expenditure and diverting the money to other matters might not only reduce inflationary pressure, but might pay for some of the needs that I have described.

Another new reality is that, in a democracy, the Government's economic policy must be approved by the people. The shift in public anxiety or the change in feeling among the people about the Government is because they no longer accept the underlying assumptions of Government policy. They do not believe that monetary policy and profitability are the criteria by which our society should be governed.

Photo of Mr Tony Benn Mr Tony Benn , Chesterfield

No, I shall not give way. We are restricted to 10-minute speeches, I think a bit unfairly.

We must recognise that the debate is not just about the Prime Minister. I have never liked the word "Thatcherism", because it is the values peddled by the Government that people are rejecting. Hon. Members should not think that things are not changing. On Saturday week, I was at Trafalgar square supporting the ambulance drivers. The police buses were waiting in Whitehall, as they always do when there is a big demonstration. The policemen were huddled in the buses and inside there were stickers saying, "We support the ambulance workers". There was a Marine commando at Trafalgar square wearing a steward's armband.

Hon. Members should not think that trade unions are unpopular, because as mortgage rates go up and people in this generation are driven into debt, they learn what others have learned before them—that they need trade unions to protect them. My hon. Friend the Member for St. Helens North (Mr. Evans), who made a powerful speech about the new proposals, gave an idea of what would happen.

The poll tax, the widening gap between rich and poor, and the debt into which people are being driven are unfair. It must be the experience of every hon. Member that many people who had good jobs bought houses on mortgage. Then the interest rates knocked out their company, which meant that they could not keep up the mortgage payments and had to sell the house. However, house prices are falling and there are no council houses because the councils have had to sell them and cannot buy or build any more. That is the reality that must breathe some life into the debate.

The gravity of the situation is far greater than has been admitted. I do not intend to go into debating points about statistics. I was an industrial Minister in 1964 when we came to office. George Brown was at the Department of Economic Affairs and Callaghan was the Chancellor. There was the "Maudling dash for growth" that led to a deficit. We had a national plan, but 18 months later it was dropped because of international financial pressure. In 1974, we inherited an even worse situation.

The reality is that, during all the policies that have been followed—on the exchange rate, interest rates, credit controls, the old stop and go and incomes policy—there has been a steady decline in British manufacturing relative to what we need to survive. That is a continuing problem. Oil gave us a bonus. I was the Minister of Power in 1970 when the Forties field was discovered. My hon. Friend the Member for Copeland (Dr. Cunningham) was with me later in the Department of Energy. I think that I am right in saying that BP put £500 million into the Forties field and amortised it in 18 months, so rich was it. We have thrown the whole thing away. Look at the amount that has been paid out in unemployment benefit or at the imported goods that have destroyed or limited our manufacturing industries.

There will soon be an election. I should like to see the people being given the right to make their choice sooner rather than later, because this House of Commons is in the time warp of 1987 and much has happened since then. I am bound to turn my mind to the questions that will face an incoming Labour Government, because that is the Government we shall have. Compared to 1964 and 1974, the problems that that Government will face will be monumental. I asked the Chancellor when he thought he would get the deficit down, and he could not say. He would not pretend that it would be down to anything like a reasonable level by the time that there is a change of Government.

What will my right hon. and hon. Friends do when they come to office? Will it be enough to deal with the problems in terms of exchange rate policy, the exchange rate mechanism or the European monetary system? The answer is no. We shall have to take a big national decision by deciding that industry is as essential to us as agriculture. We have never allowed agriculture to be destroyed by temporary movements in world food prices. We have sustained it—the Conservative party is best at doing that because it represents the shires. To allow our industry to be destroyed because of short-term changes in the exchange rate or stop-go policies is absurd. Nobody can accuse me or my hon. Friends of not being clear in our amendment about what will have to be done. We shall have to have exchange controls.

We could not have a nation generating profit by its own wealth only to see it move to Korea or South Africa where people can make a bigger profit. We have a deficit of such magnitude that the Chancellor cannot anticipate its end. I cannot anticipate its end by using the old measures in which I was involved. That means that we will have to say to people that we cannot afford to buy from abroad what we now buy from abroad. We must tell them that they will have to wait a bit longer for a Mercedes but that they might get quicker treatment at the local Health Service hospital.

We shall have to cut defence expenditure sharply. Even the Secretary of State for Defence in Washington talked about cutting it by half. At the Labour conference, there was a resolution to cut it to the same level as that of our European partners, and that is outdated by the ending of the Berlin wall. What will Trident and Polaris be used for? Will one be dropped on Walesa and one on Gorbachev? Where is the enemy that justifies enormous military expenditure?

The real priorities are that people should be properly fed and housed, educated and cared for, because those things are in the national interest. Market forces cannot solve any of the problems that are of prime concern to our people. Nor can the Common Market. Who wants to transfer power to Mr. Delors, who is unelected and cannot be removed at an election? We have to do it ourselves.

The British people must be told that the only answer to the problems that confront us lies in our own actions, efforts and policies. Such a suggestion may be a little ahead of its time. I found an article in the TV Times that I wrote in March 1957 calling for the televising of Parliament. Thirty-two years is about par for the course. Perhaps a little later, the House will heed what I am saying now. Without pursuing my Dubcek role any further, I commend our amendment.

Photo of Mr Anthony Grant Mr Anthony Grant , Cambridge South West 6:38 pm, 28th November 1989

Whether or not one agrees with the right hon. Member for Chesterfield (Mr. Benn), the one thing we can say about him is that we know where he stands. The right hon. Gentleman says what he believes in, and that is more than can be said for his colleagues on the Opposition Front Bench. I wish that we had more time to hear more of the policies that he proclaims in the amendment, about the withdrawal of troops from Northern Ireland, the withdrawal from military blocs and, presumably, from NATO and the EEC. We appreciate the fact that the right hon. Gentleman has said quite honestly what he believes in. I hope that he will not share the disillusion of the hon. Member for Liverpool, Walton (Mr. Heifer), who has decided to disappear from the House at the next election, because we would miss the right hon. Gentleman very much.

I and the right hon. Member for Chesterfield share one trait. He dislikes spending too much time on personalities and believes in talking about policies and principles. I entirely agree. On personalities, we are exceedingly fortunate to have my right hon. Friend the Member for Huntingdon (M r. Major) in the post of Chancellor. We in Cambridgeshire may have had more opportunity to observe his abilities, but I believe that, in what may well prove a tough economic year, his acumen, sensitivity and plain common sense should give us considerable confidence.

It was, in my view, entirely right for the Gracious Speech to proclaim firm policies to reduce inflation and to foster the conditions necessary for sustained growth. No sane person would deny that that task should be a priority; but how has the present degree of inflation arisen? I do not believe that tax reductions were the main cause, although it might have been better to phase them over a period. I believe in the reduction of taxation, and hope that our Government will never lose sight of that principle. I have also supported the switch from direct to indirect taxation which has proved so necessary over the past decade.

The prime cause of inflation was, I believe, the hysterical panic that spread throughout the world when the stock markets fell on black Monday in 1987. Governments of developed countries panicked and reduced interest rates, and the then Chancellor had to follow suit. There was no alternative; indeed, he was urged by the Opposition to take such action.

No sensible person would deny that interest rates are the most powerful and effective weapon with which to deal with the cancer of inflation. The credit controls used by the Labour Government in the 1970s would be as ludicrous today as they were then. Rather like the Bourbons, however, the Opposition have forgotten nothing and learnt nothing. I understand that the alternative policy of the right hon. and learned Member for Monklands, East (Mr. Smith) is some kind of chit-chat with bankers in the City: an up-market version of beer and sandwiches—champagne and caviar, perhaps. I do not think that we can accept that as a serious alternative.

Interest rates, however, are also the cruellest weapon, hitting the have-nots and benefiting the haves. Three groups in particular suffer in this regard. No hon. Member has yet pointed out that farmers depend on credit. I am not talking about rich farmers; there are many poor farmers in Cambridgeshire, and they will find the increase in interest rates very burdensome. Secondly, there are the small firms. I was pleased that my hon. Friend the Member for Surrey, North-West (Mr. Grylls) mentioned them, as they have always been a cause near to my heart. We need not worry about large firms, which, I am glad to say, have become very profitable under the present Government, and can sustain higher interest rates. Small firms working on tight margins, however, will find them crippling.

When I was responsible for small firms, they were unfashionable, but they have now grown to a record extent. That is one of the most encouraging developments brought about by the present Government. They are the large firms of the future. I was pleased to note that the Queen's Speech promised to promote enterprise, and small firms are the basis of free enterprise.

I was interested in my hon. Friend's suggestion of differential interest rates. I do not think that the EEC or the treaty of Rome would be all that would stop that; attractive though that may seem, I do not believe that there is a practical way of administering such a system. The only answer is to get these wretched interest rates down as soon as possible, and I beg the Government to bear that in mind and not to kill the goose that lays the golden eggs.

The third category of sufferers are home owners with mortgages. Some, of course, have raised money through their mortgages for cars, videos and foreign holidays, but we should spare a thought for those who, in my view, constitute the majority—those who were inspired by the philosophy of the home-owning democracy, and especially those who were urged to buy just before the clampdown a year ago which caused the rise in mortgage interest rates.

Those three groups bear the greatest burden of anti-inflation policy, although it was not their fault that the markets and Governments of the world panicked in 1987. We should remember that they are the bedrock of support for the present Government: they know that Socialism is stupendous folly, and that it has never worked anywhere. They can see through the pretence by the official Opposition—not the hon. Member for Berwick-upon-Tweed (Mr. Beith) and his hon. Friends—that their policy is not really Socialist.

I beg my right hon. Friend to give careful thought to the sections of society that I have mentioned. Let me make a suggestion. I do so somewhat hesitantly, as a Treasury Minister is on the Front Bench and I know that what I am going to say is anathema to the Treasury. I feel rather like the fat boy in "The Pickwick Papers" who said to an old lady, "I wants to make your flesh creep." I shall inspire horror in the Treasury mandarins.

I ask the Treasury not to reject out of hand possible changes in mortgage interest relief—and I mean changes in an upward direction. The housing market has taken such a knock that it will be some time before prices spiral again. On many housing estates, properties cannot be sold, but with a degree of balance and common sense I believe that the problem could be solved. I am aware that the Chancellor has poured cold water on the idea in an article in the Sunday Express, but he made it clear in his Autumn Statement that he does not reject the possibility of resolving the matter by fiscal means. I have great faith in my right hon. Friend, and I merely ask him to keep an open mind. The pressure for wage increases to combat the high interest rates from which many large firms are now suffering could be eased by such a measure.

The Government committed themselves in Madrid to the achievement of economic and monetary union as prescribed in the Single European Act, and decided that stage I should begin on I July, 1990. We shall obviously join the exchange rate mechanism; the only question is when. I hope that my right hon. Friend will study the paper in which his and my MEP, Sir Fred Catherwood, argues that the solution to inflationary problems lies within the exchange rate mechanism, and that we should join sooner rather than later. That conclusion was also reached by the July report of the Select Committee on Trade and Industry, of which I am a member. Whatever we do, we should not miss the bus. If the Government take the view that Sir Fred and the Committee are wrong, and that we do not want to join the ERM, I feel that that will be disastrous for us. If we join, however, I believe that we shall experience considerable benefits, and that many of the problems that we have encountered since black Monday will be overcome.

My right hon. Friend faces daunting tasks, but I have every faith in is ability to deal with them effectively and courageously. Certainly the least of those problems will be dealing with the Opposition.

Photo of Mr William Ross Mr William Ross , East Londonderry 6:47 pm, 28th November 1989

Readers of Hansard will see that on 15 November I asked the Chancellor about the effect of increasing public expenditure from £168 billion to £203 billion between the current year and 1992–93. The Chancellor replied carefully that I must have misheard the figures, because the increase for next year was £5·5 billion. The question that I asked mentioned the correct figure of £35 billion—a huge, increase, even if the Chancellor's predictions of a fall in the percentage of gross domestic product is correct.

I appreciate that the Chancellor now has a huge Budget surplus. I am surprised that only two Conservative Members—the right hon. Members for Worthing (Mr. Higgins) and for Old Bexley and Sidcup (Mr. Heath)—have mentioned that so far. If that surplus were allowed to continue until the next general election, it would be the most bountiful gift that any Opposition could ever expect to receive. Imagine the joy of a Labour Opposition and shadow Chancellor who were handed such a treasure house. They could make the most generous promises to the electors, and the Conservatives could not say—as they have been able to say at every election within living memory—"Where is the money to come from?", for the money would be there. It follows, therefore, that the Chancellor must spend the bounty that he has inherited before the next election.

I am sure that that prospect does not make his task of reducing inflation any easier. If inflation is not reduced, the pressure on him to enter the exchange rate mechanism will be increased by those who are in favour of that course of action.

The apparent attractions of taking such an easy way out by taking the first steps to full monetary union are outweighed by the long-term loss of control of our affairs that would flow from that step. I believe that the Prime Minister at least is well aware of the consequences of handing control of the nation's finances to other hands. I have no doubt that the sovereigns from whom the House wrested control knew the importance of control of the money supply; they certainly held on to it as long as they could. One does not hold on to something that is of no use.

If the Government now understand the downstream consequences of the loss of control of our finances, do they understand the consequences of the diminution of sovereignty that has flowed from the Anglo-Irish Agreement? Willingly adulterating one's absolute right to take whatever course of action is necessary, especially with the involvement of others, is not a policy that I should commend, especially if those most affected are opposed to it.

An illustration of the defects of shared responsibility is the Anglo-Irish Agreement, which has created a rigid framework in which the Government must operate. They lost freedom of action, and as a result the Secretary of State for Northern Ireland foolishly said that he found it difficult to envisage the military defeat of the IRA. If that is so, the framework—the policy in which the Secretary of State must operate—is wrong and must be changed.

Despite his later efforts to qualify his words, by his first remarks the right hon. Gentleman did himself fatal political damage. The IRA's perception of itself is that it cannot be defeated, and it will act on that perception. That perception must be changed before victory over that terrorist body can be won. For the good of everyone who wants to live in a western liberal democracy such as we enjoy, that victory must be won.

My hon. Friend the Member for Antrim, East (Mr. Beggs) pointed out last Wednesday that the Unionist party wanted a good neighbour policy with the Irish Republic, and that we should like a lasting relationship based on mutual respect between Ulster and the Republic. I believe that that can follow only from stability in Ulster. My right hon. Friend from Lagan Valley (Mr. Molyneaux), who is the leader of my party, said last Tuesday that such stability could come about only if there were what he called a constitutional offensive—in essence, an end to constitutional ambiguity about Ulster.

I know well that the constitutional measures that my right hon. Friend outlined—which are detailed to some extent in the amendment that we have tabled—were supported, and not for the first time, by a member of the Social Democratic and Labour party. I know that those measures are often referred to as "integrationist", but I do not agree with that description because they are far more accurately described as constitutionally neutral between integration and devolution, and they most certainly would not inhibit moves to a devolved parliamentary structure, when folk in Ulster learn to work together once again or to the creation of a constitutional and administrative position in Northern Ireland that is indistinguishable from the rest of the United Kingdom.

If the measures taken included the return of simple majority elections, the IRA would be even more deeply wounded, and so much the better for us all. Let there be no doubt that moves such as those outlined in our amendment would wound the IRA because they would change its perception, which is of fundamental necessity before it can be defeated.

Those steps would therefore send a clear signal to the IRA that its campaign of thuggery, murder and lies will not succeed in the short or long term. The foolish words of the Secretary of State will not be wiped out by more words. He has been wasting his time in trying to pull back from them since he first uttered them. No matter how wise or firm those words are, they will not suffice; only action will do the trick, and it must be taken as soon as possible.

Democracy means far more to me than blind insistence on every jot and tittle of the desires of a 51 per cent. majority. The word "democracy", if one looks it up in a dictionary, demands sensitivity to all minorities and a willingness by the majority in any elected Chamber to take into account the minority point of view, especially when deciding on a course of action of which they may not wholly be in favour. I know that 51 per cent. majorities seem to work well and brutally in this House, but it is not a wise policy in the long term. It is a pity that the Government so rarely follow the true meaning of democracy.

If we are to have peace and stability in Ulster, we should go down the course outlined by my party. If the Government have any sense they will not surrender control of the nation's finances to any hands, but rather will retain sovereignty and freedom to act as the needs of the nation dictate and not as others would try to dictate to us.

7 pm

Photo of Mr Spencer Batiste Mr Spencer Batiste , Elmet

The Gracious Speech states: My Government will continue to pursue firm financial policies designed to reduce inflation and foster the conditions necessary for sustained economic growth … and … will continue to work with our European partners to complete the single market; to enhance economic and monetary co-operation. I should like to examine how we can best achieve those vital and interactive objectives, particularly in the context of our membership of the European Community.

We in Britain have a vigorous and robust political system. Some who have been watching our debates over the past week may say that it is too robust, but it changes only slowly. It follows behind economic and social change, and then only along clearly defined paths that are well enforced. Our partners have quite a different approach. They are comfortable with bold constitutional statements of objectives, some of which can be achieved only in the long term, if at all, and in some cases they live with patchy enforcement provisions. That difference of approach is a cause of frequent conflict and misunderstanding and often leads to important and essential debates on our future being reduced to divisive slogans, when in reality many of the differences are bridgeable.

The creation of the single market and stage 1 of the Delors report on economic and monetary union represent a response to existing needs. They have clearly defined objectives and procedures, and that responsive approach stimulates no symptoms of rejection from the British body politic. The single market and stage 1 of EMU are a "good thing." We press on with the detailed measures needed for implementation and are rightly critical of others who lag behind and impatient of their rhetoric, which we see as empty when it is not being delivered in the shape of firm measures and legislation.

Stages 2 and 3 involve the notoriously hazardous occupation of crystal-ball gazing. They seek to anticipate changes that are a long way off and inherently unpredictable. Because the debate is anticipatory rather than responsive, and because at this stage there can be no timetable attached to it, all our national rejection symptoms are triggered. The debate becomes a "bad thing" and we are hesitant about becoming involved in it or even in the more immediate issue of the exchange rate mechanism. We cannot afford to reduce those important matters to the language of "1066 and All That" and miss the opportunities to advance vital British national interests by a more flexible approach.

Of course the proposals for stages 2 and 3 are controversial; they could hardly be otherwise when we have yet to complete half the measures needed for 1992 or have even begun to address the implications of enlargement and events in eastern Europe. We should aim to separate the debate on economic union from that on monetary union. They do not have to run side by side, and many of the difficult controversies that arise within them can be addressed if they are treated separately. The alternative evolutionary approach for monetary union put forward—albeit rather belatedly—by the Government is a significant first step in this direction.

Good arguments demand good tactics as well. Sometimes we need to be firm even if we stand alone, but not so often that we are perceived as negative and isolated. Why say "no" to initiatives when saying "yes, hut" at any early stage can often lead to achieving our objectives more effectively? Better still, why not be the promoters of new initiatives rather than respondents to the initiatives of others?

I and, I believe, many colleagues in the House are concerned that this Parliament is less effective than many others in its European role, but if we as parliamentarians feel that we are peripheral to European affairs, that is our fault and for us to put right. It is not the fault of the Community, and we should not vent our frustration upon it. If we are to be responsible as members of the Government, we must address ourselves to the question of how most effectively to exercise real power now and in the future and how to achieve democratic accountability throughout the system.

I certainly would not wish to encourage corporatist interventionism. Ron Todd may well consider coffee and croissants in Brussels an acceptable alternative now that beer and sandwiches are off the menu at No. 10, but it would be a damaging alternative, not just for Britain but for Europe at large.

All legislative decisions that can best be taken at national level should be. "Subsidiarity" is not just a convenient, if inelegant, label—it is the most effective route forward for many aspects of economic and employment policy, where market pressures will bring rapid convergence once the single market is complete.

Equally, some issues require Community action, and high on the list are those needed in our interest to complete the single market, to make it effective and to ensure that everybody is playing by the same rules. If we want others to support the measures that we regard as important, such as more open financial services, we must be sensitive also to the matters that they regard as important, particularly in the context of developing stable trading relationships and containing inflation within the exchange rate mechanism.

Against that background, we have to address as one of our highest priorities the potentially destabilising deterioration in our balance of trade over the past two years, especially with our Community partners. The statistics have looked very suspect for some time, and I hope that my right hon. Friend the Chancellor will tell us how his investigation of them is proceeding. Undoubtedly, whatever the validity of those statistics, they show a trend which must be reversed. The underlying causes of that trend are quite different from those in the 1970s, when vast chunks of United Kingdom industry were unprofitable and little was being done to put it right.

The director general of the CBI, John Banham, made an impressive opening speech to his conference last week and listed the factors which between them account for the entire deterioration in our trading balance over the past two years. I should like briefly to examine them because they are fundamental to considering the need for flexible tactics in Europe.

The first was the inflationary upsurge in consumer spending. The Government have addressed that problem by their high interest rate policy. Painful though it is, it is the only solution available to us. I hope that no one will flirt with credit controls, which would be a disaster for this country. The imposition or attempt to impose ineffectual credit controls would fatally undermine our banks when they need all the support that they can to face world competition beyond 1992.

In any event, it cannot make sense to seek to solve a trade deficit in manufactured goods by creating a deficit in our invisible trade. Many of our business men look at the Community and at the way in which every other country from one end of the political spectrum to the other has benefited from membership of the exchange rate mechanism and ask, "Could we not benefit also from belonging to that mechanism sooner rather than later?"

The second item highlighted by John Banham was lower North sea oil earnings, as a result of the Piper Alpha disaster and other problems. That is being reversed and revenues will increase again next year, but nobody should take it for granted that oil exploration will continue indefinitely, whatever the tax climate. An Opposition committed to higher taxation would only drive away those who seek to explore the North sea for new oil resources.

The third item was the long-term weakness in our motor car industry. That matter is being addressed by huge inward investment from the world's major motor companies and especially the far-sighted Japanese who, despite the Labour party, recognise that Britain is the best place in Europe to make their products. In the coming decade, it is possible that we shall once again become a net exporter of motor cars. That is of great strategic significance to us. However, it reflects not just our internal domestic industrial environment, important though that is, but the fact that our investors regard our role in Europe as critical to their plans and we must never lose sight of that.

The fourth matter was the surge of imports of world-class machinery to re-equip our manufacturing industry. That is a good sign for the future, provided we can contain unit labour costs. It highlights other important matters as well. First, there is the unique vulnerability in Europe of United Kingdom industries to hostile takeovers as a consequence of the dominance of equity investment by our stock markets and the dominance in those markets of institutional investors obsessed by short-term pressures.

It is easy to blame restrictive practices in markets overseas or competition policy at home. Both are important, particularly as takeover activity will increase, so progress on a coherent European mergers policy is vital to us. The real core of our unique problem lies in the unwillingness of our banks to invest in their customers and in our taxation system, which still discriminates against the continuity of family businesses.

Many other comments could be made in the debate, but time runs out. We must learn from the experience of the past to be flexible in our tactics towards our partners and learn not to be bound by our traditional patterns but to look forward to opportunities in Europe and be willing to grasp them, whatever our philosophical difficulties may be.

Photo of Mr Patrick Duffy Mr Patrick Duffy , Sheffield, Attercliffe 7:06 pm, 28th November 1989

I welcome the reference by the right hon. Member for Old Bexley and Sidcup (Mr. Heath) to regional policy. I share his fear that it was neglected by the Chancellor. I should like to describe that concern through the vehicle of my region and that of my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse), who is secretary of our Yorkshire group. I want to talk about the current programme of regeneration of our old industrial cities in Yorkshire, and to do so in the light of the Government's economic policy.

I remind the House of the pledges in the Queen's Speech: that the Government will work for "sustained economic growth" and will form a partnership "to regenerate our cities". Those two commitments are of great importance to our region and to the cities of Bradford, Hull, Leeds and Sheffield. Since the recession, there has been a steady and consistent recovery across the broad spectrum of industries in the region. Yorkshire's base is now more high-tech, more diversified and more efficient. Business in the region is in better shape to meet the challenge of the 1990s and beyond than anyone would have dared forecast at the beginning of this decade.

With its closeness to Europe and its excellent ports, Yorkshire is well placed to meet the opportunities from 1992 of the single European market. The Humber is growing more quickly as a trade route than any other United Kingdom estuary, and carries some 55 million tonnes of cargo annually. The Humber ports are backed up by an extensive motorway and road network system as well as rail links to the rest of Britain, and are thus strategically faced towards Europe, with its 320 million single market customers.

Yorkshire's traditional industries of chemicals, wool textiles and coal and steel are also poised to make major contributions to exports. In recent years, significant investment by most of Yorkshire's chemical companies has ensured that Yorkshire chemicals will continue to play a significant role not only regionally but internationally. The United Kingdom's wool textile industry, with its roots firmly in West Yorkshire, is on course to achieve a remarkable £700 million export earnings record this year. This will easily maintain its place as one of our top five exporting industries and the country's largest exporter to Japan. Coal and steel are making all-out efforts to improve productivity and efficiency, in desperate attempts not only to preserve domestic markets but to win new ones overseas.

That is not bad for a region which is still regarded as a struggling relic of our industrial past. That impression is as much a myth as the cloth cap and clogs image of centres such as Leeds and Sheffield. Along with the rest of the Yorkshire economy, those old industrial cities have geared themselves to restructuring in the 1980s, with a view to regeneration.

Let me repeat that Yorkshire is poised to provide that incremental industrial capacity of which the British economy is clearly in such dire need. The last thing with which Yorkshire can afford to be saddled at this crucial stage is a regime of continuing high interest rates, a depleted industrial base and an investment downturn—in other words, current Government economic policy. No region is doing more to try to assist this Government, to pick itself up and to gear its economy to the challenge of the single European market than Yorkshire and Humberside, and no region is doing more to regenerate its cities.

The pace of urban development is being set by Government-created corporations in Leeds and Sheffield. They are charged with the task of breathing new life into districts blighted by years of industrial decline and dereliction. The Sheffield development corporation works closely with the Sheffield city council, which has also promoted regeneration with imaginative skill and vigour. Both have arrived at a unique concordat which amplifies the new partnership. All that has been achieved despite a cut in the regional aid budget of no less than 72 per cent. in real terms since this Government came to power in 1979. Partly as a consequence, economic growth in the south over the same period has been 35·6 per cent., compared with 16·6 per cent. in the north.

The economy faces two years on the brink of recession with investment slumping and profits standing still, according to a gloomy set of forecasts published by the Confederation of British Industry yesterday. In separate forecasts, Lloyds bank said yesterday that the economy will hover on the brink of recession next year as high interest rates take their toll. That raises the question whether the slowdown will turn into outright recession with a sharp drop in output, as occurred in 1979–81. However, the inflation problem is not as severe as then, and the world economy is in better shape.

The balance of payments position, as we have heard almost ad nauseam during this debate, is considerably worse and the British economy is vulnerable at any time to a collapse of confidence among overseas investors. There is a danger that Britain is facing a structural deficit problem such as has plagued the United States in the 1980s. It may take several years of low potential growth in Britain before the deficit disappears.

There are some genuinely encouraging features about the latest trade figures. For the first time since the spring, as the Chancellor confirmed in his opening speech, the volume of exports has been growing faster than the volume of imports, but that more hopeful trend must lose some of its shine because of the continuing deterioration in the terms of trade. Exports, happily, have been rising faster than imports in value terms.

The Chancellor has used the Autumn Statement to play for more time. He has said nothing about the mix of fiscal and monetary policy next year, but he is only too well aware that real interest rates are the highest in recorded western history. Moreover, demand is at its weakest since 1980–81. What is he going to do about that nightmare scenario? Many of us posed that question to him this afternoon, and it is only fair to say that he was most generous in giving way and in his responses. I hope that he will seek the earliest possible relaxation, bearing in mind the lags, which may mean that it will take time to get the economy going again.

I hope that, in his first Budget next April, the Chancellor will further raise public investment, especially in areas that help to expand industrial capacity. Fiscal policy is crucial to the hopes of getting interest rates down. I also hope that the Chancellor will cut taxes, especially those that bear on costs and prices such as employers' national insurance contributions, thereby helping to bring about a fall in inflation.

Recalling the earlier reference by the right hon. Member for Old Bexley and Sidcup to regional policy, I appeal to the Chancellor above all to restore support for regional policy and thereby to restore confidence in regions such as Yorkshire and Humberside and in their cities, especially Sheffield and Leeds.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield 7:14 pm, 28th November 1989

I was most impressed by the speech of the hon. Member for Sheffield, Attercliffe (Mr. Duffy), because he gave a fair picture of the current position and I was encouraged to learn of the progress that has been made in his region of Yorkshire and Humberside, of the restructuring of the past 10 years and of the determination of the people there to try to improve matters. I recognise that 1990 will be a difficult year and that high interest rates will cause problems.

First, I welcome the Queen's Speech on behalf of my constituents, who will especially appreciate the Bill to control pollution and waste. My constituency is attractive and people want to preserve the character of the environment; the Bill will help that cause. Secondly, I welcome more generally the Bills to restructure the coal industry, to sell the Crown Suppliers and other parts of the Property Services Agency, to develop training and enterprise councils and to reform trade union law, because those four measures will contribute to the more efficient working of the economy.

The media concentrate on the short term, but in a debate such as this, we need to recognise that the way in which the Government can help most is to make long-term structural changes to the economy which will improve its efficient running. That has been the whole objective of the Government's economic policy for the past 10 years. We have seen many improvements on the supply side. As a result, the sustainable rate of economic growth in the United Kingdom has increased considerably over the past 10 years and the performance of British industry has been transformed in the process.

Today, British industry can manage without Government restrictions such as those that my right hon. Friend the Chancellor described earlier. The most important achievement is the huge increase in industrial profitability over the past 10 years—we have returned to the levels of the 1960s. That is important, because the principal source of investment is retained profits and most companies now have substantial retained profits with which they can invest. Productivity has also improved as a result of increased investment.

The other day I noticed an article in CBI News in which the director-general of the CBI pointed out that, on CBI figures, productivity increased by 6·5 per cent. in 1987, by 6·2 per cent. in 1988 and by 6·9 per cent. in 1989, and was expected to increase by a further 7 per cent. in 1990. Those productivity gains have come about largely as a result of the huge increase in investment. My right hon. Friend the Chancellor was right to point out that it is the quality of investment that matters. The acid test is whether British industry is more profitable and the answer is yes, considerably more, because investment has been extremely effective. Exports have also increased: by 11 per cent. in the past year and by 40 per cent. since 1985 as a result of that increased investment.

Today, the sustainable rate of economic growth in the economy has reached between 3 and 4 per cent. However, the difficulty is that, over the past couple of years, economic growth has been well in excess of that figure and, as a result, we face the problem of inflation. The reduction of inflation, therefore, must continue to be the No. 1 economic priority. The most effective way to combat inflation is by the use of interest rates, painful though that may be, because they curb demand. Therefore, I hope that my right hon. Friend will keep interest rates at present levels for as long as is necessary to bring inflation down. However, he could emphasise less the aim of keeping interest rates at their present level to defend the value of sterling. It is noticeable that, over the past month, there has been a 4 per cent. fall in the value of sterling. We can afford to cope with that and on balance, it will be an advantage to British industry and to British exports. The inflationary consequences of that devaluation will then be minimal.

In 1990, the British economy will start to come back on course. The rate of investment will slow down from recent high levels, but the position is different from that of 1980–81. As a result—I base my assumption on many discussions with manufacturers in my constituency and elsewhere—the slowdown will be temporary. Towards the end of 1990, confidence will be restored and in 1991 there will be a sharp recovery.

In the meantime, what sort of Budget should the Chancellor of the Exchequer introduce in March next year? It should be a budget for business. Although I welcome his recent renewed commitment to reduce the rate of income tax to 20 per cent., perhaps next year is not the time to do that.

I am sorry that my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant) is not present. Unlike him, I believe that it would be inappropriate to increase the mortgage tax relief ceiling above £30,000. That would be an inefficient way of helping first-time buyers. Many people have no need of such help, including myself. They have no need of additional relief. If we want to help first-time buyers with cost of buying a house—I understand my hon. Friend's objectives—it would be more effective to raise the ceiling for stamp duty. The Treasury should not increase the £30,000 tax relief limit.

As I said, next year's Budget should be a Budget for business. There are three principal business taxes. The first is national insurance contributions. When the Government Actuary's report is published in a few days, much of the fiscal surplus will be contained within the national insurance fund. As unemployment has fallen substantially during the past two years, the fund must be in substantial surplus. The rate of contribution has not been reduced to the same extent as they were increased when unemployment was rising. Next year's Budget may be an opportunity to reduce the employer's national insurance contribution, and thereby the costs of the payroll.

The second business tax is corporation tax. I would not wish to interfere with the changes which my right hon. Friend the Member for Blaby (Mr. Lawson) introduced in 1984. Although the reforms were much criticised at the time, there are now far fewer tax distortions in the system and investment decisions are taken for the right reasons, not for tax reasons. In the subsequent five years, we saw a huge increase in the yield from corporation tax, and today it stands at well above £20 billion.

The Treasury should perhaps consider a change in the arrangements for leasing. The leasing industry has been a great success. Today, about 30 per cent. of capital investment is financed on lease. However, there is a penalty for leasing exporters. People who export leasing finance receive only 10 per cent. writing-down allowance on the asset, compared with 25 per cent. available on all other assets. A change in the arrangements might encourage exports by making it easier to finance them by leasing.

The third tax on business is the business rate. At present it is difficult to judge the impact of the uniform business rate, because the valuations list will not be published until January. Until then, it will be difficult for businesses to plan and budget, because they do not know what their position will be. Clearly, there will be large increases for some firms, probably in the commercial and retail sectors. I welcome the transitional protection for small firms. By the time the Chancellor drafts the Budget, the position should be clearer, and I hope that he will not renounce further help if it proves necessary.

As I said, although 1990 will be a difficult year for the British economy, it is unrealistic to compare it with 1980–81. The economy is much stronger now, and its capacity for recovery is much greater. I believe that, towards the end of 1990, confidence in the economy will he restored and in 1991 there will be a sharp upturn In growth.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli 7:24 pm, 28th November 1989

This is the 11 th Gracious Speech that we have debated since the Prime Minister was elected in 1979. She and her Government were elected principally because they persuaded the British public that they could and would conquer inflation and claimed that they could arrest and reverse Britain's economic decline. Ten years later, after much strife, upheaval and damage, the Government's economic policies have failed and inflation has not been conquered: we have the highest rate of inflation of all our industrial competitors. The relative decline of Britain's industrial economy has accelerated. We have been overtaken by Italy in the European league of national wealth and another five years of Thatcherism could see us overtaken by Spain.

In 1979 we had a surplus on our balance of trade in manufactured goods. This year we have a deficit of £17 billion. We have a surplus with few countries, either inside or outside the EEC. Recently, I read in the Financial Times that we now have a balance of trade deficit even in putty. So much for the Prime Minister's economic miracle. She likes to peddle the rhetoric of thrift, prudence and financial rectitude but she has achieved and created their very antithesis. We are a country of consumers and spenders, of borrowers and importers, a country using borrowed money to live off the fruits of production of the ingenuity and productivity of other nations.

Some of us remember that in 1979 the Prime Minister and her colleagues were certain that they knew the causes of inflation and had all the answers. Inflation was caused by what I might call a triad of elements—high public expenditure, high public borrowing and a failure to control the money supply. In the simplistic jargon so favoured by the ideological Right, all that was compendiously described as printing too much money. So public expenditure was cut, causing great damage to public services. Public borrowing was limited, with devastating consequences for public investment, the infrastructure, roads and railways. Yet, after all that misery, we still have the highest rate of inflation of all our industrial competitors. In many cases it is higher by far than that of countries in western Europe which have better public services, infrastructure, roads and railways and spend more on public investment.

Control of the money supply has been a complete shambles. From 1979 to 1981, the money supply was too tightly controlled. Then, when the right hon. Member for Blaby took over, it became too loose. It has been a shambles because of a contradiction at the heart of Government policy. The Prime Minister believes in a free market, apparently in almost anything and everything, including money.

In the pursuit of that belief and that policy, the Government abruptly abolished exchanged controls and allowed the banks, building societies and financial institutions to compete freely for money in the market place. Britain's financial system, which was one of the most open in the world in 1979, was made far more open by the changes and the free market in money which the Government instigated. A free market in money is often not compatible with tight control of the money supply. Because of that, the only way the Government can seek to control the money supply is by cripplingly high interest rates.

The right hon. Member for Blaby (Mr. Lawson) eventually came to realise that. He realised that he did not have many instruments to control the money supply. He looked around for some other lodestar to control growth in the money supply and found it in the exchange rate. That is one reason why he wanted to join the exchange rate mechanism. He tried to shadow the deutschmark, but that ended in disaster. The Prime Minister would not even allow him that benchmark for monetary policy.

The Prime Minister not only believes in a free market in pounds in the domestic market, but apparently in a free market in pounds in foreign exchange markets. With a balance of payments deficit of £20 billion, that means devaluation and nothing else. We have seen devaluation of 4 per cent. in the past few weeks and we shall see much more of it in the coming months. For all her rhetoric about fiscal rectitude, sound money and a strong pound, the Prime Minister is a devaluer. The markets have tumbled to it and the City knows it.

The Government's economic policy is in tatters. All that they can do is to limp—dare I say it—like a lame duck towards the next election, hoping and praying that high interest rates will reduce inflation just a little, that the devaluation abroad and the recession at home will reduce the trade deficit just a little, and that as a consequence interest rates may come down just a little. They also hope that the inflationary consequences of devaluation will not appear in the figures until after the next election.

Perhaps the Prime Minister still believes in her economic policies, but I do not think that most of the Cabinet do. I also do not believe that the City and the financial markets believe in them any more—certainly the British public do not. That is why the Prime Minister has already lost the next election.

Photo of Mr Matthew Carrington Mr Matthew Carrington , Fulham 7:32 pm, 28th November 1989

I warmly welcome the commitment in the Gracious Speech to continuing and increasing the battle against inflation. For all the pain caused by high interest rates, inflation is by far the worst scourge that can attack the country, and it must be fought at every opportunity.

Nobody pretends that high interest rates are painless. They do serious damage and hurt home owners, borrowers and, particularly, small businesses which rely on bank debt to finance their activities. Inflation does more damage to the economy and is more painful to old-age pensioners on fixed incomes, those with savings and those whose salaries cannot rise as rapidly as prices. Inflation destroys companies and hurts exports, particularly companies which export. Although inflation eventually affects the exchange rate and will eventually produce a devaluation of the currency, devaluation is erratic, slow and unpredictable. Devaluation rarely manages to ensure that the competitiveness of British manufacturing companies is sustained. In the end, everybody loses with inflation.

There is no alternative to interest rates as a way of controlling inflation. The House has often debated whether there are alternatives and the only suggestion is that somehow we can persuade banks to control credit and stop lending. In practice there are few ways to stop banks lending money. It has been suggested that we should talk nicely to them or remind them that it is not in accordance with the Government's economic policy, so if they wish to remain friendly with the Government, they should stop lending. The vast majority of banks that can operate in our market are not susceptible to those pressures, largely because they make money from lending, so they are not easily persuaded to give up that lucrative method of increasing their profits.

My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) suggested that we could control banks by threatening to remove their banking licence. Even if we could control them, many banks are outside the control of the Bank of England and the banking licence. We would have to rely on central banks being prepared to exercise similar controls on the banks within their jurisdiction, and it would not be possible to persuade them to do that. Nor would it be a sufficient way of producing the right effects.

It has been suggested that we could stop banks lending money through special deposits. The practice of requiring banks to place special deposits increases interest rates still further. It forces up interest rates to limit the desire to borrow and the demand for lending. That would have little effect on the totality of lending, if demand continues. In other words, it is similar to the Government increasing interest rates in the first place.

Without the reintroduction of exchange controls there can be no effective sanctions against the banks. Some right hon. and hon. Gentlemen suggest in their amendment to the Loyal Address that the reintroduction of exchange controls would cause us considerable problems with the European Community. The other effective sanction would be the imposition of tough withholding taxes on those who borrow. That, too, would cause us considerable problems with the EC and our international treaties.

The only other way of reducing liquidity in the economy is by raising direct taxes. To produce a sharp enough effect, the basic rate of income tax would have to be raised sharply. That would cause far more damage and be far more dangerous as a weapon than the increase in interest rates from which we have all suffered.

All the signs are that the economic medicine is working in the domestic economy and that inflation is on the way down. All the lead indicators point to a pattern of sustained economic growth which will allow a return to sensible economic growth. Our interest rates of 15 per cent. are probably not sufficiently high for the external value of sterling. We are in the classic exchange rate trap. Interest rates are high enough for the domestic economy but arguably not sufficiently high for the external economy.

Short-term attitudes and exchange rate management are misleading since foreign exchange markets tend to be volatile and swing on emotion as much as on the economic realities of the country of the currency being traded. It is misleading to look at the exchange rate at any given point as a measure of how markets are viewing the currency. The inflationary pressures arising from the recent devaluation will undoubtedly be bad, although some commentators have exaggerated the extent of the problem.

Perhaps the present value of sterling against the deutschmark will give us a chance to re-examine the exchange rate mechanism of the European monetary system. Perhaps we should be considering whether the present ERM and EMS will be suitable, given the new conditions emerging in Europe. Events in eastern Europe have certainly changed the external position of the European Community and will dramatically change Germany's position within it.

Through its intended ties with East Germany, West Germany will gain cheap labour and a large unexploited market with an almost insatiable demand for the goods that it can produce. Moreover, that market will be tied to West Germany's apron strings by strong emotional bonds.I believe that that will strengthen the deutschmark still further, and that will start to blow the exchange rate mechanism further apart if the necessary changes are not made sooner rather than later.

The Italian Government are already making noises to the effect that they are unhappy with the control that the Bundesbank exercises on European monetary policy. The Italians' doubts can only get worse and should be echoed by the rest of Europe. The British Government should seek an opportunity to enter discussions with other members of the European Community to decide whether we cannot dump the Delors plan and substitute better proposals for monetary co-operation more adaptable to the new challenges that we face in Europe.

Photo of Mr Jim Sillars Mr Jim Sillars , Glasgow Govan 7:41 pm, 28th November 1989

On 16 November 1985, the Prime Minister made a revealing statement when a senior Conservative colleague went to plead the case on behalf of the then Tory devolutionists. She said: I am an English nationalist, and never you forget it. We in Scotland have had cause not to forget it. There is no question but that the Queen's Speech is an English nationalist's speech, which fails to acknowledge in any sensible way the extent of the economic and social crisis that the people of Scotland face.

Because time is limited, I shall take just one example to show the fault that lies with the English Tory Government —the death blow that they have allowed Sir Robert Scholey, chairman of British Steel, to aim at the heart of the Scottish economy. I refer to three plants in particular —Ravenscraig, Dalzell and Clydesdale tubeworks, which employ between 4,000 and 4,500 people. British Steel has pursued a deliberate policy of under-investment in Scotland. Since 1983, it has invested £580 million in steel plants, of which Ravenscraig got £16 million. In the current investment programme, £83 million is earmarked for Lackenby, £40 million for Scunthorpe, £54 million for Llanwern and £106, million for Port Talbot. Scotland is scraping along at the bottom. Schemes currently being considered for approval would cost £350 million, but not one pound of it would be earmarked for Scotland.

Clydesdale's output is mainly for offshore construction. I have listened with amusement to hon. Members lecturing us today about the importance of the cash that has flowed from the North sea and saying that the next decade will be very different from the last. In terms of development and development values, that is bunk. According to the Scottish Development Agency, a pretty reasonable organisation, in the next decade the development work in the North sea will be worth 10 times as much as the development work involved in the Channel tunnel in terms of construction and related engineering orders. In the next five years, £27 billion is earmarked for development. In the next three or four years, 46 platforms are to be built using 740,000 tonnes of steel—and that does not include the pipelines that will be required to service the development when it comes on stream.

Scotland is the only nation ever to discover oil and actually become poorer, at the hands of an English Tory Government. One third of the Scottish people are living in poverty according to the official definition. The Government privatised British Steel and gave Scholey and his anti-Scottish mates open licence with their anti-Scottish bias, to pursue malicious policies against the men at Ravenscraig, Dalzell and Clydesdale. It is not because those men have not worked well—they have broken records in terms of production and freedom from strikes and have done an enormous amount of work at a plant which badly needs investment. It is the men's work that has overcome the technical problems associated with steel production in those areas, but the malicious bias of Scholey and company has been directed to undermining that work.

If Ravenscraig, Dalzell and Clydesdale go, there will be a domino effect down the Clyde and across to the east of Scotland. Reputable economists have predicted that if we lose the Scottish steel industry we shall lose not just the 4,000 to 4,500 jobs in that industry but about 15,000 to 20,000 related jobs.

That is the potentially devastating prospect for the Scottish economy—all because the Government privatised British Steel and gave Scholey a gun to point north to destroy the industry which lies at the heart of our economy. Ironically, if Scholey and his friends have their way, not only will a nation that discovered oil have become poorer but a nation in whose jurisdiction and waters sits one of the largest developments in terms of demand for steel will not have the capacity to meet that demand and its able and skilled steel workers will be on the dole. That is Scotland's indictment of the English Tory Government and why the Queen of England in Downing street is so detested north of the border.

Photo of Bill Cash Bill Cash , Stafford 7:47 pm, 28th November 1989

As we move towards 8 December and the summit at which new developments towards a federal Europe will be discussed, we should reflect on the concerted attempts that have been made to undermine the position of this House over the past few months and years. The activities of President Mitterrand and Chancellor Kohl are quite understandable in terms of their countries' economies but they are wholly irrelevant to what is happening in the United Kingdom.

I would not wish to push them too far, but there are some parallels to be drawn between what is happening in Europe in the run-up to 8 December and events in the mid to late 1930s. The context may be very different but in both cases there has been a threat to the future of the United Kingdom. A concerted attempt is being made to undermine the ability of the House to determine its own economic and social priorities, and effectively, that undermines the purpose, objective and efficacy of debates such as this.

I have been given numerous notes and briefings on the state of the British economy. Chancellor Kohl and President Mitterrand seem determined that we should accept the binding rules proposed by Mr. Delors—who I believe is coming here on Friday. If that happens, we shall no longer be able to determine a basis on which our economy can function at all independently or even reasonably flexibly.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

Surely the treaty of Rome and the Single European Act preclude the independent decision making that the hon. Gentleman is talking about?

Photo of Bill Cash Bill Cash , Stafford

That is a perfect illustration of the need for greater understanding and information about the manner in which the treaty of Rome has operated. Up to and including the Single European Act, there has been adequate opportunity for co-operation. I believe that what we should be doing, and what we are doing on behalf of Britain is to ensure that there is some flexibility, so that we are not bound hand and foot to what a panel of central bankers determines. We should also ensure that we are not bound by the concerted attempts of other countries to make their economic policies prevail at the expense of ours.

In the original treaty of Rome, in the articles that deal with economic and monetary co-operation, the word "co-operation" appears and it is carefully preserved in the Single European Act. However, now they are trying to move the goal posts. As President Mitterrand said on 17 October, they do not merely want economic and monetary union, as opposed to co-operation, but political union. That is the basis upon which the new federalism is being constructed.

That is no joke. After 20 years of automatic progression by stealth, we find that we have blown their cover during the past year. In effect, we are now being threatened that, if we do not go along with something that is not in the treaty—contrary to what the hon. Member for Greenock and Port Glasgow (Dr. Godman) has just said—but a new set of rules, and we will be marginalised into one of the outer concentric circles of Europe. That is what is being devised by Delors and others. We will no longer have any control over Britain's economic policy.

Perhaps the Opposition are waiting to see what we do at the summit on 8 December. However, during the debate on economic and monetary union a few weeks ago, hon. Members on both sides of the House agreed that we would not pursue stages two and three of the Delors plan. I expect that we will resist the attempts to take us down the federal route, despite the political difficulties posed by the threat.

However, we still have a major problem. Under the present Government's policy we have effectively reconstructed our economy since 1979. In the early 1970s we threw away a golden chance, when we had the opportunity, to make certain decisions. My right hon. Friend the Prime Minister has been prepared, during the last few years, to take those decisions which were ducked at the time. However, the challenge to us as a nation, and to our will power, is the need to increase productivity, quality and saving, as they are necessary to put us back into competition with our rivals in Europe. The management and work force of Britain, aided by a structure that can be provided by the Government, are the only people who are able to produce the goods for the benefit of the British people.

Let us consider France and West Germany, where there is massive state aid. We have the recent example of Renault, which is a state-owned company that has had to withdraw from the position it had adopted—presumably with the full knowledge and connivance of the French Government who provided massive state aid.

Italy is doing the same. We know about that from figures recently produced by the Commission. The percentage of state aid in Britain is rapidly declining. However, other countries in the European Community are engaged on a policy to get inside the rules before 1992 bites.

West German companies have increased investment in Britain by as much as 200 per cent. in the past few months. For example, there has just been an agreed merger between Morgan Grenfell and the Deutsche Bank.

There have been massive increases in the amount of money made available to the southern parts of Italy, through the structural fund. The system is being abused and that is combined with massive fraud, yet the system provides an opportunity for a strong, liberalised, deregulated economy.

Britain will do well, but we have to take the opportunities open to us. We must be vigilant and ensure that other member states do not take us for a ride.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 7:57 pm, 28th November 1989

I congratulate the right hon. Member for Huntingdon (Mr. Major)—who, alas, is not here at the moment—on his appointment as Chancellor of the Exchequer at the Treasury, and as juvenile lead to the Prime Minister in the Cabinet.

As I listened to the right hon. Gentleman today, I was reminded of the assertion of George Jean Nathan; politics is the diversion of trivial men who when they succeed at it become important in the eyes of even more trivial men behind them". That is a little unfair. I shall analyse, in a moment, the view of the Chancellor that he is unfit for the job—and there are others who agree with him.

The recent Whitehall farce at the Treasury has its more serious side. It has forced us to re-examine our understanding of the English language. When the previous Chancellor was driven from office, we had to redefine words such as "brilliant" and "unassailable". Now the closest friends of the new Chancellor and his most fervent admirers describe him as dull, boring, ignorant and grey. Therefore we will have to redefine such words as "loyalty" and "hagiography."

Quite the most fulsome praise that I have heard about the Chancellor came from a neutral observer on "The Money Programme" last Sunday week. He said: The Chancellor has a lot to learn in many policy areas". I suppose that the alternative view is that the Chancellor has a lot to learn in every policy area.

One thing worries everyone: who is in charge at the Treasury? To judge from the 4 per cent. depreciation in the pound that has occurred in the few weeks since the Chancellor took office, the dealers on the foreign exchanges do not believe that anyone is in charge. Phillips and Drew, the city experts, take a rather different view. In their bulletin, describing the Chancellor's policies as grim and grisly, they argue that the right hon. Gentleman is in the pocket of his civil servants. Bill Martin, their leading economist, puts it rather delphically: More than Mr. Lawson, the current Chancellor is likely to be sensitive to the natural fiscal conservatism of his Treasury officials. If there are Conservative Members present who hope for tax cuts, perhaps I should read them another sentence: It is probably right then to think in terms of a mean Budget, incorporating perhaps an implicit tax increase of £ 1·2 bn". I do not agree with the foreign exchange dealers or with the City experts. I believe that the power in the Treasury still resides at No. 10. Why did the Chancellor spend last evening at No. 11, which I understand is not customary? I understand that he does not normally sleep there. I am told that he woke up last night in a cold sweat, turned towards No. 10 and, in a whispered cry, was heard to mutter: Oh! Why does the wind blow upon me so wild?Is it because I am nobody's child—Margaret? We know that the Chancellor is the son of a trapeze artist. As such, he will know that, when a child falls from dizzy heights, it has a hard landing. The Chancellor's non-oil forecast of three quarters of 1 per cent. for the economy next year means that all the rest of us are in for a hard landing. On television on Sunday, and here at the Dispatch Box today, the Chancellor told us that he is a monetarist with a one-eyed view of the economy. With his one eye, he sees only one problem—inflation. And he has only one weapon to deal with it—interest rates. His sadly misplaced approach reminds me of Mr. Kremlin in Disraeli's "Lothair": Mr. Kremlin was distinguished for ignorance for he had only one idea—and that was wrong. The famous economist John Maynard Keynes was certainly not a monetarist. He has been dead for a long time, yet in his "Essays in Persuasion", written in the inter-war years, he had the prescience to anticipate the recent shambolic hysteria at the Treasury. He said: The Economic Problem, as one may call it … is nothing but a frightful muddle, a transitory and unnecessary muddle". Did not the Chancellor's appointment to his new office arise out of a transitory and unnecessary muddle? It was unnecessary because the Prime Minister put her pride before her country; it was transitory because, even if the Chancellor stays in office for two years until the next general election, my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) will take over from him.

The Chancellor talks to us on television and in the House today about sound finance and threatens, as though it has some sort of macho symbolism, to raise interest rates to 16 per cent. The Keynesian retort— 'Sound' finance may be right psychologically—but it is a depressing influence"— is as apposite today as ever it was.

The recession that is inherent in the Autumn Statement is depressing, as indeed are the Chancellor's words. Delving into deep and difficult psychoanalytic theory, not to mention sado-masochism, he tells us that, if the policy is not hurting, it is not working. But the people who will be hurt are not the Chancellor's own class but the working people of Britain.

Behind this ludicrous language and the pain and despair of recession lies a profound and tragic ignorance of economic management on the part of the Chancellor. When he made his Autumn Statement on 15 November, I asked him why the warranted rate of growth in 1989 was less than it was in 1979. As his answer moved from guff to persiflage, it was clear that he did not have a clue what I was talking about. It is a bit like the neurosurgeon, taken before the medical disciplinary tribunal, saying, when asked why he operated on the patient's leg, "Nobody told me that the brain was in the head."

We should have realised what was going on when the Treasury and Civil Service Select Committee heard the Chancellor's pathetic outburst on 3 February 1988. You know how it is, Mr. Deputy Speaker when, in this place, we hide our true selves, we bottle it up inside and we pull a mask over our face—until there is a cathartic event and we have to blurt out the truth and a little tear rolls down our cheek. That is what happened to the Chancellor on 3 February. I shall quote him extensively.

I asked him what would happen to public expenditure if we had a disastrous balance of payments crisis. He flipped and refused to answer the question. He answered: While undoubtedly you were at university learning to become an academic, I was outside digging roads learning how to earn my living". I yield to no one in my admiration for those versed in the theory and practice of digging roads. I would even be prepared to accept that, as an economist, the Chancellor makes a first-class navvy but, summoning up all my reserves of logic, I have to say that being good at digging roads is not being good at being Chancellor of the Exchequer.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch

Yes, it will be "Oh dear" as I quote from the Chancellor again. He then made two statements which, on the Richter scale of economic imbecility, have never been exceeded. He said: I also know that there is no imminent balance of payments crisis". To add insult to injury to that estimable Committee, he said: I simply observe beyond that that if you think that any projections that anybody has produced of any possible payments deficits in the last few weeks represent remotely a crisis in terms of the percentage of GDP compared with what we saw year after year during the 1970s, then I am extraordinarily surprised that you should make that comment. History has recorded that I was right and that the Chancellor was wrong.

I have examined the figures in some detail. In the 1970s, there were balance of payments deficits in six years. But not even in 1974, when oil prices trebled, did the balance of payments deficit reach 4 per cent. of GDP, as it will this year. There were deficits in four other years in the 1970s when Labour was in power—in 1975, when the balance of payments deficit was 1·4 per cent. of GDP, in 1976 when it was 0·8 per cent. of GDP, in 1977 and in 1979. When it comes to a balance of payments deficit, this Chancellor, with deficits of 3·2 per cent. of GDP in 1988 and of 4 per cent. in 1989, is in a mega-league of his own.

Every hon. Member knows what the warranted rate of economic growth is, but because the Chancellor does not, I shall define it for him. It is the sustainable rate of economic growth that Britain can have without moving into a balance of payments deficit. From 1950 to 1970, the warranted rate of economic growth varied between 2·5 per cent. and 3 per cent. of GDP. In the mid-1970s, because of the oil crisis, it fell to 1·5 per cent. In the 1980s, because we found North sea oil, it rose to 3 per cent. Recent simulations have shown that the warranted rate of growth is between 0·5 per cent. and 1 per cent. of GDP. That means that there has been a tragic decline in our manufacturing base. The proof of that lies in the Chancellor's forecast that, in 1990, with virtually no growth and a recession, there will be a £15 billion balance of payments deficit.

That will not end in 1990 or in 1991. The Chancellor is hopeless, helpless and hapless. No wonder we shall be voting against him tonight.

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley 8:10 pm, 28th November 1989

I shall deal first with what I call the manufacturing myth—the myth that Labour Members are the true friends of manufacturing industry. Some commentators paint a picture in which all the recent economic growth that we have enjoyed has been in the retail and service sectors and that none has been in manufacturing. Some say that the supposedly great manufacturing industries of the 1960s and 1970s are all dead or dying. Opposition Members have consistently claimed that, under Conservative rule, manufacturing output has fallen.

The stark fact is that manufacturing output fell under the last Labour Government. Under the Conservatives, manufacturing output has risen sharply, particularly in the past few years, and last year it rose by 4 per cent. Much of the industry in the 1970s was grossly uncompetitive and almost dead on its feet. Not only do we have more manufacturing industry now than we had under Labour, but it is more competitive and in better shape—[Interruption.] Labour Members laugh, but I will give examples to prove my point.

Who would have given British Steel a chance in 1979? Who would have given a chance to our aerospace industry or even to ICI, which had the reputation of being a sleepy, inefficient giant depending largely on our old colonies for its markets? Yet last year, for the first time ever, Britain's pharmaceutical companies exported more than those of any other country.

Our aerospace producing industry recently overtook France to become the world's largest, after the United States and the Soviet Union. Many people in my constituency, including Labour supporters, tell me frankly that industry in the area in the 1970s depended largely on inefficient and uneconomic pits or on old industries which were on their last legs. My constituency has seen a huge growth in manufacturing industrial output and there is now a widespread competitive manufacturing sector ranging from engineering to carpets and from consumer products to electronics.

Just outside my constituency, another of the industrial near basket cases of the 1970s, Rolls-Royce, now has a record order book for its aero engines. At almost every airport in the world one sees new planes with Rolls-Royce engines. My hon. Friends and I are extremely proud of a record such as that, even if Labour Members are grudging about it.

There is no denying that there has been some mismanagement of the demand side of the economy. That mismanagement has been due not to tax cuts, as is often claimed—such cuts injected only £4 billion extra into the economy last year—but to low interest rates in 1987 and 1988, which injected 10 times as much demand into the economy—£40 billion in all.

Those demand side problems should not blind us to the fact that the supply side of the economy has been producing record levels of wealth and output in recent years. Proof of that lies in the fact that, while the demand explosion has undoubtedly meant that imports and inflation have risen, our domestic output has risen sharply as well. The reasons for that enormous improvement in domestic output are better productivity and more competitive industry which has enjoyed an investment boom.

Investment now going into British industry is far better than that which occurred in the 1970s. At that time, investment was often directed by Government into unviable projects such as the creation of ludicrous and unsustainable levels of capacity in the steel industry.

There are other, more positive, though little noticed, signs which bode well for our prospects in the coming few years. For example, our share of world exports, which fell sharply in the 1970s, has stabilised in the last decade. Exports were up sharply in the last year and, in volume terms, they rose by 10 per cent. over the last quarter.

Our exports are now growing far faster than are our imports—[Interruption.] That may not give Labour Members much pleasure, but I have stated the facts. Our export performance is good now. That shows that our economy is more competitive and is responding well to increased demand. Perhaps that does not amount to the economic miracle that some were unwisely claiming some years ago, but it shows that our industrial problems are not nearly so grim as Opposition Members suggest.

Perhaps there never was a real chance of solving in a decade all our deep-seated and long-term industrial problems, many of which go back many years and are the responsibility of many Governments, as hon. Members in all parts of the House will accept. Even so, we now need, above all, a continuation of our successful supply side policies to consolidate the improvements of the last decade. An area where improvement is vital is the education system, which must supply the skilled, trained and educated people whom industry needs.

Conservative policies have produced more wealth and more manufacturing output than ever before. We should not be blinded to that fact by short-term demand problems. To deny that our policies are working risks a return to old-style, pre-Thatcherite policies. It would be ironic if, at the time when every other country, including many Communist states, are moving to more free market systems, we should return to a more controlled, centralised, regulated economy.

We have recently been hearing more a term which, thankfully, we have not heard for a decade. It is "industrial strategy". If we can learn lessons for the future by looking at the past, we can learn much by looking at previous attempts at industrial strategies. Consider, for example, Jaguar, which is topical today. The Government have been accused by the Opposition of allowing Jaguar, supposedly the jewel of the British car industry, to be sold off to foreigners, preventing it from developing into a major independent force in world car markets.

The battle for Jaguar to be a major independent force in world markets was lost not in the last decade but in the two decades before that. When we took office, Jaguar made a paltry 15,000 cars per year. Last year it made more than three times that number. It has been brought back from the brink by Conservative policies. Jaguar was taken to the brink by earlier Labour policies, for it was an industrial strategy of the Wilson Government which decreed that the British car industry should merge.

Industrial strategy and regional policy ordained that the British car industry should build plants in unsuitable places which meant that bodies and engines had to be shunted around the country from the midlands to Bathgate, and to Speke and back again. An industrial policy in the 1970s determined that the volume car business should bleed Jaguar and Land Rover white, so that for years those companies did not have enough investment capital.

That was why the good bits of the old British Leyland empire, such as Jaguar, were virtual industrial write-offs by 1979, making a few thousand cars in out-of-date factories with appalling labour relations and no pride in the job. Opposition Members need not take my word for that. George Simpson, currently the managing director of the Rover group, who worked in that group in the 1960s and 1970s, talking about the late 1960s, observed: It was a radically different company years ago … riddled with archaic practices. My greatest initial experience when I joined the company was trying to find out which level of canteen I would be assigned to. There were 14 levels of canteen and eventually I was allocated to one where you could have beer or sherry with your lunch. That was under a Labour Government. That was when Jaguar's pass was sold. That was the legacy of Labour's industrial strategy. Industrial strategies and interventionist industrial policies do not work. Markets work because they represent the individual choices of millions of people. It is sheer arrogance to believe that politicians and bureaucrats can make those decisions for people and that they know better than business men where to invest money.

The investment decisions of politicians are almost invariably clouded by political judgments which usually lead to commercial failure. Those who hold up Japan as an example of supposedly successful industrial planning have grossly misread the causes of Japan's industrial success. I accept that it is always easy for western politicians and business men to claim that Japan succeeded through something simple and easily understandable such as an industrial policy, which supposedly we have not had in the West. However, virtually all western Governments have tried industrial policies, and almost always they have failed.

To believe that industrial planning lies at the heart of Japanese industrial success is to miss the point. Japan has succeeded for many reasons, among which are its intensely competitive internal market, very low taxation, very low Government spending and a disciplined and vocationally oriented education system. Since the war, Japanese Governments have never pilloried profit or sneered at success in the way that Labour politicians habitually do. Japanese companies have taken care to make their employees feel part of their organisation, and they have been open-minded enough to buy in the best technology from overseas. Japan's Governments have provided a pool of low-cost investment for its industry by keeping taxes very low on savings—something which we would do well to emulate. None of those things has anything to do with industrial strategies.

We should not kid ourselves that the Japanese have succeeded through industrial planning, however alluring an excuse that might be, or that all that Britain needs to solve its industrial problems is a little bit of intervention here and a little bit of administrative guidance there. We should not fool ourselves that the right hon. and learned Member for Monklands, East (Mr. Smith) and his friends will get together with industrialists, trade unionists and a few civil servants and solve all our industrial problems. Our economy is not like that.

All those policies have been tried, and they have failed. Those policies gave us the economic planning boards of the 1960s, the National Enterprise Board of the 1970s, and British Leyland, British Shipbuilders, and British Steel, all of which were chronic loss-makers. Those policies will fail again if they are tried again. We should not return to the old pre-Thatcherite agenda which is being rejected all over the world. We should continue with the free market policies allied to improvements in our education system which will steadily rescue us from nearly a century of steady decline.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney 8:23 pm, 28th November 1989

I believe that my remarks will more than answer the complacent speech of the hon. Member for Amber Valley (Mr. Oppenheim), who managed to describe a successful supply policy which has resulted in a £20 billion balance of trade deficit. Other hon. Members have mentioned—and I recall vividly—the first statement made by the new Chancellor when he said that, if it is not hurting, it is not working.

People in the communities that I represent are asking who else has to be hurt or damaged and how many more have to lose their jobs before that policy apparently works. During the summer, in the weeks before the Chancellor took his new office, communities such as mine were already suffering serious blows as a result of the Budget and of the continuing structural changes imposed upon us. In one month during the summer, two pits in my constituency were closed. Six others have been closed within a 30-mile radius in the past 12 months. On the day of the announcement of the closure of Merthyr Vale pit at Aberfan, Hoover, our other major alternative source of employment, also announced significant large redundancies. It directly attributed those redundancies to the Government's economic policy, particularly on interest rates.

Hoover—the major alternative to the coal industry in my constituency—started the decade 1979–89 with 5,400 jobs and now, at the end of the decade, it probably has no more than 1,500 people at work. Many of the structural changes mentioned by the hon. Member for Amber Valley were accepted many times during the last decade by the trade union movement and management agreeing to change a variety of practices to become more efficient. It is a sad and tragic observation that, after a decade of difficulty, sacrifice and job losses in our communities, we now have the chilling feeling that in the next 12 months we shall have a repeat performance of the experiences of 1980 and 1981.

It is in that context that one has to measure the famous valleys initiative launched by the Secretary of State for Wales, of which my constituency is supposed to be the major beneficiary. I welcomed the initiative from the start. Local authorities, myself and others have co-operated fully in endeavouring to make the initiative successful. The Secretary of State thought that it was so successful that he wanted to show it off to the Prime Minister a week ago. That was the first time that the two have been seen together in public. Nevertheless, he was willing, keen and eager to demonstrate the success story of the valleys initiative.

I doubt whether the Prime Minister heard the whole truth. The truth is that the jobs we have gained from the valleys initiative have been more than matched by the jobs lost. In character and volume, those lost jobs cannot be compared with the jobs created. We have lost well-paid jobs in manufacturing and, with one or two exceptions, we have gained poorly paid part-time jobs in the service sector.

The Queen's Speech offers no solution to the structural problems which led to the supply problem about which the hon. Member for Amber Valley boasted. How can one boast about a successful supply policy which ends up with a £20 billion balance of trade deficit? What has happened in the past two or three years—there was a semi-admission of it in what the hon. Gentleman said—is that consumption has risen totally out of line with production. The only answer that the Government have is to crush consumption to match the decline in production. To achieve that cut in consumption, they will damage the investment necessary to increase production.

I can give a vivid illustration from my constituency. A new young enterprising company came to my constituency to make pistons for diesel engines. It is an amazing story. Do the hon. Member for Amber Valley and the Government know that now in Britain—once a great nation of manufacturing and engineering—there are only two companies which can make pistons for diesel engines? One is a small nascent company set up in Merthyr Tydfil. The company was set up because the gentleman who owns the export company had export orders which would no longer be met by any British company. He could not find the products to sell to the export markets that he has secured, so he was forced to set up a small manufacturing unit.

Having set it up, he has been besieged by telexes from Rolls-Royce, Perkins and Listers asking him to deliver pistons for diesel engines within Britain, in addition to his exports. He therefore needs to expand. However, a small company such as his needs to borrow. He has found that his interest rate bill alone has gone up by £2,000 per month in the past 18 months to two years. He will therefore not be able to expand to meet the supply-side problems that have arisen in the economy as a result of the Government's total and utter neglect of the manufacturing sector of the nation.

Our internal manufacturing supply problems and the Government's interest rate policy will make it more difficult, not less, to produce things in Britain again in communities such as mine. Developments in Europe, particularly in eastern Europe, will also cast economic and industrial shadows over manufacturing in this country.

I read with some interest that large-scale West German and American capital will be crossing into eastern Europe. Parts of eastern Europe are seen as a new south-east Asia or Taiwan within Europe because they offer an opportunity to launch products manufactured with cheaper labour and new investment into western European markets.

Another major employer in my constituency is Thorne Lighting. I recently read a headline stating: "General Electric plans attack from the east." The United States group has moved to buy into Tungsram, a major Hungarian lighting company which a few years ago caused enormous damage by dumping light bulbs on to the British market. That is a sign of other developments that will occur. Such developments may be understandable, but they will add considerable pressure on the manufacturing sector in our economy.

What does the Queen's Speech offer to help the manufacturing sector? We are not being governed by people who are interested in making things. Communities such as mine were founded on making things and there is nothing wrong with wanting to produce things rather than simply servicing things. In the end, the service economy depends on wages in the manufacturing sector.

Much of the service sector is self-consuming—it consumes other people's wages. To stay open, our B and Q stores and Great Mills stores require other people to have incomes, so people must be earning good money in other companies in the manufacturing sector. Communities such as mine with our great ironworks began the British and world industrial revolution in the late 18th century. We want to produce things again, but the Government are more interested in paper money than in meaningful production.

Recently I read the Chancellor of the Exchequer's, remarks about taking the Bank of England out of politics. The origins of the Bank of England date back to the 1960s. There were great debates in 1710 when the nascent Bank of England refused to support the Government of the day and almost created a credit strike. Daniel Defoe wrote an essay on credit in which he referred to "men of paper". The Government, too, are men of paper. They are not in the slightest bit interested in the manufacturing sector. If they were, they would not have allowed the decline in the past decade to become as bad as it has.

I have one modest suggestion which can be applied within the existing terms of Government policy. The Government can assist the growth and redevelopment of manufacturing investment in communities such as mine in two ways. First, they can use selective financial assistance to its limits. That is the last bit of regional policy left which can serve communities such as mine. Companies such as the one that I have decribed, which makes pistons, require that assistance to at least offset some of the costs of the high interest rates imposed by Government policy.

Secondly, the Government must take a much more imaginative approach to the EC funds available for regional restructuring and redevelopment. There has been a large increase in the regional development budget. However, in my extended correspondence with the Secretary of State for Wales in the past few weeks, I have found no imaginative thinking about how some of those regional Community funds can be used and adapted to ensure that communities such as mine, which are proud of their tradition of manufacturing things, can be so again.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset 8:34 pm, 28th November 1989

I am pleased to follow the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). Like him, I believe passionately that manufacturing industry is extremely important for the United Kingdom. I have always believed that the United Kingdom has been able to show the world how to manufacture and I believe that it can do so again in future.

I want to confine my remarks on the Queen's Speech to a very narrow subject. I want to help by offering some suggestions about our trade balance. Our trade balance can be financed and there is no need to panic. However, we can take measures against it.

When my right hon. Friend the Chancellor of the Exchequer considers his options, he must be worried about how he can steer his way through the problems without raising interest rates even higher. He must be worried about keeping inflation down and move against constant tax increases. He must always keep his eye on the difficult problem of unemployment which we are beginning to control.

The Government already use interest rates in their battle with the trade balance, but I believe that there are other measures available. We could reduce inflation through a tax reduction which would make United Kingdom goods and services more competitive, reverse the trade gap and bring greater employment. I can see the excitement on the faces of my colleagues on the Treasury Front Bench at the thought of that. I am referring to employers' national insurance.

In the Autumn Statement, I was very unhappy to hear that we will continue to keep employers' national insurance at roughly 10·5 per cent. I was involved in costing as a work study engineer in industry. Whenever we carried out a costing, we first considered the labour costs in the particular goods or services. As soon as we had written down the labour rates, we added on what was usually a very high figure for the employers' national insurance.

Earlier, I listened to my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), who tends to rewrite history. However, I want to praise his excellent efforts with regard to employers' national insurance. In 1970, when my right hon. Friend's Government took office, employers' national insurance, which is really a tax on jobs, was 13·5 per cent. Over four years my right hon. Friend reduced that to 6·5 per cent. However, when the Labour Government took office they did not like that level of the tax because they are so friendly with the workers. They saw it as a tax on employers and one which they would not be hammered for by their supporters. However, we all know that a tax on an employer is passed on in the cost of the product.

The Labour Government raised the employers' national insurance from 7·4 per cent. to 8·5 per cent., then 8·75 per cent., and to 10 per cent. The Labour Government said that they had to increase the employers' national insurance tax because of higher and higher unemployment and benefits. To add insult to injury, they added on the iniquitous national insurance surcharge, first at a rate of 2 per cent. and then at 3·5 per cent.

When this Government came to power, my right hon. Friend the Prime Minister understood the difficulty that the surcharge was causing employers and she made a commitment to reduce it. She reduced it from 3·5 per cent., but that took a long time. I believe that it was finally removed on 6 April 1984. That was one of the engines which ensured that inflation was reduced, because it had an effect on the cost price of goods and services in the United Kingdom. Therefore, it helped to boost enterprise and company profitability. That tax has been 10·45 per cent. or 10·5 per cent. for many years, and the employees' national insurance charge, which started at about 5 per cent. or 6 per cent., is now 9 per cent. Both taxes are foolish. We presently appear to have a surplus of taxation receipts. If there is any money to be given back, the best place to put it would be the employers' national insurance charge. That would have the effects that I have outlined.

If the Government wish to be adventurous, by transferring that tax—not a tax on employment but a tax on consumption—and putting it effectively on the VAT rate, at one fell swoop they would ensure that, when goods are imported, which effectively reduces employment in the United Kingdom, somebody buying those goods or services would pay for unemployment benefit, pensions and so on.

A tax on employment is wrong. At the moment, we export goods at 15 per cent. and we remove a 15 per cent. tax, but, in France, we might get a tax rate of 25 per cent. or 33 per cent. We effectively pay a higher tax rate in France. In France, an employer gets 33 per cent. or 25 per cent. taken off his goods as he is going out the door, and only 15 per cent. when he comes in our door. The equalisation of VAT would work to our advantage against most of our competitors. There are some fine judgments to be taken, but we could improve our competitiveness.

It is not de rigueur to do the opposite of what the Labour party suggests or what it has done in the past, but it is often good to do it. The Labour Government put up taxes, and their tax take into the Treasury went down. They looked for more Government involvement, but got less control over the economy. They opted for more nationalisation, supposedly to preserve companies and jobs, but we ended up with fewer companies and jobs. They put up national insurance rates, thereby putting up prices and destroying competition.

By cutting tax rates, we have increased the tax take and created more enterprise. We have removed Government control and privatised many companies, which has created more enterprise and jobs. Let us now reduce the employers' national insurance rate. That would reduce prices, restore competition and start to cut the trade gap which undermines international confidence in our economy. That is the mechanism for getting our economy back on track in the next financial year.

Photo of Graham Allen Graham Allen , Nottingham North 8:42 pm, 28th November 1989

I should like to continue my series of great Tory economic myths—an in-service training course for the more gullible Conservative Back-Bench Members. The great Tory myth which I should like to discuss today is the "record levels of investment in the United Kingdom".

This morning, the east midlands CBI announced a programme for the east midlands—it could have been endorsed or even written by myself or the Labour party —calling for transport investment, the availability of more land for new industry, and a serious retraining and reskilling programme. However, the common ground that now exists between the CBI, Opposition Members, trade unions and commerce is not shared by Conservative Members. The Conservative party once proudly boasted that it was the party of business, but it can no longer make that claim. The process has subtly changed.

The Conservative party is now clearly identified not as the party of business but as the party of the City, the money-changer, the moneylender and the money markets. Those interests often run counter to the interests of business, and more and more people in the business community—the real economy—such as the producers and the wealth creators, are beginning to realise that. The Conservative party can no longer claim to be the party of industry. The free market obsession, which, incidentally, is exclusive to Thatcher's Britain, has been the death sentence for the many of our industrial companies.

On investment, it should be enough to quote the Chancellor's own Autumn Statement in which he admitted that total fixed investment will plummet in 1990, increasing by only 1·75 per cent., including a fall in general Government investment of 3·75 per cent. We must look deeper, as Tory propagandists have yet to catch up with the magnitude of the economic crisis.

In his Autumn Statement, the Chancellor stuck up two fingers at industry, and it is about time that the CBI at national level stopped primly believing that that is a gesture of victory and started to scream about alternatives before the recession starts to pick off its membership. The Autumn Statement gave no support to British industry, no new money for industrial research and development, no new money for industry in the regions, and less money for industrial training.

Incarcerated in the prison of Thatcher's Britain, we often get a distorted perspective and need to look abroad to see what other nations do. What do they do in terms of investment and of assisting their industries? The new Chancellor today referred to what happens in the Soviet Union, Romania and other Eastern bloc countries which spend perhaps a quarter of their GDP on public investment—a brilliant intellectual sweep that was meant to indicate that virtually all investment was potentially bad. The Chancellor excluded our major industrial competitors in Japan, Germany, the United States and elsewhere.

Our total public sector investment has fallen by 20 per cent. since 1979. In Germany, two brand-new north-south railway routes are being built. In Spain, every single yard of railway track is being ripped up and restored on a new gauge. In France, just about every last chicken shack along every rural route has been electrified to bring about the benefits of rail electrification. All that costs money.

However, the Government will not even allow British Rail to find £95 million to electrify the line from London to the east midlands.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I do not understand the hon. Gentleman's reference to £95 million. British Rail's investment in the next three years will increase by £3·7 billion.

Photo of Graham Allen Graham Allen , Nottingham North

British Rail's investment is commendable, but much of it is obviously in matters such as environmental improvements. The Conservative Government are quite happy to see £500 million spent on environmental improvements in Kent, but they cannot find £95 million for the economic regeneration of the east midlands.

I sometimes feel sorry for the Chancellor. He has perhaps been dropped into the mire, just as the Prime Minister is treading on the Meyer. He has been left an appalling legacy by his predecessor. He should insist on the resignation of the person who, in the debate on the 1988 Autumn Statement, predicted the levels of trade deficit, inflation and other matters. Sadly for him, the person who made that prediction was the Chief Secretary, and we all know who that was.

The insanity of the Government's policies is that, at the very time when we should encourage investment in manufacturing, the Government are deliberately using high interest rates to choke the demand which would stimulate investment decisions on new plant and machinery. That is why the CBI's latest industrial trends survey shows the gloomiest outlook for investment since 1983.

On top of that, industry now has to carry the burden of new taxes. No, not the heavier burden of personal taxation which, if one adds indirect and direct taxation together, has risen under this Government, and not the taxation of the uniform business rate, but a new tax. Indeed, we might even call it a "Major" new tax in honour of the new Chancellor. This "Major" new tax has been imposed upon the people of this country without the consent of Parliament. It is the rise in interest rates. This "Major" new tax adds £73 per month to a £30,000 mortgage. For a small business man with a 5,000 loan, the "Major" tax adds £75 per month. For industry generally, for every 1 per cent. increase in interest rates, the "Major" tax adds £250 million to costs.

Why invest in such circumstances? Those who have funds to invest may well choose in such circumstances to put their money on deposit or into the money market rather than invest in Britain when returns are so high. That is why six major companies in the United Kingdom now have cash mountains of over £1 billion. They choose not to invest in Britain because they know that they can make larger returns by sticking their cash on the money market, contributing to the hot money economy that has been developed by the Conservative Government.

But if in doubt, one should go back to the old standards and fiddle the figures. That is the way to make the economy look a little better. First, redefine the terms. The term "business investment" now actually includes the investment of public corporations, as well as that of private business. But even with such investment added, "business investment" has not grown since 1979. Within that business investment, the manufacturing element has shrunk from 26·3 per cent. to 19·7 per cent. It is no wonder tht the Japanese put out the red carpet for the Prime Minister because she and her policies have done more for their economy than any other individual in the world.

The second of the big fiddles is a new one. A new fashion has been developed today on the Conservative Benches—it is to talk, not of the level or the quantity of investment, but of the quality of investment. First search out one's investment and then talk about its quality. It is the truffle theory of investment.

The third is a good old statistical manipulation from the Norman Fowler School of Actuarial Standards. Most Conservative investment statistics start with 1981 to avoid the year zero time for manufacturing, which was between 1979 and 1981 when, with Pol Pot dedication, the Government set about creating a pile of skulls out of one fifth of British industry. One fifth of Britain's manufacturing industry was piled into the economic mass graves dug by the Prime Minister and her Khmer Blues.

From 1979 to 1988 business investment rose by 4 per cent. per year and high investment in services concealed the manufacturing investment element, which was still below 1979 levels. In the interim, an investment hole of some £18 billion had been created—a permanent irrecoverable handicap at a time when our competitors were investing like crazy, the Japanese having just announced £150 billion-worth of planned investment in the future.

Today the Chancellor attacked Labour's policies with all the confidence of a man who is certain that he will soon be replying to a Labour Queen's Speech, and who needs the practice. He asked, "How do we increase investment?", but unfortunately he uncharitably and untypically refused to allow interventions to answer that question from myself and other hon. Members.

However, the lines are clear and they will become ever clearer to Conservative Members. First, we need to work in partnership with industry. We need to work with business to develop our capabilities in training, education and research and development. We need to spread activity around the country and the regions. That makes sense in terms of fairness as well as in terms of economic efficiency. While the south-east overheats, the rest of us freeze. We need to look at instruments that can help industry and business, rather than hinder them. As well as tackling high inflation and high interest rates, we need to consider other specific economic instruments, including perhaps better depreciation allowances on capital investment, to examine the rates of corporation tax and, of course, to review the uniform business rate and the poll tax.

The squalid unclean Thatcher era is now stumbling to an end and for the Opposition that end cannot come too soon.

Photo of Mr Timothy Kirkhope Mr Timothy Kirkhope , Leeds North East 8:55 pm, 28th November 1989

For just a few minutes I had a feeling that we were in the Romanian Parliament, hearing the voice of Socialism spouting in its usual inappropriate and undemocratic way. However, I was quickly brought to my senses when I realised that a considerable number of other hon. Members disagreed fundamentally with the sort of nonsense that we have been hearing from Opposition Members.

It is all very well to refer to things that have happened in the past, but we should try to remember a little about the arrival in this country in the mid-1970s of the International Monetary Fund, not to seek our advice as happens now, but then to seek our proposals as to how the country might be bailed out of its bankruptcy under the Labour Administration.

About half an hour ago, an Opposition Member referred to Britain being "great" in Labour's day. Apart from the name, nothing much was great, except perhaps the great debts, the great inflation, the great misery of the British people, and the great trouble that we were in, financially and in every other way, in international terms. That was the "greatness" that the Labour party provided for this country when it last had its opportunity, and that is the sort of greatness that it would like to thrust upon the British people if it were ever to get power again.

Since the Conservative Government came into power in 1979, we have achieved immense results for the British people. Those listening to the debate this evening will realise when they look at their own families that their way of life, their quality of life and their standard of living have improved substantially under the Conservative Government. We are concerned with results. It is all right to have neat Socialist theories, but the people want results and that is what they have had ever since we came to power in 1979.

Our economy has grown faster than any other European economy. It is true that, initially, it needed to do so, because we had fallen so far behind in the 1970s. We have lowered taxes in numerous Budgets, and I hope that we continue to do just that, because the result is an inevitable increase in the resources available to the Exchequer to enable the Government to do things for the benefit of the people. During the past 10 years, investment in our industries and businesses has increased substantially. Some Opposition Members might decry the interests of overseas investors, but it is fair to remind them that our investment overseas is also substantial. Any free trade between countries includes the movement of investment, which is one of the greatest creators of wealth and prosperity for such countries.

Let us consider the alleged north-south divide. I am pleased to say that that historic boundary no longer exists. I am speaking directly from my experience of my constituency in Leeds and of the north-east, where I lived before I was elected. The achievements have been absolutely sensational, and they are a direct result of the Government's economic and other policies. The fortunes of the north-east, Yorkshire, Humberside, the north-west and the east and west midlands have been completely revived.

Previously, those areas lay in a despondent state as a result of the constant Socialism thrust upon them when, unfortunately, local authorities were politicised at the end of the war. We were unlucky enough to have one or two Socialist administrations in power in those regions. One need only look at the resources of those areas to realise that the Conservative Government have been a great help. They have done an enormous amount to help the development of road programmes, regional airports—a great success story—and related infrastructure, as well as providing a concentration of investment in health, education and schools.

Photo of Mr Edward Garrett Mr Edward Garrett , Wallsend

Will the hon. Gentleman tell the House what the average rate of unemployment is in Tyne and Wear? Will he also tell the House how much private investment has gone into that area and how much private investment has been lost as a result of changes in work practices and massive redundancies thereafter?

Photo of Mr Timothy Kirkhope Mr Timothy Kirkhope , Leeds North East

The hon. Gentleman knows the figures better than anyone. I do not know whether he has contributed to this debate, but, if so, he had the opportunity to give those figures. From my experience, the north-east is totally transformed. The hon. Gentleman must be as aware of that as his constituents and other people who live in that region. From my experience, everyone knows that my constituency, within the Yorkshire and Humberside region, has grown faster than any other region outside of London. It has experienced that growth as a direct result of Government policy.

Despite the Government's attempts, Socialist views still remain in those regions, and they are not consistent with greater prosperity. I deeply regret that. Earlier today I was fortunate enough to be able to remind my right hon. Friend the Prime Minister of the 2,000 jobs that have been moved by our Government, through the National Health Service executive and the social security directorate, to my city of Leeds. That move proves the commitment of the Conservative Government to the north of England and its people. Some of the local arrangements in my city, however, are not consistent with the enterprise and success which has been experienced in the city and the region. I regret that those local arrangements result from Socialist control of some of that area.

Conservative policies have been responsible for success, but what are the Labour alternatives that, presumably, will be offered to the nation at the next election? I have no doubt that the hon. Member for Copeland (Dr. Cunningham) will remind us of them in a moment. Those alternatives include such interesting proposals as credit control, price controls, tight income controls—all proposals which are unworkable and would make the Labour party unelectable. Above all, there would be more and more bureaucracy to run all those controls, and that would make the Labour party unelectable for ever.

Everything is changing in eastern Europe. Such policies have been overthrown in the eastern European countries. Only the British Labour party wishes to have such policies and to force them upon the British people. It will not succeed, because the people know the truth and will not be hoodwinked by such nonsense. The Government have a good economic policy, and we will win through.

Photo of Mr John Garrett Mr John Garrett , Norwich South 9:05 pm, 28th November 1989

It is as well to start my speech in such a debate with an examination of the Government's central forecasts, because if they are good enough for the Government they should be good enough for us. The main indicators of the Government's forecast show that we are already well into a recession. They show 0·75 per cent. non-oil growth in 1990. The Treasury average error in such a forecast is usually about 1 per cent. The indicators show a 250,000 increase in unemployment and 5·75 per cent. inflation in the fourth quarter of 1990. That includes a rise in housing costs of about 11 per cent. That shows that there will not be a reduction in interest rates. That rate of inflation will be much higher than the rate in any other country in western Europe.

There will be a £15 billion deficit on the balance of payments. This year's deficit is no less than 4 per cent. of national income, a percentage that has never been exceeded in peacetime. I can never understand why the Conservatives always say that a balance of payments deficit is due to the import of capital goods for re-equipping our industry. First, that is not true, and secondly, I thought that this country was in the business of producing capital goods. The fact that we have to import them in order to invest strikes me as odd.

Those are indicators of a major recession. They are not a blip any more but show the beginning of a long slide. It is the classic British problem of lack of international competitiveness and a higher rate of inflation than other countries.

Even on their own figures, what the Government require to turn the economy around is a tall order. For example, they forecast a growth in the economy and a 1·25 per cent. decline in the balance of payments. They have not allowed for the substantial destocking by industry that has already started. The most alarming factor to someone who has spent his career in industry is the deficit of £2 billion on information technology equipment. That is especially alarming when one compares it with the position in France, where the French Government have invested heavily to rebuild the communications network based on domestic manufacture of such equipment.

The Government forecast a decline in inflation in general, but there are many rates of inflation, depending on one's circumstances. For example, inflation in the National Health Service is greater than the general rate because of higher increases in the price of drugs and medical innovation. That means that extra Government spending on the Health Service is exaggerated.

The poor suffer more than anybody from the effect of differential inflation. Because of their spending patterns, the low-paid and pensioners have a higher than average rate of inflation. The Low Pay Unit has recently shown that the rate of inflation for the poor is a full percentage point higher than the increase in the retail price index. Food and housing costs account for nearly half the budget of the low-paid, and those costs are rising by well over 10 per cent. a year, while prices of consumer durables bought by the well-off have hardly risen at all. In 1990. the low-paid will face price rises in electricity, water, gas, fares, mortgages and poll tax. Those people are the real victims of inflation and will continue to be.

Pensions and benefits have not increased by anything like the amount required to compensate the low-paid and the poor for inflation. In our advice surgeries, all hon. Members meet people who are massively disadvantaged as a result of the level of inflation. The least well-off bear the cost of the Government's inflationary policies.

According to the CBI, the investment outlook of companies is the worst since 1983. This year, manufacturing investment will still be two thirds of the 1979 level as a share of GDP, and growth investment has come to a halt., as one might expect from the increase in interest rates. That helps to explain why the Treasury's economic progress report shows that our productivity still lags far behind that of the United States, Germany and France. The increase in productivity of which the Government boast was a one-for-all step increase in the early 1980s, and we have lagged behind the rest of western Europe in productivity ever since.

We must invest in capital equipment for transport, communications, education and training: all our constituencies contain schools that have not enough textbooks, and we have all seen the crumbling fabric of school and hospital buildings. Transport systems are wholly inadequate. I sometimes think that my constituency must be cut off from British Rail, given the daily failures in transport equipment.

We must invest in the long-term competitive structure of our economy, which the Government are busy running down. We have higher inflation, a worse balance of payments and more unemployment than other members of the EC, but there is no Government strategy to improve our industrial performance, apart from a hope that the position will correct itself by means of the action of market forces and the blind application of interest rates to choke off demand. Interest rates are due to remain high throughout 1990.

The great Thatcherite experiment has taken our economic performance back to the 1950s and 1960s. In the meantime, however, we have lost one fifth of our manufacturing industry, unemployment has doubled and our share of world exports has fallen by 3 per cent. Yet our economy, suffering as it is from under-investment, is about to be exposed in the single European market to competitors with modern industries which train and educate their people by means of public investment in services and infrastructure. That is investment that private industry will never make, and it is the duty of Governments to make it for them.

The Prime Minister has said that our problems are the problems of success. They are not: they are the problems of incompetent economic management, short-termism and a misguided ideology.

Photo of Dr Jack Cunningham Dr Jack Cunningham Shadow Leader of the House of Commons 9:10 pm, 28th November 1989

When I first read the Gracious Speech, I was convinced that it contained a printing error. I looked again, and still could see no reference to a local government Bill. I was sure then that there was an error—for this is the first Gracious Speech in the 10 years of our present Government that has not contained at least one Bill attacking or dismantling local democratic government. I suppose that that, at any rate, brought a sigh of relief from members of all political parties and from local councils.

The first feature of the debate that I enjoyed was the humour of the hon. Member for Eastbourne (Mr. Gow), who is in his place—the humour, if not the politics. It has been instructive to listen to the debates of the past six days and to read the reports of those debates, for they represent the culmination of a decade of Conservative Government legislative programmes of this kind—a kind described so graphically and emphatically in the excellent speech of my right hon. Friend the Member for Swansea, West (Mr. Williams) earlier this evening.

It has also been revealing to listen again this November to the Prime Minister's claims about the aims, objectives and achievements of her Governments, and to compare her speech of a few days ago with those of earlier years. As the 1980s draw to a close, the industrial and economic scene in Britain has an all-too-familiar appearance. The decade began with a huge recession, brought about directly by the mistaken policies and mismanagement of the Tory Government; it ends with our economy again on the edge of a debilitating recession.

According to the CBI, the UK economy is destined for two years of crawling growth, rising unemployment, high interest rates—and an increase in the underlying rate of inflation. That was confirmed earlier today, when the Chancellor of the Exchequer had to admit that next month's inflation figure will rise—probably by as much as half a percentage point, which means that in December inflation will again be nudging 8 per cent.

The CBI view and the reality of the Chancellor's admission are buttressed by the view of Lloyds bank, which also envisages two years of sluggish growth which will place the economy on the brink of recession. That is what the Chancellor described recently as a "necessary pause". With the Conservatives, we are back to a future that does not work. What a way in which to enter the new decade!

Inevitably, economic and industrial issues have been at the forefront of the debate, although last Friday's debate on foreign affairs was of huge interest and importance, given the dramatic events now unfolding in eastern Europe. I especially enjoyed reading the record of that day and hope that we shall hear many more times from my right hon. Friend the Member for Leeds, East (Mr. Healey) before he finally and regrettably leaves the House.

Last year, the Prime Minister made several important claims for Government policy in the debate on the Gracious Speech. I shall list her claims: To hold to firm and successful economic policies … reflect the new vitality of our economy … to bear down on inflation … borrowing must be checked … the personal sector also needs to save … the two Bills"— water and electricity privatisation— show our determination to secure the advantages of privatisation for each industry, their consumers and the taxpayer".—[Official Report, 22 November 1988: Vol. 142, c. 21–241.] That all sounds rather hollow now.

Last week, in a speech of dreadful complacency and smugness, the right hon. Lady ignored the abject failures of her Government on those and other important aspects of policy. Inflation is up, is double that in France and Germany and is the highest of any major industrial nation. Personal borrowing is up, and is likely to remain so. The balance of payments is much worse than a year ago. Mortgage charges have increased by nearly 4 percentage points compared with last year's average and are crushing millions of families.

The privatisation of the water and electricity industries has resulted in a disaster, wrecking the hopes of any sensible national industrial strategy for supply and wrecking any hope of any sensible strategy for the environment or for consumers, who have already experienced massive price increases. As for the taxpayer, £16 billion has simply been written off or presented to large private monopolies as a dowry. Insulting and expensive advertising campaigns have infuriated the British people. The taxpayer has made a huge loss on the water industry alone of almost £2 billion, not to mention the millions of pounds spent on advertising and underwriting fees that we do not yet know about.

The Government have attempted to project the latest programme as one aimed at improving the quality of life in Britain. Let us examine that claim, which is transparently bogus. People know that, for all but the very well-off, tax cuts have long since been swallowed up by rent increases and mortgage payments. To their credit, even some of the tiny minority who benefited recognise, as do more than 60 per cent. of the British people, that the quality of their lives has declined under this Government of debt and division.

I searched in vain for any recognition of that in the speeches of Tory Members, hut with one or two notable exceptions, we have heard a litany of obsequious platitudes, showing little sense of concern or criticism.

The next 12 months in the House will feature a programme of largely unwanted legislation, such as proposals on the Health Service, education and broadcasting, which are likely to damage the quality of life of our country. Further destruction of the basic principles of good health care, as embodied in the Health Service, will be met with our vehement opposition, outstripped only by the anger of the British people at the political manipulation of their Health Service, mainly by people who never use it.

I retain a special anger for the continuing failure of the Government to provide our people with the fundamental basis for a decent quality of life—a safe, warm and secure home that they can afford. Earlier this year, the Royal Institute of British Architects said: Britain is faced in 1989 with a dramatic housing crisis. There are signs of an acceleration in existing housing problems that are very far from solution. There is a great danger both that too little housing will be provided to meet genuine and often acute need and that the quality of much new housing will he poor. The problems that the RIBA describes are a direct result of Government policy, as the report from the National Audit Office of July 1989 makes clear. The Comptroller and Auditor General said: Over the period 1979–80 and 1989–90 the annual Housing Investment Programme allocations have declined.… in actual terms and.….at constant prices"— by 78 per cent. This decline has particularly affected those local authorities which have both severe housing problems and disproportionately low capital receipts, and which therefore depend heavily on Housing Investment Programme allocations. The huge fall in public sector housing starts and completions throughout the 1980s—a continuing feature and a deliberate policy—has not been made up by house building in the private sector. No wonder there has been an inexorable and predictable increase in homelessness—so much for improving the quality of life. In 1983, 78,240 households were accepted as homeless. By 1988, that had risen to 117,500. This year's figure is approaching 135,000—a scandal in any civilised society. In 1983, 2,700 homeless households were placed in bed-and-breakfast accommodation. By the end of 1988, that figure had reached the astonishing level of 10,970 families.

The misery and consequent social and financial problems are a huge easily avoidable cost to us as taxpayers, if only the Government would permit local councils to reinvest more of their capital receipts or improve their housing investment programmes. Tory mismanagement of the economy has produced record mortgage rates, coupled with a near-doubling of house prices in the past five years, which are preventing a generation of young people from buying their first home. The average price of a house is now a record four and a quarter times average annual earnings—little wonder that young couples and people on lower incomes find it impossible these days to become home owners. A bigger share of take-home pay now has to go on mortgage repayments than ever before.

We believe that good housing will always be the key to the health and well-being of our society. There must be collective responsibility for such a precious national asset. Labour will help local councils and housing associations to build more homes at prices at which people can afford either to buy or to rent. Against that background of disaster in housing policy, there is not a single word in the Gracious Speech about any of these problems or about any aspect of housing policy. There is no mention of them in the Government's programme for the coming year.

Education and training hold the key to Britain's future economic prosperity. However, during the past decade, the proportion of national income invested in education and science has dropped by £3…25 billion, at today's prices. What kind of commitment to the future of our economy does that demonstrate? None at all, either in the scale or in the quality that our young people and our industry so desperately need. Britain is now in the shameful position where fewer young people stay on in full-time education or high-quality training after 16 than in any of our major competitor countries. We are in the shameful position in which fewer children have nursery education than in most of our competitor countries, although that is not true. I am pleased to say, of some Labour-controlled local authority areas. Even South Korea has more students in higher education than we have, yet employers in industry and commerce are crying out for a better educated and better trained work force.

My next point relates specifically to the duties and responsibilities of the Leader of the House, and I hope that he can give a positive response tonight. The Scottish Office is the only Department of State not to be monitored by a Select Committee. Given the lack of popular support for this Government's policies in Scotland, that is an especially glaring omission in the democratic process, which the Government must act to correct—and which the Leader of the House has a duty to correct.

We accept that the lack of Scottish Conservative Members presents the Leader of the House with a genuine difficulty, but that very lack of Scottish Conservative Members heightens the need for parliamentary scrutiny of ministerial activity. We have been more than willing to be flexible and helpful about membership. Although we should wish to see the highest possible membership of Members with Scottish constituencies, we want to make it clear that we place no preconditions on membership as regards the constituencies of members of the Select Committee. Over the past two and a half years, the Government have claimed consistently that they would like a Select Committee on Scottish Affairs to be established, but they have also claimed that they have been unable to find enough Scottish Members to serve.

If that is the case, it is difficult to explain the enthusiasm of Conservative Members outside Scotland to participate in other aspects of Scottish business. English Conservative Members have been more than happy to play an active role in Scottish Question Time and I am struck by their eagerness to serve on Scottish Standing Committees to get through the Government's business. Conservative Members from outside Scotland were only too keen to play a part in the proceedings on the Self-Governing Schools etc. (Scotland) Bill last Session.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

The hon. Gentleman has been blaming the Government for the lack of a Select Committee on Scottish Affairs. Let me make it clear that I refused to serve on that Select Committee because I did not want to serve on a Select Committee that tried to rig reports. [HON. MEMBERS: "No."] Yes, it is true and it is all on the record for any to see.

The Scottish National party refused to serve on the Select Committee on Scottish Affairs, describing it in the past two Parliaments as a piffling little Committee. We will not accept any of that humbug and nonsense—[Interruption.]

Photo of Dr Jack Cunningham Dr Jack Cunningham Shadow Leader of the House of Commons

I leave the House to judge the hon. Gentleman's statement about the rigging of Select Committee reports, but I must tell him that we are happy for him not to serve on the Select Committee.

The Select Committee on Scottish Affairs has played an important role in the past. It has carried out respected investigations into areas of policy such as housing conditions and the steel industry. It is intolerable that the Government have let the matter drift. The Government's reluctance to act is a remarkable dereliction of duty to the democratic process and to the interests of the Scottish people. On behalf of my right hon. and hon. Friends from Scotland, I urge the Leader of the House to think again and to set up a Select Committee on Scottish Affairs, as required by Standing Order No. 130.

The Government's failures in housing, in education and training, and in policies for the environment belie claims that the new Tory programme can lead to a better quality of life for the majority of the British people. Indeed, people feel increasingly that the Tory Government are taking Britain in the wrong direction and that, as a country, we are being left behind, unprepared for the new and exciting challenges of the 1990s and increasingly isolated. That is hardly surprising. In almost every area of policy there is a complete absence of strategy—no coherent guiding principles, but simply a series of short-term changes, often gimmicks, which fail to tackle the underlying problems of urban and rural areas alike.

The Prime Minister's only strategy seems to be the Prime Minister. While others are sacked or resign, she seems determined to go on and on, unable to see anyone in the Cabinet suitable to be the next Prime Minister—at least she is right on that. When we observe the right hon. Lady's disordered will—one week saying that she will pass on the torch, the next that she will stay for the next election and beyond—is it any surprise that her Cabinet is so rent with divisions and disaffection? It is divided on the economy, on Europe and on the leadership.

In a remarkable speech, the right hon. Member for Old Bexley and Sidcup (Mr. Heath), disgracefully barracked and harrassed by the Chief Whip's bully boys, spelled out exactly how isolated the Government and the Prime Minister are becoming—and, as he so disarmingly said, he should know all about isolation. It takes a particular lack of realism and touch to envisage "popular acclaim" at the very time when opinion in Britain shows that two thirds of the electorate believe that the Prime Minister should stand down before the next election.

As the hon. Member for Clwyd, North-West (Sir A. Meyer) spreads panic in the Tory party with his disarming frankness, we learn that, while challenges to other political leaders are good news, welcome everywhere and good for all nations, they are not good for Britain. We are told that the Prime Minister's interests are paramount, allegedly synonymous with the national interest. What cant. What a contrast with the Prime Minister's views on events elsewhere, for example in eastern Europe. What a contrast. as the Leader of the House must reflect, with her behaviour and view on the Tory party in 1975.

Last week the Leader of the House, no doubt prodded by the Chancellor of the Duchy of Lancaster, issued his own clarion call for loyalty and unity. Imagine his surprise over breakfast the next morning, to read in The Times that he was not fit to follow the right hon. Lady but that a new generation was needed. He must reflect darkly on another recent quotation in The Times from the Prime Minister: I do not like anyone who has ever worked with me to be unkindly treated. But, of course, she was speaking about Sir Alan Walters. One by one, those with ambition—the Leader of the House, the Chancellor of the Exchequer and the right hon. Member for Henley (Mr. Heseltine)—have backed off. Now we know the real significance of the speech of the chairman of the Tory party in Blackpool, when he said: He which hath no stomach to this fight, let him depart. He was referring not to the general election but to the leadership election.

It is rumoured that even now the so-far-silent right hon. Member for Cirencester and Tewkesbury (Mr. Ridley)—a political Don Quixote—is riding to the rescue of the Prime Minister bringing with him a copy—[Interruption.]—of the Housing Act 1988. In the leadership election his ingenious voting system will apply. Those who abstain will be deemed to have voted for the Prime Minister.

As this largely irrelevant Government programme makes clear, it is time for a change. We need a Government who will get Britain back on the right track, moving in the right direction. The policies that we oppose tonight are those already shown to have failed Britain. They will do so again; that is why we reject them.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey 9:34 pm, 28th November 1989

It is appropriate to commence the concluding observations of this debate by paying tribute, as I gladly do, to my hon. Friends the Members for Eastbourne (Mr. Gow) and for Bury, South (Mr. Sumberg) who moved and seconded the Loyal Address.

My hon. Friend the Member for Bury, South spoke up proudly for his constituency as the home of the Lancashire black pudding. I felt less at home with that than with his claim to have a Welsh grandmother. I can lay claim to a Welsh grandfather as well, so it is no surprise, that my father knew Lloyd George. It is a happy fact that my mother did not have the same experience.

Despite the firm opposition of my hon. Friend the Member for Eastbourne to the televising of our proceedings I am certain that with his modest pride and his hair style—he is right to be modest about it—he undoubtedly provided the televisual highlight of the debate. He first became my hon. Friend when he was reckless enough to act as my campaign assistant at the 1959 general election

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I am happy to tell the hon. Gentlement that no campaign is in progress. I am still more than proud to count on the long-standing friendship of my hon. Friend.

At that time we were unsuccessful in checking the arrival in this House of the right hon. and learned Member for Aberavon (Mr. Morris), who is still here. It was for me, as for my right hon. Friend the Prime Minister whom my hon. Friend the Member for Eastbourne served so faithfully as Parliamentary Private Secretary, an occasion of immense sadness when the Anglo-Irish Agreement was signed. It was an act that required my hon. Friend to resign his position as a member of the Government. Then as now the whole House respected the powerful integrity and sense of duty that prompted his decision.

My hon. Friend will have been struck, as I have been, by the fact that no fewer than 10 hon. Members from Northern Ireland—more than half the total—have been heard in this debate. They have all spoken, more than understandably, of the special grief and suffering of their constituents in the face of what one of their number described as a diabolical and vicious campaign of terror"—[Official Report, 21 November 1989; Vol. 162, c. 76.] which is still being waged against us all but most brutally of all against the people of Northern Ireland. They should have no doubt that the Government are unyielding in their resolve to resist and conquer those who wage this savage, empty campaign. I assure my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) that no function of Government is more generously and spontaneously provided for than the fight against terrorism. That is how it should be.

Northern Ireland Members spoke of their wish for reconciliation and peace between the different communities and traditions that they represent. Those were the twin objectives of those of us, among whom I am proud to count myself, who helped to shape the Anglo-Irish Agreement, now just four years old. I know that it is still a cause of controversy, and I respect those who take that view. I am glad, too, to welcome the prospect, referred to by my hon. Friend the Member for Arundel (Mr. Marshall) of a British-Irish parliamentary body, through which there can be a fruitful coming together of representatives of the four nations that share the life of these islands.

I think that the House will have been particularly moved, as I was, by the eloquence of my hon. Friend the Member for North Down (Mr. Kilfedder). I recall that he and I walked together up Ludgate hill and sat beside each other in St. Paul's cathedral for the funeral service of Sir Winston Churchill. My hon. Friend told us last week of his conclusion that his proper place in the House was on these Benches. All my right hon. and hon. Friends say, "Hear, hear" to that. My hon. Friend also urged the leaders of the constitutional parties in Northern Ireland to work together for the future of the Province. The whole House can say "Hear, hear" to that.

Photo of John Taylor John Taylor , Strangford

I find the Minister's opinion on North Down of great interest. Does that mean that he will not support the Conservative candidate who is to oppose the present hon. Member for North Down?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

It is right to point out that no candidate has yet been adopted for that constituency. The right hon. Gentleman will recall the reasons that prompted his colleague, the hon. Member for North Down, to decide as he did.

Together we now go into the television age. Perhaps it is right that the House should be taking a step into the television age after, and not before, the Supreme Soviet in Moscow and in many other less mature and confident Parliaments. I have little doubt that the televising of our proceedings represents the most important change in the presentation of politics since I first entered the House. The experiment has clearly started well. I am sure—at least I hope—that a touch of human fallibility, even on the Front Benches, is likely to elicit a good-natured response from the majority of viewers.

Even at this early stage, I record sincere appreciation and thanks, on behalf of the whole House, first to all those in the House of Commons broadcasting unit and the organisations that convey us to the world outside for their skill and enthusiasm and, secondly, to the Select Committee on the Televising of Proceedings of the House —in particular my right hon. Friend the Secretary of State for Energy, the former Leader of the House, who so skilfully steered the Committee and the House to the present stage.

The arrival of television is by no means the only recent change in our procedure, and rightly so. The Select Committee on Procedure is considering the work of departmental Select Committees, 10 years after they were instituted by my colourful predecessor Lord St. John of Fawsley. We look forward with great interest to the reports of their wide-ranging inquiry. In the meantime. I offer particular thanks to my right hon. Friend the Member for Worthing (Mr. Higgins) for his sterling work behind the scenes as Chairman of the Liaison Committee. The hon. Member for Copeland (Dr. Cunningham) reminded me of one of the two pieces of on-going business that I have had to consider during the first months of my work as Leader of the House.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Will the right hon. and learned Gentleman give way?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

No, I must respond to the point made by the hon. Member for Copeland. On that matter, I have been able to reach a conclusion, albeit a negative one. Despite wide-ranging discussion with those involved, following a debate on the Floor of the House just 11 months ago, I have reluctantly concluded that none of the proposals that have been made will resolve the impasse that has persisted until now. As my hon. Friend the Member for Tayside, North (Mr. Walker) pointed out, no new solutions have emerged. I have therefore concluded that I can sensibly take no action in that respect during the life of the current Parliament.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

No doubt the right hon. and learned Gentleman will accept that Opposition Members hear his remarks with dismay and that his decision is totally unacceptable to us. Does he not understand that it will be seen in Scotland as an abdication of responsibility and a clear indication of the cavalier attitude that the Government take to the good government of that country? We shall continue to press the Leader of the House on this point and we do not accept or believe that it is beyond the ingenuity and power of the Government business managers to set up the Select Committee, given the will to do so. I strongly advise him to reconsider his negative and irresponsible attitude.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The hon. Gentleman's intervention was far from spontaneous. I have considered the matter closely and, after wide consultation, I have reached a conclusion for the reasons that led my predecessor to reach the same conclusion. It seems right that I should put the matter on record before the House at this stage.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The second outstanding question—

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I have to deal with the next matter—

Photo of Mr Jim Sillars Mr Jim Sillars , Glasgow Govan

On a point of order, Mr. Speaker. Given that Standing Orders govern this whole place, is it in order for the right hon. and learned Gentleman to say that he will do nothing further? Is it not the case that, if the official Opposition, on a Supply day, tabled the necessary motion to set up a Select Committee, it would have to be determined by the House? If a minority party such as ours was fortunate enough to get half a Supply day, and tabled the necessary motion, that debate would have to take place and a definitive conclusion would have to be reached.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

That is a hypothetical question at the moment.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

It is right for me to state my own view at this stage.

The discussions about the work currently done by the Social Services Select Committee, under the chairmanship of the hon. Member for Birkenhead (Mr. Field), are proceeding and I shall endeavour to bring them to a conclusion as soon as possible.

There is no need for me to stress the importance of European legislation, and the desire of Parliament in general and of this House in particular to play a full and proper part in the scrutiny and management of such matters. The present procedures were designed as long ago as 1973, shortly after enactment of the European Communities Act 1972, by a Committee under the chairmanship of the hon. Member for Northwich, Sir John Foster. Since then, they have been operated by the hon. Member for Newham, South (Mr. Spearing)—sometimes, it seems, almost single-handedly.

However, with the subsequent adoption of the Single European Act and its enactment by Parliament, and the growing role of our legislative partners in the European Parliament, it is plainly time for procedures to be brought up to date. We are grateful to the Procedure Committee for the work that it is doing in that area. Its report will be published on Thursday. I cannot comment on it in advance, but I guarantee that its recommendations will receive careful and positive consideration by the Government.

I pay tribute to the Chairman of the Procedure Committee, my hon. Friend the Member for Honiton (Sir P. Emery), for his careful and considered approach to that and other questions.

The Private Bill procedure is the last procedural matter I shall mention. The more closely I have studied it, the more I have come to realise the importance and complexity of the issues involved. I hope to bring forward, on a consultative basis, proposals that will command the support of the whole House. Meanwhile, I urge right hon. and hon. Members to be patient, and not to allow unjustified impatience to become an excuse to deny or block Bills for reasons other than genuine disagreement.

The whole House understands the difficult job of the Chairman of the Ways and Means when it comes to private legislation. I am sure it joins me in praising the care and attention he brings to that time-consuming role, as well as to his other duties as First Deputy Speaker.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

The right hon. and learned Gentleman has alluded to the inquiry that the Select Committee on Procedure is to hold into Select Committees. Can we have an assurance that the subject will be debated immediately its report is produced as, in the past, we have had to wait, sometimes for several years, for a report to be debated? Is he aware that my hon. Friend the Member for Rotherham (Mr. Crowther) felt that it was necessary to resign from that Committee, because the House never found time to debate the reports in the way that he felt they should be debated?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

Many of those reports have already been debated, and many have been acted upon. I shall endeavour to ensure that that continues to be done.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

As some of the reports have been acted upon, which of the measures in the Gracious Speech will the right hon. and learned Gentleman submit to the procedure by which witnesses can be called before Committees that consider legislation? Will he, for example, submit the National Health Service and Community Care Bill to that procedure, so that people who work in the Health Service can give evidence to the Committee before it considers the Bill?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I do not at present have any intention of doing that for any Bills. I shall consider the measures in the Queen's Speech in a moment.

The hon. Member for Copeland referred to the speech by my old sparring partner at the Dispatch Box—the right hon. Member for Leeds, East (Mr. Healey). Like the hon. Member for Copeland, I was sorry to miss his speech. The House may recall that the right hon. Gentleman said that he had read so many obituaries of himself in the past few weeks that even he thought that he was already dead. Rather disconcertingly, the right hon. Gentleman makes increasingly benevolent remarks about me. If I may respond in kind to one of his more memorable phrases, 1 feel rather as though I am being cherished by a dead savage. [Laughter.] I hope that the House will think that that was worth waiting for.

The whole House will join me in wishing the right hon. Member a happy retirement in the lush pastures of his Sussex farm. We compliment him on his very good sense in having, while he was Chancellor, deferred indefinitely the introduction of a wealth tax.

The Gracious Speech set out the Government's proposals for balanced and effective legislation. It has four main objectives: first, to improve protection of the environment; secondly, to extend choice and to raise the quality of services to consumers in food safety, broadcasting, legal services and national health; thirdly, to combat international crime and to enhance security; fourthly, to increase employment opportunities and scope for enterprise in the economy.

All of those things should come forward and take their place alongside the firm economic policy, designed above all to combat inflation, outlined by my right hon. Friend the Chancellor in his Autumn Statement and again today, and on which my right hon. Friend the Member for Worthing commented earlier in the evening. That programme provides clear scope for increased spending on key objectives from the Health Service to homelessness, on which the hon. member for Copeland dwelt—some £250 million is to be devoted to homelessness—and from transport infrastructure to the arts.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

Will my right hon. and learned Friend explain why the Autumn Statement says that inflation next year will be 5·75 per cent., yet the arts are to get an increase in funding of 12 per cent. next year and the year after? What is so special about the arts?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The Government's view is that those programmes are of sufficient importance to the quality of life as a whole that they deserve such support.

The key objectives of our legislative programme are therefore to increase the influence and power of consumers over services to which they are entitled, and the environment in which those services are provided. As my hon. Friend the Member for Surrey, North-West (Mr. Grylls) said, that will serve to strengthen and increase the availability of resources. It will enable the required improvements to take place by encouraging increased private investment.

Opposition Members, particularly the right hon. Member for Swansea, West (Mr. Williams), criticised industry's performance during the past decade. It is important to draw attention to one or two facts about that. I refer him, for example, to an industry that he may know well, to the steel industry in South Wales and to the Abbey works in my home town of Port Talbot. When we came to office it was employing 11,000 to 12,000 people, all of whose jobs were in jeopardy because the industry at that time was losing between £500,000 and £1 billion a year.

About 18 months ago I took to that works in my home town the then Foreign Minister of the People's Republic of China, who was presented with a film showing the rebirth of British steel. Although there are now only half as many people employed in those works—[Interruption.] —the output is profitable and expanded, their jobs are secure, the industry is making a profit and other jobs are burgeoning throughout South Wales. That is the reality of the changes that have taken place as a result of Conservative policies.

Photo of Mr Merlyn Rees Mr Merlyn Rees , Leeds South and Morley

The Leader of the House is referring back constantly to 1979. He will be aware of the crime figures for that year. In every year since then, the crime figures—under the stewardship of a party that believes in law and order—have escalated. It is said in the Gracious Speech: My Government will vigorously pursue their policies for reducing crime". What are they?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I hope that the right hon. Gentleman will join us in applauding the fact that i he recorded crime figures for the last 12 months are down, and that he will help us to sustain that downward trend.

My personal conviction is that the policies that we have been following for the last 10 years have set a new direction for political debate in this country, have set a remarkable change of direction for Socialism, here and abroad—[Interruption.]taking as its fundamental starting point the rejection of everything that Socialism has previously stood for.

All that goes a long way to explain the dismal, negative, wholly unconstructive performance of speakers from the Opposition Front Bench throughout the debate. There has been an absence of any kind of positive suggestions for reform—[Interruption.] It has been a dismal political approach from a party which has in the last 12 months purportedly junked more outworn ideas, rubbished more wrong thinking and dumped more dogma than all the Warsaw pact Governments put together. No wonder the right hon. Member for Liverpool, Walton (Mr. Hafer) complains.

Yet Labour Members have still not come up with what any thinking man or woman would consider voting for. The Labour Front Bench, under the leadership of the right hon. Member for Islwyn (Mr. Kinnock), are living proof' of the maxim that only the mediocre are always at their best—[Interruption.]

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The House has heard this week no fewer than 11 speeches from the Opposition Front Bench[Interruption.]—but despite that, every question about Labour party policy remains unanswered. We come to see that Labour's much-vaunted policy review has a gaping black hole at its heart. In this era of designer Socialism —[Interruption.]—shiny new Labour spokesmen pop up on every front. The parliamentary Labour party now has in this House alone no fewer than 80 Front Bench spokespersons, of whom only 13 ever served in Government. Indeed, Labour has eight more departmental spokespersons in the Commons than we have Departmental Ministers in the Government as a whole. It is hardly surprising that Labour sounds less and less like a credible alternative Government— [Interruption.]—and more and more like a political tower of Babel.

The Leader of the Opposition has added a new dimension to his concept of collective irresponsibility. The truth is— [Interruption.]

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The truth is that meeting the cost of Socialism is the reason why any Labour Government should be, and indeed would be, unthinkable. Every Labour Government in British history has ended in economic disaster, and every one of those Governments were headed by so-called moderates. After every such failure— [Interruption.]—the Conservative party was called in to put things right. The record of the Labour party has been one of their fudging the challenge and of our counting the cost. That should be the title of Labour's much-vaunted policy review.

By contrast, the Conservative party and this Government stand for the political and economic revival of Britain. That is why we confidently present our programme to the House and to the people of Britain. That is why we are confident that we shall win.

Question put, That the amendment be made:—

The House divided: Ayes 229, Noes 328.