Balance of Payments and Interest Rates

Part of Opposition Day – in the House of Commons at 8:59 pm on 6 March 1990.

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Photo of Austin Mitchell Austin Mitchell , Great Grimsby 8:59, 6 March 1990

I shall not attempt to follow the hon. Member for Birmingham, Northfield (Mr. King), because he read his Central Office brief on economics for fourth-formers very eloquently. I ask him only why, if the Government have been so successful with the motor car industry, the deficit of trade in motor cars and components has increased so steadily under this Government. Why are we in that situation if the industry has been so successful?

The hon. Gentleman has illustrated the usual rule of Governments in a mess: when in doubt, attack the other side. He did that vigorously. This Government are now up a well-known creek with their economic policy. We might say that they are up an excretory creek without a paddle. They have got themselves into a mess from which there is no escape on current policies. The balance of payments gap cannot be closed unless British industry expands and invests, but it cannot do that with interest rates at a crippling level. The balance of payments gap cannot be closed unless the pound sterling comes down, but it will not, because interest rates are deliberately being kept high to maintain the value of the pound. They are being used as a deliberate prop for sterling. We are paying foreigners high interest rates to bring junk money to this country to close a gap in trade that we cannot close with what we produce in this country and what we sell from it.

Interest rates have become this Government's Zimmer frame, as they are all that are keeping the Government standing. The Government have no alternative. In saying that they will depend so heavily on interest rates, they are saying that they will make imports cheap by keeping the pound high and so take jobs away from this country. They will inflict pain on every house owner with a mortgage and they will try to bring down the price of houses and assets through the squeeze. They will try to squeeze demand, which will produce bankruptcies—and not only in retailing. Sock Shop is only the beginning. A series of other bankruptcies will follow, which will then knock on to the manufacturing sector. Coloroll is only the beginning there. The knock-on effect will be cataclysmic.

We are in for a miserable, bitter 12 months of economic wind-down. The Prime Minister will have a better year than Mrs. Ceausescu, but only just. It will be a pretty miserable year for all of us with the deflation that we are now entering, which will be reinforced by the coming Budget.

The Government's calculations are almost certainly cynical. They want to get the problems over in a year of misery, and then to start to relax the policy next year and to look forward to an election, probably in 1992. We are in for the longest 28 months in British history, as the Government hang on, squeeze the economy and then begin to relax as the election approaches. That is the cynical aspect. The reality is rather different.

The crisis and the figures obscure a fundamental change in our economy. We are seeing a national tragedy unfold which has been obscured by the Government's electoral gamble. We are seeing the strange death of industrial Britain. We are seeing the shrinking of our industrial base on which jobs, economic growth, our ability to pay and our way in the world all depend. It is now at a level where it is unable to do the jobs on which our economy traditionally depended.

We have not felt all the consequences so far. The oil has helped to keep us going, but we shall feel the consequences in the 1990s. The industrial base is now less than one quarter of our economy and it has lost a huge share of its home market. The home market share of British industry has come down from 83 per cent. in 1970 to 64 per cent. in 1989, which is a bigger increase and a bigger share of imports than in any comparable economy in the advanced industrial world. The base of British industry was its home base.

The share of our exports in world manufactured trade has shrunk under this Government. British industry cannot satisfy demand, yet we cannot sustain demand unless we can pay for it with what we produce. We cannot just consume and not produce. We must shift resources back to manufacturing, return to jobs in manufacturing, and rebuild the manufacturing base of the British economy. Nothing else will do the job. Services are parasitic. We cannot be hairdressers to the world or turn London into a more expensive version of Bangkok, policed by Lord Rees-Mogg, to provide that type of service to the world. Financial services will not do it, as our share of world financial services is declining as fast as our share of manufacturing trade and invisible trade will go into deficit as the profits from Japanese investment in this country return to Japan. That was the emphasis of Mr. Keegan's article in The Guardian, which has been quoted so often.

There is no alternative except to rebuild industry. We are in an industrial war and it is a war we are losing. We are losing to competitors who are better invested and better trained and who have some idea of co-operation between the state and industry, unlike the policy of the Department of Trade and Industry, which is as hands-off as a Saudi kleptomaniac. The dearest wish of the Minister is to get out of the business altogether. We wish him joy on his personal getting out, but not on withdrawing the Department with him.

We need to rebuild industry, and to do that we must do many things. We must improve the human capital in industry—the skills and the training. We must also expand back into the markets that we have lost, both at home and overseas, and repair the sustaining networks of suppliers and of research and development—those things from which all new development comes. That needs several things.

First, it needs a competitive exchange rate. There can be no transfer or shift back of resources into manufacturing—without which we have no future and upon which everything depends—unless the exchange rate is competitive enough to finance that shift back through market forces. Yet the pound is up in real terms since 1976, when we promised the International Monetary Fund to maintain the competitive position of British manufacturers. The pound is up 36 per cent. in real terms since then. We cannot retrieve the markets we have lost, the jobs that we have exported to the Common Market—about 1·5 million of them—and the trade we have lost unless we return to the competitive position that we were in then. There is no alternative—that is the only way to do it. It is a necessary but not sufficient condition.

Secondly, we need cheaper money to stimulate investment. We need that to invest on the scale that we have to if this country is to fight back. We need long-term thinking, not the short-term horizons that the City, with its obsession with balance sheets and takeovers, forces on British industry. Japanese industry thinks long-term. It invests to obtain a market share, it builds up through the difficulties, it obtains a network of suppliers and dealers together and then it takes over the market. We think no more than three months ahead. Everyone protects their backs because they are afraid of takeovers. Unless we think long-term we cannot get back.

We need co-operation between industry and the Government, not the hands-off approach. We are facing corporate competition between the industries and Governments of our major competitors. We must have the same co-operation. We need co-operation too to restrain the inflationary consequences of a competitive exchange rate, of economic growth, and of fighting back. We do not need a Government who heighten inflation by what they have done to electricity prices, gas prices, the introduction of the poll tax and high interest rates, and then blame the people for inflation.

What economic nonsense that is. There must be a better way of defeating inflation than putting people out of work, depressing demand and deflating the economy. I am not sure what that better way is, but there must be some co-operation that can lead us towards that better way, rather than the savage alternative that the Government are embarked on.

There is one last thing that we need and that is a Labour Government. The next 28 months will be the longest and most difficult in British history before the people can speak and tell this Government to get out because they have failed. At the end of the 28 months we shall have a Labour Government who will work for jobs, for industry and for growth, and will co-operate with the people and not discipline them by deflation and the cruel punishment of high interest rates. We need a Government who will seize the '90s to replace this Government who have wasted the '80s.