Government Economic Policies

Opposition Day – in the House of Commons at 4:49 pm on 24 July 1991.

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Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central 4:49, 24 July 1991

Mr. Speaker has asked me to announce to the House that he will impose the 10-minute limit on speeches made between 7 and 9 o'clock and that he has selected the amendment in the name of the Prime Minister.

Photo of Mr John Smith Mr John Smith , Monklands East 5:07, 24 July 1991

I beg to move, That this House deplores the failures of Government economic policy, which have caused a deep and damaging recession, steeply rising unemployment and sharply falling levels of output and investment; notes with concern that the United Kingdom is at the bottom of the league tables for growth, investment and job creation of the Group of Seven leading industrial nations in 1991 and is predicted to remain at the bottom in 1992; and calls upon the Government to take immediate action to promote economic recovery and an early end to recession by lowering interest rates, by stimulating investment in manufacturing and in the regions, by fostering innovation and new technology and by initiating an extensive and sustained training programme to tackle serious skill shortages and to help combat rising unemployment. The facts about our economic situation are not encouraging. In this month's Economic Outlook from the Organisation for Economic Co-operation and Development, which surveys the economic circumstances and prospects of the major industrialised countries, can be found independent and official confirmation of the depth and severity of the recession that we are now enduring. The United Kingdom is bottom of the growth league of both the Group of Seven countries and the European Community. The United Kingdom is bottom of the investment league of the Group of Seven countries and of the European Community and it is now bottom of the employment growth league of the Group of Seven, the EC and the entire OECD. That means that we have the worst record for job creation in the whole of the industrialised world. Even more depressing than the OECD assessment for this year is that next year, 1992—when, according to the Government, we should be well into recovery—the United Kingdom will remain bottom of the G7 leagues for growth, for investment and for employment growth.

An examination of the OECD's growth league reveals that the United Kingdom has been at the bottom in 1989, 1990 and 1991, this year, and that it is forecast to remain at the bottom for a further unprecedented fourth year—next year in 1992. For four successive years, we will have been at the bottom of the growth league. Not only has that never happened to our country before; it has never happened to any G7 country before.

That is the international measure of what Conservative policies have done to our economy. The national perspective is no more encouraging. According to the Government's own figures, manufacturing output is falling at an annual rate of 6 per cent.; investment in manufacturing is down by 14 per cent. and that figure could well be an underestimate. Business failures are now at record levels and unemployment is rising inexorably: the most recent figures represent the 15th successive monthly increase. Only last week, the European Community predicted that unemployment in 1992 would be double the 1990 level—that it would again be above 10·8 per cent., or 3 million.

Before the Government seek to discount that European Community prediction—as, I am sorry to say, their apologists have sought to do in a pretty brazen fashion —let me remind them that, far from being isolated, exceptional or extravagant, it is corroborated by a range of similar forecasts from City institutions, including UBS Phillips and Drew, Midland Montagu, Societe Generale, Yamaichi and Lloyds bank. All those institutions warn of a prospective rise in unemployment to 3 million.

Only this morning, on the "Today" programme, the chairman of the Association of British Chambers of Commerce said that he believed that we were heading for 3 million. He also said that the Government's prediction of a recovery in the second half of this year was false.

Photo of Mr William Clark Mr William Clark , Croydon South

Have the right hon. and learned Gentleman and his colleagues made any estimate of the number of jobs that would be lost if a minimum wage policy were introduced?

Photo of Mr John Smith Mr John Smith , Monklands East

We have heard some fantasy from the Secretary of State for Employment and other apologists for the Government, who have told us about prospective job losses. I wonder whether they will look at the facts instead of the fantasies. The OECD carried out a study, on which the Government have partly relied, of the operation of the minimum wage in France. According to that study: The adult employment elasticity with respect to the minimum wage appears to be zero. The hon. Member for Croydon, South (Sir W. Clark) should reflect on why 11 other countries in the European Community are able to operate a minimum wage and at the same time to have much better employment performance records than ours.

The hon. Gentleman should also realise that we must consider the issue from the point of view of justice. The other day, I received a letter from one of my constituents, Mr. David Smith—no relation, although no doubt he would be honoured to be one—of 32 Livingston drive, Plains, near Airdrie. [Interruption.] Perhaps Conservative Members will listen to the letter before rubbishing it.

Mr. Smith wrote: I have been employed as a security guard with Securiguard Services Limited for four years. During that time I have never had a wage rise. My hourly rate is £1·83 per hour for a 60 hour week 12-hour shifts, some guards do 15–16 hour shifts. I get paid every 2 weeks and my take home pay is £210 for 120 hours. That is a scandal, and the fact that it is permitted to happen should be on the conscience of the nation. Poverty pay is a scandal in this country. That is why Labour is determined to introduce a national minimum wage, to raise the United Kingdom to the level of the other civilised countries in the European Community.

Photo of Mr Bob Dunn Mr Bob Dunn , Dartford

If the right hon. and learned Gentleman consults the Register of Members' Interests he will see that I have none. I thank him for giving way so early.

As the right hon. and learned Gentleman knows, some of his shadow Cabinet colleagues have made spending commitments that have been costed at £35 billion. Will he confirm that all those commitments are Labour policy? If they are not, which have been cut or dropped?

Photo of Mr John Smith Mr John Smith , Monklands East

The hon. Gentleman asks me about Labour's spending commitments in the context of the Conservative party's expensive summer campaign which, although it has been conducted all over the country, does not seem to have had a very dramatic effect on public opinion, judging by the national opinion poll that I saw this morning.

I prefer to recall what was said the day after that campaign was launched. Nomura Securities said: It is trivially simple to ascribe inevitably arbitrary numbers to areas where the Labour Party would like to increase spending, assume that all this spending occurs at once and arrive at a huge PSBR. This is absurd. I shall not embarrass the Chief Secretary to the Treasury by reminding him too often that The Independent observed: Mr. Mellor's shocking arithmetic also implied a precision about Government plans which the gilts market would find amusing. It is pretty rich for the present Government to disparage economic forecasts by others, in view of their own abysmal record. Let us examine their forecasts for recent years in regard to four key subjects: inflation, the balance of payments, growth and investment. This is important, because the Government ask us to believe their forecasts for the immediate period ahead.

The 1988 Budget forecast that, over a period, inflation would be at 4 per cent. As we know, after that inflation took off, more than doubling to reach 10·9 per cent. in October 1990. That was an error of 210 per cent. The projection on the balance of payments was equally unreliable.

Photo of Mr Ian Stewart Mr Ian Stewart , Hertfordshire North

When did the right hon. and learned Gentleman, or any Labour spokesman, suggest that it was necessary to take monetary action to control inflation? If he cannot point to any such occasion, how does he think his own economic policy could be credible in the context of reducing inflation if he ever became Chancellor?

Photo of Mr John Smith Mr John Smith , Monklands East

The hon. Gentleman should read the debate on the autumn statement of 1988, made during an important period in the development of the present circumstances. During that debate, on 14 January 1988, I said to the present Chancellor of the Exchequer: Tax cuts would feed straight through into increased consumer expenditure, particularly in the prosperous areas, and increase overheating of parts of the economy, exaggerating regional imbalances and, above all, adding a further twist to the increasing balance of payments deficit."—[Official Report, 14 January 1988; Vol. 125, c. 485.] That is what happened.

Photo of Mr John Smith Mr John Smith , Monklands East

Surely, having asked me a question, the hon. Gentleman will do me the courtesy of allowing me to reply.

I am determined to get back to my speech at some stage. Let me tell the Conservative Members to whom I have given way, however, that they do not seem to understand that inflation was caused by the present Government's inflationary own goals. We warned them repeatedly of the consequences.

Several hon. Members:


Photo of Mr John Smith Mr John Smith , Monklands East

I really must move on. I have given way very generously to Conservative Members, and I have a serious point to make.

There was an equally unreliable projection on the balance of payments, another important criterion which Conservative Members do not want to hear about. In 1988, the Government predicted a deficit of £4 billion; the outcome was a deficit of £15·2 billion. That was an error of 280 per cent.

As for growth, in the 1990 Budget the present Prime Minister, then Chancellor of the Exchequer, forecast growth of 1·5 per cent. between the first half of 1990 and the first half of 1991. Perhaps I am being excessively fair to him: he hinted in his Budget speech that it could be higher. On that occasion he said: growth should return in 1991 towards its sustainable rate of around 2·75 percent."—[Official Report, 20 March 1990; Vol. 169, c. 1013.] We know that growth over that period, from the first half of 1990 to the first half of 1991, was minus 3·1 per cent.

Even if we take the Prime Minister at his generous—from our point of view—estimate of 1·5 per cent. growth, that is an error of more than 300 per cent.

The Prime Minister, again when Chancellor, forecast in his 1990 autumn statement that fixed investment would decline by 1·75 per cent. in 1991, but in this year's Budget, only four months later, the present Chancellor was forced to revise the forecast by announcing a prospective fall of 9·75 per cent.—an error, which they managed between them, of 450 per cent.

Having regard to that record, why should we believe the Government when they tell us that recovery is round the corner? After all, did not the present Prime Minister tell us in his autumn statement of 1990 that the British economy is coming back on track"? There is no hint of a recession, no intimation of falling output and falling investment or of the rising unemployment which was to come. Indeed, in that same autumn statement, only eight months ago, he told us: We shall be back into growth next year at an accelerating rate."—[Official Report, 8 November 1990: Vol. 180, c. 125.] We know what happened and we know how absurd was the prediction of his successor as Chancellor that the recession would be "short-lived and shallow".

Given that nearly every prediction by the Government has turned out to be not only wrong, but absurdly wrong, and given that they are uniquely responsible for causing the recession with all its sad repercussions, why on earth should anyone believe them when they tell us now that recovery is on the way?

At the International Monetary Fund meeting in April this year, the Chancellor told us, as reported in the Financial Times of 30 April, that the recovery would be somewhere around the end of the second quarter. That is the second quarter of this year; we are now in the third quarter of this year.

Photo of Mr John Smith Mr John Smith , Monklands East

I am surprised that the Chancellor seems to indicate dissent. Whether he knows this or that about economics, I hope that he knows that we are in the third quarter of this year. We might start from agreement on that point.

Today, the survey by the Association of British Chambers of Commerce confirms: The country is still in the grip of deep recession and the economy will continue to shrink for some time. [HON. MEMBERS: "Read on."] I shall be happy to read the whole lot, if hon. Gentleman want that; it goes on for page after page. I can read out the regional quotes, too. Yorkshire and Humberside chambers of commerce state: Business confidence has taken a severe knock in the region. The North West chambers of commerce state: The rise in confidence seen in the last quarter appears to be slipping away. The London chambers of commerce state: Confidence … remains firmly negative in the manufacturing sector. The Southern chambers of commerce state: "confidence has fallen considerably." [HON. MEMBERS: "Read on."] The South West chambers of commerce states: Confidence in the manufacturing sector has taken a decided downturn. I am surprised that Conservative Members want more of that evidence.

To drive the point home, the president of the association, Mr. Miles Middleton, today said: This survey substantiates our prediction that a return to growth was unlikely this year. The country's businesses are still suffering and look set to suffer well into next year We are not yet seeing a recovery, merely a tail off in the rate of decline … It is still premature to speak of a recovery. The current economic climate remains harsh and recessive. The message could not be clearer.

The Chancellor is always on the hunt for what he chooses to call either vague or faint stirrings. Last month on TV-am he claimed to detect these stirrings in the housing market. He told Mr. David Frost: It may be slow at first. It will begin in certain sectors, probably in the housing market … These are just vague stirrings at the moment, but the signs are there. The broadcast and those comments in particular provoked an angry reply from the president of the Housebuilders Federation, Mr. Upsall, who wrote the following day to the Chancellor of the Exchequer. The president may be more capable of detecting any vague or faint stirrings in his industry. He said: I noted your comments on the Frost Programme on Sunday"— the letter was written the day after— about the slight indications you saw of an end of the recession. You cited the housing market as providing some evidence of this claim.I have consulted widely within the housebuilding industry and I have to tell you that there is no foundation whatsoever for your assertion. This conclusion is also widely shared by estate agents. You and your colleagues in Government, should be fully aware that on the evidence of the housing market, the recession is deepening, not receding. Purchaser confidence has been totally eroded by unemployment or the fear of it and, as a result, lower mortgage rates have done nothing to improve sales, which have in fact slackened since a brief upturn in the market in March.There will be no recovery in the housing market until an end to the recession is in sight and this will not occur until interest rates are further and substantially reduced. There is no doubt that your reliance for so long on high interest rates is driving the country deeper into recession, creating unnecessary unemployment and eroding the investment basis for any recovery. I have in my possession the reply which the Chancellor sent to Mr. Upsall. I shall not bore the House by reading out the tedious defence which he deploys. We shall no doubt get it later when he makes his speech. I shall spare the House that. Bearing in mind what Mr. Upsall said, I could not but bring to the House what the right hon. Gentleman said in his reply.

Thank you for your letter of 3 June regarding my interview with David Frost. I am always pleased to hear first hand the views of businessmen; they are a valuable addition to the information available from official statistics which are, inevitably, only available with some delay. I hope that the right hon. Gentleman took account of the robust observations of the president of the Housebuilders Federation. If he genuinely values the opinion of business men—who am Ito doubt that?—he no doubt took note of what was said by some of them in a recent edition of a paper called The Kingston Informer. This useful publication was sent to me by Mr. Robert Markless, the excellent prospective Labour candidate for Kingston-upon-Thames. The article, under the banner headline "Lamontable", carried a sub-headline: Businessmen Blame MP Norman Lamont for Biting Recession". That is bad enough, but the copy starts: Kingston's leading businessmen this week lashed out at the borough's MP, Chancellor of the Exchequer Norman Lamont, claiming the future is looking bleaker than ever. That is only this month, 12 July. The copy continues: Former President of the Malden and District Chamber of Commerce John Hauxwell, is so angry, he has resigned from anything to do with the Conservatives. The builders' merchant managing director stormed: 'I have been voting for the Conservative Party for 35 years, but I have resigned from everything since last October. I am so bitter at the loss of opportunities. The Tories have wrecked everything in the last three years. I don't believe there's anything that can have any effect inside 12 months. I think this recession is as bad as the 20s. The future is looking very, very bleak for Kingston businesses.' The article continues: President of the Kingston Chamber of Commerce and managing director of a local printing company, Peter Jarvis, said: 'I am pessimistic in the short-term. The message to businesses is just hang on. I would certainly say in my 33 years experience of trading in Kingston, it's the worst it has ever been.' I hope that the Chancellor writes back and deals with those criticisms which come from his constituency. I suggest that he opens his letter with: I am always pleased to hear first hand the views of businessmen. This debate gives the Chancellor an opportunity to tell us when the much talked about recovery is to happen. I hope that he will take that opportunity today. In particular, when will unemployment start to come down, instead of rising month after month? Can he tell us whether he agrees with the gloomy assessment made by his colleague, the Economic Secretary, when he told "Channel 4 News" on Friday 12 July—the same day that The Kingston Informer hit the streets: I think you are not going to see significant growth until next year.[Interruption.]—We shall check up on that because I do not want to misrepresent the Economic Secretary in any way. I am pretty sure that those were his remarks. Indeed, I heard them myself and I am inclined to believe my own recollection. If the Economic Secretary's remarks are right, how can there be recovery without significant growth? How can any economy survive the consequences of the plummeting fall in investment that is now occurring?

Recent Central Statistical Office figures officially confirmed for the first time that the level of manufacturing investment for this year will fall once again below the level achieved by the last Labour Government. It took the Conservatives nine long years to push manufacturing investment back up above the 1979 level, but I am sorry to say that it is now falling dramatically below that level again.

Because of that collapse in investment, Britain faces a serious capacity crunch. The National Institute of Social and Economic Research warned in its latest review, published only in May this year, that the level of manufacturing capacity will be reduced by some 5 per cent. by the end of this year. The institute comments: The loss of manufacturing capacity in the early 1980s must be partly to blame for the overheating of the economy at the end of the decade … It is only too likely that the present recession will create conditions for just the same kind of overheating to occur again sometime in the 1990s, if nothing is done to compensate". The Government have ignored those warnings made by the National Institute of Social and Economic Research, the Labour party and many others because they have convinced themselves that recovery is simply the automatic product of lower inflation and the gradual reduction of interest rates from the high levels that they have maintained in the past two and a half years.

One must ask what kind of recovery the Government are looking for. The Chancellor keeps repeating that recovery will come as lower inflation and interest rates boost consumer confidence and then consumer spending. His most revealing explanation, however, occurred last month. Speaking after the OECD Finance Ministers meeting in Paris, he said: Consumer spending led us into recession and I expect it to lead us out. I notice that the right hon. Gentleman is nodding. At least he remembers what he said, which is more than I can say for the Economic Secretary.

Like so many of the Chancellor's throwaway lines, that casual remark tells us all we need to know about Conservative economic strategy. They have no interest in a lasting recovery or real economic performance, but only in a short-term revival in consumer spending. They want to take us back to the familiar cycle of boom and bust; of a consumer spending spree followed by an interest rate crunch and rising unemployment; of consuming today what we should be investing in tomorrow. It is a recipe for a repeat performance of the 1980s and for another decade that begins and ends with a recession, with an inflationary boom in between. That, I fear, would be the predictable result of a fourth term for the Conservatives, and it would be a disaster for the country.

All that is desperately important because of the unique challenges that Britain faces in the single market after 1992. At one and the same time, we must face the challenge of severe competition while moving decisively to the more competitive and productive economy that some of our European partners have already achieved. To do that, recovery in the British economy must be investment-led. There must be investment in new plant and machinery, new technology, new products and new processes. There must be investment in the regions and, above all, in new skills to create the world-class work force without which success can never be obtained.

Interest rates need to be lowered to the levels of our competitors in Europe if we are to restore investment to proper levels.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

May I remind the right hon. and learned Gentleman of what the hon. Member for Dagenham (Mr. Gould) said yesterday following the statement on local government finance? He asked how my right hon. Friend the Secretary of State for the Environment could justify the denial to local government of £2 billion which they need simply to maintain services even at their present level?" —[Official Report, 23 July 1991; Vol. 195, c. 1054.] The hon. Member for Dagenham wants to spend £2,000 million extra on local government. Will he attain it through increased community charges, increased taxation or increased borrowing? If it is to be through increased borrowing, what impact will that have on interest rates, which the right hon. and learned Gentleman wants to bring down?

Photo of Mr John Smith Mr John Smith , Monklands East

We could have had £2 billion years ago if the Government had not introduced the poll tax—[Interruption.] I am not in the mood to take lectures from Conservative Members about financial management.

I was arguing that fiscal policy must be used to encourage investment in new plant and machinery in our vital manufacturing sector. We must also seek to raise the levels of investment in research and development.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

Will the right hon. and learned Gentleman give way?

Photo of Mr John Smith Mr John Smith , Monklands East

I have given way plenty of times and I must get on with my speech.

To combat rising unemployment we need a proper temporary work programme based on three days' employment, one day's training and one day's job seeking. I am surprised that the hon. Member for Canterbury (Mr. Brazier) finds that amusing. Such a programme should be introduced to deal with rising unemployment, which is afflicting so many people —[Interruption.] The hon. Member for Canterbury might be doing some job searching of his own after the forthcoming event.

The most important investment that the country needs to make is in our people, particularly young people. It is staggering to consider that, in recession-gripped Britain, many companies face serious skill shortages. As today's Association of British Chambers of Commerce survey comments: Particular problems of skill shortages exist in regions such as the West Midlands, where even though nearly half of manufacturing employers are shedding labour, nearly a third are reporting recruiting difficulties". The recent National Economic Development Office report entitled "Partners for the Long Term: the Lessons from the Success of Germany and Japan" highlights the lower level of investment in what it calls human capital relative to other advanced countries. The report says: Not only does a higher percentage of 16 to 18 year olds remain in full-time education in Germany (47 per cent. in 1987), and Japan (77 per cent. in 1988) compared with the UK (35 per cent. in 1988), but the availability of part-time education and training in craft skills is greater in those countries.

It is little wonder, when we consider such facts, that this month's OECD Economic Outlook which, after all, the Government co-operates in compiling, drew attention to the United Kingdom's chronic skill shortages and inadequate training of the labour force". The OECD went on to argue that an upgrading of vocational and general training levels would appear essential". Given the mild language used by the OECD, which must have its copy approved by the Treasuries of the individual countries with which it deals, that is an astonishing statement.

Hon. Members know from their own experience that hardly a day goes by but someone, whether it is an industrialist, a business man, a trade unionist or a teacher, tells us what he or she knows to be true: that our training is wholly inadequate to meet the needs of a modern economy and an ambitious society. Nearly every international comparison shows, with frightening repetition, that we are not only behind the rest of the European Community, but we seem so complacent that further slipping behind is inevitable. The Government have still not restored the resources available to their previous inadequate levels. They still do not appear to accept that they have a responsibility to foster training among the employed work force as well as for the unemployed and young people. The Government say that they have no responsibility for helping to train the existing work force. Could anything be more foolish? They need urgently to revise their assessment because the other countries in the European Community do not hesitate to invest in such training. Investment in people, technology and the regions is the key.

In the 1990s in post-ERM Britain the economic agenda needs to be principally concerned with improvement in our supply side. Improving our productivity capacity and performance through investment will enable us to reduce the productivity gap between our country and our more successful competitors. It is through investment that we can create the wealth which alone can sustain higher living standards for our people and provide proper resources for our essential public services.

I say with genuine regret that that priority was absent in the locust years of the 1980s. We wasted the opportunities that were presented by North sea oil revenue. We consumed instead of investing. The House will recall that demand was stimulated by a credit free-for-all and by tax cuts for the rich. Year after year, as we went from bust to boom to bust again, crucial investment in the infrastructure, the transport system, the public services and in training and manufacturing industry was persistently neglected.

We cannot afford to make those mistakes again in the pivotal decade that lies ahead. That is why, under a Labour Government, the thrust of fiscal and monetary policy will be to create the economic conditions that will maximise investment in our productive economy. We shall aim, as the Government failed to do, at macro-economic stability instead of practising the rollercoaster economics of boom and bust. [Interruption.] Conservative Members do not like to hear that. Not only they but the public will hear it between now and the next general election.

We will promote a supply-side strategy that will improve the capacity of our industry and the skills of our people. Above all, ours will be a strategy for the long-term sustained recovery of our economy. Compare that, as the public will do in the months ahead, with the wing-and-prayer antics of a beleaguered Government desperately seeking to create the illusion of recovery, no matter how insubstantial and—to borrow a phrase from the Chancellor—however shallow and short-lived. Britain deserves a better way forward for the 1990s. The opportunity to choose cannot be long delayed. We say, The sooner the better.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 5:42, 24 July 1991

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: congratulates Her Majesty's Government on its pursuit of sound economic policies; notes that those policies have led to a large fall in inflation; notes also that as inflationary pressures have eased, interest rates have been cut substantially, while the £ sterling has maintained its position in the ERM; and calls on the Government to continue with its prudent policies, which will lead to a resumption of sustained growth.". We have been amused by the right hon. and learned Member for Monklands, East (Mr. Smith). We always enjoy his speeches and he always enjoys these occasions. So do I. This is an important debate, and if the economy was in as serious a state as the right hon. and learned Member says, it would have been much more enjoyable to hear the views of the Leader of the Opposition on economic policy. His name is at the top of the Opposition motion, and it is a mystery why he cannot lead his party in an economic censure debate and give the House his carefully considered views.

The right hon. and learned Member for Monklands, East presented his usual list of selective quotations by me. I am certainly optimistic, unlike the right hon. and learned Gentleman who engaged in gloom-mongering. If he had made any effort to provide the House with an accurate representation of what I have said, it would be clear that my statements about what would happen to the economy have been consistent. I set out my view in evidence to the Treasury Select Committee in December, in the Budget in March, and in what I have said more recently. That view has been that recovery would begin in the second half of this year. I reiterate that and shall give my reasons.

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

I shall do so in a moment.

Since 1979, the Government have made it clear that their central objective in economic policy is the control of inflation. We promised that we would beat inflation, and that is exactly what we are doing. In recent months we have achieved some remarkable successes. Every serious measure of inflation is on a firm downward track. Even at its peak of 10·9 per cent. last October, inflation was over 4·5 percentage points lower than the average rate under the last Labour Government. Headline inflation has fallen by over 5 percentage points since October to 5·75 per cent., the lowest figure since August 1988 and lower than the last Labour Government achieved in any month in any year of their term of office.

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

I shall give way when I have made more progress.

The underlying rate of inflation never rose as far as the headline rate so, of course, it has not fallen as quickly, but here, too, the trend is clearly downward. The rate of increase in the retail prices index, excluding mortgage interest payments, has come down by more than 2·5 percentage points since the autumn. That is good news.

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

I shall give way in a moment. The hon. Gentleman should contain himself. I shall not give way if he persists in interrupting.

The fall in the rate of increase of the RPI is not good news for the Opposition, but I have worse news for them. Inflation will continue to fall in the months ahead. The last two CBI surveys of expected price changes have, for the first time since the 1960s, shown a zero balance. That is an excellent guide to the sort of inflation that we can expect later this year and at the end of the year.

I know that many firms have had a hard and painful struggle, but we are firmly on course for an inflation rate of 4 per cent. by the last quarter of 1991. Ours is the only major industrialised country in which inflation is lower than a year ago, and by the end of the year I expect our inflation rate to be below the EC average. That will be a remarkable achievement and should be welcomed by everyone in the House.

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

In his Budget statement, the Chancellor said: there are good reasons to expect that the recovery will begin around the middle of this year".—[Official Report, 19 March 1991; Vol. 188, c. 165.] We are now in the middle of this year. Has the recovery begun?

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

The hon. Gentleman's naivety is astonishing. We are only a few weeks into the second part of the year and the statistics for output in the second quarter have not yet been published. There are some encouraging signs, such as the excellent retail sales figures which were published earlier this week. I certainly stick by what I said in the Budget statement and to the forecast at that time that the recovery would begin in the second half of the year. I expected some hon. Members, although not the hon. Member for Durham, North (Mr. Radice), to ask within a few weeks whether the recovery had started. It is extraordinary that the hon. Gentleman should ask such a question.

German inflation is expected to rise and, by the end of the year, our inflation rate may be lower than that of Germany. The right hon. and learned Member for Monklands, East did not speak about that. In an interview published in The Sunday Telegraph, the right hon. and learned Gentleman described himself in a memorable phrase as a "German nut". Surely he is impressed by the fact that, with any luck, our inflation rate will be lower than that of Germany.

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

I fully understand that the Chancellor is committed to reducing inflation. There is no question about that. But it is almost 12 years ago that the same claim was made in the medium-term financial strategy—that this was a Government determined to reduce inflation. I have a copy of the document in front of me. The Government have had 12 years and at the end of that time they have the same objective as they had at the beginning. What happened meanwhile?

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

I am grateful to the right hon. Gentleman for drawing attention to the fact that over the whole of this decade we have reduced inflation and reduced it massively. We reduced it far below the level of the Labour Government and, as I said earlier, the rate that we have now is below the rate achieved in any month of any year by the last Labour Government.

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

I will give way in a moment.

We should be proud of that success, because the reduction in inflation is not just temporary. We are in the process of making Britain a permanently low inflation country.

Unemployment is still rising, as one would expect at this stage of the cycle, but the rate of increase has slowed. They key to minimising the rise in unemployment and reducing it thereafter is labour market flexibility. The faster wage bargainers adjust to low inflation, the better the medium-term prospects for employment. Our trade union reforms, pursued in the teeth of opposition from the Labour party, have transformed the attitudes of managers and workers. More and more, there is evidence that workers are looking beyond the size of their pay cheques to take account of the long-term future of their company. If they continue to do so, employment prospects will recover relatively quickly once the recession is behind us.

However, considerable damage to long-term job prospects would be done if we were to accept a minimum wage, advocated by the Opposition, which would price hundreds of thousands of people out of their jobs, or if, as the Opposition suggest, we signed up to the social charter lock, stock and barrel.

As inflationary pressures have eased, we have been able to cut interest rates—not just once or twice, but seven times since the peak last October.

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

If I had predicted last autumn that inflation would fall from 11 per cent. to under 6 per cent. that the pound would remain strong against the deutschmark and that we would cut interest rates from 15 to 11 per cent., the Opposition would have howled with derision. Yet that is exactly what we have achieved.

The effects of our interest rate cuts on business finances and household budgets have been considerable. Overall, industry's annual interest bill has been cut by more than £5 billion, and a family with a typical mortgage of £30,000 will see its disposable income increase by about £60 a month.

Photo of Mr George Foulkes Mr George Foulkes , Carrick, Cumnock and Doon Valley

At last. I am grateful to the right hon. Gentleman. The Chancellor has rightly said that the level of inflation, has gone down, but it has gone down at a substantial price—a huge increase in unemployment. Does the Chancellor still think that is a price worth paying?

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

As the hon. Gentleman knows, I have repeatedly made it clear that there is no conflict between fighting inflation and the long-term prospects for employment. If we give up the fight against inflation, that will be bad for long-term employment prospects. It is precisely because the Opposition are not remotely serious about fighting inflation that we do not take them seriously when they talk about unemployment. The reintroduction of unemployment in the speech made by the right hon. and learned Member for Monklands, East was noticeable. In debate after debate, when unemployment was falling for some 44 months, the Opposition never mentioned unemployment. Only now has the right hon. and learned Gentleman reintroduced it.

Our cuts in interest rates have been measured and prudent. They have not endangered sterling's position in the exchange rate mechanism. Against the deutschmark, sterling is trading at almost exactly the level of last October. Nevertheless, we have reduced interest rates by four points during a period when German interest rates have increased. The differential between British interest rates and those of Germany is at a 10-year low and United Kingdom interest rates are now less than 1·5 percentage points above those of France.

Real interest rates in the United Kingdom are below those in France and Germany, but that does not stop the Opposition demanding yet more and larger interest rate cuts. Those are the same people who endorsed our membership of the ERM and professed to want low inflation. They cannot have it both ways. It is utterly naive to claim that we can cut interest rates more quickly and stay in the ERM and keep inflation down at the same time.

Everyone knows that Labour's policies and the disciplines of the ERM would not mix. Some Labour Members are honest enough to admit that. I could not put it better than the hon. Member for Great Grimsby (Mr. Mitchell) who said: The first act of a Labour Government will have to be a devaluation. We can't say it publicly and we shall have to appear as respectable. Scout's honour we wouldn't do such a thing. Policy remains tight, as it must do, to consolidate the dramatic progress that we are making on inflation. But success in the fight against inflation has enabled me to loosen monetary conditions substantially. But after every interest rate cut, the right hon. and learned Member for Monklands, East demands another. However, he does not seem to acknowledge that monetary policy operates with a substantial time lag. After every interest rate cut he demands another, even before the first has had time to have effect. Just as we forecast in the Budget, lower inflation and lower interest rates will lead to recovery. Recent statistics published are consistent with the view that I took in the Budget.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

As my right hon. Friend has already said, and as has been pointed out several times, the Opposition have a policy of spend, spend, spend. If they spent all those thousands of millions of pounds, how could they cut interest rates as well?

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

My hon. Friend is correct. The Opposition have not the slightest hope of containing either interest rates or the level of taxes, which would have to shoot up dramatically as a result of their spending.

Recent statistics are consistent with the view that the pace of recession slowed in the first half of the year. GDP fell by about 0·5 per cent. in the first quarter, a little less than in the last quarter of 1990 and significantly less than in the third quarter of last year. We expect the total fall in output to be about 3 per cent., significantly less than the 5 per cent. fall in the 1980–81 recession. That fall should be set against the rise of 28 per cent. seen in the long upswing of the previous decade.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

My right hon. Friend says that monetary policy has been substantially eased and of course it is true that there will be a considerable time lag between the easing and the time that it takes effect. But surely, at the very least, the easing of monetary policy ought to be seen in the M0 figures, and M0 is increasing by only 2 per cent. at present. Does not that argue against what my right hon. Friend says?

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

I fear that my hon. Friend is not correct. I intended to come to that specific point. The M0 figures show a marked increase this month and I shall be referring specifically to that. But my hon. Friend is right to say that the evidence of interest rates working is when they affect the monetary aggregates. As he well understands, it takes time for that to happen, but the evidence that it is happening on the narrow definition of money is there.

Unemployment has continued to rise, as one would expect at this stage of the cycle, but the rate of increase has slowed noticeably. The rise in June was the smallest since January. Manufacturing output continued to decline into the second quarter, but, again, at a much slower rate. Manufacturing industry has held up relatively well in the recession. The fall in output is expected to be only half that of the 1980–81 recession.

There has been some excellent news in the past week. Retail sales rose by 1·25 per cent. in June. They reached the highest level since last December, excluding the abnormally high March figure. In addition, the United Kingdom ran a current account surplus in June for the first time since 1987. That improvement was not due to a sharp fall in imports; it reflected the excellent performance of British exporters.

In the past two years, manufactured exports have increased by no less than 18 per cent. in volume terms. We have heard little from the Opposition and from the hon. Member for Dunfermline, East (Mr. Brown) about those good statistics, yet he normally appears on the television when the trade figures are announced each month. One of the newspapers compared him to a vulture with an appetite for carrion. The hon. Gentleman will be rather lean and hungry in the next few months, because the news will get better and better.

We expected business investment to fall throughout most of this year. In fact, in the first quarter it was unchanged from the last quarter of last year, and still more than 40 per cent. higher than the level that we inherited from the previous Labour Government.

Interpreting economic statistics is particularly difficult because of the effects of the Gulf war. The evidence that we have is consistent with economic recovery in the second half of the year. To deal with the point that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made, the six-month growth rate of MO has increased from about zero at the end of 1990 to 3·75 per cent. at the end of June. Consumer confidence, as measured by the EC-Gallup survey, is increasing. Output expectations—historically, a good indicator of manufacturing output and non-oil GDP—show signs of recovery. Indeed, several other surveys, including that of the Association of British Chambers of Commerce, show the same signs.

The right hon. and learned Member for Monklands, East referred to that survey. He said that he was prepared to quote all of it. He might have quoted the part that says: Business confidence continues to rise across the country. He might have quoted the part that says: The signs of the end of the recession are certainly more pronounced and less elusive this quarter. The right hon. and learned Gentleman was very selective in his quotations from the survey.

Much of economics consists of the search for the perfect leading indicator—the crystal ball that foretells the future. As my hon. Friend the Member for Wolverhampton, South-West will know, fashions change; one indicator comes and another goes. In the past 12 years, there has been one infallible indicator of recovery—the apocalyptic prophecies of the Opposition. Ten years ago, the right hon. Member for Leeds, East (Mr. Healey) told us: there is no light at the end of the tunnel. We know what happened next. The second quarter of 1981 duly marked the start of the recovery, and the economy turned in eight years of sustained growth averaging more than 3 per cent.

We heard many of the opinions of the right hon. and learned Member for Monklands, East on our forecast. He did not mention the hon. Member for Dunfermline, East, who said in 1986 that there was no chance of an improvement in unemployment. Not surprisingly, that pronouncement was followed by 44 consecutive months of falling unemployment. It fell by more than 1·5 million, yet the Opposition hardly mentioned the subject. I am not saying, "Do not listen to what the Opposition say"—by all means do so—but just remember that the opposite is bound to happen.

We can be confident. We have no intention of changing course and giving an unjustified, artificial boost to demand. Recovery will come, as it always does, from businesses controlling their prices and costs and from wage bargainers adapting to low inflation. On the high streets, stores are cutting prices. That is how firms can help to beat the recession and to boost demand. The consequences of a phoney stimulus would be just as damaging for our economy as a prolonged recession. Taking the easy course might lead to a short-term boost, but in the longer term it would mean higher inflation and higher unemployment.

Our consistent refusal to take the short-term view has enabled us to achieve the success of the past 12 years. When the dust of this recession settles, the gains of the 1980s will shine through again. The 1980s was the first decade since the second world war in which the United Kingdom grew faster than France or Germany. Manufacturing productivity grew faster than in any other major industrial country. Our share of world trade in manufactures has risen in each of the past two years for the first time since records began. Perhaps the Opposition think that that is failure.

Real personal disposable income is up by more than a third since 1979. Real wealth is up by 60 per cent., and the number of shareholders has tripled. Conservative Members do not regard that as failure.

The persistent refusal of the Opposition to see anything but misery ahead is predictable but not very admirable. What I found truly mystifying about the speech of the right hon. and learned Member for Monklands, East was the gaping lack of any attempt to present a coherent alternative policy. When he became shadow Chancellor, it was hoped that he would make a better fist of it than the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). It would have been difficult to do any worse, but all we heard from the right hon. and learned Gentleman was waffle—superior to that of the Leader of the Opposition, but none the less waffle was what it was.

We used to know what the alternative strategy of the right hon. and learned Gentleman and the Labour party was. In 1983, it had an alternative economic strategy of exchange controls, import controls, massive increases in Government spending to boost demand, and the whole apparatus of planning. We must not forget that the right hon. and learned Gentleman was among those who spoke up for those policies. What has made him change his mind? It must have been what he described as eight more years of disastrous Tory policies. The terrible failure of those years convinced him that he was wrong and we were right. That was the result.

The right hon. and learned Member for Monklands, East knows how to memorise his lines. He says that he recognises that the Government's responsibility is to get inflation down. He supports membership of the exchange rate mechanism. We even hear him talking of supply side policies. I am not entirely convinced by this puzzling, mystifying and sudden conversion. There is one real divide on economic policy between the parties—between Conservative Members, who are prepared to take the tough decisions that we know to be right, and Labour Members, who are prepared to will the ends but not the means.

The right hon. and learned Member for Monklands, East proclaims the virtues of low inflation, but he is not prepared to do what is necessary to achieve it. All of us know that the way to control inflation is to control demand, and that the way to control demand is interest rates—all of us apart from the right hon. and learned Gentleman. He is on record as saying on television, astonishingly: We will not be using interest rates for controlling demand. Yet the Opposition's motion specifically calls on the Government to take immediate action to promote economic recovery and an early end to recession by lowering interest rates and manipulating demand.

The right hon. and learned Member for Monklands, East says that we should cut rates by a full percentage point. That was his policy in October 1987, when interest rates were 9·5 per cent. It was his policy in March 1988, when interest rates were 8·5 per cent. It was his policy in October 1990, when interest rates were 15 per cent. It is his policy today. Interest rates are always 1 per cent. too high.

The right hon. and learned Gentleman has another string to his bow, but, like most Labour policies, it is inefficient, ineffective and unfair: it is credit controls, which would do nothing to increase savings or to reduce demand. Credit controls cannot reduce the overall level of interest rates, only the distribution of credit. Some people —the well advised or the wealthy—get all they want. The rest—ordinary people at the back of the mortgage queue —get nothing. Perhaps the right hon. and learned Gentleman could explain how stopping people borrowing is a painless way of reducing demand.

The right hon. and learned Gentleman claims that he is ready to answer the hard questions of economic policy. Perhaps he will answer this question: how would he deal with the inevitable sterling crisis that Labour's fiscal and monetary irresponsibility would precipitate? He has obviously given that question serious thought, because earlier this month he told the Financial Times the answer: There will be no sterling crisis when we take power. But even if there were, all I would have to do is pick up the phone and talk to someone on first name terms. They probably know him as John. I only hope that they remember which John.

There we have it. Now we know where the right hon. Member for Leeds, East went wrong when the last Labour Government let spending get out of control. He need not have gone crawling to the International Monetary Fund, if only he had eaten a few more prawn cocktails.

When the Labour party talks about supply side socialism, it is certainly serious about increasing supply —the supply of bureaucrats. According to Labour's policy documents, there would be a never-ending flow of ministries, agencies, quangos and commissions. The other day, I went through the policy document and discovered equality tribunals, contract compliance agencies, national vocational councils, development agencies, technology transfer centres, British Technology Enterprise, the Office of Technology Assessment, a Health Technology Commission—I had better stop there. It sounds like an answer from the Leader of the Opposition—not so much a citizens charter, more a bureaucrats bonanza.

Where are the national plan of the 1960s, the social contract of the 1970s? In the dustbin of history. That is where Labour seems to be looking for its policies. From among the uncollected rubbish of failed policies, Labour comes up with the national economic assessment—the same policies, only older and mouldier; tried, tested and failed.

Nowhere is that more apparent than when it comes to the Labour party's approach to the labour market. The Labour party opposed and resisted every one of our trade union reforms. Earlier today, when my right hon. and learned Friend the Secretary of State for Employment was before the House, we heard Labour's predictable pledge to oppose the next steps in trade union reform as well.

We should not be surprised. The right hon. and learned Member for Monklands, East—this does not seem to be well known—was the shadow employment spokesman who led Labour's opposition to ballots before strikes and ballots in union elections. He said then that to require ballots was "intellectually disreputable", "an irrelevant effrontery" and would gravely undermine the effective pursuit of their members' interests"—[Official Report,8 November 1983; Vol. 48, c. 170] by unions. If that was his view then, why is it not his view today, and how do we know what his view will be tomorrow?

The Labour party is firmly committed to removing one of the greatest competitive advantages that this country has—low marginal rates of tax. Labour's proposals would hit the small business man employing 20 people as much as it would the corporate executive employing 20,000 people. That is a strange way to encourage the recovery to get off the ground.

Everyone knows that Labour's extravagant spending plans would mean higher taxes for everyone, not just the better-off. The right hon. and learned Member for Monklands, East and the hon. Member for Derby, South (Mrs. Beckett) do nothing to stop their colleagues going up and down the country promising massive extra spending. When the Labour party talks to the groups of voters it wants to bribe, its £35 billion worth of promises are firm commitments and high priorities; when it talks to the generality of taxpayers who would have to pay the bill, they are vague aspirations and distant goals. Either way, they are a con on the British people.

The 1980s were successful because we took the tough decisions that were needed to get the British economy back on track. We controlled public expenditure, reduced taxes, reformed the trade unions and privatised and deregulated industry. None of that was easy, but it was necessary.

On each of those items, the Labour party would discard our hard-won gains. Behind the presentational veneer, Labour remains committed to massive increases in public spending, borrowing and taxation, the reversal of our trade union reforms and regulation—in short, the tried and failed policies of the past.

We are beginning to see the rewards of fiscal and monetary discipline: we are within sight of our goal—much lower inflation. Inflation is coming down; we have been able to cut interest rates, while keeping the currency strong; and we have certainly laid the foundations for the recovery of the economy. The evidence for that is growing daily. We know it, Labour knows it and the country knows it too. I invite my right hon. and hon. Friends to reject the Labour party's motion.

Photo of Peter Kilfoyle Peter Kilfoyle , Liverpool, Walton 6:14, 24 July 1991

Forgive me, Mr. Deputy Speaker, if I stumble over the proprieties peculiar to the House, but I am the newest Member and a comparatively naive one—naive enough to believe that I can replace the late Eric Heffer in Parliament.

As everyone knows, Eric Heffer was a Member who was loved and respected by many hon. Members on both sides of the House and by many far beyond this place. Who could fail to be moved by the tremendous battle that he put up against his terrible illness? Yet the people of Liverpool, Walton have sent me here to represent them in this place.

I know that, conventionally, one is expected to be non-controversial in one's maiden speech. The paradox is that my constituents have been subject to great controversy during the past 12 years. They have been squeezed between two conflicting yet symbiotic tendencies. On the one hand, they have suffered from that sterile ideological throwback—the Militant Tendency. That malignancy has been cast to its political doom from the tarpeian rock of the Walton by-election.

More insidiously detrimental to their well-being has been that other confrontational and mendacious tendency within Government, promising all and delivering nothing. The Government will shortly be called to account at the ballot box. The electors of Liverpool, Walton have already given their verdict, with the Tories' worst by-election result since 1980. It has been a judgment on the Government's declared "managed decline" of a great city. There is no doubt that the Government's perverse economic policies have effected their objective of running down the city of Liverpool and its citizens.

Nearly 27 years ago, Eric Heffer made his maiden speech. In it he highlighted, after 13 years of Conservative government, the areas of neglect that particularly concerned him. It was with a sense of déjà vu that I read through them in that speech.

Then unemployment on Merseyside as a whole was 24,000; now it is 7,403 in the division of Walton alone, notwithstanding the fiddled figures. The independent assessment of the unemployment unit shows a far worse situation, with one in three people unemployed in some wards in Walton and a total of 11,027 people unemployed, nearly 27 per cent.

Eric underlined the population drift as jobs went. He spoke of 42,000 people lost to the north-west. Under the Government, we have lost 335,000 manufacturing jobs in the north-west—35 per cent. of the total. Many of those were in Liverpool as jobs were lost at Tate and Lyle, Standard Triumph, Dunlop, Hartley and many other firms —thus, the population drift has quickened to a flood.

Other concerns of Eric's included the lack of skills training, the neglect of the transport infrastructure and the uncertain regional policy. Yet what do we have today? The Government have frozen the upgrading of the main north-west railway line. That line was planned as our high-speed link to the channel tunnel, but now there is no track, no rolling stock and no engines or any terminals appropriate to it. There have been massive cuts in regional aid in the north-west—down by more than 70 per cent. —which is the biggest single cut of any region. There has been a chaotic approach to training which leaves my city and many others bereft of the skills needed to compete in the modern world.

Instead, we have been assured that prosperity will come to all, even Liverpool, on the basis of the trickle-down theory. It is what the novelist Joseph Heffer characterised as the Milo Minderbender school of economics: what is good for Milo is good for the country. That is not the case. There has been no trickle down to the people of Liverpool. Life has grown steadily worse under the Conservative Government. We have a council that is making painful decisions in order to stay within the law; we have a vibrant voluntary sector which struggles to relieve the worst effects of Government-inspired deprivation; and we have supportive private businesses, loyal to the city which demand more constructive recognition of their contribution to the city's regeneration.

In short, we have a city of many talents battling against the odds to be part of the economic mainstream of life. Liverpool deserves the motto of Everton football club, "Nihil satis nisi optimum"—nothing but the best is good enough. Of course, the people of Liverpool realise that we have little hope of that under a Conservative Government. Hence we have a paltry two Conservative councillors out of 99 in the city and no Tory Member of Parliament. It is well understood that our economic revival will come only with a Labour Government.

Having sacrificed too many aspirations on the altar of political and economic dogmatism, will this Government not now relent in the remaining months which they have left and expiate some of their sins? What does it profit a party if, having won government, it suffers the loss of its own soul?

Let me tell of what has happened to my constituents. One of my closest friends in Walton, after nine years on the dole, at 39 years of age, married with three children, finds that he cannot afford to take up the university place he has won through hard struggle. He would be worse off by between £9 and £12 a week. Where is the incentive there?

Another constituent, at 27 years of age, married with two children, has applied for 524 jobs without success. He approached me during the by-election with the words, "I'm sorry to bother you, I'm just one of the unemployed". Imagine the low self-esteem implied in those words. He has had his pride crushed out of him. That is what the Government have achieved—a generation without jobs, prospects or even hope. Is it any wonder that my people treat their promises with derision?

When Oscar Wilde cynically defined democracy as bludgeoning of the people by the people for the people", he may have had Liverpool in mind. We have certainly been well and truly economically bludgeoned by Government policy. We prefer to see democracy in a purer light— noble in motive and far reaching in purpose". We then ask ourselves, where is the nobility and purpose in record unemployment, stagnant production, social deprivation and human misery, attributable to 12 years of Government mismanagement? This Government will not be forgiven, but will be remembered in Keynes' words as the slaves of some defunct economist. Madmen in authority who hear voices in the air and are distilling their frenzy from some academic scribbler of a few years back".

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham 6:22, 24 July 1991

It is a privilege to follow the hon. Member for Liverpool, Walton (Mr. Kilfoyle). I was one of those who heard his predecessor, the late Eric Heffer, make his maiden speech, and I concur with every word that the hon. Gentleman said about him. Eric Heffer had many friends on both sides of the House, not only in his own party. He was as critical of his own party as he was of the Conservative party.

The hon. Member for Walton made a rather contentious speech in which he criticised the Government. That is not supposed to happen in a maiden speech—[HON. MEMBERS: "Why not?"] I do not object to that in the smallest way. I only recall that Eric Heffer was as likely to criticise his own Front-Bench spokesmen as he was to criticise what was then the Opposition. I am sure that the whole House looks forward to hearing the hon. Gentleman on many occasions in the future, and I am certain that he will be a worthy representative of his constituents, just as his predecessor was.

It must have been difficult for the shadow Cabinet to choose last week the subject for this Supply day debate. No doubt they wanted, at the end of the Session, to have a good rousing round-up debate on the economy. Unfortunately for them they picked the subject too late to change it. Just two days ago, it became clear that the economy was changing rapidly for the better. Clearly, the Opposition could not foresee the mistake of picking a Supply day debate of this type that would be held after such excellent trade figures and the beginning of the retail recovery, two factors which came rather earlier than even I had expected.

The right hon. and learned Member for Monklands, East (Mr. Smith) has been highly critical of the Government again today, and his criticism appears to become more strident as time goes on. I do not believe that elections are won in this House, or by party political broadcasts, or by critical articles in the newspapers. On the whole, they are won by ordinary men and women deciding who the next Government should be on issues that have little to do with party politics as we discuss them in this House.

In order to confirm that, I looked up the economic statistics for the past 20 years to see what had happened in the seven elections that I have fought. I discovered that disposable income must be higher than it was in the previous quarter; that the savings ratio must be falling, because people are more confident about the future and are spending more than they did in the previous quarter; that consumer expenditure must be rising because of the same feeling of confidence; and that interest rates must be falling. Any Government during the past seven elections who got all four factors right have always won—and any Government who have got even one of them wrong have always lost. I offer that information to the right hon. and learned Gentleman for what comfort there is to be gained from it.

Three of those factors are already in place, and we need confirmation in the next two months to ensure that the fourth is in place, too. Judging by the statistics for the past seven for the elections, I would say that we can safely go to the country in November or October, or we may have an even better chance next year.

The economy is clearly looking up, and not before time. The right hon. and learned Member for Monklands, East made his usual critical speech but was rather less clear about his own policies. He did not deny—perhaps he will give us further details—that the Labour party will spend a great deal of money—we estimate £35 billion. We have not heard the exact figures, but it is certain that he proposes to increase taxation—he admits as much.

It is also certain, that if the Labour party ever formed a Government, it would have to borrow a great deal of money, not merely because of what it proposes to spend but because of it, renationalisation programme, particularly for the water authorities. This is the area of which the hon. Member for Derby, South (Mrs. Beckett) is in charge. Apart from the costs of compensating shareholders—£6 billion or £7 billion—a Labour Government would have to take into account the borrowing requirement that will arise because of the capital expenditure on which the water authorities are already engaged, amounting to about £20 billion over the next 10 years.

That represents an enormous increase in the public sector borrowing requirement. It will inevitably have a hard impact on the Government's standing in the gilt-edged market and the Labour party has not foreseen that.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

Does my hon. Friend agree that the House should be given a further opportunity to hear from the right hon. and learned Member for Monklands, East (Mr. Smith) how he proposes to deal with the important point that my hon. Friend has highlighted?

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

I should be delighted to give way to the right hon. and learned Gentleman to hear what he has to say. We have not yet had a proper chance to discuss this matter. It is stupidity itself to take on a capital expenditure programme such as that to which all the water authorities are committed and to count it as a public sector borrowing requirement. That would shatter confidence.

Some people think that the trade figures are bound to deteriorate as soon as the economy picks up again. That is to ignore two factors. First, it is most unlikely that there will be a repetition of the recent scale of borrowing and the domestic consumer expenditure on which it is based. People in this country have had a severe jolt from the amount of borrowing and the costs of the interest payments on it. I doubt whether the scale of domestic consumer expenditure of the past few years will be repeated.

Secondly, I note that the volume of exports is higher than that of imports for the first time since 1987, and that we have a surplus in trade in manufactured goods, and that we have a surplus with the European Community. I cannot recollect how long it is—it must be a long time —since all three factors have occurred at once. I do not believe that there is any reason why that new trend should not continue. I say that not because I think that there has been a dramatic improvement in productivity at home but because of the changed conditions in the European Community particularly in Germany and the large increase in demand that has come from that country,

The figures are much better than they look. There is a large positive balancing item of £1·5 billion in the latest national accounts, and that is in the first quarter alone. That balancing item is almost always positive. Therefore, the balance of payments is characterised by strong portfolio and direct investment abroad, from which we are continuing to gain direct benefit.

The Leader of the Opposition and the right hon. and learned Member for Monklands, East criticise us for wasting the money from North sea oil. The truth is that the entire value of North sea oil has been more than replaced by our investments in the United States and other countries, from which we shall continue to derive a positive income for as far ahead as we can see. Even the strong investment overseas by British concerns and by British portfolio investment has been exceeded by the massive investment inflow into this country amounting to some £19 billion last year—more than double what it was three years ago.

I see no reason why the Japanese and Americans should not continue to invest large sums of money in our country. Japanese investment in our motor industry will lead to substantial exports to the European Community. That is already happening: the figures for last month show a large increase in our motor exports to the European Community, and there is a great deal more to come when the large investments of the Japanese and other firms take effect.

We are beginning to see export-led growth, plus growing incomes from remitted profits and dividends from abroad. Therefore, it is necessary for the market in Europe to grow.

The important result from the G7 meeting last week was the commitment that all the leaders gave to a successful conclusion of the Uruguay round. I know that that may not have caught the headlines in the same way as other things, but I believe that that commitment is more important for the future of world trade and our own economic benefit than anything else that came out of the G7 meeting. If that means, as I believe it does, a fundamental change in the common agricultural policy, it is all the better for it.

I know that there is a great deal of common feeling on both sides of the House about the need to reform the CAP. However, I notice that the Leader of the Opposition said that we must see to it that our textiles are better protected through the multi-fibre arrangement and that that industry should not be put at risk by the east Europeans. If we are to achieve economic growth, we must allow east European countries to trade freely, without barriers, with the European Community. That is essential. They must be allowed to earn their way to prosperity, creating a market for our goods in return and an opportunity to reduce costs here.

We concentrate too much of our attention on political integration in western Europe. We must reduce the trade barriers, not just in the European Community but throughout Europe. If we want to make the most of the opportunities available, we must continue to reduce inflation. We can no longer—if we ever could—depend upon a domestic consumer boom. We must depend upon the growing European market. I believe that by the end of the year we will have a lower rate of inflation than Germany. Therefore, we must gear ourselves to exploit that market.

Our manufacturers must be sure that the value of their stocks will be maintained. That is the importance of continuing our policy of reducing inflation. People will not invest here for any length of time unless they are confident that the value of stocks will remain at least constant and that the value of the investment will be maintained. If we can reduce inflation, that investment will surely follow. Economic growth fuelled by domestic expenditure based on borrowing cannot last. That is a lesson that we have learnt during the past few years. Growth based on sustainable domestic expenditure and overseas orders is a different proposition, and that is what we are now seeing.

The Government have received much advice lately to the effect that we are uncompetitive and should devalue. I do not know how many economists wrote to The Times recently—there were many of them, although not as many as the 364 who wrote some time ago—but I disagree with them. What they have said about the need to devalue the currency is not true. For a long time in our country, economic growth was the main priority. It was meant to safeguard employment and sterling was allowed to fall. Inevitably that meant that firms became uncompetitive and paid their people too much money. Their prices became uncompetitive and eventually action had to be taken when unemployment was worse than it had been in the first place. We must get away from that cycle of disasters.

I am glad that the conquest of inflation is the main priority. If we couple that with stable exchange rates, higher prices and higher costs will not be accommodated. We are already seeing the benefit of that policy. The price of cars is being reduced. When did we last see that happen? It should have happened years ago. We must consider the attraction of stable prices, long-term investment and greater success in our export markets. That will lead to greater domestic confidence.

In the past 20 years or so, short-termism has been a product of inflation. The sooner we can eradicate that, the better. Our standard of living depends on our ability to compete. It depends on attracting investment from our own resources and from abroad and on opening new markets in eastern Europe. It depends on low tax at home and a stable regime that does not meddle. Those are the characteristics of the Government which I hope will long persist. It is the very opposite of the Labour party's policies. That is why I commend my right hon. and hon. Friends on their policies. Long may they continue with them with success.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 6:37, 24 July 1991

I am glad to have an opportunity to congratulate the hon. Member for Liverpool, Walton (Mr. Kilfoyle) on his maiden speech. His comments about the late Eric Heffer found an echo in all parts of the House. I had the privilege of co-operating with Eric Heffer on a book about Christianity and faith in politics, in which he made clear, as he did on a number of occasions, the depth of his own convictions and faith. We all admired the courage with which he stood up for what he believed, regardless of who that may have brought him into conflict with. I compliment the hon. Member for Walton on the lively and robust delivery of his speech, which will stand him in good stead in future speeches in the House.

The by-election campaign will live long in the hon. Gentleman's memory as well as in mine and others. It was an unusual by-election. The hon. Gentleman fought a hard fight and won, but from reading the newspapers one would have thought that he was in danger of being defeated by the candidate from the Militant Tendency. The hon. Gentleman knew, as we did, that that was not so. The only danger was posed by the Liberal Democrat candidate who secured a high percentage of the vote. There was never the slightest chance of the Militant candidate defeating the hon. Gentleman. Indeed, Militant candidates in parliamentary elections have never had any prospects.

The sad fact is that Liverpool was landed with a Militant council not by people voting for Militant candidates but by people voting Labour. They were not told by the Labour party that they should not vote for people who had managed to acquire the Labour party label but who did not agree with the party's views. I know that the hon. Member for Walton has fought many hard battles within the Liverpool Labour party against the Militant Tendency. Those battles continue, but Militant's ability to run rings around the Labour party in Liverpool has left a sorry legacy in that city.

The hon. Member for Horsham (Sir P. Hordern) talked about what wins elections and about a formula of economic indicators that has to be right before elections can be won. One of the four items he listed in that formula was interest rates. He said that low interest rates have to be secured for a Government to win an election. He said that for the last seven elections Governments have sought to get the indicators right. The one with which they succeeded every time was interest rates because that was the one that they had within their control. Interest rates were reduced before every general election in the hope of winning those elections. Governments did not succeed in delivering on some of the other issues that the hon. Gentleman mentioned. I hope that he shares my concern that it is too easy for Governments to manipulate interest rates to pursue electoral strategies rather than to pursue the battle against inflation. There is a danger that Governments of any colour will manipulate interest rates in order to win elections.

One of the reasons—I think that the hon. Gentleman will agree—why I argue that there should be a more independent body to deal with monetary policy is that political considerations loom too large in the views of Governments. He was right to point out that those considerations are significant factors in the battle to win elections.

At this stage of the debate it is easier to step back a little from the black versus white, long-running election battle which opened the proceedings. If one listens to the right hon. and learned Member for Monklands, East (Mr. Smith), everything in the economy appears wholly black, but if one listens to the Chancellor, everything in the economy is wholly white; and we know that neither can be the case.

The British economy has some significant strengths on which it can build. We have considerable resources of energy; we have established expertise in many areas; we have a free market system and long experience of running such a system; we are members of and therefore have access to the richest free trade area in the world; we have the protection and discipline of the exchange rate mechanism and the prospect of extending it into a single currency and monetary union; and we also have the advantage of the English language—the most widely used language in business, although it sometimes seems to become a handicap when it discourages business men from learning other people's languages in which to do business more successfully.

However, there are weaknesses to be set on the other side of that balance sheet. We have a recession on a considerable scale which is not ending within anything like the time for which the Government hoped. Indeed, the Chancellor sounds increasingly like the small boy who has been told to wait for Father Christmas. As a child, I was used to being told to wait for Father Christmas for something that I wanted in October or November; but to be told in June or July to wait for Father Christmas for any prospect of the recession ending is a sign of the extent to which the Chancellor got his figures wrong and of how serious the recession is.

We also have high unemployment—2·3 million—and there is a strong prospect of its rising to 3 million. It is recognised even by the Government that our economy is beset by significant skill shortages. Inflation problems are still with us, and it is not true to say—as the Chancellor did—that every indicator of inflation is on a downward trend. Underlying inflation increased from 6·6 per cent. to 6·9 per cent. in June. Inflation is a more serious problem than the Government like to admit.

I recognise that it is a Government policy objective to get inflation down, and I support the fact that they are making it a primary objective. However, I do not think that it necessarily helps in pursuing that objective to pretend that one is doing better than one is or to say—as the Prime Minister said not so long ago—that we have inflation "by the throat". It is a rather tougher opponent than that, and the battle will be long and hard.

We also have what are recognised by international standards as low rates of investment. There is also a feeling of resentment in Britain between industry on the one hand and Governments and the City on the other. That feeling is based on industry's view that neither the Government nor the City seems to understand it. That criticism is not directed only at one Government—it is a long-standing feeling in industry—but as long as that is so, it must be tackled.

Some of the problems are the result of economic mismanagement. Much of the depth of the recession can be attributed to the scale of the credit boom which was allowed to develop. Others are attributable to a lack of long-term thinking and to a worrying unwillingness to face some of the fundamental economic decisions. The Chancellor levelled that criticism at the Labour party, but it can also be levelled at the Government. The Government are unable to make a decision about the single biggest issue that will face the British economy—whether we are to have a single currency, and whether we shall form part of a monetary union.

I do not think that there is any difference between the Government and me about whether that issue will have a major impact on the economy. Most Ministers—whatever their varying views—agree that it is a very important decision, but the Government say that they cannot make it. They say that it must be a decision for future Parliaments to take or for another Government at another time. That is a slight move onwards from the position taken by the right hon. Member for Finchley (Mrs. Thatcher) who, whatever the formula, kept undermining it by saying, "No, no, no; never, never, never." However, such an attitude is not a sign of a Government who understand clearly where they are taking the country.

There are differences about what we are saying about the economy and what the Labour party is saying. They are evident from the fact that we tabled an amendment to the motion, although we agree with significant parts of it. One of the differences is that I do not believe that one can say every day of the week that interest rates must be 1 per cent. lower than they currently are, which is the position that the Labour party seems to have adopted at every stage. Interest rates are now very much tied to our position in the exchange rate mechanism. Two groups of people wish to challenge that.

The first group is the Labour party. Despite its acceptance of the exchange rate mechanism, it seems to believe that we could pull down interest rates by a significantly larger amount without affecting our position in the exchange rate mechanism, thereby achieving a devaluation. The second group is a group of Conservative Back Benchers who openly say that we should never have joined the exchange rate mechanism and who would welcome a devaluation.

I disagree with both groups. The exchange rate mechanism is a defence against inflation and it is important to maintain our position in it. The advantages of devaluation are almost always very short-term. If we are to ensure that interest rates and interest rate policy are used as a defence against inflation, it is important that decisions are taken by a body that makes price stability its priority. That is why we argue for a more independent central bank.

Is not it intriguing that over the past couple of days the Government have suddenly discovered the merits of central bank independence and that they are at pains to stress what value there is in the central bank being an independent body? Of course, they are considering its role in relation to banking supervision rather than in relation to monetary policy. They want to make it clear how distant they are from the bank and how little they influence its activities in matters of banking supervision. Independence is sorely needed in connection with monetary policy where a clear commitment to and responsibility for price stability is a much better basis for policy than the various pressures which land on Governments.

Another apparent difference between my party and the Labour party is the extent to which we have been prepared to set out policies to tackle unemployment. The right hon. and learned Member for Monklands, East—in answer, I think, to an intervention—referred to Labour's temporary work programme. I searched for some time for more details of that programme and I found the origin of it in Labour's alternative budget, where it was costed net at £340 million. I do not think that any further details have been published since. It was a scheme based on—I think —three days of work, one day of training, and one day of job seeking. It might be a useful scheme, but it would be fairly limited in its impact on unemployment of the scale that we now have.

We argue that at this stage of a recession it is legitimate for Governments to target public expenditure in ways that bring a long-term benefit and which will help to ease the unemployment problem, especially if the Government do so when there are substantial capital funds tied up in local government in the form of housing receipts which local government has received over the years. Therefore, we set out a much larger programme which has a gross cost of more than £2 billion but, of course, that does not take account of the considerable amount that can be netted off because of the cost of unemployment benefits. We believe that expenditure now on repairs to housing, schools and hospitals and on energy conservation measures—especially the improvement of insulation in houses—would not be inflationary, but would lead to a long-term benefit for a significant easing of unemployment.

Any Government who want to pursue a rigorous anti-inflation policy and who know that unemployment will result, must take steps to deal with that consequent unemployment. Any Government who believe—as my party believes—in a free market economy must not ignore their responsibilities towards those who become unemployed in severe movements of the economic cycle. All over the south of England, in areas previously unfamiliar with high unemployment in most people's lifetime, there is now severe unemployment to which we in the north are more accustomed. We believe that that problem calls for much more urgent attention from the Government, and we have spelt that out in our amendment to the motion.

Photo of Mr John Townend Mr John Townend , Bridlington 6:49, 24 July 1991

The recession has been deeper and longer than most of us expected; it is a matter for regret that the Opposition seem to have enjoyed every month of it.

I shall say a few words about the effect of the recession on small businesses. In the past 18 months to two years they have faced three major problems. First, the cost of borrowing has hit those with high overdrafts very hard. However, many small businesses are not heavily borrowed; many have no borrowings at all. It is not the level to which rates rose but the length of time for which they were high that caused the real pain.

The second and probably the most important problem that small businesses face is the lack of demand. Business in many areas is still as flat as a pancake and most small businesses are reconciled to the fact that there is likely to be little or no recovery this year. We all welcome the June figures for retail sales, but they are still below last year's figures and there is little sign of improvement in the housing or car markets.

The Government's success in bringing down inflation is widely welcomed, as is the reduction in interest rates, but over the next two or three months small businesses will be looking for even greater reductions from the Chancellor —between 1 and 2 per cent., it is hoped. From an economic point of view that is entirely feasible, because of the success of the Government's policies. Despite the recent cut in interest rates, all the economic indicators suggest more cuts. We are still in deep recession. The housing market is flat; the figures for personal spending are low; inflation continues to fall. As inflation falls, if interest rates do not fall, too, real interest rates will rise. It would be perverse for real interest rates to rise during a recession.

As we heard today, the growth in the money supply is only 3 per cent. Despite a little rise, it is still well within the Government's range. The expansion in bank credit is at a low level and wage settlements in general are falling.

Business has a legitimate grievance about wages. As in the past, the Government have expected private business to take the strain. As a result of the Government's supply side measures, the labour market is much more flexible, so wage increases in the private sector are dropping rapidly. Many small and medium-sized businesses cannot afford to award a wage increase at all, and many others are giving increases below the rate of inflation. Only a few are paying above the rate of inflation. That is a great contrast with what is happening with public sector wage settlements. Most are well above the current rate of inflation. The police are getting 8·5 per cent.; local government workers, taking into account the reduction in hours, are getting over 8 per cent.; nurses and teachers are likely to get settlements way above the rate of inflation.

It is always the same when the Government are trying to reduce inflation and achieve pay restraint. The market enables the private sector to deliver lower wage increases, but the public sector does not deliver.

The third problem facing small businesses has been getting their accounts paid. Large companies, local authorities and even Government Departments are often the major culprits. Further interest rate cuts will ease all those problems and reduce the cost of business overdrafts and mortgages. The public will have more disposable income in their pockets, and that will be reflected in demand.

I shall emphasise several worrying aspects of the British economy and point out how effective the Government's policies will be—indeed, are being—in comparison with the alternative policies offered by the Opposition. We have to accept that we have a balance of payments problem. The recent figures represent a great improvement, but we are in the depths of recession, so we would expect there to be an improvement. We must not get carried away by one month's figures.

One of the major causes of the continuing balance of payments problem is that in the past 10 or 15 years the United Kingdom has changed from being a major car exporter to a major car importer. That has made a difference of £6 billion a year to our balance of payments. We must examine the cause of the decline in the motor industry. The responsibility lies with the previous Labour Government, who increased union powers resulting in overmanning, restrictive practices, unofficial strikes, lower productivity and poor quality.

The Government have sown the seeds of a resurgence. We have reformed industrial relations, abolished the closed shop, and with our low tax policies have made this country the most attractive in Europe for investment. Indeed, there has been major investment in the motor industry, especially by the Japanese. Plants built by Nissan, Toyota and Honda are increasing production and will continue to do so. As a result, our car exports are expanding fast. If we lose the next election and the Labour party gets back into government and carries out a policy of increasing union power and introducing a statutory minimum wage, undoubtedly that will make the United Kingdom less attractive for foreign investment.

The Labour party is always saying that it will spend more on everything. Overseas aid is one area in which it would spend more and that would drop right through and increase our balance of payments deficit.

Fiscal balance is another area of concern. One of the Government's greatest achievements has been restoring financial rectitude. Having inherited a massive public debt and public sector borrowing requirement from the Labour Government they took control. They got a grip on public spending, and from 1984–85 until last year public spending as a proportion of gross domestic product declined by 7 per cent. Far from having a large budget deficit, we had moved into significant budget surplus. The Government have repaid no less than £26 billion of the national debt and at the same time made significant reductions in levels of direct taxation.

However, I am afraid that, in the past two years, that tight control of public expenditure has been eased and it has risen in real terms. The budget surplus has disappeared and we are now forecast to be in deficit for at least three years. Current spending is running above the estimates, and I forecast that this year's budget deficit will be well above the £8 billion forecast in the Budget. Expenditure is likely to have risen as a percentage of GDP for the first time in a decade. The prospect of a balanced budget, with further tax cuts, is disappearing rapidly over the horizon.

That is why this year's public expenditure round will be critical. In an election year, civil servants in spending Ministries, local government and pressure groups all over the country have a field day. Everyone wants more and more cash and they bank on the Government not daring to say no. I urge my right hon. and hon. Friends in government to stand firm. An extra £2 billion on health will be lost; an extra 1p on the standard rate of income tax would have a considerable effect on the Government's long-term credibility—as, indeed, would an equivalent reduction. If Government expenditure is to be kept down the Government must be tough on public sector wage increases. Every effort must be made to keep increases down to the level of inflation.

I shall consider for a moment what fiscal policy would be like under a Labour Government.

Photo of Mr Edward Leadbitter Mr Edward Leadbitter , Hartlepool

Before the hon. Gentleman does that, does he not accept any blame for the rate of inflation, for increasing levels of unemployment or for the decline in investment in manufacturing industry? Does he ignore, reject and rebut the House of Lords report on science and technology published recently, in which the majority of his colleagues in another place said that the Government had no policy for industry, that there would be no British-owned, British-based industry in this country and that there was no policy for the national interest? Does he reject those ideas? Does he accept no responsibility?

Photo of Mr John Townend Mr John Townend , Bridlington

After that speech, I certainly do not accept any responsibility and in any case I am not a member of the Government. What I will say, however—I am noted for being somewhat honest in the House—is that I think that the right hon. Member for Blaby (Mr. Lawson) got it wrong and that the biggest mistake that my right hon. Friend the Member for Finchley (Mrs. Thatcher) made was that she did not remove him 18 months before he resigned.

What would happen under a Labour Government? The Opposition have made it crystal clear that theirs is the party of high public spending. The Labour party's record in government shows that it always increases spending. After every Labour Government's term in office, the standard of taxation is higher and the national debt larger. However much Opposition Members may protest to the contrary, the Labour party stands condemned not only by its record but by its public statements. Whenever a Labour spokesman appears on television—speaking on any issue —he always gives the same answer: "The Government have not spent enough or allocated enough resources. We must throw more cash at the problem." It does not matter whether the problem is education, health, schools, social security or overseas aid. Even with BCCI, Labour Members are calling for Government money. Last week, the Labour transport spokesman, the hon. Member for Kingston upon Hull, East (Mr. Prescott) went to the scene of a rail accident in Glasgow and blamed that, too, on the lack of resources.

It is spend, spend, spend all the time. Is it any wonder that, when all Labour's promises are costed, the figure arrived at is £35 billion? I was interested to hear the right hon. and learned Member for Monklands, East (Mr. Smith) refer to Midland Montagu, a leading City firm, because, according to Midland Montagu, the cost of Labour party's policies is more likely to be £50 billion than £35 billion.

The third cause for complaint is rising unemployment. The Government's policies are starting to work. In the past three months, the rate of increase of unemployment has declined. However, we must not look forward to the past. Low interest rates and low inflation will preserve jobs and the Government's supply side measures—their freeing up of the labour market—are having a beneficial effect.

Let me give one example from my own constituency and the area surrounding it. The abolition of the dock labour scheme was bitterly opposed by the Labour party, and no one opposed it more strongly than the hon. Member for Kingston upon Hull, East, even though that indefensible and uneconomic scheme had resulted in my home city falling from third port in the country to 12th. That scheme was abolished only some 18 months ago. In the first year, the trade through the port increased by no less than 30 per cent. The container terminal that had been idle because of the manning levels demanded by the Transport and General Workers Union is now working. A major shipping line has come back to Hull and, this week, the Alexandra dock, which had been shut for nine years, has reopened. All that is the result of the supply side policies of the Government.

Training is the Labour party 's answer to unemployment and, to judge by Labour Members' speeches, its priority. We all accept the need for good and meaningful training, but in my view it cannot be the first priority. We are short of skilled people in many areas, but it is not possible to train people if they do not have a good basic education. In many areas of the country, education has been abysmal—and not for lack of resources. Since the Government have been in power, the teacher-pupil ratio has improved significantly and the amount spent per pupil in real terms—real money, not funny money—has increased considerably. Some of the local education authorities with the worst results—most of them, I have to say, Labour-controlled—are spending more per child on teachers and are getting more Government grant than other areas.

The decline in educational standards is due to the activities of so-called progressive left-wingers who dominate the educational establishment and the teacher training colleges. Many schools have stopped teaching reading by the phonetic method and have stopped teaching tables. Spelling is virtually non-existent among certain groups of school leavers. The general level of English in many areas has declined, and I understand that some university physics departments have to spend the first year training students in mathematics, which they should have learnt at school.

The "progressives" opposed and destroyed the grammar schools, streaming and structured education and were at the forefront in the abolition of the cane. Many even opposed the whole concept of examinations. They used their power over the curriculum to change the views of our country's history and to bring race politics into our school. Parents were regarded as a nuisance; their views were not considered. What the educational establishment said had to be accepted as gospel.

As a result of falling standards, the Government have taken action. That is why they introduced the national curriculum and testing. True to form, however, the educational establishment has undermined the Government's policy—a policy demanded by parents and employers—and has subverted the common curriculum. The educational establishment has been against tests—simple pen and pencil tests such as those which we did at school, in spelling, tables, arithmetic and reading. When I was at school, we had end-of-term examinations twice a year and it caused no problem to the administration.

I am delighted not only that the Government have now grasped the problem, but that we now have a Secretary of State who will force the policy through and remove those people from the educational establishment so that the country gets the education that it deserves. That will do more than anything else to solve our future economic problems and unemployment.

Although the Government have wavered—I have been one of those who have criticised them—I feel that they are on the right lines. Their fiscal policy is responsible. Inflation is falling and recovery is on the way. The Government's supply side policies are working and will encourage job and wealth creation. Above all, their education policies are relevant and necessary. Look at the Labour party's policies. They are the policies of yesterday and are irresponsible and imprudent. Labour's answer to every problem is to throw money at it—spend, spend, spend and tax, tax, tax. That old record and those policies of yesterday are no longer practical or relevant. The Labour party really is going for broke.

Several Hon. Members:


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

I remind the House that there is a 10-minute limit on speeches between now and 8.50 pm

Photo of Mr Michael Foot Mr Michael Foot , Blaenau Gwent 7:07, 24 July 1991

As you have just reminded me, Madam Deputy Speaker, I will be caught by this damned 10-minute rule. I should like to spend half a minute of my precious time protesting about it—not because of its application in this case, because that is what has been agreed by the House, but because, having spent part of my parliamentary time on the Front Bench and a considerably longer period on the Back Benches, I think that it is great folly for Back-Bench Members to think that the 10-minute rule is good for them. It is not; it merely plays into the hands of those on the Front Benches, who have more time to speak—and no one can put a full case against a Government such as this in 10 minutes. On my calculations, Madam Deputy Speaker, that protest took only half a minute.

I should have liked another half minute—a bit longer —to pay full tribute to the speech of my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) and to recall the many occasions on which we listened to his predecessor, who, for many years, was one of my closest friends. I joined the Labour party in Walton a good time before my hon. Friend was born, so I have a special feeling about it. I am sure that all of us listened with great interest and care to what he had to say and wish him a long, prosperous, successful life in the House.

I say that especially because, like me, my hon. Friend speaks for an area of the country that has been sadly afflicted by the policies of this Government over the past 10 years. Particularly amid all the euphoric and ridiculous accounts of what is happening that we have heard from the Government Front Bench, it is right that the country and the House should be reminded of the realities of the situation.

I refer first to the prophecy of 3 million unemployed —part, I suppose, of what the Chancellor would call the "price worth paying". Even if it does not come to 3 million —and I am sad to say that it looks as though it is likely to —the loss to the nation even in the 2·5 million figure, is appalling.

I was interested in the unemployment figure of 3 million. An unemployment figure of 11 or 12 per cent. has been referred to. In my area, in Liverpool and elsewhere in areas that are afflicted by this unemployment disease, we have endured that high rate of unemployment for some time. Indeed, on occasions, the unemployment figure has risen much higher than that.

Having listened to Conservative Members today, I do not think that they know what is happening. I am bitterly ashamed about what is happening in the main streets of my constituency in places like Tredegar, Abertillery and other places familiar to my colleagues. While the valley towns in Wales are suffering, the same can be said throughout the country. Shops are closing on a huge scale and that is partly due to the business rate.

A plague is sweeping the country. People are protesting about that plague and those protesters are not simply supporters of the Labour party. They include representatives of the shopkeepers around the country who are being forced out of business by a combination of events and by the scale of this recession. I believe that this recession is as bad as that from 1979 to 1981. Indeed, in some places it is even worse. The Government's claim that there are signs of recovery is the greatest mistake that they have made.

There will be no recovery until there are much better long-term measures to deal with the problems and among those measures must be a reassertion of a proper regional policy. Places such as Liverpool and my constituency have, since 1979 and 1980, lost almost all their levers of assistance in regional policy. The Government told us that they would provide something better, but they took from us most of our advantages under the rate support grant and the various regional policies. As a result, the recession in our areas was deeper and that means that it will be even more difficult to get out of it. However, the Government have not listened to our protests, partly because they have few representatives from our areas.

We face heavy unemployment. One of the worst aspects of the rise in unemployment has been the way in which the Government have manipulated the figures. The Guardian suggested that one of the best proposals for the citizens charter would be to restore some respect to the Government's statistics. I suppose that the evil can be traced back to when the right hon. Member for Chingford (Mr. Tebbit) got his grubby fingers on the official unemployment statistics. Since then, we have had no faith in the unemployment figures. That complaint has come from Labour supporters and from many other quarters. Even the present prophesied unemployment figure of 3 million underestimates the real level of unemployment.

The Government's figures about poverty also give a false impression about what is happening. The figures quoted by the right hon. Member for Finchley (Mrs. Thatcher) in her famous resignation speech—or whatever it was—when she attempted to show what had happened in the country, were completely misleading, as has been shown subsequently. The real figures of poverty, which show what we are suffering in south Wales, in Liverpool and in the other so-called backward areas, are much worse. That is another area in which there should be a proper restitution of confidence in the Government's figures.

If the Government contest what I am saying, there is a simple remedy: they could appoint a committee—they have appointed committees to do other things—to examine the unemployment and poverty figures, which are two essential requirements to understand what is happening in the different parts of the country that have been most badly afflicted.

The Government could invite Sir Claus Moser, a most eminent statistician who complained some years ago about the way in which the Government manipulated the figures, to examine what is happening. I am sure that we could drive his charges home when we consider what is happening with regard to poverty in the country today. The problems today are on a much bigger scale than for many years. Under the citizens charter, the Government should establish an independent inquiry into the way in which the unemployment and poverty figures have been misapplied and misused. That would help the future of this country and would enable us to understand better the real case that the Government must answer.

The Chancellor of the Exchequer, in his famous statement, said that unemployment was a price well worth paying. I am not sure when he said that whether he knew that the unemployment figure was heading for 3 million. Is that figure a price well worth paying? Presumably it is. It appears that nothing matters other than his way of solving the problem. I believe that the country will choose a very different way to solve the terrible problem and legacy left by this Government.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester 7:16, 24 July 1991

The right hon. Member for Blaenau Gwent (Mr. Foot) spoke passionately about unemployment. He was right to remind the House that, whatever the aggregate figures for unemployment, every individual case is distressing and trying. However, he did not refer to the fact that since 1979, when the Conservative Government came to office, 1 million more people are now in employment. There is still unemployment and it exists now in areas in the south, such as my constituency of Chichester, which hitherto have enjoyed relatively high employment. However, the aggregate total of employment has risen considerably under Conservative policies of free enterprise rather than under the socialist policy of subsidy.

We must also consider the international context and remember that we are not alone in this recession. It is happening elsewhere. We sometimes talk about the recession as a functiion of Government policies and domestic conservative attitudes. That is not so. Unemployment is higher in France, Spain, Italy, Ireland, Australia and Canada than it is here. We should consider these matters in relative terms.

I pay tribute to the Government and to my right hon. Friend the Chancellor of the Exchequer and his Treasury team for their decision almost a year ago to join the exchange rate mechanism. That decision, taken in the eye-teeth of political opposition from both sides of the House, was right—and I believe belated—and it has been vindicated by events.

Since we joined the ERM, interest rates have fallen 3·5 per cent. and the worst alarmist fears of those who said that interest rates would have to be kept higher or that our exchange rate would have to fall have not been realised. Those who said last November that we joined at the wrong rate and that we could not maintain our parity within the exchange rate mechanism were wrong. Just as they were wrong, and have been proved wrong, so the Government and the Treasury team were right to have made that decision then not only because of the reduction in interest rates since then but, in particular, because of the courage that they showed in the early months in not giving in to pressure to readjust downward the exchange rate within the mechanism or unduly to maintain interest rates too high.

It is very encouraging that the exchange rate is currently roughly DM2·95. It is right in the middle of the parity grid. I hope that the Bank of England and the Treasury are informally tracking the narrow band within the exchange rate mechanism rather than formally joining it at this point. If they are able informally to track the narrow band, it will give enormous confidence to the money markets. For example, when Italy moved from the wider band to the narrow band there was a major reduction in interest rates because it was seen as a sign of confidence that the currency could be maintained at that parity. Not only was there a reduction in interest rates but there was a massive inflow of funds into Italy—almost an embarrassing inflow of funds—which put upward pressure on the exchange value of its currency.

If we can informally for the time being—perhaps as a first stage in further steps towards economic and monetary union—stay within the narrow band while not formally admitting that we are doing that, but doing it in practice, there will be real dividends for British industry, the economy, and those whom we represent in this House.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

If my hon. Friend will permit me, I shall not give way, as I have only a couple more minutes left and I wish to make another important point.

The priority of my right hon. and hon. Friends in the Treasury of reducing inflation is absolutely right. It is essential not only in constituencies such as mine in the south, where many businesses that have sprung up over the past few years are finding times very tough, but in the industrial heartlands of our country. For far too many years there has been insufficient investment, not by Governments with taxpayers' funds but by industry and shareholders, in grass-roots business in this country.

That has happened because of a series of related events. Because Governments have pursued policies that have led to or resulted in high inflation, our level of interest rates has had to be extremely high. Because we have not been a member of the exchange rate mechanism, interest rates have had to be much higher than they would otherwise have been. The result is that, if one has money to invest, there is a much better rate of return on investment in a bond or a fixed-interest instrument than in an equity or risk instrument.

There is, however, a much more important consequence for companies with major liquid funds. It is much easier to invest in other companies, because they show a bigger rate of return, than it is to invest in new plant and equipment. If one invests incestuously by taking over a company—say, on a price/earnings ratio of about 10—the percentage rate of return or dividend from that investment is very much higher than anything that one could get from a normal plant investment because of the low rate of return on capital employed in this country. As a result, the only people who have really invested in new plant on a major scale have been the great international companies, particularly from Japan, whose companies are much more highly rated on their stock exchanges and have much higher rates of return on their capital employed.

A big test may come—I pray that it will not—if Lord Hanson announces a bid for ICI. There is a money mountain test. Are the great British plcs with a flood of money in their coffers, incestuously to invest their money in other British companies by takeovers, or are they to do what they should do for the future well-being of our economy, which is to invest in new plant and equipment for their existing industries? That test may come. If it does not come for ICI and Hanson, it will certainly come for other British companies. If we are to lay down the grassroots of a thriving industrial economy for the future —one which will sustain our expectations of public expenditure—it is absolutely essential that British companies as well as foreign companies have the financial incentive to invest at home. They will have that incentive only if we have a Government of prudence and responsibility, determined to restrain public expenditure and, above all, to limit the rate of inflation.

When electors have the choice, I hope that they will take into account the implications for their jobs, communities, companies and investments of the alternative policies, which offer, on the one hand, a steady movement towards lower interest rates and lower inflation and, on the other hand, the downright spendthrift policies of the Labour party which have not moved on in 10 years —uncosted policies which this Government, thankfully, have been responsible enough to try to cost and from which it is now clear that the cost to every taxpayer in the country would be massive. Nobody would escape the financial consequences of the Labour party pursuing even a modicum of the commitments that it has already set out.

Our interests and those of the country lie in backing the successful policies, which are bearing fruit, of reducing interest rates and inflation and thereby ensuring that we can once more try to build the base of an economy, rebuild our industries, built on sound financial returns on capital employed, built on international competitiveness and leading to real prosperity for our people, instead of the fear of money being squandered and overspent, as it has been year after year when we have had the misfortune of a Labour Government. I pray and hope that we shall never have one again.

Photo of Mrs Llin Golding Mrs Llin Golding , Newcastle-under-Lyme 7:25, 24 July 1991

I wish to declare an interest. Conservative Members frequently quote the number of my hon. Friends who are sponsored by trade unions. In future, they will be able to add my name to the list, for I am to be sponsored by the pottery workers union, the Ceramic and Allied Trades Union. I am proud to be sponsored by the pottery workers because, like many trade unions, they speak to the employers, and the employers speak to them. They listen to each other and they work together to solve the problems of the pottery industry and to maintain its fine traditions.

They need to talk to each other, because the Government do not listen to the voice of industry. They do not hear the damning words of employers as the Government's economic policies drive us deeper and deeper into recession and bankruptcies increase. The Government listen only to the few crumbs of comfort fed to them by the Confederation of British Industry, and they keep repeating them like plucked parrots swinging on their precarious perches in the hope that they can convince themselves and the nation that they have their economic policies right. Some hope.

The Ceramic and Allied Trades Union has a 95 per cent. membership of the pottery industry. That is about 28,000 people. One third of them are on short time and that is a result of the Government's economic policies. Falling sales, just in the production of bathrooms and kitchenware, have meant a loss of 500 jobs in north Staffordshire alone, and there are increasing redundancies. That is a result of the Government's policies.

I shall use the time available to me tonight to highlight how the Government's economic policies have affected industry, in particular a significant sector within the construction industry—ceramic manufacture and supply. That sector represents a major interest in Newcastle-under-Lyme and throughout north Staffordshire. I shall highlight also how the force of the Government's planned recession is threatening long-term prospects—indeed, the existence—of that long-established and very important industrial sector.

The latest Building Employers Confederation survey shows that the recession in the construction industry is now firmly entrenched. The survey's main findings confirm that the steep downtrend in output continues, that new business inquiries are low, and that there is little confidence about future work loads. The Government's policy of encouraging the industry to invest in technological change and better management, after the recession of the early 1980s, has resulted in a big increase in spare capacity with the resultant rise in production costs. Further expected cuts in the work force could lead to a loss of vital skills.

Nearly three quarters of firms in the employers' survey reported a fall in output. Large companies which deal with high-value, long-term contracts, continue to report shrinking work loads. The Building Employers Confederation has stated that 50,000 new houses are still unsold. Phillips and Drew also estimates that more than 110,000 properties are empty due to repossessions or to builders being unable to sell.

The repairs and maintenance sector appears to have been particularly hard hit. Falling company profits have affected industrial and commercial property repairs and maintenance, while rising unemployment and depressed real disposable personal incomes have reduced housing repair and maintenance work. All those factors have led to a downturn in production not only for sanitary ware, but for table ware which is so important to the economic life of north Staffordshire. Staffordshire pottery is renowned the world over for its quality. About half of what is produced is exported. The industry thus relies heavily on reasonable interest rates and sensible management of the economy, which is something that this Government have failed to provide.

Brick producers report stockpiles of 1·5 million bricks. Their work forces have lost 3,000 jobs since September 1989. Prospects for the construction industry depend on the prospect of growth for the whole economy—and there is no sign of that.

Unemployment in this country is rising faster than anywhere else in Europe. Because of the Government's policies, someone is losing a job every 10 seconds of every day. Business failures are at a record level. The total number of business failures in the first half of this year was 23,000 many of which occurred in the construction industry. Because of the Government's economic policies, one business is failing every three minutes of every working day.

The construction employers' survey shows that three fifths of firms expect to reduce their work forces in the current quarter. The hardship in the roofing industry presents a similar picture of redundancies and reduced production. Two roof tile production plants have been closed, yet stocks remain at least 20 per cent. too high. Employers in the seven member companies of the Clay Roofing Tile Council report losing 235 employees in the year to June 1991—that is 25 per cent. of the jobs and a personal tragedy for each employee and his or her family. Capacity is standing at 55 per cent. It is hard to imagine those companies being able to re-establish themselves or to reassemble an experienced work force.

The Government do not appear to be aware of the seriousness of the situation. This country has enough building materials to satisfy a whole year's requirements. We have a housing stock that it will take until 1993 to clear. Housing starts, both public and private, are at their lowest level since the late 1940s. It is not a problem that can be blamed on market forces; it is about confidence within the industry, favourable levels of interest rates and steady and consistent growth.

The Government advised industry to make investments to pull the economy round. Many industries did so, including those involved in building and construction, but fluctuating interest rates have placed a question mark over the wisdom of investing. If good returns cannot be guaranteed, who will be prepared to make further investment? We need a stable economy to encourage steady and consistent growth—not a growth or a demise brought about by extremes.

In the past, local authority house building has provided consistent work for many building firms. The Conservative Government's anti-local authority policies and their refusal to allow councils to replace sold-off housing stock with new housing is short-sighted. The massive problem of homelessness and the lack of homes for rental, as well as for the rehousing of those whose homes have been repossessed, could start to be solved if local authorities were allowed to use the money that they now hold from the sale of council houses to build new houses for rent. That would help not only those who are desperate for homes, but the building industry, too.

That is what an incoming Labour Government will do. We also believe that the real long-term solution is to improve the competitiveness of British industry as a whole; to improve economic growth with sustainable and reasonable interest rates, with a long-term energy policy so that fuel costs can be planned, with an integrated transport policy to allow delivery dates to be kept, and with a Department of Trade and Industry that is treated as an important and vital part of our future industrial planning. We in the Labour party know that Governments cannot solve all the problems of industry, but, at the very least, individual industries should be listened to.

It is important that the Government listen to the ceramic manufacturers, to the supply section of the construction industry and to their trade unions because they have much to say, as do all those who are involved in the construction industry. It is the Government's duty to listen and to ensure a future for all those who are employed in an industry which is of such crucial importance to our country's development in all senses of the word.

Photo of James Paice James Paice , South East Cambridgeshire 7:34, 24 July 1991

It is abundantly clear to any hon. Member who spends much time in his or her constituency or elsewhere that there are severe problems out there in industry. That is shown in every possible way and is manifested not only through unemployment but in bankruptcies and in many other ways.

We have heard some strange assertions from Opposition Members. The hon. Member for Durham, North (Mr. Radice) asked my right hon. Friend the Chancellor, "Did the recession end on 1 July?" or words to that effect. It is patently ludicrous to believe that one can identify the particular date on which a recession ends, any more than one could identify the particular date when it began.

Not very long ago, I spent a day on a small industrial estate in the small town of Soham in my constituency, visiting a number of businesses. The first told me that everything had been absolutely fine until that week, when it had suffered its first dramatic drop in orders. That was not very long ago and the firm had got through the winter and those difficult times. The second firm that I visited said that it was not much affected. The third firm said that it had been hit early in 1990, but that it had got over it and that things were already picking up again.

It is obvious that we cannot pretend to identify the exact time when a recession starts or ends. One reason for that is the lead time that is involved in all statistics. We must recognise that a statistic is already out of date when it is published. When the economy was overheating, that fact was clear from anecdotal evidence, but it did not show in the statistics until much later. When we went into the recession, that was clear out there, but it did not show through in the statistics until much later. Equally, the same will apply to the recovery. Only today the Building Societies Association has reported on the levels of lending in June. That report is already out of date; the June lending relates to purchasing decisions that were made by individuals in May or even in April, but, because of the time taken to complete the purchases, the first payments were made in June.

There are optimistic signs. The savings ratio is still climbing fast. That is long overdue and extremely welcome. It means that, when the expenditure does come, it will be based on and backed by savings, which is much better in the long-term interest. The housing market is showing signs of improvement, although it is slow and dependent on the part of the country. Nevertheless, it is definitely improving. Consumer confidence is also improving. The Gallup survey for Goldman Sachs shows that the consumer confidence index has risen consistently since its low point in the second quarter of last year. Housing finances were at a low point in the fourth quarter of last year, but the figures are now rising considerably. In the fourth quarter of last year, 42 per cent. of people believed that their own position would improve in the next 12 months. That proportion has now increased and half the population now believe that.

I have one or two positive suggestions for my right hon. and hon. Friends. Two are minor, but they would help. The first relates to very small businesses, which are obviously suffering. When one goes into receivership, many others follow in a domino effect. One contributory factor is that the receiver's fees take virtually every penny of the assets of the small business. That means that its creditors end up with nothing, despite the fact that its assets might have been sufficient to provide a repayment of 50p, 60p, 70p or 80p in the pound. I wonder whether we can find a way to reduce the burden of the receivership on a small business which has failed because, if we do not, it will take many more small businesses with it when it goes down.

My second point relates to the business rate. I do not want to go into all the complexities, but I believe that there is a system called the rental index which is a property market figure. If the rental index were applied to all business rateable values, current rents would be reflected, as would the current economic position. At a time of downturn, when rents drop, rates would also drop, although the national non-domestic rates system would remain.

My third and most significant suggestion, which has already been advanced by my hon. Friend the Member for Bridlington (Mr. Townend), is to introduce tax reductions. That would be the quickest way in which to stimulate consumer activity.

I do not intend to give only my own views. Various reports have been quoted today, but I should like to draw attention to the 1991 manifesto of the British Institute of Management, which lists what it considers to be requirements for effective management of the economy: first, the control of inflation should be at the core of Government strategy"; secondly, Government policy should aim to encourage and reward enterprise in all sectors and at all income levels"; thirdly, the shift towards indirect taxation should continue. Those targets are familiar to all Conservative Members, but they are less familiar to Opposition Members. The real threat to the economy's recovery comes, of course, from the rapidly receding threat of a Labour Government, and the risk of implementation of the policies that Labour promotes.

Let us examine the cost of renationalising the various bodies that we have privatised. Merely to take a controlling interest of 51 per cent. would cost £13·6 billion. If we add £5·5 billion for the ending of any privatisation proceeds that might have been budgeted for, we find that two thirds of the national health service budget in any one year would have to be spent on implementing what can only be described as doctrinaire policies. That is more than we spend on Scotland, Wales and Northern Ireland put together. I wonder whether the Opposition Members who speak for Scotland so regularly understand the implications of that.

Photo of Ian Taylor Ian Taylor , Esher

Including the right hon. and learned Member for Monklands, East (Mr. Smith).

Photo of James Paice James Paice , South East Cambridgeshire


Even if no attempt was made to spend that money in one year—even if the expenditure were spread over four years of Labour government, although God forbid that it should last that long—it would still amount to more than £5 billion a year. That is more than twice the so-called gift to the wealthy conferred by the 1988 Budget, which cut the top rate of tax from 60 to 40 per cent. Labour says, however, that it will increase the top rate to no more than 50 per cent. The figures simply do not add up.

Perhaps the most evil of all Labour's policies is the proposed 9 per cent. surcharge on savings. What will that do for investment? What will it do for all those who are trying to save for the future? Clearly, Labour is still wedded to the belief that the only honest money is earned by blood, sweat and toil—that the man who risks his money for a return is not worth as much as the man who earns his living by sweating and expending energy. But both are equally important to Britain's future. A distinction cannot be drawn between the man who earns his return by risking all that he has and the man who earns his by means of physical effort. Risk is as good as sweat.

The 9 per cent. surcharge is clear evidence that Labour still feels a basic antipathy to wealth and all its trappings. The envy and jealousy that were so obvious and commonplace in earlier decades are still there, just below the surface. They are there in Labour's policies, and if, God forbid, we were to have a Labour Government, they would be there in the practical application of those policies.

This Government's policies are right. No Government have never made a mistake, but when this Government make mistakes at least they learn from them and take the right action to put things right as soon as possible. That is what we have done in the past, and that is what we are still doing. Our action is working, and I continue to support it.

Photo of Ken Livingstone Ken Livingstone , Brent East 7:43, 24 July 1991

After three quarters of uninterrupted decline in output, the shape of the current recession is now clear. It does not, however, correspond to that frequently portrayed by the press. It is not a service-driven recession, as is sometimes suggested. It is true that total service output has declined, which it did not do in the recession following 1979, but at the core of this recession is a massive decline in industrial output, Government spending, investment and exports. Any programme for recovery must therefore address those issues.

The first significant feature of the post-1990 recession is the sharpness of its onset. The initial decline in production has been more rapid than the decline following either 1979 or 1973, when the two previous most severe post-war recessions took place.

Let us start by assessing the level of gross domestic product for three quarters after each cycle peak. GDP declined by 0·6 per cent. following 1973, by 1·7 per cent. following 1979 and by 2·7 per cent. following 1990.

The decline of total consumer expenditure in the current recession is average in comparison with that seen in previous major post-war recessions. Indeed, in the third quarter of the recession—the first quarter of 1991—there was a recovery in consumer spending. The June retail figures suggest that that has continued into the second quarter of 1991.

During the three quarters since the onset of recession in the second quarter of 1990, consumer expenditure has fallen by 1·7 per cent. That is somewhat sharper than the fall that followed 1979, when consumer spending fell by 1·4 per cent. over three quarters, but not as severe as the fall that followed 1973, which was 2·3 per cent. over the first three quarters. The decline in consumer expenditure in the current recession is therefore significant; but recovery commenced early and the decline cannot be used to explain the particular severity of the onset of that recession.

The decisive feature of the onset of the 1979 recession was a massive and prolonged running down of stocks. After a rise in the first quarter of the general recession, stocks fell uninterruptedly for five quarters. By the third quarter of the 1979 recession, physical addition to stocks had fallen from plus £385 million to minus £711 million, a decline of £1·1 billion in 1985 prices.

The decline in stocks in the current recession is far less severe. A significant decline in stocks pre-dated the onset of the 1990 recession: the peak level of stock formation was achieved in the last quarter of 1988. Since the overall recession began, however, no significant further decline has taken place. The value of physical addition to stocks was minus £407 million in 1985 prices in the second quarter of 1990, and minus £579 million in 1985 prices in the first quarter of 1991. Destocking, therefore, is not a particular cause of the severity of the 1990 recession.

In addition to an average decline in consumer spending and a stock cycle that is much less severe than the one that followed 1979, less pressure in the current business cycle is being placed on domestic production by an increase in imports than in either 1973 or 1979. Between the second quarter of 1990 and the first quarter of 1991, imports fell by 4·5 per cent. That compares with a rise of 1·1 per cent. in the same period following the onset of the 1973 recession, and a 3·4 per cent. rise following the beginning of the 1979 recession. A major import surge is therefore not a cause of the decline in domestic production.

The first cause of the severity of the onset of the 1990 recession lies in the stagnation of Government spending, compared with the level in any previous post-war recession. Since the onset of the recession in the second quarter of 1990, local government expenditure has risen by 2 per cent. That has been more than offset, however, by a 3·9 per cent. fall in central Government spending. The result is a net 1·6 per cent. fall in total final Government expenditure since the onset of the recession.

That decline in final Government expenditure is unprecedented in post-war recessions. In both the 1973 and the 1979 recessions, Government expenditure rose by 1 per cent. during the first three quarters. By being the first post-war Prime Minister to cut Government spending during a recession, the current Prime Minister is actually being more Thatcherite than his predecessor. Cutting Government expenditure in a recession tends to worsen it significantly.

The second and most important cause of the rapid decline in GDP since the second quarter of 1990 is the collapse in fixed investment. The peak level of fixed investment in that business cycle was achieved in the first quarter of 1989, before the onset of the general recession.

There was, however, only a marginal decline, 2·8 per cent., before the second quarter of 1990 and the onset of the general recession. Since the second quarter of 1990, however, gross fixed capital formation has fallen by 8·5 per cent. That is an unprecedented collapse in fixed investment at the onset of a post-war recession. Fixed investment fell by only 0·2 per cent. in the three quarters following the second quarter of 1979 and by 3·1 per cent. following the third quarter of 1973. Therefore, we are experiencing by far the most rapid collapse in fixed investment at the beginning of a recession in British post-war history. The decline in fixed investment, more than anything else, explains the severity of the onset of the recession. The decline in fixed investment since the second quarter of 1990 accounts for 2 per cent. of GDP or three quarters of the total decline.

The final factor explaining the severity of the recession is the decline in exports, which is more severe than in previous recessions. During the 1973 recession, exports of goods and services rose by 6·7 per cent. in the three quarters following the onset of the recession, reflecting the need to raise exports to meet the increased price of oil imports. My right hon. Friend the Member for Blaenau Gwent (Mr. Foot) will remember the great efforts made to achieve that. In the first three months of the recession in 1979 exports of goods and services fell by only 1·2 per cent. In the first three quarters of 1990's recession, however, exports of goods and services have fallen by 2·7 per cent., showing the incapacity of the economy to make the shift to exports to compensate for stagnant domestic demand. Although recent evidence shows some recovery in visible exports, service exports continue to be in severe crisis, offsetting the improvement in visible trade.

The shape of the recession is clear. It is driven by an unprecedented decline in Government spending, above all by a collapse in fixed investment, and by a decline in exports. It is led by a decline in industrial output, not services. Therefore, any programme for recovery must address those points. A recovery from this recession requires a reversal of the decline of Government expenditure, a programme of increased public spending and a reversal of the decline in fixed investment. That will overlap with the expansion of Government expenditure, as much of the investment required is infrastructural in character and must be supplied by the state. Finally, there must be an end to maintaining an overvalued exchange rate within the exchange rate mechanism, which prevents the development of the export market.

Those methods, particularly the expansion of Government spending and a substantial rise in fixed investments, cannot be undertaken if there is a fear of expanding the public sector in the economy. On the contrary, counteracting the fall in state spending and overcoming the inability of the private sector to provide sufficient investment requires an expansion of the public sector.

Against any measure, the Government's methods are wrong on every count. The Government are worsening the recession. They defend an exchange rate which, by any calculation, is damaging to our export markets. I support my hon. Friend the Member for Great Grimsby (Mr. Mitchell) who called for a devaluation of the pound within the ERM. We need to make certain that the devaluation undervalues the pound so that afterwards the pound can only rise. That would allow us a major reduction in interest rates, perhaps as much as 3 per cent., allowing us a real boost in exports to get the export-led growth that we want. That is the way out of the recession, contrary to everything that the Government propose.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield 7:53, 24 July 1991

That was the true voice of the Labour party. I fear that the analysis is fatally flawed, because it is based on erroneous information. According to the Red Book, public expenditure is higher this year than last year and will be higher in real terms next year. Equally, exports are forecast to rise by 2·5 per cent. this year and we now know—

Photo of Ken Livingstone Ken Livingstone , Brent East

Will the hon. Gentleman give way?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I have 10 minutes, as the hon. Gentleman did.

Exports of manufactured goods have risen by 18 per cent. over the past two years, which is an outstanding record.

I want to talk about inflation and the inflationary culture of the United Kingdom. We have lived with this problem for 10, 20 or 30 years. We can all think of examples of pay and prices when we started out. Some 25 years ago my pay was £350 a year. I was a little chap and the price of a pint was 1s. 10d. We can remember those nonsense figures which show the problems that we have. Earnings have increased tenfold in 20 years. We still have a strongly inflationary culture.

Chancellors of the Exchequer have referred to the problem in successive Budgets. One said: in the last twelve months, the danger of chronic cost inflation … has reappeared. There is reason to fear that the cost-inflationary process will speed up further. That, I feel, is our principal menace at present, and one which it is impossible to exaggerate. Whether or not this danger develops will depend not only on the policies of the Government, but also on decisions by leaders on both sides of industry with regard to wages, profit margins and prices."—[Official Report, 17 April 1961: Vol. 638 c. 798–9.] That was Mr. Selwyn Lloyd. Before that we had had two years of price stability and the problem that he was addressing was 2 per cent. inflation. That demonstrates just how out of hand the problem has become since.

Fourteen or 15 years on from that Budget, successive Governments tried to deal with inflation by a series of incomes policies. None succeeded—not surprisingly, as they all tackled the symptoms, not the causes. In 1976, the Red Book, commenting on prices, stated: by June the increase over the previous 12 months had risen to 26 per cent. At the same time average earnings were around 28 per cent. up on the previous year. That was under a Labour Government 15 years ago. Their response was yet another incomes policy in which everybody was given £6 a week, regardless of what their pay was. That was backed up by the Remuneration, Charges and Grants Act 1975. Needless to say, that policy, too, failed completely.

It is not surprising that the following year the right hon. Member for Leeds, East (Mr. Healey) talked in his Budget about the problems of pay rises, devaluation and more pay rises. Every time we devalued we threw away the opportunity to be competitive, so the suggestion of the hon. Member for Brent, East (Mr. Livingstone) that we should devalue again is a wholly failed solution to our problems and should not be considered.

After that, more emphasis was placed on monetary policy, first, by the right hon. Member for Leeds, East, who introduced monetary targets in 1976 at the instigation of the IMF and then, with more enthusiasm, by the Conservative Government in 1979. In some ways, that policy, too, has come to the end of its useful life, perhaps because in the late 1980s there was so much financial deregulation that the targets were no longer meaningful. The Treasury has, rightly, abandoned having a target for M3 and today we have a target only for M0.

As my hon. Friend the Member for Chichester (Mr. Nelson) said, last October's decision to join the ERM was undoubtedly an historic one. It is right that we should now adopt what might be described as an external discipline to ensure, first, that we get inflation down and, secondly, that having got it down we keep it down.

On 14 July in The Sunday Telegraph, Gavyn Davies pointed to the success of the Government's policy over the past 10 months. As my right hon. Friend the Chancellor said, who would have forecast 10 months ago that inflation would halve and interest rates would come down four points while, at the same time, sterling remained steady within the ERM during that period? That is the scale of the achievement. It is a great achievement that inflation should be down, interest rates should be down and at the same time our trade performance has improved. Exports increased during that period even though the ERM's critics said that we had gone in at too high a rate. Above all, people in industry want stability, because a stable exchange rate enables business to determine the prices at which it has to sell, and life is made a good deal easier. Such a stable exchange rate applies throughout the largest market that is available to us—the European Community free trade area.

As soon as it makes sense, we should move to the narrow bands of the ERM, because there are gains to be had from the Government's economic policies. A strong monetary policy and membership of the ERM are buttressed by a tough fiscal policy. As we approach another spending round, I shall be preaching to the converted when I say to the Chief Secretary that it is essential to maintain firm control of public spending in 1992–93. That is the Chief Secretary's job, but he must pursuade his colleagues in spending Departments to continue with the policy that has proved so successful over the past 12 years.

In that context I was glad to hear about the announcement by the Secretary of State for Trade and Industry of an agreement between Sir Bryan Carsberg, the director of Oftel, and British Telecom on licence modifications. Those modifications were necessary because of an obstacle to the privatisation of the remainder of BT shares. That has been sorted out to the advantage of BT's competitor, a small telecommunications company, which will now have free access to the BT systems.

We should compare that achievement with Labour's promises, in so far as we can discern them. The right hon. and learned Member for Monklands, East (Mr. Smith) has never called for a tighter monetary policy. Even in 1987–88 when the Government reduced interest rates in response to black Monday, a move which we can now see was wrong, the right hon. and learned Gentleman wanted them cut even more.

Photo of Mr Frank Haynes Mr Frank Haynes , Ashfield

The hon. Gentleman supported that.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I supported him, but I got it wrong. I am sure that the hon. Member for Ashfield (Mr. Haynes) also supported the right hon. and learned Gentleman.

After black Monday, most people thought that such a crash in the financial markets was bound to have some consequences for the real economy. We now know that the real economy was in the middle of a boom, and that the decision to cut interest rates was wrong. Whatever the interest rate, the right hon. and learned Member for Monklands, East always wants to cut it. His policy would undermine the pound in the ERM and if we had the misfortune of a Labour Government the ERM policy would quickly collapse. There would be cuts in interest rates, a run on sterling and formal devaluation, and the whole policy would be rapidly discredited.

Labour promises increased public spending in almost every area. Although Labour's Treasury team tries to keep the lid on that and argues that the only commitments are to pensions and child benefit, we know that that is not true. The Opposition have said in this debate that they want more investment in education and training. Where will that money come from? There is already a growing public sector borrowing requirement and the Government are committed to higher public spending. A Labour Government would have to do without the proceeds of privatisation. Labour's policy would be a disaster, and that is why I support the Chancellor's economic policy.

Photo of Mr Doug Hoyle Mr Doug Hoyle , Warrington North 8:03, 24 July 1991

The effrontery of Conservative Members, and especially of the hon. Member for Beaconsfield (Mr. Smith), is unbelievable. The Government's economic policy is in tatters. Conservative Members may smile, but unemployment is rising faster in this country than in any other country in Europe. It increased by about 70,000 last month. Even using the Chancellor's own figures, investment will fall by 10 per cent. on last year. Output is also falling. Where is this great success story that we keep hearing about? The Government are adept at passing the buck from one person to another, as we saw over the BCCI failure.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Perhaps the hon. Gentleman could tell us about manufacturing industry.

Photo of Mr Doug Hoyle Mr Doug Hoyle , Warrington North

The hon. Member for Beaconsfield is an expert on the City, but he is certainly not an expert on manufacturing industry. I suspect that he has never been in a factory, so I shall concentrate on a matter that he knows a little about, the collapse of BCCI.

The Governor of the Bank of England will be the fall guy, but responsibility rests with the Government and especially with the Prime Minister, who in January 1990 was Chancellor of the Exchequer. At that time, it was drawn to his attention that two executives had been laundering in Florida money that had come from drugs. On that occasion and on two others, the then Chancellor's attention was drawn to such matters and one would have thought that he would take a greater interest in what was happening in the bank. But none was taken until the crash. Many small investors have been ruined because of lack of action by two Chancellors of the Exchequer, one of whom is now the Prime Minister. They should be condemned for that.

Photo of Mr Frank Haynes Mr Frank Haynes , Ashfield

The hon. Member for Beaconsfield (Mr. Smith) is a City adviser.

Photo of Mr Doug Hoyle Mr Doug Hoyle , Warrington North

That is right and, of course, he is not alone in that: the Prime Minister used to be a financial adviser, as was the Chancellor. We have a Government of the City, for the City, but they are certainly not for the people of this country.

The hon. Member for Beaconsfield invited me to turn my attention to manufacturing industry. Why have the Government been so silent about the Hanson bid for ICI? ICI employs 56,000 people, 50 per cent. of its output is exported and it spends 4–5per cent. of its output on research and development. It could be taken over by a company that spends a total of £34 million, which is 0·5 per cent. of its total output, on research and development. It has taken over other companies and stopped their research and development and, in the case of Ever Ready Batteries, it sold off marketing.

Hanson threatens the most successful manufacturing company in this country, but what do the Government say about that? They say nothing. Compared with the Secretary of State for Trade and Industry, the Prime Minister has charisma, so it is hardly surprising that we hear nothing about that takeover bid. No other European country would stand by and see its most successful manufacturing company threatened in that way.

A few days ago, the Chancellor praised the motor industry and spoke about its export achievements. However, that industry now faces a downturn in every part of Europe except Germany. The downturn in Spain and France is about 16 per cent., which is beaten only by the downturn in this country because the home market has collapsed by 25 per cent. The sales in the motor industry in June were the lowest since 1970. Where is the success story in that? The motor industry is being crippled by the Chancellor's actions. The fact that the Government have introduced a car sales tax of 10 per cent. and increased VAT has depressed the home market, and more people will lose their jobs unless some action is taken.

The sooner we have an election the better, because the Government are inept, indolent and incompetent. As long as they remain in power, far from the economy recovering, it will grow worse. I not only echo what my constituents in Warrington say but speak for the whole country. The hon. Member for Beaconsfield seems to be amused when we talk about people being unemployed and output falling. Unfortunately for him, that is happening not only in the north and the midlands but in the south of the country. When the time comes, many Conservatives will deservedly lose their seats. Therefore, the sooner we have a change in Government, the better it will be for the country and for industry generally.

Photo of Ian Taylor Ian Taylor , Esher 8:11, 24 July 1991

We have just heard a classically depressing speech from the hon. Member for Warrington, North (Mr. Hoyle). The problem throughout the debate has been that Opposition Members have concentrated on the problems of the economy without proposing any solutions, so they have been negative in their approach.

One would not credit the opening speech of the right hon. and learned Member for Monklands, East (Mr. Smith), who was not prepared to go into detail about the heavy burdens that a Labour Government would put on British industry. He gave no details of the problems that they would cause to the exchange rate, because the Labour party will not accept the proper discipline of the exchange rate mechanism. Nor did he mention the problems that a Labour Government would cause in terms of public expenditure because of the £35 billion-worth of pledges that the Labour party has made. If Opposition Members dispute that figure, I should be grateful if they would provide proper costings of their proposals.

A Labour Government would create problems for British industry through their complete and unquestioning acceptance of anything that comes out of the European Community's social action programme. They would create problems for the economy because they are prepared to spend taxpayers' money on renationalising industries without thinking about the cost to the current public expenditure budget and the problems that such a policy would create for the companies that would be brought back into the Government net because of the restraints on capital expenditure of the external financing limit. I wish that they would deal with that matter and come clean on it. Constituents throughout the country would be extremely worried if utilities that are now in the private sector and benefiting from access to the private market suddenly found that they were subject to the Chief Secretary and the external financing limit.

A Labour Government would grind British industry down, destroy the prospect of an economic recovery and, through the operation of a minimum wage policy to which the Labour party is so beholden, worsen the social and employment prospects of those most exposed—semi-skilled or unskilled young people and people in the older age range who are seeking jobs. The Opposition have proposed no solutions. Indeed, all their proposals are likely to make the economy worse. I hope that the British public realises exactly what is being offered in the false prospectus of the Labour party so that, in the coming months, we can make it absolutely clear that the Government's sound, sensible policies are the only proper way forward for this country.

It was typical of the right hon. and learned Member for Monklands, East that nowhere in his speech did he note the full implications of the worldwide pattern of recovery for this country. There have been some significant and positive statements as a result of the G7 talks. They have shown that the economies of the leading industrial countries of the world are recovering, which will undoubtedly help the recovery in this country. The credit crunch that was widely feared in the USA has not been as severe as first expected. Furthermore, in several nations, both within the Community and, for example, Japan, there has now been a fall in interest rates, which will benefit this country, too.

Domestically, an important factor is at work. It will take time, but it is, nevertheless, important. It is the use of the automatic stabilisers. By allowing them to take effect, the Government have eased conditions and created the prospect of economic growth. As my hon. Friend the Member for Beaconsfield (Mr. Smith) has just said, that effect will be assisted in terms of the public expenditure round by the impact of BT's settlement with the regulators. That is a signal triumph for my right hon. Friend the Secretary of State for Trade and Industry, because he backed the regulators, which means that the customer will benefit. At the same time, however, it clears the way for further BT privatisation, the net proceeds of which will be useful for reducing the public sector borrowing requirement for this year.

Other factors should also encourage us. Low stocks in industry will mean that any pick-up should work straight through to production. The figures that my right hon. Friend the Chancellor gave in his opening speech on monetary supply now appear, in terms of M0, to be moving up to above the middle of the range that has been set by the Treasury. I believe that the latest figure is 3·25 per cent., which shows that monetary policy is beginning to create the circumstances in which growth could resume during the second half of the year. Other factors, such as the fall of the pound against the dollar and the modest pick-up in retail sales prices, will undoubtedly assist.

The moral is that the Government are right to have kept calm and been consistent in following through the policy set by membership of the exchange rate mechanism. I have raised that question many times before in the House and am a fervent advocate of the discipline set by the ERM. I can only give the Government credit for their consistent policy of waiting for the right moment to reduce interest rates, doing it gradually, giving industry the confidence that the direction and trend of interest rates is downwards, but not giving in to the siren voices of Opposition Members, who wanted to rush to a fall in interest rates. That would have led to a dramatic rise in interest rates in the latter part of this year, when an international lack of confidence in the Government and sterling would have resulted. The Government, therefore, have pursued not only the right policy but one that is more likely to lead to a greater fall in interest rates for any fall in the rate of inflation, as international confidence in the pound continues.

Naturally, I am aware that businesses are experiencing difficulties, but the way to help them is, first, to reduce inflation and, with it, interest rates on a much more stable and permanent basis. Secondly, we should not try to reflate the economy in a panic. Rather, we should take targeted measures that would assist businesses to respond better to the signs of economic recovery that is now occurring.

We should not underestimate the measures in the Finance Bill, which were foreshadowed in the Budget. They include specific assistance to industry such as the reduction in corporation tax, an easier payments system, easier methods of VAT collection and less harassment by the Inland Revenue. All those measures will assist businesses. Once their confidence returns, they will begin to realise that the benefits that the Government have introduced in the Finance Bill will have a dramatic impact.

In that sense, although hon. Members may find it depressing talking to business men who as yet see no evidence of the upturn, there is no doubt that if, as I have tried to show, the framework of that recovery is already upon us, we will quickly find that industrial confidence will turn round. By the time the House reconvenes in the autumn, we may see a more upbeat response from British industry and, therefore, much more positive support for the Government's overall philosophy.

Even those who are concerned about the current situation of the British economy should not ignore the dramatic impact of the reforms that the Conservative Government have introduced successfully of the economy since 1979 for investors outside Britain. The flow of investment into Britain from OECD members who are outside the EC has been quite dramatic. In response to an oral question of mine on 27 June, my right hon. and learned Friend the Chief Secretary said: Between 1984 and 1988 the United Kingdom received about one third of all inward direct investment to the EC … Inward investment in 1988 was £10 billion. In 1990 it was £19 billion."—[Official Report, 27 June 1991; Vol. 193, c. 1131.] Much of that has gone to the regions, and in that sense it has helped jobs that would otherwise not have existed.

Inward investment depends on the continuation of the Government's policies. It depends on policies which are ultimately in the long-term interests of British industry and on our maintaining a positive role within the economic and monetary union in negotiations that are now taking place. The Government are right to be cautious in their actions. When the House reconvenes in the autumn we will see a much more positive economic picture.

Photo of Mr Edward Leadbitter Mr Edward Leadbitter , Hartlepool 8:21, 24 July 1991

The hon. Member for Esher (Mr. Taylor) said that it was important to reduce inflation in order to help industry. My retort to that is simple: the Conservative party should have stopped inflation rising.

The temptation today has been to give historical tutorials, going back even to primitive man if that were allowed, in order to escape the responsibility for what has happened in recent times. In an intervention I asked the hon. Member for Bridlington (Mr. Townend) whether the Government were prepared to accept responsibility for anything. I asked him if he would rebut his friends in the other place who, in a majority, in a report from the Select Committee on Science and Technology in May this year, made it abundantly clear and in precise terms that if the Government carried on in the way that they were Britain would have no home-owned manufacturing base. The report also said that the Government had no policy for industry and no industrial policy in the national interest. That was the considered view of a Committee that sat for a considerable time listening to witnesses from industry, the CBI and so on.

Yet the Government have no sense of shame whatever. We have not seen that since 1979. We have had the Westland scandal and all sorts of other scandals, but one never sees members of the Government blushing at any time. They have no sense of embarrassment. Yet the Government's amendment to the Opposition motion says that the House congratulates Her Majesty's Government on its pursuit of sound economic policies". I can only assume that they have not caught them yet.

It is fascinating that when the Opposition seek to depict in the House of Commons the present situation it is difficult to get hon. Members, certainly on the Government Benches, to apply their minds to it. They try to tell us that we would not be successful in dealing with Britain's industrial problems. What neck—as a famous Prime Minister once said in the House of Commons—when there were 23,000 bankruptcies in the first half of this year. By my reckoning, 23,000 is an awful lot.

Moreover, most proprietary companies, certainly most small companies, and a substantial number of large companies—the latter with a capacity to outlast a recession over a three or four-year cycle but nevertheless finding their profit margins falling—are frightened of the bank manager telling them that their cash flow or their cash supply is in difficulty and that the bank will have to foreclose on them. There are a number of employers in those categories who cannot make any planning projections, let alone forward investment or projections of any kind in such circumstances.

Therefore, we must ask why the Government have the audacity to table such an amendment when we know, in the words of another Prime Minister, that they are frit. If the economy is in as good a state as the amendment suggests, if it is meant to be taken at its face value, I should have thought that the Government would be anxious to go to the country. I should have thought that in June, which is just behind us, we would have had an election.

If the policies that the Government are now proclaiming were successful, the Conservative party would not be frightened of the electors' vote. No one is ever frightened of the electors' vote if the economy is right and the social structure is healthy, with the education and health services working to the benefit of people rather than in pursuit of profits. It is interesting that the Government's citizens charter talks about reducing waiting lists to two years. What a fantastic admission to make. It is like a confessional.

The Government's failure to go to the country in June is a signal that they are scared stiff of how the electorate will vote. How can the Government and Conservative Back Benchers think that they have any credibility in the country when they can get rid of a Prime Minister with 204 votes and get another one with 185? How on earth dare they go to the electorate?

I shall be retiring at the next general election. After some 28 years here, I think that I have heard it all before. This is a wonderful place, but I have found something strange: it is much easier to pursue a lie in the House of Commons than to expose the truth. It is fantastic that Members of Parliament are not good at admitting the truth. There are some fundamental reasons for that, but it is an interesting facet for older Members to deploy when we seek to wheedle out what the Government are up to.

The ramshackle training systems are principally meant to box up the figures—figures that have been tampered with 30 times—and real unemployment is nearer 4 million than 3 million. Some people are earning incomes that are so low that I wonder how they manage. A lady came to my surgery who was looking after her mother. Her slice of the total household income was £23. That was all that she was allowed to possess—not the price of a decent pair of shoes.

I listen to Members of Parliament prattling on about their incomes and to certain people in industry who are so blatantly greedy and grasping that even in the recession they cannot keep their hands out of the utility till. Chairmen of industries have received 100 per cent. salary increases—greedy, grasping, indecent people—and we expect the voters to support a Government who pretend that they did not know that that would happen. Yet Conservative Members play the merry devil about workers getting salary increases a point above inflation.

I could have spoken for a long time, but time is against me.

Photo of Quentin Davies Quentin Davies , Stamford and Spalding 8:30, 24 July 1991

It is always a pleasure to follow the hon. Member for Hartlepool (Mr. Leadbitter). I am sorry I shall not be able to look forward to that pleasure after the next election. I shall attempt to follow his precept and to throw a little light on the truth.

There is an issue that has been of growing concern to Conservative Members, industry and the country in the past few months. It should also be of growing concern to Labour Members. As a result of today's debate, it has taken on a new dimension of seriousness. I speak of the statutory minimum wage. It was clear from the performance of the right hon. and learned Member for Monklands, East (Mr. Smith) that the Labour party is wedded to a policy the consequences of which it has not begun to understand.

That was brought home graphically by the fact that, in introducing his remarks on the subject, the right hon. and learned Gentleman made two fundamental mistakes. One was a mistake of fact and the other a mistake of understanding. The mistake of fact was to say that all other members of the European Community have a statutory minimum wage. That is not true. Germany does not have a statutory minimum wage. That is an elementary but important mistake of fact. It is of more concern that the leadership of the Labour party has embarked on the policy without having carried out elementary research on the position in other members of the Community, with which we must compete.

The second mistake, which could have been a slip of the tongue were it not for the fact that the right hon. and learned Gentleman drew specific conclusions from it, was to quote from an OECD report about France, which has a minimum statutory wage. I think that I quote correctly, and verbatim, the words of the right hon. and learned Gentleman, who said that the statutory minimum wage's impact on the elasticity of demand for labour in France was zero. I am afraid that that rather showed that the right hon. and learned Gentleman had not understood the purport of the words, or that he was unaware of the meaning of the concept of elasticity. Elasticity is a measure of the rate of change of demand for a commodity in response to any change in price. It is a measure of the slope of the demand curve, not a measure of volume.

It is a dangerous illusion to suppose that the price of any commodity, including labour and wages, can be increased without, ipso facto, reducing demand for it. The idea that one can have one's cake and eat it is wrong. If a statutory minimum price were introduced for motor cars, as sure as night follows day the demand for motor cars would be reduced. We can argue about the extent to which that demand would be reduced, but let there be no illusion; demand would be reduced.

The right hon. and learned Member for Monklands, East is either naive or did not do enough home work. I am sorry that a Labour Front-Bench spokesman should try to pretend that a statutory minimum wage could be introduced without increasing unemployment and reducing the demand for labour.

The second point that I hope that the Labour party, even at the 11th hour, will address—it is obvious that it has not thought it through—is that a statutory minimum wage will reduce the demand for labour and remove the employment of those whose wages are less than the statutory minimum wage. In addition, as the trade unions, who are so well represented by Labour Members, insist on pay differentials, demand for higher wages will be created throughout the economy. That will lead to higher inflation, higher unemployment or a mixture of the two. Unless the Labour party wishes to wed itself to a policy that will cause higher inflation and higher unemployment, it should think carefully and seriously about the crazy idea of a statutory minimum wage before taking it any further.

That is not the end of the story. There is a third point that I hope that Labour Members will consider. The inept policy of a statutory minimum wage will reduce employment and output—the output of people who will no longer be employed in the economy—but will it help those at the bottom of the wage and salary scale, whom it was presumably designed to assist? The answer is that it will not. Even if employers are induced to increase the lowest wages, pari passu family credit and housing benefit will be reduced for those people. Considerable economic and human costs will be incurred, which will not benefit those whom the policy was intended to advantage.

If that is not a crazy policy, I do not know what is. The Labour party has not begun to think through the consequences of the statutory minimum wage, to which it appears to be wedded. So much the better for us if it fights the next election with a manifesto that is so fundamentally flawed that it contains such nonsense, but it will not be to the advantage of the country if, by any mishap, it were to come to power. I therefore beg it, at the 11th hour, to rethink that crazy policy, which can only bring even greater discredit on it than its other economic policies.

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford 8:39, 24 July 1991

Conservative Members, including the hon. Member for Stamford and Spalding (Mr. Davies), have said that the Labour party has no solution to this country's economic problems. The Conservative party, which has been in office for 12 years, has the gall to say that it has the solutions to the economic mess. Everyone agrees that the country is in a deep recession, but Conservative Members have failed to say who has been responsible for it. It cannot be the Opposition—it must be the Government. If the Government have failed to come up with the answer in 12 years, I cannot believe that the British public will put confidence in them and re-elect them.

It is no good attempting to pull the wool over the public's eyes by saying that there are improvements around the corner and that things would be much worse under another Government. I am not an economist and I cannot come up with some magic answers, but the problem must be solved. The Government attempted to solve it by just one means—high interest rates. Even primary school children understand that inflation must be controlled and know what will happen to the economy if it is not, but what matters is how it is controlled.

The Chancellor may have been flippant when he said that unemployment created by high interest rates was a price worth paying. That is his judgment. I want to highlight what high unemployment means. Many hon. Members representing constituencies in the south-east of the country have no experience of what it means, although some are beginning to know. Some hon. Members who until recently have shown little interest are beginning to panic.

I remember the posters during the 1979 election showing dole queues, with the words "Labour isn't working". Unemployment then was slightly more than half what it is today. Does that show 12 years of Government success in dealing with unemployment? It certainly does not. The problem will not be solved by one side of the House saying, "We saw those details in the Red Book last year," or talking about what someone else said last week. After 12 years, the Government are not equipped to solve the problem.

I know what unemployment means. Since 1984, constituencies such as mine have experienced a rapid rise in unemployment because of the rundown in the coal industry. No efforts have been made by the Government or anyone else to find alternative employment for those workers. There is a threat that the few remaining pits will be wiped out. Youngsters cannot find employment and are desperate for work, which means that idle hands make mischief. The crime rate, most of it petty crime, is rapidly increasing in my area and mostly unemployed youngsters are involved. I do not condone that. The West Yorkshire police force is more than 200 policemen and civilian staff short of establishment levels. The crime rate, which was at record levels last year, is increasing. Those are the results of unemployment and of central Government control of local government finance.

Many long-established small businesses are rapidly going to the wall. Recently, a gentleman and his wife came to see me at my surgery. They told me about a small, 60 or 70-year-old business which once employed 14 men now employing only three and that they did not expect that it would continue. A few months ago, I wanted a small drive at my home tarmacked, so I rang a small firm that had been established for many years and was surprised when I was told that the men would be there in the morning. Nine men turned up to do a job that did not cost more than £1,000. The contractor told me that if they had not done that job the men would have been laid off within two or three days. Needless to say, they have since been laid off.

All that is happening because of the policy of controlling inflation through unemployment. It is all very well saying that there is sunshine around the corner and that many businesses will pick up when the upturn comes, but that is not much consolation to firms that have gone out of business because of the Government's policy.

A week last Monday, I went to meet the Princess Royal who was opening extensions at Pontefract racecourse. I spoke to two or three people whom I always knew to be strong Conservatives and they told me about their worries. One man who ran a reasonably sized business was worried about the increase in VAT. He said that last year in his firm, the "tax collectors" had taken £17·5 million in VAT for the Government. He said, sadly, that the Conservatives will lose the next election and that they deserve to do so.

Another man, from the brewing industry, told me that he would never vote Conservative again because his business had been wrecked—

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

Order. The hon. Gentleman has had his 10 minutes. I am sorry to have to ask him to resume his seat.

Photo of Richard Shepherd Richard Shepherd , Aldridge-Brownhills 8:49, 24 July 1991

There are moments when one recognises that we have a severe recession. It would be wrong to pretend otherwise. My background is that of a small retailer. We retailers arc aware that we have borne the brunt of this recession, which has eaten into domestic demand in a way that I have never seen before.

It seems to me that the management of the economy comes down in the end to judgment— judgment at critical moments about the management of supply and demand and of the money supply. I regret some things from the past 10 years. When I was first elected, the idea of a floating exchange rate was central to our policies. I still hold that that is the best way to manage an economy, but I have seen the judgment change in my party, and I know that those who exercise that judgment will hold themselves accountable for its consequences.

In the past four years or so, at certain critical moments, such as black Monday, the Government's responses were the responses that I too would have made. Some of them may have been wrong, but I supported them. After black Monday, I thought it appropriate to be more generous with the money supply. The intention behind that liberality was clearly good. The Government decided that they wanted to maintain industry and output and support the economy. On balance, perhaps the Government were too lax.

I listened carefully to the shadow spokesman on the economy, the right hon. and learned Member for Monklands, East (Mr. Smith), and I noticed that in his judgment we should have been even laxer. Perhaps we are too rigorous in my party. A great friend and colleague of mine, my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), often berates the Government for the way in which they approach these matters, but I am sure that he would have berated the management of the economy by the Opposition, had they been in power, even more. The right hon. and learned Member for Monklands, East, as I say, thought it right to be even more lax. But every consequence since black Monday would have been even worse if the right hon. and learned Gentleman had been in the driving seat.

However much I may believe that the rate of our entry to the ERM was wrong, and however wrong in principle it may have been, I cannot agree with the argument of the right hon. and learned Member for Monklands, East that interest rates should be depressed faster. As a retailer, I would give a cheer for that, but the intellectual argument flounders because interest rates are now a reflection of membership of the ERM. Lowering interest rates affects the external value of the currency. Since that is now the guiding principle of the Government's economic management, we cannot lower interest rates at the same time as maintaining the central rate of sterling against the deutschmark. That is what worries me. Is the right hon. and learned Gentleman saying, covertly, that he would devalue? Is that Opposition policy? I do not understand how one can reconcile lowering interest rates more quickly while maintaining sterling in the central band of the ERM.

From the earliest days of our membership of the ERM the Government have straightforwardly made their position plain, but I have not heard an exposition by the Opposition of the consequences of membership and of the disciplines implicit in it. I have to ask myself in a reasonable way whether I would veer towards the Opposition or towards the Government in matters affecting the administration of economic policy. Unusually for me, perhaps, I believe that the Government have set out their arguments the more clearly and to the advantage of the broad management of the economy.

This has been a dire recession, in which the consequences have moved outwards from the south-east right through the economy. We sometimes lose sight of the fact that the Opposition do not believe in economic cycles in industrial societies, but nothing has ever convinced me against the idea of a cyclical approach to life. A farmer recognises that crops are poor in bad weather and plentiful in good times. Similarly, economies go through good and bad times. We are at the bottom of a deep recession, but there are clear signs of improvement. Interest rates are declining in Japan and the United States, thereby removing one of the threats to our interest rate management. As world interest rates come down, so do ours.

If I could change Government policy, I would take Britain out of the ERM because I do not believe in a fixed exchange rate on which all else is predicated to the extent that we narrow our economic endeavours to merely supporting the exchange rate. That is quite wrong, but it is the central intent of the Government. I also, however, recognise the consequences that flow from the Government's judgment and from lower interest rates. Interest rates are central to the economy at this stage of the management of the cycle.

Photo of Sir Ray Whitney Sir Ray Whitney , Wycombe

Does my hon. Friend agree that the right hon. and learned Member for Monklands, East (Mr. Smith) misrepresented what happened in the 1980s? He mischaracterized the decade as two recessions linked by a false boom. That so-called false boom was actually eight years of record-breaking growth, which represented a unique upturn in the economic cycle. Anyone with a pride in this country should take pleasure in that— unlike the right hon. and learned Gentleman and the Labour party.

Photo of Richard Shepherd Richard Shepherd , Aldridge-Brownhills

With the greatest respect, great progress was made during the 1980s, but there were also mistakes. Increasing the money supply had dire consequences. There are certain internal faults in our economy. There is the belief, often commented upon by Germans, Americans and others, that there is a get-rich-quick view in British business; the belief that one does not invest for the long term. That has been confronted by the Opposition in the past. There is the membership of Lloyd's, where it is thought that money flies to people, and there is the aggrandisement of wealth by British companies and industry, without the long building-up process.

Unfortunately, the flood of money into the economy and the fact that we were too lax had consequences. We saw the rise in property prices. I have always believed that one of the basic indicators of any economy is the way in which house prices rise. They flew out of the window. Anyone who bought a house in London at the end of the 1970s—that includes myself—for about £50,000 saw its value multiply 10 times. That is not real money, and we know it: it is a reflection of the increased money supply. That is why I judged harshly the right hon. and learned Member for Monklands, East when he was urging yet further increases in the money supply.

We are suffering the consequences of an over-generous response. That is why I do not think that there has been one upward curve over the past 10 years. I have seen the anxieties and difficulties that follow when the balance of the argument is wrong.

Photo of Sir Ray Whitney Sir Ray Whitney , Wycombe

That is the point that I was making. My hon. Friend and the right hon. and learned Member for Monklands, East (Mr. Smith) should not disregard the eight years of record growth. I am sure that my hon. Friend does not disregard it, since it was outstanding. There were mistakes and, quite uniquely in the political history of the country, the Government recognised that mistaken assessments were made in terms of releasing the money supply. However, the Labour party at the time did not say that the Government were reducing interest rates too far or too quickly; it said, as it always does, that interest rates should be 1 per cent. lower than the current level. That is the standard view of the Labour party.

Photo of Richard Shepherd Richard Shepherd , Aldridge-Brownhills

The cheer of politics is that we hold Governments accountable and, as parliamentarians, we try to demonstrate why Governments may be wrong.

I agree with my hon. Friend the Member for Wycombe (Mr. Witney) to the extent that the 1980s saw great structural changes, some of which were beneficial. The underlying improvements that have been beneficial and will be beneficial should the Opposition form a Government seem to be common cause among the two Front Benches. We are concentrating our efforts on the supply side, and there are reforms in place for training and education. We all accept that there is a great deal of work still to do, and the Government are leading the way. We recognise that there have been advances and some setbacks. The attitude of many of our producers is now much firmer and more competitive. That can be seen in the improvement in our export trade, which we hope will be sustainable. That was an interesting feature of this week's figures.

The right hon. and learned Member for Monklands, East believes in the lowering of interest rates in the face of the ERM mechanism. I cannot understand that unless he is calling covertly for devaluation.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury 9:01, 24 July 1991

This is the last full-scale economic debate before the summer recess and, for all we know, it may be the last before the general election. It gives us a chance to glance back over the 12 long years of the Government's term in office. When they came to power, they inherited inflation at the European average. Today, it is above the European average. They inherited a balance of payments that had dipped marginally into deficit —about £500 million —although manufacturing trade still had a surplus of almost £3 billion. Today, in the depths of recession, the deficit is still registered in billions. The Government inherited the fruits of investment under a Labour Government which resulted in substantial revenues from North sea oil. They inherited unemployment at just over 1 million and it was still falling.

As my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse) mentioned, one of the most effective slogans of the election campaign that brought the Conservatives to power was the Saatchi and Saatchi-inspired, "Labour isn't working". That slogan placed the responsibility for the levels of unemployment directly at the door of the then Government. Today, with about one vacancy for every 20 unemployed, unemployment is double the level this Government inherited and rising fast. Most commentators predict that it will touch 3 million and some predict that it will go even higher. Whose responsibility is it now? To listen to Ministers, one would almost think that it was the responsibility of the next Labour Government.

The one skill that the Government have honed to a fine degree in their 12 full years is that of passing the buck, in the same way as children pass the parcel. And what a buck it is. The inheritance of the next Government will be an economy which, at best, is just emerging from recession. It is the second recession of the Government's 12 years in power and it is shaping up to be as bad and as deep as, and even more long-lasting than, their first.

Recovery must come at some stage, but the House will know that the Association of British Chambers of Commerce —much quoted in this debate — predicted this week that there would be no recovery until next year and that the manufacturing industry —the source of our tradeable wealth —will not be in recovery until that summer. Many hon. Members will have seen the forecast by Phillips and Drew entitled "An L of a Recession", which states that the signs are that the economy has hit bottom, but that it has every intention of staying there.

The Association of British Chambers of Commerce also said: Orders, deliveries, employment, investment and the number of firms working at full capacity are continuing to fall. The head of the corporate department of KPMG Peat Marwick, the accountancy firm, said that there was no evidence yet of an upturn in the economy. He continued: I think we're going to scrape along the bottom for quite a considerable period of time. Last week, this country hosted the conference of the Group of Seven countries. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said, we are the bottom of the league of the G7 countries in growth, in investment and in job creation. Our economy is predicted to be the bottom of the G7 league for growth for four consecutive years. That is a record. That has never happened in any country before. Unemployment hit the highest monthly increase in March, and although the figures for subsequent months have, mercifully, been lower, those figures for April, May and June were higher than for any of those months in the past 40 years. That is a record, and, in the case of unemployment, it is a record achieved even after changes in the way in which the figures are collected and after the totals had been reduced 30 times.

Manufacturing output was predicted to be down 5 per cent. On the latest figures, it is heading towards being 7 per cent. down since April 1990. What of the true engine of recovery—not consumer spending, as the Chancellor says, but investment? Manufacturing investment has fallen 16 per cent. in the past year to below the levels of investment the Government inherited in 1979 and, indeed, back to the levels last seen in the 1960s. Not only can we not rebuild, but we cannot sustain a modern economy with such levels of investment, and all of that is the consequence of the Government's gross economic mismanagement.

President Truman was reported to have had a note on his desk saying, "The buck stops here." Where does the buck stop with the Government? It does not appear to stop with the Prime Minister, with the Chancellor or with the Chief Secretary to the Treasury who is, no doubt, too busy working on some of his excellent jokes to take receipt of any buck. We can be certain of one thing —in this Government, the buck never stops in the Cabinet of the day, no matter who is in it.

We all remember the claim about the economic miracle and, certainly, the Government's achievements in putting Britain firmly at the bottom of so many leagues—those for growth, investment and job creation—have been remarkable by any standards. Why did we end up at the bottom of the league after 12 years of unprecedented revenues from the North sea, unprecedented revenues from privatisation of assets and 12 years of uninterrupted power?

The House will recall that in previous debates—indeed, it has been mentioned today by the hon. Member for Aldridge-Brownhills (Mr. Shepherd)—the Government have admitted to just one mistake. That mistake was the cut in interest rates in the aftermath of the stock market crash in October 1978, and it was made not only by this Government, but by all our main competitors. The Government have never been able —and they have never tried —to explain why, if that was such a mistake and if it was their only one, the effects in this country have been so much worse than those in any other country.

Let us consider the inflation figures. The headline rate of inflation in this country is 5·8 per cent. compared with 4·5 per cent. when we cut interest rates in 1987. In Germany, the rate is 3 per cent. and in France, 3·3 per cent. —neither as good as in 1987, but not as high as ours. Growth in France is about the same as in 1987, and in Germany it is double what it was in 1987. In Italy it is down but still growing at 1·7 per cent. That is as good a rate as this Government averaged in 12 years in office, whereas the growth here has fallen by 2 per cent.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I shall give way in a moment.

On the balance of payments, Germany, with its enormous economic adjustments, is still in surplus on its balance of payments and France is in much the same position as it was. Italy is somewhat worse, but, even in the depths of recession, our balance of payments is worse than it was in 1987. In November 1987, when the Government made the one mistake to which they will cough, we did not have the highest interest rates in Europe. We have now, even after the cuts of recent months.

Photo of Sir Ray Whitney Sir Ray Whitney , Wycombe

Just for once, can we be clear what the hon. Lady and her party are saying? The Government have said that it was a mistake to reduce interest rates in early 1988. Does the hon. Lady say that it was not a mistake, or that when all her hon. Friends said that interest rates should be further reduced, that was a mistake? What is her position now?

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

This will be a lesson in possessing one's soul in patience: I am coming to that point.

Photo of Sir Ray Whitney Sir Ray Whitney , Wycombe

Opposition spokesmen always say that.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

In my case, it is always true.

We do not argue that the 1987 cut in interest rates was the Government's main mistake. My right hon. and learned Friend the Member for Monklands, East and the rest of the Labour party argued at the time that this would be the consequence of the course of action that the Government were then planning but had not yet carried out. They made other later mistakes, from the £6 billion in income tax cuts for the wealthy in 1988, through the inflationary own goals of 1989–90 to their one-club policy of high interest rates.

If the Government feel that they dare not admit to more than one mistake, the interest rate cut in 1987 was not the one to choose. Their big mistake was made in 1987 all right, and it flowered into full glory in 1988. It was the biggest mistake that a Government can make—they believed that they were invincible and damned near infallible. That was the key. Drunk with the self-satisfaction of their third election victory, they thought that no matter what they did and what mistakes they made they were bound to get away with it. They stopped listening to anyone. They fell prey to the eighth deadly sin —culpable conceit.

We have only to recall the words of the Prime Minister in 1988, when he was Chief Secretary to the Treasury: During the 1960s we praised and envied the German economic miracle. In the 1980s the position has been precisely reversed." —[Official Report, 26 April 1988; Vol. 132, c. 214.] Only a Government who thought that they could get away with murder would combine in the same year massive cuts in income tax for the richest people in the country with massive cuts in benefits for children, pensioners, the unemployed and people with disabilities.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I assure the Minister that there were at least £600 million to £800 million of cuts in benefits. If he does not know that, I suggest that he looks up the facts.

Only a Government who thought that they could get away with murder would introduce the poll tax or defend the interest rate increases needed to block their inflationary own goals with the words, "If it isn't hurting, it isn't working". Only a Government who thought that they could get away with murder would shove up VAT to pay for cuts in the poll tax and expect people to be grateful for their generosity.

Only a Government who thought that they would never be defeated and were certain to be elected for a fourth term would have dared to embark on the folly, incompetence and disastrous waste of the policies that have led us into the recession.

I am often asked by people outside the House —many of them former supporters of the Government —whether the Government still believe what they say. Perhaps they still do; in the House they give that impression. But whether they have lost self-confidence or not, they have lost the confidence and respect of millions of people. They deserve to lose it, because they are a Government who cheat.

The number of people unemployed rises dramatically, so they stop counting hundreds of thousands of them. The number of people on hospital waiting lists increases, so they will stop publishing the lists. They condemn huge salary increases for the bosses of privatised utilities, but they do not mention that they agreed to those increases in advance, while saying, "Don't tell the public." They cut income tax in 1988 and made us pay for it in our mortgages in 1989, 1990 and 1991. They have cut the poll tax and are making us pay for it through increased VAT. It is all sleight of hand, all excuses, all special effects. It is certainly no accident that it was under this Government that we first heard the phrase "economical with the truth".

Photo of Simon Burns Simon Burns , Chelmsford

Will the hon. Lady say whether it is the Labour party's policy to go back to collecting the unemployment statistics on precisely the same basis on which they were collected in 1979?

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

We certainly believe that unemployment statistics should be collected on a consistent basis across the Community, which they are not at the moment.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I should be happy to see them go back to being collected on the original basis, but we need a fresh assessment of the precise way in which they are collected to put collection on a fair and sound basis, and as we are apparently moving towards greater integration— —

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I can say to the hon. Gentleman specifically that I should be quite happy to see the statistics collected on the old basis, although it may be that we need a basis precisely comparable with that used in the rest of Europe. For all the hon. Gentleman's clever points. there are just as many people unemployed, and the whole point is that they do not show up in the Government's figures. They are out of work every day for just as long; the Government's method of collecting the statistics makes no difference to them.

The Chancellor was at it again today. He said that every serious measure of inflation was on downward trend. The trend may be down, but who would have recalled, from the Chancellor's words, that the figures which he said until recently were the most reliable and the most effective — the core figures; the underlying rate of inflation— were actually up in the last month by both the measures recently advocated by the Treasury?

The Government claim that there has been no underfunding in the national health service and that their reforms will solve all the outstanding problems. In that case, why are the staff in opted-out hospitals threatened with dismissal if they talk about what they know? And how, by the way, does that square with the citizens charter? I have not quite come to terms with that. The Government claim that there is no underfunding in education and that the pursuit of high standards comes from structural changes, including schools opting out of the local authority and the provision of city technology colleges. If funding is irrelevant, why do opted-out schools and city technology colleges get far more funding than the rest of our schools?

It is also cheating when the Government imply that, when inflation comes down further, as we all know it will, and when we get a recovery, our problems will be well-nigh over. An article in The Independent of 23 July said that the position would soon look much stronger, but it continued: we should not assume that the real economy will look equally secure. Similarly, Professor McWilliams of the CBI warned us the other day that, over the period since 1988, the recession will cost the United Kingdom in terms of economic growth forgone about twice as much as it gained from 1985 to 1988 from excess growth. Professor McWilliams reportedly continued: this downswing has set the economy back by a number of years The Government spend their time in excuses and deceits. They have nothing to offer for the future but more of the same. The Chief Secretary said, in an incredibly complacent speech on 15 May this year: we can be proud of our record on public spending and taxation … It has been a major achievement to have brought public spending down to about 40 per cent. of national output in the 1980s. We remain committed to that approach." — [Official Report, 15 May 1991; Vol. 191, c. 286–89.] The Chancellor said again today that the Government have no intention of changing course.

We can expect more of the same, which means more income tax cuts — down, they say, to 20p in the pound — more opted-out hospitals, more opted-out schools, more privatised monopolies with more fat salaries for those who run them and more bills for the public. We can expect more of the same mistakes that got us where we are today. Among our competitors in the EC, in the OECD, in the G7, Governments are struggling to find resources to fund investment in manufacturing and sustained investment in education and training. They are struggling to find sustained investment in research and development and in the transport infrastructure. That does not necessarily require vast sums when things are tight, but it needs a steady, planned and sustained programme in a stable environment.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

The hon. Lady has criticised the Government for not funding the health service and the education service properly, she has expressed her admiration for the Europeans for their consistent expenditure on transport and infrastructure and she has expressed her desire to increase the proportion of GNP borne by public expenditure. How will she pay for all that?

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

Is the hon. Gentleman saying that an Opposition can be taken seriously only if they put forward detailed, planned and costed programmes on public expenditure?

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I am delighted to hear that. I suggest that the hon. Gentleman re-reads the Conservative party election manifesto of 1979. The nearest thing that he will find in that manifesto to a detailed commitment on public spending are the words: Those who look … for … detailed commitments on every subject will look in vain." When discussing the progress of our economy and that of the German economy, the Foreign Secretary said in the spring of 1990 that the Germans succeed by doing the things and taking the steps that we failed to do. That was very accurate, but it is not what his colleagues have said in the House. The programme of needed investment takes years. Under this wasteful Government, we have not even started that programme.

The Government are still cutting Government support for industry and training. Even in the depths of a recession that is exacerbated by skills shortages, the Government are cutting support for training. The Government are still saying more of the same. They do not say that simply in the House when we criticise their record; they say it up and down the country —to the despair of their audiences — to industry, businesses, commerce, education and the health service. The Government tell everyone that they will just repeat the mistakes of the past. They will not listen to any arguments to the effect that that is not the way to build for the future.

In the real world, it is part of the Government's job to help create the balance, foster stability and give confidence for the investment that our country so desperately needs. We face harsh and difficult choices. We need a Government who will tell the country the truth about the nature of those choices. The Opposition are telling the country where our choice lies. We will lift the ceiling on national insurance contributions. We will introduce a new top rate of tax of 50p in the pound — well above the level at which the present top rate applies. We will do that to fund increases for pensioners and increases in child benefit which are both desperately needed.

Photo of Mrs Peggy Fenner Mrs Peggy Fenner , Medway

How far will that go?

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I will tell the hon. Member for Medway (Dame P. Fenner) precisely how far it will go:£5 for every pensioner; £8 for every couple and £9·55 in child benefit for every child. All of that is desperately needed after 12 years of this Government.

Beyond that, we will not choose to waste billions of pounds trying to sustain an unsustainable, unworkable poll tax. We will use the resources from growth which gradually become available to invest in our future, and all the resources that become available will be invested in our future.

A few moments ago I quoted the Chief Secretary to the Treasury referring to the Government's record. He said then loud and clear what he has been saying ever since. This Government will use some of those resources for further cuts in income tax. They talk about prioritising, but they prioritise tax cuts over public spending. In the Daily Express of 26 April the Prime Minister said it again. He said: Our primary objective is to reduce taxation at the lower end … we have an objective of moving to a 20p level of taxation. We are making it plain that, although we do not believe that there should be an increase in the standard rate of tax, that rate cannot be cut while our need for public investment is large and growing. We want people to know that that is what we are saying so that they can choose.

The Government are saying something very different. Just as they did in 1988, the Government are giving the country not only the wrong signals but desperately, devastatingly misleading signals. In their desperate attempts to win the next election at any cost, the Government are telling the country that the sacrifice is almost over, that the problems are almost over, and that recovery is around the corner— and if not that corner, the one after, or perhaps, the one after that

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I am sorry, but I do not have time.

The Government are trying to tell the country that it can have it all — that it can have investment in the future and income tax cuts as well and that there is no price to pay. That is an attractive message. We all like a bargain. It is another little miracle. The trouble is that those who are offering us that miracle have already sold us one. One in 12 home owners are two months or more behind with their mortgage payments — 790,000 mortgage payers are in arrears —almost 48,000 homes are repossessed, 900 companies a week are going bust, according to Dun and Bradstreet, and small businesses are bearing the brunt.

According to the Engineering Employers Federation, the recession is actually reducing the United Kingdom's manufacturing capacity. The Engineer tells us that, of the senior managers and engineers whom it surveyed, 90 per cent. believe that the recession is doing serious and lasting damage to our industrial base. Figures from KMPG Peat Marwick show that almost as many companies went into receivership in the first six months of this year as in the whole of last year. The construction analyst for Credit Lyonnais Laing said: Conditions now are the worst I have seen in 29 years. There was a price for that miracle. Without the windfall of North sea oil to cushion spending, there simply is not enough money to fund investment and to fund income tax cuts.

If they claim to be able to do both, the Government will have to cheat somewhere; they will have to squeeze somewhere; they will have to cut somewhere. The Institute of Directors, in its recent report on continuing tax reform and continuing cuts in income and capital taxes, was honest enough to tell us its view of the ineviatable, inexorable consequences. In its judgment, the Government should cut capital taxes more and should cut income taxes more. The institute said that even if the Government increase VAT— and, after all, it is the policy that the Government are advocating— they will have to cut out— phase out— the state pension scheme, phase out the health service, phase out our education service and phase out unemployment benefits, and replace them in every case by private insurance. [Interruption.] It is no good the hon. Member for Beaconsfield (Mr. Smith) complaining. It is an Institute of Directors report. If he has not read it, I suggest that he do so. The institute says that it would be necessary to have a fallback scheme for the destitute. That is its word, not mine.

The Institute of Directors believes that that is the course which the Government should follow, and the tax changes that it advocates are the course which the Government are following, but the institute has the guts and the courage of its convictions to spell out what it means. The truth is that one cannot have it all. One either eats the seed corn or plants it.

The Government are offering us another miracle. By denying the nature of the choice facing the country, they are trying to offer us a reconditioned miracle— one with too many miles on the clock. It is time to invest in a new model instead— time for a new Government.

Photo of Mr David Mellor Mr David Mellor , Putney 9:29, 24 July 1991

I have drawn a number of conclusions from today's debate, the most prominent of which is that we all need a holiday. Among the other points that occur to me immediately is to say to the hon. Member for Liverpool, Walton (Mr. Kilfoyle) how glad we all were to hear his maiden speech and to wish him well in his time in the House. He replaces a very large figure — the late Eric Heffer, who was a well-known Member. I am sure that all hon. Members will join in wishing the hon. Member for Walton well in his work here.

I want to concentrate on three points. The first is our record, the second is our prospects, and the third is Labour's alternative ——

Photo of Mr David Mellor Mr David Mellor , Putney

The hon. Gentleman advises me not to spend too much time on our record. Indeed, it speaks for itself, so a few well-chosen words will deal with it. However, I shall be obliged to deal with Labour's alternative at rather greater length as we have not heard very much about it from the Labour party.

The motion is a travesty of the G7 statistics and record because, according to The Economist, between 1965 and 1980 the United Kingdom had the second lowest growth rate, not only among the G7 countries, but of any developed economy in the world. We were down there with Senegal and Benin— even Bangladesh grew more quickly. Those may not be the commanding heights of success in Labour's last two periods in office from which the Labour party should now criticise the temporary problems that we have been facing recently. Opposition Members know that in the 1970s we were bottom of the G7——

Photo of Mr John Smith Mr John Smith , Monklands East

Those countries had a faster rate of growth.

Photo of Mr David Mellor Mr David Mellor , Putney

No, not a faster rate of growth than us— [Interruption.] Oh, no, we have been through this before. Non-oil GDP growth from 1974 to — [HON. MEMBERS: "Oil."] We are always told that oil—[Interruption.] The right hon. and learned Member for Monklands, East (Mr. Smith) says, "Ugh!" He should speak to my right hon. and hon. Friends in the Department of Education and Science where that may be more readily understood as a form of sign language.

We are told that oil was a windfall benefit that the Government should not count. We had 1.2 per cent. growth in non-oil GDP between 1974 and 1979 compared with 1·9 per cent. growth between 1979 and 1990 — [Interruption.] The right hon. and learned Gentleman should look this up. He should not mutter and mumble.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

As a matter of fact, I have looked it up because the right hon. and learned Gentleman used this statistic in our last debate on this matter. He will recall saying then that one must look at the precise period. He did not want to count the first two years of this Government because he said that it was all our fault. I have looked precisely at the figures for the period of office of the last Labour Government. The figures that the right hon. and learned Gentleman has quoted are the annual ones, whereas 1974 and 1979 were split years. If he looks at the figures precisely, he will see that from the first quarter of the Labour Government coming into power until their last quarter, and that from the first quarter of the Conservative Government coming to power to this quarter today, the figures are precisely the same.

Photo of Mr David Mellor Mr David Mellor , Putney

I find that extremely surprising. It sounds an unusually spurious statistic even by the standards of the Opposition, but it is on the record and we will have a look at it.

What is also on the record is that in the 1970s we were bottom of the G7 league for GDP growth. In the 1980s, we grew more quickly than Germany, France or Italy. That is not only the first decade since the first world war that we have grown more quickly than Germany and France; it is actually the first decade in which we have grown faster than Germany in peacetime ever.

We have been laying the ground for a continuing strong performance. In the 1970s, business investment in the United Kingdom was the second slowest growing in the G7. In the 1980s, it was the second fastest — behind only Japan. As the hon. Member for Derby, South (Mrs. Beckett) called those figures into question, may I advise her that the average annual growth in business investment in the period from 1974 to 1979 was 0·3 per cent., whereas in the period 1979 to 1990 it was 3·8 per cent.?

Photo of Mr David Mellor Mr David Mellor , Putney

I am asked, "Who wrote it?" It was someone who knew some statistics that were accurate and tell a story of two different periods of government —[HON. MEMBERS: "You."] I was being too modest to refer to myself in that context, but if it is forced upon me, I will happily take responsibility for it. In the 1970s, we were at the bottom of the league for manufacturing productivity growth; in the 1980s, we were at the top. So much for G7 comparisons relating to the lifetime of the present Government.

My right hon. Friend has already drawn attention to current prospects. Inflation has fallen by more than 5 per cent., to 5¾ per cent., and is set to fall still further in the coming months. Interest rates have fallen by four percentage points since we joined the exchange rate mechanism. Those achievements lay the foundations for the resumption of growth in the second half of this year.

This afternoon we heard criticisms of our inflation record, and the problems of unemployment were brought into that. How readily Opposition Members forget the painful lessons of office. Was it not the right hon. Member for Leeds, East (Mr. Healey) who said that inflation was the mother and father of unemployment? That is why the battle against inflation is one that we must win and cannot afford to lose.

Another encouraging sign is the growth in exports. In the second quarter of this year, export volumes rose by 3·5 per cent. to their highest ever level. We hear a good deal about manufacturing, and rightly so. Manufacturing exports rose by 4·5 per cent., while car exports rose by no less than 10 per cent. in that quarter alone, and have grown by a dramatic 45 per cent. in the last year.

The improvement in our trade balance and our current account is very clear. In the second quarter, the deficit was £0·9 billion; in the first quarter, it was £2·6 billion. Twelve months ago, it was £5·1 billion. Nothing could be clearer than that downward trend, which is based on a strong export performance.

Opposition Members suggest that there is nothing to look forward to. They have levelled the same wearisome charge throughout most of the past decade. It was good to hear the right hon. Member for Blaenau Gwent (Mr. Foot), but he reminded me of the last time that the country had recessionary problems. That was when he was Leader of the Opposition. Almost exactly 10 years go, on 27 July 1981, the right hon. Gentleman said—

Photo of Graham Allen Graham Allen Shadow Minister (Social Security)

He was not responsible for that.

Photo of Mr David Mellor Mr David Mellor , Putney

He is certainly responsible for the words that I am about to quote. The hon. Gentleman is frightfully uppity tonight. I do not know what has got into him: perhaps it is spring springing a bit late, or perhaps he is looking forward to playing with his bucket and spade.

The right hon. Member for Blaenau Gwent said: There will be no upturn without a U-turn, and a U-turn of gigantic proportions. Unless such a change of direction occurs we shall have the prospect of the 1980s differing from the 1930s in that there will be even larger numbers of people out of work, greater potential dangers of a resort to violence and a rate of inflation infinitely higher."—[Official Report, 27 July 1981; Vol. 9, c. 825.] The right hon. Gentleman's observations presaged eight years of growth at more than 3 per cent. per annum. If there is one thing worse than being eternally into doom and gloom, it is being eternally into doom and gloom and eternally wrong about it.

Let us look at the record of the past 10 years. Living standards are a key indicator. Real take-home pay for those on average earnings will be more than 36 per cent. higher this year than it was in 1978–79. That represents a staggering success; it means another £70 a week, in real terms, for the average family. Under Labour, for nearly six years there was an increase of barely 1 per cent. That is the difference.

The improvement in living standards reflects several allied successes. The first is higher economic growth, with which we have already dealt; the second is the attraction of more investment. At constant prices, business investment was £55 billion in 1990, whereas it was only £37 billion in 1979. That is a massive quantum leap, predicated on the Government's success—notably in 1984—in changing the whole basis of business taxation. As a result of that, we have attracted increased investment not only from within the United Kingdom, but from overseas; we attract infinitely more inward investment from Japan and the United States than any other EC country. Inward investment in 1990–91 was at record levels, with more than 350 new projects. The Japanese Ministry of Finance has just disclosed that Japanese investment in Britain was up 30 per cent. in the year to March 1991, despite an overall fall in Japanese investment throughout the world. That is a sign that, whatever the lack of confidence in the Government on the Opposition Benches, there is no lack of confidence in the Government among the overseas investment community that is building further prosperity in this country.

The irony, which my right hon. Friend the Chancellor of the Exchequer pointed out, is this: if, indeed, in the past 12 years we have been confronted with such a legacy of failure, why has the Labour party stood its rhetoric on its head and repudiated so much of what it said about the economy in 1983? Now it fitfully and unconvincingly preaches what we practise. If all our policies have failed, why does the Labour party do that? It does not add up. Indeed, most of what the Labour party says about the economy does not add up.

The right hon. and learned Member for Monklands, East trailed his coat a bit by quoting two City analysts on whom he wished to rely for selective criticisms of the Government's policy. I should like to return to both companies to see whether the right hon. and learned Gentleman is quite so attentive to some of their other comments. The right hon. and learned Gentleman sighs heavily, rolls his eyes and looks at the ceiling. Perhaps he knows what is coming.

Phillips and Drew's analysis of the minimum wage—is the right hon. and learned Gentleman familiar with that? It—envisages 1·2 million jobs lost by year four with a fall in growth and an increase in inflation. Is the right hon. and learned Gentleman as attached to that prediction as he is to the one which is critical of us? Then there is Nomura. It states that Labour will be forced to raise interest rates by 2 per cent. to stave off devaluation.

Photo of Mr David Mellor Mr David Mellor , Putney

The right hon. and learned Gentleman may shake his head and say that that will not happen, but he cannot say that that is not what Nomura says because it is what it says.

Nomura also predicts a fall in GDP, an increase in unemployment, and a substantial increase in inflation. Highly relevant to our debate is its comment: Labour will have to either abandon fiscal prudence or adopt much more radical approaches to raising revenue. Perhaps the right hon. and learned Gentleman, whose attachment to Nomura is so well established, will tell us what radical approaches to raising revenue he has in mind. We certainly did not hear a lot about that this afternoon, but perhaps the time will come.

What we heard a lot of, however, was whingeing—the whingers of Walworth road were at it with a vengeance. There was not a word of recognition of the good indicators. Indeed, Labour has a simple philosophy: any good news is derided, any bad news is welcomed. I suspect that, when inflation is down to 4 per cent., Labour will complain that it is unfair to people on index-linked pensions.

One wonders why the Labour party does it. What is good for Britain is bad for Labour. That is the basic message, which is another way of saying that what is right for Labour is wrong for Britain. Accentuate the negative, eliminate the positive, so the song might go. I cannot help feeling that people find that unattractive and unconvincing.

Photo of Mr David Mellor Mr David Mellor , Putney

If the best that the hon. Gentleman can do is to say that this is poor stuff, as he undoubtedly said to all his pupils in years gone by, he must find a better answer.

It may be regrettable when that attitude is adopted merely by Labour spokesmen in criticism, but it becomes reprehensible when, in their enthusiasm to talk Britain down, they distort what others have to say.

I wonder who has been looking at the correspondence columns of the Financial Times of today. A letter from Mr. John Banham, director general of the CBI, says: Roy Hattersley incorrectly attributes to me…the statement that Britain is not suffering from a recession but from 'a slump'. I said no such thing.…The key to getting things turned around is a restoration of business and consumer confidence…Confidence is fragile enough without Roy Hattersley putting words into my mouth.

Photo of Mr David Mellor Mr David Mellor , Putney

If the hon. Member for Cardiff, West (Mr. Morgan) agrees not to shout at me from a sedentary position for the rest of my speech, I shall give way. Do I have a deal?—[Interruption.]While the hon. Gentleman is thinking about it, I shall go on. Will the hon. Gentleman continue to shout at me, or will he have his say and shut up? I do not think that I have the undertaking that I sought.

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

Order. May I adjudicate on the deals?

Photo of Mr Rhodri Morgan Mr Rhodri Morgan , Cardiff West

Will the Minister confirm that, in the paragraph that he left out, which came immediately after the bit that he put in, Mr. Banham went on to illustrate that when Mr. Redhead suggested to him that Britain was in a slump and not a recession, he did not dissent from that proposition?

Photo of Mr David Mellor Mr David Mellor , Putney

The hon. Gentleman can read the letter. I shall hand it over to him. Mr. Banham said no such thing and the only referece to a slump was in Brian Redhead's question. The whole point of the letter, which the hon. Gentleman seems to have missed because he was too busy muttering imprecations, is that Mr. Banham was saying categorically on the record in the Financial Times that he did not like people saying that he had said that Britain was in a slump when he had not. He said that that was talking Britain down and destroying fragile confidence, and that the Labour party should not do it.

If the advice of Mr. Banham is of interest to the Labour party, I should like to quote some more of his advice. Just last month, Mr. Banham announced that he would be extending his period of office until after the next election. He said that it would be useful for the CBI to be able to defer its final choice until the outcome of the election was known. If hon. Members want to know why he said that, he is quoted in The Times as saying: I think if there is a Conservative government what you need is a problem solver because under the Conservatives[Interruption.]—wait for it; be careful— 'there is a ready market for contributing ideas, and no market for generalised whingeing on request. Under a Labour government I think you want someone who can explain, to politicians in particular, why the theories simply are not going to work in practice in the world of business.' Under past Labour governments the director general's main task was one of damage limitation, he said: `That requires a very different kind of person.' It is interesting that, when Labour talks down what is happening in this country, it is not confidence that is talking but fear. Labour Members are afraid that the election victory that they have been dreaming of will be snatched away by a recovery. They are afraid that our policies are working and that their alternatives merely repeat the mistakes of the past and are better not dwelt on in detail.

Let us consider the nonsense of yesterday's press conference on the citizens charter. The Leader of the Opposition says that the citizens charter does not matter tuppence, but he turned up with seven members of the shadow Cabinet to prove it. If it is such rubbish, why does he need to turn up with more heavies than Madonna? Surely he is up to doing the job himself. What was the point of the less-than-magnificent seven, or the seven dwarfs, according to one's point of view? The Times may have been right when it said: with the heavyweight line up suggesting anxiety among the leadership that the Prime Minister may have discovered a vote winner. Why is Labour so afraid of getting value for money from the public services? I suspect that it is because the public sector unions do not like it.

The right hon. and learned Member for Monklands, East treated us to a peroration of stunning and bare-faced imprecision. I have great regard for the right hon. and learned Gentleman, and I know that he is quite capable of being extremely precise. One must assume that his total refusal to descend to the particulars of Labour policy was by design and not by accident. At some point, we will all need to be given the details and I suspect that Labour will not get through an election campaign without the details being revealed.

Let us examine the detail of the minimum wage policy. The right hon. and learned Member for Monklands, East launched into a virulent defence of that policy, but methinks he doth protest too much at several material parts of that policy. He spoke about critical letters that were received by the Chancellor and about some of the replies, and he satirised the Chancellor's polite introduction when my right hon. Friend said that he valued the advice of business men.

How much does the right hon. and learned Gentleman value the advice of some of his brothers and comrades about the minimum wage? How much does he value the advice of Mr. Gavin Laird of the Amalgamated Engineering Union who said: It's never worked in the past, there's no logic for it. It doesn't work in any other country and it certainly will not work in Great Britain. How much does the right hon. and learned Gentleman value the advice of Mr. Joe Haines, hardly a Conservative, who said: The minimum wage proposals won't work, and if they do they won't help. How much does he value the advice of his hon. Friend the Member for Birkenhead (Mr. Field), who a year or two ago wrote: The employment consequences…will be little short of disastrous. Does he respect the views of the Sunday People, which is hardly a Conservative newspaper? It stated: Labour's plan for a national minimum wage is not the answer. It would only cause more unemployment and deny jobs to those who need them.

Photo of Mr Frank Haynes Mr Frank Haynes , Ashfield

The right hon. and learned Gentleman promised that he would give way and I am grateful to him for doing so. There are certainly some bright sparks in the Treasury. First, it was said that a minimum wage would result in 1·2 million people becoming unemployed. The Secretary of State and the Prime Minister spoke about 2 million. They cannot even get the figures right. What will be the true figure? People out there are waiting for a minimum wage and after the next election they will get it.

Photo of Mr David Mellor Mr David Mellor , Putney

The hon. Gentleman will be greatly missed in the next Parliament. The figure of 1·2 million was the estimate of our friends at Phillips and Drew, not ours.

The right hon. Member for Leeds, East once said, "When you are in a hole, you should stop digging." The right hon. and learned Member for Monklands, East was digging like mad on the minimum wage and was digging away last week in an interview with the Morning Star when he said: We will listen to employers— the next bit is worth noting— but I can assure you we have no intention of phasing in reform over stages. Does that mean straight to 66 per cent. at a stroke? Is the right hon. and learned Gentleman embarrassed by the fact that the only newspaper giving editorial support to the minimum wage policy is the Morning Star? I thought that Labour had lived through that phase.

The right hon. and learned Gentleman may be digging away, but the Leader of the Opposition is having second thoughts. The Daily Maillast week, apropos his speech to the Transport and General Workers Union a week or so ago, said: His staff had gone out of their way to insist that Mr. Kinnock would take the issue head-on at Blackpool by claiming he would be 'proud' to fight the General Election on the issue …Until Tuesday night, Mr. Kinnock seemed to have been convinced that it was a winner for Labour. But whatever was in his first draft it appears to have been deliberately dropped. What a muddle; what a mess. It is a muddle and a mess because the only consequence of the minimum wage is a loss of jobs. The Labour party should have more noble ambitions than pulling people down by their boot straps.

On interest rates, all we had today was the usual repetition of "Monklands law"—1 per cent. reduction and nothing else. Credit controls did not make their usual appearance, but during a party political broadcast the right hon. and learned Member for Monklands, East recently reiterated his conviction that they are right. He has yet to tell us how he would prevent people going overseas to borrow money and why it is fair that credit controls should bear down on the poorer section of the community who cannot buzz off to France, Germany or Switzerland to borrow the money.

The right hon. and learned Gentleman has also failed to tell us how he would justify credit controls in the personal sector when 85 per cent. of personal borrowing is on mortgages. That is an issue which once again will not go away. I can do no better than repeat what the right hon. Member for Llanelli (Mr. Davies) said about credit controls: The Labour party idea that you can have credit controls is rubbish. There is no way you can control credit except by controlling the price of credit and the price of credit is the bank rate. Apart from saying that the Government's costings are silly, the Labour party has produced no answer to our carefully costed publication on Labour's programme showing that £35 billion would be the full year cost.

Photo of Mr David Mellor Mr David Mellor , Putney

Saying, "Rubbish," s not an argument and an argument will have to be provided. One can assume that the only reason that the Labour party has failed to answer the charge is that it is thinking up new ones to levy. There has been no satisfactory answer. It is not only Conservative Members who are getting on to that point. What about Professor Rowthorn, not a well-known Conservative, who when asked—[HON. MEMBERS: "Never heard of him."] Well, hon. Members are about to. When asked on "Panorama" whether he thought Labour's spending plans added up, he said: Frankly, I think they don't add up. If you take their whole list of spending plans and you say where's the money for this list going to come from, I think the answer is I have no idea. It is Dolly Parton economics—an incredible figure that would collapse without hidden support. It is about time that the hidden support ceased to be hidden. If only £4 billion has been costed, with the pain that has already had to be expressed about the tax consequences of raising that, where will the £30 billion come from? Every adjective in the book has been used—top, first, central, key—to establish these priorities. Those are plainly words of commitment, and everything cannot be a priority; that all have won and all must have prizes, showing that Lewis Carroll is alive and well and writing speeches for the Leader of the Opposition.

There is brazenness in the fact that, since we published our analysis, fresh policy documents about which further details will be supplied on another occasion have been issued, making clear further commitments. The hon. Member for Livingston (Mr. Cook) went to Oldham where he may have assumed the record would not reach, but the Oldham Evening Chronicle has been passed to me showing that, with a recklessness that came from being away from London, he said: A Labour Government would pour money into the NHS. That would be interesting.

Even in the presence of the hon. Lady who formulated "Beckett's law" herself, the hon. Member for Kingston upon Hull, East (Mr. Prescott) pledged more spending. The Derby Evening Telegraph, in an article headed Shadow Minister's pledge on railways", said: Shadow Transport Secretary John Prescott has pledged to electrify the Midlands main line if a Labour Government wins the next general election. Did the hon. Lady leap to the rostrum and say, "The man's mad. He should be certified. I am not going to do it. Beckett's law says that we have only two priorities." Of course she did not. She sat there and smiled, knowing that it was not right.

The Labour party's economic policy reminds me of the last will and testament of Rabelais, who said: I owe much. I have nothing. The rest I leave to the poor.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the original words stand part of the Question:—

The House divided: Ayes 199, Noes 311.

Division No. 225][10 pm
Abbott, Ms DianeCummings, John
Adams, Mrs Irene (Paisley, N.)Cunliffe, Lawrence
Allen, GrahamCunningham, Dr John
Anderson, DonaldDarling, Alistair
Archer, Rt Hon PeterDavies, Rt Hon Denzil (Llanelli)
Armstrong, HilaryDavies, Ron (Caerphilly)
Ashdown, Rt Hon PaddyDavis, Terry (B'ham Hodge H'l)
Ashley, Rt Hon JackDewar, Donald
Banks, Tony (Newham NW)Dixon, Don
Barnes, Harry (Derbyshire NE)Dobson, Frank
Barnes, Mrs Rosie (Greenwich)Duffy, Sir A. E. P.
Barron, KevinDunnachie, Jimmy
Battle, JohnEadie, Alexander
Beckett, MargaretEdwards, Huw
Beith, A. J.Evans, John (St Helens N)
Bell, StuartEwing, Harry (Falkirk E)
Bellotti, DavidEwing, Mrs Margaret (Moray)
Bennett, A. F. (D'nt'n & R'dish)Fatchett, Derek
Benton, JosephFearn, Ronald
Bermingham, GeraldField, Frank (Birkenhead)
Bidwell, SydneyFisher, Mark
Blair, TonyFlannery, Martin
Boateng, PaulFlynn, Paul
Boyes, RolandFoot, Rt Hon Michael
Bradley, KeithFoster, Derek
Brown, Gordon (D'mline E)Foulkes, George
Brown, Nicholas (Newcastle E)Fraser, John
Brown, Ron (Edinburgh Leith)Galloway, George
Bruce, Malcolm (Gordon)Garrett, Ted (Wallsend)
Caborn, RichardGeorge, Bruce
Callaghan, JimGilbert, Rt Hon Dr John
Campbell, Menzies (Fife NE)Godman, Dr Norman A.
Campbell, Ron (Blyth Valley)Golding, Mrs Llin
Campbell-Savours, D. N.Gordon, Mildred
Canavan, DennisGould, Bryan
Carr, MichaelGrant, Bernie (Tottenham)
Cartwright, JohnGriffiths, Nigel (Edinburgh S)
Clark, Dr David (S Shields)Griffiths, Win (Bridgend)
Clarke, Tom (Monklands W)Grocott, Bruce
Clwyd, Mrs AnnHain, Peter
Cook, Frank (Stockton N)Hardy, Peter
Cook, Robin (Livingston)Harman, Ms Harriet
Corbett, RobinHaynes, Frank
Corbyn, JeremyHeal, Mrs Sylvia
Cousins, JimHealey, Rt Hon Denis
Cox, TomHinchliffe, David
Crowther, StanHoey, Ms Kate (Vauxhall)
Cryer, BobHogg, N. (C'nauld & Kilsyth)
Home Robertson, JohnOrme, Rt Hon Stanley
Hood, JimmyOwen, Rt Hon Dr David
Howarth, George (Knowsley N)Parry, Robert
Howell, Rt Hon D. (S'heath)Patchett, Terry
Howells, Dr. Kim (Pontypridd)Pendry, Tom
Hoyle, DougPike, Peter L.
Hughes, John (Coventry NE)Powell, Ray (Ogmore)
Hughes, Robert (Aberdeen N)Prescott, John
Hughes, Roy (Newport E)Quin, Ms Joyce
Hughes, Simon (Southwark)Radice, Giles
Illsley, EricRandall, Stuart
Jones, Barry (Alyn & Deeside)Redmond, Martin
Jones, Martyn (Clwyd S W)Rees, Rt Hon Merlyn
Kennedy, CharlesRichardson, Jo
Kilfoyle, PeterRobertson, George
Lamond, JamesRobinson, Geoffrey
Leadbitter, TedRogers, Allan
Leighton, RonRooker, Jeff
Lestor, Joan (Eccles)Ross, Ernie (Dundee W)
Lewis, TerrySedgemore, Brian
Litherland, RobertSheldon, Rt Hon Robert
Livingstone, KenShore, Rt Hon Peter
Lloyd, Tony (Stretford)Sillars, Jim
Lofthouse, GeoffreySkinner, Dennis
Loyden, EddieSmith, Andrew (Oxford E)
McAllion, JohnSmith, Rt Hon J. (Monk'ds E)
Macdonald, Calum A.Soley, Clive
McFall, JohnSpearing, Nigel
McKay, Allen (Barnsley West)Steinberg, Gerry
McKelvey, WilliamStott, Roger
McLeish, HenryStrang, Gavin
Maclennan, RobertStraw, Jack
McMaster, GordonTaylor, Matthew (Truro)
McNamara, KevinTurner, Dennis
McWilliam, JohnVaz, Keith
Madden, MaxWalley, Joan
Marek, Dr JohnWardell, Gareth (Gower)
Marshall, David (Shettleston)Wareing, Robert N.
Martin, Michael J. (Springburn)Watson, Mike (Glasgow, C)
Martlew, EricWelsh, Andrew (Angus E)
Meacher, MichaelWelsh, Michael (Doncaster N)
Meale, AlanWilliams, Rt Hon Alan
Michael, AlunWilliams, Alan W. (Carm'then)
Michie, Bill (Sheffield Heeley)Wilson, Brian
Morgan, RhodriWinnick, David
Morley, ElliotWise, Mrs Audrey
Morris, Rt Hon A. (W'shawe)Worthington, Tony
Morris, Rt Hon J. (Aberavon)Wray, Jimmy
Mowlam, MarjorieYoung, David (Bolton SE)
Mullin, Chris
Murphy, PaulTellers for the Ayes:
Nellist, DaveMr. Ken Eastham and Mr. Thomas McAvoy.
Oakes, Rt Hon Gordon
O'Brien, William
Adley, RobertBlackburn, Dr John G.
Alexander, RichardBlaker, Rt Hon Sir Peter
Alison, Rt Hon MichaelBody, Sir Richard
Amery, Rt Hon JulianBonsor, Sir Nicholas
Amess, DavidBoscawen, Hon Robert
Amos, AlanBoswell, Tim
Arbuthnot, JamesBottomley, Mrs Virginia
Arnold, Jacques (Gravesham)Bowden, A. (Brighton K'pto'n)
Arnold, Sir ThomasBowden, Gerald (Dulwich)
Ashby, DavidBowis, John
Aspinwall, JackBoyson, Rt Hon Dr Sir Rhodes
Atkins, RobertBraine, Rt Hon Sir Bernard
Atkinson, DavidBrandon-Bravo, Martin
Baker, Rt Hon K. (Mole Valley)Brazier, Julian
Baker, Nicholas (Dorset N)Bright, Graham
Baldry, TonyBrown, Michael (Brigg & Cl't's)
Banks, Robert (Harrogate)Browne, John (Winchester)
Beaumont-Dark, AnthonyBurns, Simon
Bellingham, HenryBurt, Alistair
Bendall, VivianButcher, John
Bennett, Nicholas (Pembroke)Butler, Chris
Benyon, W.Butterfill, John
Bevan, David GilroyCarlisle, John, (Luton N)
Biffen, Rt Hon JohnCarlisle, Kenneth (Lincoln)
Carrington, MatthewHeathcoat-Amory, David
Carttiss, MichaelHicks, Mrs Maureen (Wolv' NE)
Cash, WilliamHiggins, Rt Hon Terence L.
Chalker, Rt Hon Mrs LyndaHill, James
Channon, Rt Hon PaulHind, Kenneth
Chapman, SydneyHolt, Richard
Chope, ChristopherHordern, Sir Peter
Churchill, MrHoward, Rt Hon Michael
Clark, Rt Hon Alan (Plymouth)Howarth, G. (Cannock & B'wd)
Clark, Dr Michael (Rochford)Howe, Rt Hon Sir Geoffrey
Clark, Rt Hon Sir WilliamHowell, Rt Hon David (G'dford)
Clarke, Rt Hon K. (Rushcliffe)Howell, Ralph (North Norfolk)
Colvin, MichaelHughes, Robert G. (Harrow W)
Conway, DerekHunt, Rt Hon David
Coombs, Anthony (Wyre F'rest)Hunt, Sir John (Ravensbourne)
Coombs, Simon (Swindon)Hurd, Rt Hon Douglas
Cormack, PatrickIrvine, Michael
Cran, JamesIrving, Sir Charles
Currie, Mrs EdwinaJack, Michael
Curry, DavidJackson, Robert
Davies, Q. (Stamf'd & Spald'g)Janman, Tim
Davis, David (Boothferry)Jessel, Toby
Day, StephenJohnson Smith, Sir Geoffrey
Dickens, GeoffreyJones, Gwilym (Cardiff N)
Dicks, TerryJones, Robert B (Herts W)
Dorrell, StephenJopling, Rt Hon Michael
Douglas-Hamilton, Lord JamesKey, Robert
Dover, DenKilfedder, James
Dykes, HughKing, Roger (B'ham N'thfield)
Eggar, TimKing, Rt Hon Tom (Bridgwater)
Emery, Sir PeterKirkhope, Timothy
Evans, David (Welwyn Hatf'd)Knapman, Roger
Evennett, DavidKnight, Greg (Derby North)
Fairbairn, Sir NicholasKnight, Dame Jill (Edgbaston)
Fallon, MichaelKnowles, Michael
Farr, Sir JohnKnox, David
Favell, TonyLamont, Rt Hon Norman
Fenner, Dame PeggyLatham, Michael
Field, Barry (Isle of Wight)Lawrence, Ivan
Finsberg, Sir GeoffreyLee, John (Pendle)
Fishburn, John DudleyLeigh, Edward (Gainsbor'gh)
Fookes, Dame JanetLennox-Boyd, Hon Mark
Forman, NigelLester, Jim (Broxtowe)
Forsyth, Michael (Stirling)Lilley, Rt Hon Peter
Forth, EricLloyd, Sir Ian (Havant)
Fowler, Rt Hon Sir NormanLloyd, Peter (Fareham)
Fox, Sir MarcusLord, Michael
Franks, CecilLuce, Rt Hon Sir Richard
Freeman, RogerLyell, Rt Hon Sir Nicholas
French, DouglasMcCrindle, Sir Robert
Gale, RogerMacGregor, Rt Hon John
Gardiner, Sir GeorgeMacKay, Andrew (E Berkshire)
Garel-Jones, TristanMaclean, David
Gill, ChristopherMcLoughlin, Patrick
Gilmour, Rt Hon Sir IanMcNair-Wilson, Sir Michael
Glyn, Dr Sir AlanMcNair-Wilson, Sir Patrick
Goodhart, Sir PhilipMadel, David
Goodlad, AlastairMajor, Rt Hon John
Goodson-Wickes, Dr CharlesMans, Keith
Gorman, Mrs TeresaMaples, John
Gorst, JohnMarland, Paul
Grant, Sir Anthony (CambsSW)Marlow, Tony
Greenway, Harry (Ealing N)Marshall, John (Hendon S)
Greenway, John (Ryedale)Marshall, Sir Michael (Arundel)
Gregory, ConalMartin, David (Portsmouth S)
Griffiths, Peter (Portsmouth N)Mates, Michael
Grist, IanMaude, Hon Francis
Ground, PatrickMawhinney, Dr Brian
Grylls, MichaelMaxwell-Hyslop, Robin
Hague, WilliamMellor, Rt Hon David
Hamilton, Neil (Tatton)Meyer, Sir Anthony
Hampson, Dr KeithMiller, Sir Hal
Hannam, JohnMiscampbell, Norman
Hargreaves, A. (B'ham H'll Gr')Mitchell, Andrew (Gedling)
Hargreaves, Ken (Hyndburn)Moate, Roger
Harris, DavidMonro, Sir Hector
Haselhurst, AlanMontgomery, Sir Fergus
Hayes, JerryMoore, Rt Hon John
Hayhoe, Rt Hon Sir BarneyMorris, M (N'hampton S)
Hayward, RobertMorrison, Sir Charles
Moss, MalcolmShaw, David (Dover)
Moynihan, Hon ColinShaw, Sir Giles (Pudsey)
Mudd, DavidShaw, Sir Michael (Scarb')
Neale, Sir GerrardShelton, Sir William
Needham, RichardShephard, Mrs G. (Norfolk SW)
Nelson, AnthonyShepherd, Colin (Hereford)
Neubert, Sir MichaelShepherd, Richard (Aldridge)
Newton, Rt Hon TonyShersby, Michael
Nicholls, PatrickSims, Roger
Nicholson, David (Taunton)Skeet, Sir Trevor
Nicholson, Emma (Devon West)Smith, Tim (Beaconsfield)
Norris, SteveSoames, Hon Nicholas
Onslow, Rt Hon CranleySpeller, Tony
Oppenheim, PhillipSpicer, Sir Jim (Dorset W)
Page, RichardSpicer, Michael (S Worcs)
Paice, JamesSquire, Robin
Patnick, IrvineStanbrook, Ivor
Patten, Rt Hon Chris (Bath)Stanley, Rt Hon Sir John
Patten, Rt Hon JohnSteen, Anthony
Pattie, Rt Hon Sir GeoffreyStevens, Lewis
Pawsey, JamesStewart, Allan (Eastwood)
Peacock, Mrs ElizabethStewart, Andy (Sherwood)
Porter, Barry (Wirral S)Stewart, Rt Hon Sir Ian
Porter, David (Waveney)Sumberg, David
Portillo, MichaelSummerson, Hugo
Powell, William (Corby)Tapsell, Sir Peter
Price, Sir DavidTaylor, Ian (Esher)
Raison, Rt Hon Sir TimothyTaylor, Sir Teddy
Rathbone, TimTebbit, Rt Hon Norman
Redwood, JohnTemple-Morris, Peter
Rhodes James, Sir RobertThompson, D. (Calder Valley)
Ridsdale, Sir JulianThompson, Patrick (Norwich N)
Rifkind, Rt Hon MalcolmThorne, Neil
Roberts, Rt Hon Sir WynThurnham, Peter
Roe, Mrs MarionTownend, John (Bridlington)
Rossi, Sir HughTownsend, Cyril D. (B'heath)
Rost, PeterTracey, Richard
Rowe, AndrewTredinnick, David
Rumbold, Rt Hon Mrs AngelaTrippier, David
Ryder, Rt Hon RichardTwinn, Dr Ian
Sackville, Hon TomViggers, Peter
Sainsbury, Hon TimWakeham, Rt Hon John
Sayeed, JonathanWardle, Charles (Bexhill)
Scott, Rt Hon NicholasWarren, Kenneth
Watts, JohnWolfson, Mark
Wells, BowenWood, Timothy
Wheeler, Sir JohnWoodcock, Dr. Mike
Whitney, RayYeo, Tim
Widdecombe, AnnYoung, Sir George (Acton)
Wiggin, Jerry
Wilkinson, JohnTellers for the Noes:
Wilshire, DavidMr. David Lightbown and Mr. John M. Taylor.
Winterton, Mrs Ann
Winterton, Nicholas

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 30 (Questions on amendments), and agreed to.

Mr. Speaker forthwith declared the main Question, as amended, to be agreed to.

Resolved,That this House congratulates Her Majesty's Government on its pursuit of sound economic policies; notes that those policies have led to a large fall in inflation; notes also that as inflationary pressures have eased, interest rates have been cut substantially, while the £ sterling has maintained its position in the ERM; and calls on the Government to continue with its prudent policies, which will lead to a resumption of sustained growth.

Photo of Derek Conway Derek Conway , Shrewsbury and Atcham

On a point of order, Mr. Speaker. I wonder if you can help me. This is a difficult time of year and many colleagues are thinking of the days ahead. We are usually well served by people in the House, but I wonder if you can ensure that we had the full time for that Division, because the numbers voting against the Government were so derisory. Could it have been that the doors were locked too early so that Labour Members could not vote, or could it be that they did not turn up to support their own motion?

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

That is not a point of order for me. I have received no report on that matter.