In the 10 minutes available to me I shall touch on a subject which is virtually taboo, especially in the run-up to an election. What I have to say is inevitably anathema to both Front Benches, although I understand why that should be so. However, it is an issue about which hon. Members from all parties are concerned. I am talking about the rate of exchange in relation to recovery.
Before we enter into any silliness such as sloganising and catcalls of "Labour devaluers", let me point out that the Heath Administration effectively devalued by 20 per cent. and the Conservative party lived happily for 20 years with a floating exchange rate. They never thought that it was a sacred cow which could not be discussed.
Let us at least try to be realistic, because we all want to get out of this mess. I recognise the fact that neither Front Bench can say the things that need to be said, but, in the light of my experience in four economic Departments and as one who is an economist by academic background, I am absolutely convinced that the goal that we seek is not attainable with the present rate of exchange.
The Prime Minister said that we were set for steady and sustainable growth. I want to explain why that is not possible and I shall bore the House with three figures which demonstrate the magnitude of the problem. From the North sea we have had a £130 billion balance of payments benefit in a decade, but, in that same period, with that bonus to the balance of payments, we ran a deficit of £25 billion. Therefore, our basic non-oil deficit is £155 billion. That is where Conservative Members start and also where we start on the other side of an election. So I hope that we can try to consider the matter in a mature and sensible way—I do not mean that patronisingly.
The Prime Minister and the Chancellor have said that the Government's chosen option is a consumer-led recovery. But a consumer-led recovery is an illusion. We have heard of fool's gold; a consumer-led recovery is fool's IOUs.
For long-established reasons, people in Britain have a tendency to spend 36 per cent. of the extra money in their pockets on imports. If we get the consumer-led growth for which the Chancellor aims, and £9 billion is put into circulation as a result of the change in mortgage interest rates, it will draw in an extra £3 billion worth of imports.
If Conservative Members think that I am being alarmist, I ask them to read the autumn statement—the Chancellor made provision for the balance of payments deficit to increase by £3·6 billion in this financial year, because he recognised the inevitability of the process that I have described.
I have three precedents to show that this is a not a short-term or new situation. I do not pretend that it is caused by one party or another. It so happens that my precedents are taken from Conservative Governments, but I do not make the point in a party-political sense. I wanted to take one precedent from each decade.
In 1958, Harold Macmillan went for growth. In October of that year, for the first time since the war, the Government got rid of all credit controls. Twelve months later, there was the never-had-it-so-good election. Car sales had gone up by 30 per cent. and sales of domestic consumables by 20 per cent. Six months after the election, all the credit controls had to he restored, and by 1964 we were running a deficit which in terms of today's currency was £5 billion.
In the 1970s, the Heath Administration's having inherited what in today's terms would be a £5 billion surplus, Lord Barber—then a Member of the House and Chancellor of the Exchequer—made a dash for growth. Again, he removed all credit controls. Within a short time, inflation had risen to 15 per cent.—that was before the oil crisis hit us— and the balance of payments was in deficit again.
The Labour Government inherited that 15 per cent. inflation—and a fourfold increase in oil prices was still to come. Again, the dash for growth via consumer spending did not work; it ran into the ground. Conservative Members are very unkind to their colleagues sometimes —as no doubt we are, too—and the Chancellor of the Exchequer who was lionised for winning the 1987 election for them has now been attacked because his credit policies are in danger of costing them the 1992 election.
Those are three clear precedents that demonstrate what I am trying to explain to the House. Hon. Members can check them all for themselves. The lesson is that the higher the consumer-led growth, the higher the consequent trade deficit—and therefore the greater the pressure on the pound, the higher interest rates have to go, and the deeper the subsequent deflation —or even recession—becomes.
We all share the aspiration to get inflation down until it equals that of our competitors, but let us not believe that that is the way out. Reducing the changes in our prices to the level of the changes in our competitors' prices merely stops the gap widening. At least from that time we should be competing on equal terms, but the existing gap in our basic competitiveness would remain. We should have to get our inflation below the level of our competitors' inflation and, in the case of Germany, we all realise that that is an improbable target.
The only way out is export-led growth—in that I include import substitution. That can be achieved only if, at a stroke—to use a political phrase—we make our industry more competitive in the short term by removing our current competitive disadvantages. That means realignment of the currency.
Even that would work only if it were matched by a massive programme of increased manufacturing investment. It is no good devaluing without investing. We must have investment in order to take advantage of the situation. We have slack in our capacity now, so we should have an initial boost, but in order to reap the medium and long-term benefits of a devaluation, manufacturing investment must be there, to carry forward the export benefits established.
I should like to kick aside a silly argumentative delusion that is being allowed to gain currency—I am mixing every metaphor in the book. That delusion is the idea that inward investment is dependent on the existence of a single currency, or on absolutely stable exchange rates. History and the experience of everyone in the House show the opposite.
In the 1970s. when the Labour party was in government, we got inward investment to the highest level that had ever been achieved—that was with a floating pound. In the 1980s the Conservative Government, too, got inward investment to the highest level that had ever been achieved until then. That, too, was achieved with a floating pound. So the idea that I mentioned is an irrelevance which we can ignore.
The tragedy is that after 12 oil-rich years we are in recession. There has been no miracle —the Government have walked not on water but on oil, and now they are trying to walk on hot air. All that we have is a promise from the Prime Minister that British industry is the most competitive that it has ever been. I take that with a pinch of salt. The Prime Minister did not see the recession coming, and he did not see it when it arrived, yet he has seen the end of it before anyone else is aware of any light at the end of the tunnel. Sadly, the Government are living a long and a big lie. They hope that they can hold the election before the public discover the truth.