Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 3:25 pm on 20th April 2004.

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Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North 3:25 pm, 20th April 2004

I refer the House to my entry in the Register of Members' Interests.

The Opposition parties may not want to face up to it—although Mr. Flight acknowledged it in his third or fourth-last sentence—but the background to this Finance Bill is the fact that Britain has one of the most stable economies in the world. Since 1997, 1.8 million jobs have been created, of which 1.3 million were in the private sector. As we all know from reading our local newspapers, in many parts of the country there are adverts for many more jobs than can be filled. Since 1997, 100,000 extra businesses have been created, and unemployment is now at 2.9 per cent., which is the lowest since 1973.

That has been possible because we have been able to attain growth rates that were not attainable in recent economic times. Since 2000, our growth rate has been 2.5 per cent., compared with 1.6 per cent. in the eurozone and, significantly, our growth rate has been higher than that of the United States. Why have we been able to maintain that growth rate? In a moment, I shall refer to the past, but it should be clear that if, every time there is an expansion in the economy, it is followed by a quick deflationary effect, there will be instability in the economy which will lead to a lack of confidence and, inevitably, rising prices, higher interest rates and all the other things that help to destabilise an economy. Those have all been avoided in the past five or six years, during which we have had historically stable prices and, consequentially, historically low interest rates.

I am the first to concede that there is a problem in the manufacturing sector, which has not been able to respond to changes in the global economy as quickly as other sectors, although I think it is now beginning to learn how to respond. We cannot expect always to do things as they were done in the past and to be successful. I am not one of those politicians who say that the Government can come along with a magic wand and resolve the manufacturing sector's problems. What the Government must do is establish the right macro-economic climate, and the right intervention climate on the micro side—which should be no greater than is absolutely necessary. We are already seeing an improvement in manufacturing, partly because the world economy has experienced more of an upturn than in recent years but also because some of the initiatives taken by the Government over the past five or six years have begun to take effect in businesses throughout the country.

I do not blame the Conservatives, for we have all been in opposition in our time, but their treatises on the state of the economy suggest that their memories are short when it comes to economic comparisons. That is not a party political point. There are many similarities in the economic performances of Labour and Conservative Governments over the past 30 years or so. I would argue, from a standpoint of partiality, that Labour has a better record—that some of the things we have done have been better—but I concede that many general economic trends have not differed significantly.

When the Conservatives attack what Labour has done over the last seven years, they fail to take account of a new Government attitude to the economy. They fail to recognise that there really has been change and that the stability that we have struggled to hold on to for any length of time in the past has now been attained. A Conservative party, or any other Opposition party, that does not acknowledge that will not just fail to carry business and the people with it, but discredit its ability to assess economic performance and come up with policies of its own. In a sense, it will let people down.

When I was a student, Government's role in the economy was to boost it one year and depress it the next, in the hope that over three or four years—given various such cycles—it would be stabilised. That did not happen often and when it did happen, it usually happened by accident. Expectations were not in line with actual movements in the economy. Even when the economy was moving in the right direction, people—be they workers or entrepreneurs—expected things to get worse, and their decisions on wage bargaining or investment policy were based on those expectations rather than on reality.

I do not think that has changed. I think that is how human beings react. Long-term stability, however, makes it more likely that expectations will be in line with economic realities, which means that people will make better judgments on whether to invest, whether to settle for a certain amount in their wages or whether to save a certain amount. That did not happen in the 1960s or 1970s. Things were more difficult in the 1970s because of the oil crisis in 1973, when we were all trying to cope with a 25 per cent. inflation rate. Under both Conservative and Labour Governments, how could an investor decide where he wanted to be in two years' time when inflation was likely to be 40 per cent. over two years? If the forecast was wrong by 10 per cent., that would mean 4 per cent.—and a company that can register a 4 per cent. profit in its annual returns is doing pretty well. It was very difficult to make investment decisions, which caused further instability in the economy.

That was repeated in the 1980s, when after a short boom in 1980, the Conservative Government were forced to recognise that it could not be sustained. The huge instability that followed lasted for years, causing massive unemployment and social disruption. It was repeated again in the early 1990s, when the Conservative Government again tried to boost the economy before the 1992 election. I do not blame them for that, but it created enormous instability, with inevitable deflation and massive unemployment. I am happy to discuss that economic thesis with anyone who disputes it, but I think that we have all learnt a lesson from it. There must be a different approach, geared to stability. I shall list some of the things that the Government have done to bring that about.