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I am very pleased to speak in this important debate, Mr Deputy Speaker, and to see that an industrial strategy for the country is at last back on the political agenda, although I have to say, without being unkind to the Tories, that we need a Labour Government prepared to make the right kind of interventions to make sure that it works.
The truth is that Britain has suffered from a long and disastrous period of deindustrialisation, which accelerated from the late 1970s and has left the country in a perilous economic state. We import too much, make too little and have suffered from a growing and now gigantic trade deficit primarily with the rest of the EU, and with Germany in particular. The industry that we have left is good—much of it is, anyway—and it has to be good to survive, but even then, our productivity levels are often too low and investment has been too little.
I am delighted that Peugeot has just announced plans to manufacture a new van at the Vauxhall plant in Luton, and we have to hope that this is a first swallow in a new industrial spring. I have put the case to motor manufacturing representatives that the recent depreciation of sterling relative to the euro should provide a sound basis for expanding supply chains in the UK manufacturing sector. That is true for other sectors, too. I was pleased that the head of Peugeot suggested just such an intervention at the time of the takeover of General Motors Europe, which included Vauxhall.
However, let me get back to the general case that Britain’s manufacturing base has been seriously eroded in the last decades and that we need desperately to rebuild the sector on all fronts. We have lost out massively in trade, and in manufacturing trade in particular. The figures are stark, and I shall quote just a few to make my point. The UK current account deficit in 2016 was £111.3 billion, or 5.8% of GDP. We in the UK are paying out to other nations the net figure of nearly £2,000 per person every year. The goods trade deficit in 2017 was even larger, at £138 billion. The UK’s overall trade deficit was £33.7 billion, but was a staggering £80 billion just with the EU. That was balanced only partially by our trade surplus of £39 billion with non-EU countries. At the core of this problem is the loss of much of our manufacturing capacity.
In 2017, the UK’s manufacturing trade deficit totalled £98 billion, £79 billion of which was with the EU and some £19 billion or so with the rest of the world. That disastrous yawning chasm in trade contrasts markedly with the performance of another major European economy—namely, Germany. In 2014, Germany had a current account surplus of $280 billion, contrasting with Britain’s current account deficit of $152 billion. We import four times more motor vehicle products from Germany than we export to it, which is just a simple illustration of the grotesque imbalance between our two countries.
Britain’s balance of payments deficit has been getting dramatically worse in recent years. In the crisis year of 2008, the deficit was £55 billion, but it rose to £113.6 billion in 2017. That is simply not sustainable and has to be addressed by Government action. A re-creation of our historical industrial strength has to be the key factor in rebuilding our economy for long-term sustainable prosperity. Central to that strategy must be a benign macroeconomic environment, and an essential component of that must be appropriate parity for sterling—an exchange rate that helps our domestic manufacturers and restrains manufactured imports. We must not price our goods out of foreign markets, above all the EU.
Britain’s economy has been dogged by sterling overvaluation for many decades, and it has chronically damaged our competitiveness. Devaluations and depreciations have relieved the economic straitjacket from time to time—in 1931, 1949, 1965 and, most significantly, after the disastrous collapse of the exchange rate mechanism in 1992. A big depreciation after the 2008 crisis saved the UK from complete catastrophe, but the pound-euro exchange rate crept up again in 2016, causing more economic damage. The post-referendum depreciation has helped our manufacturers, but the balance of trade is still in dire straits.
Britain’s primary exchange rate problem is with the euro—not just sterling’s overvaluation but the serious undervaluation of the euro. In my view the euro is, in reality, the Deutschmark in disguise—a Deutschmark with weaker economies bolted on to it, holding down its value and giving Germany an unjustified competitive advantage both against other eurozone economies and against Britain. Britain’s uncompetitive exchange rate has been our economic Achilles’ heel for a very long time. An appropriate exchange rate, sustained for the long term, is vital for a new industrial strategy to be successful and for a revival of Britain’s greatly diminished manufacturing sector. It is an essential component of many modern industrial strategies, but not a sufficient condition for success.
Finally, I suggest to Ministers and the Secretary of State, who is not in his place, that we need to re-establish Neddy—the National Economic Development Council—in which I was personally involved when I worked at the TUC in the 1970s. The disastrous collapse of industry took place after Labour’s Government. It was in 1979 to 1983 that we saw a fifth of manufacturing disappear—a crime for which the Tories must always bear their guilt. Neddy brought together Government representatives, business representatives, employers and trade unions in a forum for manufacturing, ensuring that its vital interests were advanced to the benefit of the country and the future prosperity of all its people. Neddy should be reinvented and recreated, but it should be made much stronger.