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My Lords, I have heard it said by a member of the party opposite that austerity is now at an end. This is a false perception. Our economic misery will not cease until our manufacturing industries and our foreign trade have been revived. This will require a technological revival and a macroeconomic policy very different from the one that the Government are pursuing. I have no confidence that this Government are capable of delivering such a revival.
At the end of the Second World War, Britain was one of the world’s leading technological and industrial nations. Besides being a leader in aviation, Britain was also a pioneer in nuclear technology, in electronics and in digital computing. Our automotive industries were also world leaders. These are the industries that have received the support of the Governments of the nations that are our economic competitors.
In Britain, our technological industries have been damaged by their relationship with successive Governments. Over the years, much of our former technical and scientific competence has been destroyed. The demise of British industry has been accompanied by perennial balance of payments problems that have been due to the overvaluation of the pound.
This problem also dates back to the early post-war years. In 1949, when Stafford Cripps was Chancellor of the Exchequer, the pound was devalued by 30% in order to stimulate our exports. The beneficial effects were quickly eroded by our high levels of domestic inflation. Another devaluation of our currency was needed in the early 1960s. However, the Wilson Government, which had been strongly influenced by British and foreign financiers, were unwilling to take the necessary steps. When it took place in 1967, the devaluation was by an inadequate 14%. In spite of the fact that we now have a floating exchange rate, our currency continues to be overvalued. This persistent overvaluation threatens our future prosperity.
The attitudes of successive Governments to our technological industries were strongly influenced by the problems of our aviation industry. The post-war industry was populated by numerous small and highly innovative enterprises, all of which sought government support. The situation was unsustainable. In 1957, a defence White Paper, sponsored by Duncan Sandys, proposed to solve the problem at a stroke. All projects for manned military aircraft were to be cancelled in favour of anti-aircraft missiles and intercontinental ballistic missiles. Although Sandys did not achieve the complete elimination of manned aircraft, he did establish a precedent for dealing with the technological industries.
The Civil Service, with the Treasury in its vanguard, developed a methodology of cancellation that was applied to many other industries by succeeding Governments. The Government of Harold Wilson did as much as their predecessor in cancelling the high-tech projects that threatened to make inroads into the Government’s budget at a time when they were severely constrained by a balance of payments crisis. This process of curtailment was vigorously pursued by the succeeding Conservative Governments of Margaret Thatcher. The consequence for Britain today and for the foreseeable future is that we have to rely heavily on our economic competitors to provide the technological skills that are so severely lacking. Unless we can amend this situation, our economic prospects will be bleak.
Throughout the post-war period, Britain’s financial sector has survived and prospered, which has been in spite of the weakening of the rest of the economy. The financial sector nowadays profits from an open economy that allows the free inflow of financial capital. A consequence of this inflow is that the balance of payments crisis that would otherwise have been occasioned by the failure of our export industries has been overcome by the sale of our assets to foreign buyers. The inflow of capital is largely responsible for the overvaluation of our currency, and it has greatly enriched those who earn their living in the financial sector. It is notable that, when they have taken trips abroad, ostensibly for the purpose of promoting our export trade, the Prime Minister and the Chancellor of the Exchequer have succeeded not so much in selling our manufactured goods as in selling large stakes in our native enterprises and our utilities.
It should be clear where the current trajectory of the economy is carrying us. We are heading towards economic misery if not towards an economic crisis. The process will not be averted unless we can restore our manufacturing industries and the technical skills on which they must depend. If we do not do so then our society will become increasingly divided between the rich few and the impoverished majority.