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Industrial Competitiveness

Volume 35: debated on Thursday 27 January 1983

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asked the Chancellor of the Exchequer what was the decline in United Kingdom competitiveness since May 1979, as measured by relative normalised unit labour costs.

Relative actual unit labour costs are probably the best single measure of competitiveness, since they take account of recent improvements in productivity. But United Kingdom relative normalised unit labour costs are now around 15 per cent. worse than in the second quarter of 1979. This deterioration reflects the fact that United Kingdom wage increases have been higher than those of our competitors, as the effective exchange rate is now 5 per cent. below the figure for the second quarter of 1979.

How is it possible for the Government to claim that their policy is deliberately—rather than accidentally—increasing the competitiveness of British industry when, in reply to my hon. Friend the Member for Blackburn (Mr. Straw) on 22 December, the Government admitted that three-quarters of the 20 per cent. increase in improvement in the cost-competitive position of British industry was derived directly from a fall in exchange rates and other minor factors?

Why does not the right hon. and learned Gentleman come clean and admit that the only developments of any benefit to British industry during the past 12 months derived from exchange rate movements and had nothing to do with the Government's tight monetary policies?

That is simply not true. The cost of labour has increased at a much lower rate than in past years and done well compared with most of our competitors, which is an important part of the progress that has been achieved. The Government's action to reduce industrial costs by such measures as the fall in the national insurance surcharge is also of considerable significance.

The hon. Gentleman is doing less than justice to Britain, never mind the Government, in failing to pay heed to the substantial improvement in productivity, which has had an important effect on industry.

As the Treasury is at last admitting that it takes the sterling exchange rate into account, will the right hon. and learned Gentleman now tell us what is the Treasury's exchange rate policy?

I am not aware of any new statement that entitles the hon. Gentleman to suggest that there has been any change. He knows that the Government do not have an exchange rate target, but regard changes in the rate as one of several indicators of the relative tightness or laxity of monetary policy.

Does my right hon. and learned Friend agree that the sharp fall in the rate of inflation has been a major boost to Britain's ability to compete? Is it not true that in May 1979 our inflation rate was higher than that of most of our competitors, and that it is now lower?

There is no doubt that the improvement in inflation during the past year has been to the dramatic benefit of Britain.

As the right hon. and learned Gentleman well knows, any dramatic improvements in the past year have come about because the pound is a little more sensibly valued than a year ago. Will he understand that we cannot for long sustain—certainly not to the benefit of Britain—a dishonest pound?

If the right hon. and learned Gentleman does not have an exchange rate policy, he certainly has an interest rate policy. Does he not understand that the rise in interest rates from 9 to 11 per cent. during the past six weeks is imposing an intolerable burden on British industry? Is he aware that not only do we have the highest real interest rate since the war, but that it is higher than in any other country with which we are trying to compete?

The right hon. Gentleman, wittingly or unwittingly, wholly distorted my answer to the last question. I referred to a dramatic improvement in inflation. That has nothing to do with the exchange rate—quite the reverse. The fall in the value of the pound tends to have an adverse effect on inflation, not a favourable one. Therefore, the Government are perfectly entitled to point to the great improvement in inflation.

Any adverse movement in interest rates, when compared with the substantial fall during the past year, would be as nothing compared with the effect on interest rates of the implementation of any of the right hon. Gentleman's policies.