House Of Commons
Tuesday 17 July 1990
The House met at half-past Two o'clock
Prayers
[MR. SPEAKER in the Chair]
Message From The Queen
HER MAJESTY QUEEN ELIZABETH THE QUEEN MOTHER
reported Her Majesty's Answer to a loyal and dutiful address as follows:
I thank you most sincerely for your loyal and dutiful address on the occasion of the 90th birthday of Her Majesty Queen Elizabeth the Queen Mother. I am deeply moved by this expression of your great pleasure on this joyful occasion and I welcome your intention to send a message to Her Majesty Queen Elizabeth the Queen Mother offering your cordial congratulations and expressing your warmest desire for her long continuing good health and happiness.Private Business
River Tees Barrage And Crossing Bill Lords
Order for Third Reading read.
Queen's Consent, on behalf of the Crown, signified.
Read the Third time and passed, with amendments.
Hasmonean High School Bill Lords
Read the Third time, and passed.
Southampton Rapid Transit Bill Lords
Motion made,
That the Promoters of the Southampton Rapid Transit Bill [Lords] shall have leave to suspend proceedings thereon in order to proceed with the Bill, if they think fit, in the next Session of Parliament, provided that the Agents for the Bill give notice to the Clerks in the Private Bill Office of their intention to suspend further proceedings not later than the day before the close of the present Session and that all Fees due on the Bill up to that date be paid;
That if the Bill is brought from the Lords in the next Session, the Agents for the Bill shall deposit in the Private Bill Office a declaration signed by them stating that the Bill is the same, in every respect, as the Bill which was brought from the Lords in the present Session;
That as soon as a certificate by one of the Clerks in the Private Bill Office, that such a declaration has been so deposited, has been laid upon the Table of the House, the Bill shall be deemed to have been read the first and shall be ordered to be read a second time;
That the Petitions against the Bill presented in the present Session which stand referred to the Committee on the Bill shall stand referred to the Committee on the Bill in the next Session;
That no Petitioners shall be heard before the Committee on the Bill, unless their Petition has been presented within the time limited within the present Session or deposited pursuant to paragraph (b) of Standing Order 126 relating to Private Business;
That, in relation to the Bill, Standing Order 127 relating to Private Business shall have effect as if the words 'under Standing Order 126 (Reference to committee of petitions against Bill)' were omitted;
That no further Fees shall be charged in respect of any proceedings on the Bill in respect of which Fees have already been incurred during the present Session;
That these Orders be Standing Orders of the House.—[The Chairman of Ways and Means.]
Object.
To be considered tomorrow.
Oral Answers To Questions
Defence
Nato Summit
1.
To ask the Secretary of State for Defence if he will make a statement on the defence implications of decisions taken at the NATO summit on 5 and 6 July.
The purpose of the London summit was to preserve the fundamentals of NATO while adapting the alliance to the new circumstances in Europe and to reassure the Soviet Union that a NATO including a united Germany represented no threat to them. The agreement between Chancellor Kohl and President Gorbachev yesterday confirms this success of the London summit.
Two lines of NATO's press release state
What is the difference between the new policy and the old policy of flexible response?"that there are now circumstances in which nuclear retaliation in response to military action might be discounted."
The hon. Gentleman is aware that the declaration makes a number of references to nuclear weapons. It states that none of the NATO weapons will be used except in self-defence and that we seek the lowest and most stable level of nuclear forces needed to secure the prevention of war. Nuclear weapons will have an essential role in the overall strategy to prevent war in the way in which the hon. Gentleman described. NATO added that the weapons will be
That is a clearer definition of the nuclear strategy and emphasises the point that many Opposition Members still do not appreciate—that nuclear weapons are not for fighting a war, they are to prevent war."truly weapons of last resort."
During this period of uncertainty for those in our armed forces, will my right hon. Friend do everything possible to stress the nation's sense of gratitude and obligation to them for what they have done and for their contribution to the peace that we are now seeing in prospect? Will he also do everything possible to reassure them that this House will not forget them in their difficulties in the future?
I am grateful to my hon. Friend and I shall certainly seek to do that. My hon. Friend has made an important point. I know that he did not mean this, and I do not say this, as some form of valedictory address. Although the position in central Europe has changed, our situation in needing to ensure a certain basic level of defences against the eventualities that we hope would not arise, but which could arise, mean that our defences will have a continuing and important role and will offer a continuing and important career for those who give their lives and service to them.
If nuclear weapons are weapons of last resort and not for fighting wars, is not the Government's inclination to deploy the tactical air-to-surface missile on behalf of the United States a decision that should be scrapped immediately? Does not it also bring into considerable doubt the need for tactical air-to-surface missiles to be deployed by the NATO alliance?
After the manifest success of the NATO summit, I am surprised that the hon. and learned Gentleman should seek to challenge head-on one of the statements of NATO policy, which is that
He does so at the very moment when we are celebrating the success of the NATO strategy and on the day after one of the objectives of NATO strategy for 40 years—to seek a united Germany within NATO has been achieved. I am surprised that the hon. and learned Gentleman should query the unanimous agreement on that strategy."the Alliance must maintain for the foreseeable future an appropriate mix of nuclear and conventional forces based in Europe and kept up to date where necessary."
Will my right hon. Friend continue to make clear the necessity for strong defence in the future not only for short-term foreseeable events but for long-term unforeseeable ones? Does he agree that it would be criminal folly to reduce our defences, including nuclear weapons, to a level lower than any eventuality, however unforeseeable, might demand?
I am grateful to my hon. Friend. I know that in saying that, he also recognises that circumstances are changing and that one of the most important aspects is that NATO must adapt. One of the greatest strengths of recent events and one of the values of NATO that was shown yesterday is that after the NATO summit, after the NATO declaration and after the visit of the secretary general to Moscow, President Gorbachev felt confident enough to move because he knew that he was dealing with an alliance which had the strength to deliver.
In view of the Secretary of State's description of the talks as unanimous and successful, does he intend to make a full statement to the House on the implications of the unanimous decisions made and of "Options for Change", or shall we have to wait for a statement to be made during the recess?
No. The House is well aware of the outcome of the NATO summit and the Leader of the Opposition has already made certain comments in the House about it. Indeed, I noticed that in New York the Leader of the Opposition, referring to the changes and the positive outcome of the NATO summit, said that it was a good time to be alive. I am not sure whether that spirit has spread to the hon. Member for Rhondda (Mr. Rogers).
Defence Commitments (Europe)
2.
To ask the Secretary of State for Defence what progress is being made in his Department's review of Britain's defence commitments in Europe.
We are considering options for change in the scale and deployment of our armed forces and their supporting structures in the light of the changing international circumstances.
Does my right hon. Friend agree that despite Mr. Gorbachev's good intentions—and there is no reason to doubt them—The Times was correct to draw attention today to the uncertain nature of Soviet politics and on another occasion to the fluid situation in eastern Europe? Against that background, does he agree that any defence cuts should be gradual and should take into account long-term rather than short-term political developments?
I certainly agree with the importance of recognising that while much has changed, some elements endure. Our responsibilities in other parts of the world, whether in the Falklands, Belize, Cyprus or Northern Ireland, have not changed in any way. We must continue to recognise those elements and the need to maintain our defences. The one element that I would add to what my hon. Friend said is that it is also important that we work in close partnership with the NATO alliance and consult it about any changes that we might have in mind.
Will the Secretary of State confirm that changing circumstances require changing strategies, particularly in relation to nuclear weapons? If it is now NATO strategy that nuclear weapons should be weapons of last resort, why is it necessary for at least three countries in the alliance to possess them? Why should we not be content—if we can be content at all with nuclear weapons—with one nation, the United States, having sole possession of strategic nuclear weapons?
In the end a Government must take responsibility for the defence of their country. We believe that nuclear weapons have been for this country, as they have for others, the ultimate instrument of war prevention. We believe that nuclear weapons have saved millions and millions of lives. That is the key reason why Europe has just enjoyed the longest period of peace this century. It is against that background that we believe it is sensible to maintain a nuclear deterrent.
Will my right hon. Friend constantly remind the House that whereas the time sequence for developing new nuclear weapons and keeping current nuclear weapons effective is very long, the time sequence in which international political relationships can change is almost immediate? Therefore we must never bring about a situation whereby the Russian military deposing Mr. Gorbachev could leave us defenceless, effectively, against that changed situation.
I am grateful to my hon. Friend for emphasising the need for a certain prudence. No one could have observed the events of the past year without recognising the truth of what he has said. The headlong process of change that has taken place in recent months could alter. Today's announcement, encouraging as it is, might easily have gone the other way and then there could have been a great deal of tension in Europe. If the Soviet military establishment had finally decided that it could not accept a united Germany in NATO, we would face a different situation. The very fact that we believed that in the end the Soviet Union would recognise the rights of the German people to self-determination and to choose to which alliance they belonged is extremely important.
Nuclear Tests
3.
To ask the Secretary of State for Defence what nuclear tests have been carried out by NATO countries and France in the current year; and for what purpose.
The last United Kingdom nuclear test was in December 1989. Such tests are required to maintain the effectiveness of our nuclear weapons capability.
The French authorities have announced four and the United States three nuclear tests so far in 1990.I thank the Minister for that reply. Were those tests carried out in conjunction with tactical air-to-surface missiles? If so, does the Minister condone that, given that the threat has now been considerably reduced, if not removed? Will he also inform the House whether the Government intend to start progress towards a comprehensive worldwide nuclear test ban? That would be a significant step in enhancing the agreement reached yesterday and the decision would be received throughout the world as a progressive move towards further stabilisation.
The Government regard it as essential that we continue to test nuclear weapons so long as we remain a nuclear state, as we intend to do for the foreseeable future. That stand is unlike that of the Opposition, who have made it clear that they see no role for nuclear weapons and will negotiate them away as soon as they ever get into power. In those circumstances, we intend to continue to test nuclear weapons. We do not, of course, go into detail about the form that those tests take.
The Government have made it clear that we do not support the idea of a comprehensive test ban because we regard the testing of nuclear weapons as essential for the future development of our nuclear programme.Can my hon. Friend confirm that in recent years the Soviet air force has modernised its nuclear air capability and that it would be extremely foolish for us to deny ourselves similar opportunities other than as part of some international agreement?
Yes, that must be right. The Soviet Union will continue to be a highly nuclear-capable country for the foreseeable future. In those circumstances, it would be madness if we did not maintain our capability as well.
Weapons Development And Deployment
4.
To ask the Secretary of State for Defence when he last met his United States counterpart to discuss weapons development and deployment.
I last met Mr. Cheney at the NATO nuclear planning group and the defence planning committee meetings in May. We discussed a wide range of current defence issues.
Although I might argue from a socialist perspective that imperialist, capitalist treaties and pacts are worthless pieces of paper, can the Secretary of State tell the House whether the Government are serious about the non-proliferation treaty, or does he support the statement made by his hon. Friend the Minister of State for Defence Procurement who described it as a "worthless piece of paper" on 18 June in the House? Is not that a further example of the Thatcher-Ridley tendency of chauvinistic dislike and hatred for foreigners and all things foreign?
I am not sure what that contribution will do for the cause of the Leader of the Opposition in trying to persuade people in Washington that the Labour party is a very different animal now from that which some of its previous critics may have suggested. The hon. Gentleman's contribution said it all.
Does my right hon. Friend agree that technology in the United States, particularly in military aircraft, has reached an all-time high with the stealth characteristics of those aircraft? Would it be possible for European aviation manufacturers to feature much of that stealth technology in the next generation of European fighter aircraft, and thus benefit from American research?
We seek to co-operate wherever possible in the European programme group on research and development in various collaborative projects and, where applicable, with the United States. Obviously, some of the skills of the United States are of great interest to us.
Is the right hon. Gentleman aware that American ships will be carrying stocks of nerve gas, in the form of 100,000 artillery projectiles, from Nordenham in Germany through the English channel? The projected time for the movement is mid to late September when there are frequently severe gales in the English channel. When precisely will the movement take place, and what contingency plans does the right hon. Gentleman intend to make in case of a serious accident? The British public have a right to know, or do the Government simply not care?
I will see what information I can give the hon. Gentleman about that.
Regarding contact with United States counterparts on weapons development and deployment, does my right hon. Friend agree that it is excellent that Sir Peter Levene has managed to copy the American system of labelling spares' costs, resulting in a substantial reduction in costs to public funds?
Many of the innovations that Sir Peter Levene has brought to the public procurement process have been of tremendous benefit, and there is no question—this should unite the House, whatever levels of defence expenditure one may approve—but that whatever money is spent should be spent to the best effect.
Germany
5.
To ask the Secretary of State for Defence what recent discussions he has had about the future defence role of Germany.
In recent months I have had discussions on defence aspects of German unification with Dr. Stoltenberg, with other Defence Ministers in NATO, and with Marshal Yazov. The British Government have consistently supported the right of a united Germany to be a full member of the NATO alliance, and we are delighted that Chancellor Kohl and President Gorbachev have now reached agreement on this crucial point.
Which Tory view is likely to prevail in future consideration of these matters? Will it be the views of the former Secretary of State for Trade and Industry and, presumably, the Prime Minister, or will it be wiser and more moderate counsels? Since the Soviet Union, despite its historic experience, has been able to change its stance towards the defence role of Germany, is not there a danger that only the United Kingdom will be negative and backward-looking?
The Foreign Secretary has made it clear that friendship and partnership are at the heart of British foreign policy and I can tell the House that friendship and partnership with Germany are also at the heart of our defence policy. That could never have been more obvious than during the past more than 40 years when 60,000 to 70,000 British troops and their families have been stationed in Germany. I am deeply grateful for the friendship and warmth of reception that they have had in Germany and for the close collaboration that has existed between us. That has perhaps never been more true than now when, under the vicious terrorist threat that they face, the outstanding co-operation of the German police and security forces has been beyond praise.
Does my right hon. Friend agree that in this extraordinary week, in which President Gorbachev has withdrawn his objections to a united Germany joining NATO, the truth of the matter is that they could not beat us and therefore they are joining us? Does not it follow, therefore, that a united Germany should not be a weak member of NATO, but a strong one capable of playing a full part in the future?
There is absolutely no question but that my hon. Friend is right. Germany is an essential member of NATO. The Soviet Union has properly recognised, as we hoped that it would, that in the final analysis it is a matter for the democratic decision of the German people which alliance they join. Hon. Members will have noticed the phrase used by Chancellor Kohl and President Gorbachev, that their agreement yesterday recognised the
That has to be right."full and unrestricted sovereignty of a united Germany."
Does the Secretary of State agree that yesterday's momentous decision, which we all welcome, has come about because of the persistence and patience of the Federal Republic of Germany and its allies in seeking to do deals with the Soviet Union? The outcome of the negotiations would not have been possible without the long-standing co-operation to which the Secretary of State alluded in respect of Britain and the federal republic. In those circumstances, is not it the more surprising that one of the right hon. Gentleman's colleagues tried to upset the apple cart with his ill-tempered outburst last week? Will the right hon. Gentleman reassure the House that there is now no one in the Tory Cabinet prepared to talk in terms of German revanchism in the way that his former colleague was prepared to do?
What about the Prime Minister?
There is not much point in covering ground that has already been covered. I have made absolutely clear the importance of our alliance with Germany. The hon. Gentleman will know that I have consistently made clear, on behalf of the Government, the belief that a united Germany should be in NATO and the hope that the people of a united Germany would so choose. It is Chancellor Kohl's clear belief that that is what they will choose after the German elections.
County Regiments
6.
To ask the Secretary of State for Defence if he will make it his policy that under any Army reorganisation those county regiments with affiliated Territorial Army battalions bearing the same name will be retained.
It is not yet possible to comment on the future of particular regiments or their organisation.
Does my hon. Friend agree that while military mergers are nothing new, it must be logical to encourage those regiments with centuries of local recruiting tradition to continue that tradition? Examples include the 11th Foot, the North Devonshire regiment, now the Devonshire and Dorset regiment, where the local groundswell of support is such that recruiting will continue even in times when it is more difficult than in other parts of the world.
Yes. Clearly, the ability of any regiment to recruit—and the ability of the Devon and Dorsets to get the support that they enjoy in their part of the country—will be taken into account in any reorganisation that we consider.
In considering that matter, will my hon. Friend ensure that he does not overlook the claims of the Household Division or the Gurkhas? This year the brigade of Gurkhas celebrated 175 years of service to the British Crown and in the last war they raised 250,000 troops. If we overlooked them, I am sure that the British public would never forgive us.
I am well aware of the concern and respect that hon. Members have for the Gurkhas and the Household Division. We shall take that into account when we reconsider the shape that the Army should take in the future.
Mobile Forces
7.
To ask the Secretary of State for Defence what emphasis his Department places on mobile forces.
As last week's summit declaration made clear, NATO forces will in future need to be highly mobile and versatile. We are currently examining options for change in our force structures to reflect new circumstances.
With reference to mobile forces, is my hon. Friend aware that I strongly support the point made a moment ago by my hon. Friend the Member for Ilford, South (Mr. Thorne) about the role of the Gurkhas? Will my hon. Friend take this opportunity to say something about developments in NATO's strategy in view of the exciting and reassuring developments in eastern Europe, and about the possibility of a NATO role out of area?
Yes, indeed. One of the advantages of the versatility and mobility alluded to is that they will enable the forces to be dual-hatted and play a role out of area as well as a reinforcement role in NATO.
The Minister mentioned versatility and mobility, but was it in order for a Royal Navy helicopter to be deployed at a Tory party event in my constituency, since, as has been admitted by the local Tory party, it was a fund-raising event for the Tories? Is that the new role for our military helicopters—to be used to prop up the Tories' fund-raising effort to try to win the next general election?
rose—[Interruption.]
Order. I think the question was about mobile forces.
In as much as the supplementary question refers to mobility, I have answered the hon. Gentleman's question. As he well knows, that occasion was not laid on solely for the benefit of the Tory party. Serious sums of money were raised for other charities—[Interruption.]
Order. The House must listen to the Minister's reply.
Serious sums of money were raised for other charities, but if it had been known that it was a Tory event, the contribution from the Royal Navy would not have been made.
When my hon. Friend has recovered from that formidable onslaught, will he give his attention to the role of the Territorial Army in the mobile forces and say whether in the light of developments, he believes that in future reservists and Territorial Army personnel will be able to play an even larger part in our mobile and specialist forces?
The Territorials and the reserves will certainly have an important role in terms of reinforcement of our role in NATO. We are considering that carefully under "Options for Change".
Low Flying
To ask the Secretary of State for Defence what is the policy of his Department with regard to low-level military flying over the Isle of Man.
Much of the Isle of Man falls within controlled airspace associated with Ronaldsway airport. Military aircraft do not generally carry out flying training at low level over the remainder of the island, although the RAF makes extensive use of the air weapons range off Jurby Head.
I am grateful for that answer, but does the Minister accept that if having civilian air traffic over Ronaldsway airport is good cause for not having low-level military flying, that must also be a relevant consideration in low-level flying over my islands constituency, where the two important airports, at Kirkwall and Sumburgh, deal with not only a large amount of civilian inter-island traffic but with helicopter traffic from the North sea oil platforms? If this has been a relevant consideration in not allowing low flying over the Isle of Man, will the hon. Gentleman reconsider the decision to increase low-level flying over Orkney and Shetland in recent years?
Ronaldsway airport was a factor in the consideration but it was not, as the hon. Gentleman seeks to suggest, the only one. He knows that each case is considered on its merits.—I am sure that the people of Orkney and Shetland want to make their contribution to the defence of these islands. The Isle of Man does so by contributing the range for low-level flying, and other ranges—for example, RAF Tain—are equal contributors. The hon. Gentleman might have a word about that with his hon. Friend President Kennedy.
Does my hon. Friend agree that in the Isle of Man or anywhere else in the United Kingdom, low-flying sorties, if they are to mean anything, have to be about 300 miles long so that pilots and navigators can undertake the necessary training to be able to operate in wartime conditions wherever they occur?
My hon. Friend understands these matters much better than does the hon. Member for Orkney and Shetland (Mr. Wallace). It is true that the average sortie takes at least 300 to 500 miles, and it must encompass that distance to be worthwhile practice. It is our intention, through the United Kingdom low-flying system, to spread low-flying training as fairly and evenly as possible. Avoiding one area puts an unnecessary burden on other areas. [Interruption.]
Order. I ask the House to settle down; a lot of background conversation is going on.
Nato Summit
9.
To ask the Secretary of State for Defence if he will make a statement on the defence implications of decisions taken at the NATO summit on 5 and 6 July.
I refer the hon. Gentleman to the reply that I gave earlier to the hon. Member for Barnsley, West and Penistone (Mr. McKay).
Now that it is alleged that our nuclear weapons are for use only as a last resort, are there any plans for doing away with our short-range nuclear weapons—I am talking about artillery and Lance—or am I being naive?
The hon. Gentleman would have done better to read the London declaration before he came to the House because it contains a specific proposal on nuclear artillery.
Now that the NATO alliance has unambiguously extended the hand of friendship to the Warsaw pact and the Soviet Union, which leads it, will my right hon. Friend, in concert with the Foreign Secretary, see whether pressure can now be put on the Soviet Union to withdraw its remaining troops from Poland?
Certainly we wish to see the withdrawal of Soviet forces as soon as possible. My hon. Friend will know that Chancellor Kohl accepted that it will probably be three to four years before those troops can be withdrawn from East Germany. One should not underestimate the sheer logistical problems of withdrawal of the numbers involved, but we want it to happen as soon as possible. We should welcome the real progress that has been made.
Were the decisions taken at the NATO summit consistent with the decision taken yesterday in Moscow? If so, do the Government support the restriction on the size of German forces following a united Germany?
Not only were they consistent, but the very tone of the London summit was intended to make clear to the Soviet Union that a united Germany in NATO presented no threat to the Soviet Union. The success of that summit is borne out by yesterday's events, which have given President Gorbachev the confidence to proceed as he has, some might say courageously, to accept against the background of his domestic position the important step forward of a united Germany in NATO. The German proposals for the Bundeswehr and the Volksarmee were well anticipated and we have taken note of them.
À propos my right hon. Friend's answer to my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), does he agree that the real test of Soviet sincerity about the new relationship with the west would be its withdrawal from a country that suffered grievously from both Germans and Russians during the war and that has suffered grievously since? The withdrawal of Soviet troops from Poland would be a great step forward.
I understand my right hon. Friend's feelings and wish to see that withdrawal as soon as possible. We must recognise the most remarkable landmark that emerged yesterday. A few months ago, no one would have thought it possible for the Soviet Union to accept a united Germany in NATO. Three months ago it was almost unthinkable in Moscow and it has now been confirmed. We should welcome that.
Will the Secretary of State confirm that a statement about the Government's reaction to the NATO summit will be made before the House rises for the summer recess? Will the document "Options for Change" be available for debate, or will it simply be published before the end of the Session?
My right hon. Friend the Prime Minister commented on reaction to the summit in her statement to the House following the G7 summit at Houston. I cannot comment further today on a separate statement about "Options for Change".
If at the London summit the Government had made an immediate announcement to cut defence spendng by over a quarter, what would have been the effect?
That is a rather subtle question of which I would have liked more notice. The London summit showed the importance of the members of the NATO alliance working together. As I said, one factor that must have been important to President Gorbachev was that he was dealing with a united alliance and knew from talking to Chancellor Kohl that the Chancellor's views were consistent with those of the whole of the NATO alliance.
Conventional Forces In Europe
10.
To ask the Secretary of State for Defence what decisions he has made about the role of the Army following a possible conventional forces in Europe agreement.
No decisions have yet been taken regarding the future role of the Army, although we are examining the options for change in the light of changing international circumstances.
In view of the dramatic discussions between East and West Germany and the ultimate withdrawal of Russian troops, does the Minister recognise that there is no longer any justification for the retention of 55,000 British troops in Germany? Can he assure us that the Government will not try to introduce some strategy under which those 55,000 troops will be deployed somewhere else in the world, in a continuation of the imperialism that we used to experience 100 years ago?
"Options for Change" recognises the dramatic alterations in the scene in Europe generally and especially in east-west relations. It will therefore deal with the size of the Rhine Army.
Does my hon. Friend accept that whatever agreement may be reached on conventional forces, the Territorial Army must always be maintained as a back-up to the regular forces? Will he congratulate those who serve in the Territorial Army in my area on the opening last Thursday of the Alexandra barracks by Her Royal Highness Princess Alexandra? They will provide magnificent training opportunities for the Territorial Army of the future.
I am glad to hear what great support is being given to the Territorial Army in my hon. Friend's area. It is an invaluable and essential part of our commitment to reinforce NATO at a time of conflict.
Arms Conversion Agency
11.
To ask the Secretary of State for Defence whether he has received any representations to set up an arms conversion agency.
12.
To ask the Secretary of State for Defence whether he has received any representations to set up an arms conversion agency.
This question appears to have been widely syndicated on the Opposition Benches. It is found in three of the top dozen questions. Let us hope that hon. Members have adequately memorised their supplementaries.
The answer is that I have received various representations.Has the Minister had the temerity to contact the Department of Trade and Industry on the possibility of an arms conversion agency? If so, can he tell us about the nature of those talks and specifically whether he has received reports from the DTI on how manufacturing industry can obtain its share of the peace dividend?
That question has been asked no fewer than seven times, and answered by three Ministers, during the past six months. The question does not alter and nor does the answer. British industry is responsible for determining its product ranges, not the Government.
Does not the Minister's answer show clearly that the Government feel that they have no responsibility to the companies and workers which have supplied the British forces over the years? Is not the Minister happily washing his hands of companies such as Vickers in Leeds? Is not it time that the Government accepted some responsibility for those who have supplied Britain so well for so long?
I thought that the hon. Gentleman spoke from the Opposition Front Bench on some subject or other, and I had hoped that he would produce some enlightenment on the subject. All that he has done is produce the standard socialist formula—convene a committee of friends, throw some public money at the subject and then claim that something is being done about it. In fact, we have no details about the project. We do not know how it is to be constituted, whether it is to be funded from taxation revenue, or whether—as I understand it—it is to be funded by a surcharge on those in arms production. There are no details: it is simply a down-memory lane formula of socialism.
Does my hon. Friend agree that it is essential that we retain a military complex in our industry that is capable of turning out the necessary minimum weapons to guarantee our security? Is not military aviation such as that at British Aerospace at Walton essential to continue the defence of this country?
Of course, there are certain key capabilities that we shall retain at all times. We shall always continue to need a strong and vigorous defence sector in our manufacturing industry.
Has my hon. Friend had the opportunity to read some of the articles commemorating Adam Smith? Did they refresh his natural inclination that if market forces do anything, it is crucial that the Government should not become involved in the issue? The very last thing that we should have is an arms conversion agency.
I entirely agree with the latter part of my hon. Friend's proposition, but I am not sure whether all Adam Smith's precepts are entirely applicable to the defence industries.
"Options For Change"
13.
To ask the Secretary of State for Defence when he expects to publish the findings of the "Options for Change" inquiry.
I appreciate the keen interest, particularly in the armed services themselves, in the progress of our work which is proceeding against the background of the changing international situation and similar studies among our allies. I advised the House on 18 June of the essential elements in our study of "Options for Change". I am not yet in a position to go further.
Before publishing those findings, will the Secretary of State assure the House that he will have given due weight to a service dividend as well as a peace dividend?
Yes, Sir. I have not used the word "findings" because we hope to come forward with proposals. I hope that there will be an opportunity for wider consultation. Obviously this is an important time for the armed services. We must take account of the interests of the armed services and all those who serve in them as well as those involved in defence generally.
What does my right hon. Friend think of the morality of those who want to spend the peace dividend but refuse the investment in nuclear weapons which makes that dividend possible?
I do not know whether my hon. Friend was referring to the Opposition. At this very moment, the Leader of the Opposition is trying to persuade people in Washington that the unilateralist views shared by many Opposition Members do not really exist.
Prime Minister
Engagements
Q1.
To ask the Prime Minister if she will list her official engagements for Tuesday 17 July.
This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having further meetings later today. This evening I hope to have an audience of Her Majesty the Queen.
Is the Prime Minister aware that when I read the memorandum from the Chequers seminar and saw the words "angst", "aggressiveness", "assertiveness" and "bullying"—[Interruption.]
Order. Will the hon. Lady proceed with her question please? [Interruption.] Order. These pauses take a lot of time.
—I believed that the Prime Minister was painting a self-portrait. Does she realise that, through her failure to sack the Secretary of State for Trade and Industry and her association with that memorandum and the attack on the German people, she is now tarred with the Ridley brush and is no more fit to lead than he was?
No, Mr. Speaker. At one time, I am accused of being isolated and of not consulting anyone; at another time, I am accused of having consultations with those who have something interesting to say. People must make up their minds which they are criticising. The hon. Lady could have read the constructive result in a speech at the Koenigswinter conference some five days later. That constructive speech concerned all our relationships in the Community, particularly with Chancellor Kohl, who shows much more understanding of these matters than does the hon. Lady.
Given the now general acquiescence about the reunification of Germany, does my right hon. Friend agree that the first act of a newly reunified Germany should be the signing of a full and unqualified peace treaty with the former allies? Will she take steps to ensure that that happens?
After unification, I think that Germany and Poland will wish to sign a treaty confirming Poland's existing borders. That will be one of the most important international measures. I do not think that a unified Germany would wish to have a full peace treaty, for obvious reasons. We might have arrangements that lead to a peace settlement.
Is the Prime Minister aware that four of the six academic experts who attended her Chequers seminar on Germany have said that Mr. Charles Powell's minute of that meeting gave a slanted—that is, anti-German—account of the discussion? Does the Prime Minister agree?
No, Mr. Speaker.
The whole House, and people in many places and chanceries throughout the world, will be astonished that the Prime Minister has not taken this opportunity to repudiate the more offensive sections of the minute. Four of the experts at the seminar say that the minute was slanted against the Federal German Republic. Everyone in the world now believes that the Prime Minister's private secretary was reflecting not so much the opinions of the experts as the prejudices of the Prime Minister. Why does not she take this opportunity to refute them?
I am amazed that the deputy leader of the Labour party chooses his opportunity to question me to use it—[Interruption.]
Order.
—chooses to use his opportunity for questioning to attack a civil servant who cannot reply and who has served all Governments with equal integrity. His conclusion on that meeting was highly constructive, as was the meeting itself. There used to be more honour in the House than that.
The Prime Minister's reputation is far too tarnished for her to maintain this haughty stand any longer. Does not she understand that there is a problem with Anglo-German relations and that that problem is the Prime Minister? What we want—and, I believe, what the majority of people want—is an honest statement of the Prime Minister's opinion. Has she the courage to make such a statement to the House and to face cross-examination?
Perhaps the right hon. Gentleman will read the many speeches and consider the many actions in which we have been staunch allies of Germany in NATO and in which the Germans have been staunch allies of ours in NATO and in the EEC. Germany joined us in stationing cruise and Pershing at a critical time. We could not say that the Opposition supported that.
Is my right hon. Friend aware that every other Government in the world regularly make assessments of the British character and of Britain's performance, and that they all admire and respect her quality of leadership much more than they respect the inane posturing of the Leader of the Opposition?
Had this country followed the policies of the Leader of the Opposition on defence, we should never have seen the remarkable changes that we are seeing now.
Q2.
To ask the Prime Minister if she will list her official engagements for Tuesday 17 July.
I refer the hon. Gentleman to the reply that I gave some moments ago.
As the Prime Minister chose in the exchange of resignation letters to refer to
does not she owe it to the House and the country—she was the person who mentioned the word "honour"—to say whether she repudiates the view that her former Secretary of State for Trade and Industry expressed in his resignation letter which was that the proposal by the European Commission for economic and monetary union in the Community would be a disaster? Does she repudiate him, or does she agree with him that it would be a disaster?"the policies we both believe in so deeply",
The policies on which the former Secretary of State and I agree are the policies that have transformed Britain from the state in which Labour left it and which it would recreate. The hon. Gentleman cannot have listened to what I said last week—that my right hon. Friend's views were not those of the British Government. I should have thought that the hon. Gentleman would have known that.
On the resignation letter, my right hon. Friend condemned the move to a single currency. Does Labour now support that?Will my right hon. Friend reflect on the policies that she has just mentioned which have brought eight years of successive economic growth, improvements in productivity and record levels of employment? Is not it her determination to pursue those policies which will ensure that the British economy is the best counter-balance to any other economy in Europe?
Yes, Sir. Our policies have been very successful. We now have the fastest growth in manufacturing productivity in the G7. In the 1960s and 1970s we had the lowest growth in productivity in the G7. We now have the second largest growth of output in the EEC. In the 1960s and 1970s we had the lowest growth of output in the EEC. We now have the second fastest growth in business investment after Japan. I am delighted to have a chance to say how bad it was in Labour times and how good it is now.
Q3.
To ask the Prime Minister if she will list her official engagements for Tuesday 17 July.
I refer the hon. Gentleman to the reply that I gave some moments ago.
Given the announcement last Friday that the retail prices index has now reached 9.8 per cent., the continuing balance of payments deficit running at over £1 billion a month and the continuation of interest rates at 15 per cent., causing record numbers of bankruptcies, does the Prime Minister agree that the economy is in a mess and that the responsibility for it lies squarely with her and her Government?
I am amazed that the hon. Gentleman calls it a mess. We have the highest-ever standard of living, more people in work than ever and the highest standard of investment. In fact, 28 of the 50 top performing European companies are British.
May I say to my right hon. Friend the Prime Minister—[Interruption.]—
Order. This is the first opportunity that the hon. Lady has had to put a question and I ask her to do it.
May I say that my right hon. Friend the Prime Minister is looking jolly nice today? Does she agree that is is a time of great celebration? As she has observed, it is the end of the cold war. Does she also agree that while we celebrate we should not be complacent about the peace?
I thank my hon. Friend and return her compliment. I said in November 1988 that we had reached the end of the cold war provided that Mr. Gorbachev went on as he has done. That was when I first said it, but others have come rather later.
Q4.
To ask the Prime Minister if she will list her official engagements for Tuesday 17 July.
I refer the hon. Gentleman to the reply that I gave some moments ago.
Does the hon. Lady recognise that there are not only splits in her party, but different views in ours? Does she also recognise that they are legitimate differences? Stripped of the hysteria and counter-charges of the past few days, we have to think as a nation about the balance of power, especially in a free, open and democratic Europe. My generation—there are many hon. Members of my generation—should consider the part we played to return the balance of power. Our parents and grandparents did the same. The last three centuries have taught us lessons. Those who did not experience the 1939–45 war or the post-war period should read the history of Europe over the past three centuries. Some of the pro-Europeans should also re-read their history.
I thank the hon. Gentleman for those words which I think he has truly spoken. I point out that I said—
He should have been at the seminar. [Interruption.]
Order. I am anxious to call as many hon. Members as possible.
May I point out—because I think that the hon. Gentleman will agree—that when I said in November 1988,
I went on with the words that were very much in keeping with his sentiments:"The cold war is already at an end",
I think that the hon. Gentleman would firmly agree with that: we always have to keep up a strong defence to safeguard peace. I note what the hon. Gentleman said about learning from history. I was interested to see what Chancellor Kohl said at a press conference today. He said that he understood the concern—especially on the part of the British—whose entire national existence had been at stake in the fight against Hitler. He went on to say that he had not taken my right hon. Friend's comments amiss"Now, that does not mean to say a strong defence is at an end—far from it."
I think that the hon. Gentleman, Chancellor Kohl and I would very much agree on the wisdom of learning from history."The man has been punished enough."
Prescribed Drugs (Compensation)
I beg to move,
Alongside, and complementary to, the great advances in medical science—[Interruption.]That leave be given to bring in a Bill to provide statutory rights to compensation to sufferers from serious side effects from prescribed drugs; and for connected purposes.
Order. Would those hon. Members who do not propose to remain in the Chamber please leave quietly?
Alongside, and complementary to, the great advances in medical science and surgery that have taken place in the past 50 years has been the introduction of new drugs which, in their efficiency and effectiveness, have helped to banish so many of the illnesses that were common when I was a boy. Diphtheria, measles, scarlet fever and even tuberculosis, which were once the scourges of our nation's health, are now of little consequence. I name those diseases; I could easily name a dozen others that have ceased to be serious and epidemic illnesses—[Interruption.]
On a point of order, Mr. Speaker. I apologise to the hon. Member for Newbury (Sir M. McNair-Wilson), but I cannot hear a word that he is saying. This motion is very important.
I quite agree that it is important. I have already appealed to hon. Members to leave quietly, and I appeal to those hon. Members remaining in the Chamber to listen to what the hon. Gentleman has to say.
As it notches up its successes, the pharmaceutical industry has moved on to tackle new challenges and, as I speak, the Committee on Safety of Medicines—the watchdog body that decides when a drug has progressed sufficiently through its clinical trials to be licensed—is considering between 10 and 20 new drugs for which the manufacturers are seeking a licence. A licence is sometimes thought to mean that all the known side effects of the drug have been established. That is not so. As Professor Bill Asscher, the chairman of the Committee on Safety of Medicines, said recently in a "World at One" news programme:
He pointed out that a licence means that, in clinical trials, a drug has been found to be effective, safe and of quality. But he added:"The policy has always been to advise Ministers to license drugs early so that the Committee can study them after they are being used, by proper post-marketing surveillance."
Professor Asscher then explained that his committee relied on a voluntary reporting scheme whereby GPs fill in yellow cards commenting on any unexpected side effects that they notice when using a new drug. The monitoring scheme produced 20,000 reports last year, and is continually being assessed by the committee. The scheme depends on the diligence of the GPs, and makes one realise that the fact that a drug has been licensed in no way guarantees that it will not create harmful side effects. If it does, what recourse to compensation is open to the victim? In theory, the Consumer Protection (Registration of Professional Chemists) Act 1988 could be called in aid, as it imposes a liability on manufacturers of defective products without the need to prove negligence. However, I am told that the cost of a complex drug claim would be prohibitive for a family not on legal aid. That must be wrong. A drug is a product. An analogy could be drawn between a new drug and a new car: both will have been rigorously tested by their manufacturers before going on sale. In the case of the new car, it will have been driven for thousands of miles before appearing in the showroom. However, if, after it is available to the public, it begins to show unsuspected faults, the manufacturer will recall the model and have the defects put right. At that point my analogy breaks down. It is possible to recall a car and put it right, but what about someone who has been severely damaged by the side effects of a drug? I mean lasting damage, not just a massive skin-peeling rash like the one that I developed after being given a particular medicine in hospital but of which there is now no trace. I am referring to serious, drug-induced side effects. Thalidomide is the classic example, but it is not an isolated case; other examples are Opren the arthritis drug, Myodil, the heart drug Pexid and the steroid Prednisolone. People who were given high dosages of steroids in the 1960s now have bodies cruelly deformed by their side effects. They will carry those abnormalities to the grave. The latest addition to the list of drugs giving serious cause for worry is another heart drug called Corwin. It was licensed in May 1988; by 1989, the monitoring system used by the Committee on Safety of Medicines had shown that the drug could cause deterioration in patients with severe heart failure. Other information from the yellow-card "adverse drug reaction" monitoring scheme indicated that it was sometimes being used inappropriately in such patients. In January this year, the Committee on Safety of Medicines made recommendations severely restricting the use of Corwin. It is continuing to monitor the situation. The exact number of people suffering from severe drug-induced side effects is not easy to establish. Professor Asscher is reported to have stated that 7 per cent. of all admissions to hospital are due to the serious side effects of modern medicines. By anyone's standards, it is a matter for concern. Yet our pharmaceutical industry seems indifferent to the question of compensation, refusing to admit liability and effectively challenging the victims to sue if they can afford it—of course most of them cannot. Just occasionally, one of the drug companies seems willing to accept its responsibility: in the 1970s, ICI set up a £10 million voluntary compensation scheme for victims of its heart drug Eraldin. Then there is Danny Heffernan, now 23 years old and only 4 ft 4 in tall. He discovered that his stunted growth was caused by very high dosages of steroids. After an 11-year battle he persuaded Glaxo, the makers of the drug that had affected him, to offer an out-of-court settlement. I do not believe that the present situation is good enough, especially as we now know that licensing by the Committee on Safety of Medicines in no way certifies that a drug is free of side effects. To that extent, I believe that Parliament should insist that our pharmaceutical companies set up a compensation fund. I suggest that they should be required by law to do so. I believe that we should use the West German example for the sort of law that I have in mind. The West German drug law of 1976 has a section that reads:"You don't know until you've used a drug in a very large number of people precisely what problems there might be."
The Germans have that law. The Swedes and the Finns have comprehensive pharmaceutical injury insurance schemes, designed to compensate for injuries caused by drugs. Drug importers and manufacturers share the cost of funding the scheme. I can see no reason why we should not follow those examples. I hope that the House will give me leave to bring in my Bill."If as a result of the administration of a drug intended for human use which was distributed to the consumer within the purview of the law … a person is killed or the body or the health of a person is considerably injured the pharmaceutical entrepreneur who placed the drug on the market within the purview of this law shall be obliged to compensate for the harm caused to the injured party."
Question put and agreed to.
Bill ordered to be brought in by Sir Michael McNair-Wilson, Mr. Jack Ashley, Mr. Spencer Batiste, Mr. Churchill, Mr. James Kilfedder, Mr. Austin Mitchell, Mr. Michael Morris and Mr. Nigel Spearing.
Prescribed Drugs (Compensation)
Sir Michael McNair-Wilson accordingly presented a Bill to provide statutory rights to compensation to sufferers from serious side effects from prescribed drugs; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 20 July and to be printed. [Bill 187.]
Bill Presented
Declaration Of War And Commitment Of Troops Abroad (Constitutional Arrangements)
Mr. Harry Cohen, supported by Mr. Tony Banks, Mr. Andrew Bennett, Mr. Jeremy Corbyn, Mr. Ron Leighton, Mr. Ken Livingstone, Mrs. Alice Mahon, Mr. Chris Mullin, Mr. Peter L. Pike, Ms. Dawn Primarolo and Ms. Clare Short, presented a Bill to ensure that war cannot be declared or troops committed or kept abroad by Her Majesty's Government without the approval of the House of Commons: And the same was read the First time; and ordered to be read a Second time on Friday 20 July and to be printed. [Bill 186.]
Points Of Order
On a point of order, Mr. Speaker. In recent times, some hon. Members have raised points of order about those being called at Prime Minister's Question Time, and we have rightly been told that we did not have questions on the Order Paper. I have noticed in recent weeks that hon. Members, particularly Conservative Members, who have been called at Prime Minister's Question Time did not have questions on the Order Paper. Today, two of the three hon. Members whom you called from the Conservative Benches—I am not questioning your selection—simply did not have questions on the Order Paper. I am beginning to wonder what the trouble is in going into the Table Office to table questions to the Prime Minister and to try to catch your eye—
Order. I find it difficult to understand what the hon. Member means. Surely he is not suggesting that I should not go across the Chamber to get a proper balance, because that is exactly what I did today. I am anxious to ensure that those who have nil scores and who had not put a question to the Prime Minister were able to do so. Today I did just that. All hon. Members who were called at Prime Minister's Question Time had a nil score, and that was their first opportunity to ask a question.
Further to that point of order, Mr. Speaker. That is precisely the dilemma. When hon. Members have previously raised this point of order, we have been told by you that we had not tabled questions to the Prime Minister. I would certainly object if you did not preserve a balance between both sides of the House. However, has your advice on previous days now been changed, and do we no longer require to table questions to the Prime Minister in order to catch your eye? Until recent weeks, my understanding has been that we should have questions down to the Prime Minister to try to catch your eye.
I do not know from where the hon. Gentleman got that idea. I hope that the whole House will agree that I should seek to strike a fair balance. The hon. Member for Oxford, East (Mr. Smith) has, during this Session, put three questions to the Prime Minister, and he asked question No. 2 today. For supplementaries, I seek to give an opportunity to those who have not put a question, and that is exactly what I have done today. I hope that that is of some comfort to the hon. Member.
Further to that point of order, Mr. Speaker. Hon. Members understand that, unlike the Pope, you are infallible in the Chamber. However, you have just said that you call hon. Members who have a nil score. The whole House knows that you keep an accurate record, but from when was the nil score dated? That is an important point. If we are to have nil scores, what about a penalty shoot-out?
The House would do best to leave these difficult decisions to the Chair—[Interruption.] I am not prepared to have my arm jogged by hon. Members who seek to ask questions. However, if an hon. Member has a legitimate constituency interest in a departmental question, that is a different matter. I cannot accept bids for Prime Minister's Question Time.
rose—
rose—
No, let me deal with this first. The hon. Gentleman who raised the point of order has already had an opportunity to put a question to the Prime Minister. I do not exactly know when—
Exactly.
Well, it does not state the date on my list. The hon. Member for Falkirk, East (Mr. Ewing) has also put a question to the Prime Minister.
As a nil scorer, Sir, may I await your future pleasure?
rose—
Order. The answer to the hon. Member for Warley, East (Mr. Faulds) is yes!
Further to that point of order, Mr. Speaker. I have every respect for the views of Back Benchers, as I am one myself, but while in no way wishing to question your judgment, perhaps you will bear in mind that it often appears to Conservative Members that too many opportunities are given to the Opposition Front Bench, and especially to the Leader of the Opposition, to ask two or three questions, at rather great length.
That is perennial. Some Leaders of the Opposition have not risen as many as three times, but that has become a practice in recent years. The more times that Front-Bench spokesmen rise, the less time there is for Back Benchers. That should be borne in mind.
On a point of order, Mr. Speaker.
rose—
No, just a minute. I understand that the Opposition Treasury team is anxious to proceed with the Finance Bill.
rose—
I shall take the hon. Gentleman.
I think that you have a point about the Opposition Front Bench and you must take that into account, Mr. Speaker, but you said that if an hon. Member raised a constituency matter, he or she would be in with a fair chance. I reckon that, on that basis, if any hon. Member mentions the National Union of Mineworkers, and I am the only sponsored NUM Member standing, I must have a chance. That is roughly what you are saying.
May I have an assurance that the deputy Prime Minister registers only half a score, which means that an hon. Member would get another chance if the right hon. and learned Gentleman answered for the Prime Minister?Of all hon. Members, the hon. Member for Bolsover (Mr. Skinner) is certainly not deprived in any way—[HON. MEMBERS: "Hear, hear."]—and the reason why he is regularly called—[interruption.]—I must say this in defence of the hon. Gentleman—is that he is always here.
Orders Of The Day
Finance Bill
As amended (in the Committee and in Standing Committee), further considered.
New Clause 2
Capital Allowance: Manufacturing Incentives
'1. This section shall have effect only in relation to trading companies whose activities consist wholly or mainly—
2. This section shall have effect only in relation to accounting periods which end after 31st July 1990 and begin before 1st August 1991.
3. Where this section applies, subsection 24(2)(a)(i) of the Capital Allowances Act 1990 shall have effect as if for 25 per cent. in that subsection there were substituted the percentage specified in subsection (4) below, and subsection 3(2) of that Act shall have effect as if for one twenty-fifth in that subsection there were substituted the percentage specified in subsection (5) below.
4. The percentage specified in this subsection is
Ax25+Bx40/A+B
where A represents the total number of days in the accounting period which either fall before 1st August 1990 or fall after 31st July 1991, and B represents the number of days in the accounting period which fall within the period starting on 1st August 1990 and ending on 31st July 1990.
5. The percentage specified in this subsection is
Ax4+Bx10/A+B
where A and B have the meanings assigned to them in subsection (4) above.'.— [Mrs. Beckett.]
Brought up, and read the First time.
3.50 pm
I beg to move, That the clause be read a Second time.
On Sunday in a television interview, the Foreign Secretary, when discussing some matters of some difficulty and delicacy, was drawn almost in passing into observations on the differences between the economies of our European partners and our own. He referred especially to the German economy, saying that it has, indeed, become more successful than our own byWe know—this has become more apparent in recent days—that we have a divided Government. Perhaps among all the different causes for dissent, the greatest rift is opening up between those who, like the Foreign Secretary and occasionally the Lord President, not only recognise but admit the difficulties of our economy, and those who, like the Treasury Front-Bench team, still assert, in the teeth of all the evidence, that we have had an economic miracle and that our present problems, which even those right hon. and hon. Members cannot completely ignore, are temporary and will be short lived. I recognise that it is a bit of a cheek for the Lord President to take the high-minded tone as he was presiding over our economy when much of the damage was done, but we must at least give the right hon. and learned Gentleman some credit for admitting his error now. In contrast, today's Treasury Ministers still seem determined—no doubt, for short-term political gain—to undermine their own and their country's long-term interests by encouraging misplaced optimism. It undermines their own interests because the more they seek to convince people that the difficulties are temporary, the less likely people are to pay attention to their exhortations to cease borrowing and to save. That would all be less important, although worrying, but for the fact that the Government's refusal to acknowledge that there is a problem leads to their rejection of any remedy. That is why we await with considerable interest the reaction to our new clause. It is, indeed, a modest step and should commend itself to any Government, with the slight exception of a printing error in subsection (4) which reads "1990" instead of "1991". I am sure that that will not deflect the Chief Secretary from giving it serious consideration. The new clause is a modest step. It would alleviate a little the burden of high interest rates on businesses and the additional pressure on them to reduce manufacturing investment. That is just the type of step for which industry is calling. The new clause aims to give temporary additional financial help to companies by accelerating somewhat the capital allowances that they would otherwise have received after 1991 and bringing them forward into 1990 and 1991. It also aims to increase the rate of writing down allowances to 40 per cent., rather than 25 per cent., and 10 per cent. rather than 6 per cent. As I have said, the new clause is a minor and modest measure. While it does not commit the Treasury to the additional relief in the long term, to which Treasury Ministers have been so resistant, it accelerates the relief that would have been given anyway in later years and gives that relief at a time when the state of the economy is causing particular difficulty and when manufacturing industry and investment is so hard pressed. One of the most damaging myths of the Thatcher years, promoted so heavily by the former Chancellor, the right hon. Member for Blaby (Mr. Lawson), is that manufacturing is no longer of critical importance to our prosperity. That statement from the former Chancellor of the Exchequer revealed a great deal about his attitude. The reason why he advanced a proposition so ludicrous to most Opposition Members was not even that he believed it himself but that he had to find something to explain away the problems that began to be evident in the mid-1980s following the devastation of our manufacturing industry presided over by the now Lord President. The Chancellor needed to show that the devastation, to which even he had to admit, did not matter too much, so he came up with the idea that it was because manufacturing did not matter so much any more. He argued that the improvements in earnings from internationally tradable services—the so-called invisibles—more than made up for any deficiencies in manufacturing earnings which were apparent even then. Unfortunately, time has overtaken that argument because invisible earnings themselves are becoming invisible and that excuse is no longer credible even to Ministers who are used to believing or putting forward 10 incredible things a day, particularly at the behest of the chairman of the Conservative party. Now, instead of trying to explain what is happening in terms of the overall record on manufactured trade and the statistics that summarise our position, the Government have taken to talking loudly, rather fast and somewhat aggressively about particular aspects of policy which they claim, if they are particularly selective about their statistics, show some degree of success. Of late, the Chief Secretary has talked about output, productivity levels, exports and so on. The Opposition certainly welcome any signs of improvement in the vitally important manufacturing trade on which Britain depends for its prosperity, but the selected figures that the Government use are usually, if not always, completely unrepresentative. In fact, they represent a period of recovery from catastrophe rather than a record of success. It is rare indeed for Ministers to dare to examine the entire record of their period of stewardship. We gain the clearest picture of where the country stands as against our competitors by considering just two of the many confusing different sets of statistics that tend to be put before us in such debates. Those two sets of statistics encapsulate the picture. One set represents the results of our overall performance, never mind the bit on output, productivity or exports. The overall results of our performance in manufacturing is perfectly summarised by our balance of payments deficit. The second set of statistics, which provide the underlying contributory factor behind that balance of payments deficit, are those concerning the levels of investment in manufacturing industry. Let us first consider the statistics preferred by the Government. I will put them in context to help the Chief Secretary with the argument that he will no doubt advance. The most favourable statistics that the Government can put before us relate to the increase in manufacturing productivity. Some of my hon. Friends argue—I concede that the argument has some force—that if one throws hundreds of thousands of people on to the dole there is bound to be some improvement in productivity. Apart from that, however, we recognise that some improvements in productivity have occurred and we welcome them, even if the pace of such improvements is now, unfortunately, slowing down. The Opposition argue, with more force, that if investment per capita had been higher in earlier years, productivity improvements might not only have come earlier but have been more soundly based and thus not have needed the impetus of large-scale unemployment. Those are the caveats that one must enter against the best figures that the Government can produce. We often hear in the House and elsewhere about the increase in manufacturing output. Not so long ago, the Chief Secretary made a speech about the improvements that he has recently witnessed in manufacturing output. He said that in the past three years that output has risen faster than the gross domestic product as a whole. That is fine, but he also went on to say that that"doing the things and taking the steps we failed to do."
That statement suggests to us that whoever else should he consulted about the history syllabus, it should not be the Chief Secretary. The historical record of manufacturing output as a percentage of GDP shows that, from 1948, there was a general gradual rising trend, followed by an unprecedented nose-dive between 1979 and 1981, since when it has been more or less static. There has been a slight improvement on the more or less static record that preceded the latter part of the Government's record, but there is no doubt that output is nowhere near the levels reached between 1948 and the late 1970s. It is rather strange to define the last few years as "historic". The scale of the nose-dive that occurred in the early 1980s is equivalent to between 3 and 4 per cent. of GDP. That is the order of magnitude of our balance of payments deficit and that decline in output is directly linked with it. We are delighted to note the recent growth in manufacturing exports. It is more than welcome, but there is a long way to go before we can overcome the volume of manufacturing imports, which, between 1979 and 1989, has risen to more than double the rate of manufacturing exports during the same period—the period since the Government came to power. Such are the factors which have contributed to the accumulation of our massive balance of payments deficit that summarises the overall effect of our manufacturing performance. If we want to take a historic moment from the years of the Government's stewardship it is 1983 when, for the first time since the industrial revolution, manufacturing trade in this country went into deficit—it has continued to decline ever since. Even the appearance of such a deficit is alarming enough for a country that still earns its living, and must continue to do so, by manufactures. The size and scale of the deficit—some £16 billion last year on manufacturing goods alone—is the most alarming feature of all. Equally alarming is our failure to take the steps most likely, even in the very long term, to redress that balance. 4 pm That leads on to the question of investment. Just as manufacturing is the source of our wealth and the engine of growth, so investment is the engine of manufacturing. Our record on investment is worse than appalling—it is frightening. Apart from productivity, the Government's other boast in terms of recovery is of the recovery in company profitability. That is good and my hon. Friends and I are pleased to see company profitability improve, but where did that profitability go? If it went into increased investment at all, it went into increased investment overseas—investment by acquisition rather than investment for growth of the kind being carried out by our competitors. That is the main reason why Britain, in too much of its manufacturing, has lost its competitive edge. That has not happened everywhere. There are companies in Britain that are world leaders in their fields, and we applaud them. We are delighted to have them and we are grateful for their performance, but it is no coincidence that those companies, the leaders in their fields, are the firms which invest. It is no coincidence that they put money into research and development and into training, and that they plan long term instead of considering investment, as some of the Prime Minister's favourite industrialists do, only if it results in profits in two or three years' time. Nor is it any coincidence, most of all, that those companies plan to expand and grow and not simply to stand still. The Chief Secretary may be familiar with a study carried out by Warwick university and quoted in the MBA review in June 1989. It suggested that four out of five United Kingdom companies considered that their sales objective should be to defend the status quo and their existing market share. In Japan, four out of five companies considered that their sales objective should be to grow, to overtake and to take the market shares of their competitors. The Chief Secretary may have had a chance to study papers presented at a recent conference sponsored by the Department of Trade and Industry on innovation in industry and on the needs of high technology. Apart from the many papers that commented in depth on the fact, for example, that we were the only country to cut spending on civil research and development in recent years when our competitors were increasing their spending on those items, a senior industrialist pointed out that some of the most famous Japanese companies took 20 years of planning, investment and expansion to become world leaders in their fields, to take over from previous world leaders—frequently American companies—and that they succeeded, at least in part, because they set themselves the goal rather than to stand still. The Opposition believe that Britain and British manufacturing industry need most of all to foster a culture of sound management devoted to investment and growth. We greatly regret that that culture has been undermined by the decade of Conservative rule, which instead has fostered admiration of tycoons and asset-strippers and has rather sneered at people who look for long-term prosperity rather than making a fast buck. The consequences of the lack of that general culture are most evident when we consider our record on investment. Manufacturing investment as a proportion of gross domestic product fell sharply in the recession period 1979 to 1981. Indeed, as a level of expenditure in constant prices, only in the last couple of years has it recovered to just above the 1979 level. But when one examines the position not in terms of constant prices, but as a percentage of GDP—the percentage of wealth available and the indication of the commitment of our country to investment in our future—one sees that it has still not returned to the lowest level achieved between 1974 and 1979. The Government prefer to talk about business investment, which includes investment in such things as car parks and casinos, rather than about manufacturing investment, but even as a percentage of business investment, manufacturing investment has fallen in recent years by as much as 7 per cent. I said earlier that many of us would argue that productivity might have improved more soundly and earlier if investment per capita had been at higher levels. Investment per person employed in the manufacturing sector has been so disastrous that among the 18 countries of the Organisation for Economic Co-operation and Development we come 14th, above only one or two immediate neighbours such as Greece and Portugal. Equally disturbing are the developments in industry, such as the increased number of bankruptcies. I am sure that the Chief Secretary has received the recent Dun and Bradstreet report showing that more than 11,600 firms went bankrupt in the early part of this year and that the pace of failure was quickening. Against that background, the forecast from the Government and others is that our levels of investment are declining while those of our competitors are increasing all the time. That forecast is true both of the Government's favoured business investment and of manufacturing investment. The most recent Confederation of British Industry forecast shows that investment intentions are at their lowest level since 1982, with the balance of future investment intentions at minus 8 per cent.—and the Government's reply to those problems is nothing, absolutely zilch. It has been stated that when the Department of Trade and Industry—for once taking an interest in industry which the then Secretary of State for Trade and Industry did not find out about in time—asked McKinsey and Co. to examine our electronics industry, its report cast doubt not just on the industry's prosperity, but on whether it could survive at all. Yet despite that worrying report on a key sector of industry, the Government did absolutely nothing. In the 11 years for which the Government have held office, our ability to supply our own need for manufactured goods has steadily declined, and with it the underlying strength of our economy. That has been reflected in our historically catastrophic balance of payments deficit. That is the road to ruin, paved not with good intentions, but with weak excuses. The Opposition believe, as does most of British industry, that we must take steps of the kind set out in a minor and modest way in the new clause if Britain is not to be left even further behind as our competitors plan, invest and grow to meet the challenges of the single market. More than that, we need a vision for the future—a different culture for manufacturing industry. The Opposition's vision for manufacturing industry is not a plan to increase company earnings per share by fiddling the accounting rules or having more takeovers. It is not a scheme to push up the nominal returns by delaying much-needed investment or squeezing up profits by cutting back on training. The Opposition's vision is of a British industry which extends its knowledge through research, and expands its capability through training and its output through investment. That is the reason for the new clause which, if carried, would represent a minor contribution towards helping British industry to continue to invest despite the problems heaped on it by the Government's failures. If the Government are not prepared even to consider such a helpful but minor step, for which the Government and the Chief Secretary know that industry and the Opposition are calling, it will be a clear signal to British industry, to the country and, most of all, to our competitors, that Britain has given up the race for 1992."indicated a marked turn-around compared with the historic performance of manufacturing industry"
I want to respond briefly to the remarks of the hon. Member for Derby, South (Mrs. Beckett); I shall then listen to other contributions and, if I catch the Chair's eye, I may be allowed to respond to them later.
The new clause is about a short-term acceleration in the rate of tax depreciation for investment in equipment and building by manufacturers and other industries, but the hon. Lady turned the debate into a rather more general discussion of the economy. Many of the issues that she raised have been debated many times before—for instance, at Question Time. First, the hon. Lady alleged that there had been no improvement in recent years in the British economy. We, of course, refer to the marked step-change in growth. The hon. Lady chose to concentrate all the time on manufacturing—for her, it was the only measure of economic performance. Of course manufacturing is an extremely important part of our economy, but it is wrong to suggest that it is the only measure of economic success. When assessing overall economic policy, the real measure should be a combination of growth and inflation performance over the decade. Judged by those two criteria, the performance of our economy in the past decade compares well with that of our competitors and better than it did before. That is certainly true of growth. We are going through a lower period of growth now, but even taking account of this year's lower growth rate we shall have grown faster over the past decade than the EEC average, and we certainly compare much better with our competitors in growth terms than we did in the previous decade. So growth is the most appropriate measure to employ. The hon. Member for Derby, South sought to dismiss the growth in manufacturing productivity as merely the result of de-manning. Of course there was a considerable shake out in the early 1980s, but that just shows how uncompetitive British industry was. There was a strong concealed unemployment element in British industry, and most business men and manufacturers admit that the problems faced up to in the early 1980s had to be faced up to; and that has helped make British industry more competitive and profitable. I was pleased to hear the hon. Lady acknowledge for once that there has been a considerable increase in the profitability of British manufacturing and business—it is extremely important. Where on earth is investment to come from? It must come from profitability. There are all sorts of arguments in which statistics are bandied about, but it is an indisputable fact that the profitability of British business is, thank goodness, higher than it has been for several decades. That is extremely encouraging.I have been following the right hon. Gentleman's argument closely. He said that we should use two measures of economic performance: growth and inflation. He went on to talk about growth but somehow omitted to talk about inflation, which is not only much higher than that of any of our key competitors but scoops up much more in corporation tax and therefore places a greater burden on industry.
The Government repeatedly make it clear that we regard our inflation as unsatisfactory and unacceptably high. I did not make the usual speech about performance under the last Labour Government because we are always accused of delving too much into the past and of exploiting it. It is, understandably, something which Opposition Members prefer to forget. The inflation record of this Government is incomparably better than that of the Labour Government, but even that is not so relevant as the fact that the policies that the Opposition advance are likely to bring a return to high inflation, especially because of their attitudes to public spending.
The hon. Lady also spoke about investment. She did not say explicitly but presumably believes that the corporation tax reforms that were introduced by my right hon. Friend the Member for Blaby (Mr. Lawson) when he was Chancellor of the Exchequer are inadequate for encouraging investment. When Labour was in power corporation tax was 52 per cent. We have reduced it to 35 per cent. and have got rid of the allowances. 4.15 pm Is that a good bargain? Is it better for business to have higher profits, a better rate of return and permission to keep more of its profits, or is it better to have a much higher rate of corporation tax which subsidises and provides an incentive by way of allowances to investment? I do not think that there is any evidence that the new system has damaged investment because since it was introduced we have seen strong investment growth. In the past three years business investment has grown by 40 per cent. Non-residential investment is a higher proportion of our GDP than of the GDP in any other country except Japan. The hon. Lady says that we should talk only about manufacturing investment. I reject that argument, just as I reject the argument that we should talk only about manufacturing when discussing the economy as a whole. We must look at investment in all sectors. It was amusing to hear the hon. Member for Derby, South say that business investment included car parks and all sorts of "frivolous" investment. It includes important investment in the retail sector and in tourist facilities, some of which employ many people. It is not correct to say that the only investment that matters is in manufacturing. As the hon. Lady said, manufacturing is important, but it is by no means the whole story. Since the new tax regime was introduced, there has been strong growth in investment. Britain has been enjoying an investment boom. One of the reasons for problems about inflation and on the current account is that the enormous boom in investment has exceeded domestic savings. The suggestion that the new structure introduced by my right hon. Friend the Member for Blaby when he reformed the corporation tax system has damaged investment is not borne out by the facts. If it had damaged investment, we would not have an extraordinary and continuing good record on inward investment. We get a larger proportion of American and Japanese investment than any other country in the European Community. Foreign companies come here for many reasons, and among them is the tax regime. They like the fact that we have one of the lowest corporation tax rates of any country. When the new tax regime was introduced, Labour strongly opposed it, but I still do not know the Opposition's precise attitude. Of course, Labour has opposed many things in the past. The Opposition seem to jettison everything right, left and centre and nobody quite knows what they stand for. We certainly do not know their stance on capital allowances. I hope that when the hon. Lady speaks again she will make it clear whether she wishes to see a system with capital allowances that subsidises investment through the tax system. Such a system is not necessary to encourage investment. It is not especially desirable, nor does it encourage the best sort of investment. Opposition Members scoff and laugh at the phrase "quality of investment". When we say that the quality of investment is better today, we simply mean that the rate of return earned on investment is higher than ever before. We want a tax system that does not subsidise people to invest purely in quantitative terms. We want a system that encourages people to retain their earnings and ensures investment in the most profitable areas. The hon. Lady is right to say that investment is what matters for the longer term, but it must be investment in the right projects and in those that earn the best rate of return. That will do most to underpin the long-term performance of the economy. The hon. Lady referred to a speech of mine about manufacturing, and I think that it was probably the one that I made to the French Chamber of Commerce. Speaking from recollection, I think that I said that foreign investment in Britain was contributing to the manufacturing base. I evidenced the motor industry which, when the Labour party was in office, had suffered from a remarkable increase of more than 50 per cent. in import penetration. Since then, it has stabilised and there has been considerable foreign investment, not just by the highly publicised Japanese firms—one of which is to invest in the hon. Lady's constituency—but by American companies. I do not think that anyone can dispute that the outlook for the British motor industry has improved beyond all recognition—profitability has improved; industrial relations have improved; the market share has stabilised; and there is much higher investment than for many years. During that speech, I pointed to the fact that some independent commentators had analysed the position and said that a number of independent reports had been published suggesting that there might be a rise in manufacturing as a proportion of gross domestic product. The hon. Lady is right to suggest that that is a marked difference from the trend during the past few decades, under both Conservative and Labour Goverments, during which manufacturing as a proportion of GDP declined. The proportion of GDP represented by manufacturing in Britain is not markedly different from that in France, Italy or the United States. Opposition Members hark back to a world that existed decades ago, and which I do not think will easily return. However, it is interesting that the independent commentators to whom I referred thought that a small change was taking place on the back of some spectacular foreign investment in, for example, the motor industry. The debate is really about the tax regime that we want for investment. Do we want a low rate of corporation tax—one of the lowest in the world—that encourages people to retain their earnings and look for the most profitable investment? The hon. Lady implied that that was not the Labour party's view. She said that she did not want companies to retain earnings per share simply for the benefit of shareholders. In fact, that is how companies raise capital from the private market to provide the investment that is needed tomorrow. Although the hon. Lady made a general economic speech, she did not produce one scrap of evidence that the tax regime and the changes to it have in any way harmed investment. On the contrary, there has been a strong growth in investment since the changes were made. I do not think that there is a good case either to make the hon. Lady's proposal a permanent change—which I think is what she wants—or to implement it just for one year, which is what she was advocating. It would be a mistake to change the tax system just for one year to accommodate slower growth in the economy and in investment.I obtained information from the Library showing that, as a percentage of gross domestic product, British corporation taxes are far higher than those of our principal competitors. I was given the following figures: the United States, 2 per cent.; West Germany, 2 per cent.; France, 2.4 per cent.; and the United Kingdom, 6.2 per cent. The Library staff were amazed. Can the Chief Secretary enlighten me on this point?
I do not know whether I can enlighten the hon. Gentleman, but I can attempt to answer his question. This has been a subject of considerable debate. The comparisons depend on what taxes are included. Some comparisons have included social security payroll taxes in other countries. The comparisons are affected also by the rate of growth of profitability. We have cut the rate of corporation tax, just as we have cut other tax rates, and revenues have soared. The profitability of British industry has risen markedly, resulting in a considerable increase in the rate of tax paid by British companies. For the first reason I gave, I would treat the comparisons with caution. It is not a matter of comparing like with like. Japan, which has highly profitable industry, appears to bear a high company tax burden. That is a reflection of its profitability.
I do not believe that there is a case for mucking about with the tax system on a temporary basis. The evidence so far is that the original corporation tax changes have proved to he effective and have stood the test of time.The Government try to have it both ways. They spend some of the time telling us that the rate of corporation tax has been reduced and that business is better off and some of the time telling us that the Revenue is so buoyant from corporation tax that the community as a whole is better off.
What is the contradiction between rate and yield?
It cannot be true that business is better off from paying less tax and that the tax yield is greater. The Chief Secretary knows that the revenue that the Government have obtained from corporation tax has increased sharply because of profitability and inflation. I, for one, welcome lower rates of corporation tax, and I have supported the Government when they have lowered those rates. Business is still paying a great deal of corporation tax, so that is a relevant consideration when we look at the level of investment and the extent to which corporation tax might influence it. Obviously, it is only one of the influences, but it could be significant.
The Government are fond of telling us that investment is booming and that we have remarkable levels of investment. The Red Book is full of relatively flowery phrases about our investment record. The Chief Secretary knows, however, that the quality of investment and where it is taking place are contested. The phrase "business investment" includes an enormous range of sectors—manufacturing, finance, business services, buildings, computers and leisure activities—which are of varying significance in terms of helping our balance of payments and their effect on future profitability. Many analyses have suggested that key manufacturing groups have not been the subject of an investment boom. The Chief Secretary will know of the arguments put by Gavyn Davies in the paper that he presented to the Treasury and Civil Service Select Committee and the points made on similar lines by John Muellbauer in an article in the Financial Times. The latter said:John Muellbauer made the interesting point that one manufacturing sector in which there has been increased investment has included paper, printing and publishing. He said:"The evidence … here suggests that, with few exceptions, investment has grown more in the sectors in the economy which are more sheltered from international competition and which make a smaller contribution to the balance of payments."
printing all those privatisation prospectuses and other things that generate so much paper in our society. For that to be about the only major exception to a pattern in which the key areas of manufacturing industry have not attracted major investment is worrying and significant. 4.30 pm The large increase in investment between 1986 and 1988 was built on the back of an unsustainable credit boom—for which we are now paying the price—and the current levels of inflation date back to that period. Already, the effect of high interest rates seems to be hitting investment and investment intentions have been cut sharply. It is debatable whether the improvements already made will continue. It can be concluded that the corporation tax structure is worsening the position because of the effect of inflation. Inflation is at a far higher level than that of our competitors, which raises the tax that companies have to pay. Business is paying for the Government's failure to control inflation. Some of the time the Government like to blame business for inflation because they claim that business is being weak in dealing with wage claims; that depends on whether the Government are in a monetarist mood at the time. Business is paying the price for the high level of inflation. One of the elements that could contribute most to encouraging investment is stability in economic policy and that includes stable exchange rates and stable interest rates. That argues for membership of the exchange rate mechanism, which has been the universal call of business for a long time. It also argues for the mechanisms to ensure stable prices which exist in those countries about which the Government are having such difficulty in their public pronouncements at present. Here we are lecturing Herr Pöhl, saying that he does not know how to handle inflation and that he would not have known how to deal with the kind of unemployment that existed in Jarrow, when Germany has produced a stable price regime out of its independent central banking system. The stability in Germany is the envy of British business and, in that climate, a great deal of investment is taking place. As the unification of Germany proceeds, German business is especially confident about being able to invest in East Germany because it knows that it would be doing so in the stable economic and political climate of the Federal Republic, with all the assurances that that gives that there will not be sudden and dramatic changes of policy and that there will not be sudden and dramatic changes in the economic management of the country. All that is a result of a German system that brings together a proportional representation election system, and a monetary and financial discipline system. Some members of the Labour party now deride and laugh at that, but it is the key to much of Germany's post-war success and the investment in which German firms so freely and readily engage. Those who want to lecture Germany and say that we are doing it far better simply have not got the evidence to do so. Neither the Chief Secretary nor Labour Members who wish to do so—there seem to be fewer of them now—have the evidence to make the claim that we know how to operate the system better. Along with stability, money is of crucial relevance to investment. That will be determined by the success of the Government's economic management. There is at present a debate—partly stimulated by the Government—about short-termism, which is a phrase that occasionally escapes the lips of Ministers. Industry has accused the City of not taking a sufficiently long-term view of investments and has accused the banks of looking for the second-hand value on which to lend rather than for the potential profitability of the investments that industry seeks to make. Clearly, the Government must give attention to that side of the problem as well as to the tax implications of the new clause if we are to make progress. Alongside that, there should be key public investment in transport if industry is to take advantage of and be able to operate effectively in the single European market, and if industry in the north of England, Scotland and Wales is to operate once the channel tunnel is open on a competitive basis. That is an area in which countries in mainland Europe—and especially Germany—are willing and keen to invest. However, it is an area in which the British Government seem to think that there is something indecent or improper about serious and significant public investment. There needs to be investment in education and training to give us the work force who can make use of the high-technology investment in which industry needs to engage. The Government's reluctance in those areas is seen by industry to be a handicap. If all those policies were pursued, would it help to make changes in the corporation tax structure such as those proposed by the new clause? The Labour party's new clause seeks to increase capital allowances from 25 per cent. to 40 per cent. That would enable a firm to set off more of the capital cost of an investment against corporation tax in any one year. That is potentially an expensive change and I am surprised that the Government did not refer to the cost—perhaps they are saving that for their reply. We could be talking about cost implications in the order of £1.5 billion. That is why we have previously put forward proposals for increased capital allowances on new investment so that we do not take on the large deadweight costs of increasing the allowance for writing down all the existing investment. That would have a stimulating effect, particularly in the present circumstances, and could be undertaken at less expense than the proposals we are considering. I am sympathetic to the intentions of Opposition Front-Bench Members, but I wonder whether this proposal has been subject to the rigorous examination of all proposals lest they add to the total cost of the Labour party's programme, which is now under such scrutiny."The rise in investment there is partly due to national newspapers moving out from Fleet Street, the spread of free newspapers and the demand for printed material from the growth of financial services"—
I said that this was a temporary measure. I do not have the papers immediately to hand, but I am sure that if the hon. Gentleman reads the clause with care and looks at the dates involved he will find that the cost is more likely to be about £130,000 or £150,000 than the sums he mentioned.
I am naturally suspicious about the claim that such a measure can be as temporary as the hon. Lady suggests. Perhaps I am doing her a disservice. Such a short-term change in the tax system would not survive. At the end of the period industry would be crying out for an extension and there would be a great deal of pressure. To be fair, if the period were strictly limited, the costs could be contained on that basis.
A more logical distinction is one that attracts to new investment the higher level of depreciation allowance mentioned in the new clause. The Government cannot continue to be so complacent about investment in manufacturing industry. I should have thought that their experience over the past 12 months with the rate of inflation taking off should have taught them that there is no advantage in claiming that things are better than they are. The Government have spent much of the past few years making exaggerated claims about the economy, some of which were extremely damaging to expectations. If people are told that they will be better off and that the standard of living will improve, they will borrow more because they will expect to be earning more money to pay for it when the day of reckoning comes. Constantly repeating a misleading view about the state of the economy does not do any good and does not encourage us to address the key problems faced by the economy. A little more realism on the part of the Government and an admission that there are problems with investment would be welcome. I am glad that the new clause is before us and I am sympathetic to its objectives.The speech of the Chief Secretary to the Treasury would have been more impressive if it had not been made against a background of a balance of payments deficit of £15 billion to £20 billion, which, I note, he did not mention.
The Government's true record lies in two factors. First, manufacturing industry turned into deficit for the first time in centuries. Secondly, there was the coincidence of the arrival of North sea oil. Those are the economic factors that will determine the way in which the Government are viewed in the future. I agree with the Chief Secretary about the need to achieve quality of investment. This is a modest measure. I agree with the counter-cyclical argument which was, after all, used by the previous Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson). The right hon. Gentleman introduced a counter-cyclical measure, and very valuable it was. If one tells people that there is to be an investment incentive with a cut-off date, and if one chooses the right time in the economic cycle, one can achieve continuing growth for the future based upon it. That, too, is of value. The most important aspect lies in the forecasts given in the Red Book at the time of the Budget. In the summary of economic prospects, we read that manufacturing output in 1989 grew at a rate of 4.75 per cent. In 1990, growth is forecast at zero. In the first half of 1991, it is forecast at 0.75 per cent. That is a truly miserable record, and there will be little incentive for anyone to invest in the plant and machinery that are so important. The Chief Secretary is right to say that we need to look at all investment, but when the right hon. Gentleman said that manufacturing was not the only measure of economic success, he was not according to it the importance that it should be accorded. Financial services have been the glamorous part of our investment and our economy. We had hoped to be the banker of the world. We had hoped to make enormous improvements and extensions. But we must remember that a financial economy rests fundamentally on its manufacturing industry. We seem not to recall that important fact. Britain became a financial centre as a result of the industrial development that took place in the last century and the century before that. New York became a financial centre as a result of the development of America's manufacturing industry. Frankfurt is becoming a financial centre as a result of the development of Germany's manufacturing industry and Tokyo has become a financial centre as a result of the development of Japan's manufacturing industry. There is a time lag in all these matters and the time lag is working against us and in favour of Frankfurt and Tokyo. I do not view that process with pleasure because I understand and accept the importance of having a financial centre. But in organising the structure of our investment and in arriving at an appreciation of the importance of that sector, we should not fail to take into account the basis on which it rests; if we fail to do that, we do ourselves a great disservice. The Chief Secretary noted that productivity had improved as a result of the removal of concealed unemployment in the early 1980s. I am sorry to say that there was not much waste of energy and activity in Ashton-under-Lyne when the $2.40 pound and 17 per cent. interest rates reduced the number of manufacturing companies by one third. I am talking about medium-sized, reasonably high-tech firms—plenty of companies of the kind to be found in Tokyo and in Germany. Those companies suffered as a result of our economic performance in those years and we must restore to them some of the advantages that similar companies in other countries enjoy. I am concerned that capital allowances hardly meet the cost of depreciation. In my early years as an engineer, I used to operate a jig borer. It was a very expensive piece of machinery. I do not know how much the comparable model—taking into account the development of that branch of engineering—would cost today, but I would guess about £50,000. At the end of 12 months, one would get £12,500 in capital allowances. What is the profit margin on such equipment? I bet that if one tried to sell the jig borer back to the manufacturer, the salesman or the distibutor, one would not get £37,500 for it. That means that there is an investment disincentive because we have not allowed for the true cost of depreciation. We are giving no incentive at all because we are failing to meet the cost of depreciation. The hon. Member for Lewisham, West (Mr. Maples) shakes his head. I do not think that he understands the size of the profit margins in such industries. The salesmen get paid very handsome sums indeed. As a result, the depreciation costs are not met. The figures produced by the Financial Secretary at the time of the Budget show how little prospect there is for growth—zero growth is forecast this year. As my hon. Friend the Member for Derby, South (Mrs. Beckett) rightly pointed out, this is just the time when we should be doing something to promote investment incentives. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, there are various ways of doing that. I find it sad that the Government do not appear to understand the nature of the problem sufficiently to come up with some sort of solution. They think that there is no problem. That is most worrying. Once we have realised that there is a problem, we can deal with the matter. The Government's failure to do that will take me into the Lobby with my hon. Friends tonight.4.45 pm
My hon. Friend the Member for Derby, South (Mrs. Beckett) said that new clause 2 was a modest proposal. Perhaps it is too modest, but as my hon. Friend and my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) rightly said, it is at least an attempt to give some minor assistance to British manufacturing industry.
The Chief Secretary was extremely euphoric about the economy. Let me remind him that in 1979 the United Kingdom had a balance of trade surplus in manufactured goods. That was in the days of the Labour Government—the days of picking winners, investment grants and 100 per cent. writing-down allowances. But in 1989—the last full year—we had a balance of trade deficit of £16 billion in manufactured goods. Those figures are the best evidence available and they tell their own story. They tell the story of the massive decline in Britain's industrial and manufacturing base during 10 years of Tory Government. The blame for that decline lies at the Government's door and it has been caused by the actions that they have takenmdash;and have failed to take—in respect of manufacturing industry. Those actions are perhaps too numerous to detail in such a short debate, but I can give one or two examples. My right hon. Friend the Member for Ashton-under-Lyne referred to the years from 1979 to 1982, when the present Leader of the House was Chancellor of the Exchequer. It has been calculated that the right hon. and learned Gentleman managed to obliterate 25 per cent. of Britain's manufacturing industry in those two years. It is extraordinary to note that when the Tories came to power, mouthing monetarism, in 1979, few of them understood how a monetary system could be operated within the open financial system that we have in Britain. They certainly did not understand the limitations of monetarism. Eventually, the right hon. Member for Blaby (Mr. Lawson) understood its limitations, but it took a long time for the Government to reach that conclusion. Between 1979 and 1982 we had macho overkill monetarism. The body count of factories and industries on the industrial battlefield was horrendous. My right hon. Friend the Member for Ashton-under-Lyne referred to his constituency, but we all have examples from our own constituencies. While the present Leader of the House was beavering away at the Treasury, Lord Joseph was beavering away at the Department of Trade and Industry dismantling most of the regional incentives, grants and investment allowances that went to the areas where most of Britain's manufacturing industry was located. The Treasury and the Department of Trade and Industry both did their job and, as a result, at least 25 per cent. of our manufacturing base disappeared, never to return. Let us move on to 1984 and the actions of the right hon. Member for Blaby which are, to a certain extent, the reason for the present new clause. Before the 1984 Budget, we had 100 per cent. writing-down allowances in respect of plant and machinery. If a manufacturing firm invested in plant and machinery in the first year, it could write off the whole cost. However, that did not suit the Government's plans or their view of the way that the economy should operate. Therefore, the Budget provided for 75 per cent. in the second year; in the third year the figure would be 50 per cent.; and in the fourth year the allowance disappeared completely. Now it is 25 per cent., which goes into the pool. The new clause proposes to increase the figure temporarily to 40 per cent. The right hon. Member for Blaby would have justified what he did. We heard echoes of that from the Chief Secretary, on the basis that it is better to have a lower rate of corporation tax and to eliminate the tax breaks. That is a Reagan view of taxation. However, because most of the allowances benefited more manufacturing industry, the benefit of lower corporation tax in the main goes to the service sector, the financial sector and the south-east. All those areas are less dependent on plant and machinery. That was the effect of what was done in 1984, and that is why pressure was put on manufacturing industry: because it lost the benefit of the allowances for investing in plant and machinery. We have been told that the Government do not believe in using the tax system for social engineering, and that we must have a level playing field. They have no inhibitions about using the tax system to encourage the business expansion scheme—all that money went into property; to encourage the personal equity plan schemes—all that money went into the stock exchange; or to encourage private shareholding. However, we apparently cannot use the tax system for the social engineering purpose of trying to benefit our manufacturing industry. Since the 1970s, the Tory party has shown little understanding, sensitivity or belief in manufacturing industry. Those of us who sat in the House throughout the 1970s saw successive Tory Members with some experience in manufacturing and industry being replaced by the estate agents, the so-called financial analysts, the stockbrokers and insurance brokers and the third-rate merchant bankers. Most of them were from the south-east, where there is no tradition of heavy manufacturing or engineering. There was no belief in manufacturing industry and, apparently, no need to examine it. If the speeches of 1978–79 are read again, they prove very informative. Hon. Members suggested then that Britain no longer needed a manufacturing industry, but would rely on its overseas investments; that it would become a tax haven fit for such people as the Rolling Stones and Tony Jacklin to come back to. The Leader of the House made such a speech in 1978–79. Britain was to be dependent on invisibles, living off those invisibles. We know what has happened. The Government have an extraordinary record: they have destroyed much of our industrial base, and have managed to eliminate the invisibles as well—to the extent that they are now literally invisible. It is no good the Chief Secretary shaking his head. We know that there has been a revision of the figures, but the invisibles are now minute. We have lost our industrial base and the oil, and we do not even have the invisibles. That is the measure of the success of the Government's economic stewardship of the country in the past 10 years. There may be one final act of mayhem—the exchange rate mechanism, the final solution. There is a case for the ERM and for fixed exchange rates—which I happen to believe in—provided, as the Prime Minister rightly said the other day, that in the end the exchanges can be chained by the actions of a sovereign Government. There is a case for linking exchange rates—as much as possible—with those of our trading partners, especially as 60 per cent. of our trading is now done with the EEC. There is also a political case for the ERM: it is better to be a member, and to try to stop the nonsense of economic and monetary union. However, I doubt whether we can do that. The Government have said that the exchange rate mechanism is the magic formula—the deus ex machina—that will apparently win them a fourth term of office. Their strategy—if it can be called one—is brutally simple. First, we should march the jolly old pound up to the top of the ERM mountain—the Treasury has been doing its best—and then, a little later, we should march interest rates as fast as we can down the mountain. Of course, with lower interest rates, the British consumer-elector feels better, and spends more on imported goods. The property-owning democracy sees the value of its property increasing and the prospect of unearned capital gain. Everyone is happy again, and people vote for the present Government. Where does that leave British manufacturing industry? It is at the top of the ERM mountain, withering away like the ark on Mount Ararat. The wheel has come full circle. The curse of the early 1980s seems set to be repeated by the Government in the early 1990s, and British manufacturing industry will again suffer. I would like the Chief Secretary to accept the new clause, but of course he will not, because the Government have no interest in manufacturing industry.I support the new clause. It essentially concerns capital allowances and manufacturing incentives, and—as my right hon. Friend the Member for Llanelli (Mr. Davies) said—it is a modest proposal.
The new clause illustrates the need to improve the efficiency of our manufacturing industry and to encourage investment, not only in capital goods but in training. Likewise, it points to the need for a major extension of our manufacturing industry. Some seasoned observers would say that we need to increase our manufacturing base by as much as 20 per cent. We are trying to examine what Government policy is about. I suggested to the Chief Secretary that the Government claim that they have reduced the rate of corporation tax. Let me repeat the figures that I have been given by the Library, which show that British corporation taxes as a percentage of gross domestic product are much higher than those in our competitor countries. In 1988 the figures were as follows: United States, 2 per cent.; West Germany, 2 per cent.; France, 2.4 per cent.; and the United Kingdom, 6.2 per cent. I grant that the Chief Secretary has tried to give me some explanation of those figures. If the Government are really keen to help our manufacturing industry to grow and become more competitive, they need to turn their attention more decidedly to tax matters. Taxation, after all, impinges on training, research and development. The Government seem to be reluctant to invest in our universities and polytechnics to produce skilled people and new ideas. It is ideas that bring about the new industries and factories, and provide employment for our people. They help to build the economic strength of our country. We must build and create for ourselves the products that our people increasingly demand. At present we are importing many of those goods. Not long ago, the Government were claiming that they had achieved an economic miracle. Their claim was illusory: it was nothing more than a South sea bubble. The position is summed up for me by the fact that West Germany has a trade surplus of about £50 billion, while we have a trade deficit of some £16 billion—or even more—in manufactured goods. A few days ago, a senior Cabinet Minister resigned. He was very critical of West Germany. From my observations, over the past 40 years or so Germany has adopted a most responsible position in international affairs. Perhaps even more important, it has built a highly successful economy. The right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) was the Secretary of State for Trade and Industry. He had an opportunity to do something about Britain's economic position and the difficulties in which it finds itself. Instead, the Government seem to have taken almost a fiendish delight in the destruction of much of our manufacturing industry. It is as though the Government thought that the economy was all about trade union organisation, the closed shop, and so on: the dragon had to be slain. That was their attitude. We had an illustration of that a week or two ago, with the attitude of the former Secretary of State for Trade and Industry to razing Ravenscraig to the ground—the last remaining bastion of the steel industry in Scotland. That has been the Government's attitude. How wrong can they be? 5 pm Much in British manufacturing industry needed to be put right—I grant that. There was overmanning, inefficiency, poor management and, above all, a failure to invest. For the past decade or so the country has had all the benefits of North sea oil. Germany, with its strong currency and extremely favourable trading position, has had no such benefit. North sea oil revenues were paid out in social security benefits, and the rest has been invested overseas, presumably to fatten up our competitors. That money should have been used to restore the manufacturing base in this country. The charge to be levelled against the Government is that they have essentially failed the nation. In fact, the more successful that we have become in our quest for invisible earnings, as my right hon. Friend the Member for Llanelli has pointed out, revenue from invisible earnings has tended to diminish. The more success there is, the greater will be the tendency to import manufactured goods, so there is no light at the end of the tunnel. We have witnessed a major growth in the service industry, which, with great respect, produces nothing tangible. Manufacturing jobs have dramatically declined and, in turn, have tended to be replaced by low-paid jobs, many of them part time and largely for women. We have gone cap-in-hand to the Japanese and the Germans. We have said to them, "Come and invest in our country. Wales in particular at present has all the hallmarks of an undeveloped country." Our trading deficit has got out of hand. The gap will not be bridged by a growth in tourism or by increased efforts on the part of the City of London. New clause 2, in its limited way, points to the logic of our present situation. Our vast balance of payments problem is due to the size of our manufacturing base. A small base dictates the output of manufacturing industry. When we do not make in Britain the goods that people in Britain want, there is a demand for imports. In our case, the demand is substantial. Whatever gloss or disguise is put on that problem, it brings about the deficit in our balance of payments current account. For any lasting solution, we must rebuild our manufacturing industry. To do that, we need incentives. New clause 2 at least points the way. We need a favourable exchange rate. We also need a marked decline in interest rates. We must compare our interest rates with those of our major competitors—indeed, they just do not compare. People are not being encouraged to invest. We must examine service costs—for example, water, gas and electricity. All that privatisation has done is to increase charges for those services. A credit boom did not help. Its only effect was to suck in more imports. The Chancellor should now talk to financial institutions and tell them to refrain from advertising and promoting credit. An impediment to our economic success is the increasing decline of our infrastructure. Firms rightly point to extra cost, the direct result of congestion and difficulty in moving goods around. Our record on research and development is far behind those of Germany and France. Our investment in training, for example, is reckoned to be only one tenth of that in West Germany. Training must be stimulated and innovation must be encouraged. New clause 2 is merely a pointer in the right direction. We are to form an integrated single market in the EEC in 1992. Competition will be ever more fierce. We are ill-prepared, and much responsibility for that rests with the Government. What should be an exciting challenge is turning into a serious threat for Britain's whole economic future. Much of the responsibility for that dire situation is directly due to the Government.I support new clause 2. As my hon. Friend the Member for Newport, East (Mr. Hughes) said, it points the way, but it is not the solution to the economic and manufacturing decline that we have seen under Governments of both parties in the past 20 years or perhaps even during the latter part of this century. One of the reasons why our manufacturing base has declined is that too few Members of Parliament have actually worked in industry. Too many come from the commercial sector, and too few actually know what it is like to work with out-dated equipment, to have personal skills but not to be given the tools to finish the job. To an extent, that is what new clause 2 is about.
The Department of Trade and Industry in Victoria street has been used as a siding for failed Cabinet Ministers. We saw a perfect example of that during the past week, but I had better draw a veil over that incident or the House will get excited again, although judging by the present attendance I doubt whether that would be likely. The fact that we have had so many Secretaries of State for Trade and Industry in the past few years raises the question of whether the Prime Minister really regards that aspect of the economy as important. The answer is clearly no. She seems to emphasise trade rather than industry and the latter is allowed to wither. As I have said, the House does not really understand industry because Parliament is based in the south of England, which has not had a great tradition of industry and of manufacturing objects that are useful. The south is very good at manufacturing money, insurance and banking and it is the location for the headquarters of many companies, but it has always been second best to the north in producing goods. Thus, when industry declines, the wealth of the north of England, Scotland and Wales also declines. We never saw the recession here in the south. When I walk through the suburbs of London, as opposed to the inner city areas, I am well aware that there is a great deal of affluence and that, although many people are working, pushing pieces of paper about, very few are actually manufacturing products. When I worked in industry, I worked for a multi-national company and we used to look at the productivity levels of the various factories in Europe. We often lagged behind Germany, Holland and Switzerland, not because we were less skilled, although training in this country was not given the same premium as in others, but because we tended to be a low-wage economy. When considering investments and assessing how much it will cost to install a new machine to increase productivity, the pay-back time in a low-wage economy is much longer than in a higher-wage economy. That meant that we did not get any investment. Because the Germans were far more highly paid, it was much easier to justify such incentives in the German economy, so Germany tended to get new plant and equipment and its productivity was therefore much greater than ours. That was a tragedy. Indeed, it is a tragedy that low wages do not help the economy of any country. If we are trying to compete with the third-world countries—or even with second-world countries such as Singapore or Taiwan—with a low-pay, low-wage economy, we shall fail. We can succeed only if we are prepared to invest in manufacturing industry to the extent that our competitors in Germany, France, Holland and Japan are investing. The Minister made great play of the amount of investment that we receive from Japan, Germany and other countries, but when did a British company last buy a Japanese car firm? When did we open a television assembly plant near Tokyo? The answer is that we have not done so. We are trying to attract foreign investment. Our economy is failing in important areas such as high technology. Yet we invest in Taiwan and Singapore. The captains of industry and banking in this country say, "There's a nice low-wage economy—we should be able to make healthy profits if we close our plants here and move them over there." They simply cannot come to terms with the fact that we need to be opening assembly plants ourselves, similar to the Datsun plant in Sunderland. Why are we not saying to British Aerospace, for example, "We should be opening similar plants in Japan and Germany"? It is difficult for us to export to Japan because the Government have yet again failed to get rid of the unofficial tariffs that the Japanese have erected against us. Although we are exporting, we are not successful. We have to rely on inward investment because the incentives given to our own companies are not great enough. I was a member of a promotional organisation called Inward in the north-west of England. Our job was to attract inward investment from abroad, but we ultimately concluded that we should open an office in London—if we could get away with it—to try to attract industry from the south-east. To me, that illustrates the great divide between north and south. The south of England was regarded almost as a foreign country, and we felt that we should look there for our inward investment. There are no incentives to invest. The Budget was supposed to provide an incentive to savers, and we can save only if we earn, and this country in general and its population in particular do not earn enough. If we were earning more, we could save more and invest more, but we are all aware that that has not been the case. 5.15 pm As my hon. Friend the Member for Newport, East has said, we have probably the least well-equipped work force in western Europe in terms of training. We have failed to give our people the educational qualifications and the skills training that are needed to bring this country into the top rank of manufacturing and industrial countries. We have wasted our time on poor youth training schemes—they are better now—and on employment training, which beautified the countryside when we should really have been equipping our young people with skills to match those of the Germans, the Italians and the French. The Government should have taken a lead in that. Even in eastern Europe, work forces were given skills. That is why, even before there was talk of German unification, no resentment was felt towards the workers who were crossing the Berlin wall because the West Germans knew that those people were bringing with them skills which could be marketed in the west. My constituency of Carlisle has recently been classed as a "boom town for the 90s" by the Henley Centre for Forecasting. Carlisle is the only city in the north of England to have been put in that category. Carlisle has developed despite the Government's refusal to give it industrial grants, and only because the Labour-controlled council has—with the private sector—developed schemes to make Carlisle attractive. However, we suffer from one of the problems that has recurred in the debate—a poor infrastructure. We are a long way from the markets that we serve. Our rail service is inadequate. The road service to the south is reasonable, as anyone who travels down the M6 would accept, but the road to Europe—the road from the west of England to the east—is appalling. By any standard, the A69 and the A66 are appalling. I welcome the Government's decision to improve the A 1 to motorway standard, but we shall not see the benefit of that until the Government decide to develop the A66 as a dual carriageway. That is another example of the way in which the Government are not generally prepared to invest in the infrastructure. My city is doing well not because of its manufacturing base but because of its service base, because it is the regional capital of Cumbria and because we now have a major shopping centre. Unfortunately, however, due to the Government's policies in the past, too many of the shops that are doing well in my constituency are selling goods that have been made abroad. We see the words, "Made in Great Britain" on too few labels. It is always "Made in Germany"—I keep returning to Germany—or "Made in Japan". The Government and the House must realise that unless we can manufacture more higher-quality goods and sell them abroad, no matter what we do with the exchange rate we shall go bankrupt at the end of the exercise if we do not put our balance of payments right. Great Britain Limited will not cease to exist, but it will cease to be an economic power just as it ceased to be a nation with an empire. We shall sink as Greece sank from being a great power with a major say in what went on in the world to a nation that is regarded as not in the front rank. I do not want to see that happen to Great Britain Limited. Unless we are prepared to take initiatives such as the one in new clause 2, we shall fail. The new clause is not an answer, but it is part of an answer. In the Budget the Government once again entirely ignored the problem of the decline in manufacturing industry, but we ignore it at our peril. It is easy to make proposals in opposition, but I hope that the next Labour Government will recognise the need to manufacture more, invest in new equipment and re-equip our industries. Let us buy an H registration car for our industry, instead of running it on a B or C registration as we are doing now—let us give our workers the tools that they need so that we can compete equally with the continent and with the Japanese.Until a few moments ago I had not given the first thought to speaking in the debate. I have just attended a meeting with Ministers where we discussed industrial development and its implications for my constituency and the problems there. I do not wish to labour the point about my constituency. I simply wish to say a few words about the importance of measures such as that proposed in new clause 2 and why I believe that they are important.
Ministers will be aware that over the years I have always argued for a market analysis and that a free market in a mixed economy can be harnessed to deal with problems of unemployment wherever they arise in the country. I have never advocated massive state intervention. On occasions I have supported Government measures which I believed would have the desired effect. But there is a huge, gaping hole in the Government's position which persists today and from which I cannot understand why the Government refuse to move. I cannot altogether accept the Government's position, but I see the reasoning behind it. They believe that regional policies are not required in the sense that regional assistance is not necessary or could be reduced. That is not my case, but I understand the logic of the Government's case. They believe that it is not only the level of assistance that draws people to an area of high unemployment and that other factors should be taken into account. I reject the proposition that the Government should stand idly aside while sectors of manufacturing industry are lost which are significant to the national economy. I wish to give an example that I used in Committee some years ago. It supports my case more vividly than any other example. I was once a clock manufacturer. After I left the industry about 12 or 13 years ago I took an academic interest in it. I watched the destruction of the British quartz movement manufacturing industry. I saw it move from two firms to one firm and then from one firm to, in effect, the end of the industry. When there was only one firm, I saw the failure of Smith's Industries, which was a big employer in Wishaw in Scotland, to invest in the technology in which the Germans were investing. The consequence was that, in effect, Smiths lost its market. Now it is not even in business. I use the clock movement and quartz movement industry only as an example. Is it in the national interest to allow companies to lose labour, technology and expertise and allow an invasion of imports? That is the inevitable consequence of the Government's approach to industrial development. In my view, it is irresponsible to proceed on that basis. That automatically makes the case for returning to conditions in which some sort of Government machinery is responsible for defining the areas of manufacturing industry which should be supported by whatever means or mechanism to ensure their survival and, indeed, development. Under the Labour Government the Government machinery took various forms. There was the Industrial Reorganisation Corporation in the 1960s, the National Enterprise Board in the 1970s and then the National Economic Development Council, which had working parties to deal with various aspects of manufacturing industry and produce policies to ensure industries' survival and investment in them. In microchip technology Inmos is an example of where such a policy might be said to have been successful. One cannot avoid adopting such an approach to the modern economy. I do not envisage armies of civil servants sitting around in offices making macro-economic commercial decisions on who should invest where and how much. When arrangements such as I have described are restored, I envisage a far greater role for the private sector in terms of manufacturing, distribution, retail, banking or other experience in taking decisions. However, there is a role for people to ease our industry into a position in which it can compete effectively with other countries. To return to quartz clock movements, it seems that a product of which the Germans can produce tens of millions, the Japanese can produce hundreds of millions and the Koreans and Taiwanese can turn out could be turned out by Britain. Yet those countries send the mechanisms to the United Kingdom. The product could be made by British manufacturers. Why cannot Britain produce its own quartz clock movements? Why must every clock made in the United Kingdom have a Japanese or other foreign movement in it? It is because we have not taken a strategic decision on the clock industry. As I said, I have no family or other connection with the clock industry, but only an academic interest in what happens in so far as it illustrates my case. Surely a strategic decision should be taken and Britain should have a quartz producer that is capable of feeding case makers throughout the United Kingdom with movements to put in their clocks which they could then export round the world. There would be nothing wrong with that. It would not require the Government to bend an ideological principle or commitment to accept that proposition. It requires some flexibility and understanding that someone, somewhere must take a decision and make sure that resources are available. Whether someone wants to build a factory in the middle of Westminster or in John o' Groats is not a consideration here. We must simply make a decision to ensure that the products are made in the United Kingdom. The Minister might say, "Leave it to the market." When the Minister replied to me earlier, he said that he subscribed to the market. The market is not capable of taking the decision. While the market might identify the product, it might say that the investment required and the return on that investment was too long-term. No entrepreneur would be willing to enter the market on that basis. That is the dilemma. In many product areas short-term decisions are taken in the knowledge that, were longer-term ones taken, those products would not be viable. In the balance of calculation about how we frame our manufacturing industrial policy, I wonder whether we reasonably consider the longer-term implications of the decisions that should be taken. We cannot rely exclusively on the market, although we do not want the state to interfere by saying, "Put a factory up there. Here is all the money. It does not matter who you hire." We need the state to put together a package whereby we give birth to industry and the private sector is pump-primed to ensure that the manufacture of whatever product takes place in the United Kingdom in the national interest. 5.30 pm I have picked on one product, quartz clock movements—what an obscure product—but there are many others that one could cite. If one reads the Monthly Digest of Statistics one discovers areas in which there is a huge gap between the level of exports and imports. One also discovers product areas in which there is a preponderance of imports in the market. Those areas of heavy import penetration should be identified. I believe that my hon. Friends in the trade and industry team have published some figures that identify particular problem product areas. Those areas should be targeted. I am not asking for massive state funding to get industries off the ground, but the Government should devise policies to ensure that somehow those product areas lift off as centres of manufacturing industry. To some extent, the new clause meets that objective as it is the vehicle for identifyingparticular areas that might be targeted. I believe that I have not mistaken the aim of the new clause. In the past nine years we have been utterly reliant on the market to attract industry and, in that time, I have proposed that we should target particular areas to give birth to manufacturing industry. However, we are now moving to a different scenario. On our doorstep in eastern Europe a huge, new economic power is about to develop. In the short term, eastern Europe will offer cheap labour. It also has an absence of traditional trade union areas of restrictive practice. Many of the factories set up in western Europe operate on the basis of green-field sites even within the trade union legislative umbrella. Following the liberalisation of eastern Europe the trade unions created may mirror the trade union structure created in Germany after the war—I understand from my hon. Friends that Britain was largely responsible for that. Trade union development in eastern Europe may more closely mirror the industrial complexion of Germany than of other parts of the world, including parts of our manufacturing base. New trade union representational arrangements, green-field sites, new plant and development, cheap labour and the pivotal position of east European countries will mean that their industries will have a considerable advantage over companies that locate in the United Kingdom. After all, those countries will have far easier access to Europe's main markets, despite the advent of the channel tunnel. How will Britain compete if we rely exclusively on the market mechanisms to which the Minister is totally committed? To some extent, I share his commitment, but how can we possibly compete? I understand that reservations have been expressed by some industrialists in West Germany as they appreciate that the drift will be for new plants and factories to develop in Czechoslovakia, Poland and particularly in Hungary. Such developments will also take place in other parts of eastern Europe as they open up. If that happens, how will we compete? In those conditions we might be forced to reassess whether regional policies are required to deal with the problems in areas such as west Cumberland. In three years' time, when we are through the hoop of at least some of the difficulties that will arise in eastern Europe, for which the European Bank for Reconstruction and Development will take responsibility, capital will be funnelled into eastern Europe to take advantage of the new markets created. I do not think that it will then be easy for the United Kingdom to attract industry to areas such as my own. In those conditions, the new clause would be even more important because at least it addresses the problem of targeting assistance into manufacturing companies. At least that would give us a competitive edge against companies starting up in other parts of Europe, especially eastern Europe. Although I want eastern Europe to develop, I am extremely concerned about its implications for the United Kingdom, particularly if we have a Government who remain ever wedded, in an unrelenting fashion, to the principle of a free market that is able to respond to the industrial and employment needs of our people. I cannot place my faith in that analysis and I believe that there are some Conservative Members who share my concerns. The new clause does not require any massive compromise on the Government's ideological stance. I believe that the Government should look favourably upon it. Despite any reservations that the Government may have about the new clause—its wording, the appeal system or the extent to which it can be implemented—were Ministers to say that they took on board its central thrust, I am sure that British industry would respond favourably."in the Standard Industrial Classification issued by the Central Statistical Office"
This has been an interesting and wide-ranging debate. The hon. Member for Berwick-upon-Tweed (Mr. Beith) ranged particularly wide and made a real motherhood speech. In a debate that was meant to be about capital allowances, he managed to introduce the channel tunnel, proportional representation and his favourite subject, the ERM, all of which he felt would solve whatever investment problems existed in the British economy.
I am sorry that the hon. Gentleman is not in his place because I wanted to explain why I had not given the cost of the Opposition new clause. It is difficult to give the cost because it depends on how successful the proposal would be in generating new investment. As drafted, it is not restricted specifically to new investment. It would apply to existing investment, so potentially it would have a huge deadweight cost. Disregarding that, if it attracted just new investment, the cost might be about £260 million in 1991–92 and a further £360 million in 1992–93. While the costs are difficult to quantify, if the hon. Member for Derby, South (Mrs. Beckett) were successful in her proposition and it brought forward more investment, the costs would be higher. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made an interesting speech and was concerned that I had not referred to the balance of payments and current account deficit. I did not do so because I had not anticipated the debate being so wide-ranging. I differ from the way in which the right hon. Gentleman views the current account deficit—I do not regard it as the profit and loss account of the nation, as many Opposition Members appear to do. As I have said on many occasions, the current account deficit reflects much more a phenomenon of excess demand in the United Kingdom and not of a loss of competitiveness. If it were a loss of competitiveness, we should not be seeing the extraordinary growth in exports, particularly manufactured exports, that we have witnessed in the recent past, particularly in the past 12 months. Although the deficit must be reduced, it is much more a symptom of excess demand—of inflation—than of anything else. Inflation is the main problem. When the hon. Member for Derby, South says that we do not recognise the problems, I assure her that we have always recognised inflation as a problem. Indeed, we recognise it much more than the Labour party is prepared to say it is a problem. We are absolutely determined to get inflation down and we regard it as unacceptably high.Does the right hon. Gentleman accept that a reason for the deficit may be the fact that there is a structural problem in relation to British industry? In large areas of the production of consumer goods, are we not producing because the production is done abroad?
I do not accept that the current account deficit reflects structural problems. The great structural change, to which the right hon. Gentleman refers, that occurred in the British economy took place in the early part of this decade. The structural change in our current account deficit has occurred in the last few years—in the period when demand has plainly been excessive—when the Government responded to the conditions of 1987, a response which, with hindsight, was over-generous. But it is not a structural problem because the structural changes—the loss of some manufacturing capacity, the most inefficient and unprofitable—all occurred in the early 1980s, whereas the phenomenon of the current account deficit is more recent.
The right hon. Member for Ashton-under-Lyne dwelt on manufacturing, and I shall say more about that, but he also played down the role of the service industries in the economy and referred to services as though they were totally dependent on manufacturing. I suggest that that is the wrong way to look at it. Services and manufacturing are interdependent. Some manufacturing industries have a close relationship with service industries. For example, the output of the computer industry is heavily influenced by the demands of the financial services industry. The idea that services are not wealth-creating or are dependent entirely on manufacturing is a myopic and out-of-date view. 5.45 pm I freely agree that manufacturing is an important part of the economy, but it is no use harking back to an age that is past. In the early part of the century, this country enjoyed about 75 per cent. of the output of the world's textile industry. Had Opposition Members been present over the years, they would have been complaining every decade as that percentage fell, reflecting an inevitable transfer of manufacturing capacity to some of the poorer countries. We should not be against that, as it has been greatly to the advantage of those countries. It was inevitable as poorer countries industrialised and came into the world trading system. The right hon. Member for Ashton-under-Lyne also felt that the 25 per cent. allowances under the new regime did not match depreciation. As he will recognise on reflection, writing-down allowances of 25 per cent. give an effective eight-year write-off period for machinery and plant, with relief, of nearly 60 per cent. of the cost in the first three years. The rate of depreciation allowed by the tax system compares well with commercial rates of depreciation in most situations. Obviously it varies, according to the assets and from one company to another, and there are also some special arrangements for short-life assets. The right hon. Member for Llanelli (Mr. Davies) made an interesting and entertaining speech, as he always does. He began by saying that the Government did not understand monetarism, a point that he often makes. I think that he sometimes tries to disguise the fact that he is a true monetarist, as we know from his remarks that interest rates are the best way of controlling monetary growth and that credit controls are ineffective. The right hon. Gentleman, when a Treasury Minister, studied these matters, understood them and drew the correct conclusions. That is why he occasionally feels that he has a licence to attack the Government for not being monetarist enough. I sometimes think that he is trying to cover up his own position. The right hon. Gentleman felt that the 1984 reforms had helped the service sector as opposed to manufacturing. It is true to a point that, by its nature, the reduction in allowances—which went more to manufacturing—benefited the service sector, but it depends on the profitability of the individual company. The changes gave the greatest incentive and reward to the most profitable companies, including profitable manufacturing companies. That is an important point to make about the new tax regime. Much of the debate has centred not on the new clause but on the economy. Indeed, it has been an economic philosophy debate about the role of manufacturing in the economy. As I said at the outset, manufacturing is extremely important to the traded sector. But Opposition Members are in danger of disregarding the other three quarters of the economy which comes from non-manufacturing. It is ridiculous to regard all wealth creation as coming from one sector. I said that if one looked at manufacturing as a share of GDP, one found that the transition in this country, which happened under the last Labour Government—the reduction in manufacturing as a share of GDP—has gone on for decades. It mirrors what has happened in European countries and in north America. The share of GDP represented by manufacturing in this country is comparable with the situation in France and America. In recent years, however, we have seen some encouraging signs, with remarkable growth in productivity in manufacturing. In the recent past we have also witnessed strong growth in manufacturing investment, which has grown by an average of 8 per cent. per year since 1983, compared with an average of 1.5 per cent. per year under the last Labour Government. I said that foreign investment had played a part, which illustrates that foreign companies do not regard the tax regime for taxing profits and giving incentives for investment as anything other than attractive. If they did, we should not be doing so well as we have been in attracting foreign investment. The hon. Member for Carlisle (Mr. Martlew) asked a strange question. He asked when a British firm last took over a Japanese car company. I was not aware that the Japanese had taken over any British car firms. What they have done is to invest in green field sites. Nissan and Toyota have been new green field investments, which should be welcomed by everyone, including the Opposition. I am sure that the hon. Member for Derby, South will agree, since Toyota is in her constituency, that there is no reason why Nissan and Toyota should not be regarded as just as much a part of the British economy as the Ford motor company was in the past. The hon. Member for Workington (Mr. Campbell-Savours) referred to his earlier speech on clocks, which I remember because I was here when he made it. The clock does not seem to have moved on very much since then. He said that he was in favour of market forces and did not favour interventionism. He went on to say that he favoured only a little bit of interventionism, but that sectors should be identified and there should be a bit of money in the resources. I fear that once we begin that argument, it is difficult not to do so with ever-gathering enthusiasm, as the Labour party does. The hon. Gentleman also referred to Inmos, although he was not quite sure what it did. He said that we were rather good at it, but it was a complete disaster.It is still there.
My right hon. Friend says that it is still there.
The Chief Secretary to the Treasury seems to question the balance between interventions and markets. Why is it that the Japanese target in that way? If they can do it, why can we not do it?This is not a debate on the Japanese economy.
But the Japanese do it.
I do not believe that the Japanese pursue the model that the hon. Gentleman describes. It may have been the model in Japan after the second world war; the Japanese may have a different relationship with their banking system, but that is a different matter. However, the relationship between the state and the industry is not as the hon. Gentleman describes it. [HON. MEMBERS: "MITI."] I hear Members on the Opposition Front Bench muttering about the Ministry of International Trade and Industry in Japan, but the role of MITI has changed considerably. The striking factor about the Japanese motor industry is the sheer number of different, competing companies, which is more significant than any alleged relationship with MITI.
There has been much argument about the state of manufacturing industry in this country. I can give no better authority than the director general of the Confederation of British Industry, who remarked a few weeks ago:No doubt Labour Members will describe that as hype, belief in a miracle and exaggerated Tory propaganda, but it is the considered judgment of the director general of the CBI. I much prefer his opinion to anything that the Labour party has put forward in this debate."We enter the 1990s with the supply side of the British economy in comparatively better shape than at any time in our history."
This has been a most interesting debate. I have a feeling that I may have misled the hon. Member for Berwick-upon-Tweed (Mr. Beith) earlier. I was so amazed by the figures that he gave on the cost of our new clause that I gave an example of the implications that it would have for an individual company. I also stressed that I thought his proposals were completely exaggerated. I am not sure whether I made that as clear to the hon. Gentleman as I would have wished, but no doubt he will deduce it from the record.
When he opened the debate for the Government, the Chief Secretary talked about growth and inflation during the decade, and how the Government's record was good and stood up well to any comparison. As the hon. Member for Berwick-upon-Tweed said, the Chief Secretary did not say anything else about inflation, and we all know why. The Chief Secretary talked as though growth had been spectacularly higher than at any time in our history. Growth rates during the decade as a whole were no higher than those that we had generally experienced before the initial oil crisis of the early 1970s. Although we were all pleased by the levels of growth achieved, they were not, I repeat, anything to boast about in terms of our general history and the development of the country's economy.What about our growth rate in the 1980s—was it or was it not above the EC average, and was it or was it not below that in the 1970s?
From memory, if one leaves out—as the Chief Secretary prefers to do—the figures at the start of this Government's period of office, from 1979 to 1980, the answer is yes. However, once those figures are included and we look at the Government's entire period in office, the picture is different. I made that point earlier. [HON. MEMBERS: "There was no oil."] As I hear from the Benches behind me, there was the minor matter of the large revenues that the Government enjoyed from the North sea which were not available to any previous Government. One must question the Chief Secretary's use of that set of statistics.
The Chief Secretary referred, however briefly, to the problems of the current account and suggested that part of the reason for them was increased investment. He said that investment goods had contributed to the deficit. As I am sure the Chief Secretary is aware, the proportion of imports of goods for investment and production—we accept that our imports are extremely high—is no higher than in the 1970s and early 1980s. If anything, the proportion has declined and many of the goods described in the categories of production and investment are not what most of us would think of in relation to the manufacturing industry. They include X-rays and coconut. I understand that in 1988, for which I have the figures, only 18.6 per cent. of manufactured imports were pure capital goods. Therefore, we can dismiss the argument that it is only the high level of goods for investment that has contributed to our current account deficit. The Chief Secretary said that there had been a strong growth in manufacturing investment, particularly in the past couple of years. He suggested that some commentators thought that there was a bit of a change and that there would be an even greater improvement in the near future. That is the most extraordinary claim of all, apart from the one that the Chief Secretary has just made and to which I shall return. Manufacturing investment as a proportion of our gross domestic product has declined since 1979 and is still nowhere near the 1979 levels. Even if we consider it in, not quite cash terms but constant prices, it returned above the 1979 level only as late as 1988.I had always understood that one of the difficulties about computing the percentage of investment in manufacturing industry was that when vertically integrated companies decided, for example, to hive off their transport function to an independent company, that became, by definition, no longer a manufacturing function. One of our difficulties in comparing the figures is that a great deal of what used to be called manufacturing is now called service.
That is one of the most spurious arguments that I have heard for a long time. There is no doubt that, under this Government, every section of the collection of statistics has been degraded and, in its use, been distorted. I am quarrelling not with the statisticians, but with the politicians who try to make a case that will not stand up to close examination. However one measures manufacturing investment and compares it with that of our competitors, there is no dispute—not even from the Government—about the figures that I have just given: as a percentage of gross domestic product, manufacturing investment has declined and, at constant prices, it has only just climbed back above the level from which it fell in 1979.
6 pm The Chief Secretary had the cheek to say a moment ago that since 1983 manufacturing investment has grown by an average of 8 per cent. compared with 1.5 or 2 per cent. under the last Labour Government. I remind him of a recent answer that the Chancellor gave my hon. Friend the Member for Carmarthen (Mr. Williams) which showed clearly what would have happened had the comparatively lower rates continued. I accept that there was a smaller rate of increase, year by year, in manufacturing investment under the last Labour Government. Nevertheless, had that rate of increase been attained by this Government manufacturing investment would be almost £2 billion higher than it is today. The Chief Secretary then suggested that investment might be improving; we certainly hope so, but we see little sign of that in his or anyone else's forecasts. The right hon. Gentleman asked whether the Opposition favour tax allowances of the sort trailed in our new clause. I thought that we had made it clear that we favour the use of tax allowances for investment, although we should certainly want them to be well targeted and used primarily by manufacturing industry. There is no difficulty about that, and I am not sure why the right hon. Gentleman thought that there might be. The Chief Secretary criticised me for suggesting that companies should not seek to increase their earnings per share. Of course, I understand that companies want to increase their earnings per share—that is what the market wants. I pointed out that we do not want companies to do this by fiddling accounting rules or by launching takeovers; we want them to improve their earnings by improving the performance of the company—a rather different point.The Minister put a price on the amendment, which reads,
Given that the goods covered are not classified in the new clause, surely it is impossible to price it."may be prescribed by way of regulations made under this subsection".
My hon. Friend is right. The new clause offers scope for careful targeting, which is why it was drafted in that way. To be fair to the Chief Secretary, he said that his costing was something of a guess. We must be kind to the Government; they have to find something to say and their guesses are growing increasingly desperate with every day that passes—
rose—
If my hon. Friend does not want to he kind to the Chief Secretary, I am happy to let him have another go.
The Government spread myths throughout the country about the cost of Labour's programme. If they included in their assessment the figure that the Minister gave at the Dispatch Box, it would be a gross misrepresentation. Certain products might be covered at a cost of less than £1 million. It is quite impossible to assess the cost of the new clause.
My hon. Friend is right.
rose—
If the right hon. Gentleman must.
The hon. Lady gave an astonishing reply to the hon. Member for Workington (Mr. Campbell-Savours). Is she really suggesting different rates of allowances, defined for specific sectors within manufacturing? That is what the hon. Member for Workington suggested, and she knows it.
My hon. Friend suggested no such thing. The Chief Secretary cannot have been listening. The new clause suggests no such thing, either. My hon. Friend merely suggested that it was important to define carefully the categories within which the allowance might be made, which is not the same as suggesting different rates.
The Minister said that there was not a scrap of evidence that a lack of capital allowances is harming investment. It is one thing to suggest that there has not been a dramatic deterioration in the figures since the abolition of the allowances—although there has certainly not been much improvement, as they are still low. But the whole point of the new clause was to suggest a slight alleviation of the predicament of interest rates being so high. All the statistics and Government and other forecasts for the recent period have shown the problems that industry faces because of interest rates, which are expected to have a damaging effect on investment, and that is what the new clause attempts to deal with. As to whether the problem will do long-term damage, I remind the Chief Secretary of what the April-May issue of "European Economy" magazine said. The Commission drew attention to levels of investment across the Community and referred to the Community's co-operative growth strategy—and to the fact that across the Community the growth of investment is stronger than the growth of gross domestic product. The Commission hoped for an expansion of 4 per cent. in real terms this year. However, the magazine also says that there has been a marked slow-down in some countries and says of the United Kingdom:It is significant that the Commission pointed out that that aspect is improving, although not as fast as it would like, in most Community countries; so this is another example of our competitiveness being harmed—and it is already poor. I referred earlier to the world competitiveness report produced by World Economic Forum. It lists the United Kingdom as a mediocre 12th of 23 countries, with its problems compounded by the fact that we are 16th in the table when measured by per capita investment in education, and 19th measured by the numbers enrolled in higher education. That, too, can only harm our competitive position. Several of my hon. Friends have made excellent speeches drawing attention to the problems of manufacturing industry which we believe the new clause might, in a small and temporary way, help to alleviate. The Chief Secretary ended by quoting the CBI, and I should like to do the same. The CBI called on the Government to make precisely this sort of assistance for industry a priority in this Finance Bill. The then president of the CBI referred to the danger that investment plans will be undermined"In this last country, gross fixed capital formation could actually decrease in 1990."
He spoke of these risks"by the high cost of capital, the squeeze on profits, and slower growth".
That is the danger. Throughout this debate the Chief Secretary has failed to refer to our enormous balance of payments deficit, and it has clearly emerged, as we feared it would, that the Government are not prepared to take steps or to consider measures to alleviate the problems faced by British industry—because they refuse to accept that they exist. One of the worst features of the Chief Secretary's remarks was his pooh-poohing of the idea that manufacturing industry was im"undermining Britain's growth potential throughout the decade".