4.10 pm
The Prime Minister (Mrs. Margaret Thatcher)
I have taken part in many censure debates over the last 20 years. With but a single exception, in which I was particularly involved, as was the right hon. Member for Cardiff, South-East (Mr. Callaghan), their outcome was a foregone conclusion. Nevertheless, I think that for the most part they were occasions when the parties of opposition, or some of them, were genuinely convinced that the Government of the day were grievously in error. I do not doubt the sincerity of the Opposition this afternoon. My task is to explain why I believe that the change of direction which they urge upon us would be fundamentally mistaken. Having listened to the right hon. Gentleman, it seems to me that what he wants is more of everything except financial responsibility.
Every one of us on the Government side of the House is as concerned as the right hon. Gentleman about rising unemployment. [Hon. Members: “Rubbish.” ] We recognise, as much as any on the Opposition Benches, the heavy toll of disappointment and frustration represented by every person on the unemployment [column 1302]register. We also believe that it is a cruel deception to pretend to the unemployed that it is within the capacity of politicians, on their own, to create employment that will last, or to avert indefinitely the disappearance of a job whose market has gone. What is more, protestations from the Opposition Benches would carry more weight if the Opposition's own record in office had been better. They know, and the right hon. Gentleman knows, that under the Labour Government unemployment doubled and that, at the peak in 1977, there were 1 million more men and women out of work than when they took office.
What did the right hon. Gentleman say then? He told us that it did not help to pretend that there were
“immediate and quick solutions.” —[Official Report, 3 March 1977; Vol. 927, c. 607.]
In 1978 he said that
“to suggest that the unemployment that is sweeping the Western world is due to the policies of Her Majesty's Government”
was
“sheer party politics.” —[Official Report, 24 January, 1978; Vol. 942, c. 1174.]
The tune has changed a little since then. Today, the whole centrepiece of the right hon. Gentleman's approach is the immediate reflation of the economy, which he would achieve mainly by increased public spending. He could finance that extra spending in one of only three ways. He could tax more, borrow more or print more, or, to judge by previous form, a combination of all three. The right hon. Gentleman admitted, when he was in government, that earnings were already too heavily taxed. He even took some inadequate steps towards reducing that burden. It took a Conservative Government to make the real breakthrough in cutting direct taxation and allowing people to keep more of the money they earned. We hope to go further in this direction.
Perhaps, rather than tax more, the right hon. Gentleman would advocate that we should relax our fiscal policy, which he did, and borrow more. I believe that another £3 billion has been mentioned. At a time when the demand for industrial and commercial credit is still high, for the Government to borrow still more could only have the effect of driving up interest rates. In our view, that would be one of the most damaging things that [column 1303]could happen to the private sector and to the prospects for jobs.
The outlook for interest rates depends crucially on curbing public spending and borrowing, a course to which the Government are already committed. The Government are determined to bring interest rates down further as soon as it is prudent to do so. [Hon. Members: When?] As soon as it is prudent to do so.
The only other way of spending more money would be to print more by relaxing the monetary targets. That is what the right hon. Gentleman advocated. He is telling the House that the Government's target range of 7 to 11 per cent. for this year should be increased. In doing so, he is abandoning any pretence that the attack on inflation is his first priority.
There are those who take the view that we should give up the aim of reducing inflation and simply adjust to the current rate. It is argued that this would avoid the formidable transitional problems we inevitably face. That was the right hon. Gentleman's argument. The history of the past 20 years has shown that attempts to adjust to inflation have merely led to ever-increasing inflation rates. Each time commodity prices or oil prices move upwards, we have been ratcheted to a new, higher level of inflation. Each time, it is argued, as the right hon. Gentleman argued today, that this should be accommodated because the price of preventing it would be too great.
The Government are determined to reverse this process. They are determined to establish credibility for sound financial management and to resist attempts to argue for more adjustment. Accommodating inflation does not mean stable inflation at a higher level. It inevitably means accelerating inflation leading to hyper-inflation. That would destroy confidence in our society and be a cheat and fraud on the savings of the people, particularly the elderly.
Mr. Robert Sheldon (Ashton-under-Lyne)
Is the Prime Minister aware that responsible financial management led Sir Winston Churchill to return to the gold standard and that he regarded this as the greatest mistake of his life because it increased the exchange rate, led to unemployment and led to the destruction of industry?
[column 1304]The Prime Minister
If the right hon. Gentleman has to go back that far, he really is in difficulty. I should like to give him a reply relating to a more modern and up-to-date time. The right hon. Gentleman the Leader of the Opposition—perhaps, the right hon. Gentleman supports this—suggests that we stimulate demand by printing more money.
Mr. David Stoddart (Swindon)
No.
The Prime Minister
Of course he does. That is exactly what he is doing. The answer to everything that the right hon. Gentleman said was given by his right hon. Friend the former Chancellor of the Exchequer, who said in 1977:
“If we tried to stimulate demand by printing money to give away at home, then we would run slap up against the problems that nearly knocked us off our feet last year (1976). We would increase the gap between what the Government spend and get in revenue to a size which we could not finance without raising interest rates to a level which choked off our industrial revival. So the only result would be to get deeper into the red, to send the pound plummeting and prices and unemployment rocketing.”
That is true. That is exactly what the Leader of the Opposition was advocating today.
There are those who say that we should accommodate inflation because they are not prepared to fight it. But there are also those who, unlike the right hon. Gentleman, say that although our strategy is right we are not applying it vigorously enough, that unless we reduce public spending faster, the effect of the monetary policies will bear too heavily on the private wealth-creating sector and on the very firms upon which we count to provide growth and jobs for the future. I understand and share these anxieties. It is, indeed, a danger, but the Government believe that, bearing in mind the many problems that we face, the pace of change is as fast as circumstances will allow.
It has been particularly difficult to reduce public spending when we have had to meet the cost of the Clegg and other comparability awards. That catching-up process—which follows the inevitable collapse of incomes policies—is now nearly over. The Government are making strenuous efforts to keep public sector pay settlements within what the nation can afford. We owe it to the private sector, and especially to the small businesses. [column 1305]If we want more money in the private sector we can have that only while we are fighting inflation by reducing the public sector. That is what the Leader of the Opposition will not face.
Mr. Dennis Skinner (Bolsover)
Is the Prime Minister aware that there is another area where public spending is increasing very rapidly? Does she agree with the words of the Minister of Agriculture, Fisheries and Food, at Warwick a few weeks ago, when he told the Tory Reform Group that of a public sector borrowing requirement of £9,000 million per annum, £7,000 million went to finance the dole queue? If she does not, will she explain what she is to do with her right hon. Friend?
The Prime Minister
First, I do not think that Peter Walkermy right hon. Friend said that £7,000 million of the £9,000 million public sector borrowing requirement—[Hon. Members: “He did.” ]—was needed to finance the dole queue. On the whole, unemployment benefit is financed out of the national insurance fund. If the hon. Member wants precise figures he must ask my right hon. and learned Friend Sir Geoffrey Howethe Chancellor of the Exchequer for them. However, neither the Leader of the Opposition nor the hon. Member for Bolsover (Mr. Skinner) can ignore the fact that if we are to continue to fight inflation we cannot have increasing public spending and more resources in the private sector. That is the conundrum that we have to try to solve.
The right hon. Gentleman also suggested that we should be one means or another bring down the exchange rate to help make British industry more competitive. I agree that a high exchange rate is making life difficult for some of our industries, but I must tell him that he greatly overestimates our capacity to influence or resist the markets.
Sterling has strengthened recently because we have North Sea oil and because investors overseas believe that our economic policies are right, that they will succeed, and that under a Tory Government Britain is worth investing in. I agree with them. I also concede that if overseas investors thought that we had thrown in the sponge in the fight against domestic inflation they would want to get out of our currency and it would [column 1306]fall. But is that really what the Opposition would advocate, bearing in mind what happened in 1976, when, under the right hon. Gentleman, the pound plummeted to $1.56? If it is, our answer must be “No” .
The right hon. Gentleman and his supporters have suggested the widespread imposition of import controls. We certainly believe in strong and vigorous action through the EEC against dumped or highly subsidised imports. At present the Community is actively pursuing complaints about dumping of petrochemicals and synthetic fibres. Although we are concerned about the level of import penetration, which increased considerably under the right hon. Gentleman, particularly in cars, we do not feel that general import controls really deal with the problem, and they could have very damaging effects on exports and on our industry generally.
If trade is two-way, barriers also work two ways, and in this country there are a lot of jobs in exports. Indeed, one-third of our manufacturing output goes into exports. We export a greater proportion of our GNP than all our major competitors—double that of Japan and four times that of the United States. Moreover, the right hon. Gentleman ignores the fact that import controls would raise prices to the consumer and would shelter inefficient industries.
We hear complaints about cheap imports from the low-wage developing countries, but last year we had a surplus of £2.1 billion in manufactures with them. We hear complaints about imports from the newly industrialised countries such as Korea, Taiwan and Mexico, but our surplus on manufactures with them last year was £1.2 billion. We hear complaints about imports from Europe, and yet nine out of 10 of our top export markets are European countries, with West Germany our best export market. Moreover, international companies have set up here on the basis that their products would have free access to Europe, for example Ford engines at Bridgend. Our industries must compete by the efficiency of both management and work force. It is no good demonstrating to keep yesterday's jobs. We shall not succeed. We can and do offer practical help to mitigate the effects of change, [column 1307]but we cannot resist it. We should foresee it, and we should adapt to new technology and new industry.
I see that the Labour Party is making another attempt to convince the country that it can make something saleable out of its special relationship with the trade unions. I even hear the magic words “social contract” being bandied around. But I doubt whether the country will be caught that way again. Let us remember what the social contract was designed to do. The Labour manifesto for October 1974 boldly said:
“The Social Contract is the trade unions' free acknowledgement that they have other loyalties—to the members of other unions, too, to pensioners, to the lower-paid, to invalids, to the community as a whole” .
Those are very fine sentiments. Four years and several stages of incomes policy later, we saw industrial disruption in schools, hospitals and old people's homes, and even in the ambulance service, and in some areas the bereaved were prevented from burying their dead. The truth is that the right hon. Gentleman was kept in power not because of support from the trade unions—who finally turned on him—but by his liaison with the Leader of the Liberal Party, without whom the Labour Government would have collapsed in 1977. That was the contract that really mattered.
I come now to the main part of the right hon. Gentleman's speech, which was concerned with unemployment. We are all concerned about the rising trend of unemployment, especially among young people. We are as concerned about unemployment having risen by some 600,000 under our Government as Labour Members were concerned at its having risen by 1 million under their Government.
Mr. Alexander W. Lyon (York)
rose——
The Prime Minister
We care just as much as Labour Members——
Mr. Lyon
rose——
Mr. Speaker
Order. The Prime Minister is not giving way and therefore the hon. Gentleman must sit down.
The Prime Minister
I am sorry, Mr. Speaker, I did not see the hon. Gentleman.
[column 1308]Mr. Lyon
Is it not right that the fastest rise in unemployment at the moment is among the long-term unemployed—those unemployed for more than a year—and that many of these people are over 50? Does the right hon. Lady agree that it is in this area that spending is being cut? Surely this is an area to which the Government should be giving some attention in seeking to ameliorate the impact of unemployment.
The Prime Minister
We are most concerned about the rise in the numbers of school leavers coming on to the register. We shall concentrate our efforts on them. The fastest rise in unemployment between May and July of a following year was under a Labour Government, when, between May 1975 and July 1976, unemployment rose by 613,000, which is more than it has risen under this Government. At the same time, inflation reached 26.9 per cent. and the exchange rate 1.78 dollars. Whatever our record is, it is not as bad as that.
The Government are just as concerned as the Opposition about the sheer waste and lost opportunities that unemployment entails. Our differences arise in terms of the causes and the cure. What we had from the right hon. Gentleman was an assortment of palliatives that in the long run would only worsen the situation. He would like us to take the country down the same path as that taken by the last two Labour Governments. Yet look what happened to jobs under those Governments. Under the first one, when the right hon. Gentleman was Chancellor, between 1964 and 1970 the number of jobs in the economy fell by over 300,000. That was under Labour. Between 1974 and 1979 the number was virtually static. This contrasts starkly with what happened under Tory Governments. In 1964 there were nearly 2 million more jobs than in 1951, and in 1974 there were 300,000 more jobs than in 1970. These figures speak for themselves.
Let us consider the causes of the disturbingly high level of unemployment that now faces us. I believe that there are four. The first is the simple fact that more and more people have been coming on to the labour market. The increase in the number of school leavers is making the problem of youth unemployment especially acute. Secondly, [column 1309]the recent tripling of oil prices has triggered off a world recession similar to that of 1974–75. There is no way that we can escape the effects of this recession. Unpalatable though it may seem to the Opposition, all the industrialised countries have now learnt that the idea of spending their way out of recession is no more an option for them than it is for us.
The third reason for our rising unemployment is our failure to adapt to changing conditions and changing patterns of trade. In the process we have lost more and more jobs to other countries. It is a sad fact that wherever the trade unions have tried to protect jobs and living standards by industrial action and restrictive practices they have all to often thrown those jobs—or someone else's jobs—away.
Let us take General Motors, for example, which, because of its experience with strikes at Ellesmere Port, is expanding in Europe rather than in Britain. Let us take the closure of British Leyland's Speke factory because employees refused revised manning levels. Let us take the incredible delays in the construction of power stations. While preserving a few jobs in one industry, the cost has been higher electricity prices and many fewer jobs in other industries.
Other countries are suffering from structural unemployment, but ours is worse because we are slower to respond to change. The Government are trying to encourage change. That is why we have freed industry from controls.
The Labour Party wants to go back to controls and its beloved planning agreements. I understand that the right hon. Member for Chesterfield (Mr. Varley) is particularly attached to them. He once managed to negotiate one. The Labour Party wants an ossified economy. Why else does the right hon. Gentleman berate us for suggesting that we need greater mobility?
With continuing skill shortages and a much higher ratio of vacancies to unemployed in some parts of the country than others, a greater willingness to move must help. [Hon. Members: “Where?” ] The distribution of vacancies around the country is 45 per cent. in the South-East and 55 per cent. over the rest of the [column 1310]country. I would think more of what the right hon. Gentleman said and what the Opposition are now shouting if it were not for the fact that under Labour, unemployment in Wales rose by 208 per cent.
A fourth and much more immediate cause of unemployment is the recent level of pay settlements, which have not been matched by productivity. Trade unions have been demanding, and too often getting, for their members increases that their employers could not afford.
Pay in the United Kingdom has been going up twice as fast as that of our competitors. With the strong pound, this has meant a massive loss of competitiveness.
Mr. Dick Douglas (Dunfermline)
Will the right hon. Lady tell the House in which areas of the country there are vacancies, and in what skills?
The Prime Minister
I did that a moment ago, when I gave the percentages. Do not the Opposition realise that each month 250,000 people go off the unemployment register? They find jobs. It is not a static position. At the moment there are comparatively few vacancies—126,000—but that figure has not touched bottom. It was lower under the last Labour Government. We must multiply by about three to get the actual number of vacancies. As the hon. Gentleman goes over the situations vacant columns in many local newspapers throughout the country, as he has, he will find many vacancies.
A fourth and much more immediate cause of unemployment is that the recent levels of pay settlements have not been matched by productivity. By paying themselves more than they have earned, people have put their own jobs at risk. When they have passed it on in higher prices they have also put the jobs of others at risk, and by taking for themselves the money that otherwise would have been available for new jobs they have worsened the prospects for school leavers.
Mr. Jack Ashley (Stoke-on-Trent, South)
rose——
The Prime Minister
I must carry on now. [column 1311]
Too much pay means too few jobs. We have set out our monetary targets for several years ahead, so that management and unions may negotiate against that background. If earnings exceed those targets, unemployment will rise. If earnings are well within that range, there will be room for growth and more people will be at work. No one can opt out of this responsibility.
Unlike the right hon. Gentleman after his reconversion to Socialist economics, we can make no pretence that Government alone can control the level of employment in a free society, but we do regard it as a duty of the Government to facilitate change and to alleviate its effects.
We are spending more on training measures, especially for young people, than the last Government spent. My right hon. Friend has rightly pledged that by Easter of next year every school leaver will have been offered a job or a training place under the youth opportunities programme. We are continuing to assist industry directly. For example, today we announced grants of £6.1 million to Dunlop for the modernisation of its United Kingdom tyre operation. The two factories are in Birmingham and County Durham.
Mr. Ashley
I am sorry to persist. If the Prime Minister insists that high wages and the lack of technological change are two major causes of unemployment, as she has just done, how does she account for the fact that in the Potteries there are moderate wages, a great deal of technological change and massive exports, and yet we are faced with very serious unemployment?
The Prime Minister
I gave four reasons for increasing unemployment, of which one was the world recession. That world recession came about because people have to spend more on oil than they did before. That means that they have less to spend on other things. That does not obviate the fact that one of the main causes of unemployment now is that people take more for themselves at the expense of jobs for others.
Mr. John Morris (Aberavon)
rose——
The Prime Minister
I might have some news for the right hon. and learned Gentleman in a moment. [column 1312]
Another project to which we have been giving careful attention is the National Enterprise Board investment in Inmos. The House will remember that under the previous Labour Government the bulk of the first £25 million went to providing a factory and jobs in Colorado Springs. About six months ago the NEB recommended that we should provide the second tranche of £25 million to build the first United Kingdom production plant at Bristol, where Inmos has already built its technology centre.
We had grave doubts whether we could justify building the factory at Bristol, in view of greater needs elsewhere. As a result of a full-scale review, the NEB has recommended that the production plant should be situated in South Wales. We have decided to approve the second £25 million on that basis. This factory is expected to provide about 2,000 new jobs over the next three or so years.
In his Budget Statement my right hon. and learned Friend Sir Geoffrey Howethe Chancellor of the Exchequer announced proposals for establishing enterprise zones in areas of economic and physical decay. Both the private sector and many local authorities, including many Labour authorities, have recognised this initiative as offering a real prospect of stimulating investment and job creation. Enterprise zones will offer special advantages to business and will encourage investment and initiative.
My right hon. and learned Friend announced the names of a number of authorities which had been invited to make proposals for enterprise zones in their areas. We have now selected seven locations for possible zones. They are as follows: in Northern Ireland, the inner area of Belf* in Wales, in the lower Swansea valley; in Scotland, based on Clydebank; on Tyneside, parts of Newcastle and Gateshead; on Merseyside, Speke; in Greater Manchester, parts of the Salford docks area and the Trafford Park industrial estate; in London's docklands, the Isle of Dogs, where we propose that the urban development corporation should be the enterprise zone authority. My right hon. Friends will give further details in statements later today.
Mr. Donald Anderson (Swansea, East)
rose——
[column 1313]The Prime Minister
No, I must go on. The success of the zones will depend in large measure on the willingness of each authority to agree to planning relaxations and on their ability to come to quick decisions. The zones will be designated only if we are fully satisfied on these matters.
In view of the enthusiastic response from a number of other authorities we have decided to consider one or two additional areas for enterprise zones. One of these will be in the Midlands.
Mr. Anderson
rose——
The Prime Minister
Enterprise zones demonstrate the Government's determination to tackle the problems of economic and physical decay in an imaginative and radical way. We are creating an opportunity unequalled in modern times.
We regard it as a duty of the Government to mitigate the economic and social effects of change. We are prepared to help the transition to higher productivity and to more jobs. We are not prepared to buy a few extra jobs now at the expense of higher inflation and higher unemployment in future.
Despite existing difficulties, there are many exciting developments going on which are creating new jobs. [Hon. Members: “Where?” .] In Scotland, the electronics industry is growing rapidly, with IBM, Motorola, National Semi-Conductor and Pye all expanding their operations, to name just a few companies. In Wales, Sony is planning a further substantial development. A new titanium plant is to be built at Shotton and a new canning plant has just opened at Wrexham. Those are some examples.
What we need now is a determination to make all our industries competitive. That can be achieved only if we get inflation down.
In summary, we adhere firmly to our monetary strategy. The rate of inflation has started to fall. Interest rates, though still too high, have begun to come down. To reduce them further it is vital that we keep strict control over Government spending and borrowing. Unemployment is inevitably rising because of world recession and excessive pay settlements. A reduction of inflation and the growth of pay within the monetary target will lay [column 1314]the basis for growth and the prospect of more jobs.
When the recession ends, the vital need will be to be competitive. When trade revives we must be ready and able to increase our share of the market. Then there can be a real prospect of prosperity and growth. Instead of using the revenue from North Sea oil to suck in imports and impoverish our industries, we shall be using this great asset to rebuild them and to provide a better standard of life for everyone.
It is no good dreaming about U-turns. There aren't any available. To adopt our policies is to be realistic and optimistic about our people, their ability, their resolution and their future. Far from demoralising the country, we are doing what the country elected us to do. This Government will have the guts to see it through.