Economic and Industrial Policy
The Prime Minister (Mrs. Margaret Thatcher)
I beg to move,
That this House approves the economic and industrial policies of the Government; welcomes the continuing fall in the rate of inflation, greater realism in wage bargaining, and increasing awareness in industry of the need to be competitive; and recognises that lower inflation, higher output, an expanding private sector and better industrial relations provide the only secure basis for more jobs.
Order. I have selected the amendment in the name of the right hon. Member for Ebbw Vale (Mr. Foot).
The Prime Minister
The debate takes place when there is growing concern, inside and outside the House, about the very high level of unemployment. Despite all the measures that the Government are able to take in the provision of unemployment and supplementary benefits, and other forms of help, the loss of a job and the inability to find another is a human tragedy as well as a tragic waste of resources. That, at least, is common ground for every hon. Member.
I think that it is also common ground that a stable currency and the restoration of honest money ought to be the objectives of any Government. Nevertheless, in recent years we have suffered both high inflation and high unemployment, and what divides the House is how best those twin evils can be overcome. I want to set out the policies of the Government and, in doing so, to look at some of the proposals that the Opposition and the TUC are urging upon us.
The centre-piece of the Government's strategy is, and will remain, the conquest of inflation. That would be a worthy enough end in itself. Indeed, to have any other objective would be to set out to cheat all those who have saved. But the fight against inflation is far more than that. It is the only way in which we can achieve our other economic goals. For inflation and unemployment are not alternatives, except in the very short term.
For years there was a widespread belief that we could have inflation and a high level of employment at the same time. For years there was a belief that we could secure more jobs if we were prepared to put up with a little more inflation—always a little more, it was thought.
However, the experience of the past 25 years has taught us on the Government Benches that those beliefs were a most damaging illusion. Inflation and unemployment, instead of moving in opposite directions, rose inexorably together. As Governments tried to stimulate employment by pumping money into the economy they caused inflation. The inflation led to higher costs. The higher costs meant loss of ability to compete. The few jobs that we had gained were soon lost; and so were a lot more with them. And then, from a higher level of unemployment and inflation, the process was started all over again, and each time round both inflation and unemployment rose. In Parliament after Parliament, each new Government had a higher average rate of inflation and unemployment than the preceding Government. It is that cycle that we have set out to break.
Labour Members and their friends in the TUC are advocating that we should do just the same again. But what do their proposals amount to? They would mean a huge [column 416]injection of money into the economy, which would take us on to still higher inflation and no prospect of unemployment ever coming down. That is one of the main differences between the Opposition's policies and those of the Government. Their case is that extra public spending would reduce unemployment. But it would not work. That is not a recipe for more jobs; it is a recipe for more inflation and even fewer jobs.
It seems to us that the Opposition have deliberately turned their backs on the lessons of the past quarter of a century. They have put forward a prospectus that has been discredited by experience. Their proposals are a return to the very policies that led to our problems in the first place.
Instead of relying on wage and price controls, which never work for long, the principal weapon that we have chosen for getting inflation down is control of the money supply. Although the new Shadow Chancellor has abandoned the monetary convictions of his predecessor, some Labour Members—and some Members on this side of the House—will still consider that the rate of monetary growth in the second half of last year was too rapid. But the fact is that, whatever the figures for one indicator may show, monetary conditions taken as a whole have been tight and have helped to bring down inflation. Over the past six months retail prices have gone up by only 3.7 per cent., although I believe that the figure understates the underlying trend, because of the pattern of price increases during the year.
The second aspect of the Government's strategy, which goes hand in hand with the fight against inflation, is the sustained effort that we are making to reduce the pressure on the economy created be excessive Government spending. Unless that is done there will not be room for the private sector to prosper and to create jobs, and most jobs are created by the private sector. An overgrown public sector financed by an overburdened and over-taxed private sector struggling to cut its costs to the bone would be another recipe for unemployment.
We have made some progress in reducing the extravagant plans of the previous Government, but, because of the effects of the recession, there have been some unavoidable spending increases, particularly on nationalised industries and unemployment benefit. However we shall come out of the recession with a substantial reduction in the underlying level of public spending. That will leave room for expansion in the private sector, where most of the new jobs will be created.
The proposals that we have had from the TUC to increase public spending by £4.7 billion at the same time as reducing taxes would take us in completely the wrong direction. If the TUC's proposals were financed honestly they would lead to increased borrowing, and thus to higher interest rates, which would damage industry's chances of recovery. But if, as is much more likely, they were not financed honestly, we should be on the road to hyperinflation.
Thirdly, to secure more jobs and a higher level of employment, unit labour costs must be competitive with those of our rivals. The fact is that for years our industries have been overmanned and have had a lower level of productivity than those of our competitors. Hence our decline. But the policies that we are following are obliging employers to increase efficiency and cut costs. If we are to be competitive and to get more jobs in the future, that is exactly what we must do. It is no good Labour Members [column 417]laughing. It is just that attitude that has lost us orders and given orders to our competitors, so that they have more business and more jobs than we have.
Because employers have been so successful in cutting costs and increasing efficiency, we find that the fall in output has been accompanied by a much larger increase in the level of unemployment than would have been expected. That is a measure of both the extent of overmanning and the progress made in solving it—progress that is essential for survival.
The level of wage increases unrelated to output has been the other main factor in making some of our industries uncompetitive. For a time that position was obscured, as increased pay was offset by a falling exchange rate. That could not go on. Many of us can remember the alarm felt in the House and in the country when, because of the policies of the Labour Government, the pound fell below $1.60, and we know the difficulties and shame that that caused to Britain.
Of course, the exchange rate has risen rapidly, and the speed at which it has risen has led to considerable problems of adjustment. I do not underestimate those problems. They make it more important than ever that higher pay should be matched by higher output. Although pay settlements have moderated in recent months, some are still too high. The Ford settlement, at 9.5 per cent., was widely acclaimed, because it was in single figures. However, Fords in Germany settled at 5.8 per cent. Unless, therefore, our productivity takes a leap, our competitors will pull ahead even further.
Pay negotiators are now learning—alas, the hard way, and not with much help from Opposition Members—that excessive settlements mean bankruptcies and fewer jobs. But, Mr. Speaker, competitiveness is not only a question of cost and price. We have been losing out for years in terms of new technology, new investment and new products.
One of the reasons has been the declining profitability.
Mr. Peter Tapsell (Horncastle)
The Prime Minister
One of the reasons for the declining profitability is that people earning wages and salaries have taken too much out for today and left too little for investment tomorrow.
If my right hon. Friend has finished her interesting and clear remarks about the exchange rate, may I draw her attention to the report issued by Reuters this morning, which has already been transmitted all over the world, that the British Government now intend to pursue a different exchange rate policy in order to help British industry? If that is so, there are many people in industry and elsewhere who will welcome that announcement, because it may help to restrain the rising levels of unemployment.
The Prime Minister
I know the particular interest that my hon. Friend has taken in this subject for a long time. The problem with the exchange rate has been the speed at which it has increased. It is, of course, noteworthy that it now stands at $2.34–$2.35—precisely the rate at which it was standing when the Labour Party came to power in 1974. After that, it rose slightly. But the real problem was that the exchange rate plunged sharply under Labour stewardship. It has gone up quickly again. [column 418]
That rapid increase in the exchange rate caused tremendous problems, particularly for industries that are exporting. We do not have a positive policy for intervening in the exchange rate. Such intervention cannot resist the market for long. We do not know the precise relationship between interest rates and exchange rates. But, of course, we shall bear in mind the height of the exchange rate when taking other decisions. We cannot constantly intervene to keep it down, because there is nothing that can resist the market for long. Moreover, we have to bear in mind that one of the influencing factors is what happens in other countries. It would not be possible to have a policy in this country which constantly sought to overcome and take into account those factors.
Mr. Dennis Skinner (Bolsover)
It is the same old story.
The Prime Minister
Of course it is the same old story. Truth usually is the same old story. That fact has never penetrated the hon. Gentleman's mind.
The truth about this Government is that they deliberately engineered 2½ million people on the dole—the figure is still rising, and will probably rise to well over 3 million—in order to subjugate the trade unions and the workers, through fear. That is the policy of the Government, and that is why we shall eventually get the right hon. Lady out of power, either in this Chamber or outside.
The Prime Minister
That is not the truth. It is just plain rubbish. It is the sort of rubbish that we expect from the hon. Gentleman. It would appear from the latter part of his remarks that he is more interested in what happens outside this Chamber than in the process of democracy. Indeed, he is the face of the true new Labour Party—not of its democrats—those who have moved further and further left, towards the East European type of economy.
In reply to the hon. Gentleman's particular comment that he, his party and his Government had all the answers in a magic formula, why did they allow unemployment to rise to 1.6 million?
We were discussing matters that are important if we are to lower the level of unemployment. I was talking about declining profitability, which has left too little for investment. Another of the reasons for declining profitability has been that companies that have invested have often been unable to use their new machinery efficiently because of restrictive practices and resistance to change. Clearly, companies will not invest unless unions allow them to use the new equipment and machinery for the benefit of the companies and of all those who work in them. It does not seem to occur to Opposition Members that one of the main reasons why British industry——
Mr. Arthur Lewis (Newham, North-West)
A moment ago, the right hon. Lady said—I accept her word—that she is interested in trying to reduce unemployment, subject to work, output and productivity. Can she give any logical reason why the Government cannot reduce to 60 the pension age for men, on a voluntary basis, as a means of giving genuine help to the unemployed? Those who want to go on pension could do so, and thus make way for younger people. The Government could do that without any trouble, but they have said that they will not do that. Why not?[column 419]
The Prime Minister
We already have a limited job release scheme for those who retire early—I think at the age of 64. Their places are taken by young persons on the register. It would be financially difficult to reduce the pension age to 60. There are already about 9 million pensioners. The national insurance scheme is financed on a pay-as-you-go basis, namely, that contributions put in this year are paid out in pensions and benefits this year. The main reason is the enormously increased pension that would be paid out as many more people took advantage of much earlier retirement. That cost would have to be met by much larger contributions, both from employees and employers. The sums involved would be very large.
I return to the subject of what we have to do to get people back into good jobs with a future, during their working lives.
What I say is intended to be helpful to the people who are concerned. I agree that it would cost money, but it is not inflationary. Is it not true that those old-age pensioners of 60 would be replaced by people who are now on the dole? The dole money would be saved, and younger people with families would be helped. They are the people who want the work. A lot of money would be saved on supplementary benefit.
The Prime Minister
Yes, but the best estimate that we can make of what the hon. Gentleman proposes would be a net cost of £1.7 billion. That is a net increase on top of the already high social security budget.
I turn to the vital need to be competitive if we are to get more orders to our factories. It does not seem to occur to hon. Members opposite that one of the main reasons why British industry has been short of orders has been that it could not compete, and a reading of the TUC Economic Review for 1981 suggests that they have not learnt this lesson, either. There is scarcely a reference to competitiveness, productivity or profitability in the whole document.
Our competitiveness will decline further unless management and work force share an understanding of the need to earn sufficient profits for investment, for development and for innovation. It is not enough to look only at next week's wage packet if one wants job security.
The Government, and particularly the Secretary of State for Employment, are doing all that they can to promote this understanding. But the Opposition say that we should return to their tired old formula of more Government intervention, more controls, more nationalisation. That is the last thing that the country needs.
Our approach is to return the responsibility and the initiative to where it belongs—to the management and to the workers in the business itself. It might take some time to achieve that, but it must be done if we are to realise the full potential that is in Britain.
Mr. Gordon Wilson (Dundee, East)
Does the Prime Minister recognise that in some parts of the United Kingdom, particularly in Scotland, de-industrialisation has proceeded so fast and so far that one cannot leave everything to the management and the work force, because industries are being obliterated day by day? If there is no change in Government policy there will be nothing left to revive.
The Prime Minister
The hon. Gentleman has misunderstood. Industrial relations inside the factory must [column 420]be left to the management and the work force. Responsibility for matters connected with the factory must be returned to them. Of course, in Scotland we have regional policies. New inward investment factories that go there receive grants under the Industry Acts to help them set up and expand.
The fourth element in the strategy is that the Government have to set the right economic framework. This Government recognise that unless the economic climate encourages enterprise and risk-taking, new jobs will not be created and old jobs will disappear.
That is why we reduced the basic and higher rates of income tax nearer to the levels of our main competitors, so that those who have the talent and energy to create new business will do so in this country. That is why we also reduced or abolished many restrictions that prevented companies from responding to the needs of the market and developing their own initiatives. Now prices are set not by a price commission but by competition. That policy is of much more benefit to the housewife.
These are the only policies that will succeed in the long run. However, we recognise, of course, that there are real difficulties during the transition period. As a Government we are therefore doing everything that we can to cushion the harsher effects of change, to help people through the difficult times, and to stimulate new industries, especially in areas where unemployment is at its worst.
That is why we accept that we have a special duty to young people who have not been able to find a job. The schemes that we use were instituted by our predecessors. They faced similar problems. They, too, knew from experience that there was no magic solution. If there had been, the right hon. Gentleman who was Secretary of State for Employment at the time would not have presided over the doubling of unemployment. We have extended the programmes so that we can offer every unemployed school leaver work experience or training within six months of leaving school.
That is why we have increased our training programmes, so that older people who have been unemployed for a long period can train for new skills. That is why we have continued the temporary short-time working compensation scheme. Special employment and training programmes will cost about £850 million this financial year, and they are currently helping about 800,000 people. All of that is because we recognise that it is our duty to do everything that we can to cushion the harsh effects of change, to help young people, and to help people retrain for the jobs that are ahead.
On the industry side we have done everything that we can to encourage overseas investment in development areas.
Mr. Alexander W. Lyon (York)
Will the Prime Minister give way?
The Prime Minister
May I carry on a little further?
We have introduced the concept of enterprise zones. They will bring a real stimulus to the worst-hit areas, where they will help to provide a sound base for future prosperity. Nine zones have already been announced, and we have promised a further zone in the North. I am glad to be able to tell the House that we have decided that there should be two northern zones—one in Hartlepool and the other in South Kirkby, near Wakefield. [Interruption.] I had hoped that Opposition Members would be glad that [column 421]there are to be more enterprise zones. If they are not, I can assure them that many of my hon. Friends would like enterprise zones in their areas.
I am bound to say that our concern about employment was an important factor when we took the decision on British Leyland. I hope that all concerned at British Leyland will make a real success of their opportunities. The money for British Leyland must come ultimately from profitable industry, and we shall therefore watch the company's performance closely. Those who receive the money have a duty to be as efficient as those who provide it.
These selective policies are an essential part of our strategy. The important thing is that they should work towards the markets of the future rather than preserve those of the past.
I shall now deal with the cost of unemployment, a matter that has been raised frequently by Opposition Members and that was raised recently at Question Time. The argument is that if the nearly 2½ million people who are out of work were all employed profitably it would be of great benefit to our country and to the Exchequer, and that therefore it would be better to use the money now paid out in unemployment benefit and social security benefits to create new jobs for them.
However, the money that we spent on unemployment benefit this financial year—£1.2 billion—and on associated social security benefits—also £1.2 billion—is not nearly sufficient to create the necessary jobs. The costs of equipment, accommodation, supervisors, materials and other overheads would put the total cost of such a scheme far, far above £2.4 billion. Where would this extra money come from? Would we borrow it, or would we print it?
We are, of course, already spending substantial amounts on schemes to help the unemployed. Indeed, I have referred to them already. To spend money on the scale suggested by some of our critics is just not on. It would almost certainly be at the expense of some people now in work.
Will the Prime Minister give way?
The Prime Minister
I shall give way first to the hon. Member for York (Mr. Lyon), who tried to intervene a few minutes ago, if the hon. Member for Bolsover (Mr. Skinner) will kindly contain himself in patience.
Mr. Alexander W. Lyon
When I intervened the Prime Minister was talking about the YOP programme. Will she give an assurance that there is no prospect of any people involved in that programme doing military service?
The Prime Minister
As was announced yesterday, the Ministry of Defence already provides some jobs on the youth opportunities programme. At present it is considering whether it can contribute to that programme by providing more jobs. It seems that a number of people would appreciate the opportunity of working under that scheme with the Ministry of Defence. Of course, any scheme would have to comply fully with the rules of the youth opportunities programme and, of course, it would be voluntary. It would merely be an extension of opportunity. I now give way to the hon. Member for Bolsover.
It is well known that the amount of money that is lost as a result of having to pay people to [column 422]be out of work is much greater than the £2.4 billion to which the Prime Minister referred. She carefully avoided reference to tax rebates and the tax that would be paid if people were in work, and many other contingencies.
The Minister for Agriculture, Fisheries and Food, when speaking at a meeting at Worcester last year—a speech that was well reported in The Guardian—said that when unemployment was at 1.6 million the cost to the Exchequer, taking into account all the contingencies that the Prime Minister mentioned, that I mentioned, and that some others mentioned, was £7 billion. That means that it would cost between £11 billion and £12 billion today, when there are nearly 2½ million people out of work.
The Prime Minister
The Prime Minister will make her own comments. She hopes that the hon. Gentleman will have the courtesy to listen—if hope is a triumph over experience. If all of the 2½ million people were in profitable work producing goods and services that other people would buy, that would be of benefit to all. They would then pay tax to the Exchequer. Unfortunately, they are not. We have to consider the cost of putting them back in to work. The cost would be overwhelmingly greater than the amount paid out in benefit. If they were put wholly into subsidised jobs producing goods and services, they would compete with other people doing similar jobs elsewhere, and those jobs would be undermined. I hope that the hon. Gentleman fully understands that.
Mr. Michael Meacher (Oldham, West)
The Prime Minister
I shall not give way, as I want to continue with my speech. The hon. Gentleman may be able to catch Mr. Speaker's eye later and make his contribution. Many hon. Members wish to speak.
Of course, it is not possible to put right things that have been wrong for such a long time without experiencing pain in the process. I recognise that manufacturing industry has stood in the front line in the battle against inflation. Management and work force alike are having to adjust at an unprecedented rate against the background of a severe world recession and a high exchange rate. Britain is not alone in experiencing severe unemployment. A number of countries in Europe are facing higher unemployment.
Even so, many companies are not only holding their own but are expanding. Most companies will emerge from the recession more efficient, with more competitive products, and with more aggressive marketing policies. Not only is progress now being made among some existing companies; inward investment projects started or decided in 1980 will create new jobs in the future. I was encouraged to hear that Nissan, whose proposals were announced in the House last week, said that it was attracted to this country primarily by the underlying strength of the British economy—and it is not alone. There are many other examples of international companies investing in areas as far apart as Cornwall, the North-East, and Scotland.
I am often asked where all the new jobs will come from, and when. But how many of today's jobs were predictable 30 years ago, before the computer revolution, the transistor revolution or the microchip revolution? The history of technology suggests that even the greatest inventors could not anticipate the market potential that was unlocked by their inventions. Radio was seen as a device [column 423]only when the use of wires was impossible. Oil was used only for lighting purposes. It took time to realise its potential as a chemical feedstock.
We may not be able to predict precisely where the jobs will come from, but I can predict that they will come if we adopt competition policies, taxation policies and financial policies that promote the enterprise economy. Selective help in a time of change is a vital part of our policy, but we shall not be deflected from our long-term economic strategy.
Now, what is the policy of the Opposition? There is no merit in turning to their amendment for guidance. It contains not a single alternative to the present policies of the Government. But we do know that the Opposition are now advancing policies even more extreme than those that they followed when in office. They call for massive extra spending of money that we do not have, that we could not borrow, and that we would be forced to print—the very policy that led Britain into the hands of the International Monetary Fund, and would do so again. Stripped of all verbiage, their policy is to create a new round of inflation to cure the present unemployment, quite forgetting that the present unemployment was partly caused by the last round of inflation. They neglect to point out that the inflationary dose would have to be repeated in ever-larger quantities and at ever-shorter intervals.
We on the Conservative side want to get things in this country on a sound basis for the longer term. Our aim is to encourage an economy that will stimulate the creation of wealth. We shall not pursue short-sighted policies that conflict with that. The fact is that inflation is coming down. Wage settlements are moderating. And those things have been achieved without controls on prices or incomes. For the first time for many years we have the chance to move into expansion without those inbuilt distortions to correct, and that is a tremendous advantage. And all that against the background of our own secure supplies of energy.
The prize in prospect is the United Kingdom trading with a stable currency and making much better use of the most valued of our natural resources, namely, our manpower. That prize would be imperilled if we resorted to an economy of import controls, capital controls, exchange controls and every other Socialist control. That prize would be imperilled if we resorted to massive increases in public spending and borrowing and printing.
When the wealth-creating conditions in our economy are right, when there is confidence about the value of money, when there is a realism in wage bargaining that leaves a satisfactory reward for enterprise—when those conditions are satisfied, which they will be as our policies are pursued, wealth will be created, wealth will be spent, and in being spent will provide the jobs—and the prize will be won.