Speeches, etc.

Margaret Thatcher

HC I: [Debate on the Address]

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC [180/576-88]
Editorial comments: 1535-1619.
Importance ranking: Minor
Word count: 6659
[column 576]

3.35 pm

Mr. John Smith (Monklands, East)

I beg to move, at the end of the Question, to add:

But humbly regret that the Gracious Speech seeks to continue economic policies which have caused recession, falling output and investment, rising unemployment, high interest rates and a massive deficit in the balance of payments; deplore the continuing confusion and disarray in domestic economic policies and towards the future economic and social development of the European Community; and call upon the [column 577]Government to prepare for the competitive challenges of the Single Market after 1992 by adopting an industrial strategy which promotes sustained investment in the manufacturing sector and encourages industrial innovation through the application of science and technology, to exploit fully the potential of the neglected regions through a vigorous regional economic policy and a modern transport system, and to provide the new opportunities in education and training which are crucial to Britain's economic recovery and future prosperity.

When debating the Gracious Speech as we do in this House each year, we do not confine ourselves to a textual analysis of the often anodyne language contained in it. We look to other material, to additional evidence, to establish what Government policies are and are intended to be over the forthcoming Session. What Members find persuasive by way of additional evidence is very much a matter of individual choice, but for my part I turn for guidance to the Chancellor of the Duchy of Lancaster in his capacity as chairman of the Conservative party. Each year he sets—dare I say it—the style, if not the substance, of the Conservative party conference, with the carefully calculated slogan that hangs over the conference during the whole of its proceedings.

In 1989 the slogan was:

“The right team for Britain's future” .

The right hon. Gentleman buttressed the message by quoting Henry's exhortation to the troops at Agincourt:

“He which hath no stomach to this fight, Let him depart” .

There was a consequence which Henry had not foreseen, which was that most of them did depart. There has been the biggest change in ministerial offices in the post-war political history of this country.

Looking back on it now, admittedly with the luxurious benefit of hindsight, we see that the right hon. Gentleman clearly had a talent for irony which we had not properly recognised heretofore. I doubt whether there has been a time in post-war politics when there have been so many ministerial changes. It would be repetitive to read out a long list of the senior ministerial changes, occasioned by the confusion and disarray within the Government, which have occurred since the right hon. Gentleman's stirring slogan was first revealed. But this does remind us how important it is to attach proper significance to the slogan that he gives us each year.

This year, the right hon. Gentleman tackled new ground. The slogan was: “The strength to succeed” . Again with the benefit of hindsight, I believe that he should be credited with prescience as well as irony. How did he know that this very day a struggle for the succession would be announced? The very question that will agitate Conservative Members over the next weekend is: who will have the strength to succeed to the leadership of the Conservative party? How did the right hon. Gentleman know all this? How did he know that this matter would be of such concern to his party?

I have been giving consideration to whether we might offer the right hon. Gentleman a slogan for next year's Conservative party conference. Perhaps he should hold a competition among his hon. Friends to see who could come up with a slogan as prescient and ironic as its predecessors. One or two come to mind. “The challenge of leadership” might be one. Perhaps “Combating unforeseen circumstances” might have a certain charm in certain quarters; but the one that I feel most attracted to [column 578]is “Catching the train to Europe” . I offer the right hon. Gentleman the option of putting either a question mark or an exclamation mark after that slogan.

The trouble is that the confusion and disarray which has surfaced in the turmoil of ministerial changes has finally burst through into a direct challenge to the Prime Minister by the right hon. Member for Henley (Mr. Heseltine)—and by who knows who else, in the weeks to come. There will be a fierce struggle in the Conservative party over style, substance, personalities and policies and it will be so serious that it will divide the Conservative party not just for the next week or so, but for a very long time ahead.

However, today we are considering the Government's economic policies, a subject which is the cause of almost as much distress as the Conservative party's internal division. We begin our consideration with the current state of the economy, which is in a recession. What is more, that recession results directly, as we have frequently argued, from the Government's errors in economic policy, some of which, I will argue later, bear a striking similarity to previous errors by previous Conservative Governments.

In the exchanges following the Chancellor's autumn statement, I was taken to task for insisting that the Government should admit the truth about our present economic situation and for pointing out the truth—that we are in a recession. I was glad to note that, a few days after that, in “The Money Programme” the following Sunday, the Chancellor appeared to accept—in a qualified way—that we are in a recession.

People who watch the Chancellor answering questions in this House and who saw him on “The Money Programme” will be aware that the right hon. Gentleman's tactic has been to query the definition of recession. He says that there are so many definitions of recession: how do we assess whether we are in one? He slips from one definition to another rather like a bird flying around a cage looking for a statistical perch to alight upon temporarily, or for some convenient resting place. The Chancellor says that some people say one thing while others say another.

The Chancellor was not always so coy. When he gave evidence to the Treasury and Civil Service Select Committee on 4 December last year, my hon. Friend the Member for Hackney, North and Stoke Newington (Ms. Abbott) asked the Chancellor directly:

“What is your definition of a recession?”

The Chancellor replied:

“I think I would take as a definition of a recession the one that we have traditionally accepted and that is a reduction in gross domestic product over a measurable period of time, probably two or more quarters, although there is no formal and wholly agreed definition of recession. That is the sense in which I would use the term: a reduction in GDP over perhaps two quarters, a six-month period … If we have a reduction in GDP over a measurable period of time then I think it is reasonable to begin thinking in terms of a recession, but that is expressly not what we are forecasting at the moment.”

We have a definition of a recession and a forecast that a recession would not happen.

An important table in the autumn statement, table 2/2-11, predicts the economic prospects for 1991. That table is entitled

“Gross domestic product and its components” .

It states that, for the first half of 1990, for the GDP at factor cost, the average measure is 180.3. It drops in the second half of the year to 178.2. In the first half of 1991, it is 178.3 and it then rises rather mysteriously in the second half of 1991 by two full points. The consequence of [column 579]that is clear. The autumn statement forecasts, according to the Chancellor's predictions, a drop in the level of output not only for two quarters, but for four quarters in succession. By the Chancellor's own definition and prediction, are we not in an extremely serious recession? We should have a lot less nonsense from the Chancellor, who queries and quibbles over whether we are in a recession. We know we are in one. All the companies and businesses in our constituencies are aware of that, and the Chancellor's statistics prove that we are in one. Why cannot the Government come clean about that?

We are also aware that we are in a recession as a result of other things that the Government are predicting. Only a few months ago, the Budget predicted that manufacturing output would increase by 0.75 per cent. in the first half of next year. The Chancellor now predicts that it will fall by 0.5 per cent. over the whole of next year. In the Budget, investment is forecast to decline by 0.75 per cent. in the first half of next year. However, the autumn statement predicts that it will fall by 1.75 per cent. in the whole of 1991. In the budget, exports were forecast to rise by 5.5 per cent., but that has been revised downwards to rise by 2.5 per cent. The figures for manufacturing production released yesterday confirm the downward trend and the pattern of negative growth.

The Government's record on prediction is just as bad as their record on economic management. However, prediction is important because the only message in the Conservative party's shop window—if we could get the Government to admit it—is that, while things may be bad now, it will not be long before they will get better because we shall see everything improve in the years ahead.

We remember the hype of the so-called economic miracle when the then Chancellor of the Exchequer, speaking from the Dispatch Box in the 1988 Budget debate, told us that we had overhauled what was then West Germany and were on track for catching up with Japan. It has been the persistent standard trick of the Conservative party grossly to exaggerate achievements and unrealistically to minimise the potential downturn when their policies run into it.

Let us consider the Government's forecasting on inflation—that “temporary blip” which occurred in 1988. We remember that same Chancellor telling us not to worry because it was just a monthly phenomenon, a blip which would soon blip away like one of the little dots that appear for a passing second on a television screen, a minor irritant, no more—just a passing detail. We know what happened. We have had inflation at distressing levels ever since.

We know that the forecast for 1988 turned out to be 62 per cent. wrong and that the forcast for 1989 turned out to be 30 per cent. wrong. We know that the autumn statements last year and this year are 100 per cent. wrong. Last year at the time of the autumn statement, the Chancellor of the Exchequer stood at the Dispatch Box and told us not to worry because inflation would be 5.75 per cent. now. What is it? Nudging 11 per cent. That is the Government's record on forecasting. People are asked to rely on those predictions and assurances that things will be better next year. We have been told exactly the same story in previous years.

The Chancellor of the Exchequer relies on the retail prices index coming down. I should hope it will come down next year. I hope that inflation will not be at these record levels next year. Indeed, the Government would [column 580]have to do all the silly things that they have done in the past year all over again in order to maintain it at an RPI level of 11 per cent.

There was a time when the Chancellor found the RPI an awkward statistic. That was then, to quote the right hon. and learned Member for Surrey, East (Sir G. Howe), the Chancellor was using his “considerable talents” to explain away the Madrid conditions. He felt that there was a problem with the RPI. He had all sorts of other definitions of inflation. There was the rather ingenious “proximate rate” which made a fleeting appearance during what one might call the Madrid season, which appears to have come to an end. We also had the “underlying rate” . As I understand it, there are two versions of the underlying rate. One involves stripping out the mortgage rate; the other is a bit bolder, and involves stripping out the mortgage rate and the poll tax, which gives an even better underlying rate. Obviously, the British people cannot strip out either when it comes to paying bills.

What criteria are we to apply next year to this year of recovery? The Chancellor was asked that very point by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) during the exchanges on the autumn statement. My right hon. Friend asked:

“When the underlying rate was less than the RPI, the Government made a great deal of it. Now that it is likely to be more than the RPI” —

as has been predicted for next year—

“may we have his forecast of the underlying rate of inflation, excluding mortgage interest, at the end of next year, the fourth quarter?”

The bland reply from the Chancellor of the Exchequer was:

“As the right hon. Gentleman knows” ——

here is sugar to the pill—

“—he is a very distinguished former Treasury Minister” ——

that is undoubtedly true—

“—the underlying rate of inflation has never been published, for perfectly understandable reasons.” —[Official Report, 8 November 1990; Vol. 180, c. 127.]

Another of the Chancellor's endearing tricks is to invent new conventions and rules whenever it suits him. He should tell the Central Statistical Office that the underlying rate—the RPI minus the mortgage rate—has never been published for understandable reasons. I have in my hand a copy of the document which it issues every month on inflation figures. One column states, “RPI—all items” and another states, “RPI—except mortgage interest payments” . The answer to my right hon. Friend's question is set out precisely month by month.

The Chief Secretary to the Treasury (Mr. Norman Lamont)

No.

Mr. Smith

There can be no dispute about it. The figures for the RPI minus mortgage interest rate payments are in the Central Statistical Office handout. It looks as if we may have to wait for an explanation until the right hon. Gentleman makes his speech.

Why on earth is it difficult to forecast the underlying rate of inflation? I suggest that it is not impossible, that it is just a matter of discretion and that the Chancellor wants to keep vague the criteria that apply. He used to find the RPI uncomfortable and he thinks that it might be in his favour next year; so he wants to go by that and abandon his previous preferred alternatives. [Interruption.] As he is explaining it to the Prime Minister—and there is no doubt that that is necessary—perhaps he should give us the [column 581]benefit of that advice. We might take it, unlike the right hon. Lady. The Chancellor is treading on stony ground, as is shown by the record of his predecessors in trying to explain matters to the Prime Minister.

If I had any doubt that the underlying rate is an important issue. I would rely on the evidence of the Chief Secretary to the Treasury, who did not bound to his feet recently, who said on the radio programme “PM” on 11 May that the

“underlying rate was the real thing that matters.”

If he is right, let us know what the underlying rate will be next year.

The Chancellor of the Exchequer has said various things about this. For example, in June he said that the

“rate of inflation appears misleadingly unreasonable” .—[Official Report, 7 June 1990; Vol. 173, c. 772.]

If it is, he can put it right by giving us the proper criteria. If he does not tell us what criteria we should adopt, we shall not know whether we are back on track, as he says we shall be.

One of the real problems affecting the Government in their handling of economic policy and one of the reasons why there is a leadership contest in the Conservative party is the Government's lack of credibility. That is felt not only by the electorate—something we all know from the responses of our constituents and can see in the movement of the opinion polls—but in the financial markets, which do not believe the Government or their economic purposes. We have seen that in the way that the Government entered the exchange rate mechanism.

Substantial additional evidence of the lack of credibility of the Government and their economic policy was provided by the right hon. and learned Member for Surrey, East in his remarkable statement to the House yesterday. We know now that the Prime Minister agreed in principle to join the exchange rate mechanism only when she was cornered by the Chancellor of the Exchequer and the Foreign Secretary and threatened with their resignations unless we joined the ERM. We did not know that before the remarkable speech made by the right hon. and learned Member yesterday. Now, we know that the Prime Minister was taken at pistol point to sign up to join.

The Prime Minister (Mrs. Margaret Thatcher)

Nonsense.

Mr. Smith

If the right hon. Lady thinks that it is nonsense, then she is casting doubt on the credibility of the right hon. and learned Member for Surrey, East. I should prefer him as a witness.

We also know, from that dismissive phrase used by the right hon. and learned Gentleman about the Chancellor of the Exchequer using his “considerable talents” to explain away the Madrid conditions, how seriously they were taken by senior Ministers. They knew that it was hocus-pocus from the start. They were there to allow the Prime Minister to look as if she were getting gently off some hook. They had no intention of tempering the Madrid conditions, which is why they were slung away when the decision to enter the ERM was taken.

People know perfectly well, because they have memories, that in that famous Walden interview, the Prime Minister said that the ERM was a higgledy-piggledy system.

[column 582]

Mr. Nicholas Budgen (Wolverhampton, West)

Quite right.

Mr. Smith

That sedentary intervention came from one of the Prime Minister's more noted supporters. The No Turning Back group has temporarily found its voice.

The next stage in the credibility problem will come with the hard ecu. I have been listening to various apologists on various sides of the argument appearing on radio and television with great frequency, last night, this morning, over lunchtime. One can hardly turn on a radio or a television without a Cabinet Minister or some other senior figure from the Conservative party offering his views on who should be Prime Minister. Some of us think that that might be something in which the electorate might be interested. For the moment, however, we are denied the test and we have to listen to a parade of views.

Ministers all say one thing, however, and that is this: “There is no real problem about the way forward into Europe because we have the hard ecu, and the hard ecu solves all problems.” Does it? There is a fundamental question which we have raised in a previous debate and we shall raise it again today: is the hard ecu an alternative to the single currency or an alternative means of achieving it.

The right hon. and learned Member for Surrey, East reminded us yesterday of the Prime Minister's dismissive view of the hard ecu when she reported after the Rome summit. I believe that he said that there was a casual comment and an impulsive answer. I do not know how he would classify it—probably he would say that it was both a casual comment and an impulsive answer—when the Prime Minister said that the hard ecu was not likely to be widely used.

After a little research, I discovered that, when the Prime Minister returned from the Dublin summit in June, when I think the hard ecu proposals were first presented to the other colleagues, she was asked about these matters. She said:

“Our proposals” —

that is, for the hard ecu—

“would lead to a common currency which people could choose to use more or less as they wished, or they could continue to use their own currency. I do not believe that that formula could develop into a single currency.” —[Official Report, 28 June 1990; Vol. 175, c. 493.]

That is fine. So far, so good. The right hon. Lady said that the formula could not develop into a single currency.

We have had various evasions on the subject by the Chancellor of the Exchequer, but I shall not bore the right hon. Gentleman by going through them. I turn instead to the evidence given to the House of Lords Select Committee on European Communities by the Financial Secretary to the Treasury, whom I am glad to see in his place. He was asked about the Government's proposals for the hard ecu. We have him speaking on behalf of the Government while giving evidence to a Select Committee:

“One goes down the path which our proposals map out and can go on from that to a single currency. I think that is the important point to get across, and perhaps this has not yet been fully understood.”

I do not think that it has been fully understood by the Prime Minister. The Financial Secretary to the Treasury added:

“I would go on to argue personally that the next stage of having a single currency” —

notice “the next stage of having” —

“could actually happen more quickly by going down this path than by going down any prescribed institutional path, setting up institutions at rigid dates, and trying to make it all happen [column 583]that way. That is a personal view and I could well be wrong about it. You could certainly mount a powerful argument that it would be a quicker path.”

What is it? Is it a path to a single currency or is it not? If it is, is it a quicker path or a slower path? Well, it could be. Some say one thing and some say another. It is no wonder that the right hon. Member for Henley (Mr. Heseltine) said at lunchtime today, apparently, that the Prime Minister's difficulty is that she cannot unite the Cabinet behind her European policy. I tell the right hon. Lady that she will not find unity in ambiguity in the way in which she is seeking to approach these matters, by saying that some say one thing and some say another.

Mr. Philip Oppenheim (Amber Valley)

The right hon. and learned Gentleman is on dodgy ground.

Mr. Smith

There can be no more dodgy position than the Government's position on Europe. Fundamental ambiguity lies at the heart of the hard ecu proposal. It is a simple point——

Mr. Geoffrey Dickens (Littleborough and Saddleworth)

Will the right hon. and learned Gentleman give way?

Mr. Smith

No.

Does it or does it not lead to a single currency? Is the hard ecu intended to be a failure as a policy, or a success? We want an answer to that question during the debate. Unless the question is answered, there will remain a lack of credibility on the part of the Government.

Mr. John Townend (Bridlington)

Will the right hon. and learned Gentleman tell us whether the Opposition are in favour of a single currency and a central European bank?

Mr. Smith

I set out my views on those matters earlier, in the debate on the exchange rate mechanism. The Chief Secretary knows that I can speak for myself. As I said during the debate on the exchange rate mechanism on 23 October——

Mr. Norman Lamont

What was that?

Mr. Smith

The right hon. Gentleman was present for the debate, so he heard what I said.

Mr. Lamont

I did not understand.

Mr. Smith

That is a different matter. Comprehension is entirely a matter for the right hon. Gentleman, and I cannot assist him on that. I can only explain and hope that he comprehends.

Mr. Lamont

Tell me again.

Mr. Smith

We have told the Government time and again, as I did on 23 October, that at a time

“when the gap between Britain's performance and that of other members of the Community is so wide, it would not be prudent to commit ourselves to an irrevocable exchange rate or to a single currency.” —[Official Report, 23 October 1990; Vol. 178, c. 273.]

We have made our views clear. The economic position into which this country has been led by the Government's economic policies is such that there would be a grave risk at this stage if we were linked to an irrevocable exchange rate—[Interruption.] Conservative Members may not like the policy that I articulate, but they should not claim that it has not been articulated, because I have clearly done so.

[column 584]

Mr. Dickens

I am grateful to the right hon. and learned Gentleman for giving way in the middle of his entertaining speech. If he ever became Prime Minister—and he has more chance of that than the Leader of the Opposition—would he go to Europe to negotiate, and perhaps move forward to stage 2, when no one could explain exactly what was meant by stage 2? Our Prime Minister is not that sort of person; she wants to know the detail. That is the difference between the two parties.

Mr. Smith

The hon. Gentleman should not worry about the leadership of the Labour party. He will have a major problem over the weekend trying to decide who to vote for as the future leader of the Opposition——

Mr. David Shaw (Dover)

She is sitting on the Front Bench.

Mr. Smith

That is absolutely right. The hon. Gentleman, not for the first time, accidentally points to the truth. The Prime Minister is sitting on the Front Bench and she may win the leadership struggle, but not the next election, and will then take up office as Leader of the Opposition. I know that it is a chilling thought. At least 100 Tory Members—although the figure may have risen since lunchtime—will find that a fearful thought.

The hon. Member for Littleborough and Saddleworth (Mr. Dickens) says that he cannot understand stage 2 and, what is more, that the Prime Minister does not understand it. In that case, they should ask for the proposals to be clarified. They should not simply walk out of meetings and denounce other people: they should ask intelligently for the proposals to be clarified. They should put questions with persistence, intelligence and perspicacity—but, as the right hon. and learned Member for Surrey, East advised and admonished them to do, they should continue, within the structure of the European Community, to make Britain's case understood. They should employ constructive diplomacy on behalf of our country.

The real problem in the context of the European Community and the real problem in the context of our domestic economy are virtually one and the same—it is the weakness of our economy after 11 years of Conservative government. I have already mentioned the illusion——

Mr. David Howell (Guildford)

The right hon. and learned Gentleman says that we should not worry about the Opposition, but some of us are worried because 180 members of his party—which is practically the whole of his party—believe in the Labour Common Market safeguards committee, which is in total opposition to monetary union and membership of the exchange rate mechanism. Is that the right hon. and learned Gentleman's position?

Mr. Smith

If the right hon. Gentleman is reduced to that sort of remark, which is both pathetic and inaccurate, we can well understand why he had such a short ministerial career, even in a Government headed by the Prime Minister. We are accustomed—[Interruption.]

Mr. Speaker

Order. Hon. Members should settle down.

Mr. Smith

As I was pointing out before I was irrelevantly interrupted by the right hon. Gentleman, the big difficulty we face, as he must know——

Mr. Norman Lamont

The right hon. and learned Gentleman explained that it was his view that we should [column 585]not have a single currency in Europe for the moment. He did not think the time was right. Is there a difference in principle between his policy and the Government's policy on whether we ought to have a single currency?

Mr. Smith

I am not clear what the Government's policy is. Is it the Government's policy to have a single currency? [Laughter.] The right hon. Gentleman should stop laughing and address himself to that question. Given our economic conditions, it is premature to decide whether we could be involved in an irrevocably fixed exchange rate. That is the crucial river that has to be crossed. Once that river is crossed, it is difficult to see how one could cross back.

I am told by some Conservative Members that the hard ecu is an alternative to moving to a single currency, and by others I am told that it is a quicker way of getting to a transitional mechanism for moving towards a single currency. I deduce that some members of the Government want a single currency and others do not. We have made it absolutely clear that we would like to see established a number of matters on economic and monetary union which we think are essential components of the type of economic unity within the EC that we want to see. One is a strong regional policy which helps to preserve economic and social cohesion—[Interruption.] Perhaps we could rise above the level of schoolboy remarks from the Financial Secretary.

I do not understand how Conservative Members can think that the social cohesion of the EC is such a light matter. In the EC, 11 members think that it is sufficiently important to be regarded as one of the major objectives. It is one of the objectives of the Single European Act, for which Conservative Members voted in the House.

We want to give substance to the ambitions that were enshrined in those proposals for the EC. Of course we want to see a strong regional policy. We also want to see a strong social dimension to the EC, which is why we want to see the social charter, and the social action programme coming on its heels, which the Government seek to block against the wishes of the other 11 members of the Community. That is why we want to see changes in the way in which we decide environmental and social policies.

That policy cannot be encapsulated in one sentence: it is an extremely complex and difficult matter which Labour Members take seriously because it is important for Britain's future. It is a matter on which, according to the right hon. Member for Henley, the Cabinet cannot unite and on which the Government will never be able to unite the country.

Mr. Norman Tebbit (Chingford)

Let me put to the right hon. and learned Gentleman the proposition that the hard ecu is, in essence, a swift path to the river that one would have to bridge to reach the single currency on the other side. It is a swifter way to arrive at that point of decision. Is the right hon. and learned Gentleman saying that there are circumstances in which he would say that he was satisfied on the conditions for a single currency, or is he saying no to that? In other words, are there circumstances in which he would be willing to give up Britain's unilateral control of its own economic policy?

Mr. Oppenheim

Yes, answer.

[column 586]

Mr. Smith

The hon. Gentleman, who is a member of the No Turning Back group, might allow me to reply.

We do not support the proposal for the hard ecu, which is a fundamental issue of ambiguity in the Conservative party. The right hon. Member for Chingford (Mr. Tebbit) takes the view that he does only because he does not fully comprehend the trick that has been played on Conservative Members by the Foreign Office and others in producing a hard ecu with the purpose of leading to a single currency. When I last spoke on that issue in the debate about the exchange rate mechanism, the right hon. Member for Chingford was sufficiently concerned to ask questions of the Minister then addressing the House, and he was right to be so concerned. However, I cannot answer hypothetical questions about the future.

We will judge progress by the way in which we can achieve a proper regional structure for the European Community and for the social dimension. More important than all of that is the capacity of this country's economy to converge to the European standard. It is one thing to contemplate monetary arrangements of that kind if one has a strong economy, but quite a different thing if one has a weak economy, such as that being run by the present Chancellor of the Exchequer.

One would think from the tenor of the questioning that there is no ambiguity or conflict of policy in the Conservative party. If that is so, why is it having a leadership election? If Conservative Members are all agreed on European Community policies, it is passing strange that the right hon. Member for Henley has chosen to plunge his party into the most divisive leadership contest seen since the end of the war—and perhaps even in the history of the Conservative party. They cannot get away with it as easily as that. It is a question that fundamentally divides the Conservative party, and unless Tory Members can reconcile their differences, it will lead them into continuing difficulty.

The Minister of State, Home Office (Mr. John Patten)

The right hon. and learned Gentleman should look behind him. Labour Members do not understand him, and neither does the Leader of the Opposition.

Mr. Smith

Conservative Members seated behind the right hon. Gentleman certainly do not understand him.

We should address the fundamental problem affecting Britain here and now—apart from what may happen in developing the economic European Community in four, five, six or seven years' time. Stage 2 is only projected to start in 1994, and further proposals will not come forward before 1997. Anyone would be hard pressed to put a date on some of the decisions that must be made. Nevertheless, they are important decisions, and will have to be taken by the Government of this country at the appropriate time. Meanwhile, here and now—in 1990—there is much that we can do to prepare for our future in the Community, by sorting out the basic problems in the British economy.

Thank goodness that the illusion of 1988—the notion that we had overtaken West Germany and were pressing hard on Japan—has, for reasons of embarrassment, ceased to be advanced by Conservative Members. The truth is that Germany is well ahead of us, France is significantly ahead of us, Italy is overtaking us, and Spain is coming up behind. That is the fruit of 11 years of Conservative stewardship of our economy. [column 587]

The economy will not be put right by the policies in the Gracious Speech, whose most alarming aspect is that it promises no change in Government policy. Now, at the end of a decade, we have a massive balance of payments deficit, the highest interest and inflation rates of any industrialised country, and rising unemployment.

It is not the first time that Britain has faced economic problems under a Conservative Government. I occasionally read publications produced by the City—some from institutes that are sympathetic to the Conservative party, but others that are more objective. The Greenwell Montagu gilt-edged research paper, “UK inflation in the 1990s” , highlights the tendency of British Governments

“to over-expand demand and to preside over periods of over-rapid expansion, mistaking them for the beginning of the catching up of British economic performance with those of our competitors and the beginning of a virtuous circle.”

We have not heard those phrases from the Conservative party. The report continues:

“There have been three phases of this sort, all of which had serious consequences.

(a) Maudling's dash for growth 1963–64;

(b) Barber's boom, 1972–73;

(c) The Lawson boom, 1986—88.”

We are back in the stop phase of stop-go economics for the third time under Conservative guidance of the British economy. The Government tell us, as we are stuck in the stop of yet another stop-go following the depressing and worrying cycle of economic mismanagement, that we will soon be back on track.

How can we be back on track when, even in the midst of a recession in 1990–91, the Treasury predicted a balance of payments deficit of £11 billion? Under the previous Chancellor, it was argued that the terrible balance of payments figures were the result of excessive demand and a so-called investment boom. Those are not occurring in 1990–91, yet we still have massive balance of payments deficits.

Does it never occur to the Government that we need a change of policy, not merely because it has not worked under this Government but because it has not worked under previous Conservative Governments? We end up in difficult economic situations, and the Labour party has to be elected to deal with them. It has happened before. The cycle mentioned by the learned authors of the Greenwell Montagu report is not complete. Usually it has to be completed by the British electorate. We are facing such a problem now and we shall have to tackle the underlying problems of the British economy. No one seriously believes that this is some minor matter of a mismatch of demand and supply. There are serious structural defects in the British economy, which require a supply-side policy to deal with them.

As, regrettably, unemployment rises in the regions and nations of Britain, the need for a regional policy will become more manifest, and its neglect even more apparent. Just before I came into the debate today, I met representatives of 500 workers of James Howden, a company in Renfrew in Scotland. Five hundred people are facing redundancy there in a modern factory, which was opened by the Prime Minister in 1981 and which is widely regarded as having the best of technological excellence. Five hundred people will lose their jobs. That is what is happening in Britain today.

Let not the Government tell us that there is no recession and that this is some temporary problem—let them look into the faces of the people who are facing redundancy and [column 588]tell us. Let the Government understand the consequences of their economic policies. This is not really an academic matter, as it affects the living standards and life opportunities of all the citizens of this country. The longer we continue to neglect the fragile technological base of British industry, the longer it will take us to match our competitors and to get up speed for Europe. The longer we neglect education and training the more difficult our problems will be.

In another report that I came across, Mr. David Lomax, the group economic adviser for National Westminster bank, described the Government's training record as “execrable” . I do not think that any Opposition Member has thought of such a dismissive and abusive term, and that quarter is not entirely unsympathetic to the Government.

In powerful speeches yesterday, my hon. Friends the Shadow Education and Employment Secretaries outlined the major defects in Government policy and the Labour party's proposals for proper education and training. As we prepare for 1992, it is crucial that we get those things right, that we pay attention to building up the technological base of British industry, that we have a strong and vigorous regional policy and a new commitment to education and training, and that we give the manufacturing sector of the British economy the place it should have had during the neglected decade of the 1980s.

The Opposition intend to build for success in Britain and in Europe. We have a vision of a fair society in which world class public services provide the best of facilities for all our citizens—a society in which care and compassion are active ingredients in social policies and where those least able to help themselves are given a helping hand by the rest of the community. We shall fight for that vision within Britain and within the European Community, but we also know that Britain cannot achieve these ambitions, which we hold on behalf of all our people, without a strong economy. That is why we shall tackle the problem of rebuilding the British economy patiently, purposefully, determinedly, year in and year out. [Interruption.]

Mr. Speaker

Order.

Mr. Smith

I shall explain to Conservative Members how we shall do so, and set out our targets for the supply-side regeneration of the economy. I shall set out what we have in mind. I fear that the Conservative party's problem is not merely one of comprehension, but one of understanding what the people of this country want. They want a strong economy and a fair society. Other European Community countries seem to be able to achieve those aims. The British people want that deeply, passionately and urgently. That is why they are turning in such large numbers to the Labour party, in order to make sure that a Labour Government are elected at the first available opportunity.