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Mr. Peter Robinson: May I refer the Minister to the declaration of support in the agreement? Paragraph 5 on page 14 makes it abundantly clear that the British-Irish council is one of the bodies that are interdependent and interrelated and depend on the future of the Assembly. Is the Minister going back on the agreement?
Mr. Murphy: No. Of course they are interdependent, but it is important for everyone--including the implementation bodies--to understand that if something good is set up and working well, it need not necessarily collapse as a result of what may be only a temporary disagreement or problem within the Assembly. I entirely accept that the life of the north-south ministerial council depends on the life of the Assembly--if the Assembly goes, so does the council--but if, as the hon. Member for West Tyrone said, sensible co-operation resulted from the Assembly deciding what would happen by way of an implementation body, is it sensible for that body to disappear?
Mr. Donaldson: I thank the Minister for giving way. He must understand that this is precisely the concern that many Unionists have--
It being six hours after the commencement of proceedings on the Bill, The Chairman, pursuant to the Order [17 July], put forthwith the Question already proposed from the Chair.
Amendment negatived.
The Chairman then proceeded to put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.
Question proposed, That the clause stand part of the Bill:--
The Committee divided: Ayes 135, Noes 3.
Tellers for the Ayes:
Tellers for the Noes:
Question accordingly agreed to.
Clause 66 ordered to stand part of the Bill.
Clauses 67 to 69 ordered to stand part of the Bill.
Schedule 11 agreed to.
Clauses 70 to 76 ordered to stand part of the Bill.
Schedule 12 agreed to.
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),
Mr. Deputy Speaker (Mr. Michael J. Martin):
With permission, I shall put together the Questions on the deregulation orders.
Motion made, and Question put forthwith, pursuant to Standing Order No. 18(1)(a) (Consideration of draft deregulation orders),
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Dowd.]
Mr. Austin Mitchell (Great Grimsby):
I congratulate the Paymaster General, my hon. and long-standing Friend the Member for Coventry, North-West (Mr. Robinson), on his new role as the Government's night-watchman, keeping the forces of Keynes at bay. I expected to meet my hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), but I gather that, rather than continue in her role as the Government's chief Mitchell minder, she has taken refuge in Scotland. I had hoped that I would have been called to Downing street, so that I could give the reply to my own speech, but things did not work out in that way.
In my view, we should not be having this debate on the stability of monetary management at all; the Government should have listened to the long list of warnings about the rise in the exchange rate and its consequences for manufacturing. When one puts up interest rates--I am afraid that the Labour Government have been very good at that, for whatever reason--one increases inflation. Historically, there is a strong correlation between high interest rates and high inflation--high interest rates are the cause of high inflation. There is also an effect--one could call it the Viagra effect--on sterling's exchange rate: the pound goes up, which is particularly dangerous when far eastern currencies are being devalued and European uncertainties are driving money out of Europe into sterling.
Manufacturing suffers a double whammy: it has to face not only higher interest rates, but higher exchange rates, which makes it more difficult to sell products overseas and increases the competitiveness of imports. We become locked into an inevitable wind-down, and manufacturing has to shed jobs. My hon. Friend the Paymaster General was in manufacturing--at Jaguar--and well knows that, in such circumstances, fewer services are bought, investment is cut, the balance of payment gapes, and there is a further deflationary urge to cut demand. We become locked into the same kind of wind-down that the economy went through between 1979 and 1981 and again between 1989 to 1992.
We should have learnt from that, but we are repeating the process. I fear that, unless policy is changed, the wind-down will be inescapable. It is no use lecturing manufacturing and hoping that circumstances will change--they will not. What is to change them?
The consequences will be the same as they were in the early 1980s and the early 1990s. It is no use preaching at manufacturing to cut costs. It cannot possibly cut costs by the 30 per cent. by which sterling has appreciated against the deutschmark and regain its lost competitiveness. It is no use preaching increased productivity, because productivity increases only with increased production. Production is going down because of the exchange rate effect.
It is no use preaching investment. Industry will not invest, because it needs the prospect of profit to make investment worth while. It is no use trying to encourage inward investment. Who will invest here when our competitiveness is so bad because of the exchange rate?
It is no use preaching to manufacturing to make itself more competitive, because that shows an intellectual confusion by assuming that increased productivity is the same as increased competitiveness, which is not the case, because competitiveness is about price, which is affected by the exchange rate. A nation with low productivity--China, for example--can be extremely competitive because of its exchange rate. A nation with high productivity--the United States is the classic example--can be uncompetitive because its exchange rate is too high.
Manufacturing is being crucified by the exchange rate. It is no use the Government wringing their hands--I assume that we shall get an element of that tonight--and saying that we had to damp down unsustainable growth: we did not. It is no use saying that low inflation is worth the price, or that we are trying to bring stability, because we will produce only the stability of the graveyard.
A 30 per cent. appreciation in the exchange rate is not stability. The only way of getting stability is to have both weapons of economic management--monetary policy and fiscal policy--in the same hands, and to manage them together to offset and damp down the forces of instability washing in from outside. We are not doing that. Effectively, the Government have no macro-economic policy, so the Bank of England manages macro-economic policy--it should not be left to do it--on the basis of its inflation targets, which merely compounds the instability that is coming in from outside.
The Monetary Policy Committee is not bringing stability, because it has instituted endless nudging rises in interest rates, which have been put up five times. In that constant fiddling, members are encouraged or almost required to play safe and ignore the effects of the rises on competitiveness. Our interest rates are among the highest in our group of competitor nations, and very high in real terms on an historic basis. That burden on manufacturing and on everyone in the community has been imposed under the guise of fighting inflation, when in fact the rises cause and increase inflation.
The committee does not bring stability, because it is characterised by endless disagreements. The January vote was 5:3; the February vote 4:4; the March vote 4:4; the April vote 5:3; the May vote 6:2; and in June--I suppose that God gets advance notice of the minutes, but the rest of us do not--eight voted for an increase, which the committee had voted against only a month before, and only DeAnne Julius, bless her little cotton socks, was for a cut.
On what Barclays calls a hawkometer, Professor Buiter is now rated top hawk in the committee, with Sir Alan Budd as the second and Messrs King and Goodhart third equal. The interesting thing about the hawkometer is that the Chancellor's appointees, with the exception of DeAnne Julius, have been the ones who have put up interest rates against the advice of the banking professionals, who are usually against an increase.
All that is compounded by secrecy. The Treasury Select Committee asked for earlier publication of the minutes, saying that that would reduce the opportunity for leaking and prevent over-reaction by the markets, as the reasons behind the MPC decisions would be clearly spelled out
and not left to speculation. That assumes that there is a rational explanation for the decisions, when there does not seem to be one, and that markets will accept it.
The build-up to the decisions and the run-off afterwards have encouraged speculation. The Library has undertaken a study of speculation between the dollar and sterling in the five days before and the five days after a decision. The range of speculation in the five days before is 40 cents, up and down. In other words, speculation builds up as the decision approaches. Speculation in the five days after the decision is slightly less. Therefore, the process encourages speculation, which is heightened by press speculation about what the MPC will do. That is not stability.
My hon. Friend the Paymaster General will tell us that the Government's aim is stability, but we are not getting it; we are getting instability and speculation, which are damaging industry and creating an economy in which we will get even more instability. Fighting inflation with high interest rates works on industry, which is at the front line of international competition, largely by closing it down and killing it. In so doing, it damages our best hope of defeating inflation.
Only manufacturing can bring down inflation--by increasing its production and bringing down its unit costs. The rest of the economy cannot do that. So the more we shrink manufacturing, the higher the proportion of our output in those sectors that are sheltered from international competition. Those are the sectors in which productivity increases are hardest to achieve, in which growth is hardest to achieve and at its lowest, and in which interest rate increases, which are meant to control inflation, have the least effect, because those sectors are not in the front line of international competition.
The more we disturb the balance between manufacturing, which is shrinking, and the sheltered service sector, whose comparative weight is increasing, the more we blunt the weapon of interest rates, and the less effective it is. The more we weaken manufacturing, the more we build the stagflation society. We have gone a long way down that road, and that is why our interest rates--historically and at the moment--are higher than those of other competitors.
We are building a society in which manufacturing cannot flourish because it cannot produce at a profit with those interest and exchange rates. With his manufacturing background, my hon. Friend knows that. It is a society in which interest rates will go ever higher, because, if they are the only weapon, we will have to use bigger and bigger doses of the medicine. Having killed manufacturing, it has less effect on the rest of the economy. That is the sort of economy that we are building, and we have gone a long way down that road. When the Ernst and Young Item club suggests even bigger doses of higher interest rates, it is suggesting a folly, because they will have less and less effect the more that manufacturing shrinks.
What should we do? We are trapped in a situation in which the high exchange rate will destroy a large section of our manufacturing base. There are various solutions. We could abandon this experiment of handing interest rates over to the Bank of England--I think we should. We could change the target and bring in growth and employment as well as inflation. We could change the weapon and, instead of relying exclusively on interest rates, control credit by other means.
I want to show myself moderate to my hon. Friend because he knows that I am moderate in these matters. I accept that it is difficult for the Chancellor to say, "I'm sorry, chaps, but we got it wrong. We shouldn't have handed interest rates to the Bank of England." So let me make a suggestion.
Why not raise the inflation target, because 2.5 per cent is very low? Why not expand the time in which the target is to be achieved? There is no sense in aiming at 2.5 per cent. inflation on a monthly or quarterly basis. That is fine tuning with a vengeance, and we should have given up fine tuning, because it does not work and there is no use bringing it back as central to Government policy. Why not achieve our target rate over two years, or, better still, over the economic cycle in which we hope to achieve our borrowing targets?
The case for doing that would be stronger if the Bank of England, the Monetary Policy Committee and the Chancellor would abandon their obsession with stopping wages rising, although they are bound to rise at this stage of the cycle. The biggest wage rises are in financial services and the City, where high interest rates mean higher bonuses. It is manufacturing that is punished for those wage increases, particularly in my part of the country, which has suffered for the follies and excesses of the City and the financial sector.
The proportion of gross domestic product represented by wages has fallen substantially during the past decade, and it was falling in the decade before that, too. Some catching up of wages, as distinct from profits, is not only possible, but desirable. Why not adjust the inflation target to allow for that, and to recognise that it is not a primary dynamic of inflation?
It is not realistic to keep the inflation target down, and to try to keep wages down as a proportion of GDP. We should not try to fit the economy into a straitjacket, but I fear that that is what we are doing. We should not create the most stable environment of all--a coffin--but we will do that if we kill growth by setting impossibly low rates of inflation.
AYES
Adams, Mrs Irene (Paisley N)
Ainsworth, Robert (Cov'try NE)
Allen, Graham
Anderson, Janet (Rossendale)
Atkins, Charlotte
Barron, Kevin
Bayley, Hugh
Betts, Clive
Blears, Ms Hazel
Brown, Rt Hon Nick (Newcastle E)
Brown, Russell (Dumfries)
Browne, Desmond
Butler, Mrs Christine
Campbell, Alan (Tynemouth)
Canavan, Dennis
Clapham, Michael
Clarke, Charles (Norwich S)
Clarke, Tony (Northampton S)
Clelland, David
Coaker, Vernon
Colman, Tony
Connarty, Michael
Cooper, Yvette
Cousins, Jim
Crausby, David
Cryer, John (Hornchurch)
Cunliffe, Lawrence
Cunningham, Jim (Cov'try S)
Davies, Rt Hon Denzil (Llanelli)
Denham, John
Dobbin, Jim
Dowd, Jim
Ennis, Jeff
Etherington, Bill
Ewing, Mrs Margaret
Fitzpatrick, Jim
Foster, Michael J (Worcester)
Foulkes, George
Fyfe, Maria
Gapes, Mike
Gardiner, Barry
Gerrard, Neil
Gibson, Dr Ian
Godman, Dr Norman A
Goggins, Paul
Gordon, Mrs Eileen
Gorrie, Donald
Grogan, John
Hall, Mike (Weaver Vale)
Harris, Dr Evan
Heal, Mrs Sylvia
Healey, John
Heath, David (Somerton & Frome)
Henderson, Ivan (Harwich)
Hepburn, Stephen
Heppell, John
Hill, Keith
Hood, Jimmy
Hope, Phil
Howarth, George (Knowsley N)
Hoyle, Lindsay
Hughes, Ms Beverley (Stretford)
Hughes, Kevin (Doncaster N)
Iddon, Dr Brian
Jackson, Ms Glenda (Hampstead)
Jackson, Helen (Hillsborough)
Jenkins, Brian
Jones, Ms Jenny
(Wolverh'ton SW)
Kemp, Fraser
Laxton, Bob
McAllion, John
McAvoy, Thomas
McCafferty, Ms Chris
McCartney, Ian (Makerfield)
McDonnell, John
McGrady, Eddie
McGuire, Mrs Anne
McKenna, Mrs Rosemary
McNamara, Kevin
McNulty, Tony
McWalter, Tony
Mahon, Mrs Alice
Marsden, Paul (Shrewsbury)
Marshall, Jim (Leicester S)
Michael, Alun
Miller, Andrew
Mitchell, Austin
Mowlam, Rt Hon Marjorie
Mullin, Chris
Murphy, Jim (Eastwood)
Murphy, Paul (Torfaen)
Öpik, Lembit
Osborne, Ms Sandra
Pike, Peter L
Pope, Greg
Pound, Stephen
Prentice, Ms Bridget (Lewisham E)
Prentice, Gordon (Pendle)
Prosser, Gwyn
Purchase, Ken
Quinn, Lawrie
Reed, Andrew (Loughborough)
Rendel, David
Robinson, Geoffrey (Cov'try NW)
Rooney, Terry
Roy, Frank
Russell, Bob (Colchester)
Russell, Ms Christine (Chester)
Sanders, Adrian
Savidge, Malcolm
Sawford, Phil
Sedgemore, Brian
Skinner, Dennis
Smith, Angela (Basildon)
Soley, Clive
Southworth, Ms Helen
Stewart, David (Inverness E)
Stewart, Ian (Eccles)
Sutcliffe, Gerry
Taylor, Rt Hon Mrs Ann
(Dewsbury)
Temple-Morris, Peter
Timms, Stephen
Tipping, Paddy
Touhig, Don
Turner, Dennis (Wolverh'ton SE)
Vis, Dr Rudi
Wareing, Robert N
Welsh, Andrew
Winnick, David
Winterton, Ms Rosie (Doncaster C)
Wise, Audrey
Wood, Mike
Woolas, Phil
Wright, Anthony D (Gt Yarmouth)
Wright, Dr Tony (Cannock)
Mr. John McFall and
Jane Kennedy.
NOES
Beggs, Roy
Donaldson, Jeffrey
Robinson, Peter (Belfast E)
Rev. Ian Paisley and
Mr. William Thompson.
Amendments made: No. 207, in page 36, line 22, after '15(3),' insert & 20,'.
No. 208, in page 36, leave out lines 25 and 26.--[Mr. Dowd.]
Clause 77, as amended, ordered to stand part of the Bill.
Clauses 78 to 80 ordered to stand part of the Bill.
Amendments made: No. 212, in page 59, leave out lines 7 to 9.
No. 213, in page 60, line 41, leave out 'Northern Ireland Equality Commission' and insert
'Equality Commission for Northern Ireland'.--[Mr. Dowd.]
Schedule 13, as amended, agreed to.
Clause 81 ordered to stand part of the Bill.
Schedule 14 agreed to.
Amendment made: No. 214, in page 64, line 2, column 3, at beginning insert--
'Article 42(1) and (3) to (5).
Schedule 1.'
--[Mr. Dowd.]
Schedule 15, as amended, agreed to.
Clause 82 ordered to stand part of the Bill.
Bill reported, with amendments.
Bill, as amended, to be considered tomorrow.
That the draft International Monetary Fund (Increase in Subscription) Order 1998, which was laid before this House on 1st July, be approved.--[Mr. Dowd.]
Question agreed to.
That the draft Special Immigration Appeals Commission (Procedure) Rules 1998, which were laid before this House on 2nd July, be approved.--[Mr. Dowd.]
Question agreed to.
That the draft Deregulation (Exchangeable Driving Licences) Order 1998, which was laid before this House on 29th June, be approved.
That the draft Deregulation (Taxis and Private Hire Vehicles) Order 1998, which was laid before this House on 8th June, be approved.--[Mr. Dowd.]
Question agreed to.
11.55 pm
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