3 OCTOBER 1992, Page 9


John Major has reduced our living standards

by 4 per cent, argues Nicholas Ridley,

speaking up for British industry

THE CONSERVATIVE Party Conference begins next week. The Prime Minister has some serious charges to answer. He has some thinking to do before he answers, too. His economic policy is in ruins, and so Is his European policy. At Brighton, John Major has to say some new things to the Tory party workers and grass-roots. It will be no good repeating the sort of speech he made in the Commons during the emergency sitting. The party is angry about the ERM and the recession it has caused, and it feels Black Wednesday's devaluation was a fiasco. It wants an economic policy which profits it, and is not knocked over by a little turbulence. Nor does it like the Maastricht Treaty. I doubt if more than one in four people in the Tory party really wants it at all.

But, strangely, on these two burning issues of the day — the econo- my and Maastricht there is a close consen- sus among the leaders of the three parties. These were John Major's two great successful achievements, the heart of his policy, and the justification for his pre- miership. The Labour Party, under the leadership of John Smith, has supported him doughtily. True, it whinges on about needing some sort of industrial policy too, but I will come to that. On the issue of the ERM and Maastricht, it was loyally lined °P behind him. The Liberal Democrats Went even further and wanted to swallow the whole package immediately.

Both policies were deep and serious errors. Both have now fallen apart. There no one on any front bench who is left looking faintly credible. The collapse of the ERM and the huge surge of people trying to get on to the bandwagon of 'I told you so (although most didn't) probably means that it can never be resurrected. We must allow a decent interval for the Government to realise this, but it is wonderful to feel the wretched thing twitching its death- throes.

What would be intolerable, and what Mr Major must not do, is to keep open the possibility of re-entry into the ERM as it is now, or after some so far unspecified reforms. Reforms which the Government are vainly trying to cook up have already been decisively rejected by European Finance Ministers earlier this week. Britain was again humiliated and it must now be crystal clear that no reform is possible. The ERM can never work, reformed or not, and it has already wrought huge damage on the British economy. The alternative to a return to the ERM is a sensible policy based on control of the money supply such as we practised from 1979 to 1987, and is still practised by the Bundesbank. It is nec- essary for those in business at least to know which of the two policies is being pursued. It will be dreadful if John Major continues to sit on the fence. He should allow Nor- man Lamont to explain to the faithful at Brighton exactly what the new economic policy is. The Single Currency and European Monetary Union — one of the daftest poli- cies ever cooked up — should also be dead. It would hardly make sense to see the ERM shot down with such spectacular clar- ity, and then to proceed with its successor instead. In the three referenda held so far, well under 50 per cent of the electorate have voted for it.

Yet it is remarkable how resistant they are. They seem so stuck in their old ways that all three leaders go on about re-entry to the ERM and ratifying Maastricht in due course. John Major, as President of the EEC, has some excuse, in that it is his duty to be Chairman of the Coun- cil in the European cause. But his minions are actually making noises that that is what he really wants to do.

It seems as if a battle has developed within the Cabinet between ERM support- ers and opponents. I fear, looking at them, that it is far from certain that there are enough opponents to win the day. The same is true of the Maastricht Treaty too few of the opponents are on the front benches.

Meanwhile the problem is that we have lost 4 per cent of our GNP. We have driven

our own economy into the sand; we approach three million unemployed; our housing market is a disaster; our businesses have gone under by the hearse-load; there is a horrendous worsening of living stan- dards; we are losing world market share and continue to run a huge trade deficit. The consensus has supported policies which have actually imperilled the healthy development of the productive process. This was all in the name of Europe, which was supposed to make us more prosperous.

There is now a problem of how we are to earn our livings again. The Labour Party seems the most aware of it. Throughout the ERM crisis the lugubrious Smith and Brown were telling us that although they supported the ERM, the value of the pound and the Government's economic policy, something should be done to help manufacturing industry. They wanted more spent on education, training, research and investment. They were wrong to confine themselves to manufacturing, and they were wrong to think that more money was what was needed. The idea that a few bil- lions spent on education will have any effect on the economy within 20 years is crazy. Even spending on training is slow to have its effect, and should anyway be the responsibility of industry, as it is in Ger- many. Indeed, state aid to industry is not allowed under the Treaty of Rome. So Labour's demands are irrelevant to the present situation. Nor can the Government afford to spend more money — it is already spending far too much.

The Labour Party is therefore wrong to think any of this was faintly relevant to the sterling crisis. But it is right that this is the area where we must concern ourselves. John Major has got to tell the Tories that he understands this.

The lacuna in British political thought is now industrial policy. There are many on offer — the Labour Party's, Michael Hesel- tine's, as set out in his writings in the wilderness, and the pointless present rag- bag of DTI 'monitoring' and 'advice' ser- vices. I do not mean any of these. In my view, the industry budget of the DTI should be abolished.

What I mean is that the Government must now devise a way of making its eco- nomic policy helpful to industry. It has been agonising to watch how economic pol- icy is killing the goose that lays the golden eggs, while keeping in being a DTI whose Secretary of State was supposed to look after the interests of the supply side of the economy. Michael Heseltine is probably not even consulted about macro-economic measures which are vital to industry's well- being: interest rates, exchange rates, demand levels and trading opportunities, taxation and compliance regulations. All these important policies are the pre- rogative of the Chancellor. When I was Secretary of State for Trade and Industry, the Chancellor took little or no notice of me or of my department's views on the impact of his policies on industry. The trouble with the ERM debate — which has been going on now for five years — is that it diverted attention from the productive side of the economy and dominated deci- sions of macro-economic policy.

What should the Government's industri-

al policy be? It is essential for business to earn higher profits. The high exchange rates of the recent past have meant that the competition, both in export markets and in our home market, has squeezed our profit margins and driven many of our companies into loss-making and bankruptcy. Our com- panies cannot invest except by borrowing more at high interest rates — if the banks will lend. Investment is vital for growth, research and training. Lower interest and exchange rates are essential for higher profits, and higher profits are the essential requirement of an industrial policy. Yet all this has been ignored in order to be 'at the heart of Europe'.

This criticism is not related to any per- sonalities in the Cabinet — heaven forbid Michael Heseltine should ever become Chancellor! It is a plea for a reorganisation in the policy-making processes at the top of government, that the interests of industry should have a far bigger input into the way macro-economic policy is developed. It really is more important than relations with 'my friend Helmut' — or at least it is for the British.

If one quarter of the political energy that went into negotiating the Maastricht Treaty had gone instead into the General Agree- ment on Tariffs and Trade, we would all have benefited. If we could open up trade with eastern Europe, and smash some more of the continental rackets which still exclude British business even in the Single Market, it would give our firms new oppor- tunities. This is what John Major should be doing.

A lower exchange rate, a lower interest rate, and new market openings are what are needed. Currency stability is not what is needed. It can be had only at the high cost of the ERM policy, and then only with one half of our trading markets — the EEC. Stability there — until devaluation — was accompanied by violent instability in rela- tion to the dollar. Many companies none- theless continued to do good business in the United States and the dollar markets, despite all these fluctuations. It is always possible to insure against exchange rate risks — most companies do.

The drive towards European monetary integration has resulted in huge disadvan- tages to our businesses, and thus to our standard of living. John Major has already succeeded in reducing our living standards by 4 per cent. Could he please reverse such policies so that our wealth may grow, not diminish?

These issues must now be confronted in a way which satisfies the party in Brighton.

Tin a .shadow Eurosceptic.'

It is no good going back to the old policies, and hoping they can be reimposed after a decent interval. Not only will they not work — there will be no recovery if the Govern- ment tries — but the party will not accept it. The so-called 'Eurosceptics' are right. They grow stronger by the day. The party in the country knows it, and it cannot be cowed by the whips and pleas for loyalty. If the party splits, John Major will be in the minority. Nor must he split the party. He has in fact no option but to change his poli- cies. He is on trial at Brighton.