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Budget Resolutions and Economic Situation

It is a great pleasure to follow so many good speeches. There are too many to mention, although I shall refer to one in particular: the superb contribution—someone else's description—from my hon. Friend the Member for Nottingham, South (Alan Simpson). His mastery of the world situation and of the energy world is unparalleled in the Chamber. I am sure that no one feels uncomfortable about my saying that. I was, 27 years ago, the joint author of a substantial booklet entitled ““Energy—A Planned Policy”” for the National and Local Government Officers Association. We wrote a lot about renewable energy, and one could read out chapters of that book now and they would sound current, because the things we are saying now we were saying then, all that time ago. We were beginning to become aware of the problems of carbon dioxide in the atmosphere, and we knew that we had to change the way we produced and used our energy. We said all sorts of things at that time. Depressingly, the money spent by the Government on renewable energy research was tiny at that time, and it was cut just after we published our pamphlet. All these years later, it is not so surprising that Germany has 360 times more installed solar capacity than we have—so much more capacity for a country that is not much bigger than ours—and 10 times more installed wind capacity. Those staggering figures showed that the Germans looked ahead, whereas we did not. We now realise that we are way behind and are trying to catch up. We are an island surrounded by waves, so we have the potential for tidal power on the Severn and elsewhere—indeed, possibly on the Thames. We have wind power and all sorts of possibilities. This country is not that sunny compared with Africa or even southern Europe, but we have sufficient sun for solar energy to make a major contribution. However, we have not done that and we are trying to catch up. I am pleased that my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs has come back to the Chamber to listen to my speech, although he is perhaps here not specifically for that purpose and just happens to have returned while I am speaking. I hope that he will use his influence in the Cabinet to argue for much more radical renewable energy measures, to ensure that we start to make progress and try to catch up with Germany and the others who are so far ahead of us. We need to do so. I want to talk more broadly about the Budget. Like others, I think it is a ““wait and see”” Budget. I think that the Chancellor looked over a chasm and thought, ““I am not going to do anything too radical today, because tomorrow there may be all sorts of problems, depending on what happens in the American economy in particular.”” So, he has made relatively marginal changes—some of them welcome, and I applaud him for that—but done nothing very radical. If, as seems likely, recession takes hold in America, spreads to the rest of the world and has some effect on us as well, the Chancellor may need to take more radical measures to deal with it, but if we have a recession of any kind, one should expect a spending deficit, because that is what happens in recessions. One does not want a tightening of fiscal policy at the beginning or in the middle of a recession. We should be relaxing fiscal policy, and we may need to do so. We are now realising that we must re-establish the importance of all the levers of macro-economic policy and put them in the hands of the Government. Interest rates—in theory at least—are with the Bank of England, but it is unthinkable that the Bank would look at just the inflation rate and decide interest rate policies on that basis. It must consider the performance of the economy as a whole. Unusually, I agree with the right hon. Member for Wokingham (Mr. Redwood), who said that the last thing one wants to do in a recession is raise interest rates to deal with inflation. Inflation will be ironed out by the recession. Much more dangerous than inflation at such times is deflation, as the Japanese found in the 1990s. Falling prices and people abstaining from spending because they anticipate price falls can create a vortex that causes terrible damage to an economy. That must be resisted at all times. Apparently, the Japanese have as a national characteristic a compulsion to save all the time. In recessions, we want people to spend, not save. The Japanese Government apparently gave tokens to poor people to get them to spend—they would not spend money—but they started to save the tokens, so there was a serious problem. Recession is much more worrying than inflation and the Government should ensure that the Bank of England does not start tightening interest rates at this moment. In my view, interest rates should indeed be considerably more relaxed. One recent benefit that we have had is, at last, the beginnings of a fall in the exchange rate. I have argued for years that we should manage the exchange rate down to a much more competitive rate. Looking at the state of the balance of trade, it is clear that we have a structural problem, not a temporary problem. The exchange rate was too high and a permanent structural trade deficit was the result. The exchange rate falling is naturally good for us, but that ought to be a deliberate instrument of Government policy, not just something that happens. I hope that the Government will welcome that fall in the exchange rate and press the Bank of England not to raise interest rates. If anything, they should press the Bank to reduce them.