---

The Economy

I understand the right hon. Gentleman’s point, and if I had stuck to my speech I might have come to it myself. However, as long as we are moving broadly in line with the changing debt and deficit financing levels of comparable countries—the United States, Germany, France, Japan and so on—and as long as we are moving on the same track, even if it is an upward track, I would not expect that confidence to go. As long as that confidence does not go, the relative strength of the currency will be retained. I understand the worry, but with a little careful engineering, we can avoid falling into that trap. I do not have enough time to respond to the right hon. Gentleman’s other question in detail, but the whole of world trade will break down unless there is an international agreement between the countries that are running surpluses and those that are running deficits to act together. That would mean the Chinese starting to spend a little more in China, which would mean that they would not have to export so much, which in turn would mean that we would not have to import so much from China, meaning that we would not have such difficulties with deficit financing. Providing that there is an international agreement to take that on board, we will find a way out of this mess. Those on the Conservative Front Bench have to face up to the hard-line decisions. They have to recognise that the enemy is not inflation. The enemy was inflation for a number of decades, but the enemy today is deflation. The great danger is that we do what was done in the 1930s. Before Keynes got his way and before Roosevelt introduced the new deal in 1933, the world economy was in a serious position. Instead of trying to stimulate the economy by having programmes of public expenditure and keeping interest rates as low as possible, we had the opposite. In the early days of the recession, in ’29, ’30 and ’31, we had high interest rates. We even put interest rates up initially, until we realised the folly of doing that. When interest rates went down, the economy did not respond to them and people said, "What now?" It was at that point that Keynes said, "You might want to have some public expenditure"—the right hon. Gentleman and I might agree at least on what was said historically. Today we are in the same position. We have a choice of ways to stimulate the economy. We can have some tax cuts—I think that that will be essential—to give a boost quickly. I am not a 100 per cent. believer in the VAT cut, but whatever one might say about it, it is a quick way of having an effect throughout the economy. We need to look at the VAT cut again in a year’s time and see whether it has had an effect. I suspect that my initial reaction was wrong and that it will have more effect than I thought it might. We also need programmes of public expenditure as the economic stimulus is taken forward, and we have choices on what that expenditure should be. Some aspects of public expenditure are automatic—they just happen, because of the stabilisers in the economy. That is usually pretty good, because people who need the benefits usually spend the money that they get, which is good for stimulating the economy in the short term. If the Minister is going to give us a taste of what might be in the Budget, I hope that we might hear something along those lines. On public expenditure on public works, as it were, there are various areas of our economy where we have obvious needs. We need to get parts of our transport system right and now is the time to do that. We need to spend money on education and skills to ensure that when we come out of the economic difficulties that we are currently in, we have people who can take up the future challenges and compete internationally. There has been talk around the Chamber of cuts in expenditure for further education colleges, but that is not true.