Financial Markets

Part of Opposition Day – in the House of Commons at 6:03 pm on 5 November 1987.

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Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 6:03, 5 November 1987

The Financial Secretary to the Treasury calls it a golden age. I do not accept that view. I am not one of those old time Stalinists.

On Tuesday the Chancellor delivered his Autumn Statement. I found myself agreeing with the market that it was frighteningly irrelevant to the needs of the nation at this time. On the very day that the Chancellor announced his statement, the markets which, given what had happened over the past three weeks, could only be described as being in ebullient mood, plummeted by 70 points. Yesterday, after the markets had had time for calm and mature reflection on the value of the Autumn Statement, they plummeted a further 45 points.

Who on earth wrote the Autumn Statement? The only name that I have been able to come up with so far is that of John Banham, the ludicrous director general of the CBI, who earlier this week gave us this year's immortal quote: Crash? What crash? I can't remember any crash. The problem is that there is a complete disconnection between the contents of the Autumn Statement and what is happening in the real world. Most bizarre of all—and nearly all hon. Members have referred to this today—the figure for the PSBR is set at 0·25 per cent. Getting rid of the PSBR seems to have become an icon in the Chancellor's pagan theology. However, why should we get rid of it? What is the reason behind that?

As the PSBR has been reduced, real interest rates have risen. Real interest rates are now twice what they were in 1979. If there is some empirical evidence to show a relationship between reducing PSBR and reducing inflation, I hope that some Conservative Members will produce it tonight. As a member of the Treasury and Civil Service Select Committee, I and Conservative Members have looked hard, but none of us has been able to find that evidence.

What should the PSBR be? I watched the famous television programme "This Sunday" when the hon. Member for Wokingham (Mr. Redwood) was asked what he thought the PSBR would be if the dollar had a hard landing. He replied that he thought it should be between £5 billion and £7 billion. That is roughly 1·5 per cent. of GDP. I asked myself what I would have replied if I had been asked the same question at the same time with the same premises. I would have combined prudence with the knowledge that there are many unused resources in our economy and that 2,900,000 people are out of work. It was within the premises of the question that a severe recession was about to follow. In those circumstances, I would have picked a slightly higher PSBR at between 2·5 per cent. and 3 per cent. of GDP. In my view, historically that would not have been out of balance, given the problems that we would have been facing.

The crash on Wall street started on Monday 19 October. Perhaps it was ironic that I first discussed with a journalist in a coffee shop in Brighton three weeks earlier on Wednesday 20 September the political and economic consequences of a crash. Given the time and the place and the fact that I am only an obscure Back-Bench Member in the British Parliament, no one took any notice of the imminent collapse that I was telling people about. That is life, I suppose, but ultimately the academics and the historians will want to know what I was saying at the time. There is also a 20-page speech setting it out for the same party conference, so it is on the record.

It is clear that there is going to be a recession. The only question worth asking is, "How big will it be?" It is sometimes possible for Governments to mitigate the consequences of what happens, but such awesome economic events have the habit of brushing aside the puny efforts of statesmen. We cannot pretend that they have not occurred. The Government have had a lot of luck in their economic management—perhaps more than most other Governments—and it is sad to see that luck running out through the irrational antics of the Chancellor's erstwhile friends who play the markets around the world. The nation should realise that the thundering herd of Thatcher rhinos which stampeded to sell on the London stock exchange are all either friends of the Prime Minister or friends of the Chancellor, or both.

In America, Reagan's buffaloes caused the damage; in Britain, Thatcher rhinos created mayhem. But it will not be only them who pay the price. I remember, when the Labour Government faced a crisis in 1976, Tony Crosland said that the party was over. In 1987, I must say, on behalf of the Conservative party, that the ball is over. No one is fooled by the Autumn Statement.

Never glad confident morning again", Nigel! These have been three terrible weeks for those who believe that the markets know best. We have a Chancellor who, as I have told the House before, could not float one of the richest, most powerful and most profitable companies that the world has ever known without intervention because the markets could not cope. What kind of Chancellor is this who said to the world, "BP—don't be part of it, whatever you do"?

This Chancellor used to tell us that the only determinants of the economy were the various measures of money supply — Mo, M1 M2, M3, PSL1, PSL2, broad money and narrow money. He used to say that, because the markets were both the medium and the message, he could abolish the minimum lending rate. Yet, in the middle of a crisis, this free-market, non-interventionist Chancellor, brass-necked, poker-faced and without a hint of shame, told an astonished world that he was about to reduce interest rates by a half of 1 per cent., in what has subsequently been described as the most ludicrous piece of fine tuning that the British economy has experienced since the war.

Are we really to believe that this free-market, non-interventionist Chancellor now has a nightmare every night, in which he goes through the agony of wondering whether to tell the House or the Bank of England next day that he is going to change interest rates by a fraction of a percentage point? Interventionists, fine tuners and Keynesians the world over simply do not know how to respond.

This Chancellor used to appear in the House and tell us that the foreign exchanges knew best. Now the exchange rates are fixed by the Louvre accord, and are basically determined by central banks and central Government. How extraordinary it is to see the great god and lord protector of markets turn turtle in such a ridiculous fashion. Now his only market principle, his only monetary principle and his only economic principle is lack of a principle.

I do not know, Mr. Speaker, whether you remember James Russell Lowell. He once said, I don't believe in princerple, But O, I du in interest. Is that not a definition of the modern Conservative Chancellor? Utterly without principles, but believing in interest—the interest of underwriters and market players whom he must save from themselves, and of fat cats in the City who have ruined it for us all because they operate on a casino called the London stock exchange?

Talking of the word "casino", perhaps I could make a sad—or perhaps joyous—announcement. I am reliably informed that John Maynard Keynes, the famous economist who dubbed the stock exchange a casino 50 years ago, today turned over in his grave, smiled knowingly and went back to sleep for the rest of eternity, because he had realised that the genesis of his ideas would prevail. The hon. Member for Wokingham is right: Keynesian ideas will prevail over those of the Chancellor. I wish the hon. Gentleman well in his argument with the Chancellor, who told the House today that, whatever happened to the world economy, be it a soft or a hard landing, he would not go into deficit financing. In two years' time, the hon. Member for Wokingham will have it right and the Chancellor will have it wrong: there will be deficit financing.

The question that we must ask ourselves is, "How serious will the crisis be?". When I asked the Chancellor a question last week, he replied that it was not the crash but the actions of Government that had created the crisis in the 1930s. I consider that a dangerous half truth. I do not believe that it is possible to wipe $1,000 billion off the value of stock all round the world without severe damage, whatever the response of Governments.