Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 26th July 1966.

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Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher , Finchley 12:00 am, 26th July 1966

My first pleasant duty is to congratulate the hon. Member for Carmarthen (Mr. Gwynfor Evans), who made such an eloquent and original maiden speech. He certainly gave us a new interpretation of the Prime Minister's mistakes. I note that he wanted a separate Government for Wales. This would, of course, solve some problems for England, because presumably he would take with him the right hon. Gentleman the Chancellor of the Exchequer, who would then be able to make as much a mess of Welsh problems as he has made to date of the problems of England and the rest of the United Kingdom.

When in the past we have had periods of stop-go, we have during the period of stop usually managed to solve the immediate balance of payments problem. I believe that this is the first time when we have had a prolonged period of stop —more prolonged than any other—but have not solved the balance of payments problem. We can contrast previous occasions. My right hon. Friend the Member for Flint, West (Mr. Birch) took one of these occasions, that of the Peter Thorneycroft measures which solved a particular set of problems.

I will take the year 1961, when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) also had a problem on his plate. He also took certain measures; he also borrowed money, but the significant thing is that the money he borrowed from the International Monetary Fund, some £535 million, was repaid within a year and the Bank Rate of 7 per cent. which he instituted for a short time was down to 4½ per cent. within ten months. So at least that period of stop was a good deal shorter than the present one. He took measures. He clearly meant business. The problem was solved, and we were ready to go ahead again with a period of expansion.

This time we have had a period of stop in production for a very long time. The rise in production which began in 1964 finished, in effect, in January, 1965, when the index of industrial production for all industries was 133, exactly the same as the latest figure. We have had stop over all that time.

The Chancellor made certain excuses for our present problems. He spoke about the terms of trade. But they were against us in 1964. In 1965 they were with us, which helped us enormously, and in 1966, it is true, they have turned against us. But I agree with the hon. and learned Member for Northampton (Mr. Paget) when he says that a good deal of this could have been foreseen. Surely the rise in copper prices was fore- seen just as soon as the Rhodesian crisis broke. Surely the rise in import prices was foreseen just as soon as the Vietnam war was stepped up. These things did not come on the nation as a surprise. They could and should have been foreseen.

The present Government have attempted to make rather too much of an excuse of the seamen's strike. Those who have any personal connection with trade and industry know that the vast majority of our exports got away during that period. The first question one asked was, "How much got away? ", and the answer usually was, "The whole lot". There were certain exceptions, for example, exports to Australia and New Zealand, which did not get away, but the vast majority of our exports got away during the seamen's strike, thanks to the efforts of shipping clerks and transport departments in many industries who arranged for them to be carried in other ships. I said at the beginning of the seamen's strike that we should watch it carefully, because I thought that the Government would try to lay all their troubles at the door of the seamen's strike, which is exactly what they have now done.

I turn now to the general strategy of the Budget, such as it was. I say "such as it was" because it was, in fact, conspicuous by its absence. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said at the time how wrong he thought the Chancellor's timing was. How right my right hon. Friend was and how wrong the Chancellor was. The main purpose of the annual Budget is to plan the course of the economy in the year ahead. As soon as we heard the Budget, we knew that there would have to be another one within a comparatively short time, and we made that point during our debates. Never has a Budget imposed such a large tax burden but left our creditors with the view that it was soft.

It was a Budget which had a certain psychology behind it, the idea that it must not hit the ordinary elector, that anything done must be done in such a way that it did not bring home the seriousness of the situation to the people who by their action could have remedied that very situation. So now we have an extremely savage package of deflationary measures. These are not Tory measures. I cannot think of any period when we have had such a severe package at any one time.

It is worth while looking at the timetable of deflation as it appears from the latest package. In this July we have the regulator, which, it is said, will produce about £150 million in a full year. We already have the hire-purchase restrictions which will cut borrowing by £150 million, though it is not specified over what period. There is quite a lot of deflation to start with. Then, in September, the period when most economists were in any event expecting a down-turn, several other measures come into effect. The first five months of Schedule F will have to be paid on dividends. The Selective Employment Tax is taken out of the economy at a rate of £90 million a month. In October, for the first time wage-related contributions for unemployment benefit and sickness benefit have to be paid, and this will amount to about £76 million in a full year. In October, the postal rates will go up, amounting to £20 million in a full year. The betting and gaming tax will start then, too. In November, the travel allowance reductions come into effect.

This is an extremely harsh timetable for deflation, but it is not all. The deflation policy goes on into next year. In January, £1,000 million will have to be paid in Corporation Tax and £248 million in Surtax. In February, the reverse position will be true when rebates and premiums start to be repaid. In September next year there will be another Surtax deflationary packet taken out of the economy. Even that is not all. Deflation will continue until 1967–68 with the cuts in investment programmes and the building controls. This is not merely a programme for deflation; it is a programme for contraction. It will mean that we shall go on having a contracting economy for a considerable time to come.

I turn now to some of the sayings of the Prime Minister. He now appears to be resolved to deal with the crisis. We have heard a great deal of this before. It was after the initial crisis in November 1964 that the Prime Minister said at the Guildhall dinner: We shall not hesitate to take any further steps that at any time are or become necessary. If anyone at home or abroad doubts the firmness of that resolve and acts upon their doubts, let them be prepared to pay the price for their lack of faith in Britain. People did doubt the Prime Minister's good intentions, for a few days later we had the first great crisis of confidence. Bank Rate went up and the Prime Minister came to the House and said that at this particular time a crisis of confidence had developed. So much for the Prime Minister's resolve on that occasion. The House knows what has happened since. There have been successive Budgets and successive measures. So again, in his Prime Ministerial broadcast on 20th July, the Prime Minister said: We are determined to take action which will show that the people of Britain are ready once and for all to play their full part in putting right the economic weaknesses. The question which everyone asks is why should we believe him now when he has said it all before and has done precious little about it? This is one of the problems of the present set of measures. No one believes the Prime Minister any more and no one trusts him any more, as the hon. and learned Member for Northampton pointed out. The Prime Minister's problem is that Britain's creditors now understand him perfectly. Because they do so they are suspicious of anything he says. It is very ironic that this is the contribution which the Prime Minister has brought to a nation which built up its trade and financial position on trust. In two years the Prime Minister has destroyed trust in the Government's word. It is not surprising that many people are now hesitating before judging the measures brought forward. They are not judging the measures themselves; they are judging the set of men, headed by the Prime Minister, who brought them into operation.

The Prime Minister missed his vocation. He should not have taken the job of a man of decision but should have stayed as a commentator, for, like sorry wine, he makes excellent vinegar. We had the famous week, that was the week that was, starting on the 11 th July with the report in the Financial Times that the view of the Government was that there was no need for additional measures to deflate the economy. The next day it was announced that there would be no help from the banks for the purpose of meeting Selective Employment Tax payments, and the next day the Prime Minister cuffed the "Sell Britain Short" brigade. On the Thursday we had the trade figures. Then the Prime Minister came to the House saying that more was needed but he had not a clue as to what it was.

So we had one of the greatest somersaults of all times, a somersault which I think the British electorate will never forget, because I do not think that ever again can they believe what the Prime Minister says.

My right hon. Friend the Member for Flint, West has had something to say about the reserves and the fact that precious little of them belongs to us. We are, of course, in this crisis after all the known solutions have been tried and have failed, after the terms of trade have been with us, after there has been the most massive international support of all time, and after there has been the most colossal run-down of the true reserves. Perhaps people do not realise the extent to which the Government have lived on capital built up before they came to power.

It is as well that previous Chancellors of the Exchequer did not liquidate the dollar portfolio and put it into the reserves., otherwise it would not have been available now. [Interruption.] It never actually went into the reserves—which is just as well. It would certainly have gone before if we had had a Socialist Chancellor of the Exchequer.

We have also had the penalty of the disinvestment of dollar securities, which brought in £70 million last year. Had not previous Governments acted in a way that built up private overseas investment there would not have been enough for the Chancellor to run down now. The final indignity was the Gold Coins Order. making it an offence for anyone who did not hold sovereigns on 27th April, 1966, to buy as much as one sovereign. What an indictment of the Government. It was a ridiculous Order.

There is, of course, the difficulty of telling anything from the published reserve figures. The April edition of the Banker described the Chancellor's statement of 1st March as a … virtuoso display of how to juggle with reserve figures". What a commentary on the Chancellor of the Exchequer. It is also clear from the June Quarterly Bulletin of the Bank of England that during February and March there were a number of borrowings, at any rate to the extent of £54 million, which o did not reflect in the reserve figures.

There was a very obscure sentence in the Bulletin which led the Economist to comment: This makes the notionally clean reserve figures as irrelevant as the crude figures. Therefore, my right hon. Friend the Member for Flint, West was right in saying that precious little of our reserves belongs to this country.

During the debate, there have been a number of comments about devaluation. My view, and I believe the viewpoint of the Opposition as a whole, is that we are absolutely against devaluation.