Orders of the Day — Prices and Incomes

Part of the debate – in the House of Commons at 12:00 am on 25th October 1966.

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Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Leyton 12:00 am, 25th October 1966

The right hon. Member for Enfield, West (Mr. Iain Macleod) is the most formidable speaker on the Opposition Front Bench. I still mean it as a compliment when I say that the competition is not as great as all that. But I do not think that he made one of his most formidable speeches today. He jumped too much from one thing to another and I was very sorry that he did not choose to follow my right hon. Friend the Secretary of State for Economic Affairs into his penetrating analysis of the economic situation and the problems facing us, though I was interested to note that the right hon. Gentleman openly disagrees with the views of the right hon. Member for Wolverhampton, South-West (Mr. Powell) about the prices and incomes policy.

I agree with the right hon. Member for Enfield, West on the need to resist reflation by simply increasing consumer demand, but when he says that if there were a free vote on Part IV it would have no friends he is talking nonsense. As my right hon. Friend said, one of the striking features of the stern measures the Government have had to take, including the invocation of Part IV, is the degree to which they have evoked public understanding and support. There are, of course, many puzzled and worried people in the country and both sides of industry have doubts about compulsion, but there is a widespread feeling that compulsion is necessary in this brief period to which the Order applies in order to stop a small minority jumping the queue and cheating.

I think that the basic reason for the general understanding and support of what the Government are doing by this Order, and of the general policy which forms the context of the Order, is that there is a broad recognition that the Government are accepting new responsibilities to avoid inflation.

It is necessary that these new responsibilities, the new powers that go with them and new attitudes shall be undertaken by the Government to match the responsibilities which everyone accepts belong to the Government for the maintenance of full employment, for unless the Government do act in the proper way—and this is being more and more understood—full employment, which we all want, is exactly the same thing as inflation.

Full employment is, after all, the use of the country's resources, human and material, at full stretch. The maintenance of full employment, if one does nothing else about it, is really trying to keep the economy at the top of a boom continuously, and if nothing is done there is an automatic tendency for increases in consumer purchasing power to outrun increases in production. That leads to the all-too-familiar sequence that goes on into a balance of payments crisis.

One thing we have learned—and I think that the right hon. Gentleman made it clear that he, too, has learned—from the Conservative Government's attempts to deal with this problem in their time is that it is not enough to turn on and off the tap of consumer demand. That simply perpetuates the sequence that leads on into a balance of payments crisis. It is true that, if one makes a sufficient cut in consumer purchasing power, one does in a certain sense solve the problem one is facing and goes from a balance of payments deficit into a balance of payments surplus. At great cost, one gets a surplus but at a lower level of general economic activity.

If, as the Conservatives always did, one tries to restart the economy by restimulating consumer purchasing power, one gets back into the whole cycle again and after two or three years one is back into a balance of payments crisis and so the whole thing goes on. It was the Conservative Government's idea that the way to control the situation and deal with the problem was to turn on and off the tap of consumer demand that was at the root of their stop-go policy.

The present Government have also had to cut consumer purchasing power at the top of a boom which had gone too far, with the traditional and familiar results. There was no other way of achieving the sort of breathing space that we must have. But the essential point is that we must go into the next stage of economic advance by a different route from the old ill-starred Conservative way.

The decisive and essential step is that we should reactivate the economy this time by an export-led boom. That is absolutely essential. It counters the tendency, which arises if one does it by increasing consumer purchasing power again, for imports to rise and exports to sag. If a boom is started and led off by exports, then exports tend to keep up after the economy has got back to full activity and it is very much easier thereafter to sustain high exports as a permanent part of the general economic pattern. That has been the experience of Germany and other countries which have managed this.

I hope, therefore, that we will do everything internationally permissible to get exports going first. It is very important that investment grants should be especially speeded up for the major export industries. The I.R.C. should devote its first activities to exports. There are many ways in which one can stimulate exports to lead off the return to full economic activity.

But, to be frank—and here I agree with the right hon. Member for Enfield, West—the most effective way to give exports priority is not only to stimulate them but to hold other things back until exports have got ahead. One must maintain for the necessary time the general restraint upon the economy while one is stimulating the growth and development of exports.

An export-led boom will, of course, work itself through in due course to the creation of full demand in the economy. Wherever one starts up demand, it will work itself through. But if one does it with an export-led boom it works much more slowly than if one turns on the consumer purchasing power tap. That, of course, is why it is such a temptation to turn on the tap. On the other hand, if the Government delay too long in getting the export boom off, they will come under heavy and perhaps irresistible pressures to go back to the old way of starting up consumer demand in order to get out of the situation. In my view, the Government should start now to launch the export-led boom.