Part of FINANCE (No. 2) BILL – in the House of Commons at 12:00 am on 1st June 1967.

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Photo of Mr David Howell Mr David Howell , Guildford 12:00 am, 1st June 1967

I agree very much with my hon. Friend the Member for Worthing (Mr. Higgins) that, if we are to make a clear and sensible judgment about the renewal of the regulator and this Amendment, we must give an airing to the question of the evolution of demand in the short and medium term, and press the Chancellor to be a little more explicit about the view which he takes.

I do not go along with the hon. Member for Heywood and Royton (Mr. Barnett) in the rather tortuous argument which he put. It seems to me quite fair to say, "Let us at least have a general view about what would happen". No one expects the Chancellor to be 100 per cent. right, but it is a genuine asset in considering public policy and the development of business decisions in industry if we have a clear general view about what is likely to happen. Of course, it may well be overtaken by all kinds of events, but that does not destroy my hon. Friend's argument. Therefore, in examining the question of the regulator it is fair that we should look closely at the Chancellor's short-term strategy as it now stands in relation to the way he set it out a month or so ago at Budget time.

Whatever the Chancellor's views about long-term economic strategy, the long term which we curiously never seem to reach under this Administration, he can hardly be happy about the way the short-term strategy he outlined in his Budget is evolving and about the background to the regulator. The unemployment situation remains extremely tricky and dangerous, and it looks as though unemploy- ment may be rising above the deadline or ceiling of 2 per cent. that was laid down. That seems to me an undesirable trend in our economy and economic policy.

Secondly, the export situation in the immediate short term, which is the relevant background to the use of the regulator and other demand controls, is not shaping up in the way some of the more optimistic forecasts from Ministers on the Treasury Bench indicated only a few months ago.

Thirdly, as my hon. Friend rightly emphasised, there is the critical question of the steep decline in private investment, which is supposed to pick up next year but is at present falling very fast. It is difficult to over-estimate the damage to the sensitive plant of private investment which that does to the whole shape of the economy and the present trend.

What is happening with this sharp decline in private investment is that the Chancellor is reducing the room in which the regulator or any other controls of demand in the short term can be used. One cannot just say that private investment will pick up again and assume that no damage will have been done. In the meantime the whole process of innovation is being slowed up, and processes and methods are not being installed that should be installed, which will have a direct effect on our export performance in the coming years.

That is closely relevant to the question of how the regulator should be used and the trend of demand in the coming months. The estimate from the National Institute of Economic and Social Research is that in 1970 private investment will be running at a rate of only 12 per cent. higher than in 1964. That is a tragic commentary on all our efforts to increase the efficiency of the economy and private investment, the elbow room within which the Chancellor must operate and control the economy and use the regulators, including that which we are considering.

That is the trend which the Committee will agree must be reversed, and there should be a measure of reflation. That was not the Chancellor's immediate judgment at Budget time, but the general hint which seemed to emerge from what he said, was that he looked forward in due course to a measure of reflation. He said that he wanted: … a steady run up to a higher rate of growth …".—[OFFICIAL REPORT, 17th April, 1967; Vol. 745, c. 205.] The question we still face today, and will face on each Amendment dealing with this kind of matter, is how we have that steady run-up to a higher rate of growth without running into another balance of payments crisis in the next few weeks or months.

As we look at this judgment on the evolution of demand, we see that it is, as my hon. Friend said, a judgment and strategy based on some very fine arithmetic. I have very grave doubts, particularly when considering the regulator, whether we have the knowledge, statistics, skill or understanding in our economy at present to proceed on those fine arithmetical judgments in making our economic strategy. Basically what is needed—this is a crude and not a scientific judgment—is a big revival in private investment. That is the central point of an economic policy designed to increase efficiency, raise exports and achieve the other aims which hon. Members on both sides of the Committee are always outlining.

The question before us in examining the regulator and its renewal is how to fit into the jigsaw of the existing components of demand that essential boost to private investment. This subject has been raised before in the House and we shall have to follow it through in the Committee. How do we fit the boost to private investment into the unfolding pattern of demand within the overall limit which the Chancellor has given us as his estimate of a 3 per cent. rate of growth of productive potential? These are essential and relevant questions to our judgment on the renewal of the regulator under the Amendment.

We must again question, as did my hon. Friend, that 3 per cent. rate of growth of productive capacity. I accept the very important proposition that I read in the recent D.E.A. memorandum, "Future Work on Planning". The authors, from the Department of Economic Affairs, wrote: The greater the growth of demand the greater will be the increase in productivity, because, for example, of greater economies of scale and because a faster growth of demand will justify the installation of a greater number of up-to-date machines. That is an extremely important policy statement, or statement relating to policy, coming from the Department of Economic Affairs, and it is very relevant to the question of immediate development of demand and regulators and controls to be used on it. It is saying that higher demand as from now and a higher rate of growth of demand will lead to lower costs and more efficiency. That drives a coach and four through the whole concept of fixed productive potential, divinely ordained and brought down on tablets from Mount Sinai. It says that where Government operates on demand it will influence the productive potential or capacity of the economy.

It would be unkind to harp on intellectual inconsistencies in the Government's economic policies at this stage, but I hope that less emphasis is put on the whole question of there being that 3 per cent. productive potential, the elbow room within which demand can be controlled and operated. That was the first point I wanted to make when looking at the question of immediate variations in demand in the coming months and the use of the regulator.

Secondly, as my hon. Friend said, there is the whole question of how the components of demand will move, I have already mentioned private investment and I do not want to go over the whole range of others but to deal with the one where we are supposed to know exactly what will happen and where it has been said that we know roughly how it will unfold—the development of public expenditure. It is right in examining the use of the regulator and the Amendment that we should look fairly closely at that component. It may well be that if we can produce more sensible ideas in this sphere the elbow room for the Chancellor will be enlarged to that extent, and the need to run the economy in the continuous cliff-hanging drama of a sensitive touch here and a sensitive touch there will be correspondingly reduced, because I doubt whether we have the equipment or sensitivity to run an economy in that way.

A precise estimate has been made of the growth of public expenditure for the coming year. Throughout the coming debates the Committee should ask itself whether that component need really be such a fixed and given quantity and whether we must be resigned to the tremendous growth of public expenditure, whether it is something we must grin and bear because basically it cannot be controlled. If that is so, instruments such as the regulator must, of course, be given closer consideration. But if it is not so and we can see ways of varying public expenditure within the general growth of demand we should do so.

That is the one real growth area in the picture of demand at present, it is the one area where demand is whizzing up. Unless we can make sensible suggestions on the cost of Government and the whole range of public expenditure we are dooming ourselves to the kind of economic policy which rely on the regulator.