Orders of the Day — Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 25th November 1968.

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Photo of Mr Edward Heath Mr Edward Heath , Bexley 12:00 am, 25th November 1968

Last week, some of us sensed an air of unreality about the debates on the House when outside in the world at large there was obviously a grave financial crisis, when the foreign exchanges were closed here and in the European capitals and we were devoting our time to debating electoral reform and the reform of the House of Lords. It is an unreality which has persisted in the House since the introduction of the last Queen's Speech which, as we said at the time, appeared to bear almost no relation to the real problems facing the country.

That air of unreality was perhaps dispersed when the Chancellor of the Exchequer rightly came to the House on Friday afternoon at a late hour and made his statement. Her Majesty's Opposition thought that it would be right, in these circumstances, to revert to the original proposal, announced by the Leader of the House last Thursday afternoon, to have a debate today on our economic affairs. It is, therefore, today that we have to deal with reality.

This debate on the Adjournment is the opportunity for the House to condemn Her Majesty's Government and the Chancellor of the Exchequer, in particular, for their handling of the country's economic affairs. How quickly the erstwhile admiring headlines have changed from "Roy's the Boy" to "Roy the Unready"! We condemn the Government's incompetence in their handling of our economic affairs; we condemn them for their failure to tell the country the true position; we condemn the Government for their deception.

The Prime Minister is not to take part in this debate. I do not complain of that; it is characteristic of him. He will explain his position tonight to his party meeting upstairs, where he feels very much more at home. He has deputed his charge to the Chief Secretary, who, on Thursday afternoon, displayed such an ignorance of the currency regulations which he has to enforce that he is quite unsuited to take part in any debate of this kind. If the Prime Minister had been able to take part, the explanation for these misadventures would have come from his own mouth. We would have been "turning the corner", "guided by an economic miracle", "got blown off course", giving a "touch on the tiller", said to be "steady as she goes", and finally capsized.

But the great merit of the Chancellor's statement on Friday was that he pre-empted all such excuses. It was honourable of him to do so and to take the full blame upon himself, and in so doing he prevented the Prime Minister from taking part in the debate. He announced that the measures were prepared before the international crisis and had nothing whatever to do with the Bonn meeting.

Of course, the timing of the measures is of great interest to the House. Perhaps the Chancellor would tell us exactly when they were prepared. Was it after pressure on sterling developed some 10 days ago and before the European crisis arose, or did the Chancellor want to bring in these measures some three weeks ago to deal with the situation, but was prevented from doing so by the statement of the Secretary of State for Employment and Productivity that there was not to be another economic freeze?

In any case, the Chancellor of the Exchequer endorsed her words. Perhaps he was accurate in saying that he had a blinding revelation at Bonn that the events of the past week have demonstrated dramatically the urgency of our achieving and maintaining a surplus in the balance of payments … "—[Official Report, 22nd November, 1968; Vol. 773, c. 1792.] It took the international crisis and the meeting at Bonn to persuade the Chancellor of the Exchequer that he had to take action when the situation was becoming critical. That in itself is a condemnation of the Chancellor of the Exchequer for his complacency and incompetence. The need for these measures if the Government's policy were to be effective was widely discussed in the Press and elsewhere and in the House three weeks ago, but he took no action and he himself said that there would be no freeze.

The Chancellor's forecasts have all been proved wrong. Now he has a new line. He says, "So many of my forecasts have been wrong because I make so many forecasts", and he has, therefore, invited the House to congratulate him on making so many forecasts even though they proved to be so wrong. His action has certainly shown this time that the forecasts he gave were wrong.

The Chancellor's policy was based on one fundamental—a reduction of consumer expenditure and that public expenditure could go on increasing. His strategy was that there must be a substantial reduction of consumer expenditure if, in his own words, devaluation was to be made to work. On the other hand, public expenditure could go on increasing. This policy was to be brought about by a brutal increase of taxation in the last Budget of £923 million, together with the prices and incomes policy. These were the two means by which he was to carry out his strategy. He required a drop of nearly 2 per cent. in consumer expenditure by this August. This was not just a forecast; this was a requirement.

But, instead of this requirement being brought about, exactly the reverse has occurred. Consumption is up between 2 and 3 per cent., and it makes a difference of nearly £500 million. That is the first thing that has gone wrong with the Chancellor's strategy. The second is that the Government's prices and incomes policy has not served their purpose. The Chancellor himself admitted this in that optimistic article in the People only eight days ago, the Sunday before last. He was optimistic about imports—yes, per- fectly all right—exports could go on increasing. He was perfectly optimistic about the level of consumer expenditure—yes, we could hold it there, and all was well.

The Chancellor went on to say that wage rates were up 5 per cent. and earnings by much more. This is true. Earnings are up by 8 per cent. and prices by 6 per cent. This is another condemnation of the failure of the Government's prices and incomes policy.

The Prime Minister has always been in a dilemma over the prices and incomes policy. The Chancellor wanted prices to go up so as to enable devaluation to work. Politically, the Prime Minister wanted to show that prices were not going up so that he could keep his word in his devaluation broadcast and he did not incur political odium. That is the dilemma which has always faced him. But today it is clear that consumer expenditure has not been kept down and that wages and earnings have risen faster than prices.

I doubt that the Prime Minister ever wanted the prices and incomes policy to succeed. The present Secretary of State for Employment and Productivity was put there to save the Prime Minister from the real rigours of the incomes policy as the Chancellor wanted it carried through. This has been the contradiction inside the Government all the time.

Now let us look at another aspect of the Government's failure, namely, in trade and the balance of payments.