The right hon. Gentleman the Member for Bexley (Mr. Heath) has made one of his more virulent but not one of his more powerful speeches. As is usual, he has shown little regard either for consistency or proportion, and has accused us, all on exactly the same note, of every sin which he could think up. As a result, many of his charges are totally contradictory one with another, but there are a few which deserve very serious answers, and these I propose to give.
Early in his speech the right hon. Gentleman said that it was appropriate that the House, in present circumstances, should deal with reality. I believe that this is so, and I believe that the great majority of the House today will be more interested in the basic facts of the situation than in the routine exchanges on party politics. [Hon. Members: "Oh."] I may have misjudged a few hon. Members opposite, but I do not think that I have misjudged the majority of the House.
The main charge, as I understand it, is that the Government's measures, if necessary, should have been introduced long before; that our troubles are all of our own making and have nothing to do with the international monetary crisis. I want to meet this charge head-on in what I have to say.
What was the position before this crisis blew up? It was, as I told the House on 5th November, one in which our balance of payments was improving fairly steadily, but not as fast as we wanted Since then we have had the bad trade figures for October. This was a setback, but did not in itself alter the underlying trend. Quite big swings around a trend have always been a feature of these monthly figures. On the basis of a three-month running average taken at the end of every month from the preceding three, there is an improvement in the trade figures for each month since May, when the Budget began to bite.
The three-monthly running average figures are as follows: May, £88 million; June, £73 million; July, £72 million; August £53 million; September, £48 million; October, £42 million. They should all be considered, so far as the current account is concerned, in conjunction with a favourable invisible balance of something between £20 and £30 million a month. Over five months, therefore, allowing for invisibles, we have reduced the very high current account deficit, as it undoubtedly was, by nearly three-quarters. That remains the position today.
Why has the improvement not been quicker? For two reasons. First, that consumption, while in no way rocketing —the right hon. Gentleman was wrong to say it was much higher than ever before—was moving up too much for the full attainment of our objective. In the second quarter it was satisfactory. It was nearly 7 per cent. below the first quarter and 2½per cent below the second half of 1967. In the third quarter of this year, on very provisional figures, it was back to the level of the second half of last year. Second, imports remained stubbornly high and cancelled out a large part of the effect of the excellent performance of our exports.
In those circumstances, I thought it necessary, although by no means all the figures were then available, to tighten hire purchase three weeks ago. I also contemplated some tightening of bank credit about the end of this month, but it could not be considered independently of a possible scheme of import deposits, which, in calm circumstances, we could best have decided upon when the November trade figures put those for October in better perspective. The regulator I did not consider right at that stage. That was the position 10 days ago.
I want to deal directly with two points which I know are in the minds of many hon. Members. The first is, why change last week? The second is, if it was right to change last week, why not have used all these measures some time ago? This is the core of the argument about the rightness or otherwise of our timing, and it is precisely those two major points that I want to deal with at the beginning of my speech.
Why did we decide on a change? It became generally known eight or nine days ago that the French Government were contemplating an early alteration in the parity of their currency. Immediately, this created a new and dangerous situation, with a period of great instability ahead. In the event, that change in parity has not occurred, but the period of instability did.
The prospect of French devaluation meant great unheaval. I thought it essential, in those circumstances, that there should be no doubt about where we stood. We were determined to maintain our own parity and defend it by any necessary means. I would not have used measures which I believed wrong in themselves, but I was prepared to take unpleasant measures which otherwise might not have been necessary and certainly not at this stage. We had to accelerate the move into surplus and show the world that we were doing it.
Repeating something that appeared in the Sunday Press, the right hon. Gentleman said that it would have needed last week's crisis to concentrate my mind upon the need for the balance of payments surplus. He knows that he is taking the remarks totally out of context—[Hon. Members: "Oh."] He knows that in every speech that I have made during the past 12 months, in this House and outside—with boring reiteration—I have stressed this point as the central objective of our economic policy. Why else did he think that I introduced the Budget, or the credit squeeze in May or the hire-purchase restrictions, and why else did my right hon. Friend the First Secretary fight through the incomes policy, all of which measures have involved great political difficulty and sacrifice?
I repudiate utterly the view which is sometimes suggested in the Press that our difficulties can be laid at my right hon. Friend's door. She has done everything humanly possible to make a success of that policy, which continues to be of central and crucial importance. If consumption is higher than it ought to be, it is my responsibility and not hers. That is why I have taken measures to deal with it. It needed no crisis to focus my mind on the over-riding need to correct our balance of payments. But the crisis made it still more necessary to increase our insurance premium to get things right quickly, no matter how high the cost.
Furthermore, the rumours associated with the crisis inevitably brought the use of the regulator into the centre of public discussion. Once there, it can be a menace. It can lead to considerable anticipatory buying. It can drive consumption higher than it might otherwise be. I decided not to let such a situation develop, but to pre-empt it at an early stage.
It has been suggested and it was again suggested by the right hon. Gentleman this afternoon that the regulator itself does this. That is nonsense. Of course, there is a rush to beat the tax. That is true of the introduction of any indirect taxation increase. But it does not begin to defeat its purpose. Hon. Gentlemen opposite must make up their minds on this issue. If this destroyed the purpose of the regulator, why did they invent and use it? After all, what was the burden of their complaint against us last winter? It was that my predecessor did not use the regulator in November, and that I did not use it in January. That is what they have said specifically when challenged. They cannot have it both ways. If the regulator last year was the chosen weapon, the key to the door between failure and success, they cannot this year reject it as half a useless weapon and half the end of everything.
Therefore, I prepared the proposals as to the regulator, bank credit and import deposits last Monday and Tuesday, although much contingency planning had already been done, particularly on import deposits. These measures did not arise out of any discussion or promises at the Bonn conference. But the immediate need for them arose directly out of the crisis and, for that reason, I was determined to announce them to the House the moment that I got back from Bonn and before any French announcement. They were right in the dangerous circumstances, whatever the French did—whether they decided to devalue or to deal with their problems in other ways. They have chosen the latter course, and I think that the House will admire their courage and wish them well.
I turn now to the second point. Why, if the measures were right on Friday, should they not have been introduced weeks or even months before? That leads straight to the central argument about the objectives of our economic policy.
The first priority must be that of getting the balance of payments right, but, so far as humanly possible, we must combine that with the highest compatible level of employment and growth at home. I do not believe that there is any hon. Member who dissents from those twin objectives. I know that my hon. Friends do not. The right hon. Member for Enfield, West (Mr. Iain Macleod) always devotes a great deal of attention and genuine concern to the unemployment figures. But it follows that, all the time, we have to walk a very narrow tightrope. If we allow home demand to be too high, it frustrates exports, sucks in imports and guarantees no real recovery in the balance of payments. If we depress it too much, we might get a good balance of payments, but we would also get a flat economy and a big waste of resources. Necessarily, this means that the situation has to be watched and judged from month to month, and that what is right at one time would not necessarily have been right earlier.
The idea that I could have done everything last winter and then sat back and put the economy on the automatic pilot for 18 months is nonsense. To have made room then for the build-up to the full balance of payments surplus in 1969 would have involved very heavy unemployment and no growth this year. As it is, with all its troubles, 1968 has been almost the only year in the past decade in which we have got 4 per cent. growth and an improvement in the balance of payments.
Let us consider further when the earlier use of the regulator would have been right. Certainly, there was no suggestion that I should have added it to everything else in the Budget. Let me remind the House again of what the right hon. Member for Enfield, West said on 13th May:
My view is that, on the whole, the Chancellor has taken too much out of the economy …"—[Official Report, Standing Committee A, 13th May, 1968; c. 719.]
Should I have used the regulator in July? That is the last date at which
it could have made any real difference to our balance of payments position today. I do not believe that there is a single right hon. or hon. Member in the House who would not have thought that I was crazy if I had come here in July and announced the regulator. Consumption had fallen sharply—as much as we counted on it or expected it to do so—and unemployment had been rising somewhat.
Should I have used it in September? We still had little indication of a consumption upswing, and the employment level had only just begun to move. There was no case for using it before the crisis sprang up—and when there is a crisis there is a great deal to be said for having a powerful shot in your locker.
Now the employment trend is a great deal better. Between August and November there was a seasonally adjusted fall of 56,000 in unemployment—a faster fall then at any time in the past 15 years, save only for the three months from November, 1963 to February, 1964. Unfilled vacancies also rose unusually fast during this three-month period from August to November this year by 32,000, and half of this increase in unfilled vacancies has occurred in the last month. The level of unfilled vacancies today is compatible, on all past form, with an unemployment figure not of 2.3 per cent., but of 1.7 per cent. I do not think that we can ignore the possibility that redundancy payments and earnings related benefits have some effect on the speed with which people take up new jobs.
I turn now to the import deposit scheme, on which the right hon. Member for Bexley took up a rather typical attitude. He said, "We had suggested it to the Government." Indeed, they had. The right hon. Member for Barnet (Mr. Maudling) wrote a very interesting article some months ago, which I read, and the right hon. Member for Enfield, West mentioned it on his speech on the Address. The right hon. Member for Bexley said, We suggested it to the Government", and he immediately turned round and half-denounced it as the most iniquitious measure—[An Hon. Member: "The timing element of it"] The timing element of it, precisely. I am glad that that has been raised. I want to come immediately to the timing element and why this, too, should not have been introduced earlier.
First, I do not claim that it is a perfect scheme. Its effects will necessarily diminish as time goes on. It would have been better if imports had fallen without it. But, secondly, and more important, we are bound to have regard to the international repercussions of any measure against imports. If we save them only at the expense of other people frustrating our exports, we shall be no better off.
My right hon. Friend the President of the Board of Trade, as he told the House in an intervention just now, was able to take the opportunity of the meeting of E.F.T.A. Ministers in Vienna on Friday to inform his E.F.T.A. colleagues of our proposals—[Hon. Members: "Inform".] Right hon. and hon. Gentlemen opposite must be sensible about these matters. I assume that they have some regard—some of them at least—for the state of our balance of payments and their effect upon our position.
Do right hon. and hon. Members think that we can go all round Europe canvassing the scheme, taking weeks or months to do it, with all the anticipation which would necessarily be involved? It is absolutely inevitably the case and the right hon. Member for Bexley and the right hon. Member for Barnet, with their experience, know it perfectly well—that the only thing which can sensibly be done is to inform people a little time in advance what we are proposing—