Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 20th April 1970.

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Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton 12:00 am, 20th April 1970

The right hon. and learned Gentleman is trying to have it both ways: (a) that it is passed on and (b) that it is not. If S.E.T. were to be removed and V.A.T. introduced in its place, those who at present pay S.E.T. would not reduce their prices. Prices would be increased to the extent that the tax was being replaced, and would be maintained by those who had been subjected to S.E.T. Most service industries would I am sure simply accept with pleasure the removal of S.E.T.

The right hon. Member for Altrincham and Sale (Mr. Barber) said that the public are becoming a little disillusioned. If the public are becoming somewhat cynical, this may be due to the arguments we have heard during this debate, with the constant references to what one party did 10 years ago and what another party did. I think that the public are entitled to be a little disillusioned about that.

This was emphasised in the reports in today's papers of speeches made during the weekend. The shadow Minister of Agriculture told the farmers, perhaps not surprisingly, that he perfectly well understood that they were entitled to more money, and this report appeared in the column adjoining the report of the speeches on inflation by the Leader of the Opposition and the right hon. Member for Enfield, West (Mr. lain Macleod).

It is no wonder that the public become a little cynical. If the farmers are to be helped, it will be at the cost of an increase in the price of food. The inflationary effect of that, added to the Opposition policy of trying to prevent wage increases, enforced by their policy on trade unions, would have a divisive effect on industry generally. Such a policy would not only be unsuccessful in economic terms but would fall very harshly on large sectors of the community.

TheEvening Standardlast Thursday was, if anything, rather kind in its attack on the right hon. Member for Enfield, West for lowering the tone of public debate. The right hon. Gentleman speaks frequently about the high level of unemployment. But he must know that the only way he could do anything about it in the future would be to increase demand. I know that the right hon. Gentleman is sincere, as we all are in our desire to reduce unemployment, but central to the whole matter is the need to increase demand and to get increased growth in the economy.

I wish to deal briefly with one reason why we have not had that increase in growth and demand. My right hon. Friend the Chancellor referred to this matter in his Budget Statement and I should like to question his assessment of what he is planning to do with the economy. He said: …but we shall continue to need a strong balance of payments, because our capacity to repay debt will henceforth be more directly related to that surplus…—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1221.] I question whether there is a need to repay the debt along the lines my right hon. Friend suggests. Must we repay that debt, and what are the consequences if we do not repay it?

If we must repay that debt, then there is no need to argue any further. The Chancellor has pointed out that any further repayment of debt must come from future surpluses. But it is important to know how much is the debt about which we are talking. We appear to be talking about a short- and medium-term debt which the Chancellor has put at some four billion dollars. Incidentally, it is most confusing at one moment to quote dollars and at another £s, and sometimes to use financial years and at other times calendar years. Perhaps in future Budgets the Chancellor will consider translating dollars into £s since that happens to be our own currency.

Of the figure of four billion dollars some 2,400 billion dollars was due to the I.M.F., the first repayment of which is due in June, 1971. Then there are some £800 million in short-term swaps. In the past in much more difficult circumstances we have managed to roll over I.M.F. debts. It is possible to do so again in the future. It has been argued that we have only got into this situation because we have conceded to the I.M.F. control over our economy which has thereby been rigidly constricted in terms of strategy. There is no need for that situation to apply again. I hope that we have learned the lessons of those years and realise that we do not have to run our economy within the rigid bounds of a fixed exchange rate. I believe that it would be possible to negotiate with the I.M.F. from a rather different position than that from which we have negotiated in the past. I do not accept that it would be impossible for us to continue with at least the present level of debt in the future. We will now also have available to us a federal swap line of credit of 2,000 billion dollars, which is totally unused, plus the four billion dollars we have repaid in the last 15 months. Therefore, there is plenty of credit available to us.

Many will argue that we are simply transferring from public to private debts. This is largely the situation, although the Chancellor told us that the bulk of the repayment of debt came from the unwinding on leads and lags, not much of which was hot money. It is not possible to judge how much of this repayment was hot money. Indeed it is difficult to define hot money at all. If a loan were left here for six months one could call it hot money, or even lukewarm money, but undoubtedly there is an amount of warm money about.

The Chancellor said that there is now, thank heavens, no need for us to be obsessed about the level of these debts. Equally, there is no need to be obsessed by the fact that there may or not be a favourable situation in terms of leads and lags and that we shall have some hot money. There will always be some hot money, one cannot avoid it, and inevitably there will be leads and lags at particular times. There will inevitably always be flows across the exchanges. The Chancellor is right to say that there is no longer any need to have an hysterical approach to the question of debts. In the current situation of comparative strength in regard to our debts, I would argue that we can answer the question as to whether or not we must repay with the answer, "No, if we do not want to do so we do not have to repay. We can, if we wish, either not repay or we can reborrow."

What are the consequences of that sort of policy? It is not an academic exercise. It could be compared to the situation of a man who dislikes debt and decides that he will continue to live in a modest house rather than to buy a newer one on mortgage, or a man who buys a house on mortgage but repays the sum quickly over five or ten years, again because of his hatred of debt. On the other hand, there is a different type of man who is happy to repay his mortgage over 30 years. That sort of man wants his happiness today rather than to put it off for four or five years. That is a choice open to most people in terms of their own personal debt.

It is of interest to ask whether the great majority of people understand that a similar choice faces the Government in handling the economy on their behalf. Most people are not so concerned about having debts. To some extent they are prepared to live for today, to borrow on hire purchase and to take on a mortgage so as to live in a decent home. Who would say that they are wrong to do so? Who are we to tell them that they should not be doing this? It would be irresponsible if they were taking on—as some do, but a small minority—mortgage and hire-purchase commitments beyond those which they are able to manage inside their incomes. But the great majority of people choose to have debt and to live, to some extent, for today.

We are choosing as a Government on their behalf that, rather than let them enjoy something for today, we will repay debt rather quicker. That is what we are doing on their behalf. The situation could also be compared with that of a company which has substantial borrowings covered by very substantial assets —a very similar situation to that which we enjoy as a nation. We have borrowings substantially exceeded by our assets. Again, that company does not have to repay its debt and can use the money in a variety of ways—by increasing investment to increase its production and growth for the future, by increasing dividends after payments of interest on the loans. Or it could have an amalgamation of both. This is the choice which we have to take on behalf of the people of this country—whether to restrict current enjoyment to some extent and repay, to keep the debt completely and live for today or keep the debt and invest in increased investment for tomorrow.

The Government's choice is a sort of balance of all three. They are prepared to repay, and advocate repaying, some of that debt and they are striving to get an increased manufacturing investment within our capacity—and at the moment the Chancellor seems to be satisfied that we shall be achieving a reasonable level of growth of manufacturing investment, and one hopes that he is right, in the trends indicated. The Government are striving for a balance. When I have made this point to my right hon. Friend he has always said, "You cannot plan precisely for a particular balance of payments surplus". That is quite right and I do not pretend that one can. One cannot say, "We shall plan next year for, say, a £29·2 million surplus". That would be absurd and obviously one cannot be so precise. But equally I do not think that it could be argued that it is not open to us to go for a lower balance of payments than the Chancellor is striving for now.

But we must accept that if the Chancellor decides that we shall only go for a £100 million surplus, he could be wrong and finish up with a £100 million deficit instead of the surplus. From what I have said about our debt situation, it would not be disastrous if we finished up with a £100 million deficit for the coming year rather than a surplus. Surely, it cannot be denied that if we went for that lower balance of payments surplus there would be available to us an opportunity for a higher rate of growth. Indeed, in the Green Paper "The Task Ahead" one of the primary reasons given for our level of growth and why we could not go for a higher one was precisely the balance of payments and the surplus which we have been going for over the years.

I should not like to say to the Chancellor precisely what that would give us or how much extra growth one could get from it. My hon. Friend the Member for Lewisham, West (Mr. Dickens) said the other day that we had lost about £6,500 million of increased resources in the last five and a half years from a level of growth of perhaps 4 per cent. which we could have achieved. I do not know whether that is the right amount. But I do not think it could be disputed that a 1 per cent. extra growth is available to us if we were to accept my arguments. That 1 per cent. extra growth, £400 million a year of real resources, is not something which we should lightly give away.

It is then argued—and this is again central to what the Chancellor was saying —that it is wrong to fritter away the surplus, as it were, by living for today. He said: It is sometimes argued that because we now have a big balance of payments surplus we can afford to inflate home demand and achieve an eruption of short-term growth. This would be a piece of familiar folly, bringing its own inevitable retribution."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1223.] I cannot help feeling that this is perhaps a somewhat pious attitude to take. I think that it would be entirely wrong to fritter away an extra 1 per cent. of growth or more in the way which the Opposition propose—by surtax reliefs and income tax reliefs which would help those at the higher end of the scale. That would be totally wrong. But would it be really wrong to use an extra 1 per cent. to improve our educational services and our social services and to do something about the relief of poverty? Would this be so wrong a way of spending an extra 1 per cent. of our growth?

Above all, when I say that we are taking this choice on behalf of the people it is perhaps easy for us to say, "We shall repay the debt first and in 10 years' time we shall begin to get the benefits of the building of a nice solid stable economy." But what about our old people? It is all very well telling them to wait until we have repaid the debt. But they will not be with us then. So we really have to think about this argument that it is so wrong to fritter away, as it were, an extra 1 per cent. of our growth. I hope that we shall reconsider the whole attitude which we have had to debt and, therefore, the reason why we have not been able to obtain a higher rate of growth that is open to us.

The Budget, coming from a just and humane Chancellor, is, as one would expect, as fair as it is able to be inside the amount which he has decided is available to us and in that sense it is responsible and cautious. But it is important to recognise the cost in real terms to real people of that sort of responsible and cautious strategy.