Orders of the Day — Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 7th July 1970.

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Photo of Sir Austen Albu Sir Austen Albu , Edmonton 12:00 am, 7th July 1970

Mr. Deputy Speaker, as this is the first occasion on which I have spoken since you were elected to your new office, may I congratulate you on your appointment.

May I also join in congratulating the two previous maiden speakers, who made two of the most interesting and well informed speeches that I have ever heard. The hon. Lady the Member for Lancaster (Mrs. Kellett) made a compassionate and informed speech, and my hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman), with perhaps rather more experience in this place, though not actually in the Chamber, made a speech which astonished the House with its extreme polish as well as its compassion. We look forward to hearing both hon. Members on many occasions in the future.

The last time the party opposite was in office the right hon. Member for Barnet (Mr. Maudling), now the Home Secretary, expanded home demand at a rapid rate and achieved a considerably higher rate of growth. In fact, it was those years which gave rise to the average rate of growth which the Chancellor of the Exchequer quoted this afternoon, but he achieved this at the cost of a very severe balance of payments deficit. It was not just that one deficit. It was the third of a series of deficits which were occurring every two or three years, of which that was the worst.

The present Government came into office promising economic growth. My hon. Friends the Members for Heywood and Royton (Mr. Barnett) and Ashton-under-Lyne (Mr. Sheldon) have supported this idea. I also support the idea of economic growth. Indeed, I have always done so, but if, as my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) said this afternoon, inflation is a sin and that he is against it, growth is a virtue and we are all for it. Unfortunately, nobody in this country knows how to resist inflation or how to get growth. It is no good pretending that we know how to get it, because it has eluded everybody since the end of the war, except at the cost of a severe balance of payments crisis.

The Chancellor of the Exchequer and his party have come into office having made a good many promises, promises which, as the hon. Gentleman the Member for Wycombe said, were strongly confirmed by the right hon. Gentleman this afternoon, promises about the reduction of taxation, including the abolition of £600 million worth of selective employment tax, and reduction of income tax, and about the lowering of prices. It is impossible to forecast the way events will go over the next four or five years, but it may be that, at the end of that period, those things will have been done, but if the Chancellor should try—and, even worse, if he should succeed—to do both of them immediately, he will create a raging boom in home demand.

Perhaps I may interject here a comment on what the right hon. Gentleman said about the nationalised industries. I hope that there will be no going back on the increasing rationality of the financing of the nationalised industries. I am in favour of subsidising the social services provided by those industries, which was done by the Labour Government, but I am not in favour of using them as a back-door way of inflating the economy, which would be extremely dangerous and lead to irrational results. The Chancellor said, back-tracking somewhat on what was said during the election, I thought, that what would happen was that proposed price increases would be severely examined, or words to that effect. As I remember it—I have had some experience in this matter—they were severely examined during the past five or six years, and recently they were referred to the Prices and Incomes Board. Perhaps the Minister of State will tell us whether, in future, price increases will be referred to the Prices and Incomes Board, or, if not, who else will severely examine any proposed increases?

If a raging boom in home demand were created, to the current cost inflation, which seems likely to be parallelled by a substantial rise in consumer expenditure this year—the first figures are beginning to show—there would be added a severe demand inflation, and this would lead fairly quickly to another balance of payments crisis. This could be cured only by rapidly reducing home demand again and by making exports much more competitive. There are, perhaps, only two ways of doing that: one is deflation of a kind which we have not seen since the end of the war, and the other is a further devaluation.

I take seriously the present inflationary trends. It is true that they are going on in every modern industrial country, but I agree that, with what the Chancellor said, ours is more serious. For example, Germany, as she apparently intends, can afford to deflate somewhat from its present level of economic activity and not significantly reduce its great rate of economic growth, whereas ours would be reduced pretty well to zero.

It seems to me that we are witnessing in all the industrial countries of the world, and particularly in the West, almost a sea-change in personal economic behaviour. This is partly the result of the substantial social changes which have taken place in this century, and since the war in particular, which have raised the level of aspiration of the masses of the people so that they think that they are now entitled, as indeed they are, to have the goods which only a few people had before. But the levels of their expectation and their expenditure are continually titivated by advertising and such media as commercial television, for which the party opposite was responsible, which, I believe, is a quite substantial factor in increasing the rate of inflation. However, once people begin to realise that this is taking place, a sort of vicious circle is set up and, as the hon. Member for Wycombe said, people then try to run ahead of inflation, trying to keep their incomes rising that much faster. This creates substantial new problems for economic management.

If the Government have truly set their face against any form of prices and incomes policy, voluntary or otherwise, it seems to me that they will be powerless to avoid, sooner or later, either severe deflation or a further devaluation. At the time of the election, I made clear that I stood for a return, and believed that we should have to return, to a voluntary prices and incomes policy. I welcomed the suggestions made in this regard by Mr. Vic Feather of the T.U.C.