Orders of the Day — Economic Affairs

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

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Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 12:00, 7 July 1970

May I first express my personal thanks to the right hon. Member for Bristol, South-East (Mr. Benn) for the congratulations which he was kind enough to extend to me. I believe it is true that economic turning points are of two kinds, those which can only be discerned over a long lapse of time by careful statistical analysis and, on the other hand, those which even at the time can be seen to reflect a fundamental change in policy. It is perhaps true to say that the debate marks a turning point of the second kind.

It is not surprising that the House has perhaps found some difficulty in its change of rôles and that there has been a natural tendency for hon. and right hon. Gentlemen opposite sometimes to make the kind of speeches that they have been making in government in recent years. This is something which we must understand for the moment. Certainly the right hon. Gentleman's speech was very similar to many which we have heard him make in recent times, and we must appreciate that it reflects very plainly a fundamental difference in approach between the two sides of the House, with which I shall seek to deal in a few moments.

First, it is my pleasant task to join with the right hon. Gentleman in extending our congratulations to no less than six hon. Members who have made their maiden speeches today. They all spoke with enviable fluency, they all expressed deep concern for the impact which economic policy inevitably has upon their constituencies. The hon. Member for Sedgefield (Mr. D. Reed) and the hon. Member for Whitehaven (Dr. John A. Cunningham) stressed the importance of regional policy about which we are deeply concerned. My hon. Friend the Member for Esher (Mr. Mather) stressed the impact of economic policy on the environment as it was reflected through social costs in the problem of aircraft noise. The hon. Member for Southampton, Test (Mr. James Hill) stressed the need for concern about social problems, and my hon. Friend the Member for Lancaster (Mrs. Kellett), in an admirable speech, stressed the concern which we ought to have for the elderly. The hon. Member for Manchester, Ardwick (Mr. Kaufman) was concerned equally about housing problems.

It is right and proper that these points should be stressed, because they reflect the fact that the solution of these problems must depend fundamentally upon our economic performance. The whole question of economic policy is therefore central to all the social and environmental problems which they raised. It is therefore important that we should concentrate on the central problem, and that is what I would like to do in my remarks tonight, although I should add that there are hon. Members opposite, particularly the hon. Member for Heywood and Royton (Mr. Barnett), the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Member for Liverpool, Walton (Mr. Heffer), who continue to make exactly the same speeches as they have made for the last five years. I hope that they will continue to do so, because I think, with respect, that they make a major contribution to the thought about what is the right policy. It is true to say that the essential economic policy with which we ought to concern ourselves is that of achieving our basic economic objectives. The right hon. Member for Bristol, South-East raised a number of issues which more fairly fall to be answered in the debate on Thursday when we shall discuss the Opposition's Amendment. This is a continuing debate and I want to preoccupy myself with some of the points which the right hon. Gentleman raised, particularly the point of economic strategy.

The debate opened today with the crucial question of analysis of the economic situation in which we find ourselves. There is a fundamental difference between the two sides of the House. The other day the Leader of the Opposition quoted his own remarks and maintained that my right hon. Friend the Prime Minister found himself in the strongest position economically that any Prime Minister in living memory has taken over. However, my right hon. Friend the Chancellor of the Exchequer was right in pointing out that we have inherited some very serious economic problems. If we are properly to appraise the present situation, we must look at all the economic indicators and not select one or two, as right hon. and hon. Members opposite have tended to do.

Our economic objectives must be, first, to achieve a high rate of economic growth; secondly, to maintain a high level of employment; thirdly, to control inflation while maintaining free collective bargaining; and, finally, to achieve a satisfactory balance of payments. Taking all these objectives, it is surely true to say that we have grave cause for concern.

Let us look at the matter in historical context. We pointed out following devaluation that there was considerable procrastination before effective measures were taken to back it up. Earlier today, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) said that he had had to take over after only 18 hours as against 18 days; but nothing effective was done to back up devaluation for a very considerable time, and in some ways we are still suffering from the consequences.

Speaking in the debate on the Address last year, my right hon. Friend the Prime Minister compared the then Chancellor of the Exchequer to a juggler who had five plates in the air, representing the objectives which I mentioned a few moments ago. He pointed out that the Labour Government's performance on all of them was extremely poor. They had achieved an effective improvement in the balance of payments one year in three. There were over ½ million people out of work for 25 out of 26 months. Prices were up 23 per cent. Free collective bargaining had been jeopardised as a result of their prices and incomes policy. Economic growth was half what it had been for the corresponding four years when we were in office.

However, since then there have been fundamental changes, and I want to look at the present picture. Since the last Queen's Speech we have suffered fundamentally from what has been described as the wages and prices explosion. We have a strong balance of payments, and we fully recognise the advantage of it. But the other economic indicators must be taken into account. The right hon. Member for Stechford today was inclined to gloss over the other questions with which we must inevitably be concerned and with which the electorate clearly was deeply concerned during the recent campaign. The right hon. Gentleman rather skated over the fact that the level of unemployment is the highest for 30 years, with all that that means in human unhappiness and wasted resources. It is not enough for him to say, "The level is too high, but we should not be seriously concerned about it". That is indeed a serious matter which it is important to tackle.

Secondly, I believe that it is right and proper that we should be concerned about economic growth, because we have found that between the second half of 1968 and the second half of 1969 G.D.P. in real terms has risen by only 2 per cent. My right hon. Friend the Chancellor of the Exchequer pointed out that this compares unfavourably with the previous rate of economic growth, so that certainly we ought to be deeply concerned about it. It is our intention to improve that situation by adopting positive policies, with which I shall deal in a few moments.

Another point which we must stress strongly is that, for reasons which we spelt out in the debates on the Budget this year, the average rate of increase of wages and prices has been over 5 per cent., with a further rise in the first five months of this year of over 3½ per cent. Clearly we cannot regard this situation as satisfactory. It must inevitably give grave cause for concern.

This is to look at the picture at a moment of time. This is, so to speak, to take a still photograph of the situation. If we are truly to appraise the situation, we must look at it dynamically. What is worrying at present is the rapid rate of increase of wages and prices which clearly follow from the previous Administration's policies.

I thought it rather extraordinary in many ways that the former Chancellor of the Exchequer should seek now to attack the proposals which we are making when it was a matter for comment during the Budget debates that he had failed to make any serious analysis of the change in our economic structure which appeared to have been brought about by the Government's policies so that we were suffering from severe cost inflation. This re- fleeted what I can only call a complacent attitude by the right hon. Gentleman during his period in office. We on this side of the House cannot regard that as a matter which can be left unanalysed.

In the debates on the Budget we sought to analyse precisely what had happened. I referred then to the basic problem which seemed to have arisen because there had been some change in the structure of the economy on the relationship between unemployment on the one hand and prices and wages on the other. I described it at that time as a disappearing Phillips curve, a curve which in the past has shown what this relationship is. That being so, we need to look carefully at the situation and we ought to put forward proposals related to the dynamic situation in which we find ourselves. But I do not believe for a moment that we can look at this situation now and say that it ought not to give us cause for concern. Therefore, we put forward proposals which are clearly referred to in the Gracious Speech.

I fully endorse what was pointed out by my right hon. Friend: that fiscal and monetary measures must march hand-inhand. My right hon. Friend referred to the previous Government's statement as a blinding glimpse of the obvious. [Interruption.] The hon. Gentleman says that this is obvious, but it was not obvious to the previous Administration for a considerable period. Indeed, I am sure that many of our problems are a direct result of the previous Administration having failed to get that blinding glimpse of the obvious early enough, despite the fact that we brought it to their attention on many occasions.

We must bring together those two aspects of policy, but we must also pay particular attention, as my right hon. Friend the Chancellor said, to the situation in the public sector. This is not a question which can be looked at in such a way as to say that we must discriminate. We have made it clear that the Government have a responsibility in this area, and I find it extraordinary that both before the election and subsequently right hon. and hon. Gentlemen opposite seemed to be implying at times that the Government do not have responsibility for what happens in the public sector. We are sure that we have a responsibility there, and we are determined to discharge it. If we take these three aspects of policy together, I believe that they present serious proposals which we can put forward to help us to achieve the objectives which I stated earlier.

The next matter to which I come is that during the course of the campaign some reference was made by many right hon. and hon. Gentlemen opposite to the fact that it was impossible effectively both to cut taxation and to maintain the level of public expenditure. Many of them were inclined to say that the sums which we were putting forward were not going to add up. In this respect it is important to look at the situation which arose between 1951 and 1964. During that period we cut tax rates by £2,000 million, and at the same time we more than doubled public expenditure. What we have done before in this respect I have no doubt we can do again. Unfortunately, we have to do it again because during the period of the previous Administration tax rates went up by about £3,000 million, and it was perhaps significant that the right hon. Member for Stechford did not seek to deal with the question of the level of taxation. We on this side of the House believe that this again is a matter about which we ought to be concerned. We are convinced that by the adoption of positive policies it will be possible for us to do again what we did before.

It is a triad of policies that we need to pursue in this respect. First, we are convinced—and this reflects the difference between the two sides of the House—that if we are to get the economy going again the first priority must be to reduce direct taxation and to restore incentives to the people of this country. This is so both for individual and for companies. If we do this, I am sure that we shall achieve the rate of economic growth which hon. Gentlemen on both sides of the House, and particularly perhaps those on the third row above the Front Bench opposite, have asked us to do. It is essential that we should do this, and in order to give us sufficient headroom in this respect it is important that we should carry out the review of public expenditure which my right hon. Friend the Chancellor of the Exchequer has already initiated. This is the first plank on the platform.

Second, we are convinced, as we were between 1951 and 1964, that it is essential to encourage savings. Many of my hon. Friends have stressed the importance of savings for finance for investment in the private sector. We are convinced that it is important to do this because, as has been said many times in the House, if one can put forward positive proposals and create a climate which will encourage saving, this is a voluntary postponement of consumption, and it releases real resources for investment. The policy of the previous Government all along the line was to increase taxation rather than encourage savings. The figures over the years demonstrate this very clearly, and it is likely that the reductions in direct taxation will also help us achieve our objective. Finally, as we have pointed out, if we are to achieve our objectives it is vital to attain a more rapid rate of economic growth.

As was clearly reflected in the speech of the right hon. Member for Bristol, South-East there is a fundamental gulf in policy between the two sides of the House. The party opposite has a policy of higher and higher taxation and more and more Government intervention, with the Government taking more and more resources into their own hands and deciding which individuals or industries should be given a hand-out, as against our policy of reducing the level of direct taxation—