This is a debate on the regulator, and in the past this has been the occasion for a major debate on the economy. Today, it is right that we should begin the Committee stage of the Finance Bill on the Floor of the House with another such debate.
The Amendment is not just a token one. Taken with Amendment No. 13, it is designed to deal with the situation in which we find ourselves. We tabled an
Amendment, Amendment No. 3, in page 7, line 27, at end add—
( ) In section 9(2) of the Finance Act 1961 for the words 'ten per cent.' there shall be substituted the words 'fifteen per cent.',
which for technical reasons could not be part of this debate. However, the situation is covered by Amendment No. 13.
The joint effect of the Amendments is this. We accept that in normal circumstances the regulator should be limited to the power to decrease or increase taxation by 10 per cent. without new legislation. However, in present circumstances, we feel that the power should be amended to enable the Government to decrease indirect taxes by 15 per cent., but only for a six-month period.
I put forward three propositions in support of the Amendment. First, it has now become clear that the analysis of the situation at the time of the Budget was too optimistic. Information which has become available subsequently shows that the position was worse than it seemed at the time. Secondly, except for the developments of the last week on the foreign exchange market, the situation has worsened since the Budget. Thirdly, the present situation urgently demands a far greater degree of expansion than the Budget measures contain.
I make it clear at the start that it gives me no pleasure to offer a somewhat gloomy analysis. I do so in no partisan spirit, but only because the facts lend themselves to no other interpretation.
I ask right hon. and hon. Gentlemen opposite to study the facts carefully and to see how far the Government are in a position to contradict my points. I suggest to them that, if my analysis is right, the remedies that we propose follow logically. Even if hon. Gentlemen opposite are not inclined to follow us into the Lobby, which is understandable, at least they may bring pressure to bear in support of a change of course by the Government.
Let me first turn to the position as it was on Budget day. It is now clear from figures published by the Government that the Budget judgment was wrong, partly because it was based on a wrong analysis of the situation. The analysis may have been justified by the information then available, but it is now shown that it was too optimistic.
I draw the attention of the Committee to the contrast between the figures in the Financial Statement and those in the April issue of Economic Trends, My sources therefore, are the Government's own. Table 1 of the Financial Statement showed that the estimated increase from the second half of 1969 to the second half of 1970 was some 3·3 per cent. for consumer expenditure, 1·8 per cent. for public expenditure on goods and services for public consumption, 2·1 per cent. for private fixed investment,£150 million for stock building, and altogether an increase in the gross domestic product of 1·8 per cent.
Let me now turn to the estimated outcome as shown in the April issue of Economic Trends, This shows that for the same period a slightly greater increase in consumer expenditure was balanced by a slightly lower increase for public authorities' consumption, that fixed capital formation was considerably down, from 2·1 per cent. to 0·9 per cent., that stockbuilding was lower, by about£50 million, that imports were lower, and that gross domestic product, according to the expenditure figures, grew at 1·2 per cent. instead of 1·8 per cent., or, if one averaged out all the separate indicators for the growth of g.n.p. they show an average increase of 1·5 per cent., instead of 1·8 per cent. In addition, we have had the figures for consumption in the first quarter of 1971, which show that consumption declined somewhat.
From those comparisons it emerges incontrovertibly that the economy was more sluggish during the fourth quarter of 1970 than was thought at the time of the Budget. That in itself suggests that corrective measures should have been introduced to take effect some time before the Budget, and certainly that the Budget measures should have been more expansionary. The Budget started from the wrong point.
I now come to my second proposition, to the developments since the Budget. What has happened since then to investment, prices, unemployment, consumption, and the prospects for exports?
Let me take the last first, because it is the one area in which there is at least some cheer. As an official spokesman I am, perhaps, under some inhibitions and cannot entirely freely discuss the question of exchange rates, but my feeling has been for some time that, with our present level of unemployment and unused capacity, the need for expansion is such that if our expansion led to a danger, as it might, of a balance of payments crisis then, rather than avoid the expansion, we should not treat the rate as sacrosanct. Indeed, we should take all measures to see that the expansion is export-led.
As a result of the events of the last week we have had a windfall on the export front because of developments with the mark and the dollar. The floating upwards of the German mark and the Dutch guilder, as well as the additional slight help from the revaluation of the Austrian and Swiss currencies, clearly improve the competitivenes of our exports and their prospects, and the total benefit to the balance of payments was estimated by Mr. Brittan in the Financial Times as being at least£100 million. At the worst that gives us a somewhat greater breathing space before present trends would once again lead to a balance of payments crisis, and it therefore removes to some extent some of the inhibitions which the Government may have felt, on balance of payments grounds, against expansion. There is the somewhat awful spectre that next winter we may have the appalling combination of high unemployment, stagnation, high inflation, and a balance of payments crisis, but that prospect has receded somewhat in relation to a balance of payments crisis.