Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 20 July 1971.

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Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus 12:00, 20 July 1971

I listened with interest to the comments of the hon. Member for Coventry, North (Mr. Edelman), and I have some sympathy with some of his remarks about the British machine tool and motor car industries. The biggest employer in my constituency happens to be a machine tool manufacturer and, as a consequence, I am well aware of the problems of the industry. Perhaps I might revert to them later in my speech.

I found the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) somewhat puzzling today. He started by implying that my right hon. Friend the Chancellor of the Exchequer had done the right thing, though he had done it too late. He then clearly implied, as my right hon. Friend the Secretary of State for Employment pointed out to him in an intervention, that my right hon. Friend had not done enough. However, he was clearly reluctant to find himself quoted as committed to that proposition. This was hardly surprising in view of the fact that, towards the end of his speech, he seemed to be implying that my right hon. Friend had done too much. I must say that I had rather more sympathy with the second verdict of Roy than with the first.

When the right hon. Gentleman accuses my right hon. Friend of switching Budget judgment from one month to another, one can only assume that he has a short memory. We recall the period following devaluation when the right hon. Gentleman sat on his elegant backside for three months while the largest consumer boom in our history whirled around him, and subsequently, when he acted in the Budget of that year, we were told that he had been reluctant to act earlier because he was afraid that he might create "a hole in the economy". This, too, was subsequently disproved by events. However, it highlights one of the lessons of our present experience—at least, I hope it will—that we are unwise to try to make too specific forecasts of how demand is likely to move and, above all, to try to shift the economy dramatically from one month to the next.

I turn now to the main substance of my right hon. Friend's proposals. Clearly, they are greatly to be welcomed as a Tory package in the sense that, once more, we see a substantial reduction in taxation. Once more we have it confirmed that this is a Government of reducing taxation by contrast with the horrific increases in taxation which we experienced under the Labour Government. Once more we see the Government putting into action that slogan, devised many years ago, to "set the people free".

I also extend a hearty welcome to the two major proposals in my right hon. Friend's statement yesterday. The 18 per cent. reduction in purchase tax—I think that is the correct calculation, but I am sure that the hon. Member for Heywood and Royton (Mr. Joel Barnett) will correct me if I am wrong—coming on top of the 50 per cent. cut in S.E.T. must be a major contribution to price stability. Since I put the highest priority on bringing inflation under control, any steps likely to have the effect of achieving a greater degree of price stability are to be welcomed.

I should just comment on my right hon. Friend's forecast that the reduction in purchase tax would lead to a loss of revenue in a full year of £235 million. I take it that this, like all our assessments of the effects of tax increases or deductions, is based on certain assumptions about consumer response. It is worth commenting that under the Labour Government consumers did not respond in the way that they were expected to respond. When we had these huge continuous increases in taxation, they did not have the effects on consumption which were expected of them. I have a sneaking suspicion that the same could be true when we apply the pressures in the opposite direction.

On the whole, I was not sorry that my right hon. Friend declined the invitation of the right hon. Member for Stechford to give a new figure for the rate of growth in consumer expenditure because I think that in any case these figures are somewhat doubtful. I am not surprised that my right hon. Friend is already inclined to scale down the figure for growth of consumption on the basis of the Budget forecast. But I inclined to agree with the right hon. Member for Stechford that if we are to see a substantially higher rate of increase in consumer expenditure than 5·3 per cent. during the full financial year, the implications, particularly on the balance of payments, are on the ominous side.

Similarly, I give an enthusiastic welcome to the decision to scrap the controls on hire-purchase payments. That seems a matter of common sense. Now that the whole system of hire-purchase controls has been so largely eroded by the personal loan schemes ; now that we have the Crowther Report, and now that we have the new systems of credit control, to which my hon. Friend the Member for Horsham (Mr. Hordern) referred in his interesting and most constructive speech, there does not seem to be any good case for trying to retain the special controls over hire purchase. The corollary to my mind is that we need to know what the Treasury's global monetary strategy is. On that, I can only say that we assume that the Treasury has a global monetary strategy now, but we have not been told what it is. I shall refer to monetary policy later in my speech.

I am of a mixed mind about the change in the increase in the provision for free depreciation and first-year allowances. I certainly welcome the idea of eliminating the last mouthful of the Hungarian goulash, the bias against the service industries applied by the Labour Government ; and, having urged during our discussions on the Finance Bill that if we were to have free depreciation it should be extended to the service industries in the development areas, it would be less than grateful of me to express a welcome for my right hon. Friend conceding that point. I cannot help recalling that only three weeks ago my hon. Friend the Chief Secretary said that this would be far too expensive a concession to make this year.

However, as I made clear in Committee on the Finance Bill, I am somewhat sceptical about the whole system of investment allowances. It is only on the assumption that we have these allowances that I welcome the elimination of the element of bias against the service industries in the development areas which my right hon. Friend has introduced.

I now turn to the strategy of my right hon. Friend's statement yesterday. Like my hon. Friend the Member for Horsham, I have one or two anxieties. I was delighted that my right hon. Friend did not at any time, either yesterday or today, suggest that the strategy of the announcements he made yesterday was framed with an eye to influencing the arguments about British entry into the European Economic Community. I have for long been a convinced supporter of our entry. But even so I should not have thought that it was very wise to conduct one's strategy for domestic economy management with an eye to the effects that it might or might not have on a particular but rather separate issue of public policy at the same time. I should not have referred to this issue, only there seems to have been a certain ochestration of comment in the Press to the effect that the tax reductions were framed with an eye to the great debate.

If that were so—and my right hon. Friend gave no indication whatsoever that that thought had entered into his consideration—the timing would almost certainly be wrong. My right hon. Friend said himself that he did not now, on the basis of yesterday's judgment, expect other than that the rise in employment would continue for a couple of months, stabilise, and then fall.

I suspect that my right hon. Friend may be erring on the side of optimism. I have a suspicion that we shall find that the reaction to these tax reductions is not as swift as my right hon. Friend has suggested. But even if we accept the forecast that unemployment will rise for a further two months and then stabilise, that means that the great debate in the country on the issue of the European Economic Community will be rather a thing of the past before we can see the effects of these measures in terms of falling unemployment, on the basis of my right hon. Friend's own forecast.

The oddest suggestion of all was that which appeared in one serious newspaper yesterday morning—I think that it was even in the Financial Times, but I should not swear to that—that the measures were framed with the idea of depriving the right hon. Member for Leeds, East (Mr. Healey) of his excuse for ratting on the Common Market. That is a fascinating one because, if anybody seriously imagines that by announcing tax cuts at this time the right hon. Gentleman will be so conscious of the loss of his fig leaf that he will run for cover behind the tents of the European Community, he is rather over-estimating the sense of personal modesty of the right hon. Gentleman, and in any case to build up an economic strategy on the basis of "stripping Denis naked" is going a bit far.

I was glad to hear that my right hon. Friend did not give any credence to those arguments. His justification for the measures announced yesterday was really in two parts. First, that without such an adjustment in tax rates industrial investment would have continued to fall and unemployment would have continued to rise to unacceptable levels. Second, there was the agreement with the C.B.I. and the nationalised industries.

As to the first, even before listening to my right hon. Friend's remarks this afternoon I was surprised to hear him say that he was expecting the downturn in investment to continue. These things are difficult to judge, but I should have thought that there were some indications that the downturn in investment had bottomed out and might be moving up. What really interested me this afternoon was that my right hon. Friend seemed to confirm that, and seemed to be saying that even before the stimulus applied to the economy by yesterday's measures the result of the Treasury's latest examination of the economy showed that investment was moving upwards again. I think that we need some clearer indication of the Treasury's assessment on this, because I think that there was an apparent conflict between what my right hon. Friend said yesterday on the matter of investment and what he said today.