That is just another why we should not give the speculators a one-way option, and I agree with my hon. Friend to that extent.
I turn now to the domestic side of the Chancellor's speech. The verdict of the Press and the commentators has been that he has been taking risks in his Budget. There is no harm in that, provided one knows what the risks are and provided one does not put oneself into a situation in which, if events do not turn out as expected, one cannot change course. Let us examine what the risks are.
The first risk is supposed to be that the economy may be growing faster than the underlying rate of capacity is growing. It is generally assumed that, when talking about growth of capacity, the Treasury is thinking in terms of a rate of about 3 per cent. to 3½ per cent. To some extent there will be a movement away from consumer spending this year towards investment expenditure. There has been a shortage of capacity in certain industries feeding consumer expenditure, and there is not expected to be the same shortage of capacity in the industries which will feed investment demand—for example in the engineering industry, which is believed to have a large amount of capacity. To that extent, therefore, the Chancellor will probably be justified.
But the important question to ask is not whether growth this year will outstrip capacity but whether it will outstrip it next year. Any action to change course has a time lag. Anything we do now will not have an effect for nine months, and anything we do in six months' time will not have an effect for another nine months after that. This is the nature of the risk which is being taken.
The second risk is on the balance of payments—or, rather, the risk that there may be a further rate of depreciation in sterling which could add to the rate of inflation. At present, sterling is buoyed up because the relative attractiveness of high interest rates in the United Kingdom outweighs the fear of a depreciation in sterling. But that is a highly precarious situation, which could alter at any moment with a movement in world interest rates. No one can doubt, therefore, if anyone ever did, that floating will not he an easy option, and no one can doubt that it will remain necessary to place great emphasis upon the success of phase two.
Some people have been surprised that the Chancellor predicted that the rate of increase in imports would slow down this year from 11 per cent. per annum to 7 per cent. But, here again, I think that this forecast rather than forecasts such as that put forward by the London and Cambridge Bulletin is likely to prove right, in view of the swing from the consumer industries to the investment industries where there is a certain amount of spare capacity.
Having absolved the Chancellor on those two risks, I turn to the third, namely, the question of the level of public spending and of the net borrowing requirement. We are all Keynesians today but, as the economic editor of The Times remarked the other day, this is "liberation with a vengeance". The Chancellor—he was backed today by the Chief Secretary—implied that the rate of growth in public spending would he no greater than that of the gross national product in the next few years. All one can say is that that is not the view taken by many commentators. One hopes that the Chancellor's assurances will apply and that, if the rate of growth exceeds that of the GNP, he will not hesitate to cut back public spending. Apart from any philosophical objections which we on this side might have to increasing public sector spending, there are other fears about public spending.
There is the argument put forward in the Wynne Godley memorandum about the squeeze in consumption which can come from too fast an increase in public spending. There is the fear that the deficit can be financed only by recourse to the banking system. Moreover, this year the background to the financing of public debt will be very different from the background last year. Last year part of the deficit was financed out of the reserves, and last year there was no great need from the corporate sector to issue bonds.
The Chancellor has announced four methods to try to insulate Government debt from the banking system. No doubt they will have some attractions to investors, but the question is not whether they will be attractive to investors but whether they will attract money which is at present outside the gilt-edged market, or whether there will simply be a switch within the gilt-edged market to the new types of debt. I have no doubt that the 3 per cent, loan issued at 75 will be attractive to high surtax payers—[HON. MEMBERS: "Hear, hear".]—but this is merely a matter of £400 million, and it does not take us very far forward in financing the public sector deficit.
The long-dated convertible stock, I suggest, is unlikely to attract funds from outside the gift-edged market. The 9·6 per cent. redemption yield is not so different from the sort of rates which are available at the moment, and it is in fact below the rates which can be obtained on various deposits of differing lengths of time.
I have some doubts, therefore, about whether these new stocks and methods of insulating public finance from the banking sector will be entirely successful, and I hope that we shall have from the Treasury some indication of the sort of rate of increase in money supply which it expects in the next year. I thought it remarkable that we had no such guideline.
Overall, I am glad that the Chancellor remains committed to growth. I quite see why the Opposition should suggest that perhaps a more cautious policy should be pursued, since their leadership when in office managed uniquely to combine the principles of Ramsay MacDonald with the glamour of Attlee.
The Chancellor is taking risks. He has been open about it. In my view he is justified in taking them. I am particularly glad that he has not gone back on the tax cuts which he announced last year, because growth is not, as we sometimes imagine in this House, something which can be stimulated simply by demand management. Growth is related, as we should now be particularly aware, to the underlying rate of growth of capacity, and in the long run it is the quality of management and the exploita- tion of resources, such as those available to us in the North Sea, which, far more than demand management, will add to our rate of growth. We must maintain incentives which will stimulate enterprise and new management techniques in industry if we are to have not just a lurch but a real change of gear in the British economy.