Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 12th March 1973.

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Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North 12:00 am, 12th March 1973

Whatever Sir William Armstrong and Lord Rothschild may or may not have said, as the next Opposition speaker after my hon. Friend the Member for Chester-le-Street (Mr. Radice), I join in congratulating him on an exceptionally fluent and relevant speech.

It is extraordinary that the Government should be sailing straight into a large and obvious balance-of-payments deficit without, apparently, any idea of what they will do when the crisis arrives later in the year. The only thing on which I can congratulate the Chancellor is that he has apparently not committed us to the final folly of agreeing to a fixed exchange rate for the pound vis-à-vis all the EEC currencies—at least, so we are told by the Press. I hope that there will be a statement by the Chancellor before the end of the debate about what he has agreed on this crucial issue.

Nothing Ministers have said in the debate so far has altered my view that from a national point of view this is one of the most risky Budgets for many years. The Secretary of State for Trade and Industry was so afraid of referring to the balance of trade that he did not mention imports once in the whole of his speech. I suppose he dared not do so.

The Chancellor was nothing short of frivolous in his one reference to the balance of payments, when he said that the surplus on invisibles would offset much of the visible trade deficit which is likely to persist through the year."—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 246.] As a way of saying that we face a current balance-of-payments deficit of £700 million or £800 million, that must be one of the most disingenuous and flippant statements ever made by a Chancellor in a Budget speech.

Some of us in recent debates have been accused of over-pessimism because we have argued that EEC membership on the terms we have now accepted would mean rapidly rising food prices and a growing payments deficit. The chickens are all coming home to roost remarkably fast. With our net budget payment to the EEC funds running this year at roughly only a quarter of what it will be in four years' time, and with most food prices still due to rise a long way, we are already running a payments deficit of over £500 million a year. How are these growing future burdens to be met? Instead of answering that question, the Chancellor and the Chief Secretary seem to think it enough to keep repeating that they have reduced taxation by £3,000 million and that growth is running at 5 per cent. a year. But while allegedly cutting taxes by £3,000 million, the Chancellor simultaneously raised the insurance contribution, which is in essence a form of tax, by about £2,000 million according to my figures. To that extent he has switched, not reduced, taxation.

As to growth, the past year has at least shown that demand management by the Budget works in practice, and fairly quickly. But it is always possible to get 5 per cent. growth for 18 months at any time if we start with 4 per cent. unemployment and totally ignore the balance of payments. The trouble is that it is possible to have sustainable growth only if two conditions are satisfied. One is that we are free to manage the exchange rate and the second is that we have an effective prices and incomes policy. But the present Government are perpetually on the brink of endangering the first, exchange freedom, by the reckless pledges to the EEC on fixing exchange rates and on monetary union. I agree that they have so far drawn back—I hope—but we never quite know what they will promise next.

Secondly, the Government are wrecking the chances of an agreed incomes policy by their dear food decisions of recent months. I believe in a prices and incomes policy. The abolition of the Prices and Incomes Board was one of the Government's greatest follies, even in the now-forgotten age of Selsdon man. But I do not believe that anyone can be expected to accept incomes control while the Government pursue their present dear food policy. It is no accident that the most successful incomes policy since the war, in the period 1948–50, was at a time of rigorous price control and generous food subsidies.

There have been world grain shortages in the past year, though the much-advertised 1972 Soviet wheat crop, which is supposed to be responsible for all our difficulties, was only 10 per cent. below the normal figure. These temporary difficulties in the world food market would surely be a reason for any rational Government to avoid other actions which would make the price rise still worse. But the Government, by accepting the common agricultural policy and rushing to enforce it, have made the price rise worse and are ensuring that it will not be reversed when world grain prices fall again.

Indeed, the Government are engaged in raising British food prices towards Community price levels over a five year period. That is not my statement but a statement by the Minister of Agriculture, Fisheries and Food as recently as 21st February. I challenged him whether that was what he said, and he candidly repeated it, saying that: in all the discussions we have had, in the House and elsewhere about the accession, it was always made clear that we should raise our prices to Community levels."—[OFFICIAL REPORT, 21st February 1973; Vol. 851, c. 478–479.] Some of the ways in which the Government are actively doing that are equally obvious. For instance, they have introduced an import duty on mutton and lamb imported from outside the EEC which is designed to rise in stages to 20 per cent. That is one cause of the rise in meat prices, which has now reached 30 per cent. to 50 per cent. for mutton and lamb since the Government came to power and 50 per cent. to 65 per cent. for beef. The lamb duty induced the New Zealand Government to divert supplies from the United Kingdom by a quota scheme, and that has intensified the shortages here. Now New Zealand has temporarily agreed to suspend that scheme, but the United Kingdom Government have not withdrawn the tariff on mutton and lamb which gave rise to it.

If the Government maintain that they are in no way responsible by their policies for the present rise in food prices, let them at least withdraw that unnecessary duty. As long as utterly indefensible food taxes like that remain in force, I do not see why anyone should co-operate in an incomes policy.

Secondly, the Minister of Agriculture, Fisheries and Food told us on 24th January that he had agreed with the EEC authorities to abolish what he called the bacon stabiliser on 1st June. Do Ministers deny that? Do they deny that the price of bacon will rise as a result, after 1st June, because of the Government's decision? The same Minister also agreed in Brussels in January to abolish what he called the special arrangement for subsidising the price of sugar in the United Kingdom. This operates as from 1st July. After that the price of sugar will rise further. Unless the Government rescind those decisions I see no reason why unions or anyone else should co-operate in an incomes policy.

Thirdly, the Government have set up an Intervention Board whose sole purpose is to prevent falls in the price of food, if necessary by deliberately making it unfit for human consumption, as the Minister of Agriculture had to admit the other night in the House. The Minister of State for Agriculture, Fisheries and Food explained on 7th March that this intervention system applies to beef. However unlikely, he said, it is that the price of beef may fall too fast in the immediate future: an assurance against market collapse is essential".—[OFFICIAL REPORT, 7th March 1973; Vol. 852, c. 154.] I am sure that it will be most comforting to housewives to know that the Government have provided an assurance against a collapse in the price of beef. No wonder the Government's special committee of investigation set up to inquire into beef prices at Christmas con- cluded that in the long term EEC entry is likely to sustain prices. It said, In the long term we predict that there will not be a reduction to the beef price levels which were current before the summer of 1972. With these policies now in force I would have thought that any prudent Government would be preparing for balance of payments difficulties later this year.

Above all we must retain our exchange rate freedom. One curious fallacy which seems to be prevalent at the moment in monetary discussions is that the need for changes in exchange rates is purely temporary and that one day quite soon we shall all be able to retain fixed parities and live happily ever after. This is pure nonsense. This is precisely why I believe —although this is not the time to discuss it—that some managed floating system is the only proposition which offers a permanent solution. The common agricultural policy has imposed a new and gratuitous burden on the United Kingdom. We cannot now devalue in an emergency without food prices rising—except in the short term—still further proportionate to the devaluation. That means that we have thrown away the advantage which this country had and which largely solved our balance of payments problem in 1931, 1949, and 1967.

There is no remedy for this that I can see unless the common agricultural policy is either wholly repudiated or at least drastically reformed. The trouble about the common agricultural policy is that it assumes that exchange rates never change. In the modern world that is a practical impossibility. I ask therefore whether the Government now propose drastic reforms in the CAP in the international trade negotiations under GATT due to start this autumn.

Presumably the Government still have some power of thought and some initiative in this matter. These negotiations are far more important as a worldwide opportunity than any unworkable schemes for achieving a European monetary union. I find it extraordinary that the Secretary of State for Trade and Industry in his speech last week made no reference to these prospective worldwide trade negotiations.

President Nixon's special envoy, Mr. Petersen, visited London and other European capitals in February to find out what response might be expected to Mr. Eberle's initiative towards freer world trade in his speech at Geneva on 10th November last. Surely we should be warmly welcoming this United States initiative. According to my information, Mr. Petersen went home deeply disappointed with a bleak and negative reply from this country and with no assurance that we shall propose any major reforms in the CAP in these forthcoming negotiations. If that is true, it is a disastrous failure by the Government.

Very soon, possibly this month, President Nixon is recommending a new trade Bill to Congress to give him the power to negotiate next autumn and winter. Our national interests here coincide almost exactly, particularly on the CAP, with those of the United States. A negative attitude by the United Kingdom now may well push American policy, hanging in the balance at present, into protectionism or, even worse, into isolationism. A positive attitude could launch a new step for freer world trade which could be as decisive as the Kennedy Round. For the sake of that opportunity as well as for the vital interests of the United Kingdom, I urge the Government first to preserve our exchange freedom in spite of all the pressure that might be put on us this year and, secondly, to propose sweeping reforms in the CAP and to let the United States know that we mean to do so.