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 Ian Lloyd Mr Ian Lloyd , Portsmouth Langstone 12:00 am, 12th March 1973

I will not be tempted to follow the right hon. Member for Battersea, North (Mr. Jay) too closely in this interesting question of food prices except to say that while I am sure he would agree that there are a series of substructure policies which account for the real cost of food in the United Kingdom, this depends to some extent on what we decide to produce here, what we decide to import and from where we decide to import it. There is nothing which right hon. Members on either side of the House or any Government can do to affect the real cost of food to this country.

What we can do by fiscal and distributory devices is to ensure that we pay more for it in some way or less in another way, by taxing ourselves more heavily in some directions and less heavily in others. In that way we can affect the internal costs of food. It is most unfortunate that hon. and right hon. Members tend to give the impression that we can act on the real cost of food to the United Kingdom as a whole. This is not an economic possibility. It is nonsense.

I turn now to the speech of the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), because one of the most fascinating spectacles in this House is the sight of the great panjandrums of the Treasury Bench fencing with each other at subsequent stages in their Treasury Bench careers. My right hon. Friends I suppose wield the nets and trident of current information and foresight while the right hon. Member for Stechford wields the spear—and it is an attractive one to most hon. and right hon. Members—of hindsight. When this is done the debate tends to be somewhat uneven.

I refer to this point of the large increase in the borrowing requirement. The right hon. Gentleman said that the net turn-round was something like £5,000 million. I do not think that that figure is in dispute. There is surely a constant and unrelenting pressure to increase public expenditure of all kinds. This is affecting all Governments at all times. Whereas he was possibly right in attacking the policy of my right hon. Friend for tending to give reliefs of a trivial nature, if my right hon. Friend had sought to attack the fundamental and sensitive area of public expenditure this would inevitably have produced a most violent political cacophony from the base drums such as the right hon. Member for Stechford, the flutes, such as the hon. Member for Heywood and Royton (Mr. Joel Barnett), and possibly from the triangles such as the hon. Member for Bolsover (Mr. Skinner), who plays his triangle frequently.

There is little doubt that the success of the Budget will be judged entirely by its contribution to the problem of inflation. The picture may be superbly painted, the subject may be interesting, but it hangs in the frame of inflation. As I am sure the Chief Secretary knows, it is a gilt frame and it is most certainly not at the moment a gilt-edged frame.

The question worth asking is whether this is a neutral Budget. In this context, I find the statement that it is neutral quite astonishing. What are the facts? Imported goods are rising in price, in some cases dramatically; foods of all kinds are also rising in price—a worldwide phenomenon not confined to us; interest rates are rising at an unprecedented rate and are reaching unprecedented levels. Most forms of what are called "stores of value"—things which people buy at times of inflationary pressure—are also rising in price—indeed by 40 and 50 per cent. The rise in wages demands is enormous, and this lies much behind our discussion of prices and incomes policy. There are unprecedented levels of public expenditure and money supply.

We exist at a time of undoubted international monetary crisis, the direct consequence of the speculative opportunities created by differences in the rate of inflation of national currencies. Everything in the country is growing at a 10 per cent. compound rate except economic growth itself, which is between 3 and 5 per cent. at best and is all we have to play with.

Do we know whether the economic growth rate is even 3 or 5 per cent.? The statistical limits that bear on all these macro-economic aggregates are seldom within 5 per cent. We simply do not know whether a change in the position of the indicator is caused by the stretch of the elastic, by the strength of the pull or by a mixture of the two. Over and over again I have found that both Conservative and Labour Governments produce precise figures and talk about 0·9 or 0·8 per cent. when referring to the national income or gross national product or growth and other aggregates, when in fact they have no right to use figures like that at all.

The Chancellor is trying to be neutral but we would be ill-advised to make categorical assertions about the Budget. It must be judged by two basic criteria. First, will it promote growth in real terms? Secondly, does it reinforce the counter-inflation policy? I accept the argument that inflation is a psychological phenomenon to some extent. I accept that, when inflationary expectations have passed a certain point, something analogous to shock treatment for the schizo- phrenic is necessary, and that that shock treatment can never be advocated as a normal policy at a normal time. But if the patient is to be frozen for heart surgery, one must have confidence that the heart surgeon knows just what he wants and how he is to operate and that he has the will to carry it out to a successful conclusion—and, finally, that his record of operations has a very high rate of success.

I simply do not have this confidence. If weapons of cost and demand restraint are the debit side of the inflationary bookkeeping account, what lies on the credit side? We all know the answers. They are probably summarised best in the phrase "Codex Productivitex". We ask whether investment is adequate and whether it has the right kind of variety. We want all of us—each has his own definition—the industrial equivalent of Doctor Borlaug's "green revolution". We have ways in which to bring it about. What are the right mixes for the United Kingdom? We need to know all the correct forms and patterns of technological and marketing assessments, on which we must depend. What we do know is that the mixtures generally speaking justify a great deal of criticism.

These are fine phrases unless we have—the most fundamental factor of all—resource mobility, which we have not got in this country. Every political and social mechanism is reinforced by one of the world's most powerful and entrenched bureaucracies, existing at State, county, and local levels. The bureaucracy resists the forces encouraging mobility by the most sophisticated and powerful means. The proposals to confer mobility and increase it are considered as anti-social. In some cases, they are completely neutralised and are often very severely restricted. On the other side of the counter-inflation balance sheet, we find ingrowing prejudices, professional buck-passing and institutionalised self-interest of every conceivable type of pressure group, all immensely skilled in preventing things from being done.

It is more plausible and in many cases more pleasureable to attack the symptoms of inflation and of failure than to attack the real causes. The symptoms are disembodied phenomena such as price aggregates and the pressure of demand and the quantity of money and all the other collective aggregates such as wage rates. Where causes involve people, they are inefficiency, bloody-mindedness, economic illiteracy—which we have on a very large scale—and absurd expectations, from which we are also suffering. All this exaggerates or accentuates the general and inescapable scarcity of resources.

All this lies at the heart of the Budget problem. I merely have time to deal with one other aspect of particular interest. The success of the Budget must be judged in the context of the total prices and incomes inflationary package. We have in this respect a remarkable opportunity to see how it has been done elsewhere. Everyone knows that we have copied the American system more or less lock, stock and barrel. The other day Mr. Grayson, the chief administrator of the two earlier prices and incomes, phase 1 and phase 2, in the United States, and now the chairman of the Joint Cost-of-Living Council in the United States, was asked what he would do now, with the benefit of hindsight, if he had the opportunity to do it all over again. His comments are fascinating. He said, in effect, that he would get away from the whole rigmarole as soon as possible. He was asked whether he would attempt to retain any form of direct and detailed control. His answer was, "No" and he went on to say, … we need to work more on the basic problems that cause inflation, such as supply problems in agriculture, in the regulated industries, and in agencies of government. He was then asked: What do you feel the Price Commission has done to help improve productivity, and what has to be done? We have no such commission operating in this country. Mr. Grayson said that the Commission … plus normal fiscal and monetary measures—the underlying forces that create inflation—are the real ways to control inflation. This is experience of a particularly interesting and valid type, and we should pay very close attention to it.

We should also look at closer to home. Across the Channel in Western Europe we find economies much more similar to our own, where the problems probably arise from the same mix of causes. I draw attention to a particularly interest- ing document, "Barclays Review". Barclays Bank operates all over Western Europe and it produced this special review. It drew attention to the comparative success or failure of prices and incomes policies throughout Western Europe in the last decade. It is a fascinating document because the conclusion is clear and inescapable. It applies to every single country in Western Europe. The conclusion is that by and large, except for very short periods of shock treatment, it does not work.

If the Government are really serious in attempting to persuade the country that it does work, then the burden of proof resting on their shoulders is very heavy because the burden of evidence is that it does not work in the United States and does not work here. The conclusion is, therefore, that a Budget produced on the assumption that it does work is a burden which the Government will be unable to discharge.

I want to refer to the conclusion reached by the survey, which covered a point made by the hon. Member for Cornwall, North (Mr. Pardoe) when he was somewhat sceptical about monetary integration. It is important. The survey concluded: The most likely way, however, in which inflation in the Community could be moderated is by means of co-ordinated national and eventually, given the necessary political will, Community level policies. Indeed, Community level policies are the only thing likely to succeed in Western Europe, and even they are by no means certain to succeed. The survey continued: Only on the basis of co-ordinated economic policies, with all the implications for national sovereignty, can such problems as inflation be seriously tackled. That is the gist of what I want to say. I believe that the Budget is interesting. It is likely to be successful only in the most narrow and restricted circumstances. I do not see those circumstances being created. I do not see the measures necessary to produce the dramatic increase in national growth required to enable my right hon. Friend to take the risks he has taken. I sincerely hope that I am wrong. Nothing would please me more, as hon. Members opposite would probably agree if they took their political pants off for a moment, and I hope that this is a fair risk fairly taken for good reasons. But I do not believe that, when one looks at the whole spectrum of the economic situation, it suggests or supports the policy of liberality which is what my right hon. Friend has put forward. It is not a policy of restraint, of attempting to force us to come to terms with the basic economic realities of the country. No Budget which fails to force us to come to terms with basic economic reality is likely to succeed either for my right hon. Friend or for anyone else.