The hon. Member for Harwich (Mr. Ridsdale) has dealt with one part of the Chancellor's problem—that of inflation. I want to return to the balance of payments and to some remarks about the oil crisis.
As on previous occasions, the Chancellor exuded an extraordinary euphoria totally unjustified by the present situation. Two things are clear: first, that we cannot go on indefintely with the kind of balance of payments deficit we are now running; secondly, that this is basically clue to fiscal imbalance and the overheating of the domestic economy.
The balance of payments deficit is being financed by borrowing, as was pointed out by the hon. Member for Dewsbury (Mr. Ginsburg). For a time it can of course be financed by borrowing; it has been inconspicuous borrowing, and it has not led to any kind of crisis of confidence.
But how long can it go on? A point will come when, if there is no early pros- pect of curing the balance of payment deficit, people will no longer be willing to lend. The time will come, as surely as night follows day, when action will have to be taken to cure the present deficit. It will have to be taken, it seems, by the next Government, whatever that may be, whether the same Government, who will have to change their course yet again, or their successors. But, as has been pointed out, the problems of 1964 will by then be minor by comparison.
My second comment concerns the cause of the balance of payments deficit. There seems no doubt that it is caused basically by the fiscal imbalance. It will not be solved, as the Government hope, by a fall in the price of raw materials. That may help with imported inflation but it will not basically affect the existing pressures to import. Our balance of payments deficit reflects the excess of domestic expenditure over domestic production.
There is no question, as was underlined in a remarkable speech by the hon. Member for Oswestry (Mr. Biffen), about the extent of overheating. His speeches are always distinguished. His speech on this occasion was especially so and the evidence he cited saves me from having to cite evidence of this fact myself. I would however add that one can also see this overheating reflected in the figures for shortfall in public expenditure.
In the last White Paper it was estimated that there would be an overall shortfall for 1972–73 of some £300 million. The Chancellor said at the time of the last Budget that it would be more like £500 million, and recent evidence suggests that it will be even more. The reason for this is obvious. It is that, because of the overheating, in the public sector too, delivery dates cannot be met and projects for expenditure are postponed.
The nature of the balance of payments deficit, which amounts to about £1,400 million a year, combined with the present degree of overheating, suggests that the imbalance between taxation and public expenditure is of the order of £2,000 million a year. The hon. Member for Harwich expressed the hope that this deficit financing was now being cured His hope is not founded on fact.
The public sector deficit is now as large as it ever was.
There is no sign that the Government recognise the size of the problem. In the course of his speech I twice asked the Chancellor whether he did not recognise that if measures were now taken to restrain domestic demand there would be a shift of resources to exports. His answer to my question appeared to be that he was not in favour of deflation.
This, however, is not the choice. It is not a question whether we deflate and reduce production. It is whether we take action to shift the resources which are at the moment being used in domestic production to exports where, as the Chancellor himself pointed out, there is a field for unlimited expansion.
Now is a time with the present world boom, when measures can effectively be taken to restrain domestic demand without decreasing the growth of production. If these measures were taken, it would mean that there would not be a slow down of the economy, but that some improvement in the balance of payments would be visible whereas at the moment there is no improvement in sight.
When phase 3 was announced, we got from the Government some belated recognition of the need for one part of the fiscal imbalance to be redressed—namely, some cuts in public spending. It is not clear how large the effect is of the moratorium on various contracts, but it appears that in a full year it might be as much as £300 million. I cannot understand the strategy on which the cuts are based, and here I wish to come back to some remarks made by the hon. Member for Derbyshire, South-East (Mr. Rost) about energy policy, with which many hon. Members would wholeheartedly agree.
Schools and hospitals are included in the moratorium, but two exemptions are made. One is housing, which is understandable, and the other is roads, which is incomprehensible. One can understand certain roads, such as urban bypasses, being exempted, but to exempt roads in general, in present circumstances, is absurd.
The hon. Member for Derbyshire, South-East rightly said that one must have a strategy which is concerned not only with the short term but also with the longer term when one is considering the energy problem. If it is a question of encouraging the production of coal, that is right. If it is a question of encouraging nuclear energy, it would be right if it were not for the reservation which one must make in the light of the uncertainty which exists about how far technology can deal adequately with the disposal of waste. But there is no strategy for the conservation of energy. According to the last public ependiture White Paper, of the major items, the amount spent on roads is increasing faster than any other item. It is still scheduled to increase at an annual rate of 5½ per cent. per year.
If one considers surface transport—in fact public transport—which could be one way of conserving and making more effective use of energy, one finds that over the next five years expenditure on it is scheduled to decrease by 4·6 per cent. per annum. Thus, there is to be increased expenditure on roads, which will encourage the use of the motor car and the using up of energy, and a decrease in expenditure on surface transport, which could conserve it. Expenditure on waterways is negligible, and the plan for the railways clearly envisages that they will be further run down. Roads are specially exempted at a time of cuts in public expenditure generally. Therefore, the strategy for the conservation of energy is fundamentally mistaken.
I was also in strong agreement with the hon. Member for Derbyshire, South-East on the attitude to the pooling of oil supplies within Europe. The Prime Minister made a statement last week, in which, so far as I could gather, although I missed the opening sentences, he was supported this afternoon by the Secretary of State for Trade and Industry, to the effect that Britain was all right; we had assurances from the Arab States which were to supply the oil, and we had sufficient reserves. Britain was all right, we were told, and the implication was that we should not worry too much about the problems elsewhere.
The Leader of the Opposition said last week, in effect, "Let us make quite clear to the European Community that what we have, we hold". That is the new cry of international Socialism, "What we have, we hold".
Both those attitudes are insular. They are not only unattractive but eminently shortsighted. As the hon. Member said, the oil problem is not only short term. What is desperately needed in the longer term is a common policy for the European Community. The European Parliament brought out a good report pointing out that if there were not a common policy for the Community as a whole, which overrode the national veto, we might find the lights going out all over Europe. The Commission urged much the same approach. When the Council of Ministers met last May, however, there was no agreement, and national interests prevailed.
This country should give a lead to see that a Community policy is arrived at and that the issue is not considered from a narrow nationalist point of view. It is no good saying, "We are all right. We can leave the Dutch in the lurch, because they are directly affected", or, "We can leave the Germans in the lurch, who are indirectly affected", because we shall need the assistance of both those countries on other vital matters. The problem will not be solved unless there is a common European policy.
Not only the hon. Member for Derbyshire, South-East but, I think, the right hon. Member for Stafford and Stone (Mr. Hugh Fraser), referred earlier today to another aspect of this matter. One can be highly critical of Zionism—one can say this not in any hostility to the Arab States—but it is intolerable if, in the policy followed in foreign affairs, one becomes dependent on the requirements of particular States. That is not a solid basis for foreign policy on any issue.
The Government's strategy is nonexistent as regards the balance of payments. There are equally grave gaps in their policy towards the energy crisis in the long term as well as the short term.