Economic and Energy Situation

Part of the debate – in the House of Commons at 12:00 am on 18th December 1973.

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Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Leyton 12:00 am, 18th December 1973

I am glad to be the first to congratulate the hon. Member for Hove (Mr. Sains-bury) on his maiden speech. I admired his fluency and apparent confidence, which I think grew as he went along. He managed to make a most impressive speech. I liked the sympathy with which he described the people of his constituency, particularly the elderly. I think that when he broadened his appeal to the plight of all elderly and retired people, he got the support certainly of all the Opposition and also of many hon. Members opposite.

I was very interested, as was the House, in the hon. Gentleman's discussion of long-term policies. Some of them were a trifle controversial, but the hon. Gentleman spoke with such cogency and modesty that no one minded at all. Having heard him, we all hope to hear him again before too long, speaking unshackled by fear of transgressing the line of controversy, because I am sure that when he really lets himself go he will make extremely powerful speeches.

The hon. Gentleman said dutifully that he welcomed the Chancellor's measures I must say that he picked out the two 0r three better parts of those measures. But it seems to me that the main thing which the Chancellor did in his autumn Budget was really only to clear up part of the unholy mess he made in his main Budget earlier this year. Up to only a week ago, the right hon. Gentleman was strutting about as proud as a peacock about reducing taxation and getting growth. He did do those things, but he achieved them by taking the easy option of launching a consumption boom by the simple and fatal device of huge expenditure unaccompanied by taxation.

All that the right hon. Gentleman has done is to take back part of the deficit which he himself created so lightheartedly. It has not really been properly noticed that he is taking back only part of the deficit. The outstanding deficit that he has left himself with will still go on, stoking up inflation. The right hon. Gentleman took some credit for cutting public expenditure rather than putting the burden on individuals, but to reduce public expenditure does affect individuals; it does put burdens on them. He made a false distinction. He will be directly responsible for cuts in the building of schools, hospitals, old people's homes and universities. He will be responsible for cuts in social welfare projects. All these latest cuts must be added to the previous cuts announced not so long ago.

The direct consequences of the Chancellor's exuberant multiplication of the money supply are still with us. The main consequence is a catastrophic worsening of the balance of payments. In his statement yesterday, he did very little, if anything, to deal with this critical and central problem. He did try earlier to act against the effects of his policies upon the balance of payments by floating the pound, but this only made matters worse, because the devaluation of the pound led to a great increase in the cost of imports. We have to pay much more for our imports than do other countries with sounder currencies.

The Government, therefore, are not right to say that the turning of the terms of trade against us is wholly out of their control. It is in part, but it has been aggravated by the extreme devaluation of the pound putting up the cost of imports. The rise of imports costs further stoke up inflation. So grave were inflation and the balance of payments crisis that these alone were enough to compel the Chancellor of the Exchequer to make his statement yesterday.

The Prime Minister, who never in his life has admitted to an error or, indeed, to responsibility for anything that has gone wrong in this period in which almost everything has gone wrong, has found yet another scapegoat—the industrial action by miners, train drivers and power supervisors. If the Prime Minister is right in his diagnosis, his obstinate determination to confront the trade unions is insensate. By his own admission, a slight degree of flexibilty in incomes policy would remove this central cause of all our problems—as he sees it—and immediately solve the short-run problem which we face.

I totally disagree with the Prime Minister's argument that this would lead at once to an enormous all-round increase in wages. Even if some consequential wage increases followed from a little flexibility in stage 3, it would not mean abandoning the incomes policy. The Prime Minister is fighting the last battle in the war, as do all generals. He has not realised what is possible in the present circumstances. Our basic problem is not wage increases but inflation, and that, I am afraid, will be with us for a long time yet.

The Chancellor of the Exchequer has taken some new measures to combat inflation—much too late and still too little. The only way to counter inflation is to use all possible means of attacking it together, each one backing up the other, and not to rely primarily upon an incomes policy as the Government have done for so long. We need much stronger fiscal measures, more vigorous direction of credit, and a policy of social fairness and control of prices. Realistic steps of this kind to reduce inflation would check undue wage increases and buttress an incomes policy. We want a vigorous attack on inflation, plus what might be called a stage 3½ policy—not an abandonment of an incomes policy but a relaxation of it in these new circumstances. In any case, in the totally new situation that has arisen the cost of some wage increases would be far less than the price we are paying now, and we should be able to get back to a poilcy of economic growth.

As grave as the challenge of inflation is the mounting despondency and cynicism of public opinion. The Chancellor yesterday missed a great chance. His statement fell far below the measure of what was needed and expected. It was largely irrelevant to our main needs—the balance of payments, in particular. He will, I fear, not succeed in rallying the country. His statement will not give our people the necessary inspiration to brace themselves to face the long haul that still lies ahead of us.