Orders of the Day — Economic and Energy Situation

Part of the debate – in the House of Commons at 12:00 am on 19th December 1973.

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Photo of Mr Denis Healey Mr Denis Healey , Leeds East 12:00 am, 19th December 1973

I was saying that the transformation in world affairs had been symbolised in the last two days by the fact that a British Government, who promised in all circumstances to put the nation's security above all other considerations, have decided to make a major cut in their planned expenditure on defence. That is a cut which the Labour Party welcomes and wishes had gone further. A British Prime Minister, who staked his political career on Britain's entry into the Common Market, has now threatened to wreck the Common Market unless he is able to keep full control of Britain's energy supplies. That, too, we welcome.

Those two facts mark a major change in the world situation and inevitably in the reaction of Governments to the situation. I think that we can all agree that there will now be a much harsher and more difficult climate in which the United Kingdom will have to operate. We know that in many respects the change in the world situation may bring a hitherto unexpected revolution in our prospects as a member of the world community before 10 years are out. By the end of the decade oil from the Celtic seas—[HON. MEMBERS: "The North Sea."] No, in both seas. The oil from the Celtic Seas, by the end of the decade, will have transformed the relative weight of the United Kingdom in world affairs. The problem is to emerge from the next few years with the economic capacity to take advantage of our new energy supplies and with the fabric of our society intact.

I hope that no hon. Member will dispute that that is essentially the nature of the problem that faces us. It is a short-term problem by historical standards, but a grave one. Unfortunately, we face the immediate future far weaker than any of our competitors in the world community. I shall deal with the economic aspects of our problem. I must begin by recording that a Government who inherited an ideal springboard for steady and sustained growth in Britain have contrived in three and a half years to produce disaster in almost every major aspect of our economic activities.

The growth of our economy, which has been the justification of all the Government's policies, has fallen in the last three months to an annual rate of under 3 per cent. Investment, which is the key to growth, is still more than 20 per cent. below the level of 1970. In the last two months our balance of payments deficit has been running at a rate of £3,000 million a year. That was before any but the most minute impact of the increased price of Arab oil had affected our trade figures. We have seen the pound devalued by 18 per cent. of its value three years ago or, indeed, 18 months ago in terms of a weighted average.

Above all, the Government's borrowing requirement is standing at over £4,000 million in the current year. As a result of all those factors, inflation in Britain is running at an all-time high. In the first year of the so-called counter-inflation policy the Government now tell us that the retail price index is well over 10 per cent. higher than the level at which it stood a year ago. It is well above the post-tax rise in national earnings over the same period.

The Chancellor and the Prime Minister have talked in recent days about the country's need to accustom itself to no increase in its standard of life in the coming year. The overwhelming majority of the population saw no increase in its standard of life in the past 12 months, in spite of the fact that there was a 4 per cent. increase in the nation's wealth. During the coming year the standard of life of the average British family is certain to fall well below the level at which it stood in 1972.

That is the situation which the nation faced before it became aware of the full dimensions of the energy crisis. Of course, the oil crisis makes the situation worse in almost every respect, and particularly our balance of payments deficit. I should like to ask the Government—I gather that the Chancellor is to conclude the debate this evening—how they propose to deal with their existing deficit and with the enormous increase in the balance of payments deficit which is certain to follow, at least for the next six months or so. At present, they are seeking to protect sterling partly through interest rates, which are highly inflationary and damaging to investment—do the Government think that they can push them higher?—and partly by encouraging public authorities to borrow abroad in the Eurocurrency market at interest rates which are up to three times as high as the Government would have to pay if they were borrowing from the IMF.

Indeed, this policy of foreign borrowing—I understand that over £1,000 million has been borrowed since last March—is likely to impose on us an interest burden in foreign expenditure of at least £2 million a week from the beginning of next month. Do the Government propose to increase this public authority borrowing on the Eurocurrency market, or will they go to the International Monetary Fund, or seek to arrange support from foreign central banks? If, as I suspect they will be forced to do, they choose the latter courses, what sort of price will they have to pay in terms of foreign control and monitoring of our monetary affairs?

What I think the Government are finally recognising is that in many dimensions of the new economic crisis facing us, their future and the whole future of their policy will depend on international agreement—international agreement to support the pound, international agreement to avoid competitive deflation, international agreement to avoid an interest-rate war, international agreement above all, to control the short-term capital movements which are certain to be vastly expanded by the injection of Arab oil revenues into the international currency scene. In this period, when international agreement is likely to be the foundation and precondition of success in many fields of economic policy, the Government's international influence stands at an all-time low——