Fuel Situation

Part of the debate – in the House of Commons at 12:00 am on 9th January 1974.

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Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 12:00 am, 9th January 1974

On one thing both sides of the House seem agreed—that the country is facing the most serious economic crisis since the war. One begins to see the benevolent wisdom of the Chinese proverb, "May you live in boring times."

Today's debate is about the energy situation and tomorrow's about the three-day week, but the effects of the two cannot absolutely be separated. The country is faced with two different crises—the short-term miners' dispute, which was the subject of the measures announced by the Prime Minister to achieve a three-day working week, and the longer-term crisis of the oil situation, which was the subject of the Chancellor's measures before Christmas. This is a situation of unprecedented uncertainty. So much so, someone described the Chancellor's task as having to shoot at a moving target in the dark. It would have been more accurate to say that there were several targets and that there was a consequent danger that he might hit the wrong one.

The oil crisis is essentially international and its impact will be felt in the Western world and by all the OECD countries. It is important that our response should be international. There has been some evidence of moves towards bilateral deals, like the French arms-for-oil deal with Saudi Arabia and the visit of our special emissary, Lord Aldington, to King Feisal. There is a great danger that we shall not see clearly enough the necessity to reach an overall agreement which will not leave other countries in a difficult situation. There is no point in our managing to finance our balance of payments deficit if the Germans and the Dutch still have their deficits and have to take excessive deflationary action which, in turn, will harm our economy.

Perhaps in this situation we tend to see the difficulties in our own position and not the disadvantages in the position of the Arabs. We tend to forget that some of the Arab régimes, not necessarily the most attractive ones, have been dependent on the West for political support. We tend to forget that, when the price of oil is pushed up so much that substitutes become an economic proposition, there is a strong incentive for the Arabs to sell as much oil as they can in the short term.

We tend to forget also, when talking about the overall balance of payments problem of the Western world, that somewhere the money must inevitably get back into some part of the Western economic system. There is no other way in which the Arabs can be paid for their oil ; whether they buy gold from the Russians or the South Africans it will be paid for in Western currency in a Western bank somewhere in the Western world. It is vital that means should be found, whichever country is lucky enough to have this money fall into its lap, of recycling that money throughout the Western world. The talks about the reform of the international monetary system have been going very slowly, but now, faced with the overall Western balance of payments deficit, it is crucial to work out urgently a means of recycling these Arab funds throughout the Western world to fund every individual country's balance of payments deficit. The greatest tragedy would be if we got into a situation in which some countries, because of these bilateral deals, were left out in the cold and had to pursue restrictive and inflationary policies which would end by harming us.

I turn now to the domestic scene. The three-day working week will be the subject of the debate tomorrow, but I want to make one point about it now. We will very shortly be in a situation—and I hope that the Government are aware of it—in which a number of major industrial companies will be in financial difficulties. This will happen within a few weeks. It is not just the small companies which will suffer. There are large companies in manufacturing industry whose strong cash positions of a few weeks ago have been dramatically reversed. This could easily set off a chain reaction. It will be no use getting the clearing bankers round to No. 10 Downing Street at the eleventh hour, because they may not want to play ball. I hope that the Government will think through the implications of this, because we are faced with something which could make the Upper Clyde Shipbuilders collapse look like a run on a piggy bank. It is a serious situation.

The link between the arguments about the oil crisis and those about the coal crisis has tended to be the relative costs and prices of both coal and oil. It has been suggested that because the price of oil has gone up therefore the price of coal can rise and that, therefore, more can immediately be paid to the miners. That argument is theoretically correct and this will in the long term have to happen. There will have to be that price adjustment. That surely does not mean that any settlement, regardless of its inflationary consequences, can immediately be made with the miners.

The fact that the increase in oil prices will make our inflationary situation worse is in itself an argument for not adding too much to our problems through a large increase in the price of coal after an over-generous award to the miners.

Of course we need to get more men into the mines and to exploit fields such as the Selby field ; we have to deal with the problem of the drift from the mines, though I suspect that some of the figures that have been bandied about on this drift may have been a little exaggerated.