Yes, they have—and they have said frankly that they cannot accept the other points which I have already repeatedly put to the House. These are substantial points which they fully recognise. They told me so at their meetings—that they fully recognise that powerful unions, seeing that one union had been able to get its way by making itself a special case and getting it accepted, could come along with its own special case—not the miners' case: its own special case—and try to achieve the results that it wanted by the same means. They have said frankly that their undertaking does not and cannot cover that position. I hope that the right hon. Gentleman will see the difference there and accept it.
Yes, Sir. I made a full statement to the House on the economic situation on 17th December last. I emphasised the uncertainties relating to the current account of the balance of payments, because of developments on both the supply of oil and oil prices. Since then oil prices have risen still further, and, in fact, have quadrupled during 1973.
The Ministers of the Committee of Twenty, meeting in Rome last week, reviewed the current economic situation and in particular the implications for the world economy of the large rise in oil prices. The committee agreed that countries should not adopt policies which would merely aggravate each others' problems. There was general recognition of the difficulties that would be created, in particular for developing countries, and the need to find orderly ways of channelling surpluses to countries in deficit. The committee considered a proposal by the Managing Director of the International Monetary Fund for a new fund facility, and agreed that this should be explored.
It is too early to say what will be the effect of the decision of the French authorities temporarily to allow the French franc to float, but the immediate effect has been to improve sterling's overall effective exchange rate.
As far as the domestic economy is concerned, I shall take whatever action may be necessary in the developing situation.
Yes, but is the Chancellor of the Exchequer not aware that the trade figures which were published yesterday affect a situation which developed before the oil crisis had time to feed through into the balance of payments, and which existed long before the industrial disputes began in the middle of December? Does he not agree that the situation revealed by those figures is extremely grave for the British economy? Does he not agree with the Governor of the Bank of England that they show that before the oil crisis our balance of payments deficit was running, in relation to our national wealth, more than three times as high as it was running under his predecessor in 1964?
Will the Chancellor tell the House what he proposes to do about the situation in two respects? First, does he not now agree with all informed commentators that excessive domestic demand must be a major factor in the extraordinary fact revealed by the figures that, in a year when our exporters had extreme price advantages through the devaluation of the pound, the volume of our exports increased less than the volume of our imports? Second, will the Chancellor say when he proposes to introduce the extremely harsh measures to reduce demand which were promised by the Minister for Energy on Friday? Will he assure the House that such measures will be accompanied by essential measures for increasing social justice in this country?
As for the external aspects of our balance of payments problem, does the Chancellor not agree that the decision of the French Government to float the franc at a time when that country has substantial reserves, after a year in which it had a £600 million surplus on its balance of payments, suggests that it is adopting a "beggar my neighbour" policy and that the world may be embarked on a course of competitive devaluation? Is it not the case that the Spaniards devalued the peseta this afternoon? What action does the right hon. Gentleman propose to initiative inside the IMF to reach agreement on this matter?
On the question of financing our deficit, will the Chancellor tell us whether he proposes to increase the amount of public authority borrowing from the Eurocurrency markets at rates of interest amounting to about 10 per cent., which impose an arduous and exceptional additional burden on our balance of payments, or has he approached the IMF or friendly Governments for a loan? Does he believe that the Government's decision to go it alone in the oil crisis is likely to make other Governments more ready to help us in this regard?
Is he aware that no one on the Opposition side of the House is now surprised to learn that he should seek to distract attention from the ruin of his economic policies by provoking industrial unrest or that he should seek to slip out of his responsibilities for managing the economy of this country under cover of a General Election.
On the right hon. Gentleman's last point, one of the best things that could happen for sterling, and which would cost this country and the Labour Party nothing, would be for the right hon. Gentleman to announce that he intends to use his influence to persuade the NUM to accept the existing pay offer and thus enable the country to return to normal working.
With regard to the general question of the attitude of the several countries involved, all of which face additional deficits as a result of the increase in the price of oil, there was, I thought, a general consensus at our meeting in Rome last week that we should not adopt competitive devaluation policies.
As for the franc, the French authorities have made it clear that they intend to maintain orderly conditions in the exchange markets and that it is not their intention to take action which would initiate a series of competitive devaluations. But obviously the right hon. Gentleman is right in the implication of one of his questions—that it is bound to have effects on other currencies. As I said in my statement, for sterling the immediate effect of floating the franc has been to improve sterling's overall effective exchange rate.
With regard to the IMF, I made it clear in the speech which I made at the Mansion House on 18th October that we have a sizeable borrowing capacity within the IMF and that I should not hesitate to use this if necessary. There were some stories in the Press that this was one of the matters discussed in Rome, but that is not so.
With regard to the right hon. Gentleman's point about the effect on our balance of payments of factors other than the consequences of the increase of the price of oil, I made it clear to the House in my statement or in the subsequent discussion in December, when I announced the substantial cuts in public expenditure, that the extra cost of oil to our balance of payments was a severe blow, because our balance of payments was in considerable deficit before the oil situation developed—although there was then reason to believe that, as the effective depreciation of sterling worked through into the balance of payments, the deficit would begin to improve next year.
To be fair, I know that the right hon. Gentleman will not deny a fact of considerable importance if he is looking back to that situation—that without the increase in world prices since the middle of 1972 this country would not have been in deficit last year.
Is my right hon. Friend aware that the figures released this morning by the Bank of England, showing the continued increase in the money supply, are causing grave concern? Will he give urgent and renewed consideration to measures to correct that?
My right hon. Friend will recall that in my statement before Christmas I announced, together with the Bank of England, certain measures to make credit less easily available, and I have no doubt they will have their effects.
Does the right hon. Gentleman still think that sterling is under-valued? How long is it since he last said that it was under-valued, and how much value has it lost since he last said that?
I have no doubt—this is certainly recognised by people outside our own islands—that our position is extremely competitive. I should have thought that it was generally accepted that, on that basis, sterling is undervalued. It is worth pointing out—the hon. Gentleman, who always considers these matters sensibly and fairly, will accept this as significant—that while, for the last couple of months or so, we have been in the midst of a severe industrial dispute and have had additional problems of oil prices and shortages of supply piled upon us, the effective rate of sterling against other currencies is no lower than it was last October.
Will my right hon. Friend say what he considers will be the impact of 1974 oil prices on the balance of payments, now that the posted prices have gone up from 3 dollars a barrel to 11·50 dollars? Will he hazard a guess on the trend of world commodity prices and also say what percentage of the GNP is represented by the 1973 deficit, and how that compares with the figure for 1951?
I cannot give, offhand, the answer to my hon. Friend's last question, but the effect in 1974 of the increased oil prices will mean an addition to our import bill of about £2,000 million this year. My hon. Friend will note my words, "an addition to our import bill". There will of course be some offsets which have been pointed out in the past by the right hon. Member for Leeds, East (Mr. Healey)—namely, that we shall have the opportunity of exporting to those countries that are earning these surpluses. Also, in so far as they cannot spend all the money they get, they will be depositing some of their surpluses on capital account in this country and other countries which will be in deficit.
Does the right hon. Gentleman not agree that it is time the Government gave up describing the present situation as arising from the problems of success? Is it not the case that we now face one of the worst economic situations that this country has ever gone through, and that the pound is at its lowest against the dollar that it has ever been? Must we not then give up the idea of growth for growth's sake, fed by inflation, and concentrate such resources as we have upon social priorities? Second, what will be the effect of the floating of the franc upon the common agricultural policy?
On the second point, again I am afraid that I cannot give an answer off the cuff. It is self-evident, of course, that there will be certain technical problems similar to those which arose when the pound was floated. I find it difficult to understand the right hon. Gentleman's first point. After all, it would have been relatively easy, ignoring for a moment the oil deficit and thinking of the deficit which arose not because of the increase in oil prices, to have avoided the occurrence of a deficit by adopting the same sort of policies adopted by the previous Government, when they decided not to pursue a policy of economic growth at the sort of level that we have been pursuing. There are arguments for saying that that is what should have been done. But I have been frank with the House, and I said in December that the simple fact is that we cannot in present circumstances, with the increase in the price of oil and the shortage of oil and certainly not with the ban on overtime of the miners, hope to achieve—I think that this has been generally accepted—the sort of growth rates which we have been planning and which we expected to achieve.
The non-oil deficit, although perhaps giving cause for concern, could possibly be covered by borrowing against the event of an upturn later on, but does my right hon. Friend not agree that the addition of a possible extra £2,000 million adverse balance of trade now means that it is necessary to take action to correct the adverse trend of our balance of payments?
The general agreement at the meeting in Rome among the world's leading finance Ministers was that, in relation to the deficit which arose from the increase in oil prices, it would not be the right action for Governments to deal with that by deflationary measures or by such means as competitive devaluations, and so on, and that we had to tackle it in some other way. There was a general appreciation, I think, that the idea of a new facility to be introduced by the IMF was by far and away the best way of dealing with the problem. I am sure that that will be pursued, and it has the full support of Her Majesty's Government.
The non-oil deficit, of course, was a matter of concern but it was reasonable to take the action that we were taking at that time—namely, to borrow on public sector account to deal with the situation. The general view was that with the effective depreciation of sterling there was every reason to believe that, but for the quadrupling of oil prices and the industrial action and the shortage of oil supplies, in the second half of this year the current account of our balance of payments would have been improving. The only alternative would simply have been to cut back on growth.
The right hon. Gentleman said that Britain was in a very competitive position. If that is so, why was nearly half the £2,300 million deficit on our balance of trade last year with the EEC? Did he discuss with the other members of the Community whom he met in Rome what steps he could take to ensure that they would accept to reduce the trade imbalance between this country and the rest of the Community?
The only way in which we can improve our trading balance with the Community, the United States or any other country or group of countries, is by being competitive and by having the goods available to export. As I said, one of the present problems is that this country, because of the shortage of electricity resulting from the miners' ban on overtime, cannot produce all the goods which in present circumstances it undoubtedly could sell.
In view of the serious effect upon the economies of developing countries of the increase in the price of oil, and in view of the increasing difficulty that we shall have in helping those countries with overseas aid, does not my right hon. Friend consider that it would be proper for the oil-producing countries to use some of their enormous balances to help those countries in these new difficult circumstances?
My right hon. and learned Friend is absolutely right to raise that point, which in the developed countries tends too often to be overlooked. When one goes to a meeting like that of the Committee of Twenty in Rome, and sits as I do in that body, always next to Mr. Chavan, the Finance Minister of India, who has to deal with terrible problems, and when one hears from other finance Ministers throughout the developing world of their enormous problems because of these increased prices, one is bound to say that, although we have our problems, their problems—literally problems of life and death—as a result of balance of payments difficulties are infinitely more serious. I and others throughout the developed world agree with my right hon. and learned Friend and hope that those oil-producing countries which are amassing these vast surpluses will take some steps to try to alleviate the problem which has been caused to the developing countries.
Is the Chancellor aware that the public, as well as many people in the House, will be surprised and somewhat shocked by his complacency about his own responsibility for the current situation? Is not nearly half the increase in world prices to which he referred due to the devaluation of the £ sterling, which itself arose because of his economic mismanagement? Is the Chancellor not further aware that in the 19 months which have passed since he began to devalue the pound, our balance of payments position has steadily deteriorated? It has been getting worse quarter by quarter. Is not this largely due to the fact that he has continued to pump additional demand into the economy at a time when it was already suffering from physical constraints?
Finally, when will the Chancellor take the action demanded by the Governor of the Bank of England the other day to deal with the non-oil part of his deficit?
Concerning the non-oil part of the deficit, I should have thought that the right hon. Gentleman would have been the first to recognise that the action which I announced in December—a cut of £1,200 million in public expenditure—was one of the largest measures that has ever been taken to deal with demand. It was equivalent to a doubling of the rate of VAT, from 10 per cent. to 20 per cent. I appreciate full well that higher taxes is the approach which a Labour Government would have adopted, because we know that in the past they always turned to that in the first instance, rather than to public expenditure. I believe that it falls very ill from the right hon. Gentleman's lips to criticise the present Government for the action which we have taken on that score when he, of all people, is putting his weight behind his party's proposals for vast increases in public expenditure, which would do this country an enormous amount of harm.