Orders of the Day — Eec (Economic Policy)

Part of the debate – in the House of Commons at 12:00 am on 3rd July 1974.

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Photo of Mr Edmund Dell Mr Edmund Dell , Birkenhead 12:00 am, 3rd July 1974

I cannot complain that the first debate in this House following a report of the new Scrutiny Committee should be opened by me. As a backbench member of the then Opposition in 1972 I moved amendments to the European Communities Bill which would have required the establishment of a Select Committee of this House to review European secondary legislation. My amendments had no success because they were rejected by the right hon. and learned Member for Hexham (Mr. Rippon). He wished the matter to be left for consideration after the enactment of the Bill. However, the effluxion of time has brought the Scrutiny Committee into existence and it falls to me to open the debate and I understand that the right hon. and learned Gentleman will be intervening in it. It also falls to me to congratulate the right hon. Member for Knutsford (Mr. Davies) on his appointment as Chairman of the Committee.

The guidelines system dates from 1971—before the United Kingdom became a member of the EEC. It forms part of the process of strengthening the co-ordination of short-term economic policies in order to achieve that convergence of member State's economies originally conceived of as one element in progress towards economic and monetary union.

The Government's position on economic and monetary union has been made quite clear by my right hon. Friend the Foreign and Commonwealth Secretary. He has told other EEC Ministers that a good deal of further work will be required before any further decisions can be taken.

However, irrespective of progress towards economic and monetary union, the system provides useful practical machinery for discussing national economic policies and their interaction. In this respect EEC discussion complements discussion in other international fora, such as OECD. These EEC discussions have, inevitably, particular importance for those EEC member States whose economies show a high degree of interdependence with one another.

For the United Kingdom they provide an additional means whereby we can make our views on common problems known in a way which may influence other countries to adopt policies of general benefit. For example, in present circumstances we can seek to influence countries in surplus to adopt policies which will ease the adjustment process in the wake of the oil crisis. But the importance of the guidelines system should not be exaggerated. It is essentially a matter of consultation between sovereign Governments, falling a long way short of the harmonisation of economic policies envisaged as part of full economic and monetary union.

In the explanatory memorandum which was submitted with the draft Council decision on the adjustment to the guidelines for economic policy for 1974 I commented on the impact of this draft Council decision on United Kingdom law, its policy implications, and the intended timetable.

I shall refer, first, to the timetable. The draft decision was expected to be taken at the meeting of the Council of Finance Ministers on 6th June 1974. However, in order to enable the Scrutiny Committee to examine the draft decision my right hon. Friend the Chancellor of the Exchequer put a reserve on this item. The Scrutiny Committee considered that this draft decision required a debate in the House and, following this debate, my right hon. Friend the Chancellor hopes to be able to lift his reserve on the adoption of these guidelines.

As I said in the explanatory memorandum, the draft decision does not directly concern matters covered by United Kingdom law, and requires no changes in United Kingdom law. Some hon. Members may be afrighted by the fact that this is a draft decision and therefore under Article 189 of the EEC Treaty it is binding in entirety upon those to whom addressed". There may have been visions of the United Kingdom Government being hauled before the European Court of Justice should we depart from these guidelines. There is, in fact, no danger of that. The United Kingdom Government remain in control of this country's economic policy, subject, of course, to all the well-known constraints on national economic decision making which make consultation so important a part of international economic diplomacy. That this is the case may be further confirmed as I come to discuss the guidelines themselves.

I said in the explanatory memorandum that the recommendations for the United Kingdom were broadly in line with the policies already pursued by the Government, and that no changes in the United Kingdom's current economic policies would be called for as a result of the draft decision. However, as has been the experience of successive Governments of this country, economic circumstances change—indeed they change over quite short periods—and with them change also the policies appropriate to those circumstances. The guidelines were drafted and discussed several months ago, and inevitably there are some points in them which were reasonable enough at the time but which may be less appropriate in present circumstances. One obvious example, to which I will come in more detail in a moment, is the reference to short-term interest rates, at any rate as it applies to the United Kingdom. I know that some of my right hon. and hon. Friends have put down an amendment, which has not been selected on this point.

It would be wrong to hold up the guidelines yet further in the Council and insist on redrafting to meet all such points; but when we come to lift our reserve it will be made clear that this is on the basis that while they were appropriate to the time when they were drafted and discussed they are no longer necessarily right in every particular in the changed circumstances since then. I think the House will agree that it will be helpful to have this on the record.

The guidelines are concerned with two principal objects: first, achieving a reduction in the balance of payments deficit, and, secondly, stepping up the fight against inflation. I will say a few words about what the guidelines have to say on both these points.

On page 20 the guidelines state: Economic policy"— in the United Kingdom— should have the objective of ensuring that the total current account deficit, in 1975, will be less than £2,000 million. This amount would correspond to that part of the deficit which, in 1974, is attributable to dearer oil. It has never been the policy of British Governments to express targets in this fashion. Their achievement is after all not wholly within our control. However, what the British Government are committing themselves to, and what we expect to achieve through my right hon. Friend's Budget, is, as he put it: … "over time a large switch of resources out of domestic use and back into the balance of payments."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 292] I have noted that the latest forecasts by the NIESR include a deficit on current account of the balance of payments in 1975 of a little over £1,500 million, although I do not of course endorse this forecast.

The guidelines discuss the possible effects of action to reduce the balance of payments deficit on full employment and thus, for example, they say: To stimulate exports, the economic policy of these countries"— that is, the countries in deficit— 'will have to aim at reducing the growth of domestic demand to a rate considerably below expansion of productive capacty by the end of 1974. Although the guidelines foresee some risk that this may in certain cases endanger full employment they recognise that the achievement of full employment is also a priority objective, and, of course, the Government have emphasised the importance of full employment policies.

To ensure the maintenance of full employment it is important that the improvement in our current account deficit can be gradual and that meanwhile the deficit should be financed by borrowing. In his Budget Statement my right hon. Friend the Chancellor of the Exchequer emphasised his commitment to the fullest possible use of the manpower and resources available to us."—[OFFICIAL REPORT 26th March 1974; Vol. 871, c. 290.] The guidelines themselves make clear on page four that a solution to the balance of payments problem can only be a gradual process of adjustment. We accept the guidelines on the understanding that they do not derogate in any way from my right hon. Friend's commitment.