Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 23rd July 1974.

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Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 12:00 am, 23rd July 1974

I want to follow the hon. Member for Sheffield, Heeley (Mr. Hooley) on two points—first, his scepticism and some anxiety about the amount of foreign borrowing the Government are undertaking and, secondly, the need for greater economy of fuel.

One point which both sides of the House seemed to enjoy yesterday was the Chancellor of the Exchequer's announcement of the borrowing facility from the Lord of the Peacock Throne himself, the Shah. Indeed, the Chancellor seemed to enjoy the announcement, and to enjoy rebuking my right hon. Friend the Mem- ber for Carlshalton (Mr. Carr) for not talking about the Lord of the Peacock Throne in sufficiently respectful terms. Had the Shah been able to be present yesterday to examine the security against which his loan is being made—the British Government—he would have been somewhat puzzled by the hilarity with which the announcement of the borrowing facility was received in the House of Commons. He might also have been puzzled by the general hilarity and frivolity at a time when this country is facing an acute economic crisis.

I do not think that the Shah would have seen very much evidence from yesterday's goings-on in the Chamber to persuade him to transport from here to Iran some of the parliamentary and democratic institutions we value so highly. Yesterday, we saw democratic politicians at their worst and failing to live up to the situation of crisis confronting their country.

It is dangerous for a politician of one party to accuse those of another of party politics, but surely in times of acute national crisis one is entitled to expect partisanship to be modified to some extent. What we saw yesterday was in reality a blatant piece of electioneering. We saw that minority Governments are not the blessing that some Liberal Members have suggested they might be.

I agree with the Prime Minister on one thing, if on no other—that it would be much boner for this country if we could have a Government with an overall majority, and there is no doubt in my mind that the uncertainty in the economic situation has been made much worse by the uncertainty in our political situation.

Added to that, we have a Prime Minister who appears to display less and less interest in government, and a Chancellor of the Exchequer who seems to be anxious about his own reputation in his party and to put himself in a high place in it so as to fill any vacancy which might occur in its leadership. Add all these elements together and one has an extremely dangerous political situation on top of an extremely dangerous economic situation.

Why was it necessary to have a mini-budget at all? What has happened since March? The Chancellor says that perhaps he underestimated the effect of the three-day working week. He had thought that the effect on the build-up of stocks would have been much greater because the impact of the short-time work had been much greater. But one thing which I think is certain in economics is that an interruption to production by industrial action should be made up. That is self-evident. It is not surprising that production should have been made up as quickly as it was. If that comes as a surprise to hon. Members on the Government side one at least hopes that the Prime Minister's gramophone needle about the three-day week will at last come unstuck.

Many people are sceptical of the type of fine tuning to which the Chancellor seems addicted and to which he is likely to continue to be addicted. He announced this afternoon that within a few months he could come back and if he had not got it quite right he could have another stab at it. Such an absurdity was carried to an extreme when after inadvertently announcing yesterday that the effect of all the measures he was taking was to create 20,000 jobs at the end of next year, he today corrected the figure to 40,000. Does anybody think it possible to fine tune the economy at short intervals as precisely as the Chancellor proposes? If the situation were confused at the time of the last Budget it is still confused and all the economic indicators are still giving conflicting signs. Against rising unemployment figures unfilled vacancies are almost at an all-time record. The Financial Times industrial survey, which the Chancellor is fond of quoting, indicated yesterday that most firms in this country are more concerned about the difficulties of fulfilling their order books than of obtaining them.

It would have been much better had the Chancellor waited longer to see what the economy looked like in the autumn. Perhaps one reason at the back of his mind—he did not say so very directly yesterday, although he did rather more directly today—was the fear of rising unemployment. But it is precisely because Opposition Members are also concerned about unemployment that we regard it as necessary that top priority be given to controlling inflation. The effects of reflation on employment are likely to be temporary and delayed—employment is determined by more fundamental factors—while the effects of reflation on inflation are likely to be quicker and more difficult to reverse and are likely, ultimately to do more damage to employment

It is because of repeated attempts at fine tuning in the past and at reflation if there were the slightest upward trend in unemployment figures that we have had accelerating inflation around a trend of rising unemployment. Inflation increases with every inflationary bound; but in period of restraint we are lucky if inflation even levels off. It is because the Opposition are concerned about employment that we feel that the Chancellor would have done better to concentrate simply on the single goal of fighting inflation. If he had wanted to do something about employment it would have been better for him to do something to help business confidence, to do away with price controls and to drop nationalisation proposals.

Today the Chancellor tended to play down the economic impact of his measures. Perhaps he was trying to be realistic, but there can be no doubt that his measures are immensely damaging psychologically. People used to complain when Mr. Macmillan was Prime Minister that he lowered the tone of politics with bonanza Budgets and his "never-had-it-so-good" attitude, but at least in those days there was something to give away.

The way the Chancellor presented his proposals yesterday was objectionable. I can imagine how differently the present Home Secretary—who I believe was one of the most distinguished Chancellors we have had—would have put forward the same measures, had he still been Chancellor. He would have said that the country was facing difficulties, one of which was thresholds being triggered, and that for this reason it was perhaps necessary to have a cut in indirect taxation and to stem the tide of threshold agreements. We would have been under no illusion. He would have left us with a clear impression of the true facts of our economy today. But we have not had that from the Chancellor, nor did we have it from the statement by the Secretary of State for the Environment when he said that the situation had changed and that the Government were now able to make some provision for the relief of hard-pressed ratepayers.

The Chancellor in his analysis of the economic situation hardly went into some of the hard, uncomfortable facts. It was an extraordinary contrast with the speeches he made in Opposition. He has talked about commodity prices and the difficulties arising from oil prices. In his speech he appeared to be doing precisely that of which he used to accuse my right hon. Friend the Member for Altrincham and Sale (Mr. Barber). He appeared to be waiting and gambling on a fall in commodity prices later in the year. He appeared as a sort of inverted Mr. Micawber waiting for something to turn down. If commodity prices do fall, it will not lead to a double six—a six for inflation and a six for the balance of payments. If production grows by only 1 per cent. or 2 per cent. next year and wages—if the criteria of the social contract are observed, which is quite an assumption—grow by 16–20 per cent. a year, can anyone expect even with a fairly dramatic fall in commodity prices a marked slowing down of inflation?

The Prime Minister was speaking in the right direction in at least one respect when he said the other day that we should do well if we managed to maintain our living standards. If the Prime Minister is prepared to go as far as saying that hon. Members opposite can be sure that that was an underestimate.

Our balance of payments outlook will not prove to be as rosy as the Chancellor has suggested. There has been an improvement of our export performance recently. The non-oil deficit has improved, but we did not hear from the Chancellor about the way in which the oil deficit has worsened considerably. At the time of the Budget we were told that the oil deficit this year would be £2,000 million, but on the basis of recent figures it looks like being £3,000 million. That is why I agree with the hon. Member for Sheffield, Heeley (Mr. Hooley) that we must look at ways of saving fuel.

Borrowing will not be an easy way out. We have mortgaged our North Sea oil many times over. We are getting into the position of becoming a secondary bank for the rest of the world. We are involved in a high-risk strategy. If sterling depreciates it may be difficult to meet our interest and repayment obligations. We may think that we can delay putting our house in order, but we may find suddenly that our credit lines are exhausted and that the rest of the world expects us to bear the same burdens as they are prepared to bear.

The Government's top priority ought to be to control inflation. Everything else should be subordinate to that aim. Every weapon ought to be used in the fight against inflation, in terms of both monetary and incomes policies. There is no wall of China separating these two. But the Government seem to be retreating from almost every anti-inflation device. They are doing away with pay restraint at a time when wage claims are accelerating. They are depending on the social contract—which is not a contract in any realistic sense—and are now adding to the borrowing requirement and moving from the declared objective of having fine control of the money supply.

The Chancellor is like a man on a trapeze. When he does his first somersault we admire his skill. When he does his next somersault without a safety net we draw our breath. Finally, when he does a somersault without either a trapeze or a safety net we are entitled to feel apprehensive.

It is impossible now to exaggerate the seriousness of the threat of inflation. We are on the point of hyper-inflation. We are at the situation where the strains on society have become intolerable, where one group in society will turn against another. We must face the seriousness of that situation. We must face reality before reality faces us. What we need is a policy that takes account of our national interests rather than the National Executive of the Labour Party. We need a strategy rather than short-term gambles and, above all, we need to have the full facts of our economic situation spelt out rather than having a false sense of security created which will be as dangerous as it is deceptive.