Economic Situation

Part of Orders of the Day — Supply – in the House of Commons at 12:00 am on 24th July 1974.

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Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup 12:00 am, 24th July 1974

I am not proposing a date by which we should close the whole gap. What I am saying is that we should explain to the people of this country, whether management or members of unions, the scale of the task. We should explain that the slower we are in closing the gap, the greater is the burden we shall have to carry from 1980 onwards of immense debt and servicing of that debt. It is fundamental that we explain to the country the size and scale of the problem and what is required to make any attempt to close that gap.

Some of the proposals I made about real investment in this country could be put into effect by oil-producing countries comparatively quickly, and they are being put into effect by Iran in other countries. Therefore, this matter is not concerned with a five-year period; action could be taken in that regard quickly. The speedier our industry is in meeting the needs of the oil-producing countries, the quicker they will be prepared to pay for our products.

The second aspect of the problem, to which I was turning, is inflation. I have said that many would say that one should deal with it first. I believe that it was right to deal with the scale of the problem we face in what is commonly termed a crisis, because the effect of continuing inflation on that is obviously very great.

The Chancellor said that he wanted to avoid a rate of inflation of 20 per cent. It is already 22 per cent. over a six-month period and 25 per cent. over a three-month period. There has been a considerable increase since February.

The Chancellor said that the sole purpose of his mini-Budget was to reduce the number of threshold payments. The Prime Minister openly stated that he supported the idea of thresholds. He urged it upon me and my Government constantly, as did the TUC from the time it raised it in Neddy. [Interruption.] I said "from the time the TUC raised it in Neddy". I think that that was when the Prime Minister first urged it upon me. There were discussions throughout the Chequers and No. 10 talks. The Chancellor talked about the discussions last autumn. That was before the oil crisis.

Judgments were made in discussions with the TUC and CBI as to the most likely increase in prices and what level of threshold was required. Most people thought that we had fixed the threshold of 7 per cent. at about right, and that the payment of 40p was slightly generous, because it would just more than cover the cost of an increase of one point in the retail price index.

The Chancellor tried to give the impression that that was something of which he disapproved, and for which we were responsible. Of course we accept responsibility for it. But if he did not approve of thresholds, it lay in his power when he became Chancellor to make an alternative arrangement last March. He could have done that after discussion with the trade unions and employers. It was entirely open to the Government to do it. But it was the Chancellor who was largely responsible for triggering the thresholds, and triggering them three times in one month.

I must ask the right hon. Gentleman to face this aspect of the matter honestly. He made the astonishing statement on Monday, when answering a supplementary question, that all he had done in his Budget was to increase nationalised industry prices, and then he entered into an argument about what we would or would not have done. His Government in the March Budget put up indirect taxes. They put up VAT on food, put 5p on the price of a gallon of petrol, and increased duty on wines, spirits, beer and tobacco—a total of £585 million. The impact on the RPI was between 2 per cent. and 3 per cent.

I do not understand what the Chancellor of the Exchequer meant on Monday in saying the only thing he had done to influence the thresholds was to deal with nationalised industry prices. Let him say clearly tonight that of course he triggered them off. If he wants any confirmation, here is the quotation: The principal contributing factors to the April increase in the cost of living were a 13 per cent. rise in tobacco, 6.7 per cent. on alcoholic drink, 3.7 per cent. increase in transport and a 5.4 per cent. increase in housing. Most of these rises came as a result of measures taken by the Chancellor of the Exchequer in his Budget. That is from Tribune of 31st May.

The other aspect is that of the food subsidies, on which the Chancellor of the Exchequer will never be honest, because the greater part of those subsidies, as he has admitted constantly in Questions, stabilised prices but did not reduce them. Milk was an exception, and there was the EEC effect on butter. But for the rest the effect was to stabilise prices where they were on the RPI, and, therefore, the subsidies did not have any impact on reducing the increase brought about by the rest of indirect taxation.

This is the case, and this is the way in which the Chancellor of the Exchequer will never honestly admit that he was very largely responsible for the triggering of thresholds in April of this year. In that, Tribune is absolutely right.

Increases in nationalised industry prices are mostly still to come and, therefore, they will have their effect on thresholds. The Chancellor of the Exchequer seems to blame us for having held down nationalised industry prices. It was a deliberate policy. I do not recollect the Opposition criticising us on this when we were in Government. Some of my hon. Friends did so but not the official Opposition. It was in response to the CBI's 5 per cent. initiative for holding down prices, in reply to its request and that of the unions. Then, when we came to official discussions and on to incomes policy, it was done at the request of both the TUC and the employers, and quite understandably so. They said if they were having restraint in incomes and private industry prices, the same should be done with nationalised industries.

I do not see why the Chancellor of the Exchequer should complain. He is holding down prices of one list of necessities. We were doing it with another, the nationalised industries; and at least the nationalised industries were under our control, whereas world food prices are not under the Government's control. But neither is desirable in the long run in any economy if one is to avoid distortions. It was part of the counter-inflationary policy, but both the Prime Minister and the Chancellor of the Exchequer are constantly talking of a figure of £1,500 million—[An HON. MEMBER: "£1,400 million."]—of £1,400 million which they allege was never revealed at the General Election. I have had these figures carefully checked. I told the TUC and the CBI in our talks that we were contributing to the nationalised industries and that the cost of holding-down prices was £400 million. I have used that figure in the House, and it was right.

The largest estimate ever made so far as we were concerned, in February, was £750 million in support for the nationalised industries, but this included not only restraint in prices but the special measures we agreed to contribute towards coal and towards transport for other purposes; so £750 million was a much larger figure than the cost only of price restraint.

I hope, therefore, that the Chancellor of the Exchequer and the Prime Minister will now abandon this mythical figure of £1,400 million. In any case, I suspect the figure taken by both right hon. Gentleman contains an out-of-date estimate for the impact of the three-day working week on the nationalised industries, whereas, as the Chancellor of the Exchequer has now pointed out, the impact was infinitely less than any of the estimates that were given at the time. On the three-day working week, he has had to come to the House and say that the impact on production was at most 31 per cent. over the two months—and even this may be an exaggerated figure.

This is a tribute to trade unionists and employers who share a production record which was so little influenced; ½ per cent. per year is all it amounts to. It is a tribute to what they achieved during that time. What it has done is to remove any argument whatever from the Chancellor of the Exchequer that the particular problems with which he has to deal spring from that cause. When one looks at the nationalised industries, the British Steel Corporation has since announced a profit of more than £50 million, far greater than was anticipated at the time of the previous administration. It just shows how wrong were the estimates the Chancellor of the Exchequer first gave to the House.

I want to deal in the context of inflation with the measures which the Chancellor of the Exchequer has announced, the 2 per cent. reduction of VAT and the equivalent on petrol. That does not undo the harm he did in March. It is welcome, but had he followed a different policy in March the thresholds would not have been triggered in the way they have been. The rent and rate rebates are welcome because he has adopted the system we used. But what he has not had the courage to do is to say that those who can afford to pay what is right for rent and rates should do so. If he is really arguing that nationalised industry prices should be paid in full, very good; but what possibe argument can there be for saying that people should always pay lower rents and rates than they otherwise should, particularly in the case of rents?

The immediate contribution to rates is welcome. It is the greatest success the Opposition parties have yet had in this Parliament, but the wretched Secretary of State for the Environment was put up in the debate to stonewall and say that nothing whatever can be done, even to deal with the immediate problems which have emerged, partly as a result of his own creation, by altering the rate support grant in favour of the metropolitan boroughs, partly his own fault. He was put up to stonewall.

Now the Chancellor of the Exchequer, after a resolution of the House, does what the House asks, and, of course, this is to be welcomed. It will now fall to us to carry out the rest of the resolution which the House passed. Surely, the important point on inflation is that thresholds are no longer the key figure as far as inflationary pressures are concerned. It is the level of wage settlements this autumn which is causing fear in industry and fear amongst our people generally about spiralling inflation. There are already powerful indications that post-stage 3 settlements already made are very high. The Government for their part have thrown away all means of dealing with this. They have swept away all the institutions, have pledged themselves against any form of statutory policy, have pledged themselves that, no matter what happens, there will be no wage freeze and no action by Government. Therefore, the Government have no negotiating choice of any kind, either with management or with unions in industry. The Government have no means of trying to influence them or to secure an amelioration of the result, which is now causing fear amongst so many in this country. Whether anyone believes what the Government said or not on a freeze is a different matter.

What the Secretary of State for Employment constantly emphasises—and I have heard it emphasised so often by the trade unions—is that there must be an absolute and complete return to free collective bargaining. In most people's judgments there are many distortions, and unjustifiable distortions, in the wage structure of this country and most of them are not the result of incomes policy but have been brought about by free collective bargaining. Even the introduction of statute and the creation of the wages councils has not been able to take care of the interests of the lower paid in this country against the pressure of those who have strength in industry.

As the Secretary of State for Employment prides himself on his humanity and on looking after the less well off, I commend to him the need to do something to redress the balance in free collective bargaining at least to ensure that those who are less well off get a better deal than they have had in the past.

The Incomes Commission cannot influence the immediate situation that we are facing, and I do not believe anybody would suggest that. Conciliation and arbitration in this country have already led to a situation in which in negotiation the employer moves further and further towards the demand of the unions, and only when finally the employer stops moving do the unions go to arbitration. Arbitration will split the difference and following that there will be further negotiation. This bears no relationship to a viable economic policy from the point of view of keeping incomes anywhere in line with production. It bears no relationship at all to that situation—unless the Chan- cellor is prepared to ensure that there are firm and agreed guidelines about the interests to be taken into account, otherwise the exercise becomes a late operation in splitting the difference.

Can price control maintained by the Labour Government be effective on wages? There is an argument that by maintaining severe price control, wages will be kept in line with production. I doubt this and all my experience supports me in that view. In employers' minds in such a situation other things will be cut first. Understandably, employers do not want disruption, if they can avoid it. Therefore, with a very rigorous price control, it will be investment, research and sales organisations which will suffer first. That certainly will be damaging to our industry.

There remains the threat or the fact of unemployment. The question we must ask is whether the Chancellor, despite his protests in the Budget on Monday that he wishes to use all the resources of manpower, is now relying on unemployment to do the job for him on wage claims. I want an answer to that question.