Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 16th April 1975.

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Photo of Mr John Tomlinson Mr John Tomlinson , Meriden 12:00 am, 16th April 1975

It is running far below that of many of our competitors—certainly those in the European Economic Community and the United States.

The only way to control unemployment is by controlling the level of inflation. In response to a question I asked him a couple of weeks ago, my right hon. Friend the Secretary of State for Employment confirmed his view that there was an inexorable increase in unemployment—something that we could not avoid if we did not get our present levels of inflation under control. I think that all hon. Members would subscribe to that view.

Therefore, my right hon. Friend the Chancellor did not have much choice in relation to unemployment. It would have happened irrespective of the measures he took in the Budget. If we had not been able to get the present self-induced inflation under control, the increase in unemployment would have happened as naturally as night follows day. I do not believe that the Budget will have a major effect on employment. I believe that the forecast levels of unemployment that my right hon. Friend produced would largely have occurred anyway. Our present level of inflation is accepted by all the economic commentators as being on average double that of our competitors.

When we examine our economic crisis, we see that the effect of inflation on our competitiveness is clear. Despite the 1974 improvement in our balance of payments, we enjoyed a standard of living 5 per cent. higher than we collectively earned. We still try to kid ourselves that we are doing better than we are. We try to hide our balance of payments deficit by splitting it up into oil and non-oil deficits, saying "Look how well we are doing on the non-oil deficit". The whole philosophy behind that approach is dangerous, because it assumes that the oil crisis is temporary, that we can ignore it and overcome it, that we have only to deal with our trading position in commodities other than oil. It is a dangerous and self-deluding process when we try to persuade ourselves that because our non-oil deficit is improving the situation is intrinsically better. The oil situation is still fraught with difficulties. I shall be convinced that it is better when oil is flowing, and at a price competitive with the rest of the oil world.

The consequences of failure to deal with the kind of problems with which my right hon. Friend has to deal would be far more disastrous for employment than the actions he has taken. If he had not dealt with the worsening balance of payments situation and the increase in the borrowing requirement—although I do not believe that he has dealt with that adequately—the loss of confidence that would have resulted would have created a tremendous vulnerability for our currency, a vulnerability which would have had consequences on employment far more dramatic than anything anyone has so far visualised in the postwar years.

I criticised my right hon. Friend's autumn Budget for not increasing taxation sufficiently and for not taking action to deal with the borrowing requirement. I acknowledge that he has taken certain steps on those matters this year, but we should not ignore the fact that the borrowing requirement is still substantially higher than the level that so many hon. Members on both sides of the House criticised in October. Further steps could have been taken to reduce it, particularly on the public sector side. I should have liked to see a devastating attack on expenditure on motorways, where there could have been vast money savings without too dramatic a consequence on employment, because the redirection of labour into other areas of construction would not have been all that difficult.

I am astounded not only by the motorway programme, with the extravagance in public expenditure that that involves, but by the number of local authorities, allegedly starved of funds to do their work, which are going through expensive programmes of minor road improvements and nonsensical jobs, such as replacing paving stones and kerb stones—jobs which to the casual observer seem to be totally unnecessary. In these areas of specific programme activity there could have been far greater savings in public expenditure.

Despite that, and despite the action my right hon. Friend has taken, I still think that Labour Members, and, I am sure, Conservative Members, will be pressing my right hon. Friend and watching him carefully in relation to the borrowing requirement, which I consider still to be at a dangerous level. When compared with many of the things that could have been done and many of the things right hon. Members have suggested should have been done, this Budget is not Draconian in its total effect. Against the scale of our problems it is not being "flip" to say that the total effect of the Budget is almost neutral.

It does not in any way solve our problems but no Budget can do that. What the Budget does is to create an atmosphere of understanding of the depth of the crisis by the effect it has on people through their personal consumption. As far as it does that it buys time. I do not believe that this House, with any Budget structure, will ever solve the economic problem. All we can do is to change the parameters within which there is a discussion of our economic problems and a collective attempt to solve them. It will be the reaction of 55 million people within the country that will decide whether we solve our economic problems.

It is in this sense, bearing in mind your remarks about the length of speeches, Mr. Deputy Speaker, that I turn briefly to what I consider is still the root of our economic situation. That is the problem of producing goods and services of a quality and at a cost over a time-scale that our people want and that people overseas are prepared to buy in sufficient quantities to pay for our essential imports. The root of our problem lies in productivity and the use we make of our investment resources, capital and human. At the moment we can criticise the detail of the Budget for not stimulating more investment but the problem starts with our inability to make efficient and effective use of existing investment. I do not think that Governments, of themselves, should be concerned with producing new investment in industry. To do that in the present situation would be achieved by increasing taxation, diverting expenditure from another area of the programme, or by a further increase in the borrowing requirement.

What we should be doing is creating an atmosphere of understanding in industrial relations so that we can get far more effective use of our existing investment in industry so that we get a profitable industrial basis and from that profitability generate the resources for new investment. That is the only way we can get the basis of industrial investment at anything like an adequate level in the private sector, for which we are alleged to have no sympathy. That is an allegation I totally reject.

I believe in the mixed economy. That means that the private sector of industry must be a profitable sector and must regenerate its future investment from profitability. At the moment we have a problem about the use of our existing investment. My hon. Friend the Member for Ashfield (Mr. Marquand) suggests we might do something by resort to an incomes policy, voluntary or statutory. The evidence of history is too much weighted against him to lead us to return to that point of view. The evidence of other incomes policies, particularly the one my hon. Friend referred to—Lord George-Brown's noble attempt back in 1964—is such that I would not urge hon. Members to be beguiled into trying to find a quick solution in something we call an incomes policy.

The problems we face today as a result of the failure of the social contract often arise from past incomes policies. The high level of public sector settlements, for example, is a reflection of the discriminatory effects of previous incomes policies against the public sector. Today's settlements are now set to work their way into the private sector and exacerbate problems that need not have arisen. We can go through each of the attempted incomes policies.

The social contract is failing and will soon be judged by many people to have failed unless there is a reversal of the trend it is following. In essence, when we come to levels of wage settlements where the vast majority of the trades unions of their own free choice decide that they want a system of free collective bargaining, we must point out to them that the consequences of that freedom, if it is exercised without due regard to all the other factors, is that the Chancellor will be forced to take the kind of budgetary decisions that were announced yesterday. The consequence of the exercise of that freedom by the trade unions may be that the Chancellor has to take counterbalancing measures.

The only alternative is to reach an agreed incomes policy. But such an incomes policy is beset with so many problems, particularly the problem of differentials at the beginning of it. Voluntarism in our industrial relations must still be the key word. We shall not get a statutory incomes policy, and an incomes policy that has no statutory basis to enforce it is no incomes policy, because it can be avoided without any difficulty. We return to free collective bargaining.

What this Budget has done is to point out to those who, rightly in their opinion. exercise their rights to free collective bargaining and decide to ask for large pay increases, that they are now faced with the consequence of their decision. Theirs will be the decision during the next 12 months—or sooner, if we have another Budget before then—collectively through their institutions to decide whether they seek to continue the present levels of wage-induced inflation, which will, of necessity, force measures upon the Chancellor unless the increases are accompanied by increases in productivity, or whether to moderate their claims voluntarily knowing that the consequence of their failure to do so may be increases in unemployment far in excess of anything my right hon. Friend visualised in his Budget.