Orders of the Day — The Economy

Part of the debate – in the House of Commons at 12:00 am on 22 May 1975.

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Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey 12:00, 22 May 1975

26th September. The Prime Minister is very easily amused. It is high time he faced up to the substance of the charge. What he said in that speech is totally derisive. He said—and I am not surprised that he is anxious to divert attention from it: It is our answer—in the short-term, the medium-term, and the long-term—to the problems of a modern industrialised society. Industrialised and civilised. If he still has any conviction about the validity of that expectation, he is even further adrift from the truth than I had previously thought.

Let the Prime Minister think also of what he had to say about the comparable commitment way back in 1966. He then said: The Declaration of Intent of December 16th, 1964 was a great landmark when, for the first time in our history, employer, trade union and Government signed a pact designed to restrain the growth of incomes to a norm. On 20th July 1966 he announced: Yet ever since that time wage increases have outrun the figure allowed for and preempted the amount available. The time has come to call a halt. As my hon. Friend the Member for East Grinstead (Mr. Johnson Smith) said, we can hardly face another disillusionment like that.

If one looks at the alternative of a statutory policy, one finds that the experience of that is scarcely encouraging, as has been pointed out from both sides of the House. The rigidities and anomalies will continue to multiply. The implication will remain that freedom lies ahead, and once again a seemingly easy option will turn out as ashes in our hands.

That is why there is at the end of the road no substitute for the re-establishment by the Government of control of the one instrument on which all else depends: basic control of the economy, based on control of the money that the Government spend for themselves. That is the key in our society to an effective control of inflation.

Of course, more than that is involved. It must be supported by understanding, acceptance and consent. That is why it is essential for the Government to promote and secure understanding and acceptance of their policies by making clear their determination to pursue them over a period of time and making clear the consequences of those policies by spelling out, as the hon. Member for Meriden courageously made clear, the consequences of failing to accept those policies, and doing so in every possible forum of debate—industry, the unions, local government, and this House—and with a united voice.

That is why the second feature of our proposal is this. An inescapable and essential feature of the policy that the Government should be adopting must be a determination to control their own spending. Unless they do so, their capacity to borrow will come to an end and the non-productive sector of the economy will destroy the rest and it will be impossible to restore control. They found that that was the cause of their problems last year.

It is no use Ministers continuing to say that that cannot be done. It has been done before. It was done because it had to be done in 1966 by a Labour Government, and again in 1968 at the behest of the International Monetary Fund. The Treasury, in evidence given last year to the Public Expenditure Committee, equally made it clear. What is more, it needs to be done. The Paymaster-General pointed this out again in his speech on Tuesday: The Government must bring public expenditure under better control because it is at present making too great a demand on the total resources of the country. That is the thrust of our case, from a member of the present Government.

Let me tell the Government where and how they should set about that. First, it is essential—I make no apology for repeating the point—to move now to cash controls of public spending. It does not mean discarding real resource planning as well, but cash controls are an essential first element.

Secondly, it means a determination by the Chancellor to reject new public spending commitments. It means a determination to dismiss as folly the decision to phase out pay beds, for example, at a cost of £40 million; to dismiss as folly the introduction at this point of time of the Community Land Bill, involving a huge army of public servants; to dismiss as folly the Employment Protection Bill, with its further burden on industry and more public servants to be employed.

The Government must also reinforce, instead of discarding, the systems upon which control of public spending essentially depends. How can they possibly expect to control public spending throughout local government when they are pressing ahead with their Clay Cross legislation? It is not only constitutionally improper but grotesquely irresponsible to weaken, if not destroy, the very instruments of control upon which this or any other Government will eventually depend.

If the Government want to know what should be done, I am perfectly prepared to defend the manifesto upon which we faced the country last year in that respect. It was a balanced and responsible manifesto. But what we tell the Government to do now is this. Let them bring forward now the £1,100 million cuts proposed for next year and let them recognise that they are not in a position to choose what their policy should be. Of course, they may want to strive and should strive to make some exceptions from the impact of public spending cuts, but it will become eventually essential for every Department of State to cut expenditure. That is why they should start this year rather than next on the reduction of food subsidies, on nationalised industry prices and on housing subsidies.

The Prime Minister says that would raise prices. So it would, for the standard of living must be reduced. He must not fail to understand the strategy of his own Chancellor. The Chancellor is raising nationalised industry prices and taking credit for that. He is heaping huge burdens on indirect taxation. All those things are aimed in the direction in which policy ought to be going. That is why it is folly to complain of the cuts which the Opposition propose in burgeoning public expenditure. Housing is one of the clearest examples. Some tenants need help. That was the object and effect of the Housing Finance Act. But it cannot possibly be right to continue with a situation in which average municipal rents amount to no more than 7 per cent. of average incomes, when 20 per cent. of local authority tenants enjoy incomes in excess of £100 a week, and when twice as much is being spent on housing subsidies as two years ago. Housing provides one example of the growth of local government spending, which should be cut.

Last year we planned initially for a growth in local government spending of 6 per cent. in real terms. The cuts we introduced in May 1973 proposed to bring the figure down to 4 per cent. and then in December 1973, to 2½ per cent. in real terms. The outcome was an increase of 10 per cent. under this Government. There was overspending and a growth in real terms of 10 per cent. Such expenditure must be reduced. That expenditure was directly financed by the Government. There was an increase in the rate support grant from 60½ per cent. to 66½ per cent., which meant that the Chancellor of the Exchequer paid for the Secretary of State for the Environment's party. That is why the Chancellor must take responsibility for the growth in public spending.

This is the importance of the final central point which must be made. Every plan for further public ownership should now be withdrawn. A reason to support that was given by the Paymaster-General. In his speech at Bournemouth he said: Extensions of Government influence need ideally to be proportioned timewise to the Government's capacity to take on new responsibilities. In other words, he implied that the Government had not made much of a success in running the public sector. It is, therefore, crass folly to contemplate extending it. Wages in the public sector have been allowed to race ahead. Strikes in the public sector have proved most difficult to resist. The commanding heights of the economy have become its soft underbelly.

There are many reasons why further nationalisation would be wrong. Nationalisation must be funded by an extension of the public sector borrowing requirement. The Prime Minister did not understand that future investment in extensions of nationalisation will become a charge upon the Exchequer. Profitability of the industries taken into public ownership will disappear. Above all wage claims will become even more difficult to resist. We have only to look at the situation in the steel industry, as was pointed out by my right hon. Friend the Member for Stafford and Stone (Mr. Fraser).

Is it conceivable that if the steel industry had remained in private ownership it would have faced a deficit of £375 million in one year, proposed to put up prices, and been in a weak position to resist wage increases? It is no wonder that the Prime Minister spoke as he did about Chrysler recently. He said to the CBI that there is an idea in the minds of some of those involved that if their actions can drive Chrysler into desperate economic straits then the Government would be forced to bring the firm into public ownership. I hope no-one will harbour such illusions.… The sooner this is realised, the better it will be for the livelihood and security of the workers, and their families. Of course, he was right. However, it is more difficult to make that assertion credible when the world can see the way in which he is acting in other aspects of his policy. How can the Chrysler workers be expected to regard that as entirely convincing when they see the irresponsible way in which the affairs of British Leyland have been carried through? When he made that speech the Prime Minister was crying out for salvation from the twisted logic of the policies to which he and a large part of the Labour Party have been committed for years and to which this House has been prepared for too long to subscribe.

This nation now finds itself in an economic morass—a morass of rising unemployment, roaring inflation and soaring indebtedness. If we are to escape from that morass we need a decisive change of course. It is a change of course which will test our democratic institutions very severely, but it must be undertaken. If it is undertaken, even by this Government at this time, it should receive the support of every Member of this House who is genuine in his commitment to the survival of a free society. I believe that, even now, it will receive the support of our people.

We must face the real gravity of our situation, and that the Prime Minister totally failed to do. We must take firm control of Government spending, and that the Prime Minister flatly refused to do. We must reject the disastrous commitment to yet another bout of Socialism, and that this Government are not equipped to do.

Those are the reasons why I call upon the House to support the motion.