Part of the debate – in the House of Commons at 12:00 am on 29th January 1976.

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Photo of Mr Denis Healey Mr Denis Healey , Leeds East 12:00 am, 29th January 1976

I know that that is the hon. Gentleman's view and the view of the hon. Member for Oswestry (Mr. Biffen), who, I am delighted to see, has now joined the Opposition Front Bench. The hon. Gentleman will recall that, although the official Opposition tabled a motion against those measures in July 1971, in the event they skulked in the back rooms of the House of Commons and failed to vote. Only 30 hon. Members joined the hon. Member in the Lobby. Good luck to them. At least they had the courage of their convictions, if that is what it was—unlike the right hon. Lady now sitting on the Opposition Front Bench. I was referring to the measures taken by the previous Conservative Government in 1971 and 1972. I have been delighted to see, during the last 10 minutes of my speech, that the right hon. Member for Leeds, North-East has been steadily nodding his agreement with what I have been saying. Indeed, there is no need to look into the crystal ball when we can read the book. The consequences of excessive reflation in 1971 and 1972 are now history. They brought about the collapse of the Barber boom in 1973 amid the most severe economic dislocations since the 1940s.

Let me remind the House of the facts. In the autumn of 1973 bottlenecks and supply constraints appeared throughout industry. In the CBI survey of October 1973 a total of 51 per cent. of firms were reporting shortages of skilled labour as a factor limiting their output—two-thirds as much again as in the previous peak in 1969. A total of 49 per cent. of firms reported shortages of materials and components—three or four times as many as in 1969. Shortages of plant capacity were widely reported too.

I hope that the right hon. Member for Lowestoft (Mr. Prior) will listen to what I and his right hon. Friend the Member for Leeds, North-East are saying, because if he is to speak later in the debate he will have a lot of explaining to do as to how he interprets his rôle at that time. The fact is that the short-lived recovery generated by the reflationary measures of 1971 and 1972 was strangled in the autumn of 1973, even before the oil crisis hit us. The consequences for the balance of payments were equally disastrous. As the reflationary programme gathered pace through 1972, imports rose 11½ per cent. compared with an increase of only 2·1 per cent. for exports. In 1973 the experience was repeated, though in a less extreme form.

On top of this body blow to our balance of payments the boom dealt a heavy blow to our manufacturing industry. The proportion of our total expenditure taken by manufacturing imports rose from 6½ per cent. in 1971 to nearly 9 per cent. in 1973. Parallel with these immediate economic catastrophes this consumer-led boom set a monetary time bomb ticking away which has certainly helped to bring about the explosion of inflation in the past two years. I gather that the right hon. Member for Leeds, North-East and the hon. Member for Oswestry share the monetarist view that the last Government's monetary profligacy in 1973 was the main cause of the inflation which reached its peak last year. Perhaps they are too unfair to the Government they then supported.

It is a fact that through 1973 the money supply, M3, grew 28¾ per cent.—well over twice the rate of money GDP. As a result, lending for property rocketed, the price of housing, land and building followed and when the bubble burst the secondary banking system suffered a shipwreck from which it has not yet been finally rescued. The House may feel that it is not altogether suitable for the crumbling relics of the disastrous administration which brought about that unprecedented catastrophe in our economic affairs to table an amendment telling me how to deal with the same problem today.

The country can count itself fortunate that the leaders of our trade union movement have not forgotten the lessons of that bitter experience. They have explicitly made it clear again and again in recent months—and repeated it this week —that they are not asking me to engineer a general reflation at this time.