Budget Resolutions and Economic Situation

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

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Photo of Mr Leslie Huckfield Mr Leslie Huckfield , Nuneaton 12:00, 12 April 1976

I, too, congratulate the hon. Member for Wirral (Mr. Hunt) because, although I did not hear the whole of it, the part of his speech that I did hear was illuminating, and showed great concern for the problems of his constituents. I am sure that hon. Members on both sides of the House will welcome many more of his contributions to our debates.

The hon. Member for Blaby (Mr. Lawson) was right in one respect, because he said that there was a fundamental difference between the philosophies espoused by him and by my hon. Friend the Member for Luton, West (Mr. Sedgemore). Unfortunately, the empirical evidence is not on the hon. Gentleman's side. When the Conservative Government last tried out policies of that kind there was a shift of resources to the private sector. The trouble was that those policies did not produce the results that the hon. Gentleman has listed. They gave much momentum to the building of office blocks, property speculation, and the like. The increase in investment in manufacturing capacity which the hon. Gentleman and I agree our economy needs did not take place. The track record of the hon. Gentleman's party does not support what he has said.

The judgment made by my right hon. Friend the Chancellor of the Exchequer in his Budget was just about right. His neutral tone, which was neither reflationary nor deflationary, was more or less on the right lines. I welcome the doubling of the temporary employment subsidy. I welcome the increase in old-age pensions and the increase to be given to widows. I am intrigued by my right hon. Friend's offer of a carrot to the trade union movement. It looks very much like a carrot with a hard end, but it is a proposal worthy of serious consideration by the trade union movement, the House and the country. However, I doubt—this is where I have some criticism of my right hon. Friend—whether the transfer of resources to the private sector will produce the result that he estimates and which I think the economy demands.

I was a member of the Tribune Group that first accepted the £6 wage limitation and the White Paper on public expenditure limitation. I believed that the £6 agreement with the trade union movement, and the White Paper, were essential preconditions to growth. Working people are prepared to make sacrifices provided they see something coming out of them. They will be prepared to make sacrifices if it can be demonstrated to them that they will be made by the whole country and that they are fair. It is on the fairness of his proposals, apart from their results, that my right hon. Friend will be judged.

Unfortunately, the success of the £6 policy has already been overtaken by the fact that many of our continental competitors have been able to reduce their inflation rates to less than half of the rate current in this country. That is a pity, because the £6 policy has been successful in keeping unemployment slightly lower than it would otherwise have been and in maintaining confidence in this country and in its currency at a higher level than would otherwise have been the case. The trouble is that its success has been obscured by the even greater success of many of our major competitors in reducing their inflation rates.

There is a growing consensus in this country, in the trade union movement and in the Labour Party, that without economic growth we cannot have increased public expenditure and a return to completely free collective bargaining. As long as we have minus rates of economic growth and a diminishing manufacturing base, we cannot carry on with 60 per cent. of the gross national product going to the public sector. We cannot resume completely free collective bargaining in those circumstances. It would be desirable to achieve an even bigger transfer of resources to manufacturing capacity—I should be prepared to see that transfer made from some of the social projects cherished by the Labour Party—provided it takes place in the public sector. If we wish to maintain our manufacturing capacity, we shall have to choose increasingly between the building of schools and hospitals and the building of factories. That choice is increasingly staring us in the face.

It is clear from many of the speeches made by the general secretaries of trade unions in the past two or three weeks that they, too, share the sense of realism about the need to regenerate manufacturing capacity. They have shown that manufacturing industry and economic growth must have priority. I say to my hon. Friends and to Opposition Members who have tried to give them advice that we should leave the trade union leaders to do the bargaining. Trade union general secretaries and members of the TUC have spent their working lives bargaining on behalf of their members and we should leave them to do the negotiating with the Chancellor of the Exchequer. They know what their members want and what their members will accept. It is essential that they and their members accept the bargain. The silly talk of some Conservative Members about the proposals of the Chancellor of the Exchequer being unconstitutional is far less relevant than the argument that my right hon. Friend's undertaking must be successful.

Perhaps the issue to which we should be turning our attention is whether we should allow the expansion of the economy to be determined by extraneous forces. Ought we to allow growth in the British economy to be determined by the expansion in the West German and American economies? That is basically the policy that the Chancellor of the Exchequer has chosen to pursue.

I do not believe that an even more generous reflation than my right hon. Friend proposes would enable an increase in employment of the magnitude that some of my hon. Friends have been proposing. I do not believe that a faster general reflation would automatically mean more jobs. We are now approaching the situation in which many manufacturers have rationalised their production and manning techniques, and because many are operating well below capacity it would be possible for them to increase output by as much as 50 per cent. without taking on additional labour.

I do not accept the import controls advocated by some of my hon. Friends as a universal panacea. This retreat into a fortress Great Britain, complete with moat and drawbridge, surrounding ourselves with import controls, living off our fat and liquidating our overseas portfolio of longer-term investments, is a recipe for complacency and even further industrial decline.

When the Cambridge group of economists advocated import controls it was not as a panacea for all our problems but as a specific answer to a specific problem. They thought the British economy was not capable of the 5½ per cent. growth and the 14 per cent. import increase which they thought would be necessary to accompany that, because we could not get the percentage export increase to support that percentage import increase.

Those economists put forward import controls in a specific and not a universal way. However, I am glad that the Chancellor of the Exchequer has kept his options open, because in some cases, including television tubes and certain parts of the textile manufacturing industry, there may be a need for short-term import controls. I am conscious of the fact that there may be retaliation and that some of our traditional trading arrangements may be upset. That is why I regard import controls only as a short-term expedient that is necessary in some cases.

Let us suppose that we were successful in bringing about a significant reduction in imports through controls. I am not sure whether all his calculations are correct, but Mr. Sam Brittan, in the Financial Times, has worked it out that because of increases in competitive goods in this country an import reduction of £4 billion could mean the equivalent of an increase in income tax of 10p on the standard rate or in combined income tax and national insurance contributions of well over 50 per cent. It is not true that import controls are painless. Some of my hon. Friends seem to think that the controls can be imposed without any loss of real income or without hardship to working people.

Despite the fact that we have had a depreciation of the pound of more than 35 per cent. since the Smithsonian Agreement in 1971, manufactured and semi-manufactured goods to the value of £13 billion are coming into this country every year. Trying to stem that kind of import flow would be bound to involve a cut in real income for some people and there would have to be a cut in the real incomes of working people.

No adjustments to our terms of trade and balance of payments—whether depreciation of sterling, deliberate devaluation or import controls—can be entirely painless.

I do not believe that most of British manufacturing industry's problems would be solved by import controls, because most of those problems are structural. These are the kind of problems outlined by the CPRS Report on the car industry and the Boston consultancy report on the motor cycle industry. They are the kind of problems that will have to be rectified, in no small measure, by the nationalisation of the aircraft and shipbuilding industries. We have an industrial sector with largely structural problems, with large sectors of traditional industries weighed down by outdated and outmoded production techniques. This would not be helped by import controls.

We have to move forward by much more specific and selective intervention in these industries. What worries me about the Budget is that my right hon. Friend is still relying on the private sector to bring about structural reforms.

We now have a situation in which concessions for stock appreciation have already cost the country £2 billion in the past year. Despite generous concessions to the private sector, the investment response has not been forthcoming. When I see that very sluggish investment response I am reminded that since the war we have tried all kinds of investment sticks and carrots and virtually every device tried in any other country, but we have still not got the investment response.

In his general strategy, in the White Paper on Public Expenditure and in his approach in the Budget, the Chancellor is right to try to get an even bigger shift of resources into manufacturing industries. Until we get economic growth and an increased percentage of GNP into investment, we shall not be able to carry out many of the cherished projects to which the Labour Party is committed. Until we get that growth I shall be very concerned, because of the response that the private sector has shown in the past—and its track record diminishes with each trades cycle. The Chancellor may be relying on a private sector response that will not come.

We needed more selective intervention and more structural reform. I hope that the Chancellor of the Exchequer will turn increasingly to these kinds of policies in the future.