Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 3rd May 1976.

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Photo of Mr Nigel Forman Mr Nigel Forman , Sutton Carshalton 12:00 am, 3rd May 1976

I feel sure that the House will not expect me—one of the newest and most innocent Members—to follow, let alone to emulate, the inimitable style and delivery of the hon. Member for Bolsover (Mr. Skinner). The amendment comes to the nub of this matter by pointing out that the Finance Bill attempts to meet the cost of spendthrift policies by increasing the real tax burden and by profoundly discouraging both skill and enterprise.

The Government have certainly spent more, borrowed more, and taxed more than any previous Government since the war, yet the Chancellor is claiming that Britain will be home and dry within the next 18 months. Before the unlikely event of our reaching such an enviable position it is perhaps worth repeating yet again a few of the salient statistics that quantify the magnitude of the Government's spend thrift tendencies.

As we know only too well, public spending now accounts for about 60 per cent. of the gross national product. At £64,000 million in the coming year it means that total public spending will be almost double what it was in 1973–74, under the previous Conservative Government. The public sector borrowing requirement seems likely to be about £12,000 million this year, again, which means, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) put it, that the Government intend to borrow about £1 for every £5 it spends, or about £550 a year for every family in the country. On the matter of public borrowing the question for the Government must surely be whether they will be able to continue financing such vast sums without accelerating further the growth of the money supply.

I understand from what I have read in the Press that the Chancellor is allowing for about 15 per cent. growth in M3 over the coming year, but he will undoubtedly have to face some difficult choices when our economic recovery gathers pace and the present high rate of savings starts to fall. The Government have already had to raise interest rates—we have seen that with the jacking-up of the minimum lending rate—because of the pressures on sterling, and may have to do so again by a percentage point or so as the situation worsens and as international confidence seeps away. However, I feel that the use of the interest rate weapon will not prove sufficient to maintain international confidence in our currency and there will therefore have to be other further painful cuts in public expenditure. That must be one of the measures that the Chancellor had in mind when he emphasised to the House that if the money supply could not be held at a rate consistent with his overall strategy he would take— any action, monetary or other, which may be necessary to correct it."—[Official Report, 12th April 1976; Vol. 909, c. 1037.] The real indictment of this Government's economic management is not so much that they are now pursuing the wrong policies as that they are guilty of doing too little too late, having spent the best part of their first 18 months in office doing too much with the wrong policies too soon. The House will recall that the Chancellor's self-defence when replying to the Budget debate on 12th April, was that: To have attempted to adjust immediately to that double blow"— here he was referring to the so-called "legacy" from the last Conservative Government and to the effects of the fivefold rise in the price of oil and other commodities— at a time when the world was already moving into recession would have meant unemployment in Britain far above the levels that we have had to endure in recent months. But now that the world recovery is under way, we must make that adjustment, painful though it may be. The result of that deliberate delay on the part of the Government has been that the British economy is now entering the world upturn in a less favourable condition than it should be at this stage of the world's economic cycle. We are entering this stage of the upturn with a rate of inflation of between 12 per cent. and 13 per cent. which is still about double that of some of our major international competitors. We have a level of unemployment that is most unlikely to come down to the TUC target of between 600,000 and 700,000 by 1979. We also have a level of industrial production—let us not forget this—still below its level in March 1974.

The even more important political point is that the Government's previous reluctance to grasp the nettle of economic adjustment early enough has led directly to the present excessive levels of public spending and the present penal rates of taxation, which are referred to in the Opposition amendment. Each of these is the consequence of the Government's delay in tackling the problem of inflation. The result of this pincer movement on personal consumption has been a fall in real take-home pay, which fell by about 5 per cent. in the second quarter of 1975 and which is scheduled to continue to fall by one or two percentage points in 1976 and 1977. In his speech on 12th April the Chancellor described this fall as: part of the price the nation has to pay for getting unemployment down."—[Official Report, 12th April 1976; Vol. 909, c. 1039–40.] That is true in the limited sense that the £6 policy and, now, this hybrid tax and incomes policy on which the Government are relying has helped and can help to limit the unemployment consequences of previously generated inflation as well as reduce public expenditure.

In broader terms it would be more accurate to say that the fall in real take-home pay is the price that the people of the country are having to pay for a Government who have spent more, borrowed more and taxed more than any other Government since the war. The tragedy lies in the way the Government have squandered their opportunities for public education in the realities of life, presented to them over the past two years. After the shattering events of 1973–74, at home and abroad, people knew full well that they would have to adjust. But they got no timely, responsible leadership from the Labour Government. Instead they were offered a series of electoral blandishments between February and October 1974. Then there was the inflationary device known as the social contract, between October 1974 and July 1975, and, more recently, this still inflationary £6 policy for the period to August.

My contention is that the British people know in their hearts what needs to be done. They knew all along. They knew this long before the Government were able to summon up the courage to spell out the objectives that we needed to follow, let alone to implement, the necessary policies.

Naturally, I welcome the Government's belated conversion to economic common sense, but I deeply regret that sensible measures have been introduced so late in the day that, even now, they are disproportionately reliant upon a form of incomes policy which cannot be watertight—least of all with this new complicated formula—and that the range of measures still does not include sufficient evidence of the Government's readiness to abandon their doctrinaire and damaging policies in other areas, such as nationalisation and price control, both of which will continue to be part of the heavy price exacted by the TUC for the next stage of the incomes policy. Unless the Government resolve to take all the action necessary in the interests of economic common sense, they will still fail to inspire sufficient confidence in British management and industrialists at home and in holders of sterling abroad.

The truth is that since the nation is still being allowed to live beyond its means, and since the Government still have not tackled the cancer of the underlying and growing public deficit, to which my right hon. Friend the Leader of the Opposition referred in her immediate response to the Budget Statement, there can be no effective substitute for the Government setting the main example. I submit that the way to do that is by rigorously controlling the growth of money supply, by curbing still further the increase in public spending, and by putting real conviction into their new industrial policy, which came such a cropper over Chrysler, to restore the health of the productive wealth-creating sector of the economy.

Since the Government show no signs of doing enough on any of those three counts, I shall, of course, be voting with my right hon. and hon. Friends in the Lobby tonight.