Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 11th October 1976.

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Photo of Mr Denis Healey Mr Denis Healey , Leeds East 12:00 am, 11th October 1976

No. I have made it clear that we have not as yet had any discussions with the IMF. A team from the IMF staff will be visiting this country in a few weeks and discussions will begin then.

I have just quoted the framework of objectives within which all our policies must fit. Circumstances may threaten one objective or another from time to time, and we must react appropriately.

On 22nd July I announced a number of measures to bring about a better balance in both the public finances and the economy more generally. Without them our industrial strategy was at risk. With respect to the right hon. Lady the Leader of the Opposition, the cuts did hurt. As her right hon. Friend the Member for Sidcup (Mr. Heath) said last week, public expenditure cuts do hurt. Those affected by them, whether they are civil servants or private employees, have wives and families. For the right hon. Lady to suggest that cuts of £5½ billion to £6 billion can be made in public expenditure, as the vice-chairman of the Tory Party suggested the other day, without hurting, as she suggested to Mr. Robin Day, is gravely to mislead the people of this country.

Last Thursday's measures were essential to our attack on inflation. They are hurting, too. If further developments were to threaten any of our objectives, we would not hesitate to take any measures which were required to keep our policy on course.

But there are two elements in our strategy which must be preserved if it is to achieve its aim.

The key to the success of all our economic policies is the preservation and development of the social contract between the Government and the trade unions and the improvement of our industrial performance to which the CBI, the TUC and the Government have pledged themselves collectively in the industrial strategy which is being developed through NEDC.

The social contract is no fool's bargain. It is the basis on which any hope of recovery must rest. Its achievements are of critical importance to the success of our industrial strategy. Whatever right hon. Gentlemen opposite may claim to believe, they know that it has won universal admiration from this country's friends abroad.

This time last year we were only in the early stages of putting into effect the joint decision to keep pay increases during the year beginning last August within a limit of £6. At that time many people were doubtful—I do not blame them—whether a voluntary policy of this kind could be made to stick and whether or not it would achieve a dramatic reduction in the rate of inflation.

Now we can look back over the complete pay round. The £6 pay limit was universally observed. The reduction in the rate of inflation, which has been associated with it, has been dramatic. Whereas the increase in prices in August 1975 over the corresponding months of 1974 was about 27 per cent., the figure for August 1976 was under 14 per cent.

We are now well launched on the second round of the pay policy. Over 1½ million people have already settled firmly within the TUC guidelines. This includes the important settlement for local authority manual workers which has a bearing on other major agreements. I hope that the whole House will welcome the recent decision of the Trades Union Congress to seek a policy for the pay round after this which will enable us to maintain the attack on inflation and unemployment while seeking greater flexibility in pay bargaining.

The social contract has transformed the climate of industrial relations in Britain, too. In 1972 nearly 24 million working days were lost in stoppages. There were just over 6 million in 1975. Nor is that the end of the story. So far this year days lost are running at only half the levels of 1975, or only one-fifth the levels of 1974. The number of stoppages is the lowest for 20 years.

It is difficult to exaggerate the benefit this reduction in stoppages is bringing to the industries concerned, and to the economy as a whole. Disruptions in the chain of supply and delivery have in the past been a major cause of bottlenecks in industrial output and of lost sales at home and abroad. They still play far too prominent a rôle in the difficulties of the motor car industry. But over the broad spread of British manufacturing their disappearance has now transformed the prospect both for sales and output.

The House will have noted the results of the Survey carried out by the CBI which is reported in The Times today. Sixty per cent. of our customers all over the world said that there had been an improvement in delivery by British companies over the last 12 months. This is the best possible foundation on which to build the regeneration of our manufacturing industry.

Meanwhile, whatever massive disadvantages it certainly has in other fields, the depreciation of the pound has given British industry enormous advantages compared with its competitors both at home and abroad. Eighty-eight per cent. of our customers in the CBI Survey now consider British prices competitive. Exporting has never been so profitable. I trust it will not be very long before new investment following increased profits will generate both additional sales and additional employment.

I hope that the whole House will at least unite in affirming support for the new industrial strategy to which both sides of industry have already pledged their commitment. It is on these improvements in performance in the individual factory and sales office that the future of our economy depends.

Surely it is not too much to hope that the Opposition Front Bench spokesmen today will at least echo the generous tribute paid by the right hon. Gentleman the Member for Sidcup last week to the patriotism and common sense of our trade union leaders. I hope it is not too much to ask that the right hon. and learned Member for Surrey, East (Sir G. Howe) will at least renounce his customary sneers at ageing, prejudiced, doctrinaire trade union leaders. Whatever he may think of the social contract, that sort of talk is not really the best basis on which to realise the dreams of the right hon. Gentleman the Member for Lowestoft (Mr. Prior) of the Conservative Party and the trade unions walking hand in hand towards the sunset.

I do not deny that some of the adjustments we have had to make to keep our policy as a whole moving forward have imposed severe strains on the social contract and on the industrial strategy. It is not surprising that some have begun to wonder whether the broad direction of our policy is right. With respect, I think that most of these critics fail to recognise the magnitude of the change in our economic behaviour as a nation which was required when this Government took office. With hindsight, I must confess the Government themselves did not then recognise the full scale of the task which faced them.

I ask the House to reflect on the following words, about the present situation, from a source which I think the whole House will accept as politically independent: To see it in perspective we need to go back to 1973. In that year, money supply on the broader definition increased by not far short of 30 per cent. Inflation over the year was 12 per cent. and accelerating. The government of the day was shaping up to its confrontation with the miners, which it was going to lose. The way was being prepared for the wage explosion of 1974. In other words, not only was Britain pointing in the wrong direction in almost every aspect of its economic management. But the country seemed determined to move even faster down the wrong road. … The writer then goes on to discuss the situation today. He says: Most of the figures—wage increases, inflation rates and, above all, government borrowing requirement—are still frightening. But three years ago all of them were moving in the wrong direction. Most of them are now moving in the right direction.But the point to focus on is the largely unsung change in direction which has already taken place in Britain. So far it has taken place without revolution or even without the social collapse which was being widely predicted two or three years ago. The danger remains. But it was three years ago that the rest of the world should have been going short on Britain. Not now, when we are making progress—if slow—in dealing with the consequences of that period of collective insanity. These are not my words. They appeared in the leading article in the Investors Chronicle 10 days ago commenting on our application to the IMF. I believe that they represent the views of the great majority of thinking people of whatever party who have watched the performance of our economy in the last three years. I believe that they represent the secret views of the vast majority of hon. Members opposite. The task facing the right hon. and learned Gentleman who will follow me in a moment will be to convince the House, indeed to convince his party, in the light of all that was said—and not said—in Brighton last week, that in fact a future Conservative Government would have anything different to offer from the last 18 months of Selsdon Park followed by an abrupt reversal of policy and another dose of the policies so well described by the Investors Chronicle. That is not "The Right Approach".

There are those, on the other hand, who believe we should take steps which would, in fact, cut us off from the international community on which we depend both for the exports on which our manufacturing industry must base its growth and for the help we need to carry out the regeneration of our economy at a pace which does not threaten the stability of our society. I understand and share the anxieties of those who see their livelihood threatened by unfair foreign competition. We shall continue to take steps to protect them in such cases.

But I cannot believe we would ever achieve that transformation of our industrial performance which is our common aim if we adopted a policy for protecting our less efficient and declining industries at the expense of stunting the development of our most efficient industries, by risking the denial of the worldwide markets which they are already capturing and on which their growth must rely.

I do not believe, once the facts are faced, that any real alternative will be found to the course on which we are now set, the long and painful road towards restoring balance in our economy and reversing the secular decline of our manufacturing industry. It is a journey which we cannot hope to complete except in partnership with unions and employers alike, and unless we remain as loyal members of the international community.

It is already clear that if we are to maintain the necessary rate of progress we shall have to accept in the coming year at least some further fall in the real incomes of the British people as a whole. But we are now beginning to see, not only in the broad magnitudes of trade and output figures, but in individual plants—factories up and down the country—that we are beginning to get the results that we need.

There will, no doubt, be further difficulties on the way which we cannot now foresee. If so, the Government will not flinch from taking the measures, however painful, which are needed to overcome them.

But if we are to derive some comfort from the alarms of the last few weeks it is that the British people have shown once again that they are prepared to face the facts and to make the sacrifices needed to see this country through.