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 Geoffrey Howe Mr Geoffrey Howe , East Surrey 12:00 am, 11th October 1976

The Chancellor of the Exchequer has treated the House to a speech as characteristic as it was inadequate. It was a combination of ineffable and unshakeable complacency with his own disastrous record and unspeakable impertinence to anyone who has dared to criticise him over the years. He responded quite characteristically to the interruption by my hon. Friend the Member for Horncastle (Mr. Tapsell), who asked him a serious question about what was going on at the IMF. My hon. Friend expected to be told, but all he received was a denunciation of his lack of patriotism. We are fed up with the Chancellor denouncing Conservative Members for lack of patriotism when all we have done has been to warn him at each step along his path that the course to which he is committed would lead to the disastrous consequences we now see. It is not the critics of the Chancellor who has sapped confidence in the Administration: it is the facts of his record and his performance.

The Chancellor began by talking, but with less confidence than before, about the record of this administration on the cost of living. No wonder. In 1974 he was saying that his target of single figures would be reached by 1975. In 1975 he said that the target would be reached by 1976. Today we had not a word. The target is now apparently out of reach. It is out of reach, as the Chancellor acknowledged, because of the collapse of the currency, because of the panic level of interest rates he has now introduced, which will compel him to push that single figure target heaven knows where. As the Chancellor began so he has continued.

His dreadful record of deceit and of targets indefinitely deferred is matched only by his disgraceful assertion, which the country will never forget, that the inflation rate was running at 8·4 per cent. in September 1974. When he came into office the pound was at $2·30. Today it is $1·66. It is small comfort to hear the Chancellor boasting that foreign statesmen believe that the pound is today undervalued. According to him they were *** saying exactly the same thing in May this year when he made his foolish boast that the pound would soon bounce back to a higher level. We know that it bounced back—back down 10 cents. It is small comfort for the Chancellor to say that this has caused some increase in export volumes when we reflect that for every 10 motor cars exported to buy foodstuffs and commodities in 1973 British workers and manufacturers have to export no fewer than 15 today.

The pound has fallen by more than 2 cents for every month that the Chancellor has been in office. That is the judgment of the world and its markets upon his mishandling and mismanagement of the economy. No one any longer believes a word that the Chancellor says. During his years at the Treasury the present Prime Minister presided over a devaluation of 14 per cent. and the Government had to be rescued from that mess by the right hon. Member for Birmingham, Stechford (Mr. Jenkins), who has now abandoned them. But at least the Prime Minister, when faced with that situation, had the decency to resign. The present Chancellor has presided over a devaluation of the pound more than twice as great as that of his right hon. Friend.

The office of Chancellor is one of the oldest and used to be one of the highest in the land. Its holder used to be respected throughout the world. But in the last two and a half years the Chancellor has not only devalued our currency; he has devalued that office as well, and it is high time for him to follow the Prime Minister's example.

Let me turn to unemployment. At the 1974 election the Chancellor said that he was confident that we could get through 1975 with well under 1 million unemployed. Within nine months that figure was surpassed, and today's figure is almost 400,000 higher still. We now have the highest rate of unemployment of any major country in Europe, and it is still rising.

The Chancellor told the House today—and no wonder—that the prospect remained uncertain. I say "no wonder" because the policies to which the Chancellor has now been driven are deliberately pushing the figure still higher. We have heard enough of the cry that lower public spending destroys jobs. We have now reached the situation where we can see that exactly the opposite is true. The Prime Minister knows that, just as inflation is the father and mother of unemployment, so high public spending by a Government borrowing one pound in every five is the father and mother of inflation itself.

We have repeatedly warned the Government that public expenditure is too high and should be reduced. They have stated that that could not be done because it would destroy jobs. However, last summer we saw the proof of where their high spending policy is taking the working people of this country. The Chancellor announced then—apart from cuts in public expenditure, which are bound to be hurtful, as both he and my right hon. Friend the Member for Sidcup (Mr. Heath) have said—a 2 per cent. tax upon employment. Characteristically, he described it euphemistically as an extra employer's national insurance contribution. But he admitted that that would destroy 60,000 jobs, and his officials have put the figure two or three times as high. How does he expect employers to pay this tax on jobs without laying off workers and increasing unemployment?

The same will be true for every firm and company in the land, and it is clear that the Government's failure to cut public spending is now destroying jobs. Last week we saw further proof, because the minimum lending rate has been raised to the highest level in the history of the bank of England. Why? It is because the Chancellor can now find no other way in which the Government can hope to raise the money which he remains determined to overspend and over-borrow.

It is not the slightest use the Chancellor's arguing that our public sector borrowing requirement or the general Government deficit is comparable with that of other countries. The fact he has to face is the one of which we have warned him every month—that it is and will be too high for him to borrow in a way consistent with keeping inflation down. He conceded that domestic and foreign opinion saw that the money supply in this country was going out of control exactly as we had predicted. Last week we saw a desperate and destructive attempt to get it back under control. It is essential to do something, but what a catastrophic way to have to choose. What a situation the Chancellor has left himself with!

He is afraid to raise taxes—although we may not have heard the last of that yet, because on present policies he may have to do just that—because he knows that the nation is already grossly overtaxed. He is unwilling to do now what he will be driven to do, and that is to make substantial reductions in Government spending. He has introduced an interest rate that only the Government can afford to pay at an immense cost to future generations.

The Chancellor said that he could not pretend that the Government are happy with present interest rates. He can say that again. He can remember his own description of 13 per cent. interest rates as disastrous. He can compare our interest rates with those of other countries—Japan 6½ per cent.; the United States 5½ per cent.; Germany 3½ per cent.; Switzerland 2 per cent. It is hardly possible for him, against that background, to describe the present situation as a crisis of capitalism. It is a crisis of a Government who have mismanaged the economy in a disastrous way.

How can the Chancellor still talk, as he does, about investment being past the trough and picking up again? Does he not read what others have to say about the impact of this 15 per cent. rate on investment? The President of the National Union of Mineworkers has said, It will knock hell out of the Labour Party politically at the next election. He is right about that. He said, It is another hold-back on investment in industry. He then asked—and the Chancellor should listen to this— Who can afford to borrow at 15 per cent. to invest in industry? I do not know about all the employers whom the Chancellor has been meeting. They must be a very different group from those I have been meeting. Alan Fisher, another trade union secretary, said very crisply that dole queues would lengthen as a result of this crisis catastrophic level of interest rates, and the Chancellor knows that perfectly well. Of course, he is right. Stockpiling will be cut. Invest- ment will be clobbered. On the best estimate that I have seen, the higher interest rates are likely to destroy well over 100,000 jobs, at least as many as the 2 per cent. tax on jobs that the Chancellor has introduced.

What is more, these changes cannot any longer be brushed away as though they were the result of some chance result of economic forces. They are a self-inflicted wound by the present Government. They represent the true price of the social contract. Of course we welcome a reduction in the number of industrial disputes. Only the Chancellor could pretend that it had nothing to do with the fact that unemployment is now running at 1½ million. However, the real evil of the social contract is that it was, and is, a sure prescription for deficit financing. It was bound to have the very consequences that we now see.

It is all very well for the Prime Minister to be complaining now that public expenditure has risen by 18 per cent. while gross domestic product has risen by only 2 per cent. But who started it? It is all very well for the Chancellor to speak now about the records of previous Governments. Let him remember that the Government of which I was a member, under the leadership of my right hon. Friend the Member for Sidcup, had put in hand reductions in Government spending of £1,300 million. It was the right hon. Gentleman's Government who deliberately reversed that trend and set about increasing public spending by 14 per cent. in their first year in office. The responsibility lies there, on that side of the House.

The truth is that more than 300,000 jobs will be lost because of the tax on jobs introduced by the present Chancellor and because of interest rates running at their present catastrophic level. Unemployment has more than doubled under the present Government just because public spending has doubled under the present Government. The policies to which the present Chancellor is now committed will probably treble the figure for unemployment before they have run their course. He has not been slow himself to call for sacrifices from the rest of the nation. The time has come for the Chancellor himself to make a sacrifice—for himself to join the ranks of the unemployed.

Just over a year ago, the Chancellor told the Parliamentary Labour Party that the public spending cuts that he was then considering—too little and too late—were necessary if we were, in his words, to avoid crawling to the International Monetary Fund on our hands and knees. Only two months ago the Chancellor told the nation that the long-awaited economic miracle was within our grasp. No wonder the Leader of the House of Lords last week described that statement as a false dawn—the understatement of the century.

Only two weeks ago, the Chancellor told his own party's conference that he would be negotiating with the IMF on the basis of our existing policies, not on the basis of changes in policies. Why did he not tell his party then that he was this week going to introduce the most savage squeeze in history? Was it that he did not know what he was going to do and is less far-sighted than we believe, or was it that he dare not tell his party conference the truth? He would not have got a standing ovation if he had told it that.

Either way, it is the actions of the Chancellor, which he did not disclose to that party conference, that have now produced what Clive Jenkins describes quite rightly as the collapse of Labour's economic strategy. The reality is that the Chancellor deceived his party conference and deceived his parliamentary party, just as he has probably deceived his Cabinet colleagues. Above all, he has deceived the nation.

The Chancellor has spent the last two and a half years wandering around the world with a begging bowl in his hands. He ought now to drop the begging bowl and carry the can instead.