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 Maurice Macmillan Mr Maurice Macmillan , Farnham 12:00 am, 11th October 1976

Many people wish to speak, and I should like to finish my argument, so I shall not give way.

The facts that I have just stated provide clear evidence that there are too few producers of real wealth and that too little effort has been devoted over the years to creating new wealth.

That point, and the effect on total employment, become even clearer if we divide the period from 1961 to 1974 into two. From 1961 to 1966 the Government created new jobs in the non-marketable goods and services sector at the rate of 91,000 a year. At the same time, new jobs in industry and commerce were created at the rate of 101,000 a year. The real return on capital was 7·8 per cent. In the second period, from 1966 to 1974, the Government created 116,000 new jobs in the non-marketable goods and services sector, and there was a decrease in jobs in productive industry and commerce of 173,000. The real return on capital was only 4·6 per cent.

That failure to create new wealth has had its effect at home and on our exports, perhaps increased by changes in the terms of trade. We have not yet developed our invisible exports to balance it out.

I chose the period 1961·74 to try to present a relatively balanced and unprejudiced case. In fact, matters have become much worse since 1974, as can be seen from the increase in overseas debt and the public borrowing requirement, higher unemployment and more inflation. In this situation, the Chancellor's policies have proved disastrous.

Labour Members will have to accept that, no matter what system we use, public spending on the non-marketable sector must decrease. Now, with the minimum lending rate at 15 per cent., even the Government's attempt to switch public spending towards productive industry is taking away with one hand what they give with the other. There is an effect on private investment, on the capacity to finance increased working capital. Every time a firm increases its proportion of exports to home-sold goods, it requires more working capital to finance a longer period of waiting for payment. There are also effects on the building trade and on confidence.

The Chancellor and the Government have missed the basic point that we must transfer effort from the non-marketable to the marketable sector. Even if we had a fully Marxist State, the problem would remain. There would still be no way out of it.

I believe—and the Government and certainly the right hon. Member for Battersea, North take this view—that we in this country get on better with a mixed economy, and with a healthy private sector. We are too dependent on overseas markets in too many different places for what we buy and sell. We may disagree, as the right hon. Member for Battersea, North indicated, about where those markets lie, but they are many and various. We are too dependent on those markets to make a fully centralised and socialised economic policy practicable. We cannot rely on the apparatus of the State to dictate investment programmes to meet those markets and to provide the home base that is required to fulfil them.

I ask the Chancellor and the Government to tell us the truth. Whatever fears we may have about the hardship and difficulties caused by facing the truth, it is better to take that course than to run away. We are seeking a cutback in public spending on the non-marketable side which will not necessarily be permanent, except expressed as a proportion of the national income. It will be a cutback for four or five years, and as our productivity increases, as our markets expand, and as we sell more successfully, the amount we need to do in terms of social services, education and other matters which the whole House would like to support will become a tolerable proportion of our productive effort and not such as to endanger full employment.

The present level of Government spending—63 per cent. of gross national product—constitutes a grave danger to democracy. If it is extended into further control of investment and spending, there is grave danger of destroying our productive potential and of jeopardising any hope of getting back to collective bargaining. We must put more effort into the creation of wealth. That is the only way to restore confidence, to prevent a permanent lowering of our standard of living, and to avoid permanently high unemployment. However tough may be the process of getting the situation right, the process will not last for ever. But if we fail—and my right hon. Friend the Member for Sidcup (Mr. Heath) said this in a different context—we shall have come to the end of the road. Therefore, failure now would be truly disastrous.