Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 28th April 1977.

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Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton 12:00 am, 28th April 1977

I beg to move, That the Bill be now read a Second time.

At the time of the Budget last year, production in the main industrial countries had been rising rapidly and it was also recovering fast in the United Kingdom. We made our Budget judgment on the assumption that this growth would continue. We were not alone in this assumption.

We now know that in the middle of the year growth in the major economies slackened, and it fell in the United Kingdom. The balance of payments deficit widened, and there were doubts about whether we could finance our planned level of public expenditure without stimulating inflation again. There was pressure on the exchange rate and a large withdrawal of officially-held balances.

Measures to counter this crisis included the announcement of cuts in public expenditure for this year. We also made clear our determination to maintain firm control over monetary aggregates. But, before this could be achieved the exchange rate for the pound fell rapidly, bringing in its train a massive additional rise in import prices, a rise of which we are all too conscious now as it comes through into retail prices.

The measures announced in December have been successful in re-establishing conditions in which we may look forward to an improvement in the economy, with a more stable pound, lower interest rates—Minimum Lending Rate has fallen from 15 per cent. to 8¾ per cent. over the last six months—and an improving balance of payments, both on capital and current account.

I mention these events because we are counselled by some to introduce more expansionary measures which could be justified only if our prospects turned out to be better than they presently appear to be. It is vital that our fiscal policies should not prejudice the stability and confidence we have achieved. We must avoid another setback such as we suffered last year, a setback which inevitably has postponed our return to more stable prices and a higher level of employment.

Against that background and on present information, we believe that this Bill strikes the right balance between the scope for stimulating the economy and the continuing need for firm financial and monetary control. This balance cannot appeal to those who have been disappointed, because the benefits proposed in the Budget do not, and cannot, compensate everybody for the fall in their individual incomes which has followed the fall in national income over the past three years.

If, in the event, it emerges that there is scope for further fiscal relaxation, the remedies would be by no means as drastic or painful as the measures necessary to resolve another crisis of confidence, a crisis which could easily follow an ill-considered attempt to expand activity faster than our real economic position permits.

This has been a cautious Budget. I do not apologise for that, for, in the light of experience in this country over many years, it would be the height of folly to plan as has been done by successive Governments, on over-optimistic assumptions.

I now turn to our view of our economic prospects. As long as our inflation rate remains excessive and our external balance in deficit, we cannot sustain a significant expansion of public spending or personal consumption.

The sectors providing the main contribution to growth will be manufacturing investment, North Sea oil and gas, and net exports of manufactures. The most important sector for employment and potential growth in output this year is industry. Many of the conditions are right for increasing the share of British industry in markets both in the United Kingdom and abroad. The rise in import costs occasioned by last year's depreciation of the pound has largely been absorbed and the rate of inflation in industrial input prices is falling. Labour costs under the incomes policy have been rising more slowly this year than among many of our competitors. Exports are often more profitable than sales in the depressed home market; spare capacity exists for taking advantage of opportunities.

The vital factor is the extent to which advantage is taken of these opportunities. It is no use having the potential to produce and sell more if that potential is not realised. Last year, our trade performance was disappointing. After raising our share of world trade in manufactures in 1975, we appear to have lost some ground in 1976.

Exports of goods and services for the United Kingdom are expected to rise at 5½ per cent. in volume between the first halves of this year and next. These may possibly be considered cautious assumptions; certainly the right conditions exist for us to better the performance assumed, and we should be very pleased to see these assumptions confounded by a surge in production as British industry regains ground from its competitors. Full employment and a substantial rise in living standards in Britain depend on success of this kind.

But no Finance Bill can ordain these things. Its measures can only strengthen conditions in which an improvement in industrial output, net exports and living standards can occur, and that is what this Bill aims to do.

Industry needs to press ahead with its planned increase in investment and to take full advantage of opportunities to consolidate and expand its export markets; and the banking system must concentrate on providing industry with the financial support it needs. At the same time, it is essential that people at work continue to moderate their pay increases, and this means that the TUC and the Government must reach a further pay agreement for the period after 31st July when the current agreement runs out.

I was gratified to note that the right hon. and learned Member for Surrey, East (Sir G. Howe) agreed with what I have just said—at least, I think he agreed with it—because I saw a letter he wrote to the Chairman of the Trade Union Advisory Committee of the East Surrey Conservative Association. I assume he manages to find the odd Conservative trade unionist in East Surrey. I understand why he did not write to any in South Wales, for example—