I am happy to follow the right hon. Member for Battersea, North (Mr. Jay), and I shall return to his comments in my final remark.
I want to say a few words about capital goods investment. Its failure to recover seems to me on a worldwide scale to be one of the most serious aspects of our economic recovery. I say this because of the impact that capital goods investment can have on the problem of unemployment, which presents, as was said yesterday, a major responsibility to us as politicians to produce solutions.
Capital goods investment would have a multiplier effect which would begin to turn back the scourge that unemployment represents for us. It is notoriously difficult to get an accurate picture of what is happening within the general framework of capital goods investment. As far as I have been able to learn, the investment schemes which have a fairly fast pay-out have been holding up well on both sides of the Atlantic, but with any capital scheme which is by definition and of its nature of a longer-term kind there has been a massive downturn.
Figures in the United Kingdom are particularly difficult to secure, but in the United States it has been stated that the net return after tax which major businesses expect to see now on what I would call long-term investment has risen from 11 per cent. to 13 per cent. and that the extra 2 per cent. is a risk premium factor which has been added to their calculations because of the general economic uncertainty. Research and development expenditure is sharply down on both sides of the Atlantic.
The multiplier effect that one would like to see having a beneficial effect on the unemployment problem obviously has a reverse effect in the present situation. One needs only to think of the steel industry to see what that reverse effect is. The Chancellor has on a number of occasions said that he wishes that business men would invest earlier in the cycle so that they do not choose their time of investment at the very moment when the economy is moving sharply forward again and when capital goods become difficult to get hold of have some sympathy with the Chancellor's view, though any business man would have a better idea of his own interest than would the Chancellor or myself.
The problem that I have described becomes worse when capital goods manufacturers must put off their investment decisions because of the failure of their 3wn customers to recover. I want to discuss the causes of this failure to recover. Uncertainty is the greatest one. The inflationary imbalance in 1973 and 1974, which I freely grant was substantially caused by the oil crisis, is a cause. The worst recession since 1945 with inflation continuing right through until now is another.
I am not conscious of any precedent for the present economic situation that the politicians and the world economists have to deal with. My opinion is that economic theory, particularly in terms of the relation between the different factors in the economic education, is primitive when it is applied to the present situation and with the ruling uncertainty.
I find historical analogies unhelpful. The uncertainty I speak of can perhaps be best illustrated by remarks that the Minister of State, Treasury has made in the past when he has resisted suggestions that there should be a relaxation of investment disincentives on the private investor. He has reminded us that the savings ratio has remained peculiarly high, and it is difficult to see why it should have done so during a period of rapid inflation. I suspect that the private citizen and the private consumer suffer from exactly what private businesses are suffering from—namely, un certainty—and so prefers to put his money on one side rather than spend it
I want, secondly, to take up a series of articles in The Times about what should be done with the rewards of North Sea oil. The cost of capital has less to do with investment decisions than the business man's decisions on demand. I can confidently state that institutions within the City of London which I represent are well prepared to provide the finance as and when business men require it.
On the issue of uncertainty, I want to make two comments which I hope will not be regarded as controversial. They relate to matters for which we as politicians have some responsibility. The first relates to environmental controls, to which we and other legislators have not applied ourselves sufficiently over the past five or 10 years. The problem is that the individual business man who must implement legislation and is subject to controls does not know the extent of the cost in which he will become involved. That has been partly responsible for holding back a number of investment decisions.
I am not saying that the environmental controls are bad, but I sometimes wonder whether the unemployed, not only here but in other countries, would not at this stage rather have a job than have environmental controls promulgated now.
The second area of uncertainty relates to exchange rate instability, which has been endemic over the past five years. If the Chancellor has taken the right decision about the exchange rate, I have sympathy with him for saying that he saw the need for stability in the exchange rate so as to enable business men to operate with confidence.
The third area of uncertainty, however, is one about which I am much less happy. The Government may say that the unique economic situation with which they have been presented makes it difficult to find early and rapid answers. But the U-turns in Government policy over the past four years have been considerable. In the Shakespearian rôle of Second Murderer, the IMF has been very helpful in causing changes to occur, and I am happy about the constraints which have been seen in the past 12 months. But we cannot get away from the uncertainty which was engendered for business men by the policies which went before.
The speed of recovery which we have seen in the past 12 months is itself encouraging. However, it gives grounds for worrying about whether, because the economy has turned round so quickly, we have got not so much a U-turn as an acceleration of the Government's attitudes.
In the announcements made by the Chancellor of the Exchequer on 26th October, which we are implementing today, it seemed that he was concerned that inflation should not be re-ignited. It is very important that it should not be re-ignited. The anxiety of the Opposition is that the modest impetus which has been given to the economy in the autumn will be followed by a more massive impetus in the spring.
While the jury is out at the moment considering what impact the Chancellor's decisions will have this winter, the fear is that we may have a General Election upon us before the members of the jury have the chance of returning a verdict on anything that the Chancellor does in the spring.
If we regard investment and the return of investment as being critical to getting down unemployment, both sides of the House should work together to maintain stability and continuity in the way that the economy is managed so that business men can plan ahead with a greater degree of clarity than they have been able to do in the past.
I said that at the end of my remarks I would return to the right hon. Member for Battersea, North. I do so by way of a biblical footnote. We all know how few members of the 1951 Administration survived their 13 years out of office to return to the Treasury Bench in 1964. Some 13 years later, in 1977, the son of the right hon. Member for Battersea, North has bestowed the name of Moses on his father-in-law.
I am reminded of the jingle which I learned at my mother's knee:
Joshua, the son of Nun,
And Caleb, the son of Jephunneh,
Were the only two
Who ever got through
To the land of mill: and honey.
As we march through the chapters of Exodus waiting for Moses to come down from the mountain and tell us when the General Election will be, we on the Opposition Benches shall have an opportunity to speculate about who on the Treasury Bench is Joshua, the son of Nun, and who is Caleb, the son of Jephunneh. What is certain is that on the basis of their management of the economy in the past four years, taking an overall view of those four years, this Government will
go out into the wilderness for another 13 years.