Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 13 April 1978.

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Photo of Peter Viggers Peter Viggers , Gosport 12:00, 13 April 1978

I am sure, Mr. Deputy Speaker, that you will wish me to continue this dialogue outside the Chamber, and I shall do so.

In presenting the Budget, the Chancellor faced up to an awesome series of problems. His room for manoeuvre was limited, but the problems were principally of his own making. In my view, the first remains inflation. The Chancellor started with a bench mark that he helped to set for himself with inflation at 8·4 per cent. Admittedly that was a three-month moving average, but it set the bench mark from which inflation started moving up.

Inflation is the most pernicious thing. It destroys savings, it eats away at the plans of retired people and it causes others to think that saving is not worth while. It is also a weapon of Socialism, because the State can protect itself against inflation whereas the individual cannot.

Indeed, the effect of inflation in incomes is to bring more and more people into taxation and more of those who are taxed into higher taxation bands. This effect, fiscal drag, means that the State is not only protected against inflation but benefits from it. However, the Chancellor discovered that a little inflation is like a little pregnancy—it tends to grow. The effect of very high inflation hit sterling and thus magnified the inflation and damaged the country's economic standing.

Inflation, therefore, has a crucial role. It is both the cause and effect of our economic difficulties. If it is not controlled, financial planning becomes obsolete. Financial planning in this Budget should have provided for increased investment and thus increased employment. The present level of nil growth in our industrial performance is deplorable. More people will come on to the employ- ment market, so increasing the level of employment.

What do the Government propose to do to rectify this and to provide incentives? In other words, what is the Budget strategy? The background is as shown on page 9 of the Red Book, that there was no growth in the gross domestic product in 1977. Secondly, we see from the Chancellor's proposals that taxes on income will increase from £20·6 billion to £23·6 billion. Thirdly, the total Government take will increase from £38·7 billion to £42·7 billion.

Those increases in Government take will exceed the rates of increase in prices and the rates of increase in wages. In other words, the growth of State take and State control of our finances moves yet another step inexorably forward. That is without taking into account two unusual items previously concealed. One is £600 million in company securities, which will mainly be aid to British Leyland, and the other is £550 million provided for contingency reserve. We gather that most of this is already spent. In summary, this is indeed a Socialist Budget. The champagne bubbles with which it was launched already look very flat.

Will the Budget strategy succeed? The Chancellor is walking a tightrope. I shall make only one point on this, but it is a remarkable point which I have not seen mentioned in previous debates. It is worth quoting from page 12 of the Red Book, where paragraph 3, which lists the assumptions on which the Budget strategy is based, says: The forecasts"— in the Budget— assume that average pay increases in the year beginning in August 1978 are about half the average for the current pay round"— in other words, about half the average earnings increase in the past year, which was about 10 per cent., we are told elsewhere in the Red Book.

If this 5 per cent. increase in earnings is to be achieved, how will it be achieved? Who is to make the sacrifices? Will the Armed Forces, the police, the firemen, the university teachers, the heads of nationalised industries and all those who are now frustrated and have pent-up pay demands be made to hold back still further, or will the miners, the dockers and the Ford workers stand still and see others who have pent-up wage demands overtake them and regain their differentials? I submit that neither will happen and that the wage increases will not be restricted to 5 per cent. This fundamental point of Budget strategy is therefore invalid.

But my fundamental objection to the Budget is much more broad seated. The Budget fails to take proper account of the effect of North Sea oil and gas. We are used to hearing all observers talk about the effect of oil and gas revenues. They are not revenues at all. Oil and gas are minerals. They are part of the mineral resources of the United Kingdom, and in extracting them and using them we are diminishing the capital assets of the United Kingdom. We are not spending revenue.

The Government have a bad record for confusing capital and income. The House will recall that to make up an income shortfall they sold £550 million of BP shares. That was done in order to make up their profit and loss account.

The oil and gas reserves will last about 30 years at the present rate of extraction, dependent upon price, technical matters and other factors. About 30 years is the right period. It took a million years to develop these capital reserves of the United Kingdom and they should be reserved for premium use only. It is wrong for the oil and gas to be extracted during 30 years and to be used indiscriminately and cheaply. We are the trustees of this precious reserve and we cannot tell our children "We used those reserves. They have all gone, and now you will have to fend for yourselves." That is unacceptable.

The benefit of the funds from North Sea oil and gas will be threefold. They will increase the gross national product, increase Government revenue and improve the balance of payments. But these improvements will be short term. What the Government's White Paper failed to say was that there would be a fourth effect: that we would use up the oil and gas during a short period.

We must replace our energy assets and treat the oil and gas funds as a depletion of capital fund. Therefore, we should first put much more emphasis upon conservation. It is unacceptable to have a comparatively modest programme in the Budget. I welcome it, but it is far too modest to be realistic.

Secondly, we must slow down the rate of depletion of our oil and gas reserves after 1982. We are committed through to 1982–83 as a result of assurances given to the House and the world in December 1974. Those assurances, of course, we must honour. Once those assurances have run out, we must reduce the rate of depletion. Thirdly, we should repay more of our overseas debt. Fourthly, we must allow a flow of sterling across the exchanges in order to diminish the appreciation of sterling and to allow investment to be built up overseas. I fully appreciate that overseas investment does not create jobs here. We must also reduce tax and increase incentives.

We should do all those things with the oil and gas funds, particularly during the earlier years of production when we are committed to high receipts of cash. But the Chancellor is doing it the other way and is throwing away the advantage. He is spreading the borrowings, which is exactly what he should not do. He refers in his Budget Statement to a hump of Government debt amounting to $20 billion and is making fresh borrowings to push forward some of this hump. I submit that he should deal with the hump during the period of larger production through to 1982–83 and not spread it.

One of the Chancellor's moves in spreading the hump of debt, as he calls it, is to take a further loan, through the United States bond market, of $350 million. Whether there is any connection between that and the remarkable increase of 1 per cent. in the minimum lending rate, I do not know. But the Chancellor actually boasted that he was proud that the United States bond market had granted the bond a triple-A rating. It takes the Chancellor of the Exchequer—who has finally been forced or coerced by the IMF to take sensible measures—to boast about a triple-A rating. After all, he is only saying that after four years he has finally been coerced by the IMF to getting Britain's credit rating back to a level comparable with that of Venezuela, Finland and the city of Oslo.