Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 27 April 1978.

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Photo of Mr Ian Wrigglesworth Mr Ian Wrigglesworth , Teesside Thornaby 12:00, 27 April 1978

I only wish that it were quite as simple as the right hon. Member for Stafford and Stone (Mr. Fraser) seemed to suggest. I was more struck by the arguments, put forward with usual clarity and lucidity, by the right hon. Member for Down, South (Mr. Powell). I am sorry that I missed the earlier part of his speech, because I wanted to make a similar point about the uncertainty of the impact of the stimulus and the uncertainty of what the public sector borrowing requirement would be.

I do not know whether the right hon. Gentleman made the point that the forecast of the borrowing requirement was so wildly wrong in the last year that we needed only £5·7 billion as against a forecast of £8·4 billion. When one is dealing with margins of error which are that great, it is helpful to remind oneself that £500 million here and £500 million there, while very worrying in some respects, are not necessarily a matter of major catastrophe. It needs to be seen in that light, especially with regard to taking action and making judgments about what Conservative Members might do during the passage of the Finance Bill in the coming weeks.

My feeling before the Budget was that the existence of slow growth in output, high unemployment and spare productive capacity called for an expansionary Budget. But I felt that the required fiscal stimulus had to be cautious or it would be self-defeating. There is evidence in the performance of the economy over recent years to show that one should be cautious in the amount of stimulus that should be given.

Massive reflation, such as the £4·7 billion suggested by the home policy committee of the Labour Party, would in my view have resulted in an upsurge of imports, accentuated if home supply was unable to meet the demand because of constraints—particularly skilled labour constraints—which despite North Sea oil could not be financed. In addition, if too fast a fiscal stimulus were given, it would have led to the monetary expansion which would have led to a loss of confidence and renewed inflation. These effects would have led to lower sustainable growth and output and, except in the very short term, would have raised unemployment.

Basically, the sluggish growth in world trade means that we simply cannot afford to make a unilateral bid for massive growth. Therefore, as the Prime Minister and the Chancellor are doing at present, we needed to see a co-ordinated expansion of world trade to undo the deflationary effect of the OPEC countries' large surpluses. Although inflation is coming down, it is still higher than that of most of our competitors, and it must continue to fall if competitiveness and growth are to improve. This means, in my view, exercising restraint in wage bargaining this year, and some firm monetary control.