The Economy

Part of the debate – in the House of Commons at 12:00 am on 25th July 1978.

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Photo of Mr John Pardoe Mr John Pardoe , North Cornwall 12:00 am, 25th July 1978

It is a privilege to follow the hon. Member for Penistone (Mr. McKay) after his maiden speech. We welcome him to the House. I welcomed his comments on his predecessor, John Mendelson. When I first came to the House 12 years ago, John Mendelson had a reputation for being a wild, Left-wing Socialist, but I soon discovered that he was more of a radical Keynesian. I cannot pay a man a higher compliment than that. John Mendelson had friends of long standing in the House across party lines. I wholeheartedly endorse the remarks that the hon. Mem- ber for Penistone made about his predecessor.

I have to admit to the hon. Member that I worked against him in his by-election campaign. He might have noticed that I did that with considerable effect. I am not sure whether the maintenance of the Liberal vote is a better comment on the last 15 months of Government than the fall in his vote is on the last four and a half years of Labour Government. Whatever our feelings were in the by-election, I welcome the hon. Member to the House. Clearly, he has a close and keen interest in the people and problems of Penistone. We look forward to hearing from him about these matters in the future.

Listening to the opening speeches in the debate, I was minded to ask the question "Is this a private General Election, or can anyone join in?" Clearly, there will be a General Election pretty soon. Clearly, it will be an election fought on the swapping of statistics more than most, if that is possible. But the debate that we are having this afternoon is in the aftermath of the publication of the White Paper on incomes policy. It would, however, be ridiculous to suppose that pay is the only important ingredient in our own economy, and even more ridiculous to suppose that what we do in our own little island can alone change the fortunes of the world economy, with which our success or failure is so inextricably tied up.

I wholeheartedly endorse the remarks of the right hon. Member for Farnham (Mr. Macmillan) about our place in Europe. It seems to me absolutely essential that we should work within the international community to get the economy right.

The trends in the world economy are not at all encouraging. Inflation is almost certainly moving upwards again in most of the major industrial countries. If we take together six of those major countries, excluding Britain—the United States of America, Canada, Japan, West Germany, France and Italy—we see that prices in May of this year were 6·6 per cent. above those of a year ago. But, of course, that is a 12-months figure, and 12 months is a long time when we are dealing with inflation.

If we take the three-monthly figures for those countries at annual rates, we can see that the inflation rate for them has moved up from 4·6 per cent. at the beginning of this year to 8·4 per cent. in May. This 8·4 per cent. average rate of inflation—the latest average rate of inflation for these major industrial countries —is much nearer to the average 12-months rate for the period 1973–77, the period following the oil crisis, when it was 9·1 per cent.

The prospect for jobs in the western economies is certainly no better than that for inflation. Even if we take the most optimistic assessment of the follow-up to the summit conference, it cannot have much effect until 1979, and even then it is pretty dismal. The gross national product of all OECD countries together in 1978 will probably rise by no more than 3·6 per cent. That is less than the 4 per cent. achieved in 1977. I do not think anyone can expect that 1979 will be better on present policies than 1978.

World trade in 1978 may grow by a little less than 5 per cent. and may accelerate slightly in 1979, but that will be not much more than half the rate of growth that we knew in the decade leading up to the 1973 oil crisis. These are the international realities that we have to face in dealing with our own domestic economy.

All this makes it doubly incomprehensible to those of us who deem ourselves to be European that the British reaction to the European economic initiatives which we have seen, particularly at the Bremen conference, should have been so half-hearted—half-hearted on the part of the Government and, indeed, on the part of the official Opposition. We had absolutely nothing this afternoon, in a speech on the economy, from the right hon. Lady the Leader of the Opposition which led one to believe that she was in any way interested in these important international initiatives.

The British Establishment's reaction to international and especially European proposals to change the world economic order is, I think, little better than that of a beetle staking out its territorial claim on its own dung-heap. I fear that that des-scription is probably apt for the British economy in 1979. It is probably not a bad description of the European economy in that year, too.

This may seem incomprehensible to foreigners, but it is, perhaps, understandable in the atmosphere of British domestic politics, because there is to be an election. The opinion polls have already shown that public opinion has turned quite substantially against the whole European idea. Therefore, I fear that both major parties will clearly be conducting an election campaign in which they will certainly, if not pander to, do the best to cultivate the lowest prejudices of Britain. These prejudices are the very same prejudices as made us late for every important European initiative that we have had in the last 30 years, and we are about to be left at the European starting-gate all over again.

This afternoon, the Leader of the Opposition paid a compliment to the President of the European Commission, Mr. Roy Jenkins, as the best Labour Chancellor, by which I think she meant that he had actually left the Conservative Government of 1970 with a surplus of income over expenditure—which they rapidly turned into a very substantial deficit. It is utter and complete nonsense for the right hon. Lady to talk about public spending being lower as a proportion of GNP under a Conservative Government. Under the Conservative Government of which she was a member it rose more rapidly than at any time in the last 50 years, and the borrowing requirement rose to a higher proportion of the GNP than it is now.

Nevertheless, I turn to what the best Labour Chancellor—to borrow a phrase from the Leader of the Opposition—said as President of the European Commission in an important speech last October in Florence. He said that the restoration of full employment required action on a historic scale comparable with Europe's postwar reconstruction, the Marshall Plan and the Keynesian Bretton Woods international monetary system.

Last April, at Copenhagen, Europe's leaders agreed to seek common solutions to these problems which the President had then outlined. The Bremen conference was held this month to take that process a stage further. The European leaders have, of course, agreed to work to establish a European monetary system, backed by the colossal sum of $50,000 million of our pooled currency reserves. These are even bigger than the funds available to the IMF. If successful, this initiative can achieve the monetary stability which Keynes and Bretton Woods gave the world for 25 years and which was the foundation of the rapid growth in the post-war period.

Unless this initiative is followed through, there is no hope at all that Britain or anyone else will solve its economic problems. The European monetary fund, for which I seem to remember the Liberal Party called as long as 15 years ago, will enable the industrial countries to put the huge surplus funds, the OPEC funds and other surpluses which are floating around the world mainly in an orgy of currency speculation back to productive use.

Therefore, international action, particularly international action within Europe, is absolutely essential if we are to solve our problems effectively. But international action does not absolve us from taking action ourselves to put our own house in order.

No one can deny that the British economy is in many respects greatly improved over the past year or so. However, the Prime Minister, like the Leader of the Opposition, should be a little less selective in his choice of periods for comparison, because at the beginning of 1977 the British economy was a disaster area after three years of Labour Government.

Inflation then was over 20 per cent., which was a little higher than it was when. Labour came to power in 1974. Three years of Labour Government, on its own, had done nothing to bring this rate down. If one is quoting selective statistics—frankly, this kind of selectivity is somewhat meaningless—on the improvement in inflation and the performance of various Governments on inflation, no one can possibly deny that the quite astonishing collapse of the inflation rate from over 20 per cent. to under 8 per cent. has taken place during the last 15 months, the very period in which the Liberal Party and the Labour Government have been working together.

I do not fool myself by these statistics, and I do not fool myself about the British economy. There are two laws of politics that we all ought to observe. One is not to believe the other fellow's propaganda, but the other more important law is never to believe one's own. Nothing fundamental has changed in the British economy. This is the problem. Inflation has fallen, but it is still twice what it was before the 1973 oil crisis, it is higher than that of most of our major competitors, and it is probably rising again as theirs is also.

The balance of payments is certainly on the credit side, but I believe that that is only short-lived and it is mainly because of oil. In 1977 non-oil export volume rose by 7·8 per cent. and imports rose by 6·7 per cent., so it is hardly surprising that the balance is on the credit side. But the trend in 1978 is, unfortunately, very different. The volume of non-oil exports will rise by perhaps 3½ per cent., if we are lucky, while non-oil imports may rise by as much as 6½ per cent. Even on price, our exports have become uncompetitive. On the more important non-price factors, nothing has happened to change our chronic and perpetual uncompetitiveness.

Of course, there is a real limit to what the Government can do on non-price factors of exports, because that is very much up to management. But pay is crucially important in relation to the price factor. As one who supported phase 3 and who still believes that it was very much better than nothing at all, and very much better than anything which the official Opposition had on offer at the time, I have to say that it was only partially successful and not good enough.