Economic Policy

Part of the debate – in the House of Commons at 6:51 pm on 28 November 1979.

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Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley 6:51, 28 November 1979

In the summer the Government had a conspicuously good opportunity to reduce the public's expectations of inflation, and to reduce inflationary expectations is a powerful way of helping to reduce inflation itself.

The Government were elected with a substantial majority within this House. They were newly elected with a reputation at that time for great resolution and immense faith in their own armoury. If in the early months they had supported their attempts to restrain the money supply by, for instance, acknowledging that they had to have a public sector pay policy and not pretending that they could abdicate their responsibilities to Professor Clegg or anyone elese, if they had gone back to their 1977 document, "The Right Approach", in which they proposed a forum in which the major participants in the economy would consider pay bargaining along with the Government's fiscal and monetary policies, and had they brought that in in aid of their attempts to restrain the money supply, I think that they would have stood a chance of convincing the greater part of the public, in spite of anything said by the Opposition parties in criticism of their policies.

When the Government were newly elected, I think that the public would have accepted that inflationary expectation could be sharply lowered. Unfortunately, in the aftermath of the election the Government have turned aside, almost with contempt, from all other ways of influencing pay bargaining. They have insisted that their monetary policies are sufficient and may be relied upon. That obstinacy has destroyed their credibility with the greater part of the public. As inflation has continued to mount, public faith in the monetarist remedy alone has crumbled. It now appears that the Government's policy can be shifted off course merely because of a dispute in the telephone accounts department. That destroys their credibility, and the public no longer believe that the Government have the weapons that are necessary to deal with inflation.

The Government's policies are bound to fail as long as they confine their attention to trying to restrain the money supply. In spite of all their speeches about incomes and pay settlements, they have never managed to establish in the public's mind any real or credible connection between the pay settlements of a group of workers and the threat to the security of those same people's jobs. Treasury Ministers are tireless in stumping the country trying to get the public to believe that if a group of workers receive an extravagant pay settlement the job security of that very group will be threatened in consequence. That is an alleged sequence of cause and effect which, in my view, has no credibility and deserves none.

There is no direct cause and effect relationship between what a group of workers manage to obtain by way of a pay settlement and the threat to their own jobs. Unemployment almost always falls elsewhere. The penalties of excessive settlements fall on others, including those who have left employment altogether and are pensioners.

In my constituency and in that whole area, it is the wool textile workers who are being made redundant. It is they who are losing their jobs. Yet they are members of one of the most co-operative, helpful and constructive groups of trade unions in Britain. They have never stood out for anything that could be called an extravagant pay settlement. However, they are losing their jobs while other groups that have managed, through union monopoly power, to get what I acknowledge to be extravagant pay settlements are still doing very well, thank you. It is the failure that is built into the Government's approach to establish a cause and effect relationship that destroys any credibility that they might otherwise have.

I hope that the one chink of light—it is a small and dim one—that appeared in the Chancellor's speech will be enlarged by the Chief Secretary when he replies to the debate tonight. The right hon. and learned Gentleman inserted at the end of his speech a faint reference to attaching more importance to NEDC and to making his own contribution to it as Chancellor more conspicuous. Was that meant to mean that the Government are returning to the Conservative notion of 1977 of having a forum in which the major participants in the economy will consider pay bargaining along with the Government's monetary and fiscal policies, or was it merely a bit of window dressing to show that the Chancellor has no wish to be nasty to the trade unions? The passage in the right hon. and learned Gentleman's speech to which I have referred was far from clear, but I am ready to believe that it was not put in without some good reason. I hope that we shall hear the reason from the Chief Secretary.

I return to the Government's monetary policy. The bankruptcy of the Chancellor's approach was amply demonstrated in the exchange of questions after his statement on 15 November about minimum lending rate. My right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) questioned the right hon. and learned Gentleman and received the following reply: We recognise, and continue to assert, the necessity for those responsible for pay bargaining to conduct their affairs in a way that is consistent with the growth in the money supply."—[Official Report, 15 November 1979; Vol. 973, c. 1520.] That paraphrases what the Chancellor has been saying for months.

This is the opportunity to ask the right hon. and learned Gentleman what he is intending to convey by such oracular remarks. When he says that people must conduct their pay bargaining in a way that is consistent with the growth in money supply, are they to consult the growth in money supply, say, two years previously? Are they to assess more recent growth of the money supply, or are they supposed to consult the forecasts of future growth in the money supply? Most odd of all, are they supposed to say "Money supply has gone out of control during October, so we may press for a pay settlement beyond the controls which sensible persons would suggest"? That is the essential weakness of the Government's approach. They are continually preaching attention to the money supply without ever explaining—in my opinion it is not possible to explain—exactly what they mean by the money supply, the methods of controlling it and the measuring of its growth.

It is significant that only a few days ago the Chancellor admitted that as a means of controlling money supply the Bank of England and the Treasury are shortly to produce a discussion paper. This should have been produced two years ago, before the Conservative Party committed itself to worshipping solely at that particular throne. It is an extraordinary admission on the part of a British Government that something central to their economic policy is now to be discussed on the basis of suggestions by the Bank of England and the Treasury.

The other contradiction, with which I close my catalogue, is that the Government assumed that, along with a draconian attempt to control the money supply, it is possible, at the same time, to introduce incentives. That is double talk, the effect of which has already severely rebounded on the Government. As has been stressed during this debate, Treasury Ministers are now warning the public that there will be no reductions in income tax, or current taxation, in the next Budget. Indeed, the public might well look for some increases in taxation.

That possibility should have been foreseen by the Government before they made their reckless attempt in the summer to kid the British public that there could be strict control of the money supply on the one hand and glorious incentives to entrepreneurial adventure on the other. Those objectives are not consistent, and the Government should acknowledge that, even to the point of eating humble pie.

If this situation is not corrected the crudest possible response will result—the intolerable injustice of a pay freeze. Because we can see no other conclusion to the Government's obstinate course, we shall vote with the Opposition tonight.