Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 4:30 pm on 16 March 1981.

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Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford 4:30, 16 March 1981

I am grateful for the opportunity to speak. This is the first opportunity that I have had to speak in the House since I ceased to be its Leader two months ago, I hope that in those circumstances the House will allow me to preface my reflections on the Budget with some brief personal remarks.

Leaving high office is a notoriously traumatic experience. It has often led people to bitterness, a severing of old loyalties, to losing any sense of proportion and, what is perhaps the same thing, any sense of humour. I am happy to say that I have been preserved from all such undesirable side effects.

I was grateful for the opportunity I have had to serve this Government and, even more, to serve this House. With the single exception of your position, Mr. Speaker—which by universal consent you fill with a distinction that will number you among the great Speakers—there is no higher honour that a Member can have than to be Leader of the House. The essence of the position lies in the title. One is Leader of the whole House, not of any part of it. I congratulate my successor, my right hon. Friend the Member for Cambridgeshire (Mr. Pym), on continuing in that tradition.

Government office has its compensations, but it also has its drawbacks. Ministers are not free to express individual views in public. [Interruption.] That is the constitutional rule which I myself have always obeyed. For that reason, among others, I declined the post of Minister of State in the Department of Education and Science that the Prime Minister offered me. At a time of major political turmoil, when men and women are abandoning the allegiances of a lifetime for reasons of honour and conviction, I wished to be free to make a contribution from the Back Benches. It will be an individual contribution, but I hope that it will always be within the parameters of respect for a Government of whom I was recently part and within the historic traditions of a party that has survived so long precisely because it has concerned itself with social issues and is based—I need not remind my right hon. and hon. Friends in the centenary year of Disraeli's death—on the concept of one nation.

I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on two aspects of the Budget. First, on the basis of its own terms, it is an exercise in intellectual consistency and rigour. Secondly, I congratulate my right hon. and learned Friend on his courage. However, I must enter a caveat at once. I was astonished and indeed horrified to see included what is, in effect, a retrospective levy on bank profits. That was a point made earlier in our debate by my hon. Friend the Member for Winchester (Mr. Browne). That tax is wholly inconsistent with the main thrust of the Government's economic policy which is to legitimise once again the notion of profit. It consitutes a sacrifice of principle to expediency.

Of course, there will be no popular rallying to bankers. I have no doubt that the extra cash is useful. However, it is a sowing of dragon's teeth that will bear a later harvest. My right hon. and learned Friend has led the way. Others, less well intentioned, will undoubtedly follow.

The Chancellor's courage is self-evident. He has stood up to a barrage of criticism from outside the House and, indeed, within it. The one section of the Budget that has commanded unqualified support in all parts of the House is that on small businesses. That is right. As the experience of the United States economy shows, more jobs are provided by the expansion of small businesses than from any other single source.

The loan guarantee scheme and the provisions for business start-ups in this Budget, taken with the concessions on corporation tax and the tax relief for small workshops in the previous Budget, add up to a charter for small businesses. I hope that the skill that went to make up this package will be matched by the enthusiasm, vigour and imagination with which the contents of the package will be made known throughout the country.

I turn to the wider issues involving industry in general. It is at that point some doubt begins. I do not quarrel with the Excise duties that have been raised, painful though they undoubtedly are. I believe that there is a clear economic case for the increase in tax on drink and tobacco, and even on petrol. However, I fully understand the anxieties of many of my hon. Friends. After all, we are in politics and not economics. There are limits to the burdens that any party can place upon its natural supporters. The Tory Party is still rooted in the land and the countryside. It is on the constituency that a disproportionate share of the burden will fall.

My doubts centre on the use to which the increased revenue will be put and the way in which the balance has been tilted away from industry and towards a reduction in the projected public sector borrowing requirement. Is not there a danger that £10·5 billion will constitute a totem when in fact it is not more than a forecast and subject to all the errors and variations of forecasts? I accept that there must be a broad consistency between fiscal and monetary policy, but there cannot be an exact relationship between them. If there were we should not have been able to have the very welcome reduction in interest rates that took place in November.

If one looks back to the forecasts for PSBR of £8·5 billion in the last Budget one sees how impossible it is to treat this part of economics as an exact science. I fear that there will be a repetition of history—that industry will not be sufficiently stimulated, that unemployment will increase, and that the deficit will rise because benefit payments will have to be paid and there will be lost revenues. I fear that there will be not a virtuous but a vicious circle.

I certainly welcome the measures to help British industry. The reduction in interest rates will be a major help, but I fear that the reduction will not decrease the value of the pound for long. I welcome the measures for stock relief and those to help the large-scale users of gas and electricity. I know from experience of factories such as the English Electric Valve Co. in my constituency, what a heavy burden is placed upon companies by energy charges. Yet I feel that the measures do not go far enough.

I wish that two proposals had been included in the industrial package that would have made it as important as the package advanced for small businesses. I should have welcomed a reduction in the national insurance surcharge, which really amounts to a poll tax. The CBI has pressed for a 2 per cent. reduction. Surely, it might have been within the tolerances and margins of error of the calculations on PSBR to make such a concession? Secondly, despite the technical, contractual issues that are involved in reducing the tax on heavy fuel oil, I had hoped that something would be done in that regard.

There is another major danger to which I draw the Chancellor's attention, namely, the lack of demand in the economy. I do not want to get involved in a semantic argument about what is inflationary and what is disinflationary. If I did so, I know that it would have an alarming effect on my right hon. Friend the Financial Secretary to the Treasury. Like Bagehot's Englishman on the Continent, he is ready to blow up when the word "deflation" is mentioned in connection with this Budget. However, whatever the Chief Secretary argues about final demand—in fact, that has largely been nullified in the past by price increases—I ask my right hon. and learned Friend the Chancellor to consider whether there will be enough demand in the economy during the coming year.

Let me put the argument in a more homely manner. British industry has to sell to someone, but to whom? There are only three sources of demand. The first is the consumer, but with the increase in indirect taxation of about £2½ billion and the increase in national insurance contributions of £1 billion, there will be no increase in demand from that source.

The second source of demand is exports. Exports have held up remarkably well, but the Chancellor's own forecast, in table 11 of the Red Book, shows a reduction of 5½ per cent. in exports in 1981. That is what is forecast, and the reduction will continue into 1982 at a reduced rate. So there is not much chance of an export-led revival there.

The third source of expansion of demand is from capital investment in the public sector. Capital investment there has fallen with appalling regularity over seven years. As The Times pointed out in a leader the day after the Budget, In 1974 one-fifth of public expenditure was on capital last year it was down to one-tenth". Successive Governments have taken an easy way out by cutting capital rather than current expenditure. Part of the story can be read, again in table 11 of the Red Book. In 1980 there was a 16 per cent. reduction in capital spending in the capital sector, followed by a 23 per cent. reduction in 1981, and a 7½ per cent. reduction is forecast for the first half of 1982.

Those figures are significant, because they show the scope for a programme of limited capital reflation that exists. I am not arguing for a general reflation on the lines suggested by the CBI and the TUC. I am asking the Chancellor to consider a programme to be initiated later in the year, to put some more demand, through capital investment, into the economy. I hope that my right hon. and learned Friend will be able to give us some encouragement in this respect. That demand has run like a burden or a leitmotif through many of the speeches from this subject the House in this debate. There was the speech made by my right hon. Friend the Member for Taunton (Mr. du Cann), who advocated the use of private capital. He made the point, speaking with all the authority of his position as Chairman of the Select Committee on the Treasury and Civil Service.

I hope that the Chancellor will bring forward schemes—or at least not close the door on schemes—involving an increased expenditure of private and public capital. There is a wide range of choices, including electrification of the railways, improvement of the water system, measures for the conservation of energy, and one or two special capital projects. The Channel tunnel has been mentioned. Perhaps I may suggest another—the new British Library, which will be of immense importance for our future in the development of information techology and the sale of factory systems. Given the spare capacity in much of British industry and in the construction industry, none of those projects would be inflationary.

A factory in my constituency has put into operation the Chancellor's principles. As a result, the work force has been reduced and there is a much higher degree of efficiency, but today that factory has a 25 per cent. spare capacity, which could be taken up without any inflationary effects. I appeal to the Chancellor to give the country some hope on these issues when he speaks tonight.

I want to bring one final matter to the Chancellor's attention. Many of us are uneasy about the wisdom of seeming to base a whole economic strategy on a single set of monetary aggregates of dubious reliability. Of course, control of the money supply is one of the weapons at a Government's disposal to promote a prosperous economy. It is one, but there are others, such as the promotion of investment and the moderation of wage claims.

Inflation is a moral as well as an economic evil. I have said that many times. It undermines confidence in our financal institutions and, ultimately, our political institutions. But unemployment is a moral evil, too. The loss of a job involves personal humiliation, a loss of dignity, and a feeling of diminishment as a human being. It leads to strains and tensions in the family; it can cause want which leads on to other social evils, such as vandalism, delinquency and crime. One cannot dispose of the problem by the simple statement that if we conquer inflation we shall solve our employment problems. If we conquer inflation it will be easier to deal with unemployment, but much more will have to be done in that regard.

It is not acceptable morally, nor is it even sensible economically, to speak as though we could pursue one economic aim to the exclusion of all human and social values. Man is a moral being first and an economic being second. Of all parties, I believe that the Tory Party should be the first to recognise that. I believe that we do recognise it, but we do not always speak as though we do. Not the least of the responsibilities that rest upon our economic Ministers is that of demonstrating that we have the means to reduce unemployment and also of fashioning a discourse to demonstrate that truth both to this House and to the country.