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The rate of inflation has only recently come down to the kind of low level that we need, but, of course, looking back over the last decade, we can see devastatingly clear evidence of inflation, a passion for high public spending, high interest rates and subsequent disasters on the budgetary side, leading to loss of competitiveness and the vanishing of whole markets in Britain, a surge of imports and immense damage to job opportunities. The evidence is there and it is clear. We are dedicated to reversing that process, because it was wholly wrongheaded. To repeat it, as the Labour party seems to want to do, is a perverse approach. Nevertheles, I believe that, within the constraints that I have described, there are some things that it would be right to explore and develop in order to help the expansionary forces which are now developing in the economy.
I had the opportunity a week ago to tell the House that I believe that there will be room for more Government capital investment. Of course, the plans have to be laid and they take time to develop. I doubt whether any acceleration now in Government capital investment would have any effect for two years—that is an argument for getting on with it now—but I believe that, if it were done, it could have a nil effect on the Government deficit. Indeed, I argued last week, and would argue again, that if the Government were prepared to present their public expenditure proposals with a greater divorce between capital account and current account, that might have a beneficial effect on funding and, at a given level of interest rates, enable more money to be raised without any inflationary or overall effect on the deficit. I know that it lies somewhat outside the details of the Bill, but it is one area in which, within the constraints that I have described, it would be possible to move forward.
It should also be possible to move forward in the area of tax incentives. There are tax incentives—some of them are touched on in the Bill, but there are many others — which could be brought in which would revive enterprise and create more jobs without revenue cost. Therefore, given the constraint that I set down, which I believe is essential, and to which the Government are right to adhere—that there must in no case be tax measures which enlarge the deficit—some tax incentives could now be brought forward which would revive enterprise without a net effect on the deficit.
Some may say—and they may be on the Government Benches—that that is getting near to supply side heresy. Some may say that they are the sort of ideas that were put forward two or three years ago for taking risks by cutting taxes, in the belief that they will produce higher revenue in due course. Nevertheless, I believe that those suggestions should be examined. I realise that they are not consistent with that particular kind of mechanical monetarism, if I may call it that, which lays down—this can be seen in the proposals of some financial analysts — that there is a specific public sector borrowing requirement that we aim for on day one, leading to specific interest rates being delivered, and even a specific inflation rate. What I am saying is not consistent with that. That is an over-mechanistic approach. It is an example of what is called the fallacy of aggregates, which is a fallacy also to be found among the old school of demand managers which still has adherents on the Opposition Front Bench. It is the belief that the global aggregates of the economy can be engineered and manoeuvred in precise ways, which will deliver up certain precise results. In real life, that is not so. Quantities are rough, not precise, and the business of monetary management is an art, not a science. It is a cliché that the PSBR is the difference between two very large figures, and that the room for error between them is also very large.
The business of monetary management is an important art, and let there be no doubt in the mind of the House on that. It is essential that it achieves its role of lower deficits and lower inflation, but the art also permits, even demands, some expansionary tax cuts and Government investment measures. If I were asked to point to a particular expansionary tax cut, by which I mean a tax cut that could have a nil effect in a short time on the deficit and revenues, but would lead to more business enterprise and more jobs—it is from new enterprise that jobs for the present and next generation will come, not from large, established manufacturing enterprises—I would point to the investment income surcharge. Although in the Bill there is a welcome change on the ceiling, it is still ridiculously low, and I should like to see it much higher.
In short—I shall try to stick to Mr. Speaker's rule of brevity for all and the utmost brevity for Privy Councillors — some expansionary steps can now be taken. Their effect will be slow. I am not sure that there is much else that could or should be done that is within the Chancellor's power to do within the next year or so. However, the steps must not be those that would enlarge the deficit or restart inflation, because both those consequences would be not a stimulus, but would be contractionary, weaken the economy and undermine jobs.