Finance (No. 2) Bill

Part of Local Government – in the House of Commons at 10:52 pm on 10th April 1984.

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Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 10:52 pm, 10th April 1984

With respect to the hon. Gentleman, who has intervened several times tonight, I do not think that he understands what he is talking about. I shall not dodge the issue. I do not intend to abuse the hon. Gentleman, but I intend—[Interruption.] I can stand here all night. There is no closure. I intend to deal in detail with the monetarist argument because it is central to the Bill.

Both the Chancellor and the Chief Secretary have said in recent months that they want to secure the best use of resources. They want efficiency, enterprise and competition. Let us assume that that is the right prescription for our economy. According to classical economic theory we shall not have the best use of resources, we shall not have efficiency, enterprise or competition if business is run by cartels and monopolies.

Normally the control of cartels and monopolies is exercised through the restrictive trade practices Acts. I submit that one can impose fiscal measures to encourage competition, and I shall table amendments to that effect if I am chosen to serve on the Committee. I shall propose a competition tax to encourage competition.

I shall describe the mischief which I shall try to cure through a competition tax. The matter arises from the way in which civil engineering companies compete, or do not compete, for contracts at home and abroad, and in particular from my considerable investigations into the way in which Cementation International has competed for a contract in Oman.

I shall first set out the procedure for the civil engineering industry involved in large contracts overseas. I have done a lot of work on the subject. I was in the Civil Service and I have checked my facts with former Secretaries of State for Trade and Industry. I shall be able to describe what the present Minister for Information Technology said. He blew the gaff on television.

Normally we do not achieve the best use of resources, efficiency or competition, but a cartel meets civil servants at the Department of Trade and Industry. It is not called a cartel, of course. It is just a group of individuals from the construction industry. They go to the Department, which hopes that they will decide on only one firm bidding for a large overseas contract. That helps the ambassadors in foreign countries, who have told me privately that they prefer only one company to bid because they can speak to the relevant Government Minister and wind him up.

If two companies compete, it is difficult for ambassadors to wind up the Minister, to tell him what to do, who to contact and what they want. If, when the cartel meets civil servants from the Department, it does not decide that only one firm will bid, the construction industry has an export group which acts as an inner cartel. It meets privately to try to decide that only one company should bid. If that fails, there is a further inner cartel that tries to give the contract to one firm.

What has caused concern about the Oman contract, which is why we need a competition tax, is that the cartel did not operate. Because of the way in which the Prime Minister responded to the contract, and because she met her son in Oman, the cartel was broken. That cartel was turned into a monopoly, whose beneficiary was Cementation International. It gained the contract without going through the cartel procedure.

I am not putting forward a speculative view; it comes from the heart of the Conservative party—construction companies willing to talk about it privately but not in public because they do not want the cartel arrangement to be made public, as I am doing now. They are complaining bitterly that it is all very well for Trafalgar House, Mr. Nigel Broackes and Lord Matthews to buy a knighthood or two, but it is different to buy a £300 million political favour.

I do not know whether that is a justified allegation, but that is what the companies complain about — [Interruption.] Someone says, "Shame". The civil engineering industry of this country is putting that forward. I am not so naive as to reveal my sources in the debate. Before this story is finished, all the facts will come out publicly.

The Minister for Information Technology has blown the gaff himself. He appeared on television when answers in the House were rather different from current answers. What he said justifies the need for a competition tax. He said: I will only say that the actual contract in question"— he was talking about the Oman contract— there was a single tender or a tender for a British company as it were. Now that is not at all unusual, in fact and in fact, in certain areas we try to ensure that only one British group tenders". Two British groups do not compete for the same business overseas when they have to fight against the Japanese or the French or the Italians or the Germans.

I do not know whether hon. Members realise the awesome significance of what I have said. The Minister is saying that British firms break the laws of the EEC when they compete overseas. Mr. Raymond Blackburn wrote to the Minister with responsibility for the Civil Service— who was present in the Chamber until quite recently—and complained about that. The Minister replied: Thank you very much for your letter of 21st February about comments made by Kenneth Baker in a recent television programme. Incidentally, he is Minister for Industry and Information Technology. Paul Channon is Minister for Trade. I find it difficult to believe that Kenneth Baker, who is a most experienced Minister, would announce some new policy in the way you describe". But that is precisely what he announced in the transcript from which I have quoted. Mr. Raymond Blackburn replied to the Minister. In a letter dated 8 March 1984 he said: I knew the facts in the first paragraph of your letter particularly as Chips Channon and I were friends, and I met Paul both at 5 Belgrave Square and at Kelvedon. He was a schoolboy, but I have naturally followed his career. Mr. Baker was treated as an important Trade Minister and fits that description. The letter continues: The wider implications are immeasurably more serious. If the 'certain areas' include EEC countries the policy is in breach of Article"— I think that there is a reference to article 85— of the Treaty of Rome. May I please be assured that the policy excludes EEC countries? You will remember, Mr. Deputy Speaker, that EEC countries were included. The letter adds: If not I shall with regret consider taking legal action for a declaration. Apparently, the Minister did not reply.

Where there are firms which sign overseas contracts in excess of £100 million, they should get a declaration from the person with whom they are signing the contract that states that there have been tenders, or a declaration saying why it was impossible to tender. This would be my competition policy. The Treasury, or the Department of Trade and Industry, would formulate rules setting out certain exceptions which might be allowed in certain circumstances. If the exceptions were not met and there had been no tendering, and if there were allegations of massive political favours or other allegations, a 5 per cent. competition tax would be charged. That would produce revenue of about £15 million in the Cementation case. Given the knowledge that I have of the contract, including the information that the bribes involved only £8 million, that would be an inducement for Cementation not to have entered into such a contract without proper tendering.

I want to discuss more generally the background to the Budget. I believe that the Finance Bill is fundamentally misconceived. I do not think that the Chancellor of the Exchequer has asked the right questions and therefore he cannot give us the right answers. He has ignored the fact that we have witnessed over the past decade the breakdown of the international monetary system. There are three basic ingredients of the breakdown which have led to this fundamentally useless Bill.

The first ingredient is that the nations of the Western world adopted the wrong response to the oil crisis of 1973. In a fit of desperation they deflated, and that was wrong. My second premise, which will be slightly more contentious, is that floating exchange rates and free trade no longer allow the countries of the Western world to return towards full employment. That has become institutionalised in the rules of GATT — the general agreement on tariffs and trade—and in the rules of the European Economic Community.

We are told that we are all Europeans now and psephologically that might be right, although volatile opinion polls seems to suggest differently. On occasions the Prime Minister seems to be more anti-European than I am.

Even if we stay in Europe, no illusory approach to economics will remove the fact that, in the end, Britain must plan its trade and match its imports with its experts. Whether we do or do not reach an agreement within the rules, the balance of payments problem, if there is to be sustained economic growth, will not go away.

My third point is more complicated. We have witnessed during the last decade the growth of monetarism, which predicates this Finance Bill and the whole of Conservative thinking since 1979. There are many versions of monetarism, and we should not try to score cheap political points over them.

The first definition of monetarism is the old Fisher eqation, which most people know, that MV =PT, whereby M is defined as the amount of money, V as the velocity of the circulation of money, P as the price level and T as the number of transactions. If that were monetarism, I would say that we were all monetarists now because that is a definition, an equation, and the equation cannot be wrong because the terms are defined in such a way that one side must equal the other.

The problem comes if one takes it a little further and seeks to argue that money GDP, which PT, is caused by the amount of money in the economy. Difficulty arises when one switches V from one side of the equation to the other, so that M=PT/V. The monetarists go on to argue that it is really M=PT, as one can ignore V because it is either stable or predictable. When I questioned the Chancellor on this very point during the proceedings of the Treasury Select Committee and asked him whether it was stable or predictable, he replied that one could predict trend velocity. However—I invite hon. Members to interrupt me if I am wrong—I have seen no evidence that V is predictable or that one can reliably predict trend velocity, and certainly there is no evidence that it is stable.

I am a modest man and I hesitate to quote myself, but if one really wants to know whether V is stable or predictable one would do well to peruse a booklet written by me entitled, "The How and Why of Socialism" The relevant short paragraph—I doubt whether there will be any conflict about this, because it is a statistical analysis run through the Cambridge computer on my behalf— says: The notion that V (the velocity of the circulation of money) is constant—or even approximately constant—can readily be shown to be false. Since 1965, for example, the income velocity of circulation (the money value of GDP divided by the sterling money stock [M3]) has fluctuated from a high of 3·3 in 1970 to a low of 2·6 in 1973—a difference of 25 per cent. In other words, the prediction of GDP from knowledge of the money supply alone is subject to that degree of error. Equally action taken by the authorities to expand or contract the money supply has an unprecise effect on GDP, let alone on price inflation, unless V can be forecast with some accuracy. Thus, for example, the expansion of money supply by 25 per cent. in 1972 and 24 per cent. in 1973 was offset by a big fall in V in both years, while the relatively small increases in M3 in 1975 and 1976 were associated with relatively large increases in V". I have set out a table that demonstrates that point. I shall quote just one more sentence, as I know that you, Mr. Deputy Speaker, are not keen on long quotations. My booklet states: This suggests that there is some tendency for fluctuations in V to be the agent which enables the money supply to accommodate a given growth in GDP, the latter being determined by factors other than the Government's policy towards M3.