Economic Policies and Unemployment

Part of Opposition Day – in the House of Commons at 6:09 pm on 3 June 1986.

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Photo of Peter Tapsell Peter Tapsell , Linsey East 6:09, 3 June 1986

I agree with the hon. Gentleman, and some of my right hon. and hon. Friends have voted in that way, as have I.

The technical gilt-edged point is often talked about when we are discussing the PSBR. It is sometimes suggested that, if my right hon. Friend the Chancellor were to allow the PSBR to go up instead of always going down, that would lead to a strike in the gilt markets, but I do not believe that that is true. My thinking on this is as follows. Of course, there is a certain schizophrenia in the gilt market because, other things being equal, dealers and potential investors in the market like the PSBR to be as low as possible because that means that there are fewer gilts to be sold. However, the market is now increasingly dominated by political considerations and will increasingly be so, not just by investors in this country, such as the pension funds, but by big holders of gilts and sterling throughout the world.

Increasingly, holders are thinking about what will happen in the next general election. If they think that the Labour party will come to power, they will start sealing gilts and sterling and I can say that as a matter of absolute certainty. They are already beginning to be worried. If that happens, interest rates will rise. On the other hand, if the Government were to announce a moderate but sensible increase in capital investment programmes, far from being frightened, the market which knows that the Conservatives cannot win the next election without substantially increasing the capital investment programmes, will take heart. Ironically, my right hon. Friend the Chancellor will have a better chance of keeping interest rates down if he increases the PSBR and capital investment than if he does not.

Even within the existing levels of public expenditure, there has been an unsatisfactory move, ever since 1979, towards an increase in current expenditure at the cost of capital investment. Although the overall real figure of public expenditure has gone up since 1979, the proportion of capital investment within that public expenditure figure has fallen from 11·6 per cent. to 10 per cent. of the total. To put the proportion of capital investment back to the 1979 level of 11·6 per cent. of public expenditure would cost £4 billion. That is, just to get back to the ratio of capital investment within the general public expenditure of 1979 would not necessarily cost extra money but would require a shift in resources back from current expenditure to capital investment. Even in 1979, I was arguing that the proportion of capital investment within the overall public expenditure was inadequately low.

Putting all that into the international context, we now have in Mr. James Baker, the United States Secretary for the Treasury, the international economic statesman for which the world has been crying out for years. He has been trying to fulfil the role that I have urged on my right hon. Friends for some years. On interest rates, on exchange rates, on trading policies, on Third world debt and, above all, in urging the whole of the OECD to expand, Mr. Baker is saying, from a position of great power and influence, what some of us have been urging from the political wilderness for some years. I hope that my right hon. Friends will listen to what Mr. James Baker is saying and will act upon it.