Not the least interesting aspect of the debate which is now coming to a close has been the distinct switch of emphasis that we have seen in the attempted assault of the Opposition Front Bench on my right hon. Friend the Chancellor and on the Government's record. Obviously, they have a major concern with unemployment, as we all do, and that has been reflected in many of the speeches. But they seem to be sensing that, now that my right hon. Friends are beginning to grapple effectively with unemployment and we are seeing the figures behave in a far more encouraging way, they must have a new theme. The theme that they have found is reflected in their motion on the Order Paper. It is the theory of the impending balance of payments crisis.
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) has gone into the economic forecasting business. It is only fair to warn him before the debate is out that that is a hazardous business. It is all the more hazardous when he and his right hon. and hon. Friends appear to depend so heavily on independent forecasters in the much criticised City, as they do. They seem to refer again and again to what independent forecasters are saying about trade deficits, interest rates and sterling in the coming year and what that will do to our employment performance and the social problems that we face in the inner cities that we have been discussing this afternoon.
The difficulty is that at least half the independent forecasters have so far been spectacularly wrong. Perhaps the right hon. Gentleman should keep that in mind. They were quite wrong about interest rates in the autumn which they confidently forecast would go up by 4 percentage points but did not. There was then a forecast that there would be a huge sterling crisis this month, but, of course, there has been nothing of the kind. I do not know whether the Labour party associated itself with that forecast. There have been other problems which I shall deal with in a moment, but there certainly has not been the collapse or the further slide in sterling that was predicted.
There was equal puzzlement and a failure to appreciate what would happen about labour unit costs. If I may say so, that error was apparent on both Front Benches and there was a cry that we would all be ruined by an enormous rise in labour unit costs that would offset the devaluation of sterling against the deutschmark. It was said that that would mean we would not restore competition or create new jobs, but the opposite has happened and once again the forecasters have got it wrong. Labour unit costs are coming under increasingly effective control and the original statistics about output and recorded labour costs were probably grossly inaccurate and are becoming increasingly so. Even if they were accurate, those same figures are developing in a far more favourable way.
We could be seeing something that over the last 20 years many of us doubted could happen, a devaluation or depreciation taking place without consequent inflation and without the inflation of wage costs which wipes it out. I have never supported the proposition that we can devalue our way into competition and more jobs and by that means can restore jobs and opportunities to the north and to our cities. In America one hears people say, "If only we could get the dollar down, everything would be all right." I say to such people that we have tried that in Britain and quite often it did not work. It worked briefly in 1966, perhaps, but on the whole it is a path to perdition and always inflation takes away the advantage.
It may just be that as a result of supply side changes taking place in our economy this time the depreciation will stick and, because labour unit costs are not going up, it may be that we have reached the point—an important turning point—when we are able to take advantage of a lower and more competitive currency and fairly pour our efforts into competition and export and provide the new jobs that we need, especially in the areas about which hon. Members feel strongly. The economists were wrong when they thought that labour unit costs were going through the ceiling. Hon. Members in the centre parties were muttering about incomes policies of bizarre kinds which would control this problem. Suddenly we see once again that analysis was wrong.
The second major area in which the independent forecasters upon which the Labour party has relied so heavily have been wrong has been the staggering growth in invisible earnings. If one looks back to the forecasts one finds that none of these independent forecasters or Opposition critics at all foresaw what was happening. There was a widespread myth, shared by many commentators, that North sea oil had been wasted. That was an easy thing to say and an easy myth to peddle. People had not noticed, as my hon. Friend the Member for Croydon South, (Sir W. Clark) said earlier, that North sea oil proceeds were not being wasted.
Oil proceeds were being invested on a gigantic scale, largely, I concede, overseas, but as a result they are producing the most enormous annuity for Britain which can be invested in the competitive and high technology industries of tomorrow. As a result, Britain has become not a debtor nation like the United States but the world's second largest creditor nation after Japan and is in a position of immense potential power which will enable us to use those resources to solve our social problems and to underpin the new and more dynamic industries that we need for tomorrow.
That is another area where the economists got it all wrong. The independent forecasters did not forecast any of that. Instead, they looked at the current physical trade balance and saw ahead disaster, to which they eagerly assented. What we will see is a considerable offset in annuity which will flow in on a gigantic scale, possibly rising to £14 billion a year by 1990. That means that the trade problems which will inevitably arise when the oil runs down and when we have a slightly weaker oil price can be handled and are being handled.
The third thing that economists and critics of the Government did not foresee was the enormous rise in non-oil revenues which are now benefiting my right hon. Friend the Chancellor and enabling him now to talk about the possibility of an undershoot for public sector borrowing this year and, in my view, a possible undershoot next year as well. That will give a leeway in our budgetary practice without imprudence, which we have not known for a generation. My own strong view is that in a sense an undershoot is not a good thing, but without a doubt the leeway should be used. It is not good budgetary practice to achieve an undershoot, not least because in Whitehall the word goes out that pressure is off public spending and we can now put aside all those troublesome efficiency drives and all the rest. I hope that there will not be an undershoot and that the space will be used up by a judicious use of resources.
In my book, and I have never disguised this, we should concentrate, for social and economic and job reasons, on tax cuts. I cannot understand the view of the Opposition. I can understand the view of the more blinkered members of the Opposition but not the more sensible members when they are against tax cuts on low incomes. What are they talking about? Do they not listen to their own constituents or understand the enormous disincentives working on those on low incomes who have to pay some of the highest taxes and national insurance in the Western world? Have they not read the stories around the world of those nations and states where low taxes have produced fantastic growth in jobs? Have they not noticed that in California, a state with half the population of Britain, 2 million new jobs have been produced while taxes have been cut by 23 per cent.? The tax cut opportunity must be seized, not least because our competitors, the United States, Japan, Germany and France, are all going for major tax cuts and tax reform and changes in their structure.
If we do not follow that route, we will be disastrously left behind in terms of creating jobs in the inner cities and the areas in the north where we must get them back. If hon. Members say that we should not have tax cuts now because it will increase consumption and suck in imports—and I do not believe it will—if that is the fear, let us go for the sort of tax cuts that encourage personal ownership and investment and savings. Let us copy the ideas of the Loi Monory in France and have front end relief for saving and transfer from State saving, which has on the whole been disastrously inefficient to personal ownership and personal saving which can be mobilised for the new industries and new jobs which we need. There is plenty for my right hon. Friends to do in that area on capital taxes and on all levels, basic rate tax and higher rate tax as well. Taking the example of capital transfer tax, in real terms, in the form of its inheritance tax, that is now higher than in 1974 when it came in. I hope that my right hon. Friend will bring that back to the level it was at when the Labour party introduced it.
Finally, as it has come into the debate in the motion on BTR, although that matter has been resolved, and I am glad it has been, I believe the Secretary of State was totally and utterly right in the line he took. I congratulate him on keeping his head and on keeping calm when those about him were losing theirs. I was glad to see that he stuck to the competition definition in his ruling. I was dismayed to see reports that some of the junior Ministers in the Department of Industry seemed to be putting distance between themselves and him. I hope that is not correct, that the newspaper reports were misleading and that the Ministers concerned will explain themselves. I believe that my right hon. Friend is entirely right. I did not like the ominous suggestion of some hon. Members that we should redefine a new idea of public interest for controlling mergers. We know where that idea goes, towards more bureaucratic vetting of mergers, back to the world of the IRC and all the monopolies and mergers which were put together in a spirit of rationalisation in this country with catastrophic results. We are living with them today.
The British Motor Corporation merger with Leyland was a classic example of alleged public interest prevailing over competitive forces. We do not want to go back to that kind of thing. I believe that we may be looking at the wrong end of the problem altogether. In America, they are terrified of mergers and I think that there is a merger mania as well. The answer probably is to look at the excessive ease with which people can raise capital to conduct these takeover raids, the world of jump bonds, leverage buy-outs and the rest. It may be that the view should be focused at the capital raising end to see if there is not an excessive ease for people, often of not the highest repute, to raise capital and raid much larger concerns. Policy should be concentrated on that end of the process rather than on worrying about the consequences at the other end. If the capital access side is cured and the financing of takeovers is better managed, the consequences will be much more satisfactory and we will not be left with the sort of rows that we have had over BTR and Pilkington.
I said at the beginning that the impending crisis thesis was put forward by the right hon. Member for Sparkbrook. In one sense the right hon. Gentleman might be right; there might be an impending crisis, not in this country—we are in a stronger position than we have been for a generation to meet the rough seas of the world—but in America. We may see there a real disaster—a crash landing for the dollar, a huge hike in interest rates and vast currency instabilities. All that could produce a crisis, but my right hon. Friend has built for us an economy that is stronger to face world difficulties than for many years past.