Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 6:09 pm on 20th March 1989.

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Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 6:09 pm, 20th March 1989

I was fascinated by the suggestions of the right hon. Member for Brighton, Pavilion (Mr. Amery) that monetary policy could be cured by some administrative changes and that one of those changes should be that the Bank of England should be given an independence which it has not had since it was nationalised. As he began his argument, I thought that he would suggest that we should return to the gold standard at the same time. After all, it was only 10 years ago that Sir William Rees-Mogg, the smutty man in charge of the Broadcasting Standards Council, wrote a pamphlet saying that all our economic ills could be cured by a return to God and the gold standard. I am not sure that doing things by hunch, by guess and by God is the right way to deal with economic problems and I shall not follow the right hon. Member for Pavilion down the line of historical fantasy.

There is broad agreement in the country, if not in the House, that the 1989 Budget is the price that we have to pay for the 1988 Budget. That price includes listening to the Chancellor's words about lower economic growth, wage restraints, a balance of payments crisis, high inflation and more unemployment. Although the responsibility for the current mess, muddle and moronity in economic affairs lies entirely with the Chancellor of the Exchequer, I felt sorry for him as he delivered his Budget. As the blood drained from his face and his eyebrows drooped, I thought about the excrutiating pain he must be suffering—that haughty, ebullient, cocky, arrogant Chancellor, forced at the Dispatch Box to disport himself in such a diffident fashion, and produce such a demeaning, piddling little Budget which has made him the object of political scorn and economic contempt. As he sat down, I was reminded of the words of President Lyndon Baines Johnson, when he listened to a speech by Richard Nixon. He turned to the press corps and said: Boys, I may not know much, but I know chicken shit from chicken salad. The Chancellor began his speech by talking about the enterprise culture and telling us about the Thatcher economic revolution of the past 10 years. Recently I have spent a great deal of time examining the Thatcher economic revolution of the past 10 years and comparing our economic performance with the country's economic performance during the 10 years preceding 1979. The results are quite interesting. Those who salivate at the thought of the Thatcher revolution claim that it has brought about a sea-change in our economic performance, but my analysis shows that the Thatcher revolution is an illusion, a mirage, and a will-o'-the-wisp that belongs to the media world of make believe.

The theory of the Thatcher revolution was to have been monetarist. In practice, it has been a mish mash of monetarism and crypto-Keynesianism. At first the neo-monetarism theorists of the revolution told us that they would control inflation by controlling M3. When the evidence confounded the theorists, they turned to M1, and when that did not work they turned progressively to a variety of monetary indicators—M0, M2, M4, M5, PSL1, PSL2 and DCE. In the 1989 Budget the Chancellor has gone back to M0. Needless to say, none of those monetary indicators did what was claimed of them and Mo will not do what was claimed for it. In theoretical terms, the revolution has turned out to be Grecian tragedy and only the Chancellor's pride prevents him from admitting that.

According to conventional media wisdom, high levels of economic growth in the 10 Thatcher years have brought about the enterprise culture, better management and more hard work. According to conventional media wisdom, low economic growth is a thing of the past. Alan Budd, a Thatcher apologist and professor of economics, and director of the centre for economic forecasting at the London Business school, argued in volume 2, No. 2 of the "Contemporary Record": The Conservatives could look back to 10 years prior to 1979 when GDP had grown at an average rate of 2·2 per cent … Since the second quarter of 1981; GDP growth has averaged 3·4 per cent. a year. Even the most stupid member of the stupid party can see the trick. Thatcher did not come to power during the second quarter of 1981; the Conservative Government were elected in 1979. The average rate of growth in GDP since 1979 is 1·8 per cent. rather than 3·4 per cent. and is less than in the 10 years preceding 1979. Professor Budd also ignored entirely the contribution of oil and gas production on the United Kingdom continental shelf to economic growth since 1981. The figures show that without oil and gas production virtually all the economic growth would have been wiped out.

In 1983, oil and gas production accounted for 6 per cent. of gross national product—twice the rate of economic growth for that year. On average, in the years 1982–87—the only reason I stop at 1987 is that I cannot obtain any figures for 1988—oil and gas production more than accounted for all the economic growth in Britain. We should remember that prior to 1979 there was virtually no oil and gas production in the United Kingdom.

So what kind of revolution is it? After 10 years there has been no growth other than that from a God-given source, and not even Thatcher can claim that she is God. Even sanctification will probably have to await her death. After 10 years we have just surpassed the level of manufacturing output that existed at the beginning of 1979. As North sea oil and gas revenues and production diminish, and a balance of payments crisis of super proportions hits us, the Thatcher revolution will be seen by the public and by history as little more than a chimera.

I read incessantly that one of the major characteristics of the enterprise culture and the Thatcher revolution is low taxation. It is said that Thatcher lets the people spend more of their own money, that the Tories are the party of low inflation and that Labour is the party of high taxation. I hate to say it, but it is a whopping great lie. The truth is the reverse. Thatcher takes more money from people and lets them spend less than Labour did. The statistics show that the Tories are the party of high taxation. [Interruption.] I hear the laughter of the hon. Member for Bridlington (Mr. Townend) who accompanied me to Tokyo. Apologists of the Thatcher revolution, of whom he is one, talk only about income tax and avoid all mention of VAT, national insurance, royalties and rates because the figures show that, after a difficult start, the Labour Government brought down taxation as a proportion of GDP. Whereas Labour took only 33·9 per cent. of gross domestic product in taxation in 1978–79, in the current tax year the Conservative Government are taking some 37·4 per cent. of GDP in taxes. In every year that the Conservatives have been in power, they have taken a higher proportion of GDP in taxes than Labour took in 1978–79. In 1984–85 the Conservative Government took as much as 39·1 per cent. in taxes. I remind the hon. Member for Bridlington that that is our money.