Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 8:23 pm on 20th March 1989.

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Photo of Mr Win Griffiths Mr Win Griffiths , Bridgend 8:23 pm, 20th March 1989

We are debating a Budget that has been created in the shadow of storm clouds caused by all the miscalculations on which the Chancellor's last Budget was based.

The Chancellor's forecasting record is such that, if he was an economic analyst or financial executive of a privatised Great Britain Ltd, he would have been sacked a good while ago. His inflation figures proved to be 100 per cent. out, his forecast for the balance of payments deficit was a quarter of what it has turned out to be, and the same is true of the Budget surplus. It is therefore extremely difficult to enter a debate with the Chancellor on the basis of his forecast this year for what is likely to happen in the coming financial year. We have to take his forecasts with a pinch of salt and hope that he has learnt something from all the mistakes of the last year.

Will the Budget strengthen the economy and create jobs? We have to answer that question with a resounding no. The continuing underlying trend of weakening in the manufacturing sector will continue. During the past decade, Britain's share of world trade has decreased by more than 10 per cent. We have managed to convert a £3·7 billion surplus when Labour was last in power to a £16·4 billion deficit today—some economic miracle. Even allowing for invisibles, which we are often told we have to bear in mind when considering the whole economy, the deficit has doubled.

Those figures show an appalling performance. The economy has been saved only by the Chancellor being absolutely resolute about pushing up interest rates time and again to bring hot money into the country. We must remember that it can just as easily leave. In the meantime, home owners and businesses, especially small and medium-size businesses, face the difficulty—and sometimes the misery—of coping with the extra costs that high interest rates involve. Those interest rates are the creation of the Chancellor alone as he tries to make up for some of the mistakes of last year's Budget. The Chancellor told us in his Budget statement that he will maintain high interest rates for as long as is necessary. No doubt he will increase them if he considers that necessary.

At the beginning of today's debate, the Secretary of State for Employment made great play of the Government's job creation record. His view was blinkered and short-sighted in terms of recent history. I intervened in his speech, but he was unwilling to accept the figures that I produced, which are based on answers given by his Department to questions about how the economy has developed.

I shall remind the House of those rather stark figures. During the past decade, jobs have been created, but they have been created in the south-east, East Anglia, the south-west and the east midlands. In those areas, 580,000 jobs have been created for men and 433,000 jobs have been created for women. They are all full-time jobs. Just over 1 million jobs have been created in the area below a line drawn from the Severn to the Wash. However, in the west midlands, the north, the north-west, Yorkshire and Humberside, Wales and Scotland there are 650,000 fewer jobs for men and 149,000 fewer full-time jobs for women.

Therefore, as a result of the economic miracle of the past decade, there are almost 800,000 fewer jobs north of the line from the Severn to the Wash. The only bright spot is the west midlands, where there are 8,000 extra full-time jobs for women. Therefore, the Government should not be proud of their record on jobs. By the Chancellor's own admission, the situation is unlikely to improve in the coming year. The squeeze which is meant to affect the southern part of the country is more than likely to affect the north and will mean that while the south gets a cold the north and the west will get influenza.

We have to take the Chancellor's predictions with a pinch of salt because he was so wrong last year. He predicts that the growth in GDP will slow done from 4·5 per cent. in 1988 to 2·5 per cent. in 1989, and that domestic demand will slow down from 6·5 per cent. in 1988 to 2·5 per cent. in 1989. Yet at the same time he predicts no fall in the current account deficit or import penetration when the economy is supposedly slowing down. He predicts that the more sophisticated GDP deflator will be 5·5 per cent. in 1989–90. That must mean a decline in the rate of growth of earnings and profits which are moving well ahead of inflation at present. It would be interesting to know from the Minister exactly how the Government plan to achieve that target. It is very difficult to perceive that the economy, which is running away on the credit boom, will slow down without an extremely hard landing.

Much has been said about the extension of PEP; and ESOPs. While ESOPs are to be welcomed, PEPs appear to be an attempt to bribe people to buy shares in water and electricity—a way in which the Government hope to get out of the hole which they have dug for themselves in attempting to privatise water and electricity, neither of which has been accepted by the public as a suitable industry for privatisation.

After last year's Budget, the Chancellor was hailed as Wonderman, but within six months he has been described as Blunderman—a blunderman who, in his Budget speech last week, appeared to have no confidence in the ability of British business to increase its share of the domestic market or overseas market. If he had, he would be predicting a drop in import penetration into Britain. The Chancellor is so scared stiff of the credit-based consumer boom that he unleashed in his last Budget that for yet another year he has refused to index duties on alcohol and cigarettes, showing the scandalous disregard for the health of individuals that he showed for the health of the nation in his Budgets in the past couple of years. If the Chancellor cared for the nation's health, he would never have ended up with a £14 billion Budget surplus this year or be planning a similar or bigger surplus next year.

There are ways of spending the Budget surplus without stoking up inflation. For example, having got rid of the earnings rule for pensioners, the Chancellor might have struck an even bigger blow for the standing and the prosperity of pensioners by giving them back the £4 billion that was taken from them in the past decade. Such an investment in the state pension would not have unleashed the inflationary credit boom that we have experienced in the past year. A great deal could have been spent on infrastructure, the Health Service and education, and that would not have been inflationary. By its nature, such spending is used for products made in the home market, and that would have benefited British industry.