Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 7:12 pm on 25 March 1991.

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Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli 7:12, 25 March 1991

Most Budgets are by their very nature short-term affairs, but this Budget takes the prize for short-termism. Indeed, it is little more than an attempt to construct a somewhat flimsy raft to which senior Ministers could cling as they frantically attempt to chart a rather meandering and zig-zag course between the Scylla of the recession and the Charybdis of the poll tax, both of which are monsters of their own creation, and it is a raft held together by nothing other than a collective ministerial fear of losing the general election and a cynical contempt for the good sense of the British electorate.

The other day, the chairman of the Tory party, the right hon. Member for Bath (Mr. Patten)—a member of the Cabinet, although he does not have much of a Cabinet job—was reported to have said that the Tory party had won the economic argument in the 1980s. I had always thought that the right hon. Member for Bath was one of the more intelligent members of the Tory party, but to make a statement like that in view of the Government's economic record must mean either that Tory central office has already spongified his brain or that he did not believe what he was saying.

In 1979 the Tories came to power proclaiming what they saw as three fundamental economic aims—to defeat inflation; to transform the supply side of the economy, thereby increasing the efficient supply of goods and services; and to establish, as they saw it, sound public finances. Certainly inflation has not been defeated; it has hardly been dented. As the Red Book shows, over the 12 years between 1979 and 1991 the inflation rate in the United Kingdom, except for a period of two and a half years, has been consistently higher than the average rate for all the countries in the European exchange rate mechanism. It is higher here than in France or Germany. Last Thursday, the right hon. Member for Bath was reported as having said that inflation would now fall like a stone; he said that—poor fellow—just a few hours before the latest RPI figures were announced, showing a fall of 0·01 per cent. in the retail prices index, and the underlying rate of inflation had actually gone up. Last week was not a good week for the chairman of the Tory party.

The hope now is that inflation, as measured by the RPI, will fall to something like 4 per cent. by the end of this calendar year—that is, by the end of December 1991. That may happen, but I have my doubts, as do professional commentators such as Sam Brittan and others. But even if it falls to 4 per cent. by the end of the year, the fall will owe more to the quirkiness of the RPI than to any real fall in the underlying rate of inflation. The Treasury's own Red Book forcecasts for the financial year to April 1992 an average underlying rate of inflation as measured by the GDP deflator—as good a measurement as any—an average underlying rate of inflation of 7 per cent., and in one of the worst recessions that Britain has faced since the end of the second world war.

The second aim of the Tory party in 1979 was to transform the supply side of the economy. The reality has been a disastrous failure. Between 1979 and 1991 the average annual rate of growth of the British economy was a miserable 1·8 per cent.—the worst record in western Europe and a worse record than that of the ideologically despised 1970s. Despite the reduction in the top rate of income tax to 40 per cent., the amelioration of capital taxes such as inheritance tax and capital gains tax, and despite deregulation and privatisation, all that the Shi'ite fundamentalists of the radical right have to show for the 1980s is high inflation and a disastrously low rate of growth.

In 1979 we had a surplus on our foreign trade in manufactured goods. In 1989, after 10 years of Tory supply side economics, that suplus had become a massive deficit of £17 billion. Last year it was still £11 billion, and the forecast in the Red Book for the coming year is for a deficit of £6 billion. As the Treasury candidly points out on page 33 of the Red Book, however, that fall in the deficit to £6 billion in manufacturing goods is the result of lower domestic demand and has nothing to do with the transformation of the supply side of the economy. If the recession recedes, as it might, and if interest rates start to come down and demand starts to increase, the deficit in our manufacturing trade will go up from £6 billion. I believe that it will go up to levels which will become unsustainable.

Finally, we come to the public finances. Once upon a time, we are told, a terrible dragon roamed the land, devouring the crops and terrorising the people, and it was called the public sector borrowing requirement or PSBR. As the right hon. Member for Blaby (Mr. Lawson) hinted, it was slain in 1984 or 1985—or perhaps it was 1986—much to the jubilation of members of the Institute of Economic Affairs and others. But the people, apparently were indifferent, and the crops were still destroyed. The dragon was changed by the nice PSDR—the public sector debt repayment—and the radical right slept soundly in their beds, but now they are beginning to wake up, as we heard from the hon. Member for Bridlington (Mr. Townend), and to form groups. And they are beginning to get very worried because the dragon is coming back—the PSBR is with us again. It may be said that it is only £8 billion for this year, which is nothing really.

One is reminded of the argument about the balance of payments that we heard from the right hon. Member for Blaby—that it does not matter, and even if it did, it would be all right if it could be funded. If privatisation proceeds for this year were taken out, the £8 billion would become £12 billion. In any case, I do not believe the figure of £8 billion, and I do not think that the Chancellor or anyone else believes it. I do not know about the Financial Secretary to the Treasury. Perhaps he should go into the Chancellor's room one night and look through the secret drawers in his big desk, where the worst-case estimates—perhaps event the middle-case estimates—for the PSBR lie.

Even on the basis of the present public expenditure figures, the general view in the City is that the figure will be about £12 billion. I agree with that view. Even the Red Book points out that there is a margin of error of about £6 billion. But if the public expenditure totals are eroded, as they may very well be, the figure may go above £12 billion. In the following year it will be far higher because, if I may mix my metaphors, one cannot turn around the great tanker of the PSBR in one year. As the balanced Budget fades away, the PSBR will increase.

The old wheel has come full circle. Inflation has not been defeated, the supply side has not been transformed, and the public finances are in deficit. On its economic record alone—never mind its aims and, indeed, its achievements—the Tory party does not deserve to be re-elected, and after the antics of last week it will not be re-elected.