§ The measures that I now propose to outline are designed to achieve our growth target of 4 per cent. a year without inflation. Clearly, there must be two elements in them: measures designed to increase our productive capacity and our efficiency; and measures designed to ensure that the level of demand is high enough to cause the necessary growth of production, but not so high as to cause a return to inflation.
§ The key to any judgment upon the level of demand is clearly incomes policy. This simple fact cannot be stated too often; expansion and incomes policy are entirely interdependent. The extent to which I can safely stimulate demand now depends upon the movement of other factors that affect costs and prices: by far the greatest of these is the level of personal incomes.476
§ If we wish to see a more rapid rate of growth, then we must accept the principles and practice of an incomes policy. It is sometimes said that we are facing here the classic problem of the chicken and the egg. Without expansion we cannot have an incomes policy, without an incomes policy we cannot have expansion.
§ I accept that this is the problem; but we must solve it. I accept that this is the situation; but we must now break out of it. We can break out only by launching deliberately on a policy of expansion and inviting those who have responsibility in management and unions to join with us not only in the prospects, but also in the necessary conditions of a policy of expansion. The country cannot achieve success, nor can "stop-go" policies be avoided, if this compact cannot be made between the three main partners in our economic life.
§ I will be more specific on the incomes policy. It is true to say that based on experience to date an annual rate of increase of 2 to 2½ per cent. in money incomes is the most that can be expected without outstripping productivity and so putting up prices. The figure appropriate to a 4 per cent. growth rate, as the National Economic Development Office document has illustrated, is about 3 to 3½ per cent. on the average.
§ Acceptance of the 4 per cent. target involves, therefore, in my judgment, acceptance of the 3 to 3½ per cent. figure for incomes generally. For the nation as a whole the increase of incomes must be no more: it need be no less if we firmly intend together to achieve our target. Acceptance of this fact must be part of a concerted national effort.