§ I turn now, Mr. Speaker, to the general economic prospect which forms the basis of my Budget judgment. In the Financial Statement last year I published economic forecasts for the 18 months period from the second half of 1967 to the first half of 1969. This was the first time that any Chancellor had published 998 in anything approaching such detail the full forecast of the components of demand on which his Budget judgment was based. I realised that there were bound to be substantial deviations from the forecast.
§ As I warned the House last year, economic forecasting cannot, except by chance, ever be wholly accurate. But I do not regret the innovation. Nor do I propose to be deterred from publishing a forecast this year. Its availability contributes greatly to the development of informed opinion, and its exposure to public criticism and comment should also help us to improve our forecasting techniques. I would far prefer to have to explain where and why the outcome has differed from the forecasts, than take refuge in an obscurantism which would make my decisions, directly affecting the living standards of everyone in this country, seem both opaque and arbitrary.
§ In 1968, after two sluggish years, the economy grew at a rate of 4 per cent., compared with a main forecast of 3½ per cent. The various components of demand diverged from the forecast to varying extents and in different directions. In some ways we did better than we expected. Exports, which were estimated to increase by 13.1 per cent. at constant prices in the main forecast, and by 14.8 per cent. in the possible "higher case" forecast, in fact rose by 18.5 per cent. This reflects hard effort by some industries and some firms. But we should not congratulate ourselves too warmly on the outcome. We were floated up more by the buoyancy of world trade than by our own efforts.
§ If world trade had grown only in accordance with our expectations, the probability is that we should have been below the main forecast, let alone the higher one. If every firm with a potential export market had done as well as the best, this would have been far from the case. On the contrary, we should have had no trouble with the balance of payments. But they did not. As a result, despite the unexpected buoyancy of world trade, we experienced a slight decline—smaller than for some years past—but nevertheless a slight decline in our share of world markets. Competitively we must do very much better than that in the next 12 months, especially as we cannot 999 expect world trade to grow as fast as it did last year.
§ Another helpful result was that the consumption of public authorities declined by 0.4 per cent. instead of rising as forecast by 3.0 per cent. I hope that the House will take that in, as it is in such marked contrast to the impression which is steadily propagated.
§ The other component of demand which rose by less than estimate was fixed investment, both private and public. Both were down, although the shortfall was greater in the public than in the private sector. For fixed investment as a whole the estimate was a rise of 5.7 per cent., the outturn was somewhat lower. In the narrow sense of relieving pressure on resources this may be counted as a help. In the context of the future prospect of the economy, it was a disappointment, certainly in so far as it was productive investment that was sluggish. But there has been a substantial improvement since the middle of last year.
§ Private consumption, on the other hand, went up by 1.2 per cent., compared with a forecast fall of 1.9 per cent. This may seem a relatively small discrepancy, but the absolute amounts involved are very large. Looking back, I believe—not that the objective of a squeeze on consumption was wrong; it is indeed one which must and will be continued if the balance of payments is to be put right—but that it was over-ambitious to expect that consumption could actually be reduced at a time when the national product was growing fast.
§ It does not follow from this that budgetary measures are ineffective in containing consumption, or that in future we should give up the struggle. Judged by any standard other than the exceedingly stringent one which I applied last year, a growth of only 1 per cent. in personal living standards, combined with a growth of 4 per cent. in G.D.P., is a considerable and unusual achievement. It has to be seen against the background of the 18 per cent. increase in exports over the same period. The contrast between this and the last previous Periods of relatively rapid growth.1958–59 and 1962–63—is striking. In both these periods private consumption grew substantially faster than exports. Despite its other disappointing features, 1968 was therefore 1000 the one year of export-led growth which we have experienced in the past decade and a half.
§ But the result, as the House knows, would have been a great deal better for the economy had the level of consumption not exceeded the forecast. Why did this excess occur? Not, contrary to a belief widely propagated at the end of last year, because of significant dis-saving or a "flight from money". As a result of anticipatory purchases, the personal savings ratio was bad in the early months of 1968, and again towards the end of the year; but for 1968 as a whole, according to the latest available information, the ratio was at a level only slightly below that of 1967. What then were the causes? First, the level of consumption and incomes in the latter part of 1967 turned out to be higher than was provisionally estimated in March. Second, earnings grew faster in relation to prices than was expected. Had earnings been more restrained during 1968 this Budget could have been an easier one. The nation cannot have it both ways.
§ Partly, but by no means wholly, because of this higher level of consumption, imports have been much higher than forecast. Between the second halves of 1967 and 1968 they rose in volume by 8 per cent. as against a forecast rise of only ½per cent. There were a number of special factors which inflated this figure, but even when these are removed it is clear that the post-devaluation propensity to import is higher than was expected, and that the ability of our producers to recapture the domestic market from overseas suppliers has so far been disappointingly slow.
§ It would therefore be blindly partisan—on either side—to describe 1968 as either a wholly good or a wholly bad year. Private consumption, after a rapid rise in 1967, largely as a result of which the consumer was by the end of last year 6 to 7 per cent. better off than in the last quarter of 1966, rose unusually slowly, but did not fall. Public consumption was firmly under control. Progress on the balance of payments was disappointingly slow in relation to our needs, even though the improvement between the two halves of the year was greater than between any two half-years in the past 1001 decade. And this was combined with a substantially above average growth rate.