HC Deb 24 November 1970 vol 807 cc223-4
20. Mr. Barnett

asked the Chancellor of the Exchequer what is his estimate of the effect on the rate of economic growth in 1970–71 and 1971–72 of the measures taken on 27th October, 1970.

Mr. Barber

As I said in my statement, I expect the effect of the measures on demand in 1971–72 to be broadly neutral but by reducing further expenditure and cutting income tax they will contribute to a faster rate of economic growth.

Mr. Barnett

Would the right hon. Gentleman confirm that, at least in the short term, his policies are not likely to achieve an increase in the rate of economic growth and that we are well on the road to achieving the O.E.C.D. target of being the poorest country in Europe? Will he confirm that the only way in which he proposes to deal with the matter is by reducing the money supply and increasing the level of unemployment?

Mr. Barber

With great respect to the hon. Gentleman, it is all very well for him to say this sort of thing. But he will recall that the right hon. Member for Cardiff, South-East (Mr. Callaghan) talked about a growth rate of 5 or 6 per cent., the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) talked about a growth rate of 4 or 5 per cent. and the National Plan talked of a growth rate of 4 per cent. As we know, none of these targets was achieved. What I am saying is that I believe that the proposals I have put forward, together with the other measures which the Government are pursuing, will contribute to a faster rate of economic growth.

Mr. Bruce-Gardyne

In reference to the money supply, can my right hon. Friend say whether the Government now stick to the targets for the rate of growth, money supply and domestic credit expansion laid down by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) in his Budget Statement? If not, why have these targets been changed?

Mr. Barber

We have been doing considerably better in recent months. Earlier at Question Time we talked about the quarter ending in June. The September quarter figures will be published next month but it is already clear that the rapid rate of monetary expansion in the June quarter did not continue in the September quarter. Preliminary indications are that the rise in money supply in the September quarter was a good deal better, especially in view of the fact that there was an exceptional gilt-edged stock redemption during that quarter. So at least we can take heart from that. In looking to the future, we must bear in mind the point I made earlier—namely, that the target for domestic credit expansion set by the right hon. Member for Stechford was £900 million for the year and already in the first quarter there had been an expansion of about £700 million.

Mr. Grimond

Would not the right hon. Gentleman agree that there seems to be surprisingly little increase in demand and that what is lacking for growth is investment? How does he think his measures will stimulate investment? Is he satisfied that the abolition of investment grants will increase investment?

Mr. Barber

Yes, Sir. The right hon. Gentleman has raised a wider question, but from the figures one sees that the rate of growth of investment in industry went down after investment grants were introduced. I believe the figures show that they were a failure. I believe also that the measures we have taken, including the cut in corporation tax, will improve our very bad record in industrial investment. I hope so, because it is in the national interest that this should happen.