HC Deb 19 July 1971 vol 821 cc1041-50

We now have the prospect of a slower rise in prices and at the same time a faster growth of demand. Managements can now look forward with the greater assurance which they rightly need to embark upon the new investment which the country needs.

The Trades Union Congress has on many occasions argued both for action to restrain the rise in prices as a basis for wage moderation, and for a faster growth of demand. At the N.E.D.C. meeting earlier this month it stressed how difficult it was for it to persuade its members to moderate wage claims while the rate of increase of prices was so high. I hope therefore that, in the light of the measures which I have announced and the new possibilities opened up by the C.B.I. initiative, the T.U.C. will consider how best it can make a positive contribution.

We now have a unique opportunity to make a decisive break-through in the fight against inflation, and this is the time to grasp it.

Mr. Roy Jenkins

May I begin by congratulating the Chancellor of the Exchequer on rising like a somewhat belated phoenix from the ashes of the flames which have devoured his Budget judgment? May I also congratulate him on having made such a remarkably large and welcome repayment of international debt on the basis of what his right hon. Friend the Prime Minister regarded a year ago as "a rapidly deteriorating" balance of payments situation?

The right hon. Gentleman has announced far-reaching changes. Some of them are in line with what we urged upon him in the censure debate on 28th June——

Mr. Cormack

Then why did you not cheer?

Mr. Jenkins

I very much welcome the Chancellor's belated conversion in some matters to what we have urged upon him. What we greatly deplore—and this is quite clear on his own words—are the manifestly wasted months which have been allowed to go by. There are other measures which we will want to study and to give a more considered view about in the debate tomorrow, as indeed on the package as a whole. In the meantime, I ask the right hon. Gentleman three specific questions and one general question.

First, he says that he expects gross domestic product to rise as fast as projected in his Budget statement, although he admits that the basis for the start is now lower. Can he tell us, on top of this, what he expects the latest increase of personal consumption—5.3 per cent. in his Budget statement—now to be from the first half of 1971 to the first half of 1972? Secondly, what effect does he expect this to have on the level of unemployment in the middle of winter next year? Thirdly, has he any changes to announce in his money supply policy, in so far as there is one, in connection with what he has outlined? Finally, does he now believe that he has settled the course of the economy for at least a few months, or does he expect to correct his judgment again in the autumn?

Mr. Barber

I will deal with the last question first. I have always taken the view—I think that any sensible Chancellor would—that if one considers at any time during the course of the year that it is desirable and in the interests of the economy to take action, one should take action. I seem to recall that the right hon. Gentleman himself on at least one occasion took action in the course of the year, but not quite of the character I have announced today. I said that I expect output over the year, from the first half of this year to the first half of next year, to grow by 4 to 4½ per cent. That is the forecast I have made, compared with the expectation at the time of the Budget of a growth in output of about 3 per cent.

For reasons which the right hon. Gentleman understands, he did not have an advance copy of my statement, and I think that perhaps he misunderstood what I said at one point. I said that at the time of the Budget the figure was about 3 per cent. The latest forecast without any changes would be a little over 3 per cent. Now the figure is 4 to 4½ per cent. for the same period. I expect personal consumption to increase further in the course of the year than was predicted at the time of the Budget. I do not propose, because it has not been customary other than at the time of the Budget, to give the detailed forecast of the various components. The right hon. Gentleman knows that perfectly well.

I turn now to the questions about unemployment and the expected growth of output. The level of unemployment, after allowing for seasonal factors, should stop rising, perhaps after a couple of months or so, and before very long it should start to fall. The right hon. Gentleman referred to the balance of payments and the statement made by my right hon. Friend the Prime Minister, who said in a speech that the balance of payments position was deteriorating. The right hon. Gentleman knows perfectly well that what my right hon. Friend said was perfectly correct and was borne out by the figures.

Finally, there is the question of my Budget judgment. I have explained in my statement—I hope the right hon. Gentleman will agree that I was right to keep it concise since we are to have a debate tomorrow—the various factors which caused me to take the action I have announced ; I will elaborate on them in the debate.

The fact is that the latest information shows that although the increase in activity between the first half of this year and the first half of next year may well be somewhat higher than forecast at the time of the Budget, even without these changes, the actual level of output in the first half of the year was below what we were then expecting. In addition, I have obviously taken into account the recent unemployment figures, the better prospects for inflation as a result of the policy of de-escalation, and the C.B.I. initiative. When the right hon. Gentleman was in office he was never satisfied unless he was putting taxes up. It ill-becomes him now to complain because we do not cut them quickly enough.

Mr. Roy Jenkins

I will leave aside argumentative points, although I would be happy to deal with them, because I think it would be unfair to take the time of the House today when we are to have a debate on this matter tomorrow. The right hon. Gentleman did not mention money supply. Can he give us his view on that?

Secondly, as the right hon. Gentleman rightly pointed out, it was not possible for me to have an advance copy of his statement in view of its budgetary nature, but I did not misunderstand what he said. On the contrary, I think he has misunderstood my question about personal consumption. In the Budget Statement, he had a conclusion, leading from a number of factors, that G.D.P. would increase by 3.1 per cent. He has put that up to between 4 and 4½ per cent., as a result of measures largely affecting personal consumption, which was then predicted to increase by 5.3 per cent. It is essential, if we are to be properly informed, that he should tell us about personal consumption, which is a crucial factor which he must know if he has worked out this aspect. As a result of what he has worked out, what is the increase estimated over the 5.3 per cent. in the red book at the time of the Budget?

Mr. Barber

Although my proposals will increase the public sector's borrowing requirement, the package as a whole should not require a substantially faster growth of money supply. The faster growth of output which I now expect should be offset by a slower rise in prices. There will, of course, be a need to ensure that the increased borrowing requirement is financed mainly in a way which does not entail substantial expansion of reserve assets at the banks, but so far the authorities have been very successful this year in selling gilt-edged and National Savings to the public.

I replied to the right hon. Gentleman about personal consumption. He knows perfectly well that it is not the normal practice other than at Budget time to give the components, and I do not propose to depart from it.

Several Hon. Members rose——

Mr. Speaker

Order. Can I have the assistance of the House? There is to be another statement, in which right hon. and hon. Members are interested, and there are other items of business, including the debate on housing, for which I have a long list of speakers. In view of the fact that we are to have a debate tomorrow on the economic situation, I hope that right hon. and hon. Members will curtail their questioning of the Chancellor of the Exchequer.

Mr. Boyd-Carpenter

I congratulate my right hon. Friend on his immensely encouraging statement, which his own prudent stewardship of the last year has made possible.

Mr. Faulds

Make him a P.P.S.

Mr. Boyd-Carpenter

Good idea.

What is my right hon. Friend's estimate of the additional demand which will be generated in the present year by his firm action over the hire purchase restrictions, and what will be the effect on the index of retail prices of the reductions in purchase tax?

Mr. Barber

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) will recall, from his own days at the Treasury, that it has not been the practice either at the time of the Budget or at any other time to split up, as it were, the demand factors of various measures which have been announced. But together—and this probably gives him the broad answer—they will mean an increase in output over the year from an expected 3 per cent. to 4 to 4½ per cent.

I think I am right in saying that the effect on retail prices of the cuts in purchase tax is expected to be about ¾ per cent.

Mr. Duffy

Is the Chancellor of the Exchequer aware that the British Steel Corporation has just emerged from a period of severe price restraint? How does he expect it to achieve solvency if it is to be subjected to further price restraint? As a matter of equity, or at least compensation, will he consider waiving this policy in respect of steel for at least six months?

Mr. Barber

As I understand it, the hon. Gentleman is suggesting that I should exempt the steel industry from the price restraint which is being accepted by the other nationalised industries. I would not dream of doing that. Together with my right hon. Friends, I have seen the chairman of the British Steel Corporation and the chairmen of the other major industries in the nationalised sector, and they understood perfectly well that the national interest called for this action.

Mr. Thorpe

I congratulate the Chancellor of the Exchequer on the frankness with which he has told us that his April Budget unamended would lead to higher unemployment and a continued downward trend in investment and a lower balance of payments surplus than prophesied. We are delighted that he has been blown back on course. I have three questions. First, can he go a little further with his prophecy about unemployment? Does he expect that the figure will be below 500,000 by the end of the year? Is that the Government's target?

Secondly, as for industrial investment—he knows that I have an interest which I now declare—does he intend that leasing will go on all fours for fiscal purposes with hire purchase?

Thirdly, he said very little about savings. In view of inflation, has he thought of a protected savings scheme which would give corrected values to offset the effects of inflation, a scheme of the kind tried in other countries with marked success?

Mr. Barber

The right hon. Gentleman knows that specific forecasts of unemployment figures are not given, and I have given the best estimate I can of the situation as I see it developing.

If the right hon. Gentleman has any specific questions about industrial investment, particularly leasing, I should like to consider them. I have made an announcement about hire purchase. The Orders will be out tonight and they will cover the three areas I have mentioned. As the right hon. Gentleman knows, the record of savings has been extremely good and very encouraging over the past year, and I have no reason to doubt that the level of savings will continue to be high in the months ahead.

Mr. Hordern

Will my right hon. Friend accept that his measures will do much to encourage the level of industrial investment and as such will be widely welcomed? However, would he tell the House, as he expects output to increase between the second half of this year and the first half of next year by 4 to 4½ per cent., what is his estimate of the rate of growth of productive potential over the same period?

Mr. Barber

I am grateful for what my hon. Friend has said about the proposals for encouraging industrial investment. I should like to deal with this subject at greater length tomorrow, but I should have thought that the rate of growth of productive potential would be about 3 per cent. so that the growth in the rate of output will exceed the growth of productive potential by 1 per cent., or a little more. That is highly desirable, and indeed necessary, in order to take up the slack which, as I have said, is now apparent and which came about in the first half of the year.

Mr. Harold Wilson

I congratulate the right hon. Gentleman on his third Budget in less than nine months against a background of an inherited £600 million balance of payments surplus. I recall that in the debate on the second Budget I told cheering hon. Members opposite that it would not look the same in a few weeks' time, and that was seven weeks before Bromsgrove. As I understand it from the latter part of his statement, the right hon. Gentleman is hoping that these measures will help to lead to some restraint in wage settlements. Would he not agree that it is incumbent upon him, if that is his hope, to withdraw the Housing White Paper which the House will be debating this afternoon?

Mr. Barber

The right hon. Gentleman will be the first to appreciate that my right hon. Friend's proposals, which are to be the subject of a debate this afternoon, are not in the nature of an ordinary increase in prices resulting from an inflationary situation, but are the result of a deliberate and long-overdue change in housing policy. What is more, they will be accompanied by a more generous system of rent rebates for those who need them, including for the first time tenants in private unfurnished accommodation.

The right hon. Gentleman will recall that it was only six weeks ago that the independent National Institute was forecasting a balance of payments surplus on current account for the whole of the year of only £300 million, and today I have said that in the first six months of the year alone we expect a surplus in balance of payments current account of about £300 million, which is an annual rate of £600 million.

Mr. Harold Wilson

The National Institute was not elected to this House and a year ago we forecast a continuing surplus of £600 million. It was the Prime Minister who said that we had passed the peak and that it would fall.

Mr. Barber

If the right hon. Gentleman cannot do better than that, he will soon become the day before yesterday's man.

Sir J. Rodgers

Does the Chancellor of the Exchequer realise with what satisfaction his statement has been received today, particularly his statement about the repayment of international debt, most of it incurred by the Labour Party? Secondly, what will be the cost to the Exchequer—[HON. MEMBERS : "Reading."]—of the increase in investment allowances and the increase in free depreciation for service industries in development areas and the stimulation of consumer demand by the hire-purchase changes?

Mr. Barber

The changes in capital allowances will cost about £40 million in 1972–73 and the cost in 1973–74 will be about £150 million. The purchase tax changes will cost £110 million in this financial year. As I mentioned, purchase tax is paid in arrear and in a full year the cost of the purchase tax changes will amount to £235 million.

Mr. Sheldon

I welcome the initiative of the C.B.I. in the matter of the prices policy. However, is it not astonishing that the Government had to produce a mini-Budget depending upon this piece of private enterprise, namely, the C.B.I., coming to some agreement on prices and incomes when that should have been the responsibility of the Government? Why did they not carry out some sort of policy which would have led to this kind of expansion earlier? Why have they wasted these few months? With all the advice open to them and when it was obvious that this kind of prices and incomes policy should be agreed between the unions and the Government in the spring of this year, why have the Government wasted all these months? What effect will these measures have on unemployment?

Mr. Barber

If the hon. Gentleman will look at my statement, he will see that the C.B.I. initiative was one of the factors I took into account. Perhaps I can say this to the hon. Gentleman and some of his hon. Friends. I wish that they had used the words which Mr. Feather used when he was asked to comment on the C.B.I. initiative. He said, "It shows a constructive response to the policy which the T.U.C. has been advocating for some time."

Several Hon. Members rose——

Mr. Speaker

Order. We seem to be getting very much into the realm of argument but I hope that the House will be with me if I call only two more supplementaries.

Mr. Ridsdale

Could I ask the Chancellor what steps the T.U.C. has undertaken, other than what Mr. Victor Feather has said, to underline what must be the basis of his economic policy, and that is the establishment of a voluntary prices and incomes policy?

Mr. Barber

It is for the trade unions to decide what action they should now take. I am sure they recognise that the measures which have been taken by the Government and the action of the C.B.I. create a new situation in which there is now a much better opportunity of bringing inflation under control, reducing unemployment and achieving a faster growth in living standards.

Mr. Atkinson

Will the right hon. Gentleman seriously reconsider the accusation he has made against wage earners who, according to him, have taken more from the economy than that to which they are entitled, particularly since he has now announced that there is a need to increase consumer demand? Will he also consider this in the light of figures from his own Department showing that wage earners, in net terms, are now worse off than they were 12 months ago?

Mr. Barber

I would have thought that what matters now is that the prospect of lower price increases over the next 12 months should encourage management and unions to negotiate more moderate pay increases.