HC Deb 02 May 1974 vol 872 cc1299-301
6. Mr. Norman Lamont

asked the chancellor of the Exchequer whether he is satisfied with the present level of company liquidity and profitability following the Budget.

17. Mr. Stanley

asked the chancellor of the Exchequer what estimate he has made of the effect of the Budget on company liquidity.

Mr. Healey

The most recent information available about company liquidity shows that this was at a high level in the fourth quarter of 1973, and the indications are that in general companies have been remarkably resilient following the resumption of normal working. It has never been the practice to publish forecasts of the effects of the Budget on company liquidity.

Mr. Lamont

Will the Chancellor confirm that there has been serious disagreement between the Government and the CBI about the level of corporate liquidity? Does he not agree that what matters is not the amount of liquid assets but the net position of companies after borrowing, that this is strongly negative at present, and that it is this, plus the prospective cash flow problems, which is very much alarming the CBI?

Mr. Healey

The CBI is alarmed at many things, for reasons which we all understand. There is no dispute that the total corporate liquidity in Britain was £10,000 million at the end of last year.

Mr. Lamont


Mr. Healey

There is no doubt that there will be a fall in liquidity this year—I referred to that many times in my Budget speech—but I am confident that sources of funds will be available for investment, if desired, notably from the banking sector.

Mr. Denzil Davies

Does my right hon. Friend agree that the Opposition's concern about company liquidity would carry more weight if, when they were in Government, they had not changed a system of corporation tax which favoured retentions to a system which favoured distributions, thereby penalising companies that wanted to invest from retentions?

Mr. Healey

There is a great deal in what my hon. Friend says. The Opposition's view on liquidity would be more convincing, also, if they had made every effort to avoid two months of three-day working, instead of provoking the miners into an unnecessary dispute, which is responsible for the main burdens carried by the British nation today.

Mr. Stanley

What steps will the Chancellor take to avert the acceleration of the fall in company liquidity this year arising from the wage threshold provisions under the Pay Code, which will almost certainly become operative in the current month?

Mr. Healey

The hon. Member, who was not a Member of the last Parliament and therefore carries no responsibility for the action of his right hon. Friends then, is aware, as I am, that the operation of the threshold agreement is acting on the economy in a sense exactly the opposite of that intended by the previous Government when they introduced it. But as so many people have already reached pay settlements with threshold agreements it would be improper for the present Government at this stage to do anything to interfere with them.

Mr. Maxwell-Hyslop

Is the Chancellor aware that the liquidity figures for the last quarter of 1973 do not show the disastrous effect of the dramatic increase in rates in areas which have suffered from the Government's alterations in rate support grant, or the loss of liquidity due to the increased national insurance contributions payable by all employers?

Mr. Healey

I am sure that that is true, but, equally, they do not reflect the reduction of the rate burden in the industrial areas as a result of the recent decision of my right hon. Friend the Secretary of State for the Environment. The changes in the rate system are probably more important to companies in the industrial areas than in the rural areas.

Forward to