§ I believe that the action I took in July and the further measures I will announce this afternoon will ensure that the overall level of demand in the economy will be sufficient to prevent any danger of mass unemployment in the coming year. There is, however, a more immediate and urgent threat to employment in Britain at the moment than inadequate demand. The impact of inflation on the company sector risks forcing thousands of firms to restrict their output and lay off workers in the coming winter not through lack of demand for their products—many have full order books—but simply through lack of working capital. The 259 same factor could force some firms into bankruptcy. It is already compelling many of them to cut back on plans for investment to which they were firmly committed only a few months ago.
§ There are two ways in which inflation has hit the company sector. In the first place, it has made the operation of the price controls far more severe than was originally intended by the last Government when they brought them in. In the second place, it has increased the cost of replacement stocks to a degree which, under the present tax rules, imposes burdens which industry was never meant to carry.
§ The incidence of inflation on financial viability differs widely from firm to firm. For example, large capital-intensive firms have suffered comparatively little from the impact of wage inflation on the productivity deduction under the Price Code. Similarly, some labour-intensive firms have suffered comparatively little from the increased cost of stock replacement.
§ In an ideal world, of course, it would be desirable to take full account of individual circumstances and adjust action according to specific needs. When our new system of planning agreements is fully in operation, it will be easier to adopt a selective approach along these lines. But this instrument simply does not exist at all at present. The need to act now is urgent. So we must achieve such discrimination as is possible through the instruments already in our hands.
§ The House must recognise a fundamental distinction at the outset between two aspects of the problem. The Government have committed themselves in the Queen's Speech, as in the White Paper on the Regeneration of Industry, to a mixed economy in which the private sector is vigorous, alert and profitable. The Government therefore have a duty to see that firms which are alert and vigorous can be profitable as well. But such firms can be profitable only if the system of price control and taxation within which they operate makes this possible. Any adjustments to the system which the Government have to make for this purpose cannot rightly be regarded as State aid.260
§ But there will be other firms whose failure to make profits is no fault of the system within which they operate. It results from their failure to be alert and vigorous. The Government have a responsibility to help such firms only if it is in the nation's interest that they should do so. Whenever it is in the nation's interest that special assistance should be given to particular firms, the nation must have a right to take a share, if it wishes, in the equity of the company—as provided for in the Industry Act and in the proposals for a National Enterprise Board. State aid in this sense should be given only on appropriate conditions.
§ So far as this sort of Government aid is concerned, I recognise that the current economic climate may increase the number of otherwise viable firms whose problems justify selective assistance under the Industry Act. In that event, the Government will be prepared to make further funds available for dealing with such special cases. Moreover, if a particular part of industry is suffering from a purely temporary lack of demand for its products, I would consider accelerated public purchasing to assist it where this is appropriate.
§ There is at present a special problem facing firms which make equipment for space heating. Since their case is particularly difficult, and there is some evidence that this would at least help marginally to save energy, I have decided to relax hire-purchase controls on space heating installations. The new terms will be a minimum down payment of 10 per cent. and a maximum repayment period of five years. My right hon. Friend the Secretary of State for Prices and Consumer Protection is laying the necessary order today and the new terms will take effect from midnight.
§ As Chancellor of the Exchequer, my main concern at present is not so much with such special cases as with the larger group of firms which are quite capable of operating efficiently and profitably providing their cost environment is manageable; and I intend to take steps to reduce the financial pressures now bearing heavily on these firms so as to avert the real and immediate danger of cuts in investment, stock building or employment. Even here, however, there is scope 261 for a degree of selectivity, and I propose to use that to the full.