HC Deb 15 July 1976 vol 915 cc892-5
14. Mr. Loyden

asked the Chancellor of the Exchequer what fiscal methods he will use to direct the resources made available by public expenditure cuts into manufacturing industries.

21. Mr. Ron Thomas

asked the Chancellor of the Exchequer what evidence he has to suggest that the resources released by the recent public expenditure decisions will find their way into exports and capital investment.

Mr. Healey

As I told the House on 6th July, manufacturing output and exports are already responding better than I had hoped at the time of my Budget speech three months ago.

Our fiscal policy, our policy on public spending, as spelt out in the February White Paper, Cmnd. 6393, my April Budget and the voluntary restraint on incomes, will ensure that these increases in national output are not appropriated for consumption, whether public or private. If they were, there would be no chance whatever of the flow of funds into manufacturing industries of which my hon. Friend speaks. How much of these resources will be taken up in private-sector investment depends on decisions in industry, influenced by the better prospects I have outlined. All the evidence is that there will be a substantial increase in manufacturing investment over the next 12 months. But I am ready to take whatever further steps may appear necessary to sustain investment.

Mr. Loyden

Does my right hon. Friend agree that the whole question of the social contract rests on the recovery of the British economy and the regeneration of British industry? Therefore, any question of resources being made available by further sacrifices on behalf of the working class may not mean that such resources will go towards the aims envisaged by the Government. Does my right hon. Friend also agree that the only possibility of ensuring that these resources are directed in the right way lies in the co-ordination of our economy and the giving of a firm role to the National Enterprise Board? Is not the trade union movement making sacrifices, and is it not a fact—

Mr. Speaker

Order. Long supplementary questions only limit the length of time available for other hon. Members.

Mr. Healey

I very much support the view of my hon. Friend that the regeneration of British industry is the objective that the trade union movement and the Labour Government have in common. My hon. Friend will have seen that Lord Watkinson, greatly to the chagrin of his ex-colleagues on the Opposition Front Bench, recently gave wholehearted endorsement to the Government's industrial strategy and undertook to talk to the leading 100 companies and to exert his influence on behalf of the CBI to see that investment was speeded up.

Mr. Lawson

Will the right hon. Gentleman confirm that the public expenditure cuts which he is planning for 1977–78 would be absolutely essential even if there were no external pressure whatever on sterling? Is it not the case that, for precisely the same reasons, further cuts will be needed in subsequent years?

Mr. Healey

On the first part of the question, I believe that some reduction in public spending next year is necessary in order to accommodate the expected acceleration of manufacturing output and gross domestic product to which I referred last week. As to future years I do not think that that will be required, but the profile of public expenditure needs to be changed in the light of the latest information about the speed with which the economy is recovering and our industrial policy is succeeding.

Mr. Thomas

Is my right hon. Friend aware that it confuses the issue when he switches from monetary to physical resources? What is the mechanism within the capitalist system which switches real economic resources away from education, the social services, and hospitals and into exports and capital investment? The fact is that there is no mechanism. Under the Price Code recently we saw £200 million to £300 million again diverted away from the consumer into increased prices. Does not the reaction of the Government—[Interruption.]

Mr. Speaker

Order. The hon. Gentleman is only cutting out two of his hon. Friends who would otherwise have been called.

Mr. Healey

I was unable to hear the last part of my hon. Friend's supplementary question, but I will answer the first part. In the past, too little attention has been given to financing economic activities as against actual resource flows. If my hon. Friend is asking about the mechanism which ensures that the resources flow increases with the wishes or desires of the Government, this depends very largely on the fiscal policy followed by the Government. In the 11 years since 1964, the increase in local authority manpower was 700,000 and the reduction in manpower in manufacturing industry was about 1 million. There is no reason why there should not be a reverse flow, provided that we give the necessary incentive to manufacturing industry.

Sir G. Howe

Does not the Chancellor recognise that if that incentive is to come into existence he must be prepared to accept the advice of Lord Watkinson and others to make a more substantial relaxation in the Price Code, and take further action on the public sector borrowing requirement if interest rates are to come down to a sensible level which makes investment possible?

Mr. Healey

I take very seriously the views of representatives of important groups in the economy, such as the trade unions and industrialists, but if I accepted all the advice given to me I would be carrying out contradictory policies in all fields. The recent relaxations in the Price Code were necessary and will be sufficient to enable manufacturing industry to rebuild its liquidity. With the tax reliefs already offered, this should help the upturn in the economy. That is the overwhelming view of the majority of British industry. Otherwise, we should not have seen the very large increase in declarations of intention to invest which was shown in recent surveys carried out by the CBI, the Department of Industry and the Financial Times.