§ The Prime Minister (Mr. James Callaghan)With permission, Mr. Speaker, I would like to make a statement on the two-day meeting of the Heads of Government of seven of the world's largest industrial democracies at Puerto Rico. The meeting was held at the invitation and under the chairmanship of the President of the United States, and I was accompanied by the Chancellor of the Exchequer and the Foreign and Commonwealth Secretary. The text of the joint declaration issued at the end has been placed in the Library of the House.
This meeting was similar in nature to that held at Rambouillet last November and its purpose was to take stock of developments on the world economic scene since then. As at Rambouillet, our intention was not to reach decisions or to establish policies. We do that at the national level, or, as appropriate, in the European Community and in other organisations of which we are members. Our aim was rather to establish trends, to clarify objectives and to identify future problems.
Our discussion ranged over the most important aspects of the international economic, monetary and trading scene. We also considered East-West relations in this context, looking forward to a steady growth in East-West trade on a sound commercial basis in order to ensure that these economic ties enhance our general relationship with the Soviet Union and its partners.
And finally we had a long and constructive exchange about the role that the industrialised democracies must play in helping the developing countries to achieve their rightful hopes and aspirations.
This was a substantial agenda for a two-day meeting. The fact that we managed to cover it illustrates one of the features of this kind of meeting. The numbers attending are small and compact. Discussions are business-like and to the point. We do not make speeches at each other. We talk frankly but also as briefly as we can, and a lot of ground is covered.
198 This was, on the whole, a confident meeting. There has been a marked change since Rambouillet, and economic recovery is well under way in the world. Some of the other major industrial powers are emerging faster from recession than we, and their growing strength will give further impetus to us. But there was also understanding of what seemed to me to be three significant elements in the industrialised world's present move out of recession. First, growth rates are still modest; secondly, at this stage of the economic cycle, inflation is worryingly high; and thirdly, unemployment is still much too high—higher than at the same stage in previous cycles.
Different countries are choosing different ways of dealing with these problems. Each of us has a different economic history and historical memories, which are reflected in our priorities. But we have common objectives—sustained expansion, lower unemployment and progress towards eliminating the problem of inflation.
There was a general recognition of the crucial role that the social partners have to play and appreciation of the success that we in Britain are having in overcoming inflation through this new social partnership. The best hope for a satisfactory outcome in the years ahead, for reducing inflation and unemployment, lies in a policy of maximum co-operation between Government, trade unions and employers, coupled with fiscal and monetary policies that will encourage the investment and increased production that are essential to ensure that we sustain the present recovery.
The spirit of Puerto Rico can be summed up in two words: co-operation and interdependence. Economically, we depend upon each other more than ever before. And there is growing recognition of the need to co-operate in our policies and actions so that our interdependence can be used to benefit both developed and developing countries. That was what we sought to express last year at Rambouillet. At Puerto Rico we were able both to note good progress made already and to look with confidence to further progress.
§ Mrs. ThatcherI am grateful to the Prime Minister for extending the usual courtesies and making a statement after this meeting. It would seem that the 199 main value of the meeting is the contact between Heads of Government and chief Ministers. That aim is a good one in itself.
The joint declaration refers to the restoration of a better balance in public finance. Will the Prime Minister assure the House that if he proposes to take any action on that objective before the autumn he will tell the House in the July statement what changes in public expenditure he intends to make? Could we have this information before the House rises?
Secondly, it has been reported that Dr. Kissinger disclosed that there had been informal discussions on the state of affairs in Southern Africa and called attention to the central role which Britain could play in that area. Would the Prime Minister say whether he has any fresh proposals for taking up that central role, particularly in connection with Rhodesia, either on his own initiative or through the EEC?
§ The Prime MinisterI agree that the contacts between Heads of Government and Heads of State are, in themselves, invaluable. They give the opportunity of exchanging experiences about the way in which different policies are working out. Heads of Government and Heads of State do influence each other in the course of these very informal and candid exchanges, which are all the better because they are kept confidential.
On the question of a better balance in public finances, if there are to be any changes for 1977–78—and I have been questioned on this many times and have said that we are considering the matter, as we are—I would certainly think that industry, the House and the country should know the changes as soon as possible. If we can complete these discussions by the end of July, that would be helpful. The House would be informed, and I would want to discuss this with my own party, too. [HON. MEMBERS: "Hear, hear."] Hon Gentlemen opposite may sneer, but the Labour Party cares very deeply about the levels of public expenditure and what the money is spent on. I have a feeling that the PES paper normally comes in the autumn. We do not want to rush this in the last few days before the House 200 rises or people will feel that they are being tricked by it. I want to have a full, proper and adequate discussion.
On the question of Southern Africa, Dr. Kissinger, the Foreign Secretary and I had discussions in London last Friday before I left, and not in Puerto Rico. I think that the American attitude was correctly expressed by him. I ask the right hon. Lady not to press me on this matter. I am not without hope that further progress can be made in this field, but I prefer not to particularise.
§ Mr. MacFarquharIs it true that in Puerto Rico my right hon. Friends were advocates of higher growth rates than were felt desirable by their foreign colleagues? If that was the case, are these foreign statesmen sticking to their decisions, and, if so, what implications does that have for our export-led growth?
§ The Prime MinisterA number of fiscal restraints have been proposed by one or two of the member States attending the conference. That in itself could slow down the rate of growth. If that happens it might have an impact upon our export drive, which is going ahead very well. I believe that exports increased in volume at an annual rate of 11 per cent. over the last three months. We need to sustain that rate if we are to overcome some of our problems.
§ Mr. PowellIs it not evident from the Prime Minister's statement that even by the standards of international conferences this was a quite exceptionally pointless operation altogether?
§ The Prime MinisterI know that the right hon. Gentleman—[HON. MEMBERS: "He is disappointed."] Maybe he is disappointed, and his energies and capacities are such that they certainly ought to be used in productive ways. I can promise him, however, that if he had been present he would not have used those adjectives to describe the discussion. Although the conference meant a long and tiring journey both ways—[HON. MEMBERS: "In Concorde?"] It was a long journey and we set up a new world record in Concorde for the longest supersonic flight. If the right hon. Gentleman had been present he would not have used those adjectives. Those contacts are extremely valuable to all of us, and I certainly found them so.
§ Mr. HooleyWill my right hon. Friend firmly repudiate the suggestion by the American Secretary to the Treasury that an unemployment rate of 5½ per cent. is in any way acceptable—certainly not, I would hope, in any part of the Western industrial world, and certainly not in this country?
§ The Prime MinisterI am not aware that the Secretary to the Treasury said that, and therefore I comment only on our own policy, which is that 5½ per cent. is certainly unacceptable and that we are working to get the level down and will continue to do so. I believe that the United States has had a higher rate of unemployment than that for some time, but, as I said in my statement, different countries have different historical experiences and memories. We are committed to returning to full employment at the earliest possible moment.
§ Mr. GrimondWe are all deeply sympathetic with the Prime Minister on the hardships he has undergone in travelling to the Summit meeting in Concorde. Will he confirm that when he talks about sustained expansion this will not be expansion for its own sake but will be expansion which is of real use to the poor people of this country and of the world at large and not merely an automatic increase in Government expenditure, useful or not?
§ The Prime MinisterThe nature of the increased demand varies from country to country. We cannot be responsible for anybody's policies but our own. Our expansion at present it export-led. I trust that it will continue to be so. This country's greatest need is to find sufficient resources to put into new manufacturing investment, and when we have done that we shall get a dividend from it in due course.
§ Mr. Raphael TuckAs some of the newspapers appear to give the impression that an attempt has been made to dictate to the Prime Minister what his policy on public expenditure shall be, will he make it clear to the House and to all the other countries concerned that this is a matter for him and his Government alone and that he will not be dictated to by foreign Governments?
§ The Prime MinisterI can assure my hon. Friend that I shall propose to the House measures, whether they be popu- 202 lar or unpopular, that I think are right and that can be sustained by this country in order to restore its economic and financial health. None of my colleagues who was present at Puerto Rico has any doubts about that, and there was no discussion on these matters between us.
§ Mr. John DaviesIn his statement the Prime Minister did not refer to the other factor that greatly fuels international inflation, namely, volatility in commodity prices. Was that matter fully discussed and is some international action foreseen to try to restrain the uncertainties in this very important matter?
§ The Prime MinisterYes, there was a most useful discussion on this topic. It was led by Chancellor Schmidt, who produced some interesting material for us to consider. We want to examine this area commodity by commodity, and that approach is generally agreed. We want particularly to see how we can stabilise earnings for the developing countries—that is exertmely important for countries with a mono-industry, where the country is dependent on one industry or one commodity—without at the same time creating an unbearable burden for the industrialised countries. This matter can be best approached commodity by commodity.
§ Mr. CrawfordThe Prime Minister said earlier that he was misreported about having said at Puerto Rico that there would be further public expenditure cuts. Will he therefore give a categorical assurance that there will be no further public expenditure cuts in Scotland next year? If he will do so, he will be at one with the SNP.
§ The Prime MinisterWhat I said in my previous answers applies to Scotland as to the rest of the United Kingdom.
§ Mr. NewensMy right hon. Friend said that he could make no commitment about future cuts in public expenditure beyond the end of this year. Will he make clear to the House that he made no commitment or statement at Puerto Rico which could give the impression there that in response to pressure brought upon him he intends to make any such cuts in future? Will he make sure that he consults fully Labour Back Benchers, who sustain the Government?
§ The Prime MinisterI thought that I had already answered that question. It 203 does not add to the weight of my reply to repeat it on a dozen occasions. I hope that my position and that of the Government is clear. If there are proposals to bring forward for next year, I shall bring them forward in good time to enable my party and the House to discuss them so that industry and the country generally is aware of them. That is how I want to tackle the matter, and I give no assurances beyond April 1977 in that regard.
§ Mr. MayhewOn the subject of unemployment, is it not the case that about 6 million people are employed at present by those who are self-employed? Did the Prime Minister give any assurance to his international colleagues that he would seek to reduce unemployment by ceasing to penalise the self-employed?
§ The Prime MinisterWe did not discuss that aspect of the matter.
§ Mr. AtkinsonMy right hon. Friend has not yet made clear what his intentions are except that it is loosely held that the Government are to review the situation with a view to cutting public expenditure. Does he accept that there is a substantial and determined body of British opinion that believes that public expenditure is far too low and that it should be increased considerably if we are determined to do something about our level of unemployment? Is it not a fact that there are ways, by modifying our free market system, in which we can increase public expenditure by a tremendous amount without impeding the Government's effort to reduce the rate of inflation?
§ The Prime MinisterThat seems to me more a subject on which I should have to reply in a debate rather than in question and answer. However, public expenditure is not an absolute. There are many sectors of our social life where more public expenditure would be beneficial. Every day, and especially this afternoon when I listened to Questions to my right hon. Friend the Secretary of State for Social Services, points are raised by both sides of the House which would require more public expenditure if we are to meet the genuine needs of the people concerned.
However, we have an overriding requirement to ensure that industry is 204 able to finance itself in the proper way to provide a dividend which will enable social expenditure to be met. That is the problem this country has to face. We cannot evade it by increasing public expenditure without regard to the needs of manufacturing industry, and it is on that I want to focus the eyes of the nation over the next few months.
§ Mr. TugendhatIf these meetings are to become a regular feature of the international scene, is there any role for the European Commission to play as a participant or an observer? In addition to the question of commodity prices, does the Prime Minister not agree that the whole manner and method of the Japanese export drive, with its lack of regard for the interests of others, is a very serious destabilising factor? Was this drawn to the attention of the Japanese Prime Minister?
§ The Prime MinisterThere are no regular meetings of this group. They depend upon whether an individual Head of Government decides that it would be valuable for a group meeting to take place. No other meetings have been arranged, although they could take place if a Head of Government felt that meetings would be valuable and his colleagues agreed. I took the opportunity of discussing some of the consequences of the Japanese export drive with Japan's Prime Minister and Foreign Minister, though not with the Minister of Finance, because there were difficulties about that.
§ Several Hon. Members rose—
§ Mr. SpeakerOrder. I shall allow only two more questions.
§ Mr. GowAs the Prime Minister has just told us that the strength of sterling is one of his main concerns, and as our foreign creditors will be listening very closely to what he is saying, will the right hon. Gentleman repudiate the suggestion of his hon. Friend the Member for Tottenham (Mr. Atkinson) that public expenditure is far too low?
§ The Prime MinisterI have already answered that question. I can add nothing to it. I have made clear the priorities which I believe the country has to accept during the next year. I hope that that will be taken as representing the policy we intend to follow.
§ Mr. Frank AllaunWhether the Press reports are accurate or not, would the rumoured savage cuts in public expenditure next year not only damage our social fabric but also cause additional unemployment among, for instance, nurses, teachers, home helps and building workers? If my right hon. Friend replies that we must keep room for industry and exports, would he not agree that unemployment in Britain is so massive that there is room to cover both industry and social services?
§ The Prime MinisterThis is a difficult technical question which should be dealt with in the debate that I hope we shall have at a later stage. I should point out once more than the salaries of all the very worthy groups to which my hon. Friend referred—nurses, teachers and other social groups—are paid for by the product of manufacturing industry. They are not created out of nothing. Therefore that must be our first priority next year.