Oil Prices (Hansard, 19 July 1979)

§ 14. Mr. Hal Miller
asked the Chancellor of the Exchequer what effect recent oil prices have had on the Budget assumptions.

§ Mr. Biffen
The recent increase in oil prices, while affecting economic prospects for both the world and the United Kingdom and hence the background to the Budget, does not materially affect the economic strategy to which the Government are committed. Indeed, it confirms the need to maintain strict control of monetary growth and to reduce Government borrowing in order to reduce inflation.

§ Mr. Miller
Will the Minister take the opportunity to explain clearly to the House and the country that the increase in oil prices inevitably represents a cut in our standard of living, which must be met? Does he agree that the increase in oil prices is sucking money into the system and that this, combined with high interest rates, is making the achievement of control of the money supply ever more difficult?

§ Mr. Biffen
On the first part of my lion. Friend's question, there is no doubt that the increase in oil prices involves a transfer of resources from the OECD industrialised sector of the world economy to the oil-producing sector. To that extent it must necessitate an adjustment in living standards throughout the Western world. On the second part of the question, the movement of moneys, associated with oil price increases, underlines the importance of having a relatively free exchange rate. Otherwise, we shall find ourselves in the position of having serious money supply difficulties. That would be the inevitable result of a rigid exchange rate in the face of such movements.

§ Mr. Benn
In the light of the OECD report that the world may be heading for a slump, how does the right hon. Gentleman explain the desirability of high interest rates? In view of the fact that the lifting of exchange control will mean that higher profits made as a result of the Budget can be as easily invested 1979 abroad as at home—as has so often happened in the past—can he avoid a double blow to the prospects for British economic recovery?

§ Mr. Biffen
The necessity for high interest rates is explained by the need to finance a borrowing requirement of £8,000 million. The reason for liberalising exchange control stands in its own right. We believe that there should be the opportunity for British industry to invest freely on a world scale, because we believe that the best way to fight a prospective slump is by encouraging a world concept of trade and investment.

§ Mr. Beaumont-Dark
I accept what my right hon. Friend says, but if the pound goes on as it is now, rather than being the equivalent of $1.80, which it would be without oil, is it not true that unless something is done to make the pound truly free there is a great danger that we shall become the greatest industrial cemetery in Europe?

§ Mr. Biffen
I welcome the stress that my hon. Friend puts upon the words " truly free ". What is now happening underlines the argument for liberalism rather than protectionism.

§ Mr. Healey
Does the right hon. Gentleman accept the prediction by OECD, on the same assumptions that the Government made about the fall in the growth of the domestic produce in the coming year, that unemployment will be 200,000 higher in a year than it is today?

§ Mr. Biffen
I shall follow the course invariably set by the previous Government of not making a forecast of future levels of unemployment.