Economic Reflation (Hansard, 26 February 1981)

§ 15. Mr. Meacher
asked the Chancellor of the Exchequer if he will now undertake a significant reflation of the economy.

§ Sir Geoffrey Howe
No. To do so would undermine the substantial progress made in reducing inflation and achieve little or no lasting stimulus to output.

§ Mr. Meacher
Does the right hon. and learned Gentleman believe that either the cut in interest rates, which he appears to be planning in the Budget, or the end of de-stocking, which is not yet in sight, can produce a significant fall in unemployment? If not, and if he refuses to reflate, what other measures consistent with the Government's economic strategy could ever produce sufficient demand to stop unemployment from rising to 3 million and, ultimately, to 4 million?

§ Sir Geoffrey Howe
One of the most important reasons for expecting growth to resume and unemployment to fall in due course is the fall in inflation. If within a constant money supply inflation is falling, that in itself is likely to add substantially to activity in the economy. The second factor that makes a useful contribution is the continued maintenance of moderation in pay settlemants which has moved a long way in recent months. That will help to reduce the unit labour costs of British output and increase the chances of sales and therefore increase output and employment.

§ Mr. Lyell
I recognise the danger of calling for a simplistic type of reflation, but will my right hon. and learned Friend consider in his Budget Statement the merits of drawing a distinction between capital and current spending and the relationship of the former to borrowing?

§ Sir Geoffrey Howe
I am not sure that I wish to embark upon a debate on the difference between simplistic and non-simplistic reflation. I take the force of the point. Undoubtedly, an expansion in capital expenditure and investment is desirable. Most of our policies are directed to that.

§ Mr. Flannery
Does the Chancellor of the Exchequer admit that the necessary moneys to be given to BSC are at least the beginnings of a U-turn and a partial reflation of the economy? Does he realise that so many people are unemployed that at least the whole of North Sea oil money has to be paid out in unemployment benefit since over £5,000 per year is necessary to keep one person unproductive? When will he reflate the economy to bring people back into work so that they can produce and so that we can compete in the world market?

§ Sir Geoffrey Howe
The hon. Gentleman must understand that money given for the sustenance of nationalised industries, including the BSC, has to be raised either by taxation or by borrowing from the rest of the economy. It cannot, therefore, be regarded as a net gain. He must also understand that any attempt by reflation to generate growth and jobs is more likely to fail than succeed because that way lies higher borrowing, higher interest rates and higher unemployment.

§ Mr. Forman
Does my right hon. and learned Friend agree that it would be unwise to have significant reflation now? May we at least have the prospect of a bit more constructive intervention from the Government?

§ Sir Geoffrey Howe
The whole of the Government's fiscal policy and almost all the measures introduced in last year's Budget are good examples of constructive intervention.

§ Mr. Shore
When about 90 per cent, of manufacturing industry is working well below capacity, does the Chancellor accept that the economy is deflated? If he accepts that, does he think that the Government have any part to play in stimulating the economy?

§ Sir Geoffrey Howe
The Government's primary role remains the achievement of economic stability and the conquest of inflation. Earlier the right hon. Member was kind enough to pay tribute to our success in that direction. I am glad to have his support for that aspect of our policy.