Economic Prospects (Hansard, 30 July 1981)

§ 5. Mr. Woolmer
asked the Chancellor of the Exchequer what reassessment of economic prospects he has made since his last Budget.

§ Sir Geoffrey Howe
The economic situation and prospects are kept under continuous review. In line with previous practice, an economic forecast will be published in the autumn.

§ Mr. Woolmer
Do not Treasury estimates indicate that an upturn is months and months away into 1982 and that unemployment will increase for many more months yet? Is not this even worse than was expected at the time of the formulation of the Budget? In the light of this week's £500 million package, which is a very modest measure, can the right hon. and learned Gentleman assure us that he has no intention of clawing that back through higher taxes?

§ Sir Geoffrey Howe
The next forecast will be published, as is customary, in the autumn, and it will be the second forecast of the year. The rate at which unemployment is growing is falling sharply, and that has been the pattern for some time. No one has sought to conceal the fact that unemployment is likely to be on a rising trend for some time to come. The worst possible way to deal with that would be to embark now on an outburst of reflation. It is crucial to maintain the budgetary balance in a sensible fashion so that borrowing can be controlled effectively if interest rates and, thus, inflation are to come down.

§ Mr. Richard Wainwright
Looking back at the Financial Statement published in the Red Book with the right hon. and learned Gentleman's last Budget, may I ask whether he still stands by the implied scope for tax reductions for next year and the year after published in table 8 of that booklet? Is the degree of funding of Government borrowing in recent months in line with the financial strategy at the time of the Budget?

§ Sir Geoffrey Howe
The Red Book published at the time of the Budget indicated the likely scope for tax changes in the years beyond that with which it was 1150 dealing. We shall be able to address ourselves to the tax prospects in the next financial year when we come to the next Budget, which will be in the spring of 1982.
I am glad to say that the funding programme has been proceeding quite successfully. A further change in the pattern of that programme has been announced today. From 7 September, the index-linked savings certificate will be available to everyone regardless of age, so that the familiar nickname of "Granny Bond" can now decently be laid to rest. We shall make available a bond of that kind to every member of the family. At the same time, we are increasing this year's target for national savings from £3 billion to £3½ billion.

§ Mr. Emery
Does my right hon. and learned Friend agree that however much we want his policies to succeed—and we believe that they are moving in the right direction—industry must be prepared to accept that it will take much longer for the unemployment level to be reduced because of the present lead time of only 70 per cent. industrial production for most companies, and that the public, too, must begin to accept this situation? The sooner that we get that across, the better it will be for everyone.

§ Sir Geoffrey Howe
The central point to which my hon. Friend draws attention is that the rate at which recovery proceeds depends to a great extent on the reaction of people within the economy. The most effective way to secure an improvement in the prospects for employment as well as in the prospects for inflation is to have continued moderation and realism in pay settlements and management arid industrial practice generally. It is significant that there has been a reduction not only in the number of firms expecting to destock but in the number of fims working below capacity.

§ Mr. Straw
How does the right hon. and learned Gentleman square his extraordinary, wild claim that the end of the recession is in sight with the bleak message for the Government in today's Financial Times showing that 22 forecasts of the economy predict an even steeper decline this year than the Treasury was predicting only a short time ago and with the "CBI Industrial Trends Survey" which says: There is no evidence of any substantial recovery"?

§ Sir Geoffrey Howe
Before dealing with the less than wholly enthusiastic question put to me by the hon. Member for Blackburn (Mr. Straw), may I welcome him back to the House after his period of illness and say that we are all glad to see him in good order again?
Of course, there are variations in the forecasts, but undoubtedly they are all looking forward to a growth in output next year. If the hon. Gentleman looks closely at the results of the CBI survey, he will see that it shows that the great majority of the indicators are moving in the right direction.
I add one other feature. The success of the economy and its performance depends not on the analysis of this or that set of entrails but on the extent to which people in the economy react sensibly to the reality of the economic conditions in which they live. That requires continued maintenance of realism and continued moderation in pay settlements. Given that, we shall all be doing a great deal better.

§ Mr. Whitney
Given the importance of the financial targets to my right hon. and learned Friend's economic 1151 policies and bearing in mind a recent Treasury statement that since 1972 the nationalised industries' return on capital has never significantly exceeded zero, will he comment on reports in today's press that the Treasury is preparing to be more flexible about nationalised industry borrowing? Is it not likely that the resources involved would be used to better effect in the private sector?

§ Sir Geoffrey Howe
In general, resources are more likely to be used successfully if they are directed to profitable activities, and the private sector has the characteristic of allocating resources by reference to the outlook for profits. My hon. Friend is right to make that central point. One other factor is that if we have nationalised industry prospects in line with, for example, London Transport, where it is proposed to reduce fares dramatically and to increase pay substantially, that must diminish the prospects for sensible capital investment, which is what the House wants. We can achieve better capital investment programmes by more sensible management of the pattern of pay and prices in nationalised industries.