HC Deb 11 March 1982 vol 19 cc958-60
7. Mr. Eggar

asked the Chancellor of the Exchequer whether he expects that his most recent Budget will increase the level of demand.

Sir Geoffrey Howe

The Budget has been designed to sustain the increase in economic activity that is already taking place. The scale of this increase continues to depend to a large extent on the actions of companies and employees in improving productivity and moderating wage increases.

Mr. Eggar

Will my right hon. and learned Friend confirm that it is only if output from United Kingdom firms can be increased that we as a country can hope to build on the considerable increase both in productivity and competitiveness that has been one of the great successes of my right hon. and learned Friend's economic policy?

Sir Geoffrey Howe

I entirely agree with my hon. Friend. The prospect of increasing employment and national wealth will follow from an increase in output manufactured and sold by trade and industry of all kinds. It is for that reason that I emphasise the second part of my original answer.

Mr. Stoddart

Is it not true that the Budget is, generally speaking, broadly deflationary, and if firms cannot see an opportunity of an extension of demand will this not be a discouragement to them to invest?

Sir Geoffrey Howe

The misleading nature of the term deflationary is not assisted in achieving clarity if it is prefaced by the words "generally speaking" or "broadly," It is not sensibly possible to apply that kind of analysis on one view. The public sector borrowing requirement in the year ahead is intended to be lower in cash and real terms than in previous years. On another view, it is intended to be larger than it would otherwise have been on the standard assumptions. Neither of those changes can sensibly be described as deflationary or reflationary. If inflation continues to come down as we maintain an improving control over the money supply and excessive public sector borrowing, and if firms and those offering their labour for employment reduce the price at which those things are sold or made available, the volume of real output and of real employment will increase. It is for that reason that the response to a controlled economic environment depends crucially on the performance of those trying to sell their goods and services in it.

Mr. Henderson

Does my right hon. and learned Friend agree that the reduction of interest rates and the rate of inflation—probably a consequence, though not a part, of the Budget Statement—will lead to higher purchasing powers for individuals and, therefore, potentially an increase in demand?

Sir Geoffrey Howe

It will have that effect. It will also have the effect of reducing the price of goods and services brought to the market and of increasing the volume that is bought and sold. In both ways it will thus increase real output.

Mr. Robert Sheldon

I note that the Chancellor of the Exchequer cannot say whether his Budget is reflationary, deflationary or neutral. Will he look at the obvious consequence of his Budget, which is spelt out in the White Paper, that unemployment will increase by 300,000 this year and into the foreseeable future? On my definition, that is deflationary.

Sir Geoffrey Howe

I am trying, and I shall continue to try, to persuade the right hon. Gentleman that it is quite unhelpful to talk about Budgets being reflationary or deflationary. This Budget is likely to have a beneficial effect on inflation and interest rates, and is therefore liable to improve the prospects for output and employment. I am sorry that the right hon. Gentleman has repeated in the House the misleading point that was made by the right hon. Member for Stepney and Poplar (Mr. Shore) in his broadcast last night, when he sought to quote from the White Paper on employment and suggested that the White Paper meant that the Government assumed that unemployment would rise from its present total to nearer 3¼ million, and then stick there for the foreseeable future. He omitted to add the crucial point contained in the White Paper: If developments on pay and the world economic recovery are favourable, there is a reasonable prospect that unemployment levels in the later years may turn out to be somewhat lower than has been assumed".

Mr. Shore

In any economic forecast or set of economic assumptions there are always variables. Is it not a fact that what the right hon. and learned Gentleman has published is his best judgment of what will happen, and that is that unemployment will increase?

Sir Geoffrey Howe

The right hon. Gentleman knows that the White Paper followed the precise pattern of those published by the Government of which he was a member. It sets out an assumption, necessary for the purposes of the Government Actuary's report, as at December when we dealt with the matter. As in his White Paper, it says that for the purposes of the calculation it has been taken as an assumption that the figures of unemployment will average the same figure for this year and for each of the subsequent years of the survey. That is an assumption for the purpose of the Government Actuary's report. It is not a prediction. He was wrong to omit in his broadcast last night the qualifications contained therein.

Mr. Speaker

Mr. Wainwright, Question No. 9.

Mr. Stevens

rose—

Mr. Speaker

Order. I had an indication that the hon . Member for Fulham (Mr. Stevens) had withdrawn his question, No. 8. He cannot change his mind halfway through. Either he has withdrawn the question, or he has not. Perhaps the information that reached me was wrong.. If so, I shall make inquiries later. Had the hon. Gentleman withdrawn his question?

Mr. Stevens

No.

Mr. Speaker

I shall make inquiries about how I got the message.