THE ECONOMIC SITUATION (Hansard, 14 July 1966)

§ THE LORD PRIVY SEAL (THE EARL OF LONGFORD)
My Lords, with permission I should like to repeat a Statement which my right honourable friend the Prime Minister has just made in another place. His words were—and I am now quoting the Prime Minister:
"The House will be aware that sterling has recently been under some pressure as a result of several abnormal 223 factors predominant in which has been the seamen's strike. It was known that the seamen's strike would be costly to the country for as long as it lasted, and the publication of the reserve figures for June, during the whole of which period the strike was in force, has had an unsettling effect abroad and wrong deductions have been drawn about Britain's long-term economic position from the price we had to pay in the short term. The House will, however, be aware that this short-run price was something which we deliberately accepted from the outset, not least because of our determination to make the prices and incomes policy effective. The effects on sterling and on our long-run economic position had we taken any other course would undoubtedly have been serious and lasting.
"At the same time other short-run factors including a rise in import prices, particularly copper have aggravated the temporary speculative strain on sterling.
"I have repeatedly made it clear that the Government will not hesitate to take whatever measures we regard as necessary to ensure the balance of the economy, to strengthen our balance of payments and to maintain the strength of sterling. The House will be aware that bank rate has to-day been raised to 7 per cent. There were, of course, special and compelling reasons for this, quite apart from the factors I have mentioned, reasons deriving from the fact that, owing to the growing shortage of liquidity, interest rates and central bank rates are rising all over the world, particularly in Europe.
"In addition, the Bank of England has this morning announced a further call from the clearing banks for special deposits, which will reduce bank liquidity by a further figure of nearly £100 million. This is, of course, in addition to the announcement by my right honourable friend the Chancellor of the Exchequer two days ago about the limit of credit.
"These short-run factors I have mentioned have, of course, been given their place in the Government's review of the state of the economy, particularly the prospects for the balance 224 of payments. We have reviewed the internal situation including the deployment of resources and the state of pressure in the economy, the recent increase in imports, the movement of incomes and prices, the trend of demand and also the rate of growth of overseas expenditure.
"As the House knows, the effect of the tax measures, including the Finance Bill, together with the tight grip still maintained, and now intensified, on monetary policy, will have substantial disinflationary effects later in the year. We believe, however, that further measures will be necessary both as regards the internal situation and overseas Government expenditure, and that these measures should be related to the broad economic strategy we have been following particularly with regard to the balance of payments. This review is now proceeding, and I intend to make a further Statement in the House in the near future about the measures we shall propose which will have the effect of providing the restraint that is necessary in internal demand, public and private, particularly the redeployment of resources according to national priorities, and also the steps needed to make a substantial reduction in overseas Government expenditure which is running at a rate excessive in relation to our resources and is a major impediment to the restoration of balance in our overseas payments.
"I cannot anticipate the Statement I intend to make, but it will be made in good time before the House adjourns for the Summer Recess. I can assure the House that when it is made it will be regarded as real further proof of our resolve and determination to balance our payments and to strengthen the pound at home and abroad. The Statement I shall make will provide measures necessary for dealing with the longer-term problems we face, since it is important not to allow the short-run factors, such as the seamen's strike and its effect on monetary movement, and on the trade balance, to distort our position in its true perspective.
"In the first five months of this year, which included the early days of 225 the seamen's strike British exports were running at a rate 9 per cent. higher than in the same months of last year, and all the indications were, and are, that our exports would continue to rise at a substantial rate. It is on our export drive, and our determination to reinforce our export drive that the achievement of our long-run survival and economic aims, and, equally, the strength of sterling and Britain, depend."
My Lords, that completes the Prime Minister's Statement.

§ LORD CARRINGTON
My Lords, the noble Earl, in the Statement which he has repeated, and for which we are grateful, has revealed a very serious situation. I must say that I found it in many ways an astonishing Statement, and for that reason it is rather difficult to comment on it. The noble Earl seems to be telling us, and the Government seem to be telling us, that the situation is so serious that, in addition to the rise in the bank rate, further stringent measures will have to be taken, but they have not yet decided what they are or when they can tell us what they are.
Apart from the fact that this seems to be the fifth or the sixth time in the space of two years in which the Government have totally misjudged the economic situation—indeed, our memories are not so short that we do not recollect the pre-election Budget speech of the Chancellor of the Exchequer; and perhaps it will do us all good to read that again—it seems to me that this Statement will add greatly to the general uncertainty which prevails in the country at the present time. It seems hardly to smack of the firm government which we were promised and which I believe to be absolutely essential at the present time.
I think I speak for everybody on this side of the House, when I say that we are very gravely disquieted at this Statement. We shall have an opportunity of discussing the economic situation later this month, in about a fortnight's time, and perhaps I may ask the noble Earl if he can tell the House whether the further measures which are to be announced will be announced before the date of that debate.

§ LORD OGMORE
My Lords, on behalf of my noble friends and myself, 226 I should like to say that we, too, feel that this is an extremely serious Statement arising out of circumstances of great magnitude. We agree with the noble Lord, Lord Carrington, that it is undesirable to leave the country in an indecisive state of mind with regard to what further steps are necessary. I think the country as a whole realises that the position is extremely serious and is prepared to take, and is prepared for the Government to take, very strong steps to meet those problems. But to hang over the people a position—for some weeks, possibly—in which they do not know what steps are going to be taken is undesirable.
As the noble Earl knows, the papers are full of steps which they think should be taken, or might be taken, such as the freezing of prices, incomes and wages, further restrictions on imports, and all that sort of thing. All these possibilities must be of considerable concern, particularly to those who are engaged in industry and in manufacturing. I would ask the noble Earl the Leader of the House to impress upon his right honourable friend the Prime Minister that delay in this matter is serious, and that they should come to a firm and, so far as possible, definite decision at the earliest possible moment—and I mean within the next seven days.

§ THE EARL OF LONGFORD
My Lords, I will certainly undertake to convey to my colleagues in the Government, and particularly the Prime Minister, the views of both the noble Lords who have spoken. I do not consider it altogether reasonable to say, or at any rate imply, that the Government ought to have come down to the House this afternoon with a complete set of measures. I doubt whether that would have been the statesmanlike thing. Let us agree that there are grave aspects of the situation. Clearly, the right course is to give ourselves time to come down with properly considered proposals. So I am not in any way apologising for the fact that I have not dashed forward to-day with some proposals which are not properly worked out. I think that would have been a rather unworthy procedure. It was arguable whether it would have been better to come down and say nothing—not to give any indication; but, on the whole, after a good deal of reflection, it seemed 227 to the Government, and it certainly seemed to me, that it was right to explain to noble Lords the gravity of the situation in certain respects and to indicate that, when measures have been properly considered, they will be brought before the House.
The noble Lord says that we do not seem to be quite sure when they will be brought before the House. I cannot give any precise date publicly, but I can tell him privately; and certainly, from the point of view of planning our Business, I can give him a perfectly good idea. But it is only a question of a few days one way or the other. I can assure him and the noble Lord, Lord Ogmore, that when this Statement is made we shall, of course, do everything in our power, as we ordinarily do, to make sure that a suitable day is found to debate it. Frankly, I do not believe one could possibly offer more.

§ LORD CARRINGTON
My Lords, the noble Earl now seems to be saying that this was entirely unforeseen; that the economic situation has suddenly crept up on the Government, and that they have to decide, in the space of one day, the measures they are going to take. Anybody who has read the newspapers or goes into the City, or has talked with members of my Party, would have known there was going to be an economic crisis. Is the noble Earl really saying that they have only just foreseen this in the last two days?

§ THE EARL OF LONGFORD
My Lords, I am afraid that, with all respect to noble Lords opposite, I do not need to speak to members of the Party opposite to discover the true state of the nation's economy. The noble Lord is not the only banker in this House. He is not the only Member of the House who has worked in a bank, or even presided over a bank. We really do not need instruction, if I may put it quite that way. We have all the information available to noble Lords, and a great deal more. I am sorry, but we do not need that particular sort of instruction. Having worked that off, I will try to meet the well-intentioned question raised by the noble Lord. Of course, the situation has shown increasing gravity in the last few weeks and few days, but the moment 228 has now come when the Government consider that new measures must be taken. There has been a seamen's strike; there has been movement in the exchanges, and so on; and the moment has now been reached when we think it right to give the House fair warning that we are preparing measures that will be brought before the House at the earliest possible opportunity.

§ LORD HARLECH
My Lords, the noble Earl must surely be aware that only a week ago the Chancellor of the Exchequer was saying that no new measures were required. Does it not therefore look as if the Government have been caught totally unprepared for this?

§ THE EARL OF LONGFORD
No, my Lords, it does not look like that to those who look at it very closely, shall we say. Clearly, you cannot keep saying that new measures may be necessary or may not be necessary. You have to keep watching the situation, hoping that existing policies will work; and then, when you come to the conclusion that new steps are necessary, you come and tell the public so at the earliest possible moment.

§ THE EARL OF SWINTON
My Lords, could the noble Earl say, in this "wait and see" policy, whether Mr. Micawber is going to be added to the Government?

§ THE EARL OF LONGFORD
My Lords, I have been advised that I should leave that question, but I never leave a question from a noble Earl, for whom I have so much respect. The answer is that I do not think Mr. Micawber will help out.

§ LORD CONESFORD
My Lords, is the noble Lord aware that there is not a single word that he has said about the gravity of the situation that has not been perfectly well known to the Opposition for weeks? Is he further aware that, as regards the steps he has announced, the only parallel for the vagueness of his Statement is the South Sea Bubble?

§ LORD LEATHERLAND
My Lords, ought we not to pay a little regard to history in this matter, and to reflect that, just as the present Government have today raised the bank rate to 7 per cent., so did the Conservative Government a few years ago; that, just as this Government have to-day increased the special 229 deposits, so did the Conservative Government a few years ago; and that on that earlier occasion it was all done overnight, despite the fact that the situation had been deteriorating for weeks?

§ THE EARL OF LONGFORD
I feel that that was a most valuable and dispassionate contribution.

§ THE EARL OF DUNDEE
My Lords, does the noble Earl also remember that when we raised the bank rate to 7 per cent. it was pointed out by himself and his Party that the raising of the bank rate does very little to prevent inflationary expenditure, compared with its effect on stopping or postponing desirable investment, which is the thing we most want at the present time? Surely the noble Earl, if he has been able to foresee these things, as he has told us, must have said something to his colleagues about it. Why have they shown so little anticipation of what was going to happen? Can the noble Earl tell us now whether these new measures which he has promised are to be improvised on the spot, or can he assure us that somebody besides himself in the Government has foreseen what was going to happen and has something ready to apply?

§ THE EARL OF LONGFORD
My Lords, of course, a great many preparatory studies have been made; but, in reply to the noble Earl, who put his question with his usual charm, may I remind him that he has always warned us that prediction was not an exact science? When he was a Minister, if he said that once he said it a hundred times.

§ LORD GRIMSTON OF WESTBURY
My Lords, when Her Majesty's Government are considering over the next few days what they are going to do, will they give some thought as to whether they themselves have a contribution to make with regard to their own policies, which in some quarters, foreign and at home, are felt to he having something to do with our present difficulties? May I also ask: has he read to-day's Daily Mirror at length? Perhaps he has not. I would not expect the noble Earl to pay much regard to what I have to say, but he might perhaps have some regard to pay to a paper which normally supports the Government.

§ THE EARL OF LONGFORD
My Lords, I would always have a lot of regard to pay to what the noble Lord has to say, and also a lot of regard to pay to what Mr. Cecil King has to say. I have read Mr. Cecil King and I have listened to the noble Lord this afternoon, and the day has no further terrors.

§ VISCOUNT MASSEREENE AND FERRARD
My Lords, may I remind the noble Earl that during the period of office of this present Socialist Government and the last Socialist Government we have had the longest period of high bank rate in the history of this country? Is that not an extraordinary state of affairs when the Socialist Party are pledged to cheap money and to low interest rates?

§ THE EARL OF LONGFORD
I think we had better leave some of these points to the debate, when I shall have great pleasure in answering the noble Viscount.

§ LORD CITRINE
My Lords, does the noble Earl not feel very encouraged to see the evident determination of the Members opposite to support the Government in any measures, however severe, to put right the economic situation?

§ THE EARL OF LONGFORD
I think that is putting too optimistic a gloss on the whole situation.