HC S [Counter-Inflation Policy (motion of confidence)]
|Document type:||public statement|
|Document kind:||House of Commons Speech|
|Venue:||House of Commons|
|Source:||Hansard HC [935/1621-37]|
|Themes:||Autobiographical comments, Autobiography (childhood), Economy (general discussions), Education, Employment, Industry, General Elections, Monetary policy, Privatised and state industries, Pay, Public spending and borrowing, Taxation, Trade, Health policy, Labour Party and Socialism, Trade unions|
Mrs. Margaret Thatcher (Finchley)
I do not know quite what [ James Callaghan] the Prime Minister was expecting of me, but we were expecting more explanations of his policies from him. Like [ Denis Healey] the Chancellor of the Exchequer when he was questioned on Friday, the Prime Minister skated over a great deal. We all expected a good deal more detail on matters to which he seems not to know the answer.
I start by agreeing with the Prime Minister on one or two things. We all agree that we can no longer spend our way out of an economic crisis. Indeed, let me quote some words that will be familiar to the right hon. Gentleman:
"We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour, that that option no longer exists and in so far as it ever did exist, it worked by injecting inflation into the economy. And each time that happened, the average level of unemployment has risen. Higher inflation followed by higher unemployment."
That was so sound that it might almost have been written by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) and Peter Jay as a joint effort. I wholeheartedly agree with those words.
Secondly, we must attack inflation and make that the top priority. Even the present targets are inflationary with money supply at 9 per cent. to 13 per cent., because they are way above the productive potential of this country. It will be a very long struggle to get the inflation rate down, and we must not be satisfied even when it comes down into single figures because that was wholly unacceptable a number of years ago and led to a loss of money at a rate that many people thought totally wrong and that could not be the basis of a stable society in future.
These are matters on which I agree with the Prime Minister, but he was less than frank about the sort of campaign that the Labour Party fought in the last General Election. He seemed to say at one point that the trade unions had been constrained in their demands although they knew that their standard of living would be likely to fall. That was not his view at the last election. On 26th September 1974, the Chancellor of the Exchequer said:
"I don't believe myself it's necessary for the people as a whole to have their living standards lowered in order to conquer inflation."
That is not exactly what the Prime Minister has just been saying. I agree that we do not live in a deferential society and I have no wish for any of us to live in such a society, but I remind the Prime Minister that the consumer is not deferential to those who have industrial muscle and use it. That is also a point to remember about deference. I agree that we do not want a deferential society, but equally we do not want the sort of society where might is right or where wages and salaries go to each according to his strength and from each according to his weakness.
I disagree with what the Prime Minister said about our being in better shape now. Let us analyse his economic policies—because it is they that we are considering, as he regards this as a motion of confidence—in the light of what has happened, his policies on their record 1623and his forecasts on what happened to them. Let us also judge his immense change in strategy by similar changes that have occurred in the past.
Let us judge him on his record. It has been a record of failure. I start with a subject that I have often mentioned before because it is the key. Production has not risen in the last three years and we shall not become more prosperous merely by shuffling around what we have between one group and another. Production has risen in other countries to a far greater extent and they are in a much better position to face the future. Our production has not risen at all.
The Prime Minister's record on inflation is one of the worst of any Government. Prices have risen by 80 per cent., and the pound is now worth only 55 pence. The decline in the standard of living is affecting everyone. According to Treasury figures, at 1977 prices, the average industrial worker, with the average-sized family, has lost £5.32 a week in real terms.
On unemployment, the Prime Minister's record is also a failure. There has been an increase of 800,000—representing an additional 675 unemployed people for every day that the Government have been in office. During our time, the average family paid £389 a year in taxation and now they pay £922. That is a total record of failure, the like of which has not been seen under any previous Government, even other Socialist Governments. The Prime Minister says that we are in better shape than we were, but the facts support my conclusion and not his.
Let us look at his forecasts and consider what value we can put on them. Let us consider the prospects of singlefigure inflation, even leaving aside the 8.4 per cent. promise on which he fought the last General Election.
On 24th September 1974, [ Denis Healey] the Chancellor of the Exchequer said:
"If the Social Contract is maintained we can get inflation down close to 10 per cent. by the end of next year and into single figures the year after."
What happened the next year? In 1975, the Chancellor said:
"There is now every prospect of inflation getting down to a single figure, year on year, by the end of 1976."
1624What happened in 1976? The Prime Minister said:
"If you can grin and bear it for 12 months more, then by the end of 1977 the inflation rate will be where that of our major competitors is now."
On 15th July 1977, the Chancellor said:
"inflation should fall below 10 per cent. well before this time next year."
We know how to judge his previous forecasts. They are known only by their distance from the truth.
Let us see how we should judge this main strategy change—because the announcement on Friday was a main change of policy and we should treat it as such. The Chancellor of the Exchequer has a most remarkable record on Budgets. There has been a remarkable series of changes in strategy all through the time he has been Chancellor. In his first Budget in March 1974 he blazed the trail for a brand-new strategy. Many of us agreed with it. He said that his main objective was to get down the deficit to reduce the public sector borrowing requirement. He regarded it as absolutely intolerable. It was £4.2 billion and he was going to bring it down to about £2dec;7 billion. That was his strategy.
Budget No. 2 on 22nd July is, one I well remember. The main objective was not to get down the deficit but to attack inflation at source by cutting the increase in the cost of living. He also cut VAT. His first objective, therefore, had gone, but that was all right. A different objective had been set of reducing the cost of living, and there was a General Election in the offing.
Came his third Budget—we had had the election—and things were very different. Somehow the PSBR was expected to have gone up to £5.5 billion. Reducing that was no longer his main strategy. Somehow what he had done in July, by reducing the rate of VAT to 8 per cent., was not producing enough income. He, therefore, put some VAT up to 25 per cent., a rate which he later had to abandon.
However, his strategy had again gone completely for a Burton. Budget No. 4 in April 1975 saw a complete reversal of strategy. He provided then for a PSBR of £9 billion, although only the year before he had found a PSBR of £4.2 1625billion totally and utterly intolerable. By October the right hon. Gentleman was forecasting a slowing in the rate at which the PSBR was growing, but the truth was that it was accelerating.
In April 1976 we had another Budget. The Chancellor said that he expected total output to grow quite briskly. The target was to get unemployment down to 3 per cent. by 1979—a new promise. It involved a growth rate in the intervening years of 5½ per cent., a rate which we had no chance of achieving, and a rate which required an economic miracle which somehow never happened. Of course, by that time the Chancellor was in great trouble with his PSBR. There was a collapse of confidence because of a complete misjudgment of strategy and by that time the pound was falling. Three months later, in July 1976, the right hon. Gentleman was at last announcing a £1,000 million cut in public expenditure and a further employment tax.
Finally, with Budget No. 8, after every strategy had collapsed, involving the PSBR, the cost of living, the value of the pound and unemployment, the right hon. Gentleman put us in the hands of the IMF. That is one of the few things for which we can be thankful.
The right hon. Gentleman came to office almost with the mantle of Roy Jenkins, wanting a balanced Budget. But he discovered that that would mean painful public expenditure cuts, so he went for public expenditure expansion hoping that he could hold it with wage and price controls. Public expenditure expansion led to collapse in the confidence of the pound. That injected the next round of inflation into the economy.
The Chancellor then turned to debasing the overseas value of the pound. Finally, the IMF stepped in and set monetary and domestic credit expansion targets, insisting on some of the public expenditure cuts which should have been made many times before. His record shows that the Chancellor is completely incapable of sticking to any strategy for more than about three months at a time. That is how we should judge the present strategy.
I turn now to the Chancellor's statement on Friday. It was a statement on the demise of the social contract. There were two fundamental defects in the social contract, and in a way the Prime 1626Minister has confirmed one of them. The manifesto on which the Prime Minister fought the last election confirmed that the social contract was never a contract between Government and people. It was not confined to wage claims. The Prime Minister preferred to have his contract on all the things which should have concerned all of the people, with only one section of the people. The manifesto said that the contract
"is not concerned solely or even primarily with wages. It covers the whole range of national policies."
It went on:
"It is the agreed basis upon which the Labour Party and the trade unions define their common purpose."
In return for allowing the trade unions to dictate a number of policies on legislation, public expenditure and tax, the Government had the unions confirming in response how they would seek to exercise the newly-restored right of free collective bargaining. That was where we were in October 1974. Many of us suspect that that is exactly where we are to return now.
The other fundamental defect of the social contract arose on differentials, under phase 1 and phase 2. The Prime Minister will remember my constantly pointing this out to him in debates on phases 1 and 2. We did not oppose him on the matter, but we were highly critical of it because of the differential factor. Each time we said that he was building in problems and just pushing them forward, and that one day they would have to be solved. He built in a great compressor of differentials that will now cause him far more problems in coming out of this incomes policy than we have ever faced in coming out of any other.
The Prime Minister has learned nothing from the operation of the previous incomes policies. These differentials will now cause very great trouble. One can see from some of the strikes that we have had already that the lack of differential for skill is a detonator for a pay explosion that I hope will not occur. But it is clear that there must be a great deal of room to provide for differentials for skill because people who have skill or management skills have had a raw deal under the social contract. Those are the two fundamental defects of the contract. 1627
I now turn to some of the points in the Chancellor's statement. As the Prime Minister said, we have returned to what was called normal collective bargaining but what is now known as free collective bargaining. There has been nothing in the speeches by the Prime Minister or other members of the Government to prepare the people for the responsibilities involved in a return to free collective bargaining. The contrary is the case.
Everything that the Prime Minister has previously said has tended to give the impression that free collective bargaining would lead to free collective chaos. That is just what he said on 22nd February 1977. He could not have been a firmer opponent of the policies which he is now following. He has done nothing to prepare people for the fact that under free collective bargaining there will, of course, be differences affecting differentials. There will be differences according to the different successes of companies. There will be great differences in the amounts people will get.
The Prime Minister is talking about a 10 per cent. increase, and some people are talking about 15 per cent. What he does not say is that if differentials are restored, many people will get far less than that and many of them may have to suffer a decline in their standards of living. There has been nothing to prepare the people for that in any way.
May I put one point to the Chancellor of the Exchequer, which I hope he will confirm. Productivity deals are to be totally outside any advice on the 12-month-rule that he will give—[Interruption.] That is how I understand his statement. If that is not so, it was a little ambiguous. Productivity deals are outside the 12-month rule. It is important at the moment to get good productivity deals. I know that many people talk of the dangers of bogus deals, but when we have had two years without productivity deals or without any increase in pay for increased productivity, we need genuine deals in this respect. That is one factor that has bedevilled our success in industry, whether in the private or the public sector.
Let me turn to the second point I wish to put to the Chancellor of the Exchequer. There are many firms and 1628nationalised industries in which a large number of unions are involved in bargaining. Many of those unions bargain on different days. They will be in very great difficulty with the relationship between productivity deals and the 12-month rule if they want to move to a situation which many of us would regard as highly desirable—to one particular day on which to bargain. It is unrealistic to think that some would wait 18 months to do that. It may be that some would do it if they could move more easily, but it will damage our future interests and productivity deals if the 12-month rule stops a large number of unions from coming to agreement to bargain on the same day, which would be highly beneficial.
Although the Prime Minister has done something to try to prepare people for the fact that if we are to get within the monetary target and that if some people take a lot others will finish up without a job, I believe that we need to emphasise that factor even more. If we have rising unemployment, it is happening because some people have taken out too much.
Several Hon. Members
Mr. Stanley Newens (Harlow)
Will the right hon. Lady make clear her attitude to the vexed question of differentials? Is she speaking in favour of those who are pressing for higher differentials, and will she make clear her position on the doctors' claim? Does she or does she not support it?
We shall have to restore some differentials within the limits which have been announced. Unless we do that, we shall not obtain increased productivity or expansion of our industry, and we shall not keep our skilled people or our best managers here. I should have thought that was obvious.
But what is the right hon. Lady's view?
I want to create a Britain that will keep the best people here. Only the best is good enough. Of course we must keep within the cash limits, and some will have to have more than others, as I have already said. If the hon. Gentleman does not accept that view, he will be avoiding realities, as the Labour Government often do.
Several Hon. Members
Order. I do not think the right hon. Lady is giving way a second time.
With respect, Mr. Speaker, I gave way to the hon. Member for Tottenham (Mr. Atkinson), but if the two hon. Members would like to fight it out, they may do so and let me know.
Will the right hon. Lady please answer the question: what is her attitude to the doctors' claim?
Will the hon. Gentleman listen? We shall have to provide improvements for those differentials for the doctors within the cash limits. [Hon. Members: "Oh."] That means some will get more and some will get less. Now perhaps the hon. Gentleman will follow that up by asking what cash limits are to be fixed, because they are not yet fixed. Ask the Government whether they know the answer.
Order. The Prime Minister was given a very good hearing. I hope that the right hon. Lady will be allowed to continue.
The third point on which I hope the Chancellor will be more forthcoming than was the Prime Minister when attempting to answer my right hon. Friend the Member for Farnham (Mr. Macmillan) concerns his attitude to public sector pay claims. I know-full well that when the Prime Minister spoke of free collective chaos he was afraid that free collective bargaining in some areas might mean free collective bullying. How does he propose to stand up to that, if it occurs? There are some parts of the public sector for which there are no cash limits.
What does he intend to do, for example, in the nationalised industries? Will he tell the House—and he refused to give an answer to my right hon. Friend the Member for Farnham—whether he intends to obtain more subsidies from the taxpayer's pocket to subsidise increased pay claims in the nationalised industry sector, or whether he intends that it will come from increased prices so that the consumer will pay, or whether he intends that it should all 1630come from increased productivity? How does he intend to persuade that industry to increase productivity? [Hon. Members: "You tell us."] I thought this was the Government's policy. They do not even know what it is all about, and they will not answer. They say "Let us not go into detail because that would fox us".
Mr. Norman Atkinson (Tottenham)
Since the right hon. Lady embraces the politics of the IMF and Milton Friedman and also the arguments of the right hon. Member for Down, South (Mr. Powell) and those expressed by the right hon. Member for Leeds, North-East (Sir K. Joseph), and adds them together and says that this is the necessary preparation of the people for free collective bargaining——
Will the hon. Gentleman speak up?
I was saying that the right hon. Lady adds all that together and the sum total, as she described it, was to prepare the people for entry into free collective bargaining. That is her proposition. [Hon. Members: "Ask a question."] How does the right hon. Lady marry those propositions with the ideas that are echoed by the other half of her party who now advocate an incomes policy? Does it not worry her that she will go into the next election on a divided basis? In welcoming the extreme monetarist views of her own party, how does she square that with what she has said? If that is the dominant policy of the Opposition, how can she say——
Order. I know that the hon. Gentleman hopes to participate in the debate.
The hon. Gentleman is trying very hard. If he read the statement on Friday and if he read the IMF letter of intent, he will know that we had to accept certain constraints. One of those constraints related to domestic credit expansion, which had certain implications for money supply. That means whether he likes it or not—and clearly he does not—that he has money supply targets already fixed from between 9 per cent. to 13 per cent. One can fix them technically in a band; it is more difficult to fix them more finely than that. 1631
If the 13 per cent. increase in the money supply next year—which is way above the productivity potential and allowing for some inflation—is all taken up by wage and salary claims, there will be no room for any growth or investment and we shall continue with what is known as—and the hon. Member for Tottenham must know the term—a vicious circle. Only if some of that 13 per cent. is left free from wage claims shall we achieve genuine growth and falling inflation next year. The only constraints upon the Chancellor—[Interruption.] The hon. Member for Tottenham is getting a far better answer from me than he would receive from the Chancellor, and it is being given with greater patience, courtesy and a more elegant vocabulary than that of the Chancellor. Unless wage and salary claims allow for some leeway, we shall again have increasing inflation and we shall never achieve expansion. Unless we can achieve expansion we shall not achieve the increased prosperity that we on this side of the House are anxious for the country to have—and I am sure that hon. Members opposite are also anxious about that. We want to see prosperity in the private sector, too.
I want to ask another question about the cash limits in the non-productive sector, which have not yet been fixed for 1978–79. On what basis will the Chancellor fix them? The right hon. Gentleman has said "within the targets". Will that mean an overall increase of 7 per cent. in wage amounts? What does the right hon. Gentleman intend to do about the Pay Research Unit?
I should like to make another point about the statement that the Chancellor made on Friday. The right hon. Gentleman could have geared his whole Finance Bill and tax proposals to be complementary to those who have done extremely badly out of the social contract. I refer to those with extra skills, to managers and to those with particular professional skills. There was a time when the Chancellor expressed a great deal of sympathy for them but it never went further than that. Those people have done doubly badly out of the social contract and tax policies. If the Chancellor wanted to help them, and to obtain maximum co-operation, he should have geared his tax allowances or 1632reductions to help that bracket. The right hon. Gentleman does not wish to help them. All that he does is talk, but nothing ever comes out of his expressions of sympathy. I am told that it would not have cost much, but he will not now obtain maximum co-operation or such good will as the Chancellor could have obtained with a different policy.
Judging by the whole strategy of the Chancellor and his policy—and this came out again today in what was said by the Prime Minister—it seems that we have tremendous differences between us over the proportion of the gross domestic product that should go into public expenditure and the proportion that should be left in the pockets of the wage and salary earners. We on this side——
Mr. John Mendelson
Order. The right hon. Lady was not giving way.
The last time that I gave way—[Interruption.]——
If the hon. Member for Penistone (Mr. Mendelson) is cross because I refuse to give way he must blame only the hon. Member for Tottenham who made a speech and not an intervention.
There is a great deal of difference between the two sides of the House about the proportion of our gross domestic products that should be used in public expenditure and the proportion that should be left in our pockets. Every time that there is a choice, the Prime Minister and his party wish to pay more in the social wage and to take money out of our pockets in taxes and rates. That is where the money for the social wage comes from. The proportion that is used on public expenditure has gone up and up, while production and the economy have been static. As a consequence, the Chancellor has achieved something that we have never had before—an identity of interest between all of us who are prepared to put more effort and skill into the economy. All such people are saying that they are paying too much to the Government in taxation and that that robs them of all incentive. Unless the Chancellor breaks out of this level of public expenditure—which is ever-increasing—and into an 1633incentive tax policy, he will not achieve the expansion that we need so much.
Mrs. Barbara Castle (Blackburn)
Does the right hon. Lady endorse the Government's appeal for the 12-month rule, and does she think that it should apply to the doctors?
In general, I endorse the 12-month rule, but I have put forward a case where it might be damaging and I have asked for the Chancellor's view. Had the right hon. Lady been listening, she would have heard the case that I put to the Chancellor, which was about a multiplicity of unions, in a firm or nationalised industry, bargaining on different days.
Order. Hon. Members should allow the right hon. Lady to continue.
I should like to make one or two points about public expenditure. Having been through the mill myself as Secretary of State for Education I know full well the attitude that was adopted by hon. Members opposite when I had to make some education cuts. I hear hon. Members opposite saying that I took away free school milk, but £25,000 million of public expenditure later their Government have not restored it.
Mr. Thomas Swain (Derbyshire, North-East)
I should like to remind the right hon. Lady that she did not take any milk away from her kids but she took some away from mine.
I should like to remind the hon. Member for Derbyshire, North-East (Mr. Swain) that on a small income my father gave a high enough priority many years ago to paying for my school milk, because his priorities were right.
I should also like to remind the House about school meals. I put the cost of them up by 3p and the reaction from hon. Members opposite was outrage—although at that time the economy and real income were growing—and they voted against that. When the Labour Party came into office, the right hon. Member for Newham, North-East (Mr. Prentice) also put up the cost of school meals by 16343p, knowing that I should take a reasonable view about it—because I am always extremely reasonable. He had no trouble from Conservatives because he was facing reality. However, the curious point is that now, when school meals are to go up by 10p at a time of declining standards of living, there is no outrage from Labour Members. The rise of 3p during a time of a rising standard of living produced outrage, but for a rise of 10p at a time of a falling standard of living hon. Members opposite will follow into the Lobby like sheep.
Does the Chancellor not realise that it is no more difficult to make cuts in public expenditure now than it would have been then? What he is doing now he could have done earlier. It would have been difficult, of course, but no more difficult than it is now. In fact, if he had earlier made some of the public expenditure cuts that the IMF has made him make now, we should not have had the increase in public expenditure, the fall in the value of the pound or the rise in import prices which injected the next round of inflation into the economy. A lot of the present inflation is due to the fact that the Chancellor funked and chickened out of making those public expendicuts.
Now the Chancellor is also having to make other cuts and to reverse some of his policies on food subsidies. As a result of the social contract, the Government went in for massive increases in public expenditure and a massive increase in food subsidies, which the Chancellor is now having to cut. It would have been better if he had never made some of the increases in food subsidies and some of the increases in public expenditure.
According to the Press release issued by the right hon. Gentleman, food subsidies in 1974–75 were £518 million. They had been got down this year, 1977–78. [Interruption.] I am showing that the right hon. Gentleman can never stick to any policy for two minutes. In 1974–75 he got subsidies up to £518 million, and in 1977–78 they were to come down to £43.4 million, but he could not stick to it so he had to shove them up to £220 million, of which £50 million came from the EEC. I am proving that he cannot stick to any policy for five minutes. 1635
What is the sense of putting a subsidy on something at the same time as one is shoving a 10 per cent. increae——
The Chancellor of the Exchequer (Mr. Denis Healey)
I cannot stand it.
Of course the right hon. Gentleman cannot stand it. He never could. [Interruption.] Hon. Members are getting very tetchy.
What is the sense of putting a subsidy on something at the same time as one is putting a tax of 10 per cent. on gas because it is not expensive enough? These are the economics and politics of cloud-cuckoo-land.
The Chancellor is also making hefty grants to industry. I believe that in restructuring industry Governments must swim with the economic tide and not against it. The Government do no service to the health of the economy or the employees involved if they carry on an operation that does not in the end produce a viable concern. We shall never get an efficient economy if we do that.
The fact is that last Friday marked a totally new departure in policy, and a totally new departure in incomes policy. All incomes policies have to come to an end. This one, as far as it had fixed quantities, has now come to an end. How, in fact, should we judge the Chancellor on his record? I have given his record in facts, and I have given his record for not sticking to any strategy. We all know that he is
"Stiff in opinions, always in the wrong; Was everything by starts, and nothing long:".
It seems to us that what we have now is policies that have completely failed, strategies that have lurched from one to another. We have a Labour Party that is split from above to below the Gangway. Below the Gangway, it is not interested in making the capitalist society work, not interested in recovery on the basis of a free enterprise society, but more interested in replacing it. Above the Gangway, in some areas there is a certain amount of disillusionment with Socialism and a hoping to goodness that we have no 1636more of it. That split from above to below the Gangway is now reflected by a split in Cabinet, which has replaced collective responsibility with "We beg to differ".
Mr. John Mendelson
What is the right hon. Lady's policy?
I see nothing either in the Government's past record or in their present policies to warrant a vote of confidence. There is no basis for confidence in their record or in their capacity to stick to any policy when the going gets rough.
Mr. David Steel (Roxburgh, Selkirk and Peeble)
I have been listening to the right hon. Lady with great care. [Interruption.] This is supposed to be a confidence debate. What I have been waiting to hear is what are the policies that she believes—[Interruption.]—she can pursue more effectively than those outlined by the Government?
Perhaps I may say through you, Mr. Speaker, to [ David Steel] this young man——
Mr. Jeremy Thorpe(Devon, North)
On a point of order, Mr. President——
Order. Now the point of order.
On a point of order, Mr. Speaker. Knowing the way in which most right hon. and hon. Members address each other in this House, is it not unfortunate for the right hon. Lady to draw attention to the age differential between herself and my right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel)?
Perhaps the right hon. Member for Devon, North (Mr. Thorpe) should not worry. I would not address him thus. I must say to the Leader of the Liberal Party that it is his policies that we are analysing. It is no wonder that he cannot stand it. We now have a three-way split between those above the Gangway, those below the Gangway and the Liberals. 1637
I see no basis for confidence in the Government's policies or the people who are there to carry them out, and we shall accordingly vote against the Prime Minister tonight.