5.52 pm
Mr. J. Enoch Powell (Down, South)
In taking part in the debate I am bound to be conscious that I am one of those who come to the House from that Province of the United Kingdom which most acutely shares the extreme consequences of all the ups and downs of the economy of the United Kingdom. That is something of which Ulster and its people [column 1619]make no complaint. The United Kingdom is their birthright. In fact, it is because they are determined to assert it that they live under pressures unknown to the rest of the Kingdom.
Claiming that as their birthright, they accept, equally with the benefits, the burdens and the difficulties of integral participation in the economy of the United Kingdom. I stress that because, recently, a speech was made by one of the Northern Ireland Ministers which appeared to cast doubt upon that proposition and its implications, and I should like to take the opportunity, on behalf of my colleagues as well as myself, of acknowledging the frank and handsome withdrawal which that Minister publicly made in the last 48 hours. Certainly, it will be well received by those whom he tries to serve—and upon the whole succeeds.
The debate is essentially a continuation of the debate on the economy at the end of November. I argued at some length in that debate that the phenomenon of inflation and the inflation index at any particular time is, whether we like it or not, related to factors which already lie a considerable distance in the past. The 19 per cent. or so inflation rate is the most marked and urgent of our difficulties at this moment, but it derives from causes which lie at least a year or two back. That is not a proposition which can be disputed by the occupants of the Opposition Front Bench. In their earlier years of office, they never tired of pointing out that in the high rates of inflation experienced in 1975 and 1976 we were suffering from the monetary and budgetary mismanagement of 1972 to 1974. Accepting that as they did, and must, they and we are equally bound to accept that, on coming into office last May, the Government entered upon factors that were no longer within their power to control and which were bound to produce the economic constellation and particularly, the level of inflation we experience at the moment. That is the reason why my hon. Friends and I consider that it is, at worst, premature to censure the Government for the economic phenomena of the early months of 1980 after only 10 months in office.
It does not follow, however, that, although they were unable to control the [column 1620]factors which dictate our present circumstances, they did not enter upon heavy responsibilities or that the manner in which they have taken those up is beyond criticism. By the same taken, their responsibility from the time of entering office is for the state of the economy—and, above all, for the soundness of our money—in years ahead. Upon what they do or fail to do in the first two years of this Parliament will depend the economic and, certainly, the monetary fortunes of this country in the later years of the Parliament.
In her speech this afternoon the Prime Minister acknowledged—as did the Leader of the Opposition—the primacy of urgency of inflation. If we cannot bring a tolerable degree of stability into the value of our currency, there is nothing else, either at home or abroad, that we can be confident of achieving. It is, above all, against that test that policies and the means adopted to fulfil them must be judged. The right hon. Lady also said rightly—indeed it seemed an understatement—that the Government were still borrowing too much. In saying that, she identified the one measurable feature which, although it is not to be precisely equated or mechanically linked with the phenomenon of monetary growth, is the only apprehensible fact which we can deal with in seeking to come to grips with inflation.
For it is not disputed in any quarter, whatever other factors may be argued to exist, that it is the borrowing propensity of government and the ability of modern government to satisfy their marginal requirements by borrowing from the banks, and thus expanding the currency, which is the sine qua non of inflation—the condition without which there cannot be inflation as we have experienced it in the last two decades. [Interruption.] I am sorry that the right hon. Member for Battersea, North (Mr. Jay) who sits in front of me and with whom I agree on some of the most important matters of our national life, finds himself at such grumbling division from me on this; but the actions of his party in office have acknowledged, no less candidly than I am stating it, the crucial importance of the Government's total borrowing—of the public sector borrowing requirement. It is not for nothing that, whatever the jibes and the jokes about monetarism and so on, all economic [column 1621]commentators at home and abroad concentrate upon that index, upon that item, more than upon any other. They recognise in practice how crucial it is.
I repeat that the right hon. Lady was right in saying that it is too high. I will go further and say that it is dangerously high, 10 months after a new Government came into office. To be assured by those channels which turn out not to be so unofficial as they would like us to believe that the Chancellor of the Exchequer is hoping to get within reasonable distance of a £9 billion borrowing requirement is not good enough at this time of day. A country which has lived with our inflationary experience of the last five and more years is in no position to contemplate borrowing year by year sums verging on £10 billion. If the Government are looking for recovery and looking with the urgency that is necessary in the early years of this Parliament for the means to get a grip and a stranglehold on inflation, then neither £9 billion nor anything approaching that figure will do this year.
We should be aiming at a nil net borrowing requirement. Before any hon. Members starts to think, or to say, that that is a typically exaggerated and extreme statement from the right hon. Member for Down, South, let me recall that it is only 11 years since there was presented to this House a Budget with not merely a nil net borrowing requirement but a negative borrowing requirement—that is, a net repayment of tax—and I well remember the interesting debates that we had in which we discussed whether there was total symmetry between a positive and a negative borrowing requirement.
That was only 11 years ago. At that time we took it for granted. It is a perfectly possible and practical thing; it was achieved under the Labour Government, and with low unemployment prevailing. I do not remember outrage being expressed by any section of the Labour Party at the time of that Budget. “What, no borrowing requirement!” did they exclaim? “What no billions to be borrowed from the public!” . Apparently it was perfectly reconcilable with almost any of the strands of Socialist thought. Only 11 years ago, then, the spending and the taxation, the incomings and the outgoings, of this country and its economy [column 1622]were in balance. So it is not an extreme statement nor is it a mere provocative absurdity to say that what we need is at any rate a period during which the Government of this country do not need to come cap in hand to borrow.
Mr. Hugh Dykes (Harrow, East)
Excluding defence and security spending, does the right hon. Gentleman accept the need, according to his own arguments, for cuts in the very heavy subsidies to Ulster?
Mr. Powell
I am not going to leave my argument at the point to which I had brought it. Indeed, I propose to be much more precise than those who have so far contributed to the debate on the ways in which I believe that what is necessary in my view could and should be done. I do not know whether the hon. Member for Harrow, East (Mr. Dykes) was in the House when I began my speech.
Mr. Dykes
indicated assent.
Mr. Powell
He was in the House? So he would have heard me say that the Province in which I have the honour to represent a constituency fully accepts its share in the policies that are necessary for the United Kingdom as a whole. I stated that, and I state it again; so let me resume.
There are a number of ways—some of which can be used in tandem—for securing that major reduction in the net borrowing requirement which is urgently necessary at this stage.
Of course, it can partly be done by mirrors. As a former Treasury Minister I know that the Treasury has a set of very cunningly devised mirrors for use at Budget time to produce a different net borrowing requirement from that which would otherwise appear. But it is my belief that that is not very much to the taste of the present Chancellor of the Exchequer. He would certainly not be responding to the gravity of his responsibilities if whatever might happen in other years, he allowed himself to be diverted now into taking mirror reflections into his calculations upon the net borrowing requirement.
Nor can we—strong though the other reasons may be for it—look for any relief by way of reduction of the £1,000 million net tribute, mounting presently to [column 1623]£1,350 million, which we pay to the European Economic Community. For if we reduce what we pay to the Community—the gross sum—that is the equivalent of an increase in taxation, since it is from the additional taxation we levy at the behest of the EEC that we pay the Community this tribute, like the tribute the Greeks paid to the Cretans.
If on the other hand—and I am sorry to see that thoughts seem to be turning in this direction—we intend to come nearer to a balance with the EEC through an increase in the sums that it pays to us, it is a sobering reflection that that will do us no good at all unless those increased sums go to satisfy existing, but not additional expenditure in this country.
The Prime Minister
indicated assent.
Mr. Powell
I am glad to note agreement coming from an authoritative quarter.
So, laying these delusions on one side, there are, so far as I can see, two or possibly three sources—they are terribly plain ones—from which we can deal with what we have to do.
The first is taxation. If I have a complaint of the general economic and fiscal behaviour of this Administration—I made it in the Budget debate last year, as well as in November—it would be that they attempted to pluck the fruits of tax relief before the buds had openend, let alone before the fruit had ripened on the branches. Although much of the tax relief in the last Budget was achieved by means of offsets, the background which the Government created by the suggestion that it was the first of a series of relieving Budgets has made it specially difficult for them to do now what has to be done—that is, to obtain a massive contribution from taxation; for that is one of the means of moving towards closing the gap between Government receipts and Government outgoings.
We need something like an additional £1 billion to £2 billion out of taxation in the coming Budget towards that task. How much more easily—with all their protestations of the damnosa hereditas upon which they entered—they could have done that a year ago! Then the Government could have said to the electorate with some correctness “We came in committed to tax relief, but we could [column 1624]not with any degree of responsibility begin it in the circumstances which we find. Indeed there have to be, for a time at any rate, further tax burdens.” Further tax burdens indeed there have to be if we are serious about dealing with the root cause of inflation.
On the other side there is—I come to the remarks of the hon. Member for Harrow, East—expenditure. It is disheartening, after 10 months of hacking away at what it is alleged the Labour Government would have been spending—I think that is the correct formula and I believe that the right hon. Lady was careful to use it in her speech this afternoon—to find oneself more or less where one was at the start.
There has to be a rapid approach towards the centre of the gap from the expenditure side also. This will not be done by tightening the general collar of cost limits. It will not be done, fond though, as an ex-Financial Secretary to the Treasury, I am of sealing wax and candle ends, by those well known Gladstonian implements. It has to be done in large items; and the only way in which large items can be obtained from spending is through the deferment of major capital projects. This alone, over the course of 12 months and 24 months, will yield a substantial move towards balance between the incomings and the outgoings of government.
I think that the Chancellor, in his work on the Estimates, ought to aim at obtaining a substantial contribution on capital account by deferment of projects. Remembering that we are in what is called a crisis situation, we have to hit an objective, and hit it hard, at this stage in the Parliament. This cannot be done by a gradual gnawing, eroding process, which is constantly undone again, like footprints covered up as we walk across the sand. It has to be done by large, massive acts which will free the Government boldly from their present borrowing incubus.
Mr. Heffer
If the Government were unwise enough to agree with the right hon. Gentleman's suggestion of the deferment of major capital projects, would he explain what would happen to construction workers in Britain as a whole, particularly those in the unemployed sector in Ulster?
[column 1625]Mr. Powell
It is indeed bad news for the construction industry. But there is a good deal of other bad news: we are not in a position to choose between good news and bad news. The common predicament of politicians is having to choose the least of evils amongst the courses with which they are faced.
Now, if the Chancellor will permit me, I am going to apply an emollient to any wounds that I may have inflicted upon him. I am going to open to him, if he will only yield to my persuasion, an easy option.
Mr. Douglas Jay (Battersea, North)
An easy way out?
Mr. Powell
No, that would be too much; but, at any rate, something easier than the two necessary large-scale ingredients which I have already commended to him. I believe this is a time when we are entitled, and when it is sound, economically and monetarily, to apply part of our reserves to filling the gulf.
At the moment, even with the gold element undervalued, we hold $24 billion reserves, the only purpose of which is to enable the Bank of England to speculate on the currency exchanges. Incidentally, the only way that it can influence the currency exchanges by means of those reserves is to force the exchange rate of sterling up. Therefore, I hope that none of those on the Opposition Benches who groan at the strength of sterling—something which was our aspiration only a year or two ago—will take issue with me on that point. It is a dangerous temptation, and nothing better, that the Bank of England should have control over this huge asset—the fruit of various speculations and borrowings in the past.
If part of that asset is realised by the Government to meet their net borrowing requirement, that is no more sinful, no more uneconomic, than to sell off parts of the nationalised industries to the public. It is a method of converting capital assets into current cash. Indeed, it is the very process that the Government are commending to the British Steel Corporation, and I am suggesting that the Government should set an example by applying it. I do not suggest they should blue it all at once—the whole $24 billion—though I must say that there are attractions in getting rid of the entire net bor[column 1626]rowing requirement at one fell swoop. I would take it a little more easily, besides, I think that there should be other contributions; and I want to see the contributions which I have already mentioned both from the taxpayer and from the pattern of Government spending. If £2 billion, £3 billion or £4 billion of these assets are realised, the Government will be securing control of sterling as surely as if they issued a new gilt-edged stock: it is exactly the same process, no more inflationary—indeed, just as deflationary—in its effect.
Mr. Peter Tapsell (Horncastle)
Is not one difficulty about the scheme that the right hon. Gentleman has outlined, which appears on the face of it to be so attractive, that by far the greater part of the $24 billion is not our money at all? It is money which has been lent to us by other Governments, or short-term deposits by people who place their money here and are free to withdraw it whenever they wish. Therefore, the idea of blueing the lot, attractive as it sounds, seems a somewhat socialistic approach for the right hon. Gentleman to advance.
Mr. Powell
First, if it is not our money, why is it that from time to time we spend it as if it were ours by exchanging it into sterling for the purpose of rigging the exchange rate?
Secondly, while it is true that as a nation we are an external debtor, that no more makes our assets the property of our creditors than it does in the case of anybody else. So this notion which got into the head of the City Editor of the Daily Mail, that the reserve somehow belongs to somebody else, does not stand up to examination.
I am not, of course, suggesting that this is the whole of the answer to the Chancellor's problem. I am not even suggesting that it is the greater part, but I mention it to emphasise the necessity at this stage in this Parliament of mobilising every resource to eliminate, within a measurable time, that great cause of our disability—the incubus that weighs upon the whole of the economy and of the British people—the large net borrowing requirement.
Mr. Robert Sheldon (Ashton-under-Lyne)
Will the right hon. Gentleman give way?
[column 1627]Mr. Powell
I really ought to bring my speech to a conclusion. I apologise to the right hon. Gentleman for not giving way. No doubt my arguments can be dissected later here and elsewhere.
I want to conclude by addressing myself to the Opposition, though that may not be normal at the end of a speech in a censure debate. What is their position over the net borrowing requirement and the peril of ever-increasing and recurring inflation?
The Leader of the Opposition referred to the lunatic—I think that was the word that he used—desire to reduce the net borrowing requirement. Does he or does he not accept that it is because of the size of our borrowing requirement that—I am going to use the word “lunatic” again—we have lunatic interest rates at 17 per cent. and above? It is impossible to live a civilised existence in any economy with interest rates of 17 per cent. Does the right hon. Gentleman think that there is no connection between the Government wanting to borrow £9 billion or £10 billion and the level at which interest rates have to be held?
Again, does the right hon. Gentleman, after all that has been said and done by him and by his colleagues in office, deny that the size of that borrowing requirement is crucial to the existence, persistence and level of inflation? He does not. He cannot possibly deny it. He is hopelessly estopped by the words and actions of his party and colleagues.
So I ask him this at the end. Does not he consider that inflation is the most grave of all our social evils and that it lies at the root of the very industrial disturbances and the divisive misapprehensions from which the classes and parties in this country suffer?
I choose to end with that appeal to the Opposition, because this business of conquering inflation is a great matter, and a great matter such as this cannot be achieved without a broad common understanding and common will in the nation. Whatever differences and disputes there must be between the parties, there must be a common will to confront this evil and root it out. The Opposition cannot escape from responsibility for leadership in the manner in which they confront this most real of all the dangers and difficulties that lie before our country.