Speeches, Interviews & Other Statements

Margaret Thatcher

HC S [Economic Affairs]

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC [732/1560-70]
Editorial comments: 2103-2124.
Importance ranking: Major
Word count: 3474
Themes: Conservative Party (history), Industry, Monetary policy, Privatized & state industries, Pay, Public spending & borrowing, Taxation, Trade, Strikes & other union action
[column 1560]

Mrs. Margaret Thatcher (Finchley)

My first pleasant duty is to congratulate the hon. Member for Carmarthen (Mr. Gwynfor Evans), who made such an eloquent and original maiden speech. He certainly gave us a new interpretation of Harold Wilsonthe Prime Minister's mistakes. I note that he wanted a separate Government for Wales. This would, of course, solve some problems for England, because [column 1561]presumably he would take with him the right hon. Gentleman James Callaghanthe Chancellor of the Exchequer, who would then be able to make as much a mess of Welsh problems as he has made to date of the problems of England and the rest of the United Kingdom.

When in the past we have had periods of stop-go, we have during the period of stop usually managed to solve the immediate balance of payments problem. I believe that this is the first time when we have had a prolonged period of stop—more prolonged than any other—but have not solved the balance of payments problem. We can contrast previous occasions. My right hon. Friend the Member for Flint, West (Mr. Birch) took one of these occasions, that of the Peter Thorneycroft measures which solved a particular set of problems.

I will take the year 1961, when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) also had a problem on his plate. He also took certain measures; he also borrowed money, but the significant thing is that the money he borrowed from the International Monetary Fund, some £535 million, was repaid within a year and the Bank Rate of 7 per cent. which he instituted for a short time was down to 4½ per cent. within ten months. So at least that period of stop was a good deal shorter than the present one. He took measures. He clearly meant business. The problem was solved, and we were ready to go ahead again with a period of expansion.

This time we have had a period of stop in production for a very long time. The rise in production which began in 1964 finished, in effect, in January, 1965, when the index of industrial production for all industries was 133, exactly the same as the latest figure. We have had stop over all that time.

The Chancellor made certain excuses for our present problems. He spoke about the terms of trade. But they were against us in 1964. In 1965 they were with us, which helped us enormously, and in 1966, it is true, they have turned against us. But I agree with the hon. and learned Member for Northampton (Mr. Paget) when he says that a good deal of this could have been foreseen. Surely the rise in copper prices was fore[column 1562]seen just as soon as the Rhodesian crisis broke. Surely the rise in import prices was foreseen just as soon as the Vietnam war was stepped up. These things did not come on the nation as a surprise. They could and should have been foreseen.

The present Government have attempted to make rather too much of an excuse of the seamen's strike. Those who have any personal connection with trade and industry know that the vast majority of our exports got away during that period. The first question one asked was, “How much got away?” , and the answer usually was, “The whole lot” . There were certain exceptions, for example, exports to Australia and New Zealand, which did not get away, but the vast majority of our exports got away during the seamen's strike, thanks to the efforts of shipping clerks and transport departments in many industries who arranged for them to be carried in other ships. I said at the beginning of the seamen's strike that we should watch it carefully, because I thought that the Government would try to lay all their troubles at the door of the seamen's strike, which is exactly what they have now done.

I turn now to the general strategy of the Budget, such as it was. I say “such as it was” because it was, in fact, conspicuous by its absence. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said at the time how wrong he thought the Chancellor's timing was. How right my right hon. Friend was and how wrong the Chancellor was. The main purpose of the annual Budget is to plan the course of the economy in the year ahead. As soon as we heard the Budget, we knew that there would have to be another one within a comparatively short time, and we made that point during our debates. Never has a Budget imposed such a large tax burden but left our creditors with the view that it was soft.

It was a Budget which had a certain psychology behind it, the idea that it must not hit the ordinary elector, that anything done must be done in such a way that it did not bring home the seriousness of the situation to the people who by their action could have remedied that very situation. So now we have an extremely savage package of deflationary measures. These are not Tory measures. [column 1563]I cannot think of any period when we have had such a severe package at any one time.

It is worth while looking at the time-table of deflation as it appears from the latest package. In this July we have the regulator, which, it is said, will produce about £150 million in a full year. We already have the hire-purchase restrictions which will cut borrowing by £150 million, though it is not specified over what period. There is quite a lot of deflation to start with. Then, in September, the period when most economists were in any event expecting a down-turn, several other measures come into effect. The first five months of Schedule F will have to be paid on dividends. The Selective Employment Tax is taken out of the economy at a rate of £90 million a month. In October, for the first time wage-related contributions for unemployment benefit and sickness benefit have to be paid, and this will amount to about £76 million in a full year. In October, the postal rates will go up, amounting to £20 million in a full year. The betting and gaming tax will start then, too. In November, the travel allowance reductions come into effect.

This is an extremely harsh timetable for deflation, but it is not all. The deflation policy goes on into next year. In January, £1,000 million will have to be paid in Corporation Tax and £248 million in Surtax. In February, the reverse position will be true when rebates and premiums start to be repaid. In September next year there will be another Surtax deflationary packet taken out of the economy. Even that is not all. Deflation will continue until 1967–68 with the cuts in investment programmes and the building controls. This is not merely a programme for deflation; it is a programme for deflation; it is a programme for contraction. It will mean that we shall go on having a contracting economy for a considerable time to come.

I turn now to some of the sayings of Harold Wilsonthe Prime Minister. He now appears to be resolved to deal with the crisis. We have heard a great deal of this before. It was after the initial crisis in November 1964 that the Prime Minister said at the Guildhall dinner:

“We shall not hesitate to take any further steps that at any time are or become necessary. If anyone at home or abroad [column 1564]doubts the firmness of that resolve and acts upon their doubts, let them be prepared to pay the price for their lack of faith in Britain.”

People did doubt the Prime Minister's good intentions, for a few days later we had the first great crisis of confidence. Bank Rate went up and the Prime Minister came to the House and said that at this particular time a crisis of confidence had developed. So much for the Prime Minister's resolve on that occasion. The House knows what has happened since. There have been successive Budgets and successive measures. So again, in his Prime Ministerial broadcast on 20th July, the Prime Minister said:

“We are determined to take action which will show that the people of Britain are ready once and for all to play their full part in putting right the economic weaknesses.”

The question which everyone asks is why should we believe him now when he has said it all before and has done precious little about it? This is one of the problems of the present set of measures. No one believes the Prime Minister any more and no one trusts him any more, as the hon. and learned Member for Northampton pointed out. The Prime Minister's problem is that Britain's creditors now understand him perfectly. Because they do so they are suspicious of anything he says. It is very ironic that this is the contribution which the Prime Minister has brought to a nation which built up its trade and financial position on trust. In two years the Prime Minister has destroyed trust in the Government's word. It is not surprising that many people are now hesitating before judging the measures brought forward. They are not judging the measures themselves; they are judging the set of men, headed by the Prime Minister, who brought them into operation.

The Prime Minister missed his vocation. He should not have taken the job of a man of decision but should have stayed as a commentator, for, like sorry wine, he makes excellent vinegar. We had the famous week, that was the week that was, starting on the 11th July with the report in the Financial Times that the view of the Government was that there was no need for additional measures to deflate the economy. The next day it was announced that there would be no help from the banks for the purpose of [column 1565]meeting Selective Employment Tax payments, and the next day the Prime Minister cuffed the “Sell Britain Short” brigade. On the Thursday we had the trade figures. Then the Prime Minister came to the House saying that more was needed but he had not a clue as to what it was.

So we had one of the greatest somersaults of all times, a somersault which I think the British electorate will never forget, because I do not think that ever again can they believe what the Prime Minister says.

My right hon. Friend Nigel Birchthe Member for Flint, West has had something to say about the reserves and the fact that precious little of them belongs to us. We are, of course, in this crisis after all the known solutions have been tried and have failed, after the terms of trade have been with us, after there has been the most massive international support of all time, and after there has been the most colossal run-down of the true reserves. Perhaps people do not realise the extent to which the Government have lived on capital built up before they came to power.

It is as well that previous Chancellors of the Exchequer did not liquidate the dollar portfolio and put it into the reserves, otherwise it would not have been available now. [Interruption.] It never actually went into the reserves—which is just as well. It would certainly have gone before if we had had a Socialist Chancellor of the Exchequer.

We have also had the penalty of the disinvestment of dollar securities, which brought in £70 million last year. Had not previous Governments acted in a way that built up private overseas investment, there would not have been enough for the Chancellor to run down now. The final indignity was the Gold Coins Order, making it an offence for anyone who did not hold sovereigns on 27th April, 1966, to buy as much as one sovereign. What an indictment of the Government. It was a ridiculous Order.

There is, of course, the difficulty of telling anything from the published reserve figures. The April edition of the Banker described the Chancellor's statement of 1st March as a

“… virtuoso display of how to juggle with reserve figures” .

[column 1566]What a commentary on the Chancellor of the Exchequer. It is also clear from the June Quarterly Bulletin of the Bank of England that during February and March there were a number of borrowings, at any rate to the extent of £54 million, which did not reflect in the reserve figures.

There was a very obscure sentence in the Bulletin which led the Economist to comment:

“This makes the notionally clean reserve figures as irrelevant as the crude figures.”

Therefore, my right hon. Friend the Member for Flint, West was right in saying that precious little of our reserves belongs to this country.

During the debate, there have been a number of comments about devaluation. My view, and I believe the viewpoint of the Opposition as a whole, is that we are absolutely against devaluation.

The President of the Board of Trade (Mr. Douglas Jay)

As a whole?

Mrs. Thatcher

As a whole. Hon. Members on both sides have expressed their different personal opinions, but I think that my right hon. Friend the Member for Flint, West made the point when he said that if we were to devalue we would, of course, have to repay the colossal amount of debt at a very much higher rate than at the moment. There were severe penalties from devaluation on the last occasion. We devalued in 1949, and in 1951 we had the biggest rise in the cost of living that we have ever had. It hit pensioners extremely badly, and it was not until 1958 that we really managed to pull out the effects of devaluation and give real pension increases. I further believe that those who advocate devaluation are often seeking for a kind of “economist's stone” that will turn everything to gold. They want some simple solution to all our problems. I do not believe that there is ever a simple solution to be found, and it is certainly not that one.

I turn now to an analysis of the package presented to us. My right hon. Friend Edward Heaththe Leader of the Opposition referred to the Chancellor's statement, reported in the Financial Times today, about his attitude to the wage freeze. There was, of course, another warning, this time by George Brownthe First Secretary of State, reported in [column 1567]The Times of 4th July. The report said:

“Referring to a newspaper poll claiming massive support for a wage freeze, Mr. Brown said one course would be to halt all wage increases, but he did not think that was the way to do it.

“Even if it could be made to work, with all the unfairness involved to the lower paid, the freeze could not go on for ever and the position would be worse when it came off. The Government would still have to find the answer to making the policy work in the longer term.

“‘So I am not asking for the freeze. I am not saying that nobody should put up prices, declare increased dividends, and get increased wages and salaries. What I am saying is that they should all be examined’.”

So we are in the difficulty that it looks as though we are to have a freeze. The Prime Minister said that he would not enforce it by elaborate statutory controls, which presumably means that he is prepared to enforce it by statutory controls. My right hon. Friend the Leader of the Opposition thought that if it came it should be voluntary. The Prime Minister, then, is prepared to have statutory controls, the First Secretary does not believe in it, and the Chancellor of the Exchequer does not rate it very highly when he is talking to our European friends.

This scarcely seems the way to introduce a wage freeze or encourage the trade unions to take part in it. Moreover, on the day when it was announced the position was made extremely difficult, because those who had already had increases granted wanted to know what the position about those increases was and they were given conflicting replies. For example, Gas Council officials were insisting that the 4 per cent. award would be paid and Department of Economic Affairs officials were telling union leaders that they were stalling it. What a way to run a Government! What a way to try to inspire confidence in anyone!

I turn now to the cuts in expenditure for nationalised industries. It is difficult to analyse these, because they were given in detail only yesterday in answer to a Question, but I note that in the Sunday Times this week it was suggested that a reduction for the electricity industry of the size proposed would mean cutting right back on the work of reinforcing the local cable network. Cutting this expenditure would mean that the [column 1568]slightest accident or overload could black out a fair sized suburb, and one doubts whether it is wise to take that risk in these circumstances.

But perhaps the cut is more fictitious than real, as with a number of other proposals, but if there can be a cut of £24 million in the electricity industry without undue difficulty, as the Chancellor seemed to indicate at the beginning of the debate, it would seem to show that the electricity people have been very wasteful if there can suddenly be a cut of £24 million without any effect. At any rate, personally I think that these cuts should be viewed with considerable suspicion.

A year's advance payment for telephone rentals is to be demanded. Are old folk to be exempt from that requirement? Many of them must have telephones and need new telephones where they have not yet been installed.

The private building and office controls will not bite until 1967, which once again means that the Government are continuing the inflation until that period.

As various hon. Members from this side of the House have pointed out, there is a tremendous lack of incentives in the present package, in sharp contrast with Mr. Butler, now Lord Butler, when he had a similar situation to cope with from 1951 to 1953. It was noteworthy that in a poll published on 24th July, the majority of Britain's leading industrialists said that they would emigrate if they were younger men at the start of their careers. They felt that the present economic crisis was but one in a series of crises still to come.

This is perfectly true in the lack of an incentive policy in taxation. I note that there is a 10 per cent. charge on Surtax which will take Surtax levels almost back to where they were for one year in wartime. It puts up the top rate to some 19s. 3d. in the £, which is no encouragement to those extremely able people upon whom we depend. The hire-purchase restrictions and the regulator were expected. I have noted that the effect of the regulator will be reduced because of the action of my right hon. Friend the Member for Barnet (Mr. Maudling) in reducing Purchase Tax. In one of his Budgets he reduced the top Purchase Tax considerably. [column 1569]

Most of us regret the cuts in information services overseas. On hotels, we wish that the Government would make up their mind. They are doing away with investment allowances and have added the Selective Employment Tax to the difficulties of the hotel industry. Then they attempt to give a little bit back in loan assistance. I hope that Douglas Jaythe President of the Board of Trade or the Chancellor will give some clearer guidance to close companies. As the Chancellor knows, they are told to increase their dividends and they suffer considerable penalties if they do not. Who are they to believe? Are they to believe the latest statement that they must freeze dividends, or are they to believe the inspector of taxes who will tell them that they have to increase dividends at certain times? Ought we not to have a new Chancellor's umbrella? There have been a considerable number of positive proposals put forward on previous occasions. Many of us have said what we feel should be done to produce an efficient economy and to get the economy towards expansion once again and out of its present difficulties.

Many of these measures were taken by Mr. Butler, as he then was, in 1951, towards 1953, when he faced a deficit running at the rate of £800 million a year and faced a loss in the reserves in the second half of the previous year of some £547 million. He, too, announced an emergency Budget in November, followed by a very serious Budget in April. The following year he announced an incentive Budget and introduced cuts in taxation—a completely different approach and attitude from that of the present Government.

I would suggest that if we are to move forward once again we must concentrate on some of the policies of modernisation. This means dropping the new system of incentive grants, because these mean that allowances are given regardless of profitability. We believe that the old system was a good deal better. It means dropping the development levy on industrial development, contained in the Land Commission Bill, whereby an industrialist who develops his land has to pay 40 per cent. levy. This is quite absurd. It also means dropping the present Selective Employment Tax and premiums to industry, which would result in keeping in [column 1570]business those who are inefficient and who ought to go out.

That would mean that we should have a good deal more competitiveness in industry. If the Prime Minister is in earnest, he should instruct the Royal Commission on Trade Unions and Employers' Associations to report within six months, with a view to taking legislative action. I would suggest, too, that he tightens up the Restrictive Trade Practices Act along the lines prepared by the last Conservative Government, and deals with the taxation system which persuades top men and women to stay in Britain. We have had a very considerable deflationary package presented to the House. We have no lack of confidence in the British people, but we have no confidence whatever that this Government has either the will or the ability to put matters right.