EMPLOYMENT
3.52 p.m.
The Chancellor of the Exchequer (Mr. Denis Healey)
I beg to move,
That this House, while welcoming the reduction in the rate of inflation and the improvement in the balance of payments as an essential basis for economic recovery, expresses its deep concern at the continuing rise in unemployment and its determination to take all possible effective measures to reduce it so as to ensure continuing growth with stable prices.
At this moment the nation stands at what is always the most critical point in the path of an economic recovery—the point at which output is beginning to increase again but employment has not yet begun to respond to the increase in output. If at this point the Government or the public panic, if there is a collapse of nerve, the consequences can be disastrous, as was proved when the Conservative Party was in power. Therefore, this afternoon I want to describe the situation as I see it and to suggest what can be done to deal with the present intolerable level of unemployment without jeopardising all the advantages that the British people have won so painfully through their sacrifices in the last year.
In recent months our economic prospects have been transformed, largely as a result of the agreement reached between the Government and the trade unions last July on dealing with cost inflation in the current wage round. But the major areas of improvement which we can already record for 1975 were predictable and, indeed, were predicted even earlier. I forecast in my Budget speech last April that in the second six months of last year the rise in the Retail Price Index would be between 12 per cent. and 16 per cent. at an annual rate. In fact it was 14 per cent.—well under half what we endured in the first half of 1975.
The main effect of the £6 limit on pay increases is yet to be felt, but few would now dispute that the Government have a very good prospect of achieving their target of reducing the annual rate of inflation to under 10 per cent. by the end of this year.
The £6 limit has been universally observed. To date we know of major settlements within the policy covering well over 3 million workers. In addition [column 681]15 wages councils, covering over 750,000 workers, have agreed new statutory minimum remuneration in line with the policy. The Department of Employment has also been notified of 3,000 settlements covering smaller groups, and none of these is currently in breach of the policy.
The policy is now overwhelmingly supported by those whom it affects directly—by the General Council of the Trades Union Congress, by the rank and file of the trade union movement and, according to reports of a survey recently conducted by Political and Economic Planning, by conveners and shop stewards throughout industry.
I hope I am right in saying that, whatever its earlier hesitations and conclusions, the Opposition Front Bench, at least in its majority, now recognises that the White Paper which it asked the House not to approve in July is in fact making a major contribution towards the resolution of our economic problems.
In addition to its direct impact on our own affairs in Britain, the new policy for incomes has also transformed our reputation throughout the world. When I was in Jamaica for the IMF meeting a few weeks ago, I found my colleagues unstinting in their admiration of what we in Britain had achieved and for the relationship between the Government and the trade unions which made it possible. The House will note that at least five other Governments are currently attempting to imitate our policy.
It is worth recording that the new relationship between the Government and the trade unions has brought an immense improvement in industrial relations too. Britain lost fewer days last year through industrial stoppages than in any year since 1968—less than one-third of the massive 24 million days clocked up in 1972 when confrontation was the order of the day.
We have made equally good progress on the balance of payments. Our current account deficit last year was well under half that in 1974. It fell from £3.7 billion to £1.7 billion in 12 months. It is true that this improvement, as in all industrial countries, owed much to the effects on imports of the world recession and to the improvement in the terms of trade compared with the savage blows we all suffered in 1973 and 1974. [column 682]
But the world recession also involved a heavy fall in world demand for our goods. Indeed, the fall in demand was a good deal sharper in most of the main manufacturing countries than in Britain. Despite that, however, our share in the manufactured exports of the main industrial countries rose from 8¾ per cent. in 1974 to 9½ per cent. in the first half of 1975. Figures for the second half of the year are not yet available, but it looks as if we actually increased our share in world trade last year, although the competition was a good deal stiffer than in normal times. I hope the House will agree that that was an encouraging achievement by any standard.
There are encouraging features also in our performance on import substitution. The volume of our imports of finished manufactures fell by 7½ per cent., whereas the fall in manufacturing production was substantially less—about 5½ per cent. in the first 11 months of the year.
Of course, it is dangerous to build too much on our trade performance in a single year, particularly one as exceptional as last year. But the fact that our record has been better on both exports and imports than might have been expected gives us real grounds for satisfaction and for hope that a further increase in our exports will take place as world trade picks up.
In fact, there are growing signs that the world recession has already bottomed out. In 1975 the total volume of world exports probably fell by about 6 per cent., but there seems to have been some pick-up in the fourth quarter of last year. There are obviously great uncertainties, but at present we would expect world trade to rise by about 7 per cent. in 1976 as a whole, accelerating throughout the year, and this will offer immense new opportunities to our exporters.
Here in Britain the signs are multiplying that our recession may be coming to an end—if recovery has not already begun. As always, evidence about the immediate past is patchy, but such figures as we have are encouraging. For example, in the three months to November last year industrial production rose by 1.6 per cent. and manufacturing production rose by 1.2 per cent. The CBI's monthly survey shows in December more firms reporting an increase rather than a fall [column 683]in the volume of total new orders over that latest four-month period—the first time that this has happened for 18 months. Looking ahead, the CBI survey has shown for two months running a balance of firms expecting the volume of output to rise in the four months ahead—a better result than any seen earlier in 1975.
Clear evidence that the recession in Britain may be ending also comes on the demand side. In the third quarter of last year gross domestic product by the output measure fell just ½ per cent., compared with 2½ per cent. between the first and second quarter. GDP on the expenditure measure was virtually unchanged in the third quarter, and total final expenditure—that is the sum of consumption, all investment and exports—actually rose by ½ per cent. Destocking has also fallen back sharply and may have passed its peak.
We can now extend the evidence on the demand side into the fourth quarter of last year. The provisional estimate for consumer expenditure in the last three months showed only a very marginal fall—very much less than the 1½ per cent. fall in consumer spending during the third quarter. Exports have done well, too, particularly on food, materials and chemicals. They grew over 7 per cent. in volume terms in the fourth quarter, partly, I believe, in response to improving world trade, particularly in North America and European markets. All this suggests that Britain is now beginning to pull out of the recession so far as economic activity, output and demand are concerned.
The one exception to these encouraging statistics is, of course, the main subject of this debate. Unemployment figures are still rising, as I forecast they would in our recent debates. The figures here must give us all profound concern. But they do not need the sort of exaggeration that they have received in some parts of the Press, and the more alarming predictions made in some quarters last year have proved very far ahead of the reality. The fact is that we ended 1975 with unemployment under 1,200,000, as I predicted we would in September.
The January figures are serious enough. For the United Kingdom as a whole, the seasonally adjusted rate, excluding school [column 684]leavers and adult students, reached 5.2 per cent., a total of 1,205,000, and an increase of 42,300 over the December level. Most of the newspapers preferred to headline uncorrected figures.
“227,000 increase in a month”
said the Daily Telegraph. “Nearly 1½ million men out of work” was the general cry. Of course, this is true enough if one eliminates the seasonal corrections which all Governments have made to take account, for example, of the normal winter fall in tourism and building, and if one includes over 116,000 students who signed on the unemployment register, on an entirely temporary basis, over the universities' Christmas break. But I wonder whether we shall see headlines in equally bold type next month screaming “Jobless fall 100,000” because those students have now gone back to college.
The main exception to this type of exaggeration—apart from The Times—was the research organisation run by the Conservative Party and headed by the right hon. Lady the Leader of the Opposition and her Front Bench economic adviser, the right hon. Member for Leeds, North-East (Sir K. Joseph). They claim that the true level of unemployment was 800,000, little over half the figure trumpeted by most of the newspapers and 400,000 fewer than the seasonally corrected figures issued by the Government.
I must ask the right hon. Lady whether she will confirm that that is indeed her view. If it is, how can she justify her hysterical intervention at Question Time last week? The political editor of The Times asserted on Monday—I quote his words—the utter impossibility of the Shadow Cabinet
“wickedly exploiting the rise in unemployment for cheap party and electoral purposes.”
But if the right hon. Lady accepts the view of her own research organisation, that is exactly what she did last week. I wonder whether Mr. David Wood will ever recover the virginal innocence that she so brutally outraged.
Mrs. Margaret Thatcher (Finchley)
The Centre for Policy Studies is not the Conservative Research Department and is not related to it. Whichever set of figures Denis Healeythe Chancellor uses, both show that unemployment has risen under the present Government and is still rising.
[column 685]Mr. Healey
The right hon. Lady, as so often, has refused to answer a very relevant question. She is a director of the research organisation to which I have referred. Her Rasputin or Malvolio, the right hon. Member for Leeds, North-East, is another director and, we are told, manages its studies. What we want to know is whether the right hon. Lady will tell us what her view is. Does she agree with her right hon. Friend, does she agree with the Daily Telegraph maximum figures or does she agree with the Government? If she believes that the figures issued by her Centre for Policy Studies were gross under-estimates, let her say so, and let her abolish her research organisation and replace her right hon. Friend the Member for Leeds, North-East as her economic adviser by the right hon. Member for Worcester (Mr. Walker) because he has made it clear that he would be only too glad to have the job.
As it is, the right hon. Lady's whole attitude towards unemployment, like that of many hon. Members who were infected by her hysteria last week—if I may quote the words of another newspaper which commonly supports her policy, the Daily Mail— “stinks of hypocrisy.”
Mr. Eric S. Heffer (Liverpool, Walton)
Is my right hon. Friend aware of the fact that many hon. Members on the Government side of the House are in no way affected by the hysteria of the right hon. Lady the Leader of the Opposition or any other Opposition Member? What we are deeply concerned about is the rise in real unemployment to the extent that areas in my constituency——
Mr. Dan Jones (Burnley)
And mine.
Mr. Heffer
Certainly, but I am now talking about my constituency. Twenty per cent. of the people there are unemployed. That is what we are talking about, and not figures which come from Conservative Central Office or any other office. We are talking about the reality of our people's unemployment, and we are not going to have it.
Mr. Healey
I am well aware of the very deep and genuine feelings of many of my right hon. and hon. Friends. Indeed, I assure my hon. Friend that it is shared by the whole Cabinet. I propose to tell him this afternoon what we are planning to do about it in order to meet [column 686]it. [Interruption.] The hypocritical humbug of hon. Members such as the hon. Member for Stretford (Mr. Churchill), who has never shown the slighest sympathy in his whole career for ordinary working people, makes decent people retch.
Mr. Churchill (Stretford)
The right hon. Gentleman will recall coming to speak for me in my constituency in 1974, where, I may say, he was a great help. His principal theme was unemployment, and he implied to my constituents in a very industrial area that it would be lower if they voted Labour than if they voted Conservative. Today in the North-West there are 117,000 more people out of work than there were when his Government came to office.
Mr. Healey
I am grateful to the hon. Member for Stretford. He is of considerable help to me, and if he thinks that I am of help to him, so much the better. However, I shall demonstrate in a moment that what I predicted in that election speech, which I fear did not do enough to turn the tide against the hon. Member for Stretford, was the literal truth and was stated to be so by the Shadow Chancellor of the Exchequer, the right hon. and learned Member for Surrey, East (Sir G. Howe), who, we much regret, is not assisting in our deliberations today.
The fact is that the seasonally corrected increase in unemployment this month at 42,300 was broadly the same as it was over the last three months of 1975 and less than the average from June to September. In this it reflects the slowing down of the recession in the middle of last year, but it does not yet reflect the bottoming out which appears to have occurred in the last quarter. That will produce a levelling off in unemployment in some months' time, and the actual fall in unemployment will then follow.
An indispensable condition for successful economic management is to take account of the substantial lags between a change in overall demand for goods and services in the economy and the change in output which it generates and of the similar lag between the increase in output and the consequent fall in unemployment. Such lags between an action and its consequences are the very stuff of what used to be called political economy, and [column 687]they occur in almost every field. For example, changes in exchange rates and money supply are even slower to produce their effects. That is why it is essential always to consider the management of the economy over a period of years and always to be thinking as much of the likely situation in 12 months' time as of the situation tomorrow.
In the current state of economic knowledge, it is not possible to be precise about the length of these lags. But it is prudent to assume that both between demand measures and output and between output and employment it could be about six months. For this reason, macroeconomic measures taken to increase demand—for example, the reflationary measures which some of my hon. Friends may press upon me today—may take a year to have much effect on unemployment.
It is because of these lags that if I now increased domestic demand by macro-economic measures, this could have little significant effect on unemployment during the rest of this year. Domestic demand reflation now through a reduction in income tax, for example, would take some six months to have a noticeable effect on output and would take a further six months to have a significant effect on unemployment. The full effects of the measures would take even longer to come through. The great bulk of the output effect would take about a year and a half and the bulk of the unemployment effect would take up to two years to come through.
Mr. Ian Mikardo (Bethnal Green and Bow)
Will my right hon. Friend give way?
Mr. Healey
I suspect I know the point that my hon. Friend wishes to raise, and I shall be coming to it in a moment. If I am mistaken, I shall give way to my hon. Friend with the courtesy that I always display to him.
I know that some of my hon. Friends believe that it is somehow possible to escape these lags and reduce unemployment faster by keeping out imports and thereby increasing the demand for British goods in Britain. But this might be even slower to affect employment. There would bound to be some administrative [column 688]delay, and employers in the sectors which might hope to replace the excluded imports would be less inclined to take on additional labour or put up new plant or machinery to meet an increased demand for their products if they thought that the import controls would be temporary and the rise in demand would not be maintained in the long run.
But there are more powerful arguments against such import controls. They would be unlikely to obtain the acquiescence of the foreign Governments concerned, especially at a time when our balance of payments was steadily improving and our rate of unemployment was in line with that of most of our competitors and substantially lower than in some countries like the United States. In that case, retaliation would be almost certain and this could cost us as much through loss of exports in terms of both jobs and the balance of payments, as we could gain from the increase in domestic demand.
Mr. Mikardo
I am obliged to my right hon. Friend for his courtesy, as always, in giving way to me. But he mistook my point. He has not met it. It is a very different one. It is that, if it takes some time for measures to find their way into extra employment, why is that a case for delaying them? Surely it is a case for getting on with them. Indeed, if my right hon. Friend had taken these measures when some of my hon. Friends and I first advocated them last summer, we should be seeing some results now.
Mr. Healey
I am immensely grateful to my hon. Friend, as I am so often. I shall deal with those two important points in a moment.
As I was saying, if we adopted general import controls they would be unlikely to obtain the acquiescence of the foreign Governments concerned, retaliation would be likely and, in addition to the risk of losing as much through the loss of exports, in terms of both jobs and the balance of payments, as we could gain from the increase in domestic demand, there would be a real risk of starting a world trade war in which all countries would lose heavily, and the less-developed countries most of all. I must remind my hon. Friends who are attracted to that solution that that would risk turning [column 689]what is already the worst recession since the 1930s into a prolonged slump such as the world had to endure 40 years ago.
I do not believe that any hon. Member would want to run that risk and that is why, for example, the Labour Party conference last year set itself against general import controls and was prepared to consider selective import controls only if they were not likely to provoke retaliation.
To sum up this part of my argument, there is nothing that any British Chancellor of the Exchequer could do now by general reflation of domestic demand—whether by tax reductions, increases in public expenditure or import controls—which could reduce unemployment significantly this year in the months when it may still be rising. The time to have acted, as my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) suggested, would have been in my Budget last April. But as I warned the House as long ago as November 1974, 18 months ago, the intolerable increase in wage inflation which took off in the autumn of that year ruled out that option.
If I had continued in my Budget last April the stimulus that I gave the economy in July and November 1974, I would have brought the whole economy down in ruins. In fact I was compelled instead to increase taxation and not to cut it. But, thank God, the British people learned their lesson in time—I may say with no help from the Opposition Front Bench.
The unprecedented success of the attack on inflation that we launched last July——
Mr. Peter Tapsell (Horncastle)
rose——
Mr. Healey
The House will recognise that I have given way several times already and that I must be allowed to get on with my speech——
Mr. Tapsell
rose——
Hon. Members
Give way.
Mr. Healey
I shall give way to the hon. Member for Horncastle (Mr. Tapsell) presently, but not just now.
The unprecedented success of the attack on inflation that we launched last July, against the wishes of the Opposition [column 690]Front Bench, has given me a freedom of action this year which simply did not exist last year. But it will still be a difficult matter of judgment to decide whether any increase in domestic demand is called for in my next Budget.
At the moment it seems likely that the increase in both output and employment, particularly in manufacturing industry, will be rather fast next year. Demand will also be rising fast. An increase in world trade will be increasing our exports. Industry has already declared its intention to make a big increase in investment next year. Stock-building will have resumed. There will also be some increase in consumer spending. If that proves to be the case, a further big stimulus to demand by action this year might turn out to be as ill-timed and disastrous as the piling of one reflationary measure on another by the previous Administration when they panicked in July 1971 and started a consumption boom which they pumped up still further in the Budget of 1972.
Mr. Tapsell
When the right hon. Gentleman talks about a reflationary boom being pumped up by the Conservative Government and the British people having now learnt their lesson, may I ask him to bear in mind that when he reduced taxation in July 1974 my hon. Friend the Member for Oswestry (Mr. Biffen) and I warned him of the effects of that and divided the House against him? He claimed that the measures were necessary at the time. Will he bear in mind that the inflation and unemployment from which we are now suffering are very largely the result of those electioneering tactics?
Mr. Healey
I know that that is the hon. Gentleman's view and the view of the hon. Member for Oswestry (Mr. Biffen), who, I am delighted to see, has now joined the Opposition Front Bench. The hon. Gentleman will recall that, although the official Opposition tabled a motion against those measures in July 1971, in the event they skulked in the back rooms of the House of Commons and failed to vote. Only 30 hon. Members joined the hon. Member in the Lobby. Good luck to them. At least they had the courage of their convictions, if that is what it was—unlike the right hon. Lady now sitting on the Opposition Front Bench. [column 691]
I was referring to the measures taken by the previous Conservative Government in 1971 and 1972. I have been delighted to see, during the last 10 minutes of my speech, that the right hon. Member for Leeds, North-East has been steadily nodding his agreement with what I have been saying. Indeed, there is no need to look into the crystal ball when we can read the book. The consequences of excessive reflation in 1971 and 1972 are now history. They brought about the collapse of the Barber boom in 1973 amid the most severe economic dislocations since the 1940s.
Let me remind the House of the facts. In the autumn of 1973 bottlenecks and supply constraints appeared throughout industry. In the CBI survey of October 1973 a total of 51 per cent. of firms were reporting shortages of skilled labour as a factor limiting their output—two-thirds as much again as in the previous peak in 1969. A total of 49 per cent. of firms reported shortages of materials and components—three or four times as many as in 1969. Shortages of plant capacity were widely reported too.
I hope that the right hon. Member for Lowestoft (Mr. Prior) will listen to what I and his right hon. Friend the Member for Leeds, North-East are saying, because if he is to speak later in the debate he will have a lot of explaining to do as to how he interprets his rôle at that time. The fact is that the short-lived recovery generated by the reflationary measures of 1971 and 1972 was strangled in the autumn of 1973, even before the oil crisis hit us. The consequences for the balance of payments were equally disastrous. As the reflationary programme gathered pace through 1972, imports rose 11½ per cent. compared with an increase of only 2.1 per cent. for exports. In 1973 the experience was repeated, though in a less extreme form.
On top of this body blow to our balance of payments the boom dealt a heavy blow to our manufacturing industry. The proportion of our total expenditure taken by manufacturing imports rose from 6½ per cent. in 1971 to nearly 9 per cent. in 1973. Parallel with these immediate economic catastrophes this consumer-led boom set a monetary time bomb ticking away which has certainly helped to bring about the explosion of inflation in the [column 692]past two years. I gather that the right hon. Member for Leeds, North-East and the hon. Member for Oswestry share the monetarist view that the last Government's monetary profligacy in 1973 was the main cause of the inflation which reached its peak last year. Perhaps they are too unfair to the Government they then supported.
It is a fact that through 1973 the money supply, M3, grew 28¾ per cent.—well over twice the rate of money GDP. As a result, lending for property rocketed, the price of housing, land and building followed and when the bubble burst the secondary banking system suffered a shipwreck from which it has not yet been finally rescued. The House may feel that it is not altogether suitable for the crumbling relics of the disastrous administration which brought about that unprecedented catastrophe in our economic affairs to table an amendment telling me how to deal with the same problem today.
The country can count itself fortunate that the leaders of our trade union movement have not forgotten the lessons of that bitter experience. They have explicitly made it clear again and again in recent months—and repeated it this week—that they are not asking me to engineer a general reflation at this time.
Mr. David Crouch (Canterbury)
The right hon. Gentleman said a few minutes ago that he would say something more about investment. I believe that he may be in danger of inadvertently misleading the House. The view of the Government was apparently expressed by the Secretary of State for Industry two weeks ago when he said he was dismayed that the rate of investment by manufacturing industry was the lowest for 12 years. He was depressed to think that it would not rise in time to meet an upturn in world demand. Surely this should be one of the matters at which the Chancellor ought to be looking if we are to resolve the unemployment problem.
Mr. Healey
I shall deal with this point. I agree that it is one of the keys to improving our economic performance. So far I have been explaining why I cannot at the moment consider a general reflation of the type which the last Government engineered so disastrously four or five years ago. I am coming now to the measures that I believe I can take.
[column 693]Sir Keith Joseph (Leeds, North-East)
The right hon. Gentleman is quick to make accusations of humbug and hypocrisy. Will he accept that in 1971 and 1972 the Labour Opposition Front Bench was clamouring for increased demand and went on clamouring for increased demand and was nothing like the responsible Opposition which the Government now face?
Mr. Healey
With respect, I find it scarcely possible to parallel the levity of the right hon. Gentleman.
It is too soon at present to decide whether some reflation of demand would be desirable when I present my Budget in a few months' time. What is already clear, however, is that the scale of any measures which may be desirable when that time comes will depend to an important degree on the assumptions I am then able to make about the likely course of inflation once the current pay round is completed. This in turn depends, above all, on what voluntary policy for incomes can be agreed for the next wage round.
If we can safely plan on continuing to reduce the rate of inflation right through 1977, my freedom of action as Chancellor in the next Budget will be substantially enlarged. Our exports will be that bit more competitive, the readiness of industry to invest will be increased. Indeed, there are few areas of our economy which will not benefit. Above all, we shall be able to look to a faster reduction in unemployment than would otherwise have been the case. Just as inflation produces unemployment, so a fall in the inflation rate will produce more jobs.
I know that millions of trade unionists, like all of my right hon. and hon. Friends, are deeply disappointed that the level of unemployment is not already falling. But I have been warning the country for many months that there would be a delay of some months between the recovery in output and the fall in unemployment. This afternoon I have tried to explain why.
No one can deny that because the £6 limit on pay has been maintained unemployment now is lower than it otherwise would have been. I was glad to see that Mr. Hugh Scanlon accepted this point on television recently. I hope he would also agree that, whatever his disappointment at the latest unemployment figures, this [column 694]would be no ground for refusing to continue the pay policy in any form for another year. He must accept that the only result of that would be to make unemployment next year worse than it need be.
But no one should underestimate the real strains imposed upon the leadership of the trade union movement by the present appalling unemployment level or the demoralisation of those who cannot obtain a job. The Government are firmly convinced that the future of our economy depends on maintaining the sort of co-operation between the Government and the trade unions—and working people as a whole—which contributed so much towards improving our economy last year. We have proved that co-operation is infinitely preferable to confrontation, and we shall not neglect any measure which may help to relieve the strains and sufferings imposed by unemployment.
As I made clear in September and again in December, the Government are determined to take any effective steps open to them to reduce the level of unemployment. We shall continue to do everything that can sensibly be done to save and protect jobs in the next few months and bring forward the coming decline in unemployment to the earliest possible moment.
Mr. Norman Atkinson (Tottenham)
One of the things that trade unionists have been saying to my right hon. Friend for some time is that now is the time to make available resources for the manufacture of capital goods, not consumer goods, goods to be put on the shelves for use when the upturn comes. Will my right hon. Friend confirm that the EEC Commissioners responsible have told the Government that they will not permit resources of that kind being made available? That has been widely reported in the European Press, on the basis of statements issued. Is it true that the Common Market is preventing the Government from making resources available to meet the request made to them by the trade unions?
Mr. Healey
I understand the impatience of my hon. Friends, and I have given way to them as I have to Opposition Members. I shall deal with this point. An argument is proceeding with [column 695]the Commission, but the Government are determined to adopt whatever measures may be helpful in this area. I shall refer to some in a moment.
I have said that we shall do everything we can to save and protect jobs and bring forward to the earliest possible moment the decline in unemployment. I wish I could feel that that objective was shared by the Opposition. But the right hon. and learned Member for Surrey, East made clear the other day that he wants steps which will increase unemployment in the short term, just when the need for action to reduce it is at its peak. In his speech last Thursday he made clear that his party will continue to press for cuts in public spending now. He added—and I think this was the first time he has admitted this in a public speech:
“There is no escaping from the fact that this will increase unemployment in the short term.”
The right hon. and learned Gentleman is not here this afternoon. I had planned to take advantage of his first flush of frankness and ask him to answer the question I have put to him in vain so often. I now put the same question to the hon. Member for St. Ives (Mr. Nott). Even if he is not prepared to itemise the cuts in public spending which he wants this year, can he tell us at least by how many hundreds of thousands he is prepared to see unemployment increase in the short term as a result of those cuts? Unless he is prepared to do so, we must regard the welcome honesty of the right hon. and learned Gentleman's speech last Thursday, however valuable it may have been in seeking to correct the instant opportunism of his Leader at Question Time two days earlier, as just another flash in the pan. Evasion, humbug and hypocrisy continue to rule on the Opposition Front Bench.
Mr. Nigel Lawson (Blaby)
Is not the Chancellor aware that only last Friday his right hon. Friend the Home Secretary, speaking in Anglesey, said that, if public expenditure were not cut now as a proportion of GNP, democracy and freedom would be in danger?
Mr. Healey
The hon. Gentleman does not read very carefully, nor does he listen very carefully. What my right hon. Friend was talking about was cuts in [column 696]public expenditure after the next financial year.
Mr. Lawson
No. He said that we must cut so as not to exceed the present 60 per cent. of GNP.
Mr. Healey
Nonsense. My right hon. Friend was talking about cuts in public expenditure after the next financial year, cuts which will maintain employment in the public sector as a whole but also enable employment to be maintained in manufacturing industry, particularly in the capital sector which my hon. Friend the Member for Tottenham (Mr. Atkinson) is, like me, so anxious to expand.
We on this side of the House totally reject the right hon. and learned Gentleman's approach. As the House knows, my right hon. Friends and I have in recent months introduced two sets of measures calculated not to raise unemployment still further as the right hon. and learned Gentleman demands but to save and create more jobs in the immediate future. We have been discussing with our friends in the trade union movement what more can now be done.
Mr. Wyn Roberts (Conway)
Will the right hon. Gentleman give way?
Mr. Healey
No.
I told the House in December that the Government would be announcing further measures early in the new year to provide still more and better training. I hope that it will now be possible to go well beyond that and to present a further set of measures in several fields within a few weeks from now. The trade union leaders have made some valuable suggestions which we are already considering. The Manpower Services Commission has also put proposals to us, and we shall listen very carefully to proposals made by hon. Members in this debate.
The most immediate need is for further measures to protect existing jobs and to provide new jobs in the coming months. I know that my right hon. Friend the Secretary of State for Employment is considering bringing forward the operation of the Employment Protection Act for this purpose. We may also find it useful to extend the temporary employment subsidy, which has already helped to save over 15,000 workers from [column 697]redundancy. The recruitment subsidy for school leavers has helped over 15,000 young people to get jobs. An extension of this scheme, too, may be worth while. The scheme of job creation has already saved thousands of young men and women from the demoralisation of the dole and should ultimately provide 36,000 people with temporary jobs within the money already available. I hope that it may also be possible to give some further help to the construction industry.
But perhaps the most important single objective which the Government must set themselves is to take whatever action can now be devised to ensure that the decline in unemployment, once its starts, is not frustrated once again by the sort of bottlenecks and supply constraints that brought recovery to a halt in 1973. This requires action on training, stockpiles and investment.
Incidentally, I totally reject the view shared by the right hon. Member for Lowestoft and Mr. Clive Jenkins that unemployment is bound to remain over a million into the 1980s. This Prior-Jenkins axis is an entertaining novelty in our affairs. But I hope that the right hon. Lady the Leader of the Opposition will tell the House at this moment that she totally rejects the defeatist nonsense to which her Shadow Secretary of State for Employment yesterday committed himself and his party.
Hon. Members
Come on.
Mr. Healey
My hon. Friends are asking the right hon. Lady to tell us whether she rejects that nonsense. I sometimes find it easier to interpret her silences than her remarks.
The speed at which we can get unemployment down and the level to which we can reduce it will depend not only on the success of our industrial strategy in reducing unit costs and making better use of existing investment but on ensuring that there is an adequate supply of the necessary skills available at the right place and the right time as the economy expands, that there are adequate supplies of essential materials and equipment and that there is a steady increase in investment to get that expansion going.
As the House knows, since my Budget last April the Government have already increased expenditure on industrial training by £67 million. The new pro[column 698]posals of the Manpower Services Commission offer us the opportunity of a further expansion for the coming year. But I do not believe that we can be satisfied until we have developed a much more extensive training system on a permanent basis, along the lines of the Labour market policy which has been so successfully running for many years in Sweden.
A few weeks ago I announced Government assistance to the British Steel Corporation to permit the stockpiling of £70 million worth of steel in the current year. We are now considering the possibility of similar assistance for stockbuilding in other areas where future needs can already be identified. This, too, can help to prevent the appearance of critical shortages of materials and equipment during the recovery, such as happened in 1973, as well as providing profitable employment in the coming months.
But the key to full employment in the longer term lies with industrial investment. Here, too, there is a case for giving priority to areas where shortages of capacity may otherwise appear when the recovery is under way. Getting new investment started as soon as possible will also help to bring down unemployment in the short term.
There are obvious limits to what the Government can do to influence decisions on investment. But we are already doing very much more than has been done in similar situations in the past. As the House knows, we have introduced a scheme to provide financial assistance for investment projects which can be started by September this year but which have been stopped or postponed. About £34 million has already been earmarked for 10 major projects, including important expansions of capacity in ball bearings, pumps for diesel engines, and pharmaceuticals. The original allocation for this scheme was £40 million, which we later boosted to £70 million, and £20 million was added for modernisation projects.
As the scheme gets better known, and no doubt also as the deadline approaches, applications are coming in at an increasing rate. We have therefore decided to make available a further £30 million and to consider applications for projects below the £½ million threshold. This is making this help available to smaller projects than we have hitherto envisaged, [column 699]and it will be of help particularly in the engineering sector.
Most of this money goes in the form of interest relief grants, lowering the effective rate of interest on the investment financing. This means that the total value of projects brought forward is much higher than the Exchequer cost, by a factor of five or six to one. If the whole £120 million is spent, around £600 million of new investment will have been stimulated. Although not all of this investment will take place in 1976 and 1977, it is equivalent to 6 per cent. to 7 per cent. of the total manufacturing investment foreseen in the investment intentions survey. That is a very significant addition. We cannot be precise about the number of jobs this will create, either while the installation work is being done or permanently when the new plant is operating, but it will certainly help.
There remains enormous scope for a rapid increase in investment without such Government assistance. If we are to believe the recent inquiries made of industry, there are still thousands of firms in this country, particularly the smaller ones, which at present plan to cut investment once again this year, yet these same firms express a firm intention to increase investment very substantially in 1977. If they wait that long, I believe they will be taking a very short-sighted view of their own interests. The capital goods that they want are likely to be cheaper and more readily available this year than in 1977. Moreover, investment this year can be relied on to meet the peak of world demand. Delay, as so often in the past, could mean missing that peak. Many big British firms, like ICI, learnt this lesson long ago. If firms wait until the surplus capacity which they have at present it brought fully back into use, it may well be too late to order new plant and bring it into operation before the demand has gone elsewhere, with markets lost to overseas competitors.
There is one apparent impediment to early investment which I can remove immediately. As the CBI and others have told me, this is the uncertainty about the future of deferred tax liability on stock appreciation. My last two Budgets gave a very large measure of relief to industry for increases in stock values, and I know that in spite of reassurances some com[column 700]panies are still apprehensive that this was a temporary measure only and that they may have to repay it this year. Let me say firmly that my next Budget will contain proposals for the continuation of stock relief in some form. I cannot yet say what form it will take nor how it will be related to the previous relief, but I can say that there is no question whatsoever of any general withdrawal of past relief.
I have tried to give the House some idea of the measures the Government are now considering to get unemployment moving down as soon as possible. We intend to announce our decisions by the middle of next month. As I have said, our purpose is not only to save and create jobs in the coming months but in doing so to strengthen our capacity for continued growth with stable prices in the future.
Thanks to the efforts made in the past year by all sections of our people, we now have it within our power to start moving up the international league table once again—to enter the upswing of an international trade cycle with our economy moving into balance, with our inflation rate still falling, and with a steady improvement in our industrial performance under way.
Mr. Patrick Cormack (Staffordshire, South-West)
rose——
Mr. Healey
The last time an opportunity on this scale lay before us was in the autumn of 1970, thanks to the sacrifices made by the nation in the preceding two years. That time the opportunity was thrown away because a Conservative Government which won power by exploiting the strains imposed by those sacrifices squandered their patrimony and lost their nerve. I have rehearsed that lamentable story in my speech this afternoon. This time we must not panic. We must not lose our nerve. That is what the nation asks of us. I know we shall not fail it.