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Gross Domestic Product (Growth Rate)

Volume 983: debated on Thursday 24 April 1980

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1.

asked the Chancellor of the Exchequer what are the main factors on which he bases his assumption of average growth rate for the years 1981 to 1984.

The Chancellor of the Exchequer has asked me to apologise to you, Mr. Speaker, and to the House for his inability to be present in the House this afternoon as he is attending an International Monetary Fund interim committee meeting in Hamburg.

As explained in the medium-term financial strategy, the 1 per cent. average growth rate of GDP was simply an illustrative assumption for the years after 1980. It is similar to the average growth achieved between 1973 and 1979.

As to the figure stated in the financial strategy being simply an illustrative assumption, does the Chief Secretary realise that it is a crucial assumption in relation to the public sector borrowing requirement target? What will he do if that assumption is unfulfilled? The right hon. Gentleman made a comparison between 1973 and 1979. Is he aware that, taking into account his planned reductions in public services, that rate of growth will require twice the rate of business output that was achieved during those years? How will he achieve that?

It is true that there is a real significance in the assumptive implications of this figure, in respect of both taxation and public spending. The realism is underlined by the fact that it is no more than the average rate of growth that was achieved between 1973 and 1979. As in all matters, the House and the Government should be cautioned to take these matters as they arise, year by year.

The House is well aware of the right hon. Gentleman's contempt for the medium-term financial plan. Will he answer some questions? First, the plan is revealed by the evidence given to the Select Committee by Treasury officials to be grossly over-optimistic and not overcautious as was stated earlier. The Government are expecting a continuing fall in the output of manufacturing industry and in public expenditure, so any increase can come only from private services. Which private services will increase to that level? Will they be bingo parlours and luncheon vouchers?

I am unashamed in my agnosticism about economic forecasting, and it is an attitude that I commend to all parts of the House. There are no grounds whatsoever for the right hon. Gentleman to use the word " contempt ". It is that kind of language that devalues him and debate in the House. I do not believe that it is generally assumed that the financial plan is grossly over-optimistic. Indeed, a number of commentators have suggested that in respect to North Sea oil it is under-optimistic.

I apologise to the right hon. Gentleman. I shall replace the word " contempt " with " distaste and mistrust ". The right hon. Gentleman said that he had chosen the figure for the rate of growth because that was the rate of growth in the last five years. Is it not the case that in the next four years the Government are proposing to follow a fiscal and monetary policy that is far more restrictive than that followed in the last five years? Indeed, the right hon. Gentleman has boasted of that in every debate that we have had in the last 12 months.

I am pleased to accept an apology from the right hon. Gentleman, if only because it is such a rare occasion.

With regard to the movement of the economy in the second part of this Parliament in an assumptive fashion, there is no doubt that the conditions of world trade and a reversal of stock building can have a real impact upon these figures, and I have no doubt that those factors have been taken into account.

Does my right hon. Friend agree that one of the most important points about such assumptions is that there they are aggregate assumptions, and that within those totals, through policies which result in greater efficiency in certain sectors of the economy, one might see substantial growth offsetting other sectors, which would inevitably be in decline?

That is right in that there is much more to economics than macro-equations. There is also the whole impact upon personal motivation by Government policy.