Inflation fears
Nicholas Davenport
The pronouncements of government ministers on the economic front seem to be getting more and more irrelevant and absurd. Mr Joel Barnett, Chief Secretary at the Treasury, came recently into the City to address a lunch arranged by a firm of stockbrokers and expressed amazement that the stock markets had fallen after the Employment Secretary had said there would never be any more pay freezes. There was no need, he added, for any panic or alarm — who was panicking anyway? — for the UK trade performance was better than anyone could have hoped for at the end of the three-day week and the crucial deficit in oil products seemed to be flattening out at something over £300 million a month.
Last Thursday the June figures were published. They were not very encouraging for Mr Barnett. The oil deficit 'flattened' up to £322 million against £304 million in May. While the non-oil deficit fell from £177 million to £146 million it was disconcerting to see that imports of finished manufactures rose more sharply than imports of raw materials. In view of the present recession in the consumer trades one would have expected imports to fall more. In spite of the improvement in exports — price rises rather than a volume increase accounted for most of it — there is no excuse for Mr Barnett's complacency just because we had a visible trade deficit of £456 million a month in the second quarter against one of £433 million in the first quarter. After allowing for Invisibles' the current balance of trade (oil and non-oil) in the first half of the year is still running at a deficit of £4,000 million a year! Mr Healey will have to bear this in mind — and its consequence for sterling — when he comes to deliver his reflationary package in a. week's time. As Samuel Brittan remarked in his FT article last week, it is scarcely credible that when the underlying rate of inflation is about 20 per cent — and unfilled vacancies nearly a record — any Chancellor should be prepared to pump more money into the economy. Perhaps he is being economically perverse because Germany, France and Italy are now imposing deflationary packages even at the risk of inducing recession. Deflationary policies in Europe will not help the growth of our export trade on which Mr Healey' depends to justify his reflation. My: conclusion is that Mr Healey's inflationary package will be modest, even moderate, but its effect will be to stop the rise in the gilt-edged market and perhaps turn it into reverse. We are mortgaging our oil future by huge borrowings overseas to finance the deficit.
This journal may properly like to see the complete nationalisation of our North Sea oil fields but I detect in the White Paper on the control of North Sea oil development further evidence that the Government is losing touch with the economic realities of inflation. Common sense should have told it first, that the speeding-up of the costly and difficult exploitation of the oil fields must have top priority in view of our colossal payments deficit, secondly, that the less the Treasury has to spend the better for the control of inflation, seeing that the money supply leaps up with any big increase in government spending, Yet the White Paper starts off with a repetition of the Labour Party's election manifesto that the North Sea and Celtic Sea oil and gas resources must be in full public ownership and the development of them under full government control "with majority public participation." What is better calculated to discourage private enterprise from speeding up the development of the underwater fields? The White Paper concedes that the Government will "negotiate" for participation in the existing licences and only insist on majority control in future licences but the oil men will see little difference between their honest socialist intentions and those of the ruthless Arab nationalists.
Participation in the companies holding licences means a sharing in the vast expenditures required to bring an elusive barrel of oil to the shore from under 300 feet of water many miles away. Just when the Government has scored some success in bringing down the inflationary growth of the money supply by reducing government spending it is strange that it should now contemplate adding some thousands of millions of pounds to the budget deficit. One expected Mr Healey to indulge in some modest reflation for electioneering purposes but not that he would contemplate spending, say, £2,000 million like a drunken oil man.
Further state participation in the North Sea oil companies seems to me unnecessary when the Coal Board and the Gas Board already have participations in some companies and British Petroleum, half state-owned, is one of the major developers. It is good to see that the Treasury in its next Finance Bill will be plugging the tax holes through which the oil companies previously offset corporation tag by tax payments overseas — a fence goes up round North Sea oil development to keep it separate frorp other capital schemes — and that it will be imposing a new tax on oil companies' profits from the continental shelf in addition to corporation tax. All this is to the good. The simplest plan for a socialist government, as I have said, would have been to set up a national company to buy all the oil from our offshore fields at an agreed "posted price" and then dispose of it to the distributing companies, which would have given the Treasury' perhaps £4,000 million a year when, output had reached the projected 140 million tons after 1980. 131,1,t being bound by its election manlfesto the Government is to set up British National Oil Corporation, with Scottish headquarters, to Put pressure on the oil developers to surrender majority control, to supervise pipeline and refinery °per,' ations and build state refineries an° petrol stations selling government petrol perhaps with triple Wilson stamps. The result after the Government has spent some £2,000 million through its participations and other capital schemes and after it has provided jobs for the boys. ill the Scottish and Welsh agencies which are to be set up by the Naii tional Oil Corporation, might Wei, be that the triple Wilson stamps ` the national petrol stations cow' be more valuable than the govern' ment paper which will have to 1:?s printed to cover the appalling bun" get deficit. But it may be that I unduly influenced by the hyper IIflation prospect and the coming
in sterling. Mr Healey is obvionsv, more influenced by his fear of risln,o_ unemployment and losing the Cie' tion.
Previous page
