ECONOMIC SITUATION

§ The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

I beg to move, That this House endorses the policy of Her Majesty's Government as outlined by the Chancellor of the Exchequer on 25th July for the purposes of upholding the strength of sterling, improving the balance of payments and maintaining a sound basis for the continuing prosperity of the nation. I promised the House yesterday that the making of a rather long statement then would enable me to take up less of the House's time today [HON. MEMBERS: "Hear, hear."] I am glad to have the Opposition with me so far. There are, however, certain points that I wish to emphasise in moving the Motion standing on the Order Paper in the names of my right hon. Friend and hon. Friends and myself.

First, I am asked what are the changes in the situation since the Budget which justify the measures which I outlined. The changes are these: there has been continued pressure on sterling; contributed to, in part, by the underlying deficit still shown by the trade returns but also caused by troubles and uncertainties in the international field. Instead of the atmosphere being one of increasing confidence and the relaxation of tensions such as, for example, in 1959, this year it is an atmosphere of increasing uncertainty and increasing anxiety. That is bound to affect the reserve currencies, particularly the one under pressure at the time.

The second change is that I now have later forecasts about our situation for the first half of 1962. It is true that they are only forecasts, but they show an increasing pressure of demand upon our resources greater than expected and likely to affect exports and the balance of payments. I also have later evidence about stocks, personal incomes and consumer credit.

In my Budget speech I referred to the strong expansionary forces working on home demand, but I did not think that the situation then and the evidence then before me warranted my asking for further sacrifices than those involved in the surplus of £500 million above the line. On the forecasts now before me it is clearly necessary for me to take further sharp steps to lessen the load on the 434 economy, and that is why I have taken certain short-term or immediate actions.

The Bank Rate, the special deposits, the other restrictions of credit for which I have asked, the drawing on the International Monetary Fund, and the increased taxation involved in the use of the first regulator—in taking these short-term measures I have tried to act in such a way as not to harm the long term. There has been no cut in investment or initial allowances. In that respect, it is not the medicine as before. In 1951, 1956, and 1957 there were restrictions on investment, which affected investment in productive industry. This departure from precedent will, I believe, command general support. On the other hand, the House must face the consequences of that decision. Investment has been moving up quite sharply over the past two years.

That is a good thing. It may be said that it was an overdue process. At the same time, it imposes a very large demand upon our resources, and is in itself responsible for part of the overload. Unless we have a pause in additions to personal incomes and in public and private expenditure on less essential things we cannot have soundly based long-term growth. For such growth to take place I believe that the most helpful action which the Government for their part can take is to—[HON. MEMBERS: "Resign."] No; it was another panty which ran away from the situation in 1951.

For such growth to take place I believe that the most helpful action that the Government, for their part, can take is to bring public expenditure of all sorts under better control and make it better related to the resources available. That is the really significant contribution which the Government can make. This I intend to do, and I am very grateful to Lord Plowden and his colleagues for a most constructive Report on this matter.

I want to expand to some extent what I said about this yesterday. If public expenditure pre-empts an essential part of the national resources there is bound to be not only a continual increase in direct and indirect taxation, but, also, we will perpetuate the overload on the economy and add to the difficulties of paying our way on international account. 435 What is required, therefore, is the long-term redeployment of the public services over a period of several years. This must be carried out in a way that both slows down the rate of increase in the aggregate of expenditure and also Changes the priorities to strengthen our resources and competitive power and national efficiency.

It is very easy to get support, in principle, for this kind of statement in general. The difficulty comes when one tries to carry it through in the particular. The House of Commons does not differ from other gatherings of consumers, employers, traders and trade unionists, where the particular suggestions made are always for increases in public expenditure and reductions are very seldom suggested.

First, to deal with the nationalised industries. The Government policy was laid down in the April White Paper. We are now discussing financial targets with the industries and hope to reach agreement on them by the autumn. This policy will lead to more effective concentration upon productive efficiency in the use both of labour and capital. As a result of increased efficiency and higher earnings I expect the calls of these industries on the Exchequer for finance to be progressively and substantially reduced over the next five years in spite of substantial increases of investment in some cases.

To help the industries to carry out this policy the Government will leave them as much freedom and responsibility as possible in fixing their prices. The Government will allow the industries the investment which is agreed to be required for attaining their financial targets and providing essential supplies and services. We are, however, asking them to avoid investment expenditure where this can be done without damage to these central objectives.

Next, assistance to industry. On this, we are reaching the end of a phase of heavy expenditure. Expenditure above and below the line, which, this year, is £135 million, will go down to less than £60 million next year and will continue to decline thereafter. Loans and grants to the steel and cotton industries have, I think, been important in expanding strip steel mill capacity and in helping the cotton industry to improve its efficiency, but these rather special operations are 436 coming to an end and we see no reason ahead for more.

New commitments for assistance can be justified only if they can be shown to make important contributions to competitiveness and national efficiency which can be secured in no other way. If any new proposals come forward the Government will apply this criterion stringently. I want to make one point clear in this connection. The Government's local employment policy has so far succeeded, that, when the projects already in hand come into production, virtually only in Scotland and Northern Ireland should there be a serious lack of employment opportunities. The Government will, of course, continue to use their powers vigorously to deal with these local situations and any others at present unforeseeable, that may emerge.

I take, next, the services provided by central and local government which involve both capital and current expenditures. These are to some extent intertwined in the Exchequer accounts, and, as the House will remember, I said in my Budget speech that I hoped to get a more logical presentation of these accounts in due course, but for the time being I must take them as they are.

I shall deal, first, with the local government services. The Government seek the co-operation of local authorities in restraining and postponing expenditure, capital and current, wherever they can, to relieve the overload on the economy. This will involve the postponement, perhaps for a considerable period, of many desirable projects. There is a great deal of work in hand, so that new authorisations and loan sanctions to local authorities will for some time have to run at a much lower level. I am now dealing with matters that are desirable, but not essential.

I take an example, which, I think, may not command the agreement of the House, but is an example of the position in which I am in, and an example, also, I would say, of this business that there is always agreement in principle but when we come to anything in particular there is disagreement—the Wolfenden Report on Sport and the Community. We may say that this is only a small matter. It is something which, in the present circumstances, must wait for some time to come.

437 The established New Town development corporations will he asked to contain their rate of expenditure within present levels and, indeed, to make reductions where they can, and so on, over the whole range, including matters which I shall come to in a moment—education, health and roads.

I hope that the effect of this will be that the local authorities' capital expenditure in 1962–63 will, in the aggregate, not exceed significantly that of the current year. I have invited the leaders of the local authority associations in England and Wales and Scotland to a meeting next week to ensure that we work together in this question of expenditure.

In the field of education, there will be reductions in authorisations for minor works, and my right hon. Friend the Minister of Education is considering a rearrangement of priorities in favour of scientific and technical education. In Scotland, there will be some rephasing of the educational building programme, but, again, with special consideration for the need of technical education. The reason for rearranging priorities is to concentrate on the matters which will more rapidly assist national production and national productivity.

On one matter to which I referred yesterday, the salaries increase of the teachers in England and Wales, my right hon. Friend has this morning, in accordance with my statement yesterday, intimated the Government's willingness to accept an increase, not the full one asked for, but one the bill for which will be £42 million. As this figure shows, there is no question of singling out the teachers for discriminatory treatment. [HON. MEMBERS: "Oh."] This is another example of acceptance in principle of the idea of containing Government expenditure, but here there is a bill which we are prepared to meet for £42 million.

For the National Health Service, including local authority health and welfare services, the growth of current expenditure in real terms will, for the next four years, be planned at about 2½ per cent. per year—that is, the increase.

For roads, the Government have decided upon a firm five-year programme, 438 which will involve a considerable increase above the present rate of expenditure, but one which I judge to be within our capacity, and also one which, I think, is directly related to production and productivity. We intend to develop other long-term programmes in the same way.

I shall not repeat the figures for the financial year 1962–63 which I gave yesterday, but I am determined that this operation of controlling public expenditure shall be successful. It is a matter which lies within the Government's power and that power must be exercised.

So far as the long-term is concerned, these decisions on investment and with regard to public expenditure are of major importance. I stated yesterday our views about tariffs. With regard to the growth of exports, the answer lies in our goods being competitive, delivery dates being fixed and kept to, credit facilities being adequate, and there being much more aggressive salesmanship. With regard to the first two of those matters, the action taken by the Government to reduce the overload on the economy and the pause to allow the rise in productivity to catch up with the rise in personal incomes and living standards, directly help.

On credit facilities, we have already taken action, on rather more radical and comprehensive lines, than I think many people realise. With a view to more aggressive salesmanship we are encouraging in every way possible the export councils and the promotion of selling campaigns overseas.

I have been asked why the Government do not do more about restrictive practices. We have, of course, passed a Restrictive Practices Act dealing with one aspect of the matter. I think that there are many other aspects which are better dealt with by the two sides of industry, and they must be dealt with if we are to have growth and get the best out of the heavy investment programme on which we have embarked.

I am not satisfied with the progress being made in the training of skilled labour, and the Government certainly will help, as we are doing, by our technical training programme. I referred a moment ago to the increased priority to be given to Government expenditure under that head.

439 In my statement yesterday I referred to planning. I have been accused. I understand, of having been very vague. Let me be quite clear as to my objective. At the moment, we have these various bodies whose function is to take stock of the present situation, to comment on what is happening, or what has happened, and to advise. These bodies do very valuable work within their terms of reference.

I say frankly to the House that I want something more purposeful than that. I envisage a joint examination of the economic prospects of the country stretching five or more years into the future. It would cover the growth of national production and distribution of our resources between the main uses, consumption, Government expenditure, investment, and so on. Above all, it would try to establish what are the essential conditions for realising potential growth.

That covers, first, the supply of labour and capital, secondly, the balance of payments conditions and the development of imports and exports, and, thirdly, the growth of incomes. In other words, I want both sides of industry to share with the Government the task of relating plans to the resources likely to be available. When it is suggested that I have been vague, may I say that I have deliberately not been specific about machinery because, for the Government to lay that down beforehand is not, I think, the best way to get full co-operation.

I repeat that there is the short-term situation and the long-term problem. In the short term, we have to take immediate action to deal with the serious pressure upon sterling. That comes first, and success in that is essential for our long-term plans. But that success is only one essential precondition for solving the long-term programme.

I have indicated at some length the lines along which I believe the Government's principal contribution should lie, namely, by keeping public expenditure in its proper relationship to the growth of our resources as a whole. But it is not the Government alone who can act. Increase in exports, the development of a more efficient and dynamic economy, restraint in personal incomes, attack upon manifest weaknesses, such as restrictive 440 practices, can be carried through successfully only with general co-operation.

After the substantial and rapid improvements in living standards and in the social services which have taken place in the last nine years, I believe that the Government are entitled to ask for and to receive that support from the nation.

§ Mr. Harold Wilson (Huyton)

I beg to move to leave out from "House" to the end of the Question and to add instead thereof: has no confidence in the policies of Her Majesty's Government as outlined by the Chancellor of the Exchequer on 25th July which, being most unfair in their incidence, are calculated to divide rather than to unite the nation, offer no long-term remedies for the weakness of the British economy and resemble in many respects those adopted by Her Majesty's Government in the past with such lamentable consequences for the country I think that the kindest thing I can say about the Chancellor's speech this afternoon is that he should now seek the advice of the Secretary of State for War—when you have lost your bearings, go back to your unit. All that the Chancellor said today confirms the impression which, I think, the whole House had of the fundamentally biassed character of what he announced yesterday.

Our charge against the Chancellor is that this long-awaited, long-heralded, much-trumpeted July "Budget" is monumentally irrelevant and monstrously unjust. I think that its irrelevance to the problems facing the nation can be compared only with the irrelevance of the now discredited April Budget. Our national needs—we are all agreed on this, surely—are production, exports and costs and the Chancellor's proposals make no contribution to any one of those three, except in a harmful sense.

Production which we need to expand will be held back by the 7 per cent. Bank Rate, by the taxation measures and by the effects of the Chancellor's proposals generally on investment. There is not a single measure of direct relevance to exports. But in so far as the tax measures and the Bank Rate have their intended effect in causing a slump in the mass-production industries, such as motor cars, the effect, of course, will be to raise unit costs and to make us less competitive.

441 As for costs, apart from the effect on productivity, the Chancellor, by his tax measures, is directly raising the cost of living by 1½ points, on his own figures, and indirectly, when the manufacturers and retailers have added their cut, by a good deal more—to say nothing, of course, of the effect on wages. The higher petrol and distribution costs and higher loan charges for industry—has not the Chancellor calculated the effects of these upon our competitive position?

Last week, I appealed to the Chancellor not to deal with the short-term problem of the run on sterling by measures which would make our long-term position worse through harming production and investment. The right hon. and learned Gentleman has ignored that warning. We face an immediate run on sterling. The economy is so weak that last year we avoided a disaster only through borrowing hundreds of millions of "hot" money which was attracted here by high and costly interest rates. This year that money is moving out again.

To deal with this the Chancellor borrows hundreds of millions of pounds from the International Monetary Fund. Of course, the immediate effects of doing this were predictable. Once the Chancellor made clear to the speculators that sterling would not be devalued, once he buttressed his scanty reserves by massive borrowing, it was obvious that the "bears" would run to cover and the immediate crisis would be resolved for a time.

But, of course, like every one of his immediate predecessors—we see the Minister of Aviation sitting opposite—he had to satisfy the international banking community by masochistic and irrelevant outs in our standard of living, harmful restrictions on our production and needless increases in our costs and price structure, because he believes that international speculators are impressed only by actions which in the long term harm the economy.

The right hon. and learned Gentleman obviously believes that these financiers are dictated not so much by economic considerations as by a rather twisted, morbid psychology. In fact, if international financiers do reason in this irrational way it is a grave reflection on Conservative economic management in 442 the past ten years that we are now so much in their power.

So we say to the Chancellor, "Borrow—go ahead." The Government's policies are so bankrupt that all we can do, sixteen years after the war, is to go for international aid and to buttress the economy with costly, unnecessary short-term borrowing at 7 per cent. which is a magnet for "hot" money from all over the world to come here once again. The Prime Minister is having a lovely time rehearsing his speech for tomorrow night. He is passing one "gem" along the Government Front Bench to his right hon. Friends. The very mention of "borrowing" is inspiring him with lovely references to 1946, one year after the war. I am glad to have provided the right hon. Gentleman with these relevant thoughts.

It is, of course, quite obvious that the 7 per cent. Bank Rate, apart from its harmful effects on our internal structure, simply adds tens of millions of pounds to our annual outgoings on invisible accounts through the increased interest charges paid across the exchanges. The Chancellor told us yesterday very clearly that this is the third year in which we have been in international deficit. I think that those were his words. But it was less than two years ago that the Prime Minister was proclaiming these words at the hustings: Today, the British economy is sounder than at any time since the First World War. Sterling has been re-established as a sound and respected currency. Our balance of payments is strong. That was in September, 1959. But for three years, the Chancellor tells us, we have been in international deficit. Perhaps when the Prime Minister speaks—if I could just take him from his usual 1951 speech to 1961, or, at any rate, to 1959—he will tell us how he came to make that utterly misleading statement when he must have known the facts as stated by the Chancellor yesterday.

We welcome the fact that the Prime Minister is to speak in this debate. It is right that he should be called to account in a debate such as this, because no man bears a heavier responsibility either for misdirected policies or for the inculcation of this climate of national complacency. I do not want to address too many words to him. I suppose that 443 it must seem to him years since he strutted on to the platform of that 1958 Conservative conference as the mighty Wurlitzer organ throbbed to the strains of "Mr. Wonderful, that's you," and then called his troops to the forthcoming election battle with a speech which was an orgy of self-satisfaction and boasts that our economy was in such fine shape.

The right hon. Gentleman, who pledged himself, on television, on becoming Prime Minister, to "make Great Britain great" has so imperilled and squandered our economic security that we are in danger of earning for ourselves the gibe which the Czar Nicholas addressed to the dying Ottoman Empire, "The sick man of Europe". That is his contribution.

§ Sir Cyril Osborne (Louth)

Nonsense.

§ Mr. Wilson

This is a hard thing to say, but it is not imagination. One of the leading German periodicals has an article in this week's issue headed. "The sick man of Europe." I know what the hon. Member for Louth (Sir C. Osborne) is saying and I am going to answer him. I am not running Britain down, but running the Government down. Fundamentally, as the whole House knows, our latent virility, vigour, skill, ingenuity and inventiveness are such that instead of presenting this image of sickness we could present an image to the world of bounding energy and enterprise. All that is lacking is the leadership and inspiration, the call for service and sacrifice which this Administration is unable to give.

I turn to the specific proposals of the Chancellor. I begin with the commodity price regulator, the 10 per cent. surcharge on taxes. To impose this less than a week after the Finance Bill has received Royal Assent is clear evidence of the most culpable miscalculation in the Budget because, despite his claim about the outside world, little has altered in respect of the Budget and the financial position. The Chancellor is talking bravely about five-year planning, but his Budget would not stand up for three months.

To impose these charges on the ordinary expenditure of ordinary families while leaving unchanged the levels of direct taxation is clear evidence of the Government's regressive bias in taxation matters. We have had three 444 Budgets this year, so far. The first raised Health Service charges and levied £45 million on every family in the land by stamp contributions. The second gave Surtax concessions, and the third is once more taxing ordinary families' consumption. This is a miserable record of fiscal injustice. There is 4d. on cigarettes after last year's Budget increase. Is this to strengthen sterling? There is 5d. on tobacco, including 5d. on old-age pensioners' tobacco, which is no longer protected by vouchers. Is this needed to make Britain strong and free?

There is 3d. on petrol. Will this bring costs down? I should remind the Chancellor of the arguments used from this Box by a Conservative spokesman when we raised the petrol duty. The Prime Minister obviously remembers this. I am on his special period here. We did not raise it to its present level of 2s. 9d., but to 1s. 10½d. These were the words used: Now I come to one or two of the specific tax proposals, first of all, the tax on petrol. That is a directly inflationary tax. … It is time that someone in the House drew attention to the enormously increased taxation which road transport has been called upon to bear during the past two years. Then, after a learned disquisition about the taxable capacity of the nation, he said: The very fact that there is not that reserve of taxable capacity is proved by this tax, because the Chancellor has had to go to a tax which is, in my submission, directly inflationary in order to get the necessary amount of money."—[OFFICIAL REPORT, 8th May, 1951; Vol. 487, c. 1890–1.] That was when the duty on petrol was is. 10½d.

The words I have quoted were the words of the present Chancellor of the Exchequer, but in 1950 he said this: That is yet another example of the way in which this new impost is going to increase the burden of the cost of living upon ordinary people in this country. It is a thoroughly bad tax … I do not think that there could be a better case for not having this increase in taxation."—[OFFICIAL REPORT, 14th June, 1950; Vol. 476, c. 253.] So that the Home Secretary does not get too complacent, because he has lived to see an "autumn" Budget so early in the year, perhaps I should quote what he said: It is not a case of fair shares for all, but a case of those with sufficient money who can 445 afford the petrol being able to buy it"—[OFFICIAL REPORT, 19th April, 1950; Vol. 474,c. 153.] There are also superb quotations, which, no doubt, could be circulated, by the Conservative Central Office, from the Chancellor of the Duchy of Lancaster, who put his oar in, too.

The depressed consumer durable industries, including cars, which have uneasily recovered from last year's slump, are facing new uncertainties. If their spokesmen are to be believed they are facing the dangers of unemployment and redundancy, with incalculable effects on exports costs. Wines and spirits I shall pass over, because £40 million of expenditure there, on the Government's own figures, are paid for by the Chancellor in businessmen's expenses.

I turn to the Bank Rate at 7 per cent., almost the highest in our peacetime history. Have we not learned by experience? Have we forgotten the devastating analysis of the Radcliffe Report about over-reliance on monetary policy? Its argument was that Bank Rate was no gentle hand on the steering wheel which keeps the car in the centre of the road. Even the Chancellor, commending his fiscal regulator in his Budget speech, seemed to have been converted from this dangerous and debilitating over-reliance on the monetary weapon. Now he sinks again into the old groove. Once again, there is the screeching of brakes and the scorching of the tyres, the substitution of shock, jolt and jerk for planned regulation of the economy.

Did the Chancellor stop to think of the effect on the local authorities? I understand that he is to spend his holidays this year at Hoylake, a very nice place on the Wirral Peninsula. If he can tear himself away from contemplating the beauties of Hilbre Island, I hope that he will go to the local council offices, where, I understand, he once had his greatest triumphs, and ask the local authority what effects his proposals will have there. When he has done that let him cross the Mersey, to Liverpool, where he will find 88,000 houses scheduled for slum clearance and 40,000 families on the housing list. What effect does he think the 7 per cent. Bank Rate will have on the solution of those problems?

Although its effect as a regulator in the private sector can be greatly exag- 446 gerated, I hope the right hon. and learned Gentleman will not disregard the effect on investment of this blunt instrument and the effect of failing to distinguish between the essential and less essential and the frivolous. Of course, his clear bias against the public sector was shown yesterday and again today in his determination to starve the public services in an otherwise affluent society. That is shown, above all, in his policies for housing. Council housing, the spearhead, as it must be, in our attack on the chronic overcrowding and the slum problem, is to be cut. Last year, the rate of local authority house-building starts in England and Wales was 98,000. The Prime Minister achieved a much higher figure when he was Minister of Housing, but it had fallen to 98,000 last year.

This figure is not much more than half the rate which we achieved in 1948, three years after the war, when we were still beset by shortages of imported timber, bricks, cement and building labour. Now it is to be cut again. I remind the Chancellor of the Exchequer of the heartaches of overcrowded families, of husbands and wives living apart, which he must know from his own constituency.

§ Mr. Charles Loughlin (Gloucestershire, West)

Living in slums.

§ Mr. Wilson

They are living apart or with in-laws or suffer the degradation of living in slums.

This will continue for years longer because of a doctrinaire Chancellor who refuses to control luxury building, and the building of inessential prestige office blocks, and who prefers to go for the easy option of attacking the local authorities. He used the phrase "desirable but not essential". The Shell building? The Vickers building? Are they essential or desirable? What about the speculative office block built in Holborn and still empty? Had those been controlled when we suggested it, might he not have the resources for maintaining the council housing programme?

At Blackpool, the Prime Minister said: The Socialists want to see a nation of council-house tenants; we want to see a nation of house owners. But for a very large section of our people there will not now be the chance 447 of either. Last week, the chairman of the Building Societies Association, speaking when the Bank Rate was still only 5 per cent. and not 7 per cent. said that if prices continued to go up as they had for the last two years, a man earning under £1,000 a year would be excluded completely from the house-buying market before the end of this year. His income would be insufficient to provide the necessary amount for mortgage repayments. The prerequisite for getting a house today in this property-owning democracy is £1,000 a year, or £20 a week.

I wonder whether the Chancellor recalls the earnings figures published by the Ministry of Labour, two months ago, showing that of all manual workers only 11 per cent., or one in nine, last year earned £20 a week. Only one in nine came within the income bracket necessary, according to the chairman of the Building Societies Association, far entering the house-buying business. I want to know—and I am sure that the Prime Minister takes this seriously—,what the remainder are to do. What are the other 89 per cent. of the manual workers to do if they need a house? When the Prime Minister replies to the debate tomorrow night I hope that he will answer that question clearly.

This same bias against the public sector, short-sighted and prejudiced, is shown in the Chancellor's mean, one might almost say spiteful, use of the grip which he has on wages and salaries in the public sector. At the time of the last squeeze, it was the Health Service employees. This time it is the teachers. Deliberately, and with a full realisation of what he is doing, he is wrecking the established salary negotiating machinery.

The Chancellor is throwing it over at a time when this country depends as never before on an imaginative education drive far beyond the capacity or grasp of the elegant nonentity who presides over the Ministry of Education today. When investment in machines is important, as we all agree, but when investment in the nation's children is even moire vital—at this very time the Chancellor makes the announcement which he made this afternoon about re-phasing the education programme.

I ask the Chancellor, does he think that we can carry through this educ- 448 ational programme? Shall we still have the confidence and co-operation of the teaching profession? The starting point in the Burnham award for teachers, I understand, is £600 a year. We do not know what will happen to that figure of £600 a year, but it is a very long way below the minimum figure required as a qualification for buying a house, and a very large proportion of the teachers, on the figures which I have just quoted, will not be able to afford to buy a house. The Chancellor is doing this for the sake of £6 million saving, we read in the newspapers today—a small fraction of his hand-out to the Surtax payers.

Why is this? Is it short-sightedness, or is it that teachers are not regarded as "top" people? The Chancellor should realise that the smouldering, burning resentment which he has kindled by his action will enflame and embitter educational policies for as long as a Conservative Government cling to office.

The right hon. and learned Gentleman demands wage restraint—and I will come to that in a minute. What of dividends, which were 23 per cent. up, as the President of the Board of Trade told us last week in an outburst of condemnation which we thought might mean something? The Chancellor appeals for dividend restraint. This is at a time when cautious and far-sighted managements who want to plough back their profits in further expansion are forced into uneconomic dividends because of the fears of predatory take-over bidders.

If dividends are excessive and provocative, the answer is simple: he should return to the system overthrown in the 1958 Budget, a dual rate of Profits Tax, with a low rate of, then, 3 per cent. on undistributed profits and a much higher rate, then 30 per cent., on profits paid out as dividends to shareholders. He could have done this in the next Budget, whenever it may be, in a single uncontroversial Clause, but, of course, he knows that that would be to strike at the ark of the covenant.

I turn to the proposals for the private sector. The Chancellor promises to deal in his next Budget with some short-term speculative gains and to bring some property deals within the scope of Income Tax. We suggested those measures some years ago as a first step to a comprehensive capital gains tax. But the Chancellor must beware. Will he not find 449 that the best brains in the country, by definition those which he helped in the name of incentives in his Surtax concessions, working overtime to defeat and frustrate his new proposals? One thing which we should like to know is whether the Chancellor intends to make this capital gains tax retrospective now that he has announced it. Will he do that? He ought to do so, otherwise the best brains and the "wide boys" will be conditioning the situation and getting all the pickings long before the next Finance Bill reaches the Statute Book.

The Chancellor intends to ask big business to bring back to this country its overseas earnings. We told him last week how he could do this. There is no need to appeal. All he has to do is to repeal the provision in the 1957 Finance Act which provided an open incentive to business concerns to avoid United Kingdom taxation by setting up tax-free overseas trade corporations, another matter in the fiscal sphere of the Minister of Aviation.

While the Chancellor is on this subject, we should like to ask him what he will do to stop the outflow of millions upon millions of pounds to tax havens in Bermuda, the Bahamas and Southern Rhodesia for the purpose of evading United Kingdom death duties.

§ Sir C. Osborne

Not now.

§ Mr. Wilson

I will send the hon. Member a copy of a brochure inviting these things. I know that there is some inhibition about sending them there. That is why Bermuda is doing so well.

The Chancellor intends to be stricter about capital movements to foreign countries. That is very nice. Here we have the Government, as we heard yesterday, refusing to find the relatively small sums needed to finance the vital development programme of newly-independent Tanganyika while City Centre Properties and others have been free to take millions of pounds out of the country for property development in New York. It is a question of priorities. Which is the more important to our economic future and the future of the world—the development of Tanganyika, or the development of Manhattan? Perhaps the Chancellor will answer that question.

The Chancellor said nothing about businessmen's expenses. I sum up his proposals: they do nothing to increase 450 production, they do nothing to increase productivity, to reduce costs, to promote social justice, and to bring about greater equality in the distribution of wealth and the economic power which goes with it. This morning the Conservative, Labour and Liberal Press—practically every newspaper—commented on the tremendous build-up which was given week after week to the statement which the Government were to make. We were promised that the Chancellor would break away from the stop-go-stop-go, or slow-slow-quick-quick-slow business of his predecessors. We were to be given a new line from him and some new long-term policies which would enable Britain to stand on her feet. All that we were given were these panic measures, which add up to an exercise in economic and social irrelevance.

I should like to turn for a few minutes to the measures which should be taken. While borrowing will undoubtedly get us round the immediate corner financially, our fundamental problem remains unsolved. Last week, I said that we have reached the moment of truth. This is not just one more in the series of speculative ebbs and tides, to be met by international borrowing and panic measures and then forgotten until the next crisis. This is a deep-seated, fundamental, long-term crisis, comparable perhaps only to 1931—a crisis we have faced for many years, even if it has been disguised by an improvement of 23 per cent. in our terms of trade, representing a windfall to our balance of payments of about £1,400 million a year.

When the present Government took office the £ stood at 2.80 dollars. The windfall in the terms of trade should have meant automatically, if nothing had been done to worsen our position, that we should today be able to manage at a dollar-sterling rate of between 3.60 dollars and 3.65 dollars—in other words, 80 to 85 cents higher than it is. That should have been the automatic result of the improvement in the terms of trade. That is the measure of our lost opportunity and our decline. Now we need every panic measure in the Chancellor's book to stay on 2.80 dollars yesterday.

All of us know, and the world knows, that a further devaluation would not be like the last one—a readjustment forced on us four years after the war by the consequences of the war and a hungry 451 post-war world. A second devaluation would be regarded all over the world as an acknowledgement of defeat, a recognition that we were not on a springboard, but a slide. I myself have always deprecated—perhaps rightly, perhaps wrongly—in crisis after crisis, appeals to the Dunkirk spirit as an answer to our problem, because what is required in our economic situation is not a brief period of inspired improvisation, work and sacrifice, such as we had under the leadership of the right hon. Member for Woodford (Sir W. Churchill), but a very long, hard, prolonged period of reorganisation and rededication. It is the long haul, not the inspired spurt, that we need.

But perhaps in the crisis we face today —this continuing crisis—we do need the realisation which the right hon. Member for Woodford inspired in the nation twenty-one years ago in the memorable speeches he made—the realisation that in a very special sense today, as then, we stand alone, that we can look to no one to provide an easy way out, that no one owes us a living, that on our own efforts, our own sense of purpose and our unity in overcoming these problems—that in these things alone lies our hope of success. In that sense, if in that sense only, we do need the spirit of Dunkirk.

We shall not create that spirit by appeals to materialism, or selfish acquisitiveness, or competitive social emulation—keeping up with the Joneses—by either snobbery or its no less ugly partner, inverted snobbery. We shall not realise it by sinking back into the syrupy, demoralising persuasion which pours into our homes night after night via the commercial channel. Only when this country loses its soft centre, its candy-floss philosophy, and is allowed to aspire to more astringent policies can we succeed.

In that spirit, I want briefly to put the headings—no more—of the sort of policy which we feel could unite our people and strengthen our economy. It may not command the support of all hon. Members opposite. I do not expect it to, but I accept that we have a duty to put forward an alternative in this debate. We also have a right, because the country has tried the Tory way and it has failed.

First, I repeat our proposal for a plan —a four-year plan, a five-year plan, if 452 necessary—for steady and sustained economic expansion, setting the national targets, and especially the targets which need to be achieved in the industries which can make the most contribution in the markets of the world. It should be a plan worked out in consultation with management and workers, giving a real priority to the investment we need, and not, as the Chancellor proposes, a mere coordination of planners and consultation systems. It should be an effective, purposive plan, to which private profit and sectional interests would be subordinated.

What the Chancellor proposes is a paper plan. No Conservative will give it the backing it needs in terms of controls and an extension of public ownership in the key centres of the economy. But such a plan we need, a plan, above all, to raise our investment in the industries where it is most needed, a plan to apply more purposefully the results of scientific discovery in our industrial machine.

My second point is on exports. The Government must now take positive action to help our exporters. We need in this country to alter our sense of values so that the man who exports and takes risks in world markets is regarded as a man worthy of the nation's respect, a man to honour, not a sucker". It should be recognised that it is he, not the advertising agent or the sharepusher, who is top of the scale.

Therefore, the Government should make the job of the exporter easier. Eighteen months ago we suggested fundamental improvements in our export credit system. This was in the debate on the Radcliffe Report, on 26th November, 1959. We suggested improvements in export credits so that we can offer the same terms as our ruthlessly efficient competitors on the Continent. The Government have limped along very slowly since that time, but what about our proposal for a British export-import bank? Has that ever been seriously considered by the Cabinet?

Again, where there are controls or instruments available to the Government—there are not many-the Government should use them blatantly and unashamedly in the interests of the exporter. Non-discrimination is a fine liberal principle, but too often it is the last refuge of a tired or complacent 453 administration. After all, the apotheosis of non-discrimination is death. We want to see something done, but too often because of non-discrimination nothing has been done to help the exporter.

I know all the difficulties of discriminatory taxation. I looked into it when I was in the office held by the right hon. Gentleman, but I think that there are a number of things we can do. I would have an open mind—this needs to be looked at—on the question whether we should supplement the Purchase Tax by some kind of industrial turnover tax, with total exemption for exports, such as they have in Germany.

§ Viscount Hinchingbrooke (Dorset, South)

Like Dr. Schacht?

§ Mr. Wilson

I did not know that Dr. Schacht was the present Minister of Finance in Western Germany. I thought it was Dr. Erhardt. I ask the Prime Minister to study this suggestion very carefully before tomorrow night. I want him to take it seriously. The Government should have an open mind on it. They should study the proposal. It should apply in industry, but not to the things covered by Purchase Tax. The yield from it might enable us to remove Purchase Tax from some essential goods where it has been placed by the right hon. Gentleman the Home Secretary. Right hon. Gentlemen will know perfectly well, if they have studied the trade situation, that anybody who goes to Germany is told there that this is the biggest single instrument in the success of the German export drive.

I have many reservations, doubts and anxieties about the proposal, but I hope that the Government will examine it and see whether it is a feasible one. I am not talking about a general sales tax. We have been over that argument year after year. I am talking of an industrial turnover tax, with blatant discrimination in favour of exports. I hope that the Prime Minister will have my suggestion carefully examined.

I suggest, also, that the Chancellor of the Exchequer tackles the business expenses problem—the entertainment problem—by providing that only half business entertainment expenditure should rank for tax exemption, except where it is shown to be directly related 454 to exports. I should make no bones about that kind of discrimination. The same might be considered in connection with expenditure on advertising.

Lastly, I turn to costs. I think that the whole House will agree that we need a spirit on both sides of industry which can produce the efforts and sacrifices which will be necessary. We need two things. We need a more sustained increase in production, and a greater determination to control rising costs. It is, I think, a truism to say that we cannot afford, year by year, an increase in economic rewards—whether profits or salaries, or rents, or wages—greater than the increase in productivity which provides the means to all rewards.

The nation, and I make this clear, cannot, over a period, afford wage increases—I say this quite frankly—greater than our national rise in productivity. That, of course, is an argument in favour of giving much higher priority to increased productivity instead of these repeated lurches into economic restrictionism. It is no good the Chancellor complaining that wages and other payments have outrun productivity when it has been Government policy to hold production down, so that, over the past year, productivity actually fell.

It is well within the capacity of the nation, and nobody will be defeatist enough to deny it, to achieve an increase, year by year, of 4 per cent. or 5 per cent. in productivity and of 4 per cent. or 5 per cent. in wages—and if this means an increase of 4 per cent. or 5 per cent. in profits and dividends, no one will lose sleep. What we cannot afford are the predatory dividend increases of the kind quoted by the President of the Board of Trade, or uncovenanted capital gains cornering for a few favoured shareholders a disproportionate share of our increased national assets.

We need a national attack on the spirit of lethargy which pervades too great a part of our industry. That is why I advocate the ending of restrictive practices wherever they occur—on either side of industry—which hold back our natural national inventiveness and skill. That is why we on this side condemn equally those who shirk their task, whatever their rôle in industry—,the fomenters of unofficial strikes and those who too easily follow them—and the businessmen who 455 cling to out-of-date methods and out-of-date machinery because it yields them a profit, who turn their backs on export orders, and who devote their ingenuity, not to increasing production or lowing taxation, but to tax avoidance. To say this is not idealism, or puritanism; it is plain common sense for the nation.

Neither in power nor in opposition has this party or the trade union movement shirked the task of calling for wage restraint when it was needed in the national interest. We do not shirk it now. But we cannot ask for that sacrifice from one part of the nation only—and that the least well paid. We cannot make that appeal to men earning £8 or £9 or £10 a week when the Government ment have just issued a statutory promissory note on next year's Budget to people who are immeasurably better off.

If, therefore, we are to tackle the job of controlling our national costs it must be a national endeavour, and the Government, whether Conservative or Labour, must give the lead, because it is the Government which create the climate of opinion that can make this possible. There is no sacrifice harder to make than the sacrifice of dearly-held doctrine and ideology. That is why, though it is hard for the Government to concede, my right hon. Friend was right in asking for the repeal—the postponement, if hon. Members like—of the Surtax concession in the Budget until the national economy permits of a fundamental reconstruction of our tax system.

The Government cannot ask for a national endeavour in production and restraint in incomes when they refuse to deal with capital gains, OT when they refuse to institute measures that really got at the root of the problem of coping with land speculation and property deals, or when they refuse to restore the tax on dividends.

If the Chancellor would restore the tax on dividends today—yes, another tax; the Prime Minister can make a note of it—the yields from it would enable us to recast our whole system of industrial taxation. To encourage investment, we could enable expansion-minded industrialists to write off a great deal of their capital expenditure much more quickly than they can under the obsolete rule that we have at present; writing 456 off, perhaps, the whole amount in a single year, as they did under the Swedish proposals. That would be financed out of the tax on dissipated dividends. What we need, as I am sure the House will agree, is a system of industrial taxation that does far more to reward enterprise in expanding firms and, at the same time, penalises the slothful firms, and those Which refuse to play their part in the national economy.

We cannot make the national appeal we need in an economic society dominated by the take-over bidder. We cannot appeal for restraint in productive industry when the Stock Exchange behaves like a casino. I do not apologise for saying that because, as the Prime Minister knows, it is taken from a famous book of his written before the war, and if it was true then it is no less true today. The Chancellor knows this. Let him, then, put duties on all Stook Exchange transactions in industrial securities, including all those speculative deals within the account which at present escape taxation altogether.

The right hon. and learned Gentleman yesterday referred to the banks. I hope that he really will stop the banks, by direction, if necessary, lending for speculative deals; and it is worthy of consideration whether the interest on borrowed bank money—at any rate, the bank money borrowed not for the purposes of trade—should no longer rank as a Charge against taxation.

These are a number of things which I hope the Government will consider, because the statement that we had yesterday contained no proposals related either to production or exports. I know that these proposals—and I could suggest many more—may be controversial, but at least they are relevant. They would provide the political and economic and social background of purposive planning, of mobilisation of the nation's resources for national needs, of social justice not only done but manifestly seen to be done, because, without these things, no Government can conscientiously appeal for the efforts and sacrifices that are needed.

The Government, by their drift, by their complacency, by their perpetuation —indeed, increase—of injustice, have lost the moral right to make that appeal. 457 They have themselves become an irrelevance, a tedious, boring, ineffective irrelevance, and that is why, in our Amendment, we call not only for new measures but for new men, who can lead the nation to its rightful place in the world.

§ Mr. Nigel Birch (Flint, West)

Towards the end of his speech, the right hon. Member for Huyton (Mr. H. Wilson) indulged in a certain amount of preaching, and I should like to deal with that aspect of it later in my remarks. For the rest, his speech was very typical. There was the usual party knock-about and the usual extraordinarily irrelevant and ill-worked-out proposals.

But one always wants to congratulate the right hon. Gentleman if one can, and I should like to congratulate him—

§ Mr. Norman Dodds (Erith and Crayford)

Give us some ideas.

§ Mr. Birch

The hon. Gentleman will get them. I should like to congratulate the right hon. Member on losing his memory for his own jokes. I was amazed that he did not repeat his jokes about Boyle's Law—

§ Mr. Dodds

Give us some ideas.

§ Mr. Birch

I want to give the House some ideas about our present situation. Today we are mourning the sixth foreign exchange crisis since the war. There have been three under each Government. I think it is worth while the House trying to consider seriously why this has come about. I believe that the main reason is that this country, after the war, honourably set out to do a great many things. We set out to make a great figure in foreign affairs, to have a great financial policy, to be armed with the latest atomic weapons, to have the best social services in the world, to secure a vast expansion in our educational policy, to sustain under-developed countries, and we sought to lend and invest in developed and under-developed countries all over the world.

All these things were right and honourable, but we took on rather more than our resources would really allow. That has been the fundamental and not dishonourable reason why we have so often 458 got into difficulties. Things would have been better, of course, had we been willing To scorn delights, and live laborious clays; But we are not madly keen on living laborious days and, as for scorning delights, the real problem is that if one has constant inflation—as we have had under both parties—there is no possible way of stopping incomes going up. They are bound to go up.

Under the Conservative Party, if I may use the fashionable illiteracy, people have certainly had it gooder; it is a matter of historical fact. Under the Socialists, owing to the immense pains they took to frustrate the consequences of their own actions, they succeeded in bringing about a situation whereby everyone had it badder. Although Conservative freedom has worked and has been more rational than Socialism, under both systems there has been inflation and we have had crises in our balance of payments.

§ Mr. Jack Jones (Rotherham)

Bring back the birch.

§ Mr. Birch

The hon. Gentleman has a good memory for other people's jokes. That remark has already been made by his right hon. Friend the Member for Huyton on three occasions.

On top of this overstraining of our economy, we have, by agreement with both Front Benches, done things which really do not make economic sense.

It is a fact that in this country we cannot expand faster than our increased exports allow and the whole of our export trade is carried out by private enterprise. The capital needed to expand those industries has been pre-empted by nationalised industries, which really have been had bargains to the country. For example, coal. Since nationalisation, capital expenditure on coal has amounted to £963 million. In 1960 the output per man year was lower than it was in 1937 and today one can import coal to South Wales coming from West Virginia more cheaply than it can be produced in South Wales. Neither Front Bench, as far as I know, is keen to import coal from West Virginia—so up goes the price of steel. I think that the humanity of the House will allow me to draw a veil over the record of British Railways.

459 On top of all this there has been a tendency to back the losers, to subsidise declining industries—cotton and the new Cunarder, for example. I never thought it made very much sense to subsidise firms to go to uneconomic locations. I believe that we shall bitterly regret that in the end but, here again, it was supported by both Front Benches.

Then we come to the position of over-full employment, where there are more unfilled vacancies than unemployed. Every time that happens we always get into foreign exchange crises and, as Colin Clark pointed out in the Financial Times, production will never rise in such a situation. But again and again we have allowed it to happen, without much protest from anyone. And, on top of all that, we have fairly high tariffs so that business in this country is not only protected by constant inflation but by tariffs as well. It is not very surprising that we have had the troubles we have, looking at the way we have run the show.

There are two escape routes, both of which are popular with hon. Gentlemen opposite. The first concerns the question of growth. Hon. Gentlemen opposite feel that they can justify their promises if the economy grows fast enough. Of course growth is essential. We should have more growth than we have had and we should have had more if we had not had constant inflation. But, at the same time, one must be careful, because we cannot grow more rapidly than our exports grow and one cannot do a lot about planning exports because so many of the factors are outside our control and the number of risks one can take is fairly limited.

Sir Oliver Franks said earlier this year something which I believe to be profoundly true. He said: Expansion which is bought at the cost of the exchange reserves and the stability of the currency can only harm us in the long run; to put 'sterling second' and go all out for expansion is not a possible policy for Britain. Hon. Members will note the phrase "not a possible policy", and I believe that this is profoundly true. Simply to justify plans in the way hon. Gentlemen opposite did at the last election, by postulating an improbable rate of growth, is dishonest. It is like a defaulting bank clerk who hopes to get it all 460 back on the 2.30. Actually, it is rather worse, because he might win on the 2.30.

The second escape route is to preach about the moral evils of the age. There are certainly plenty of moral evils about and a great many of them spring from inflation. If I recollect aright, it was Lenin who said: If you want to destroy a country you must first debauch its currency. He was right. What are all the complaints about? They are about easy profits, speculative gains without risk, the attitude of "couldn't care less," high wages without effort, defeat of the hopes of savers, and demoralisation of the gilt-edged market. All these things are the direct results of inflation. It is no good preaching against it.

Not only have we had this continuing inflation but what is rather sinister is the increasingly cynical acceptance of it, particularly by the younger economists—often younger Socialist economists, I am sorry to say. The locus classicus here was an article by Alan Day in the Observer of 29th November, 1959. Needless to say, he has now been promoted to higher things. He said: Periods of stability are a good thing in that they suggest to some people that price stability has come to stay so that confidence in the currency is restored. Fraud is a good thing—that is what that means. I am constantly surprised at the way the silly clever believe that people less bright than themselves are necessarily bigger fools. They are not. Everybody knew that price stability would not last. But to suggest that one should carry out a deliberate fraud on the people shows how far the rot has gone.

What can be done to put these things right? I was very glad indeed to hear my right hon. and learned Friend say that he was going to have this five-year consideration of expenditure and match it with resources, as suggested by Lord Plowden. I hope that when he is doing that he will take a realistic view of what those resources are likely to be. Also, I hope that he will put aside something for contingencies.

One of the things that has weakened us most in the world ever since the war is that everybody knows that if anything goes wrong we must necessarily immediately get into a mess because we have not the reserves behind us. Take 461 the present troubles, for instance. Nothing has really gone wrong. The economic climate is about as favourable as any reasonable man could expect it to be. In that connection, I hope that my right hon. and learned Friend will ignore one of Lord Plowden's recommendations, which was that the result of the five-year survey should not be published. If the Chancellor is to hold the House of Commons and the people with him in a reasonable financial policy, they must understand what is going on. When one is trying to control expenditure, one is always up against defeat in detail. People say "This inhuman Minister denies us some paltry £20 million for this or that." However, if one adds up all the other £20 millions involved, one gets a situation which is quite impossible. What we have to put to the people is the totality of the position. If they are then not prepared to wear the rate of taxation required, we must cut back in general, or, if expenditure on some services must rise, we must cut down on others, or else finance things outside the Budget. But to let things rip is dishonest and hopeless.

Secondly, I turn to the efficiency and the will to compete on the part of the country. Some industries are efficient, but some are not, but until recently they have all been protected by both inflation and tariffs. A sensible economic system is one that sweats the business man; and that has not been happening. What we have to do is to produce a situation where there is no domestic inflation, and proper competition owing to the reduction of tariffs. In these circumstances the business man has to work to earn his money. If he is working to earn his money, good luck to him. It is not wrong for these people to make well-earned profits, because they are in the profits business. If we try to stop them making profits, the whole system is impaired. What we have to ensure is that the man genuinely earns his profits. That should be the task of my right hon. and learned Friend.

My last point is on wages and productivity, on which we had a lot of moralising from the right hon. Member for Huyton. The other day the hon. Member for Grimsby (Mr. Crosland) said that most nations at various times have tried some sort of wages policy. Holland 462 and Sweden have been perhaps the most successful, the most highly worked out. They had not worked very well. The real point is that if the pressure of demand for labour rises beyond a certain point, any wages policy or system always breaks down.

It is not really entirely a matter of unions. Professor Lionel Robbins made an interesting point the other day, that where wages have gone up more than anywhere else is in the field of domestic help. None of those concerned is in any union at all. It is simply the demand. Suppose my right hon. and learned Friend got the enthusiastic support of Mr. Ted Hill and his colleagues. It would still not make any difference if the demand for labour was too great. They would simply be swept aside. It is no good dealing out to trade union officials a hand containing all trumps and then telling them that it is their moral duty not to play trumps. That is not only silly but vulgar—insufferably vulgar.

These moral appeals really are not much good. The right hon. Gentleman asked who has the right to make a moral appeal, and said that the Government have no right to do so. I suppose that the Leader of the Opposition thought he had the right to make a moral appeal when he was the Chancellor of the Exchequer. He will no doubt remember the incident. He made a tremendous moral appeal to the miners, and he got so soused with his own verbosity that he burst into tears. But it made no difference. He could have washed their feet with his tears, and dried them with his hair and it would still have made no difference. The right hon. Gentleman and others stumped the country making these speeches, but made absolutely no difference to the situation in any way whatsoever.

If we can produce a situation where inflation has been ended and there is a reasonable state of competition in the country, I think that we shall find that the wages problem will not be too difficult. No doubt, with industry expanding fast, and productivity going up, we should get good rises in some wages. If the total demand is not too great, the problem is perfectly soluble. What is no good at all is expecting people over a long period to act in ways which must appear to them to be contrary to their own interests.

463 I always bear in mind a very wise remark made by the Trimmer Halifax a great many years ago. He said: Temporal things will have their weight in the world, and though zeal may prevail for a time and get the better in a skirmish, yet the war endeth generally on the side of flesh and blood and will do so until mankind is another thing than it is at present. The answer is that people do not act against their interest. It does not matter whether they are employers or employees; they are all flesh and blood.

I think that we have a perfectly good chance of getting out of this difficulty. Not only that; I believe that if we have the will we can keep our place in the world and be far more prosperous than we are now. It is a question of having the will. From the Government we must have courage, integrity and perseverance. My right hon. and learned Friend has shown courage and integrity. What I hope he will show is perseverance as well.

It is the right and duty of the Opposition to criticise—that is what they are paid for.

§ Hon. Members

What are you paid for?

§ Mr. Birch

They need not show perseverance, but they ought to show a minimum of integrity. [HON. MEMBERS: "Oh."' In the old days the value of our currency was not a party issue. [HON. MEMBERS: "Humbug."] We shall never get confidence back in sterling if the Labour Party produces such a dishonest election programme as it did last time.

§ Mr. Dodds

What is the right hon. Gentleman preaching about?

§ Mr. Birch

To put it at its lowest, I should have thought that it would pay them not to. The question remains: will the Government show the perseverance that is required, and will the Opposition show the necessary minimum of integrity?

§ Mr. Dodds

It is enough to make one vomit.

§ Mr. Birch

I do not know, but I pray for the triumph of hope over experience.

§ Mr. J. Grimond (Orkney and Shetland)

If the speech we have just listened to was not preaching, I do not 464 know what was. The right hon. Member for Flint, West (Mr. Birch) must be a slightly awkward ghost to his own Front Bench. When we hear of a 7 per cent. Bank Rate and of vigorous attempts to stop Government expenditure from rising further, our minds go back to his days, because all this has been said before. What has been the result? Here we are, back to the same old position and hearing the same old speeches from the Government.

The right hon. Gentleman accused some people of telling the same joke three times. I have heard his speech many more times than three. I remember the present Minister of Aviation, when he was Chancellor of the Exchequer, saying that we were trying to do too much. We suggested to him that we should give up making the hydrogen bomb, but we are still making it. Who has been in charge of this country for ten years? If we are trying to do too much, whose fault is it?

The right hon. Gentleman complained about the nationalised industries. Who has been running them for ten years? We heard a sermon about the evils of inflation. The curious thing about this Government is that they are the first Government to have succeeded in combining inflation and stagnation at the same time. The right hon. Gentleman was presumably addressing his remarks to his Front Bench, but I do not notice him leaving the Conservative Party or ever voting against the Government. The trouble is that the Conservative Party goes on supporting policies which, according to Conservative speeches, are entirely wrong.

Today, the Chancellor of the Exchequer succeeded in making a speech in which there was practically no reference to any methods of controlling wages and profits, in which there was very little—if any—reference to exports,and in which, I think I am right in saying, the word "productivity" did not occur at all. That is rather an achievement in present circumstances, even bearing in mind the length of his statement yesterday.

The right hon. and learned Gentleman said that we had to divide the long-term from the short-term measures, and I agree. I do not intend to say much about the short-term measures except to 465 say that they are bound to be harmful, and I trust, therefore, that the Government will attempt as little as possible which will inevitably do harm and not good to the long-term objectives which they ought to be setting before the economy.

A 7 per cent. Bank Rate will not encourage investment. To put the price of petrol up will not bring the costs of industry down. To attract hot money to the country will not, in the long run, be a solution of our difficulties and may well get us into severe trouble in any crisis in the autumn. When the Government talk of control of Government expenditure, I do not think that anyone will believe in it until we hear of measures they are to take to bring it about. At every election which I have fought, Tory candidates have said that we must reduce Government expenditure, but after each election Government expenditure has gone up.

I turn now to the long-term prospects. Yesterday the Chancellor mentioned investment and long-term growth. I wish that he had mentioned them long ago. I hope that this means that there has been a political decision that the economy must aim at a steady and reasonable rate of growth and investment. The question is, does his statement on this mean anything, or it is just an obeisance to the popular ideas of the moment? The Press obviously does not think that it means anything.

One popular newspaper said today … the one obvious, depressing thing is that, whatever the details, the voice, the approach and the single-minded concentration on cuts are drearily the same. That is not some wicked Liberal or Labour newspaper. It is the Daily Telegraph. The Daily Mail described it as The mixture as before. and said: The Government still believes that the only way to help exports is to clobber the home market. The Guardian said: A great opportunity for a new departure has been missed. What would give the Chancellor's in-tensions some bite and inspire some belief that he was going to take steps to see that they were effective and that we could achieve a steady increase in 466 productivity without inflation? It means closing the gap between the figures—which he gave yesterday—of a £1,450 million increase in personal incomes and only a £650 million increase in production. That situation means having a policy for wages, salaries and profits. I know that such a policy is difficult, but it is time that we began to discuss this and to consider what can be done.

Then if recurrent crises are due to pressure on the £ and are to be avoided, this means a permanent strengthening of our export position.

It is on these two points—a policy for wages and other incomes, and the export position—that I want to concentrate. But, of course, they must be dealt with in tine context of a general economic policy.

At the moment the most essential thing in this policy is more competition. I wholeheartedly agree with the right hon. Member for Flint West that one of the great advantages of having a more competitive economy would be that it would put pressure where it should be put—upon the managers of industry. It would encourage them to introduce new methods, to economise in labour, and to keep costs and the distribution of profits within reasonable bounds.

The Chancellor spoke vaguely yesterday about cutting tariffs. Why does he not cult them here and now? I know that he is in negotiation, and I appreciate the desirability of getting as much as possible in return. But when France offered a 20 per cent. reduction in tariffs, we said that we were not willing to do this. I am not talking of the tariffs which are tied up with the excise position on the home market. If the right hon. and learned Gentleman staid that the Government would out tariffs but, if they were not reciprocated, he reserved his right to reintroduce them, this would bring about a far better position.

The right hon. and learned Gentleman spoke about the undesirability of restrictive practices. Will he give the Restrictive Practices Court more powers? Will he also take powers to look at monopolies, because, as we disperse restrictive practices, monopolies grow. We should have an economic budget running for four or five years, and the Government should not be too frightened to call it a 467 plan. It should be separate from the fiscal Budget.

I am glad that this will be in line with the measures Lord Plowden recommends to give better direction to the economy. I hope that we shall have a unit in the Treasury which will collate information from both the private and the public sectors and indicate a target for the rate of industrial growth. The right hon. and learned Gentleman mentioned two bodies in his speech. I understand that they are advisory bodies. I am not clear that they either have sufficient access to information or are of sufficient standing to do the job which is, for instance, done in France by the Commissariat du Plan. Such bodies are becoming increasingly common abroad. We need an investment board for the nationalised industries. I was glad to hear the right hon. and learned Gentleman say that he would try to maintain a steady rate of investment in these industries. But there is a need here for an investment board. Are we to hear more about the Chancellor's statement? Has he a definite proposal for changes in the Treasury to give him the sort of instrument which he says he wants?

If we are to have this instrument, then the Government can settle dawn to aim at a steady rate of growth in the economy. If we are to improve productivity and, at the same time, share out the products of industry fairly and avoid inflation, we must give some thought to the distribution of the wealth that industry generates.

Other countries—Sweden and Holland, for instaince—have tackled this problem with a bipartisan approach. There is much better co-operation in those countries between what are foolishly called the two sides of industry than there is in many industries in this country. To bring about this situation here, we must have wider ownership and wider co-responsibility in industry. We must get the employers and unions together. We must mobilise public opinion. If the unions feel that public opinion is favourable, they will make a move in the direction of taking on greater responsibility for the overall planning of industry. If we have the right sort of competitiveness in the economy and some overall idea of the 468 targets at which we are aiming, I see no harm in the Government setting before industry ceilings as well as floors, not only for wages but for profits and for other forms of income.

I realise that there are difficulties about this and that profits are not technically a cost on industry. I know that wages account for over 46 per cent. of the national product as against 10 per cent. as income from investment. But it is to live in cloud cuckoo land to think that we shall have restraint on wages with absolute freedom in profits, salaries and other income. The annual reports of many companies for the last five to ten years show that directors' emoluments have certainly risen as much as or far more than wages.

§ Mr. F. H. Hayman (Falmouth and Camborne)

And there are invisible earnings.

§ Mr. Grimond

As the hon. Gentleman says, and their invisible earnings. I am not contemplating a temporary dividend freeze. If freezes are put on which are ultimately taken off, the situation is wide open for takeover bids and speculation of all kinds. I am talking about a year to year consideration of what the economy can afford to pay. I am aware that we should not penalise the growing and expanding company, but we must realise that members of the public have an interest in good labour relations and efficient industry and in seeing a fair distribution of the production of the industrial power of this country.

If firms persistently overbid for labour or if they distribute what appears to be a totally unjustified sum in profits, there should be some power in the Government's possession to go to those firms and say, "What is the reason for this? Are you in a monopoly position?" If they are, then they should appear before the Monopolies Commission, which I should like to see extended. Alternatively, they should be asked, "Can you bring down prices?" If the answer is "No" then the first sanction is publicity, but in the last resort I believe that the Government may have to take power to levy discriminatory taxation against firms which run counter to the Government's avowed economic policy.

We are getting into difficulties because it seems to me that, when it comes to 469 disputes, the Government appear to be playing two rôles. They have their traditional rôle as a conciliator anxious to find a solution when employers and employed are in dispute. They also have a rôle as a positive force in the economy which, at a particular time, may wish to keep wages down. These two rôles have to be separated. I am not sure that the Government have adequately set out to play either rôle.

Between the ceiling and the floor of wages it seems to me that earnings should be negotiated at plant level and that they should be related much more closely to productivity. At the same time, I should have thought that the unions should be persuaded to press for contracts of service on a much wider basis than at present, and that consideration should be given to the system of apprenticeship and training, particularly the re-training of older men when, for instance, their skills have possibly been rendered useless by automation.

In making industry skilful, it seems to me that there can be no more foolish thing than to get into a row with the teachers. I do not say that the teaching profession is the only sector concerned in making industry more skilful, but this action against the teachers will be taken as an earnest of the Government's general attitude.

The figures of exports of manufactured goods show that the largest group of these exports are made up of non-electrical machinery. This is an increasing proportion of our total exports and it is largely carried on by a great number of firms, not many of which are large. The Government could assist in advertising and sales promotion overseas by putting forward general slogans such as, "Best is cheapest".

At home a continual complaint is that the Board of Trade is too slow in making decisions. Firms which wish to expand cannot get an answer to their applications and thereby export orders are held up. Medium-sized firms which often find difficulty in training apprentices would welcome Government assistance.

I return to the cuts in tariffs. In answer to my hon. Friend the Member for Bolton, West (Mr. Holt), the Chancellor of the Exchequer said yesterday 470 that the amount collected in protective tariffs was £155 million. That is twice the sum collected in 1952. A great deal of it was levied on tools which are used in factories which, in turn, are producing goods for export. I beg the Government to look at the question of tariffs again.

Exports are bedevilled by the position between the home market and the export market. While there is a difficulty in the export market there is every incentive for an organisation to sell, so to speak, across the road from its works in the home market. This is surely a very strong argument for joining the Common Market to enable Britain to have easy access to a very much larger market and to bring the home market and the export market together.

I do not intend to say any more about the Common Market today, but this seems to me one of the strongest reasons for making an effort now to go into Europe. I wholly agree, however, with those who say that this cannot be used as a sort of scapegoat and that it would be madness to go into Europe simply in order to try to divert attention from our troubles at home. The worst possible moment to go into Europe is when the economy is weak. It would have been much easier to enter negotiations to enter two years ago. There will be very much more difficulty to do it now. It is a parlous reflection on the handling by the Government of our relations with Europe that as late as four years after the Common Market first came into existence they have to send Ministers scurrying round the world in order to find out what the Commonwealth thinks. They had the Commonwealth Prime Ministers here two months ago and they have been faced with the growing strength of Europe for many years.

Yesterday, we had the usual appeal for strength through misery. In answer to my question, the Chancellor of the Exchequer said that I should remember that things have become very much more difficult. In fact, economically they have not become more difficult. The rest of the world is increasing its trade. It is untrue to say that anything has become more difficult except in this country. I do not say that the Government have got much worse, but they have got no better. They have wasted ten years. They have reduced productivity to the lowest level 471 of any industrial nation. Our labour relations over a wide field are wholly out of date. Our taxation system is in a muddle and they have hopelessly fumbled the Common Market.

I believe that this country potentially is strong. Primarily I believe that, because it still has stores of inventiveness which not many other countries have. The trouble is that we lack an ability to exploit and develop. We have too sluggish an economy for making the best use of our own inventiveness. But today there is beneath the crust, so to speak, an upsurge of feeling, a lot of impatience with the way in which things have been going for the last ten years. The Government have convinced themselves that nearly everything in politics can be reduced to a public relations enterprise, that one can play Father Christmas before an election and then make an appeal for high morality between elections.

One of the most encouraging things was that when the Home Secretary tried this line last week it was met with universal derision throughout the country. It did not take in a single person. The fashionable thing now is to say that we must have a pause. But we have been in a Rip Van Winkle state for three or four years. What really is wanted now is not a pause but a leap forward, a break-through, an attempt to change the climate of this country—some effort to make it a country in which it is more worth while to work than to gamble, in which it is more worth while for all to work because all are going to share in the results of that work. In fact, the real long-term result of this crisis ought not only to be a new break-through in the economy but a total change in our attitude to the state of society in this country, and to the type of country we are trying to build and its relations with the rest of the world.

§ Mr. Robert Carr (Mitcham)

I will not follow the hon. Member for Orkney and Shetland (Mr. Grimond) in some of his rather general observations about our economy, even though, I think, many of us would agree with some of them if they were gathered together and somewhat sharpened up.

472 I want, first, to say a few words about the immediate problems that confront us and then to turn to the longer term problems. I am an expansionist. I am sure that we shall not sustain British influence or a prosperous and healthy society in this country unless we have a growing economy, growing industrial production, and, incidentally, growing personal incomes of all kinds. But we cannot, as my right hon. Friend the Member for Flint, West (Mr. Birch) said, have an expansion where home consumption runs ahead of exports. It must be the other way round.

Neither must we have an expansion based on inflation and rising prices. When our exports are not expanding faster than home consumption and when our prices are rising—both things are happening at the moment—we have to put brakes on expansion, however much we regret it and wish not to do so. Therefore, I am in no doubt at all that there is need for action at this time.

I give my unqualified support to my right hon. and learned Friend not only in his judgment about the need for action, but in the measures which he has taken to deal with the immediate problems which face us. These immediate problems are likely to arise in this country from time to time for the reasons which I thought were so well analysed by my hon. Friend the Member for Flint, West a short time ago, but whenever they do arise—we must see that they do not arise mare often than we can help—we must deal with them at once.

We must, however, have a strong policy and a firm sense of direction for the long-term growth of our economy, and this policy must be visible for the whole country to see. I say to my right hon. and learned Friend that the consistent repetition and clear exposition of this policy are almost as important as perseverance in the policy itself. The repetition of what that policy should be is a need which has not been met and which must receive further attention.

Turning to the long term, having made clear my support for my right hon. and learned Friend in his action to meet the immediate situation, I want to mention four headings under which, in my opinion, action should be taken if we are to strip our economy for expansion 473 in a competitive world. The first is the point of controlling and planning Government expenditure and action, the point already dealt with by my right hon. Friend the Member for Flint, West. There were signs, both in the Chancellor's Budget and in his statements yesterday and today, of a new and more methodical, purposeful approach to this problem which is also in line with the Plowden Report, published recently.

But why, we have the right to ask, have we had to wait until 1961 for this new approach? Why was it necessary to have the Estimates Committee prodding the Treasury into the acceptance of an inquiry such as the Plowden Committee before measures were thought of which, apparently, are now to be adopted and which any large industrial organisation has found to be necessary for many years past?

There can be no doubt about the failure of the Treasury in its management rôle. If the House and the country want any evidence of that they can turn to a Report published this week by the Select Committee of Estimates on London's airports. Paragraph 140 states: Your Committee criticise the Treasury for their failure to perceive this major deficiency in the financial control exercised over the airports in a period of nearly ten years in which costs were steadily rising and parliamentary concern was being expressed about the financial conditions of the airports. Throughout this period, London's airports were allowed to continue with a form of cost accounting and general expenditure control which, however polite one is about it, cannot be described as better than third-rate. Yet the Treasury, while insisting on a great deal of control over what is happening at the airports, apparently turned a blind eye to the requirement of proper procedures in such a great and expensive undertaking.

It seems as if, at last, there are to be changes in this direction. If so, these changes will be the first step required to get our economy stripped for continuous expansion in the future. We shall need, I suspect, not only a change in method of and approach to Government expenditure and control, but also a change in outlook and staffing in the Treasury, and, perhaps, in other Govern- 474 ment Departments. I would ask my hon. Friend the Economic Secretary, or whoever is to wind up the debate this evening, if he can tell us, for example, how many qualified cost accountants and how many qualified scientists there are in the top fifty or so people in the Treasury.

I am not, I assure the House, casting any aspersions on the tremendous ability and intergrity of those who serve us in the Government service, but I do not believe that it is possible for men, of whatever calibre, to undertake such tasks without including among their number a proportion of trained experts in these various fields. In this respect, our administration has got to be professionalised more than it has been in the past.

The second main heading, about which I wish to say something, is the need to expose our economy to the searching test and stimulation of competition and also of belonging to the largest possible market. Here, I think that I need only reaffirm what was said by my right hon. Friend and by the Leader of the Liberal Party about the need for lower tariffs and also about the tremendous importance of becoming attached to the Common Market. We shall not raise exports sufficiently unless a number of things happen, the most important among which, I think, are the following. It seems to me that our manufacturers must meet in equal competition at home as well as abroad these goods against which they have to sell their products in the export markets.

It also seems to me essential, if we are to get more exports, that the levels of profitability in the home and export markets have to be made more nearly equal than they are at present; and that probably means a move in two directions. It probably means making the home market less easy and less profitable. Hence the attack on restrictive practices, hence the need for more competition, a lowering of tariffs and the Common Market. It posibly also means taking steps to make the export markets more attractive. Hence the importance which should be attached to the consideration of methods such as those mentioned in the latter part of his speech by the right hon. Member for Huyton (Mr. H. Wilson). These things must be looked at, because both ends have to be tackled.

475 There is a third point which I believe to be important. It is extremely valuable for British manufacturers who are to sell in the export markets also to get used to working and operating in other countries in the world. There was one measure which my right hon. and learned Friend the Chancellor mentioned yesterday which disturbed me on this account, when he referred to the restriction of private investment overseas. Historically, I believe that Britain's rôle in the world owes a great deal to the way in which British traders, men of commerce as well as manufacturers, went about the world and set up in business. If we are to establish our strength and influence again in future, it seems to me that we ought to be encouraging, not standing in the way of, companies in this country which are progressive and adventurous enough to be prepared to operate plants overseas, both inside and outside the sterling area.

§ Mr. H. Hynd (Accrington)

Would the hon. Member add to that, bringing their profits back to this country?

§ Mr. Carr

I certainly believe that profits should accrue to this country, but I would only beg the House, and particularly my right hon. and learned Friend, not to take too short a view of where the benefit to this country lies, because to set up manufacturing units overseas and plough back the profits in those units overseas may be just as important as ploughing back the profits into the factories operating at home.

The third of my headings refers to the need to overcome the shortage of labour. This seems to me to be our chief handicap. Whenever we get an expansion going, what is it that brings us to a halt? Nearly always, the shortage of labour in our chief industrial areas, with the inflationary effects that go with it. My right hon. Friend the Member for Flint, West was quite right in saying that we could go to the trade union leaders, and they could grant our request for a complete cessation of claims for wages, and yet, because of the extreme shortage of labour in the main industrial areas, inflationary earnings could still come about. It is actual earnings rather than wages rates which determine the amount of inflationary pressure. There- 476 fore, as a long-term policy, the Government must encourage increased laboursaving capital investment.

I believe that there are a number of ways in which this could be tackled. There should be higher depreciation allowances for companies in this country. I think that we are at a disadvantage in this respect when we compare British industry with industry in most of the countries which are our chief competitors. I think, also, that the system of rates should be looked at. I do not object to industry paying 100 per cent. rates, but I do object to the present system, under which, if a firm has little capital but employs a lot of labour, it pays less rates than if it employs little labour but a lot of capital. Generally speaking, the whole tax system ought to be looked art again to encourage capital-intensive industries and to discourage labour-intensive industries. This latter aspect is the unpopular side of the coin.

On another point affecting the shortage of labour, I think that efforts are justified—and here I differ from my right hon. Friend the Member for Flint, West —to get a better distribution of labour by a location of industry policy. I should like to see the Government pursuing a location of industry policy more vigorously in both directions, by grants to help the workers to move to areas where there is a great demand for labour, as well as bringing industries to areas Where a surplus of labour exists. Both have to be done, and in so far as it allows a bigger num