HC Deb 12 November 1964 vol 701 cc1198-327

3.43 p.m.

Mr. Reginald Mandling (Barnet)

I hope that the Committee will allow me to start by congratulating the Chancellor of the Exchequer on the manner of his Budget statement yesterday. I know from experience that it is a considerable ordeal to make this particular speech. I should like to say with all sincerity that I thought that the clarity, coherence and lucidity of his statement was quite remarkable. While I cannot go on to add the further traditional words, "I hope to hear him often again in that capacity", nevertheless, as long as he is speaking from that Box as Chancellor of the Exchequer, I am sure that the Committee will receive from him a very clear, lucid and forthright statement of what he intends to do.

We have it on the authority of the Prime Minister that there were three purposes in this autumn Budget: first, to give effect to the surcharge and export incentives; secondly, to get the economy into shape, as I think he called it; and, thirdly, to pay for the Government's social measures. It is true that the Budget and the Finance Bill will give effect to the surcharge and to the incentive. It is also true, very true, that the Budget will enable the Chancellor to pay for the Government's social measures. But I canont see much in this Budget, or in the Finance Bill which will follow, which will, in the Prime Minister's words, get the economy into shape.

I can see nothing in the Budget which will increase the efficiency of British industry, which will improve our balance of payments or which will do other than add an additional burden to an economy already heavily loaded. I am convinced that the effect of these measures is bound to be to inflate costs of production throughout the country, to increase the dangers of inflation and thereby to aggravate rather than to improve the economic situation which we face.

I should like to deal, first, with the surcharge and the export incentives. When the Government decided to take measures to deal directly with the balance of payments they had a choice of possible measures available, of which, obviously, the two main measures were import quotas or the import surcharge which they chose. These were clearly the two main choices if they decided, as they did, to try to impose a check upon imports into this country.

I should start by saying that, whatever the comparative merits of the surcharge or quotas, I cannot imagine how the surcharge could have been introduced in a more hamfisted manner than it was. The effect has been to introduce a charge which falls heavily and without discrimination on a wide range of imports many of which, frankly, are both essential and irreplaceable. It is bound to put up costs and it is also bound to increase home demand in certain areas of our economy. Possibly most serious of all, it has certainly created a most serious reaction among our friends overseas, and particularly in Europe.

I think that all hon. Members in the Committee feel that the reaction of E.F.T.A. is very serious. I have a personal interest in this matter, having been concerned very much in the foundation of E.F.T.A., and I think that on both sides of the Committee we feel that it is of great value to this country. We are grieved very much at the reactions which we have seen expressed by our friends in the Scandinavian countries and the other countries of E.F.T.A. at the measures which the Government have taken and, possibly more important, at the way in which those measures were taken. I have no doubt at all that many of the difficulties to which I have referred, and to which I will refer, could have been avoided in practice. I have no doubt about that at all.

The Government's argument is this: imports had to be reduced because they were too high. According to the letter of international law, the only way to do this is by quotas, but the Government say, "If imports are reduced, it has the same effect on our trading partners whatever method we adopt." They say that Italy and France, for instance, in various ways cut down their imports from other countries, thereby affecting us. They say that in logic the imposition of a tariff surcharge does no more harm to our trading partners than the introduction of quotas, which are permissible under international agreements.

There is in logic, I accept, something in this argument, but there is also a very large psychological effect which, I think, the Government have totally ignored. It is all very well for them to say that the existing rules of our existing international obligations are wrong and should be changed. But these rules exist. There is no doubt that a quota is permissible, whereas a tariff surcharge is not permissible. If, therefore, the Government decided, as they did, to introduce the illegal method of protection rather than the legal method of protection, I should have thought that the least they could have done was to prepare the way by consultation and by working together with our colleagues and allies, particularly in E.F.T.A.

I am sure that they made a mistake. I am sure that an immense number of the problems which have arisen and misunderstandings which have descended upon our heads could have been avoided if it had been handled with more common sense, more deliberation and more consideration of the obligations into which this country has entered. Nothing was more inept than to rub salt into the wound by putting in the wholly unnecessary, and I think very foolish, reference to the Concord in the Government's White Paper.

That can be taken with the reference of the President of the Board of Trade, who, I believe, at one time implied that we could give some special preference to E.F.T.A. He knew perfectly well that this was not possible, and subsequently it had to be denied. Bearing that in mind, and the reference to Concord, I have no doubt at all that the manner in which the surcharge has been imposed has been as damaging, as hamfisted and as inept as could possibly have been foreseen, even from this Government.

The Government's argument is that this was unavoidable because of the urgency of the situation. This I wholly refuse to accept. I do not believe that it is true at all, and I will explain precisely why. The Government talk about facing a deficit of £800 million. This is the substance of practically every interjection in this Committee's business at present. Let us look at the facts. The £800 million, of course, is the highest possible figure they could choose from a range of figures.

Secondly, of the figure of £800 million something like a half, I would reckon, is not trade deficit, but either overseas investment in new solid assets for Britain or repayment of existing, outstanding overseas debt, including the North American loan. Those are the first points.

Thirdly, of course, the Government could only be facing this deficit if they were looking backwards, because when they came into power three-quarters of the year was over, three-quarters of the year when this large deficit had been taken care of—by us. They were facing not 1964, but 1965. They were facing the fag end of 1964, a year of exceptional difficulty, as the Chancellor very frankly admitted yesterday—a year of higher import prices, exceptional capital outflow, stocking up. All these things, mentioned his speech, made 1964 an exceptional year. The Government, when they came into power, were facing the remaining months of 1964, and facing also the prospect of 1965 where, they agree, and the estimates they accept show, the deficit would have been cut without any further action by several hundreds of millions of pounds.

They were coming into power also at a time when we were moving through the difficult period for the sterling area and moving once again into a period of strength for the sterling area. They were facing, also, a situation where the Finance Ministers of the Commonwealth had agreed only a few weeks before that between 1964 and 1965 the balance of the sterling area as a whole with the rest of the world, which is what determines the level of reserves, would be stable over the year 1964–65. This is what they were facing, not what they talk about.

Let us look at what happened in 1964. In the first part of 1964 we had, as they say, a deficit on current and capital account of £340 million. Of course, there was a balancing item of £85 million which they ignore, and there was the exceptional Shell/Montecatni deal of £60 million which they also ignore, but the important thing is that such was the confidence in sterling, such was the international confidence in the strength of this country's economy, that we carried the whole of that £340 million deficit in the first half of this year without any loss to the reserves. The reserves, in fact, went up.

This went on through July and through August. Confidence in sterling remained strong, and sterling remained strong, and until the very last few days of August we made no net drawing from our American facilities and no approach whatsoever to any European bankers under the Basle arrangement. This was the position for two-thirds of the year, which the Government now describe as their problem.

The situation changed in September. I quite agree that the situation changed with the advent of the election. The situation changed. People overseas had some doubt as to the continuation of existing policies.—[HON. MEMBERS: "Oh."] Oh, yes. There was a very big change between August and September, not accounted for by any experience in the trading position of this country. There was a big change which, I think, must have been partly associated, in the minds of people overseas who did not want to hold quite so much sterling, with the wholly inflationary nature of the policies of the party opposite. The inflationary nature, I may say, of those policies was proved yesterday, by the fact that to meet those policies they need £300 million or £400 million of taxation they never mentioned during the election.

I have no doubt in my own mind that had the Conservative Party won the election this speculative position would have reversed itself, and we would have seen a flow back of money into London. I say, therefore, that while the party opposite can argue—and one can argue with substance—the need for measures to deal with the balance of payments, there was no case whatsoever for panic measures of the type we have seen; and if there was any element whatsoever of an emergency it was created by the Government themselves.

I have been dealing with the import surcharge, and the fact that the manner in which the import surcharge was imposed was hasty, and saying that the way in which it was done has done immense damage to our international relations. I want now to say one or two things about the surcharge itself, because I think that the character and the details of it are really hastily devised and ill-thought out so that there is a very high level of surcharge over the whole of the very wide range of goods affected.

I think that I am right in saying that when the Canadian Government did the same thing they had a level of 15 per cent. for one kind of thing, and other levels of 10 per cent. and 5 per cent. for others. We have manufactures, consumer goods, semi-manufactured goods all affected and all at the same level of surcharge. A bit more thought and a bit more discrimination might have produced far better results.

Why is the charge cast so wide? It is a little difficult to understand precisely the point of the argument, on which it is based. Is it to hold back imports—a point which has already been referred to—of things which can be made in this country? If that is the reason, why is the charge falling on many things which cannot be made in this country? There is a whole wide range of them, chemicals, raw materials, semi-processed raw materials, where, clearly, the charge is falling upon these imports without any benefit to our balance of payments, for we must have those imports, and the effect of the surcharge is to put up the costs of manufacture in this country and probably export costs as well.

Finally, why is it being applied to goods which would have come here anyway, goods arriving under irrevocable letters of credit already made and goods already in transit? I have one example, from one of my own constituents, of goods which had already landed in this country and were awaiting Customs clearance. How can it possibly help our balance of payments to apply this charge to goods which would have arrived anyway and for which we have had to pay?

These, it seems to me, are very practical and very important points, and I hope that the President of the Board of Trade, who, I understand, is to speak immediately after me, will be able to deal with them in his speech, because these are the things which matter, these are the details which are of essential importance if we have to measure what will be the influence upon our economy and our export prospects of the imposition of this surcharge.

I turn next to the export incentive. This is an idea, of course, which has been around in Whitehall for a long while, the idea of giving an arbitrary rebate to exporters calculated to be roughly the equivalent of the indirect taxation paid in the process of manufacture. It has often been considered, but never in the past accepted, and for good reason, I think. In the first place, it is rather doubtful whether it is valid internationally as a long-term measure. That is illustrated by the way in which it has been complained about by our friends in Sweden. I have already had a telegram from someone who said that his German customer is asking to be paid the equivalent of the rebate.

I have not much sympathy with the German customer, because I think that it is roughly the equivalent of T.V.A. rebate given in a good many European countries, but it is certainly doubtful whether this particular device is really in accordance with the letter of our international obligations. What is quite clear is that the benefit that will arise from this export incentive is rather small in terms of cash return to the exporter. I agree that it is better to do something for exports than to do nothing, but it is a rather small additional incentive to give.

On the other side, we must count the cost of this measure, which is very large indeed. I understand from what the Chancellor said yesterday that the cost to the taxpayer of this incentive will be about £75 million. I thought that the Chancellor set his sights rather low when he said that he hoped that the expansion in exports induced by this rebate would eventually be greater than the budgetary cost. I should hope so, too. If one pays £75 million of budgetary money for £76 million of exports, I am not sure that that is a good bargain. We shall watch the development of this measure with interest, but I say to the Committee that it would not be wise to expect any large development of exports to arise from it.

So much for the measures by which the Government expect and predict they will solve the present balance of payments problem.

I turn now to the main part of the speech, and I want to emphasise that this is the main part of it, because the main part of the new additional taxation announced yesterday was not concerned with the balance of payments position. It was concerned with the programme of the Socialist Government. The following additional taxation is to be levied: £215 million on the stamp, £93 million on petrel, and £122 million on Income Tax, making a total of £430 million. Of that figure, £280 million will be paid by industry and commerce, a very important point indeed.

As against this additional taxation of £430 million, no less than £345 million are required to meet additional expenditure arising from the deliberate policy decisions of the present Government. The fundamental point of the present Budget is that the overwhelming preponderance of the additional taxation to be levied is being levied as a result of the policy decisions of the Government, and bear no relation to the balance of payments situation.

My first comment on this is that there is a contrast between what the Chancellor said yesterday and what he and his colleagues were saying a month ago. They were rather reluctant then to give the cost of their programme. I remember trying to persuade them to be a little less reticent, and more forthcoming, about what their programme would cost the country. I did not have much success. They were not very willing to say how much we would have to pay for their programme. They were not willing to admit—rather the contrary; they were unwilling to admit£that any tax increases were involved in their programme.

I seem to remember making a statement just before the election, when I estimated that the full cost of their programme over a whole Parliament would be about £900 million a year to the taxpayer. No one denied that estimate. It was a modest one; that is why they did not deny it. I went on to estimate what this would mean in terms of taxation. I did my best to work out a specimen Budget. I mentioned three possibilities: 9d. on Income Tax; 6d. on petrol; and 6s. on the stamp. That was not a bad treble, because it turned out to be 6d. on Income Tax, 6d. on petrol and 5s. 3d. on the stamp.

What was the reaction of hon. Members opposite to my statement? They said that that was a disgraceful thing to say, that it was nonsense, that they had not the slightest intention of doing that sort of thing, and that it was nursery talk. We said quite clearly at that time that to implement the policy being put forward by the Labour Party would involve vast additional expenditure and much additional taxation. This has been wholly proved to be true, and they have no excuse whatever for saying that they did not know.

They say they have discovered that the revenue for several years ahead in an expanding economy was laid aside for the programmes of the previous Government. They may just have discovered that, but it was in our White Paper 11 months ago. We said it all the way through. The party opposite knows that that is true. The present Chancellor very honestly said, a few months ago, during the summer, that no responsible party could possibly bid to do more than we were proposing in schools, hospitals, and such things.

They knew from the published documents on Government expenditure—published in more detail than ever before—that the programmes which we were putting forward would absorb the taxable revenues of the country for several years ahead on a 4 per cent. growth basis. Nevertheless, they committed themselves to vast additional expenditure, and tried to pretend that it would not involve vast additional taxation. This has come home to roost and there will be many other birds to follow it.

I am talking about what the Prime Minister said. For example, in a broadcast he was asked about taxation and said: Over the period of a Parliament I believe we can do it certainly without any general increase in taxation …

The Prime Minister (Mr. Harold Wilson)

Instead of taking a page from the Central Office, why does not the right hon. Gentleman look at the transcript of what I said during the broadcast? Perhaps he will allow me to tell him what I said. I said: Let me say this quite frankly. If it is necessary to increase taxation"— this is what I said in reply to Mr. Robin Day— then we shall not hesitate to do it. We shall have to follow a system of priorities—we can't do it all at once, after twelve years, and we are going to be clearly responsible about this question and if we have got to increase taxation we shall say why we must do it, and we shall not shrink from doing it. That is from the B.B.C. transcript.

Mr. Maudling

As it happens, I have the transcript too. The interviewer asked: Alternatively, will your proposals involve increases in taxation? The answer was: No. Over the period of a Parliament I believe we can do it certainly without any general increase in taxation … Does the Prime Minister intend to rescind these tax increases before the next election? If he would like to answer that and undertake not to have an election until these taxes have been reduced, I shall be delighted to give way.

I turn now to the actual proposals which the Government have made as a means of meeting the additional expenditure which they have decided to incur. The effect of these proposals is bound to be inflationary. It is bound to put up prices. It is bound to damage the economy of this country.

Let us look, first, at costs. I think that we all agree that nothing is more important than to keep our costs of production as steady and as competitive as possible. This is the theme which runs through speeches from both sides of the Committee, and it is manifestly true. What will the proposals in this Budget do? The petrol tax will cost £93 million, of which at least £50 million will be borne by the trade, by commerce, and by industry. The additional £5 million bounty for exports will be pretty poor compensation for industry, which has to pay an additional £50 million by way of taxation.

Next, let us consider the insurance stamp. I think that the total to be collected is £215 million, of which £140 million to £150 million will be a direct and unavoidable addition to the costs of production of British industry. All this comes on top of the surcharge which, in many cases, because it has been applied too widely and without adequate discrimination, will add to the costs of production in British industry and make exporting from this country more difficult than it otherwise would have been.

There is no doubt that the effect of the Budget is to lay an additional direct and unavoidable cost on British industry. If this is the purpose of the party opposite, I think that it has little concept of the real problems of our economy. Secondly, these measures cannot fail to be a discouragement to investment. I am sure that any addition in the level of direct taxation is bound to influence the level of investment, whether by individuals or companies, because the net return on investment will be affected adversely by the increase in direct taxation, and the prospect clearly held out of more taxation to come in the future is bound to be even more damaging than the experience to date. My right hon. Friend the Leader of the Opposition yesterday described the bit of the iceberg that we have seen so far. It is the rest of the iceberg which will affect the intentions of investors in this country in the months and years ahead.

Then there was the threat of a corporation tax. I read with great care the passage in the right hon. Gentleman's speech about the corporation tax. It is very interesting indeed. But I cannot feel that it can possibly give any encouragement to British industry to invest further. The idea of a separate corporation tax has been examined by many Chancellors and has always been found, in practice, to be unworkable. I think that the main danger, certainly under the new dispensation, is that a specific and separate tax on the profits of companies will be a standing temptation to Chancellors to raid the necessary reserves or profits of companies, because they will not be exposed to the political odium at the same time of putting up the level of taxation on individuals.

Secondly, I was surprised to see, peeping out of the right hon. Gentleman's speech, this strong addiction to the idea of a differential in taxation as between distributed and undistributed profits. I know that this was in the original doctrine of the Leader of the Opposition, but I thought that the Chief Secretary, in his most illuminating address in the Investors' Chronicle symposium, a few months ago, had completely destroyed this silly idea of a discrimination between distributed and undistributed profits.

Thirdly, I am sure that the effect of the Budget is bound to be bad for savings. The right hon. Gentleman did not make any reference to savings, apart from a proper and courteous reference to the National Savings movement. He made no reference to the need for more and more savings, but, believe me, if we are to have the level of expenditure envisaged by the Government we shall need more savings than ever before if the level of taxation is to be anything like tolerable. I would have thought that one of the first things which the right hon. Gentleman should do would be to look for more ways of encouraging savings.

What is the right hon. Gentleman doing about our ideas—about the contractual savings scheme, the new Post Office idea, and the other ideas we left for him? I hope that he will take them over and develop them, because they seem to be very desirable and necessary in the interests of the economy. But the right hon. Gentleman said nothing about savings, apart from a proper reference to the National Savings movement.

I have little doubt that the reference to a capital gains tax is bound to work adversely against the level of savings. If I understand it correctly, we are to have in the much anticipated Budget of next year—and I cannot complain about the right hon. Gentleman's reference to it, because I anticipated one of mine extensively in the same way—a capital gains tax. We shall certainly await the details of this tax before we judge upon the claims put forward for it, that it advances social equity and justice. On the economics of it, I do not think that anyone this side of Ruritania—or possibly that nearby country that is in favour at the moment—can expect a capital gains tax to contribute towards solving the problems of a heavily burdened economy, because a tax on capital gains will basically come out of savings and not out of current expenditure. The effect of the tax will not be to restrain expenditure; it will be to encourage people—if I may put it in the vernacular—to spend the money before the rats get at it.

Those are three reasons why this Budget is bound to have an inflationary effect; why it is bound to put up costs and to discourage investment, while doing nothing whatever to encourage savings, and might well do the opposite. Finally, the economic assessment seems to me to show quite clearly that this in an inflationary Budget, that prices will be put up and that the tax yield involved and the reduction of savings involved will mean that the net effect is bound to be substantially inflationary.

We have the proposals for increased Government expenditure of £345 million, roughly speaking, on the social services, all of which will pass immediately into expenditure and will inflate demand in the economy by 100 per cent. straight away. On the other hand, we have duties, like petrol tax, stamp duty and Income Tax, which will not have the same effect. The petrol tax will be borne largely by industry, the effect of which will be to put up prices, and all the £50 million borne by industry will be offset against tax assessments, and, therefore, half of it, and perhaps more, will come out of the Exchequer anyway.

The same is true of stamp duty: £140 million or £150 million gross, will fall upon industry, of which probably less than half will be taken out of consumption. As for the increase in Income Tax, there can be no doubt in the mind of any unbiased person that a great part of the payment of Income Tax under the new increased rates, whether on persons or companies, will come not out of current expenditure but out of savings.

Therefore, when we take into consideration the effect of these three factors there can be no doubt that the amount of direct increase in purchasing power stimulated by the Budget will be very much in excess of the amount withdrawn from purchasing power by the tax increase measure, so that the effect of the Budget will be inflationary. It will increase demand, and I do not see how that can possibly be justified by the speech of the Chancellor of the Exchequer and by the position that he sought to lay before the Committee yesterday. Indeed, the more the party opposite argues that the economic situation is difficult the less it is justified in adding to the difficulties by precisely the sort of Budget it introduced yesterday.

There is a possibility that the Chancellor believes that this inflationary effect can be justified either by better chances of greater efficiency or better chances of getting an agreed incomes policy. As for greater efficiency, I see nothing in the Budget which is likely to encourage greater efficiency, or productivity, in British Industry. The surcharge, the increase in Income Tax and the other measures will not increase efficiency; they will tend to militate against it.

I do not believe that the Budget will make any contribution towards an incomes policy. I share with the right hon. Gentleman—as the Committee is well aware—the belief that an incomes policy is perhaps the most important item for this country to face. I do not agree with those cynics who say that an incomes policy is impossible. They may be right—only experience will prove whether they are—but until they are proved right we should try to press ahead and create an incomes policy.

Time and time again last year I said that the essential condition for the progress of our economy is more exports; that the essential condition for more exports is to keep our costs competitive, and that the essential condition of keeping our costs competitive, above all, is an incomes policy, rational and effective. I tried time and time again, in meetings of the National Economic Development Council, to get agreement on an incomes policy, even an agreement of a temporary character, and it is only right to say—because it is the truth and should be known—that all attempts made by the previous Government in the last year to get agreement on an incomes policy were met with and foundered upon the continued resistance of the trade union movement [HON. MEMBERS: "Oh".] It is true.

There is plenty of evidence. I know that the trade unions leaders have many difficulties. I accept that. They say, with justice, "It is very difficult for us to put across to the people who follow us a policy which is so different from our traditional outlook." I appreciate their difficulties. But it must be said for the sake of honesty, and for the record, that attempts have been made time and time again to get agreement on an incomes policy, but that our arguments have not been accepted.

The proposal put forward, which I still believe to be the right one—[HON. MEMBERS: "What was it?"] I will say what it was. It was for a tripartite agreement that the function of management should be to do everything possible to keep prices stable; that the function of labour should be to do everything possible to keep the rate of increase in wages in line with the rate of increase in productivity; and that the function of Government should be twofold: first, to keep the economy expanding and not to use restrictive measures, and, secondly, to undertake, as we did, that if, as a result of restrictions by wage or salary earners, profits received an unfair share of the national cake we would deal with the situation by fiscal measures. The Committee should know this, because it is true and it has been said many times. It is known to N.E.D.C., it is known to the trade unions, and it should be known to the country. This was the proposal by the then Government which was turned down. But it will be necessary in the end—of that I have no doubt. We shall find that this will be the solution.

Mr. J. J. Mendelson (Penistone)

The right hon. Gentleman the ex-Chancellor would not wish, I am sure, on his first appearance on the Opposition Front Bench, to give a totally false impression of what happened. He said that the trade union movement was responsible for it. Has he forgotten, or does he not wish to tell the Committee, that when a modest proposal was made, and one which had probably been worked out by the Director-General of N.E.D.C., to ask the employers to look at certain proposals for a scheme of price review and certain proposals to make it possible to get a contribution from the employers side, six employers' representatives on the N.E.D.C. said that they were ready to look at it. They took it back to the Federation of British Industries, whereupon it was immediately voted down.

Mr. Maudling

The fact is that I was there and the hon. Gentleman was not. It is wholly and completely untrue. If the hon. Gentleman looks at The Times of 7th or 9th February—I have not the memory of the right hon. Gentleman the Prime Minister—he will find that what happened was that at a meeting of the N.E.D.C. the employers' representatives themselves put forward a proposal for a price review—put forward very much the same as what the Government are now proposing—and the trade unions turned it down. That is true.

I will, if he likes, send the hon. Gentleman the lefthand column of The Times to which I refer to prove to him that, precisely as I have said, it was the employers who proposed this and that it was turned down by the trade unions as "a hasty and an ill-advised" action.

We shall only get an incomes policy in this country if we have a tripartite agreement of this kind and a price review body—I am not quite certain of the details and how they will work out—and, I am quite sure, something like an incomes commission which is designed to ensure that the exception from the general levels in an incomes policy is treated properly and fairly, but remains the exception.

The other great tragedy of an incomes policy during the last 18 months has been the determination of the party opposite and of its friends to have nothing to do with the National Incomes Commission, which could have done enormous benefit for the exports of the country.

I sum up what I was saying about the Budget. There are, first, the surcharges and the export incentive. I say that the surcharges could not have been imposed in a more hamfisted, incompetent and inept manner. I say that the increase in taxation arises to an enormous degree from the Government's own deliberate policy and is wholly at variance with all that they said in the election campaign. I say, moreover, that this is an inflationary Budget which will do great damage to our economy.

4.23 p.m.

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

I can well understand that the right hon. Member for Barnet (Mr. Maudling), in his apologia today for his past policies, was trying to convince his supporters that he is not really so moderate and reasonable in his comments on this Government's policy as he appeared to be in his first speech only a week ago. But I must say that I doubt whether he succeeded.

The right hon. Gentleman now tells us that everything was right with our economy until 16th October. He also now tries to argue that the higher tax on petrol, in particular, will have a serious inflationary effect on our economy, but when he himself and other of his colleagues in the previous Government repeatedly raised indirect taxes they all asserted that this was deflationary because it stopped people spending money on other things. That was the famous "Boyle's Law" invented by the right hon. Member for Birmingham, Handsworth (Sir E. Boyle), when he was a Government colleague of the ex-Chancellor.

The truth is that this change in the petrol tax will have far less effect on prices than the increase in Purchase Tax on necessities imposed by right hon. Gentlemen opposite. The right hon. Member for Barnet not merely differs from the right hon. Member for Handsworth, but also from his right hon. Friend the Member for Bexley (Mr. Heath). The right hon. Member for Barnet, I must say, normally makes such enlightened speeches that one wonders how he came to join the Tory Party at all. The right hon. Member for Bexley is quite different. Now that he is bereft of any official duties he is so bereft of serious argument that he has to sprinkle his speeches with personal abuse. This contrast has been particularly marked during the speeches in the past 10 days.

The ex-Chancellor told us on 4th November—barely more than a week ago—that he did not seriously quarrel with the present Government's measures to correct the balance of payments. He virtually said that he had prepared them himself. On the other hand, the ex-President of the Board of Trade said last week that they were ruining E.F.T.A., threatening G.A.T.T. and alienating 18 different nations.

The right hon. Member for Barnet really cannot come along today and say that this was all wrong, because he went out of his way last week virtually to bless the action which the Government had taken. He said on 4th November: I entirely agree with them"— the Government— that if they feel now—and this was their judgment and responsibility, which we will not oppose in principle in any way at all—that action should be taken, then they are right to act directly on the balance of payments and not by 'stop-go' or deflation. The right hon. Gentleman went even further than this. A little later in his speech he said: … if the total amount of imports has to be cut back, there is something to be said for doing so by the most efficient method rather than by imposing quotas which may be extremely cumbersome to administer and more harmful to trade."—[OFFICIAL REPORT, 4th November, 1964; Vo1. 701, c. 239–40] That is to say, the right hon. Gentleman approved the surcharge only a week ago, but the right hon. Member for Bexley says that the surcharge is disruptive and wholly mistaken.

Mr. Maudling

Anything which the right hon. Gentleman has just read out I agree with, but I still say that nothing could have been done in a more ham-fisted and damaging way.

Mr. Jay

I leave that part of the argument to the judgment of the Committee.

I must say that after this sharp clash of opinion between the Leader of the Opposition's two principal economic advisers, I was interested to see whether the Opposition would vote against the surcharge or not. Today, the ex-Chancellor said that they are against it, but yesterday they did not vote against it. The Opposition did decide to vote against the increase in both the petrol duty and the Income Tax, and we have had the ex-Chancellor doing his best this afternoon to justify this peculiar decision.

The right hon. Gentleman did not even mention the real issue before the Committee today. That issue is this. Do we, or do we not, think it right to raise the old-age pension substantially, help widows and remove the prescription charges? Those who vote against these rises in tax are voting against the increase in old-age pensions, the help for widows and the removal of the prescription charges. [HON. MEMBERS: "No."] If that is not so, how do hon. Members opposite propose that these benefits should be paid for?

Mr. Peter Bessell (Bodmin)

Are we to understand from what the right hon. Gentleman is saying that the increases in these taxes are to do with old-age pensions and not with the balance of payments?

Mr. Jay

They are to do with both, if the hon. Gentleman will have the patience to listen to my speech.

I have absolutely no doubt that the first priority for this Government—having corrected the yawning balance of payments gap bequeathed to us by the cowardice of the party opposite—was to do something immediate and substantial for the old people. During the last election I was invited to two meetings of old-age pensioners and at those meetings it was obvious to me that I was among some of the poorest people in our present society. They unanimously urged on me that the two measures which would bring the greatest relief to them would be a substantial rise in pensions and the abolition of the prescription charges.

One pensioner who said that he was 75 years old—that was not the highest age of those present—argued his case like this. He said that many of those present at the meeting had started work 60 years ago and had worked for far lower wages and for far longer hours and under far more arduous conditions than almost anyone would stand today. They had helped by such work to build up much of the capital which all of us are enjoying now. He asked me whether I did not think that we who are now earning more and enjoying much higher standards, owed these older people an inescapable obligation. I thought then, and I think now, that that is an unanswerable argument. It is the unanswerable justification for my right hon. Friend's proposals of yesterday for increased rates of taxation.

If for that reason tax revenue had to be raised somehow, I believe my right hon. Friend was also unquestionably right in selecting two general sources for his new revenue, road traffic, on the one hand, and direct taxation, on the other. If some tax has to be raised, we cannot ignore the fact that road transport and the oil industry today are both, to say the least, exceedingly buoyant and expansive.

Secondly, whatever one may think of the British system of Income Tax with its many admitted imperfections, which we hope to correct, I believe that it remains the fairest instrument of taxation in the world. It is no doubt true, as I think Edmund Burke once said: To tax and to please, no more than to love and to be wise, is not given to men. If this revenue has to be raised, I believe that my right hon. Friend has gone the best and the fairest way about it.

Do not let us forget—the ex-Chancellor agrees with the facts, anyway—that over half of the revenue to be gained from the rise in the standard rate of tax will come from company profits which have been rising strongly. In itself that will materially improve the chances of achieving a real incomes policy. It would, of course, be very pleasant if, thanks to the expansion of our national product, we could give the assistance needed to the weaker and poorer without higher rates of tax. It is an economic truism to say that had our economy been properly managed over recent years, this would certainly have been possible.

No doubt the ex-Chancellor has been explaining to the Leader of the Opposition that if our national product had grown during the 13 years of Tory rule by the 4 per cent. by which the ex-Chancellor himself thinks that it ought to be growing, our national income would be about £5,000 million a year higher today than, in fact, it is. But, of course, it did not so grow. The Leader of the Opposition did not seem yesterday to understand—this is the answer to the hon. Member for Bodmin (Mr. Bessell)—that the limitation on imports which we are now compelled to adopt is in itself inflationary and needs a counter-inflationary tax measure.

Right hon. Gentlemen opposite first imposed two shattering deflations on the country in 1957 and 1961 which held back our progress to the miserable snail's pace which brought us to where we are now. This was precisely because right hon. Gentlemen opposite restricted imports by deflation and not by the direct limitation which we have adopted and which the ex-Chancellor now, too late, approves. Deflation restricts imports just as drastically as a surcharge. If it did not, it would not work. But it was at the cost of slowing down our whole national income and impoverishing the whole country. Professor Austin Robinson has calculated—I do not think that this is seriously disputed—that the 1957 and 1961 deflations together, in order to cut down imports by £200 million a year, cut down the whole national product by £660 million a year. We do not propose to do that now. We intend to restrict imports temporarily until our balance of payments recovers; and to ensure that our national product goes on rising at the same time.

After first weakening our economy by those two deflations the previous Government, having then in 1964 swung into the other phase of the electoral cycle, let the economy get completely out of hand. Three weeks ago we found the situation far worse than even the pessimists had expected. The right hon. Gentleman talked about the election. I will tell him this. I ventured, during the election, to guess that the country might face this year a current balance of payments deficit of £300 million and a current and capital deficit of £500 million. Hon. and right hon. Gentlemen opposite, during the election, said that was scare-mongering and spreading panic. Then we found that the deficit was not £500 million, but somewhere between £700 million and £800 million.

This afternoon the right hon. Gentleman invented a new excuse. He said that part of the deficit was on capital account. He knows as well as I do that whether on current or on capital account it is equally a drain on our foreign exchange reserves. I cannot see how the leaders of the previous Government can escape the charge that either they simply did not know what was going on, or else they misled the electorate. Today, the right hon. Gentleman says that the deficit up until last October had been taken care of; but it had not been paid for. All that had happened was that debts owed by this country to others were mounting up in the sterling balances and the right hon. Gentleman knows perfectly well that those debts would have to be met.

It was, in fact, obvious as early as January or February of this year—and some of us said so over and over again—that imports were getting out of hand, and that we should face a severe deficit by the autumn. What did the then Government do? The then Prime Minister said that the economic situation had never been better. The then Chancellor first said that one month's figures were misleading; then that the rise in imports was solely in industrial materials; then that an increase in exports would appear very soon; then that it was just a matter of stock building and finally, by mid-summer, that the figures must, somehow, he wrong.

If I may say so, I am not being wise after the event. During the Budget debate on 16th April of this year I said: I do not believe, therefore, that in the present situation the Government really serve the national interest by complacently looking the other way and pretending the balance of payments situation is much better than it really is ".—[0FFICIAL REPORT, 16th April, 1964; Vol. 693, c. 621.] That was what they were doing and that was why we found the situation completely out of hand on 16th October.

At any rate, hon. Members opposite cannot complain, even if they did not understand the facts themselves, that they were not warned by hon. Members on this side of the House. These warnings were gaily ignored, and so we had, in 1964, a year of rising deficit, rising prices, and stagnant industrial output. The epitaph on the previous Chancellor must be that he gave us inflation without expansion. Finally, the hon. Gentlemen opposite, as yesterday's vote showed—when they did muster up courage to vote—having created this situation by their own inaction, are still running away from the measures which that situation has made inevitable.

In the past three weeks this Government have certainly made a start, but we will do a great deal more yet. Even the first 100 days are not yet over. In my Department, with its responsibility for trade and industry—with shipping and shipbuilding now added—for industrial efficiency, distribution of industry, and exports, we have a great deal more which we plan to do.

I believe—and I think that on this I carry the right hon. Gentleman with me—that the expansion of our exports is now the supremely important task facing us, not just for the Board of Trade but for British industry and the nation. If we succeed here we will succeed everywhere. With our balance of payments in hand, growth can go forward; and, with that achieved, we can afford the things we want, both at home and abroad. But if we fail in this we are in danger of failing everywhere, as the present crisis again unhappily proves.

I do not believe that the export task can possibly be beyond our powers. We are already exporting more than £4,000 million a year and our total exports have been going up by between 4 per cent. and 5 per cent. a year. [HON. MEMBERS: "Hear, hear."] Hon. Members opposite say "Hear, hear". I am pointing out that if we could raise the rate of increase by only a few percentage points we should be within sight of the end of our troubles. And even 5 per cent. is no more than £200 million a year, or materially less than 1 per cent, of our gross national product. That cannot be beyond our resources.

As is often pointed out, about 200 firms in Britain are doing more than half our export trade at the moment. That means that a large number of firms could do much more. It seems highly probable, therefore, that if these other firms, or most of them, could be mobilised, we should soon be within reach of our target.

I earnestly hope that every British firm, however big or small, exporting or not, and every other industry or commercial agency concerned, will now realise, if they have not yet realised it, that this will be the real test of our national success or failure in the years ahead. Not merely our standard of living, but our standing in the world, our defences, our aid to poorer countries and our whole future depend on it.

The first necessity is for all those who are in any way concerned with the export drive to redouble their efforts in every possible way as their contribution to our prime national need. I say this because I have been listening to the advice about exports of a great many industrialists, including particularly Sir William McFadzean and other members of the British National Export Council in the past three weeks.

I expected, frankly, that they would say that the last thing any businessman wished to hear was more exhortation from Ministers about achieving more exports. In fact, these advisers have told me that, on the contrary, in their view a large number of people in many firms throughout British industry do not even now treat the export effort as of really overriding importance. It is interesting to note that Sir William McFadzean said at the Institute of Transport a week ago: Every company with an export Department, and, therefore, a belief in exports, must make a special effort immediately, perhaps on direct instructions from the Chairman and Board. I endorse that comment here today.

I often hear it said that although our prices may be right, our quality excellent and our design good, where British firms fail compared with their Continental and American rivals is in selling, not only in hard, aggressive salesmanship, but in foreseeing and meeting their customers' requirements and providing the service which they need and expect. I do not think that managements can altogether ignore this criticism, and we in the Board of Trade will see in what ways we may be able to help too.

Of course, a great deal has already been done and I pay tribute here and now to the successful firms which have tried hard and with highly encouraging results. A great deal has also been achieved by those working in the Government's own export services at home and abroad. I propose now to examine, together with those who are actually experienced in exporting, all possible new lines of action, in a purely practical empirical spirit and to adopt those which offer the best chance of success. It would be wise, in addition to everything that has already been done, for us to try out a number of concrete suggestions which have been made from one quarter or another, in the frank knowledge that some of them may succeed while some may not.

Already, we have taken a number of firm decisions. Within our first fortnight the Government have introduced an export rebate scheme. Details of this have been announced, despite the fact that such a scheme was pronounced as being impossible by the party opposite for 13 years. We regard this as one, but only one, valuable contribution to the concerted export plan which we are proposing to launch. Industry has long asked for a scheme of this kind. Now that it has it I hope that it will seize eagerly upon it. Hon. Members opposite have said that such a scheme would be extremely costly to the taxpayer and that it would be negligible from the point of view of the exporter. I do not think that either argument is correct.

Sir Harmar Nicholls (Peterborough)

The right hon. Gentleman says that no thought to export incentives was given by hon. Members on this side of the House. Is it not within his recollection that a number of my hon. Friends and I have in the past put down Amendments to Finance Bills suggesting the introduction of an export incentive, but that on no occasion that I remember did we receive support from hon. Members opposite? Is he aware that every patriotic hon. Member will support him in his scheme and that we all want more exports? Is he also aware that the way the surcharge has been handled may make it more difficult to persuade the G.A.T.T. countries to co-operate with us, in view of the useful incentives which they have announced?

Mr. Jay

I did not say that no hon. Member on the benches opposite had ever thought about it; just that no action was taken until we came to power.

We are, secondly, setting up a Commonwealth Export Council—another move which has been deferred for far too long. It is clearly necessary that this shall be closely interlocked with the British National Exports Council, the activities of which span the whole of the world with which we trade. I am glad to say that to ensure this and to bring his great experience of export promotion to bear on the Commonwealth, Sir William McFadzean, Chairman of B.N.E.C., has agreed also to become Chairman of the C.E.C. My Department is now arranging with him how the C.E.C. can best be organised to tackle its important job.

Next in all the controversy about E.F.T.A. in the past fortnight, many people seem to have neglected the huge growth in trade within E.F.T.A. which has already occurred. Nearly one-sixth of our exports now go to E.F.T.A. markets and this year our imports from E.F.T.A. have increased by 26 per cent.

The present surcharge, as we have repeatedly said, is strictly temporary and we will do everything possible to strengthen E.F.T.A., both in the Ministerial Council next week and in the future. We are convinced that its continued growth and prosperity are essential to British trade.

Fourthly, we are launching serious efforts to establish an incomes policy. This, if successful, would, by common consent, enormously enhance our hopes of keeping export costs down. I am astonished at the right hon. Gentleman's discovery that the F.B.I. was in favour of price control all the time. We never heard that before.

I believe that the measures announced by my right hon. Friend yesterday, both on the side of pensions and of capital gains and direct taxation, will greatly improve the chance of getting agreement on an effective incomes policy. So will the price review body, which we hope to set up, and which will seek to restrain unjustified increases in prices. So, materially also, will the legislation to control rents and stop evictions, which the Government will introduce this Session. Rises in rents have been one of the most potent causes of the rise in living costs, so of export costs, over the past seven years.

We in the Board of Trade are now reviewing a whole series of detailed suggestions for export promotion. Because I judge it better to discuss these thoroughly with those practically engaged in exporting and not try to impose them on industry, I will not attempt to make further detailed announcements today. I will, however, mention a number of the ideas being examined, with the frank admission that some may turn out to be non-starters.

First, just because the Export Credits Guarantee Department has been such a brilliantly successful public enterprise up till now, we are reviewing export credits to see whether more business can be won for British industry by further expansion without too much immediate strain on our balance of payments. Of course, we cannot give our exports away, nor can we wait inordinately long for payment, but if—and I have often said this before—particularly in exporting capital goods, we can extend our markets and obtain some down payment at once on reasonable terms our exporters will be better placed to hold or win back business that has tended increasingly to go to those who offer the best credit terms.

Next, we are exploring methods of mobilising the small firms who, up till now, have simply not had the expertise or "know-how" or resources to achieve the job of exporting. I have recently flown to Peking and back in eight days, and I say with feeling that export work may sometimes be exciting, but it is not always fun. I have found wide support in our industry for the view that some sort of group or co-operative selling might help in some cases in mobilising those firms who are not exporting today.

Next, I am certain—this will not be a very long catalogue—that we must not neglect the opportunities in the Communist countries, such as they are. I agree with the Leader of the Opposition, in this at least, that well-fed Communists are likely to be more keen on peaceful co-existence than ill-fed ones. Indeed, in a world where Canada sells wheat to China and the United States sells wheat to the Soviet Union it seems plain common sense that we should sell non-strategic goods to both these and other Communist countries.

That I found to be the near-unanimous and enthusiastic view of the British industrialists attending the industrial exhibition in Peking last week, which was in itself an encouraging sign of co-operation between British industrialists and the Chinese authorities. Our exchanges of trade with the Soviet Union—though they are still unbalanced, as I pointed out very firmly to Soviet Ministers—and I think I would carry the right hon. Gentleman with me on this—are now approaching £100 million a year each way, but those with China stand at barely £20 million a year. The latter is an absurdly low figure between two great nations and though we must not expect any spectacular increase I am sure that a steady growth is possible provided peaceful policies are followed by both sides. I am, therefore, following up the Peking Fair by inviting to this country the Chinese Trade Minister, the head of the China Council for the Promotion of International Trade and heads of Chinese purchasing missions.

Next, and this is no order of priority, we mean to press on strenuously with the Kennedy Round and the international long-term effort to reduce protective tariffs and restrictions throughout the world. We are tabling our list of exceptions to the proposed Kennedy tariff cuts next week and keeping it to a minimum. We must learn here to distinguish sharply between those short-term emergency measures which any country may have to take temporarily to defend its balance of payments—and many others besides ourselves, including the United States, have done this in recent years—and permanent protective barriers.

I repeat today, therefore, that the new Government intends to work unremittingly for the success of the Kennedy Round and the policies approved at the U.N.C.T.A.D. conference last summer. We in the Labour Government wholeheartedly supported the initiative at that conference by my predecessor, for in so far as these efforts succeed the opportunities for British exporters will be proportionately wider.

Mr. Charles Loughlin (Gloucestershire, West)

Is there an examination going on into the possibility of the creation or expansion of technical and sales staffs attached to our consulates and embassies throughout the world?

Mr. Jay

Yes. That is one thing that we are examining. We are also reviewing urgently the possibility of market studies organised jointly between Government and industry, of more specialised trade missions, of more publicity for the Government's export services, of more concerted action within our own Government machine and of more trade centres and fairs at home or abroad. But even if all these things were done and these measures pushed forward, the export effort, I believe, will still not decisively succeed unless the efficiency and productivity of the British economy advances much more rapidly than hitherto.

I believe that one paramount need is to correct the acute geographical unbalance in the location of employment in this island, which lands us with congestion and labour shortage at one end, and waste and under-employment at the other. This is gross national inefficiency. It means that the growth of the whole national product has to be checked because of over-heating in the South-East and the Midlands while manpower and other resources are being wasted elsewhere. I believe that the most potent single thing we can do to gear up to a 4 per cent. growth rate over the next few years would be to correct that unbalance. That is why I propose, as the Minister responsible for the distribution of industry, to introduce a Bill to control office as well as factory development. This is the first essential step if we are to check extreme congestion in the South-East.

Secondly, to speed up modernisation and higher productivity in the underemployed areas, we propose to launch a new programme of Government-financed advanced factories in the development districts. This is the quickest way, in addition to many other efforts now in train, to stimulate positive new development, which is what we all want in the least fully employed areas. It fulfils the promise in the White Paper on the Economic Situation, 26th October, that the Government will foster more rapid development in the under-employed areas of the country". I shall announce the details of this programme in the near future after consulting the regional officers of my Department and others.

Thirdly, I told the regional controllers of the Board of Trade yesterday, after a full discussion, that I wished to see a tougher application of the I.D.C.s on factories being built in the really congested areas. These measures are only a start in the campaign to get employment more economically spread out, but I believe that they are the first urgent practical steps necessary to remove the geographical drag on the growth of our national product.

At the same time, we shall introduce, as soon as we can, major legislation to strengthen the Government's present power to prevent monopoly abuses. Certainly, such abuses exist on many sides of industry and we mean to attack them all along the line. In some respects we shall amend the proposals in the Government's White Paper of last summer. In particular, I think that we need to consider whether powers could be taken to hold up a merger where there is a prima facie case against it and not to let it go through and then unscramble it months or years later.

I believe that all these measures on the economic and social front, so far taken or to be taken by the Government, stand together. The Government are determined to secure expansion and growth, and if we succeed in the export campaign we shall secure them. We will not get efficiency, however, unless there is a conviction of social justice. And we shall not be able to achieve social justice unless our economy is efficient enough to sustain it.

We intend to go on as we have begun, pushing forward by whatever is the best practical method on both these fronts, and enlisting the support of industry—public and private, managers and employees alike. That, I believe, is what the country wants to see, what it voted for last month and what, under this Government, it will get.

5.0 p.m.

Mr. Peter Bessell (Bodmin)

In accordance with tradition, I crave the indulgence of the Committee for a maiden speech, especially as I shall be speaking for my party. I have the honour to represent the Bodmin division of Cornwall, a constituency that has been represented in this House by men of great distinction, not the least being the late Mr. Isaac Foot.

Mr. Foot rendered great service to the nation—and, indeed, to my party—and, if I may say so without impudence, he has also rendered great service to Her Majesty's Government, in that two of his sons are members of the Government and another son sits for Ebbw Vale. I am happy to report that yet another of the late Mr. Foot's sons continues to render sterling service to my party in the West Country. It is because of the outstanding record of Parliamentary service rendered by former representatives of the Bodmin division that I approach my duties mindful of a great heritage as well as of the needs of my constituents at present and in the future.

The Bodmin division is an area of high unemployment, and one in which there is serious depopulation. It is an area where there are low wage standards, and where the people do not share the same prosperity enjoyed by others living in the large urban districts. It may, therefore, seem appropriate that I should have chosen to speak in this debate on the supplementary Budget because, whilst the stability and growth of the national economy affect every single person to a greater of lesser degree, areas like Cornwall are infinitely more susceptible in times of financial crisis than, for example, the over-populated, over-employed areas of the South-East.

We Liberals recognise that Her Majesty's Government are rather in the position of expectant relatives who, arriving for the reading of the will, discover that they have inherited a series of Income Tax demands and a request for payment of the mortgage. We, like the Government, vigorously opposed the policies of the late Government which have resulted in this situation, and I believe that if many of the constructive proposals that I know have emanated from this bench during the last 13 years had been adopted by the late Government, not only could this crisis—if that is the correct term—have been avoided but the Conservative Party might be occupying the Government benches at this time.

It was, therefore, with some relief that many people were reading in the national Press, about three weeks ago, of the sweeping changes taking place in Whitehall; of civil servants working 80 hours a week to fulfil the demands of the new Ministers. Much of the Gracious Speech appeared to us to be in keeping with the demands of a modern Britain. The climax of this period of high expectations came at 3.30 yesterday afternoon, in this Chamber. We had arrived at the moment of truth; the moment when the Chancellor of the Exchequer would unfold the dynamic economic policies that would galvanise British industry into new life, would encourage our exporters to redouble their efforts, and would provide the incentive to bring together the two sides of industry in a revolutionary spirit of co-operation.

It is true to say that every nation judges its Government by that Government's economic policies. I need not remind the Committee that yesterday this Chamber was packed, the atmosphere tense. The —hancellor took his place at the Dispatch Box and we waited—and waited —and waited. When, an hour later, the right hon. Gentleman resumed his seat, we on this bench at least were bewildered to discover that apart from a few long overdue reforms, to which I shall refer in a moment, it was the mixture as before. In fact, it would not be unjust to describe the Chancellor as a sort of semi-detached Tory.

Where is the dynamic policy of expansion? What promise does the Budget contain of measures which, for example, will bring new opportunities of employment in Cornwall? I readily admit that I have been rather more encouraged by the utterances of the President of the Board of Trade just now, but where are the policies that will raise the standard of living of people who have struggled too long against adversity in the Highlands of Scotland, in Northern Ireland and in parts of rural Wales? Where are the policies that will restore Britain's falling prestige in Europe—or, even more important, in the great family of nations, the British Commonwealth?

Perhaps nothing illustrates my point better than the imposition of the 15 per cent. import levy. I do not for a moment dispute the gravity of our balance of payments position, but need Her Majesty's Government have acted with what seems to some of us to be indecent haste? A month would have made little difference to the ultimate position, and during that time proper consultations could have taken place between the E.F.T.A. countries and, more important, with the Commonwealth countries. It has been suggested that such discussions might have led to a further drain on our sterling resources, but I reject that argument because it reflects upon the honour and integrity of our friends and allies without justification. If America could be trusted—and she was—why not the British Commonwealth?

Her Majesty's Government, when in opposition, condemned the late Government during the Common Market negotiations for their failure to consult E.F.T.A. and the Commonwealth—and I believe that that condemnation was justified. This further breach of faith between friends and family can only do further harm to the prestige of our nation. Within days of taking office, the present Government are doing precisely the same thing as the late Government did at the time of the Common Market negotiations.

While we reluctantly accept that the surcharge may be necessary as a matter of expediency, and acknowledging with relief the Chancellor's statement yesterday, reiterated by the President of the Board of Trade this afternoon, that this measure will only be temporary, there is one other aspect of the matter that is causing concern to many people. It is extremely unfair that the surcharge should have been applied to goods already in the docks and awaiting Customs clearance, and to any goods for which bills of lading had been despatched from foreign countries before the announcement of the surcharge was made. Provided that those bills of lading name British ports of entry, those goods should be exempt. As it is, many small importers—and some larger ones, too—are faced with having to accept deliveries at costs far higher than those on which they budgeted. That will cause real and quite needless hardship. This is a serious matter, and I urgently beg the Government to reconsider the unfortunate plight of these firms and individuals.

Hon. and right hon. Gentlemen on both sides of the Committee will welcome the pensions proposals—for many of us, they went some way towards redressing the balance yesterday afternoon. We in the Liberal Party still maintain that by introducing a social security tax to replace the present National Health Insurance scheme it would have been possible, without straining the economy, to have provided still higher old-age, Service and widows pensions. Nevertheless, it is a step in the right direction, and we welcome the proposals.

There are, however, some other matters that concern us and, once again, I trust that the Chancellor will give consideration to our plea. Now that the iniquitous earnings rule is at last to be abolished for widows, why not abolish it also for old-age pensioners, whose need is just as great? Next, will the Chancellor reconsider the position of public service pensioners, many of whose pensions were granted some years ago and who see pensioners who recently came on to the retirement list getting pensions far greater than those which their unfortunate fellows receive? Also, the Chancellor omitted to mention the rate of increase in National Insurance contributions for self-employed persons. I trust that he will bear in mind that any drastic increase would cause real hardship to many people in a small way of business.

A curious feature of the Budget proposals is the fact that the Chancellor has announced measures which will form part of the annual Budget proposals next April. He has given advance notice of a capital gains tax and a corporation tax which, in principle, we welcome—which will give the tax avoidance experts another field day, or should I say another hundred and fifty field days, in which to devise fresh tricks to ensure that those who do the least work but have the sharpest wits will make the smallest contribution to the National Exchequer while those who toil honestly will continue to foot the lion's share of the bill.

That is the very opposite of the intentions so forcefully expressed by the right hon. Gentleman yesterday. A capital gains tax is long overdue, but there is a need for other reforms at the same time. For example, a quid pro quo is needed in respect of capital depreciation allowances on new buildings if investment of the right kind is to be maintained and the modernisation of our larger cities is to continue.

There are two fundamental issues I should like to touch upon. The greatest disappointment of this Budget is the fact that Her Majesty's Government are still apparently wedded to the nineteenth century notion that Britain can continue to support indefinitely the sterling currency of the world under the present system. Even if this is true —and I do not accept that it is—and if we are to be at the mercy of other countries calling upon our slender resources at times when their own balance of payments problems become acute, clearly Her Majesty's Government should initiate talks as a matter of extreme urgency with the countries concerned with a view to finding some sensible method of ensuring that our and their economies are not constantly at risk.

In the long term we have to overcome the problem of a nation which is living far too close to the bone. Our sterling reserves for the first quarter of 1964 represented 11.1 per cent. of our total export-import bill. In the United States the reserves were approximately 36 per cent. and in Western Germany they were about 25 per cent. The effect of this is that we are desperately vulnerable to changes in world markets. It has been well said that when Wall Street sneezes we catch pneumonia. A drop in our exports, or comparatively small but sudden demands on our resources, appear to cause panic. This will not do and we believe that it is capable of correction.

We in the Liberal Party supported the Government in the Lobby yesterday on the proposal to increase Income Tax because we recognise that improvements in the social services have to be paid for, but we did this reluctantly. We opposed them on the Resolution to increase the tax on petrol and diesel oil because this will tend to increase the cost of living and because it has long been our policy to seek a reduction in the existing tax which causes very considerable hardship at present.

How much happier we would have been to have voted with Her Majesty's Government on the kind of dynamic economic policies which for a few fleeting days we hoped and believed might be forthcoming—policies which, as I said at the beginning of my speech, would have given incentives to working people to increase production rapidly and which would have encouraged our export manufacturers to far greater efforts, the very things which are so desperately needed if we are to build up our reserves and to restore and stabilise Britain's economy and above all if we are to earn the respect of the free world.

I believe that the right hon. Gentleman the Chancellor of the Exchequer was profoundly right when he affirmed yesterday his confidence in the capacity of the British people to face reality, however unpleasant, and to work with honesty and determination in the interests of the nation as a whole. We on this bench wholeheartedly share that view, as will hon. Members on both sides of the Committee. There is, however, one word of caution to be added. No residue of good will is inexhaustible. If new demands are to be made on the peoples of these islands, they are entitled to a clear-cut programme from Her Majesty's Government, a programme of reform that will give them the inspiration they need for the prodigious efforts they will be called upon to make in the years ahead.

I have crossed Jordan. If I have landed safely on the other side it is only because of the courtesy of hon. and right hon. Members of this Committee. I wish to thank them for their forbearance.

5.16 p.m.

Dr. Shirley Summerskill (Halifax)

I thank you, Sir Herbert, for making it possible for me to make my maiden speech to this Committee, and I ask hon. Members to show their customary indulgence on this occasion. I am extremely proud to be the new Member for Halifax. but I am also conscious of the many predecessors I follow in this capacity. The most illustrious of these was John Henry Whiteley, Speaker of this House from 1921 to 1928, born and bred in Halifax. On his retirement, the then Leader of the Opposition, Mr. Ramsay MacDonald, said: You have shown us in a most remarkable way how to be patient and courteous without being lax; how to be strict and severe without being mechanical and formal; … how gentleness can rule and how persuasiveness can subdue."—[OFFICIAL REPORT, 19th June, 1928; Vol. 218, c. 1597.] I humbly submit that as a new Member of this House I can do worse than emulate my predecessor. I should like also to pay tribute to my two more immediate predecessors who for many years sat in this House, Dryden Brook, who sat on these benches, and Maurice Macmillan, who sat with hon. Members who are on the benches opposite.

My constituency of Halifax is probably best known as a textile town. In fact, the town weaves one-seventh of the world's worsted yarn. It has 100 different industries, but it is because I represent the people of Halifax that I am very proud today to speak in support of the Budget's pension proposals. The Budget shows, if nothing else, that this Government believe that people do matter. In spite of a grave economic situation, humane End just measures have been given priority in the first few weeks of this Government.

Halifax, along with several other parts of the West Riding of Yorkshire, has an unusually large proportion of retired people. They will welcome the Budget. I urge the Government to make an annual review of the retirement pension. This is imperative, for two reasons. The first reason is that the pension must always be related to the cost of living. Social justice means the relating of income to need. The second reason is that the pension must be linked to national average earnings so that pensioners share in national prosperity.

I welcome the demise of the 10s. widow, but I would also urge that the Government soon alter the present illogical scheme for widows' pensions so that all widows are treated similarly, because, however they are widowed, the problems and difficulties of widows are the same. It is a fact that women are living longer than men. I will not go into the reasons for that in this Committee, but 60 per cent. of all old people over 65 are women. This is a fact that must be faced. It is quite clear that widows' pensions will form a major part of any social security scheme that the Government introduce in the future.

May I express, too, the hope that in the spring Budget the same help will be given to single women with dependants? These women are a vast unsung army with no trade union to represent them. Many of them have one parent or two elderly parents to look after, sometimes sick parents, and at the same time they go out and do a full-time job of work. A fallacious argument often put against the case for equal pay is that women have no dependants. These women definitely do. I hope that the Government will not forget them in the spring.

I ask my right hon. Friends the Chancellors of the Exchequer and the Minister of Health to give urgent consideration to taking the charges off prescriptions as soon as possible. This would be a positive step towards rescuscitating the National Health Service, which has been starved and neglected in the last 13 years. Two shillings for a prescription may seem a mere trifle to many hon. Members, but there are thousands of housewives with families who think not in terms of shillings but in terms of pennies when they go out shopping and budgeting. The chronic sick who may have to pay for six or eight items a week on a prescription are waiting for this measure to be introduced. As a doctor, I frequently write prescriptions of many items for retired people and often they say to me, "Will you not take one of those items off?" Everyone will realise that that is a question to which it is very difficult to respond.

Yesterday the Leader of the Opposition implied the existence of a relationship between free prescriptions and the issue of Concord. I am at a loss to see this relationship. Aneurin Bevan said that the National Health Service was at the heart of politics. It certainly has nothing whatever to do with the British aircraft industry. It could, however, benefit from a few prestige projects.

Before the charges are removed, I hope that my right hon. Friend the Chancellor of the Exchequer will consider how the excessive profits which their removal will yield to the 141 private drugs firms which exist because of the increased use of drugs can be directed towards the Treasury. I am aware that my right hon. Friend the Chancellor of the Duchy of Lancaster has been studying this matter in his capacity as Chairman of the Public Accounts Committee. Meanwhile, doctors can play their part by prescribing from the National Formulary, wherever it is possible to do so. Preventive medicine, which we all aim at, means encouraging people to seek medical advice, not only when they are ill, but when they think they are ill. It is for doctors, not a prescription charge, to sort out the malingerers. We cannot afford to put a premium on health as we are doing at the moment.

I conclude by thanking the Committee for its attention and by hoping that I shall have the opportunity to address it on a future occasion.

5.26 p.m.

Mr. Geoffrey Howe (Bebington)

Like the hon. Members for Bodmin (Mr. Bessell) and Halifax (Dr. Summerskill), I crave the indulgence of the Committee as I make my maiden speech. The constituency which I have the honour to represent includes not only the young and very vigorous Borough of Bebington itself, but also that part of the County Borough of Birkenhead which is not already represented in the House of Commons by the hon. Member for Birkenhead (Mr. Dell). I am sure that right hon. and hon. Members on both sides will remember with affection and respect my predecessor as the Member for the division, Lord Oakshott of Bebington, who represented it so faithfully since its creation in 1950. The devoted services which he gave to all sections of the community in Bebington won him equal effection and respect throughout the division. He has been most kind to me as the candidate who sought to succeed him, and I know that it would be the wish of hon. Members on both sides to join me in congratulating him on the honour conferred on him during the Recess and saying how glad we are that he will have the continued opportunity, we hope, of many years of public service in another place.

There is another feature about my constituency which is, possibly, of a slightly more controversial nature, though I hope not so. In the heart of the division is the Wirral Grammar School. It was at that school that the right hon. Gentleman the Prime Minister spent what must I suppose be described as his formative years. He was apparently an enthusiastic member of the school dramatic society. The school magazine records this verdict on his first performance there 31 years ago: H. Wilson as a middle-aged businessman was convincing and direct. With more vivacity he should do well. Possibly more portentous to my hon. Friends would have been the rather more brief verdict on his second performance a year later: H. Wilson was a most villainous villain. I know that my constituents would wish me most sincerely on this occasion to congratulate the right hon. Gentleman on his appointment as Prime Minister, a great distinction for an ex-citizen of the Borough of Bebington. I do this most warmly and most sincerely.

Like the hon. Lady the Member for Halifax, I should like to say a very few words about the category of people identified by the Chancellor yesterday, as the elderly, the sick and the needy. In the Borough of Bebington just over two years ago the borough Old People's Welfare Committee undertook a survey of all the elderly people. The number of old people over the age of 65 of both sexes was ascertained to be just about 5,000. One-fifth of them lived alone. About 300 of them were housebound. Those figures are probably very typical of many other constituencies. It is perhaps one of the more valuable features of the conventional procedure of electioneering through which we have all gone very recently that we are able to meet so many people who we do not normally meet outside their homes and to renew our awareness of the personal and pressing nature of the problems which many of them face.

The increases proposed by the Chancellor in the retirement pension have been matched by identical increases suggested in the National Assistance provisions. That particular course of action which the Government are proposing interests me in the light of some observations contained in a pamphlet produced by a group of young Fabians only two years ago, entitled "National Assistance: service or charity?" That pamphlet contains this message: … it is safe to assume that a Labour Government"— that is talking of what would have happened in 1959— would have raised National Assistance rates, as well as pension rates. However, this would have meant that the numbers on National Assistance would have increased. National Assistance recipients would have admittedly been enjoying a higher standard of living, but the task of reducing National Assistance to a minor role would have been retarded. That is not intended as a preface to a controversial observation. The Government have chosen to adopt this method at this time to meet the standard suggested by the hon. Member for Halifax when she said that social justice means the relating of income to need. It is the Government's first method of fulfilling the objective, which, I think, was first referred to by the hon. Member for Jarrow (Mr. Fernyhough) who moved the Address in reply to the Gracious Speech, of the principle: to each according to his needs. I do not presume that this is the Government's last word upon it. We know that a minimum income guarantee is under consideration and may or may not be decided, but it involves recognition of the arguments contained in the pamphlet from which I have quoted that it simply is not prac- tical politics to meet the needs of the existing generation of people in need by flat rate increases at a higher level. Such a course would involve spending about 10 per cent. of the total national income on social security. The same point was covered in the manifesto of the Conservative Party at the last election when we said that help will be concentrated first and foremost on those whose needs are greatest. The point, like so many others, has been put with the greatest clarity by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), whom I am delighted to see in his place, when he said, not many months ago, Benefits for all are the enemy of care for the few. That is the principle accepted in fact—let us be frank about this—by both sides of the Committee. Both sides are striving for a method of identifying those citizens of our community most in need and securing for those people a standard of living as high as the community can possibly afford. It is a principle which I suggest is unanswerable, the principle of selectivity.

How this is to be implemented has involved the suggestion of various mehods. Right hon. and hon. Members opposite are now espousing a suggestion which has been made for some years by hon. Members on this side of the Committee for a scheme which should to some extent be based on the P.A.Y.E. Income Tax code system. The Conservative Party during the last election was to some extent espousing a method of identifying particular groups in the community whose needs were greater than others—more elderly pensioners, more recent widows, and categories of that kind.

The point that I invite the Committee to accept is one which was most clearly put by the hon. and learned Member who formerly represented Kettering, Mr. Mitchison, when he said In a sense we can say that this is a means test",— he was speaking of guaranteed minimum income proposals— just as an Income Tax return is a means test, but it is in a quite different sense from what it has been in the past. The plea I make is that when proposals are put forward from either side of the Committee they will not be condemned from the opposite side of the Committee simply because they involve going back to the means test. A test of means is implicit in many social services. It is one which we already freely accept and for which all parties have in the past made legislative provision. A test of means is administered for the supply of school meals and milk free of charge, for the granting of legal aid, and for the home helps service. For all the social services we accept the notion, as the hon. Member for Halifax said, of relating income to means and need. For none of these services has anyone suggested universal free provision, regardless of need and regardless of the means of the recipient. It is only when this principle, generally accepted throughout the Committee, comes to be applied by either party to the central section of social security, to provision for retirement pensioners particularly, that hon. Members on the opposite side of the Committee, whichever that happens to be, are easily tempted to condemn the proposal out of hand as involving a means test.

My hope is that hon. and right hon. Members on both sides of the Committee will support the Chancellor of the Duchy of Lancaster and my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) when and if either of them bring forward proposals which represent a real step towards the solution of this problem which besets us all. The solution at which we finally arrive must be one of which all in need can take advantage. It must be one that is simple. It must have a real flavour of humanity about its administration, and it must take account of differing needs as well as of differing means. We should all be wary of attaching to it the so-called stigma that has so often been said to have attached to similar proposals put forward from both sides of the Committee in the past.

We can perhaps agree on this point. The only defect about a means test as a matter of principle, as administered by both parties in the House in the past, has perhaps been that it has been too darned mean, if I may put it in that way. We wish to achieve more generous provision and use the means test in a modern sense to achieve this. The point was best made, again by the former hon. and learned Member for Kettering, in the last Parliament, when he said: This is not a matter that we want to debate in terms of slogans, or anything of that kind. We are dealing with old people who have not enough to live on, and we are trying to make their lot more comfortable. Let us for heaven's sake not get this thing cockeyed by putting the wrong label, or the right label in the wrong way, on it. Let us look at the scheme on its merits."—[OFFICIAL REPORT, 10th December, 1963; Vol. 686, c. 244–5.] I thank the Committee for the indulgence which it has shown to me on my maiden speech, and I hope, perhaps like the hon. Lady the Member for Halifax, that I may have other opportunities of speaking in the future.

5.39 p.m.

Mr. Kenneth Lomas (Huddersfield, West)

Like the previous three speakers, I crave the indulgence of the Committee for my maiden speech. It is not my intention to follow the hon. Member for Bebington (Mr. Howe) into the arguments on the justification or not of the means test, because this is supposed to be a non-controversial contribution.

I cannot claim to bring to the Committee or to the House of Commons any great high academic qualifications. I was one of those who left school at 14½ and had to make my own way in the world. Equally, I cannot claim to have had the experience of working in a scientifically-based industry. For the last nine years, I have been with the National Health Service and for the previous seventeen years with the trade union movement, neither of which can really claim to be scientifically based. But I have the honour and distinction of representing Huddersfield, West, and my pleasure at representing that constituency is shared by my constituents in the fact that it is the birthplace of my right hon. Friend the Prime Minister. The people of Huddersfield are very proud of the fact that on the day that the Prime Minister was elected, Huddersfield, for the first time in its history, had two Labour Members of Parliament. Indeed, between 1945 and 1950 my hon. Friend the Under-Secretary of State for Defence for the Royal Navy served Huddersfield alone, and since 1951 he has made a wonderful contribution on behalf of Huddersfield, East.

It is true, however, that during the last 14 years my constituency has been represented by the former Deputy Leader of the Liberal Party, Mr. Donald Wade, and I should like to take this opportunity of asking the House to record in its journals its appreciation of the work that he did in this House and in its various committees during the time that he served here, and to express the thanks of his constituents of Huddersfield, West for the way in which he attended to their problems. I hope that those remarks of mine will not for a moment be construed as an attempt on my part to fly a kite for any kind of Liberal-Labour affiance. I have always believed that the differences as divide the Labour Party from the Conservative Party are the same differences that divide the Labour Party from the Liberal Party. We are fundamentally different. But this in no way prevents the Liberal Party from entering into alliances of its own. During the last 14 years up to 15th October the Conservative Party, by standing down, allowed the former Deputy Leader of the Liberal Party to retain his seat.

It is unique that no Conservative has had the opportunity of representing Huddersfield, West since 1929. In that year a former Member of this House, a respected temperance Member, Jimmy Hudson, was elected. It was said of Jimmy Hudson that his agent Arthur Gardiner used to say to him at election times, "If you will do the chapels and churches I will do the clubs and pubs," and this arrangement seemed to work very well. It has also been said—and it has certainly been true during the last 40 years—that whenever the Conservatives fight in Huddersfield the Labour Party wins, and it is my earnest hope that the Conservatives will continue to fight in that constituency for the next 40 years.

The main industries in my constituency are chemicals, engineering and textiles. En particular, engineering and textiles have at one time or another felt the chill winds of economic depression—so much so that in 1931 the firm of John Crowther & Sons, led by Stoner Crowther, introduced a gimmick in the West Riding, when Stoner Crowther accepted a challenge by the last Sir Malcolm Campbell to make a suit in record time. The story is—and it is quite true—that 12 sheep were gathered in the mill yard together with expert Yorkshire Dalesmen. The sheep were sheared, the cloth was woven, dyed and made up into a suit in two hours and nine minutes. That occasion has a connection with this House, because the following day that suit was worn by yet another respected Member, the Right Hon. Jimmy Thomas, as a boost to British Industry.

Today that firm of John Crowther & Sons is playing a very large part in the export trade of this country and it is turning out goods that are sold in practically every country in the world. It is unfortunate that in order to meet the competition that it faces from Italy and elsewhere, this firm is compelled to import machinery from abroad because it cannot obtain that machinery in Britain. One of these machines is a cloth polishing machine known as the Pol-Rotor machine. It is most unfortunate that it should be necessary for that firm to have to pay the import surcharge on a machine that it would like to obtain in England but which the British machine industry cannot produce. I should like my right hon. Friend to consider whether anything can be done about this.

I should like briefly to refer to a couple of the other Budget proposals. Certainly pensions had to be increased. As a Socialist, I have always believed that that which was morally right must he politically right, and it was obviously morally right that pensions should be increased. But I implore the Chancellor to find some way of ensuring that pensioners get the increase before Christmas. It must be borne in mind that if the present rate of pension is continued until the end of March 10,000 or 12,000 old-age pensioners will have died before the increase comes through and I, therefore, hope that something can be done to make sure that they get the increase for Christmas.

Let it not be forgotten that even with this increase they will still not be privileged members of this affluent society. Even £4 a week is not a lot in our present-day society, though I know that it will help many people in Huddersfield. I checked with my local Assistance Board and found that 65 per cent. of all the National Assistance payments made in the Borough of Huddersfield went to old-age pensioners to help them make ends meet. Hon. Members opposite must not resist these proposals or find reasons for delaying them, for they are essential.

Like my hon. Friend the Member for Halifax (Dr. Summerskill), I welcome the removal of the prescription charges. No one should have to put his hand into his pocket to decide whether he can afford to have medicine. It is right and proper that these charges should go.

It is unfortunate that the 2s. increase on the National Insurance stamp will be an extra burden on many people who have a take-home pay of less than £10 a week. As a local branch official of the National Union of Public Employees, I know that many people in the Health Service have a very low rate of pay. I wish we could find some way round this, perhaps by extending the capital gains levy and by introducing it at an early date.

I thank the House for having listened to me. It has always been my policy, as a member of the Labour Party and as a worker for Socialism, to try to ensure that the producers of wealth obtain a fair share of the wealth which they produce. I believe that the only way in which we can ensure this is by having a Labour Government that is dedicated to that end. I have tried not to be controversial, but after 27 years in the trade union and Labour movements I find it very difficult and I hope the House will forgive and understand if I have been controversial.

5.49 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

It falls to me to congratulate no fewer than four maiden speakers in our debate this afternoon. I have perhaps been singular in that although I have been a Member of this House for five years it has never fallen to my lot before