HC Deb 08 April 1965 vol 710 cc680-804

3.58 p.m.

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

The right hon. Member for Bexley (Mr. Heath) yesterday afternoon made a vehement and, I thought, rather synthetic attack on almost all the tax changes proposed by my right hon. Friend the Chancellor of the Exchequer. If, however, the right hon. Gentleman is so violently opposed to all these tax changes, it is rather odd that he could not persuade any of his hon. Friends to vote against them. They did not vote against any one of the Resolutions.

I do not think that anyone has yet been impressed by the efforts of hon. Members opposite to work up a clamour against these tax increases. The country is really not as simple as hon. Members opposite sometimes imagine. No doubt, if our resources were slack and unused, large tax cuts might be possible, but they are now, thank heaven, very fully employed and, therefore, it is restraint and not stimulation which is plainly needed.

If restraint is necessary, how else do hon. Gentlemen opposite propose to apply it? If they do not like my right hon. Friend's tax increases, which other taxes would they raise instead? They do not seem to answer that, and I think it is the obvious insincerity of this attitude which accounts for the very poor showing of the party opposite in the public opinion polls at the present time. The real complaint of the right hon. Member for Bexley against the Government yesterday was that we were setting out, among other things, to redistribute wealth in this country. We certainly are, and we mean to go on doing so.

Or do hon. Gentlemen opposite, in the course of their criticisms, really advocate now a new deflation like those of 1957 or 1961. with all the long-term damage that they did to this country? We rejected that solution last autumn, despite all the difficulties that faced us then, and, of course, the decision to run the economy at full capacity and overcome the overseas deficit at the same time faced us with an exceedingly formidable task.

We always knew that. The alternatives would be easier, but they would have been fatal to the country in the long run. Or would the party opposite, if they had had responsibility, have simply let things rip last autumn and watched the deficit widening into catastrophe?

We now know that for the first nine months of 1964, the overseas deficit was widening and widening under the management of the right hon. Members for Bexley, and Barnet (Mr. Maudling), and that neither of them, nor the Leader of the Opposition, did anything about it except to make soothing statements to the public in the hope of leading them into a lethargy of false optimism.

Let us look at what really happened. We now know that, despite the reversal of trend which has occurred since last October in both exports and imports, we finished the year with an overall deficit of £745 million. Clearly, therefore, if the trend had not been reversed, that deficit would have been even worse than it was.

In the first nine months of 1964, under the management of the party opposite, production was stagnant, and exports first rose and then actually fell. During that period imports were running at nearly 16 per cent. above the previous year. In the three months August to October, 1964, imports were still 16 per cent. higher than in the corresponding months of 1963. Industrial production, according to the official index, stood still from January to September last year. Exports were actually falling, in a world of rising trade, from April to September. Seasonally adjusted, exports in the three months July to September of last year were 2 per cent. lower than in the first quarter of the year.

That was the situation bequeathed to us in October last by right hon. Gentlemen opposite. We decided to achieve three objectives: a fall in imports, a rise in production, and a rise in exports. Hon. Members opposite know the action that we took, and I will, therefore, look at the record since in terms of hard fact.

Imports, which had been rising at 16 per cent. a year, were by the three months December, 1964, to February, 1965, about 5 per cent. lower than in the previous three months. The American dock strike in February had something to do with those figures, but if hon. Gentlemen really think that the import surcharge had nothing to do with so sharp a reversal, they have to explain the fact that in the three months December to February last, the latest period, imports bearing the surcharge—which. in July to October of the previous year, were actually 24 per cent. higher than in the corresponding months a year earlier —were 7 per cent. lower than in the previous three months, while total imports were 5 per cent. lower. That means, of course, that imports bearing the surcharge fell a good deal more sharply.

I know that there has always been a sharp disagreement between the right hon. Member for Barnet and the right hon. Member for Bexley about the surcharge. The right hon. Member for Bexley tells us that the whole thing was a mistake, but the right hon. Member for Barnet not merely favours it, but claims to have invented it. On 26th October last he said: I made arrangements in the summer"— that was last summer— for the whole range of possible measures either to limit imports or stimulate exports to be examined. All the various possibilities involved difficulties, but of those we examined and worked out import surcharges and a scheme of relief to exporters relating to the burden of indirect taxation seemed the most promising. That was what we thought, too, and we still think that now.

Next let us look at industrial production which had been stagnant for nine months up to September of last year. In the three months November to January of this winter, it was 3 per cent. higher than in the previous three months, and 6 per cent. higher than in the corresponding months a year earlier. Most crucial of all, exports, which were dropping last autumn, were 6 per cent. higher in the latest three months December to February than in the previous three months.

Since some hon. Gentlemen opposite, no doubt for patriotic reasons, have tried to argue that our exports to E.F.T.A. were damaged by feeling about the surcharge, I am sure that they will be relieved to know that exports to E.F.T.A. as a whole were also 6 per cent. higher in the three months December to February than they had been in the three months before that.

Sir Alexander Spearman (Scarborough and Whitby)

The industrial production figure, published in November last year, was 8 points above the previous year. Is the right hon. Gentleman claiming that the increase in production up to November last was due to the Labour Government?

Mr. Jay

What I am saying, and the hon. Gentleman can look it up for himself, is that the index was static from January to September, 1964.

Hon. Gentlemen opposite argue that this remarkable improvement in the trend of exports, imports and production had nothing to do with the surcharge, the export rebate, or any of the policies pursued by the Government, that it was all pure coincidence. The right hon. Member for Barnet, even though I know that he is anxious not to get a reputation for being too clever by half, and I admit this, has a more subtle explanation for this than the right hon. Member for Bexley, because he told us in January that the improvement in exports then announced was all due to the previous Government. He told us a little earlier that the difficulties which faced the £ in November were all due to the present Government. So, what happened in November was due to the present Government, but what happened after Christmas was due to the previous Government.

Mr. Reginald Maudling (Barnet)

The right hon. Gentleman has got this wrong. It was not I who said that the difficulties in November were due to the present Government. It was the Prime Minister.

Mr. Jay

If the right hon. Gentleman really wants people to believe that what happened after Christmas was due to the previous Government, but what happened before was due to the present one, he will have a hard task in persuading them of that.

I believe that the main credit for the marked recovery in exports since last autumn, and the new consciousness of the urgency of exports, goes to British industry itself, to all those who are producing, transporting and selling our exports, both visible and invisible. But the Government's measures have unquestionably helped, both by increasing that sense of urgency, and by greatly improving the export services offered to industry, and from now on the effects should be even greater.

In October we launched both the export rebate scheme, and the extension of the British National Export Council to the Commonwealth, and, of course, the rise in vehicle duties announced by my right hon. Friend this week will further increase the value of the export rebate. In January, I announced a further instalment of export promotion measures, and I should like to tell the Committee how these have developed since. We then reduced the minimum for Export Credits Guarantee Department bank guarantees for over three years from £100,000 to £50,000 with the necessary finance at the fixed rate of 5½ per cent., and the banks, together with the Bank of England, arranged that for financial guarantees the fixed 5½ per cent. rate would be offered for the whole period of the loan instead of only the first five years.

The effect of this extension, particularly in the shipbuilding industry, has been even more encouraging than we expected. Since January, overseas orders for ships to be built in British shipyards have increased sharply, and new inquiries have doubled. The orders from abroad announced in this 10-week period amount to nearly a quarter of a million tons of shipping. That is twice as much as the tonnage ordered from abroad in the whole of last year and, incidentally, equal to the export orders placed in British yards during the whole of 1963—itself the best year for export orders that the shipbuilding industry had enjoyed since 1957. That will greatly assist the shipbuilding towns, which are so largely located in under-employed areas.

Next, in my statement in January I said that the British National Export Council had undertaken to organise, with Government help, a new scheme for outward and inward trade missions, and market research projects. The Council has so far received 41 applications. Of these, 10 have already been approved. Some have been launched, and the others are being examined. Meanwhile, the E.N.E.C. and the Commonwealth Export Council have extended their system of area export committees to include all Commonwealth countries. The Councils now cover a large part of the world, and 170 senior British businessmen are giving their services, through this machinery, to the new export drive. I should like to thank them now for their efforts, which are typical of the heartening response from industry generally to the export campaign of recent months.

One of the first moves of Sir William McFadzean, as Chairman of the B.N.E.C., was to invite major British exporters to help in the selling of the products of smaller companies, with less fully developed export organisations. Partly as a result of that, and with the help of the B.N.E.C. and other organisations, the Board of Trade will shortly publish a booklet giving full details of the firms which—either in response to this invitation or in other ways—have offered to help exporters or potential exporters. This booklet will include the names of nearly 400 manufacturing firms covering a very wide range of products.

Since my statement in January the B.N.E.C. has also set up an expert working party to test the feasibility of organising a national export selling organisation, whose main job would be to sell directly on behalf of small and medium-sized companies. Market studies are being carried out in both the North American and West German markets, because research of this kind is felt to be necessary before final decisions can be taken on the practicability of such a scheme. If it stands up to this test we shall go ahead with it.

In partnership with industry we are also promoting a number of overseas trade fairs and British Weeks all over the world. Major British Weeks will be held in Amsterdam next month, Milan in October, and Hong Kong next March. as well as a major British exhibition in Tokyo this autumn. We are supporting about 50 British store promotions which will be held abroad this year—20 in the United States, 20 in Canada, and 10 in Europe.

Government expenditure on overseas fairs will be 50 per cent. higher this year than last. This programme will include 50 joint venture projects, in which the Board of Trade collaborates with industry in specialised fairs to promote British exports. These will be organised this year at Cologne, Frankfurt and Hanover; and British pavilions will display British goods at Johannesburg, Budapest, Poznan and Moscow.

At the same time, since January the Board of Trade has held 35 meetings with major British exporting industries to review their export programmes and explain the facilities which the Government offer to them at home and abroad. This week we have also launched a major advertising campaign in the British Press to publicise the many services provided by the Board of Trade, including the E.C.G.D. and overseas posts, to help industry with its export problems. These services are already intensively used, but we think that still more firms could employ them to push their exports or to break into export markets for the first time.

Meanwhile, a team of six British trade commissioners from Australia will shortly be touring this country and interviewing 900 British firms in order to strengthen contacts with the Australian market.

That is a brief summary of some of the measures taken since January. But I said at the time that the programme announced then was only an instalment, and we have now taken further decisions. First, on the ever more crucial export credit front, where this country has made a great advance in recent months and already offers facilities equal to or better than most of our competitors, we propose, first, to increase the standard minimum percentage of insurance cover by the E.C.G.D. from 85 per cent. to 90 per cent. That will help all exporters and not simply those benefiting from the new bank guarantee facilities of last January.

Secondly, the system of bank guarantees, carrying 5½ per cent. fixed interest rate, will be extended to credits down to two years, and not three years as formerly. Thirdly, the charge for the bank guarantee will be reduced by 50 per cent., because, in my view, our experience over recent years has been sufficiently favourable. Where we are making a profit we can reduce prices. In due course, we shall see whether we can come down further.

Fourthly, the proportion of the credit normally covered by the bank guarantee will be raised from 90 per cent. to 100 per cent., and that will also extend the scope of the special 5½ per cent. interest rate. It means that, in practice, we can now assist borrowing from the bank to the full value of the credit, even though the insurance cover is only 90 per cent. All these changes will take effect immediately. They were all said by the previous Government to be impossible.

I apologise for the technicality of all this, but export credits are extremely important in the contemporary world, the E.C.G.D. is doing an invaluable job, and our experience since January has encouraged us to make further advances.

I have also decided to make some changes—again in the interests of our exporters—in administering drawback of import duties. Drawback is designed to relieve the exporter of paying duty on materials which he needs to import, although without unnecessarily stimulating imports. In future, it will be administered on the assumption that promotion of exports is always in the national interest, unless it can be shown that some other damage to the economy will result. This means that we shall assume that the exporter himself is the best judge of the needs of his customers abroad. He will normally obtain drawback unless it appears that harm would be done in some other way—for instance, by causing a net loss to the balance of payments.

My Department will be discussing with representatives of industry the detailed way in which this work will be carried out in practice. My right hon. Friend the Chancellor has also agreed to seek, in the Finance Bill, to amend the law so as to simplify and improve the administration of drawback. This we shall be able to explain fully in the Second Reading debate on the Bill. All this should streamline work on drawback applications and will, I am sure, be welcomed by exporters.

Finally, on the export front, the British Travel Association, with Government help, is stepping up its campaign abroad to attract tourists to this country. I have also made arrangements, after discussion witth the B.B.C., for its external services to give a rather truer picture abroad of British industry than some which have prevailed recently. At the same time—and the right hon. Gentleman asked about this yesterday—we are working hard to simplify export documentation, through the Joint Liaison Committee which exists for this purpose.

These are some, but not all, of the things which the Board of Trade is doing, in partnership with industry, to expand our exports more quickly, but they are no more the end of the story than the instalment which I announced in January, and I hope that as time goes on we shall broaden the campaign even further.

Mr. Robert Maxwell (Buckingham)

I should like to say, as an exporter who exports 80 per cent. of his total production, that these are splendid and practical steps which will be warmly welcomed by British industry. May I ask my right hon. Friend whether he can say anything about the discussions he is having with his colleagues at the Foreign Office and what that Department is doing to help British exporters in the same practical way as his Department?

Mr. Jay

My hon. Friend knows that steps were taken and announced earlier to improve services existing in posts abroad. In this respect the two Departments are working together, and I think that there is general agreement that progress has been made there, too.

At the same time, we are determined to mobilise the still unused resources of manpower and productive assets in our own country. I have always believed that the surest and quickest way to achieve an increase in national output is to bring these resources in underemployed areas into productive employment. The best way to do this is to pursue an expansionist policy over the country as a whole, to restrain excessive development in congested areas and to steer expansion schemes to those districts where resources are idle. These are the objectives which we have been pursuing both in the general economic policy of the Government and the distribution of industry policy of the Board of Trade during these last six months.

Unemployment has already shown a marked fall and is still falling. The register of wholly unemployed in Great British showed a fall from 1.8 per cent. in March, 1964, to 1.5 per cent. in March, 1965. In Scotland, the fall was from 4.1 per cent. to 3.3 per cent.; in the Northern region, from 3.6 per cent. to 2.8 per cent.; and in Cumberland and Westmorland, from 3.8 per cent. to 2.8 per cent. In the North-Western development districts, mainly Merseyside, the fall was from 4.4 per cent. in March, 1964, to 3.2 per cent. in March, 1965.

All these falls were bigger proportionately, it should be noted, than in Great Britain as a whole. This means that the unbalance is already being reduced. Only in Wales as a whole was there a slight increase, but that was from a fairly low figure, from 2.5 per cent. to 2.7 per cent.

We have continued throughout these months to impose a tougher policy in granting I.D.C.s in all the congested areas. The Control of Office and Industrial Development Bill is already restraining new building in London and, therefore. the drawing power of the South-East.

Mr. Stanley R. McMaster (Belfast, East)

Will the right hon. Gentleman say something about the position in Northern Ireland, where unemployment is very much heavier than in any development district in Great Britain? I hope that similar efforts will be directed to reducing the unemployment in Northern Ireland.

Mr. Jay

The drop in Northern Ireland has beer from 7.3 per cent. 6.6 per cent. It is still much too high and we are determined to go on doing all we can to help.

Now that the Control of Office and Industrial Development Bill has passed its Committee stage the Board of Trade is prepared to consider applications for office development permits, though firm answers can, of course, be given only after the Bill has received the Royal Assent.

In the development districts, in addition to the 29 new advance factories which I announced in November, two new industrial estates are now being erected at Bellshill, in Lanarkshire, and on South Tees-side. The number of new industrial schemes coming forward is already encouraging. In Wales, Scotland, the Northern and North Western regions, during the six months from October, 1964, to March, 1965—that is to say, the last six months, approximately—I.D.C. approval was given to 491 schemes offering an estimated additional employment to 36,420 people compared with a total of 31,670 for schemes approved in the previous six months. The total financial assistance offered under the Local Employment Act—I think that even my right hon. Friend the Chancellor will welcome this—in all the development districts in Great Britain rose from £10,987,000 during the four months from July to October of last year to £16,489,000 in November last to February this year.

Just to give a few examples of development schemes coming forward, at Cambuslang, in Lanarkshire, Hoovers are to spend £3 million on extending plant to employ 4,000 people as against the present 2,450. At Workington, there are two larger paper manufacturing extensions now under construction which will cost over £5 million and, at Milford Haven, Gulf Oil are to build not merely a refinery, but a major petro-chemical plant. Before the end of this month I hope to announce the letting of the Pressed Steel factory, near Swansea, to a large firm, which will give long-term employment to this area.

Mr. Eric Lubbock (Orpington)

Just as the building of advance factories has become part of the restriction on I.D.Cs. in congested areas, have the Government any policy for building advance commercial premises in development districts? May I also ask what lead the Government are giving by moving their offices out of central London into these regions?

Mr. Jay

We are doing the second, and the building of commercial premises in development districts is a perfectly possible policy for which we have powers. We have begun factory building which I think is, on the whole, the first priority. I will bear in mind the suggestion made by the hon. Gentleman.

I have also removed from the so-called development districts stop-list all the areas in South and South-West Wales which were on that list. There were no areas on it of the North-East Coast, Scotland, West Cumberland or Merseyside. This has restored large areas in industrial South Wales to full and active development district status. I believe that if we continue present policies resolutely, and add new instruments where they are needed, we can count on a continuing fall in unemployment in those areas, and in time a real industrial regeneration. Serious problems and serious pockets of unemployment and underemployment still persist. Therefore, there must be no letting up, in my view, and no complacency, because I believe that the natural drift of employmnt to the South-East is a powerful force which will set in again if at any time the effort to restrain it is relaxed.

Thus, on both the home and the overseas fronts I believe that we are moving nearer to overcoming the unbalance which has weakened our economy for so long. Nevertheless, having given all these figures, I trust that the Committee and the country will not be too easily optimistic or underrate the toughness of the task that faces us, above all, in paying our way in the outside world. Repeatedly, since the war, both the country and the Government have become too optimistic too soon. We are trying, at the moment, simultaneously, to achieve growth by running our economy at full capacity, to aid other countries poorer than our own —particularly in the Commonwealth—to maintain defence forces abroad, to keep the peace and help our allies and to maintain a reserve currency. We are doing this in a world where the monetary and credit system is, plainly inadequate.

In addition, we are also trying to continue our liberal import policy, and indeed to expand world trade much faster by a major effort to bring the Kennedy Round to a successful conclusion. There are overwhelming reasons, I am convinced, for concentrating our efforts at this stage on securing the maximum result from the Kennedy Round negotiations. Success here would widen our export markets, particularly in the United States and in the E.E.C. It would greatly assist the developing countries by extending the tariff cuts to them, and it would lower the barriers between E.F.T.A. and E.E.C. in much the most practical method at present. The Kennedy Round negotiations are now being pushed forward in Geneva. The main industrial countries tabled their exception lists from the proposed overall cut in industrial tariffs last November, when ours was one of the shortest of all. These lists have been systematically examined since the New Year. Agreement has now been reached on the procedure for negotiating on agriculture. I do not know why the right hon. Member for Bexley yesterday had to say, about the Kennedy Round, that two years have gone by and that it has hardly even got off the ground. For 18 months of those two years he and his right hon. Friends were responsible for it.

Therefore, this remark, like some others of his, did not seem to me particularly helpful. Of course, this important enterprise will take a long while yet, but is worth being patient and working hard and long, because of the vast improvement and the results which can be achieved. Meanwhile, the sharp improvement in our own trade balance over the last six months encourages now some solid hope that we may, before too long, overcome the deficit and again earn a surplus, if we do not relax. The figures which I have given show that we are moving in the right direction, but the House and the country must not expect that every monthly trade return will look better than the previous one. There is a long and hard struggle ahead of us, in my opinion. We have the power to win it, but it will not be won if, either on the home or the overseas front, we give up or let up too soon.

4.32 p.m.

Mr. Peter Walker (Worcester)

While welcoming the proposals made by the right hon. Gentleman the President of the Board of Trade concerning the improved facilities for E.C.G.D., and the improved credit facilities which are available, I must confess that his speech, in his usually lucid manner, was somewhat different from the speeches we heard from him when he debated previous Finance Bills of a Conservative Administration.

Many of the right hon. Gentleman's favourite themes were missing. We had no powerful passages on the wickedness of the increase in National Insurance contributions, nor did we have his usual cogent intellectual thesis on the horrors of indirect taxation. The right hon. Gentleman is seldom sentimental, but I remember that in years gone by he became a little sentimental when he dealt with the working man's tobacco and beer. Even this sentimentality was lacking this afternoon.

Perhaps the right hon. Gentleman no longer shares those views so eloquently expressed by the present Chief Secretary to the Treasury, the hon. Member for Gloucester (Mr. Diamond), in the debates on last year's Finance Bill. The Chief Secretary argued that a tax on tobacco had five times the effect on the elderly and the lower income groups that it had on the wealthy. On that question, the comment of the Chief Secretary was one which is particularly applicable to the Budget. Referring to the part of the Bill dealing with the increases in indirect taxation, he said: Part I of the Bill does nothing in terms of an incomes policy; nothing in terms of regional employment policy; and nothing in terms of national progress. It merely reveals the Chancellor's desire to have a final 'dig' at the worker."—[OFFICIAL REPORT, 7th May, 1964; Vol. 694, c. 1481–2.] It is interesting that within less than six months of taking office, the Government should be digging at the worker with greater gusto than ever before.

I had hoped that the President of the Board of Trade would have devoted more time to commenting upon our current trade figures. One of the most striking features of the Chancellor's speech was the contrast with the speech which he made last November, a very real contrast between the facts as now known and the predictions made by the Chancellor in his first Budget. There is a difference in the trading figures in the last three months, and the trading figures which we could reasonably have anticipated from the Chancellor's comments but five months ago. The recent figures not only show that the Chancellor's predictions last November have proved to be completely false; they also show that the predictions made by my right hon. Friend the Member for Barnet (Mr. Maudling) have proved to be completely correct.

In his Budget statement last November, the Chancellor said: There is good reason to believe that the charge on imports will yield a substantial saving on our import Bill approaching £300 million a year."—[OFFICIAL REPORT, 11th November, 1964: Vol. 701, c. 1028.] This statement can only be interpreted one way, to mean that the Chancellor believed that these items upon which the surcharge was imposed would be reduced by about £300 million a year.

We have now obtained the figures for December, January, and February, three months during which the 15 per cent. surcharge was in full operation. Indeed, one would judge from the announcement that the surcharge was to be reduced at the end of April that these months were months in which the surcharge was successfully in operation. But the facts presented by an examination of these trade accounts show that the predictions of the Chancellor that the surcharge would reduce our imports by £300 million a year have proved to be completely fictitious.

During these three months, the fall in our imports of manufactured goods and chemicals, the items upon which the surcharge was imposed, has been a fall over the previous three months of £22 million, £18 million of which is accounted for by the American dock strike. Instead of a drop of £75 million in a quarter, as one could have anticipated from the Chancellor's predictions, there has been a true drop of only £4 million. If one compares each quarter's figures with the similar quarter in the previous year, the figures are even more alarming. Rather than there being the fall in our imports of manufactures of which the President of the Board of Trade made such a great deal when he was on this side of the Committee, there has been a rise in our manufactured goods during the last quarter of £16 million. There has, however, been an improvement in our total import position, but that improvement has taken place not, as the Chancellor predicted, in those spheres where the 15 per cent. surcharge had been imposed, but in that sector which my right hon. Friend the Member for Barnet predicted, in the sector of raw materials and foodstuffs; in fact, in the sector where there had been stockpiling before the General Election.

Here the fall in imports is £45 million, compared with the previous quarter, and £67 million compared with the similar quarter of the previous year. In fact, the whole basis of the Chancellor's 15 per cent. surcharge has proved to be completely wrong in terms of the figures for the last quarter. This is because of one of the omissions which there were from the statements of the First Secretary of State and the Chancellor of the Exchequer during their first few months of power. If only the Chancellor had then claimed that our overseas investments had been built up to £11,000 million. If only the the Government had then made clear that much of the adverse balance of trade was due to stockpiling before the election. If only the Government had made clear that more than half of our deficit on balance of payments had been on capital account. If only they had then stated that exports were rising, imports were falling, and production and savings were at an all-time high.

Instead, they decided, for political purposes, to suppress these facts. How heavily they and the country have paid for this suppression. Yesterday, the First Secretary tried to argue that the Labour Party was unaware of the position. He and the Committee know that the country had been made aware before the election of the adverse balance of payments for the first six months of 1964 and of the adverse balance of trade for the first eight months of 1964. The policy which was being pursued was right, in accordance with the terms of the speech made by the present Prime Minister at Swansea, in January, 1964. When the Prime Minister stated categorically on 23rd November that the crisis had been a crisis of confidence, he was right. [An HON. MEMBER: "Read it."] Perhaps hon. Members would like to hear exactly what he said, because it is a very important passage, and is well worth repeating. What the Prime Minister said was: … in the course of the past week there has been this new development arising from confidence factors."—[OFFICIAL REPORT, 23rd November, 1964; Vol. 702, c. 933.] This is perfectly clear and, of course, we know what those confidence factors were. They were, first, the publication of the White Paper by the First Secretary; secondly, the pronouncements of the President of the Board of Trade and the Foreign Secretary in various places abroad; and, thirdly, the completely inappropriate inflationary Budget of the Chancellor. In fact, most of the inflationary tendencies of the last few months have resulted directly from the actions of the Government.

Yesterday, the First Secretary announced that he intended to send out 300 letters to leading industrialists about our balance of payments. This is not the first time that the First Secretary has embarked on a little letter writing. Hon. Members will recall that after a week of banner headlines stating that prices were rising throughout the country, the First Secretary made the dramatic announcement that he had been informed that prices were rising and that he would take action and write to some of our leading manufacturers and trade associations concerned asking them for an explanation of why prices were rising.

I recall listening to a news bulletin in which the B.B.C. announcer broke the news to the nation that a spokesman from the Ministry of Economic Affairs had stated that the letters would be sent out when they had been written and signed. What planning! We have never been informed of what replies the First Secretary received. Perhaps he would publish them. Perhaps he would tell us whether they informed him that one of the reasons for the increase in industrial costs had been the 6d. on petrol tax, that another reason had been the 7 per cent. Bank Rate, that another had been the 15 per cent. surcharge, imposed on many items of plant and machinery required for the modernisation of Britain.

Doubtless, if the First Secretary sends out another set of letters to the same industrialists they will now be able to supply him with some recent extra items, such as the extra burden of the motor licence duty on commercial vehicles, the elimination of the initial allowance on motor cars used by commerce and industry—an action, in effect, identical to the Chancellor increasing Purchase Tax by 10 per cent. on all cars used by industry and commerce—the increased postage rate, a further increase on industrial costs, and the increased National Insurance contribution.

At a time when it is vital for our industrial production to compete in world markets the Government have, within less than six months, burdened industry with the increased cost of transport, the increased cost of postage, the increased cost of borrowing money, the increased National Insurance contributions, and they have increased general taxation. What a way to help a great industrial nation to become more competitive!

Mr. Maxwell

Would the hon. Gentleman like to tell the Committee why the right hon. Member for Barnet (Mr. Maudling), when introducing his last Budget, made a promise to Parliament and the country that if action was required to correct his Budget proposals he would not hesitate to take it, that, first, he did not do so and—[Interruption.] I have two more questions to ask.

The Chairman

Order. The hon. Member for Buckingham (Mr. Maxwell) has made one speech. Many hon. Members want to speak, so he must make his intervention brief.

Mr. Walker

If the hon. Member for Buckingham (Mr. Maxwell) will read the White Paper prepared by his right hon. Friend the First Secretary he will see in it. that on 26th October, after the First Secretary had taken over his office, he stated that no measures of a deflationary type were needed in the economy. During only the last five months the measures we have had in this Budget have become necessary.

Do not let the First Secretary argue that the export rebate scheme will make up for all these increases. There is no rebate for the increased cost of postage or the increase in the Bank Rate, a Bank Rate that has been kept at 7 per cent. for twice as long as that for which my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) imposed a 7 per cent. Bank Rate.

I remember Lord Mitchison, the former Member for Kettering, in one of his many vigorous and attacking speeches, describing the 7 per cent. Bank Rate as "a vicious thumbscrew on British industry". Little did we realise that the upraised thumb to be seen on all Labour posters at the time of the General Election campaign was the thumb awaiting the screws of a 7 per cent. Bank Rate.

And as for the President of the Board of Trade saying that the Government will not embark on the deflationary policies of 1961, there must be many people who wish that he would, for my right hon. and learned Friend the Member for Wirral did not take £500 million in extra taxation. He did not impose a 15 per cent. surcharge or increase Income Tax. There are many things about this credit squeeze and this deflationary period which are far less attractive than those of my right hon. and learned Friend the Member for Wirral.

Mr. Jay

He succeeded in raising unemployment to over 700,000.

Mr. Walker

He also succeeded in tackling the problem in such a way that the Bank Rate could be reduced in 10 weeks and so that the whole of our overseas borrowings could be paid within 12 months. In circumstances such as these it is no use the First Secretary writing letters to which he should know the answers. The only difference between the 300 letters he now proposes to send out and the 300 he previously sent out is that this batch will cost him 33 ⅓per cent. more.

As to the increases in industrial costs, these could severely endanger the excellent export prospects which the Government inherited. I cannot help feeling disturbed by the report published on Monday by the Association of British Chambers of Commerce, in which, in answer to a questionnaire sent to its members particularly concerned with exports, it obtained replies showing that there had been a fall in orders during the past four months. It would be interesting to know how much of this fall was due to the inflationary effects of the actions of the Chancellor of the Exchequer. Although the right hon. Gentleman mentioned that the figures for exports to E.F.T.A. had improved, he did not mention—and I appreciate that statistical information here is not available—what happened to our orders in E.F.T.A. during recent months, remembering that this is different from the question of the actual deliveries which were made.

If one looks at the Government's actions on nearly all our major industries, one sees that they have had the effect of creating economic uncertainty. Agriculture is unhappier and more discontented now than at any time since the war. Many farmers are talking not in terms of expansion, but of getting out of certain forms of production. The coal, gas and the electricity industries are all in a position of uncertainty, awaiting the pronouncement of the Government's national fuel policy.

The steel industry stands in the condemned cell while it awaits nationalisation and the aircraft industry has been deprived of many of its major projects, or has had projects like the Concord frowned upon and belittled by the utterances of Government spokesmen; the transport industry has no knowledge about its future and the road haulage industry is uncertain whether it will be nationalised. Indeed, all our major and fundamental industries have been made unstable and uncertain by the actions of the Government.

The President of the Board of Trade was at least happy about one thing in the Budget. He expressed it at the beginning of his speech. For once, he rose to speak with a beaming smile and said how delighted he was about the taxation proposals of the Chancellor. Perhaps I should remind the Committee of the words used by the present Minister of Housing and Local Government, the right hon. Gentleman the Member for Coventry, East (Mr. Crossman), when, in writing about the present President of the Board of Trade, he stated: Somewhere in his breast there resides a masochistic passion for high taxation… I would expect, therefore, that such a masochist would praise the taxation proposals of this Chancellor.

I recommend both the Chancellor and the President of the Board of Trade to read the article written by tthe present Minister of Housing and Local Government when reviewing the President of the Board of Trade's book "Socialism in the Sixties", for, having referred to the right hon. Gentleman as a masochist and a person with a passion for high taxation, he went on to say—and this is important to note: But what if the capitalist refuses to lay his golden eggs as tamely and altruistically as the domestic hen. Labour Government that relies on taxation as its main socialising instrument will soon lose the confidence of the business community on which it relies". They were wise words, written by the present Minister of Housing and Local Government, and they should be heeded by the Chancellor and the President of the Board of Trade.

It is also vital that the Government should suppress their natural hostility towards the City of London. A study of the White Paper on the Preliminary Estimates of National Income and Balance of Payments, 1959–64, shows that for every £ we receive in visible exports we receive more than 10s. in invisible earnings. Year after year we have enjoyed a substantial surplus on our invisible earnings. Leaving aside Government overseas expenditure and receipts in each of the last six years, there has been a surplus of more than £400 million in our invisible earnings, which, in 1964, reached a record of £610 million.

The biggest single item of our earnings comes from interest, profits and dividends, built up by the major overseas investment that has taken place over the last decade and the second single biggest item comes from services, such as banking and insurance. I urge the Government to consider the proposal, so far rejected by the President of the Board of Trade, that a special council should be created on the lines of the export councils particularly to foster and help to develop those services that provide our invisible earnings. If the President of the Board of Trade decides not to follow this suggestion, I ask that he will at least give careful consideration to the possibility of co-opting on to the existing export councils one, two or three people representing the invisible earnings factor in those regions as well as the visible earnings.

In fairness to the right hon. Gentleman, I must say that we have already welcomed several actions he has taken to stimulate the economy. There is his introduction of the Monopolies and Mergers Bill—based, as it is, on the White Paper introduced by my right hon. Friend the Member for Bexley (Mr. Heath)—though we regret that it contains one or two items that a similar Bill presented by this side would not have contained. We welcome, also, the manner in which he is adhering to the Resale Prices Act. His conversion is understandable, because in terms of reducing prices this Measure has been much more effective than the First Secretary.

There are several other things that the President of the Board of Trade could usefully do to assist the economy. My right hon. Friend the Member for Bexley had done much to prepare for the introduction of a new Companies Bill, which could have a great effect on industrial efficiency because it would ensure that investors, creditors and the general public would be given fuller information about the activities of companies. But I must warn the right hon. Gentleman that if he takes this type of useful action he cannot expect to do particularly well in this Administration, because it is not action that has been at a premium with them, but public relations.

In this, the President of the Board of Trade is a long way behind the First Secretary. But I hope that he will not study the First Secretary's techniques, because then, instead of producing a useful Monopolies and Mergers Bill, he will doubtless gather together six of the leading practitioners of monopoly and, before the television cameras, get them to sign a declaration of intent.

It is action that is needed—action to be more competitive, and to provide a more efficient economy. The lesson that the Government should learn is that it is the competitiveness created by the Resale Prices Act that has brought down prices. The other lesson they should learn is that incentive is far more useful than punishment in stimulating production.

The Government have not only placed a heavy burden on industrial costs, but have also placed a heavy burden on the individual. There must be many a young scientist. technician, or business execu- tive who now bitterly recalls the flattering words spoken by the party opposite in the pre-election era. It was the young scientist and the young technician whom Labour was to encourage and care for when it came to power. We had the glowing words of the Prime Minister at the Labour Party conference in Scarborough, in which he stated: One message I hope this Conference can send out not only to those who are wondering whether to emigrate or not, but to those who have already emigrated is this. We want you to stay here. We want those of you who have left Britain to think about coming back. How different was that Labour Party conference message from the message that would now have to be sent by the Labour Government.

That message would now be, "If you have stayed in Britain, or if you have returned, we have increased your Income Tax, your mortgage repayments are higher than ever before, the burden of your rates will this year reach record levels, your petrol tax has been increased, your motor vehicle licence has gone up and the cost of living is rising steadily". The message they would now send to any British technician or scientist who may be working in the American aircraft industry would be, "Do not come back to the British aircraft industry. The British aircraft industry is coming out to you."

The Chancellor of the Exchequer (Mr. James Callaghan)

I congratulate the hon. Gentleman. As I take it that he is speaking for the Opposition, and not for himself, I would ask him: is he saying that in present circumstances the Opposition would not have increased taxation?

Mr. Walker

I shall give the same answer to that question as the Chancellor gave when he was on this side during our discussion of the last Finance Bill. What taxation is increased, and the nature of the taxation, is tip to the Government of the day to—[Interruption.] I say that if it were not for the crisis of confidence created by the right hon. Gentleman there would be no need for this increase in taxation. Not only have the Government failed the technicians and the young scientists and the young business executives, but—

Mr. Walter Monslow (Barrow-in-Furness)

Will the hon. Gentleman tell the Committee what assistance the previous Administration gave to industry and exports?

Mr. Walker

It would be a very long list, because the difference between a Conservative Government and a Labour Government—[Interruption.]—is that in the great majority of Conservative Budgets taxation has come down, whereas—[Interruption.]

The Chairman

Order. I must ask hon. Members not to interrupt from a sitting position. We all have the dignity of the House and Committee in our hands. We can hurt it.

Mr. Walker

One thing I can say is that the exports of the hon. Member for Buckingham (Mr. Maxwell) did rather well under a Conservative Government.

Not only have the young scientists and young business executives done badly under this Government, but they have also come across a Government who have been unwilling to create the type of economic conditions which these young business executives and scientists need to create the wealth of the country. I would say that the greatest con-condemnation of the Budget and of the Chancellor of the Exchequer were given in the Chancellor's own words. They were spoken in his Budget statement, in which, pathetically, having rejected the idea of improving investment allowances for new plant and machinery, he said: At the same time, it has been represented to me that, in order to foster modernisation and the growth of the economy. we need an incentive which gives a particular arid positive stimulus to the adoption of new techniques of production. I should welcome further discussion of this subject so that we can consider whether there are better ways of helping industry. I have set myself the task of looking into the whole question in the forthcoming year."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 257.] For two years the right hon. Gentleman was shadow Chancellor of the Exchequer, and for nearly six months he has been Chancellor, but he has devoted his time to the creation of a complicated Capital Gains Tax which does nothing to solve our immediate problems, and a complicated Corporation Tax which probably does positive harm. The subject that he has pushed aside and now tells the nation he is coming round to consider, the subject that is left to the future, is how to stimulate new techniques of production and modernisation. Socialism first, modernisation lagging a long way behind.

In their short period of office, the Government have not advanced to new economic frontiers. They have retreated to the old barricades in terms of international trade. They have retreated to the barricades of the 15 per cent. surcharge and reactionary taxation. At home, they have retreated to the barricades of the 7 per cent. Bank Rate, penal taxation and extension of nationalisation. To advance to new and exciting frontiers demands a policy that would arouse the bitter prejudice of the party opposite, for the policy now demanded is one of giving the maximum encouragement to the enterprise and initiative of the individual; and it is this policy that we shall apply when, in the near future, we return to power.

5.0 p.m.

Mr. David Ginsburg (Dewsbury)

It is a pleasure to follow the hon. Member for Worcester (Mr. Peter Walker) in his maiden speech from the Opposition Front Bench. I do not know quite what political significance we should attach to his arrival there. It is common knowledge that he was at a certain stage very close to the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). One wonders whether this means rather more Draconian economic doctrines for the Conservative Party in place of the more expansionist policies which the right hon. Member for Barnet (Mr. Maudling) used to advocate. Another intriguing thought that occurs to me is the hon. Member's opposition to the Common Market. He has arrived as an economic spokesman with the right hon. Member for Bexley (Mr. Heath). We will watch with very great interest to see how the doctrine of the Conservative Party on that aspect of policy develops.

We heard a very vigorous speech from the hon. Member, but I would urge him to verify his references a little more. According to him, everything the Government were doing was wrong. In particular, he took the most gloomy view of the surcharge on imports. He complained that the surcharge was very slow to bite. I urge the hon. Gentleman to be a little more patient and perhaps also to read an article which appeared last year in the Bulletin of the National Institute of Economic and Social Research on the Canadian import surcharges. That article showed conclusively that there is a long time-lag in the operation of the surcharge, but that when a surcharge begins to bite it bites very hard. I hope that my right hon. Friends will take comfort from this and can expect that the surcharge will very shortly have very significant effects.

The hon. Member indicated that the crisis with which the Government have been contending for the last six months was not so much a crisis on the visible account as a crisis on the invisible account, on the capital account, and that we ignored this fact. This criticism is rather rich. In over five years of debates in the Chamber we have spoken year after year about the weakness of the capital account and the weakness of the invisible account. My right hon. Friends need no defenders here. If the hon. Gentleman will study my own speeches over the last five years, he will find that practically every speech I made in an economic debate was devoted to an exposition of our economic weakness in this area. I said so again in November when we debated my right hon. Friend's first Budget.

On Tuesday the Chancellor of the Exchequer recognised that he had a very difficult task indeed. He had, first, to protect sterling and shore up the balance of payments. He had at the same time to maintain full employment and foster the modernisation of the economy. On the first score, the immediate defence of sterling, the signs are encouraging. The battle is on its way to being won. In the defence of the £ very harsh measures have had to be taken. Yesterday the right hon. Member for Bexley and today the hon. Member for Worcester have made great play with the Government's increases in taxation. The right hon. Member for Bexley said that we had raised taxes in two Budgets by £500 million. I do not know exactly how the right hon. Gentleman computed this figure, whether it was a gross or a net figure. It is worth commenting in passing that of the total amount which the State is taking away in taxation the substantial amount of £85 million is being returned to the community in terms of greater social benefits, of which my right hon. and hon. Friends strongly approve.

Let us agree that taxation has been increased in the Budget. Apart from the Income Tax, it has been increased by about £160 million. An increase of this character, whatever the private feelings of hon. Members opposite may be, was advocated by most responsible financial experts overseas and by financial journalists and experts in this country. Indeed, from my readings of the Press, my right hon. Friend the Chancellor of the Exchequer took a fairly low figure. In the Financial Times on Monday of this week both Professor Paish and Professor Kahn were advocating between £300 million and £400 million being taken out of the system. Therefore, I take it that the right hon. Member for Bexley and his supporters cannot seriously be suggesting in this debate that my right hon. Friend should simply have sat back and done nothing and left the gap on the balance of payments wide open without taking some drastic action. If the Opposition think that it was wrong to increase taxation and wrong to take action of this kind, they should say so. If not, their criticism of the higher taxation policy outlined in the Budget is naïve and irresponsible.

My right hon. Friend the Chancellor of the Exchequer is to be congratulated on his courage. He is also to be congratulated on the action he has taken to strengthen the capital account on the balance of payments. However, there was very little about that in the speech of the hon. Member for Worcester. It has been our capital account, quite apart from the visible account, which has been a source of weakness to the economy. As I said earlier, in the last Parliament I sometimes felt a lone wolf, if that is an appropriate metaphor, towards the Government of the day when I used to speak on this esoteric subject. I am gratified that at long last my right hon. Friend has taken action here. One of the things I used to advocate in the last Parliament was that an attempt should be made to strike a balance sheet from the point of view of the national economy and resources of the overseas operations of British oil companies.

Although I strongly support the action which has been outlined with regard to our invisible account, I still think there is much more room for further information and for further studies to be undertaken. For instance, the Committee may like to know that in 1960 United Kingdom subsidiaries operating overseas remitted about £72 million in dividends to this country. In 1964 those subsidiaries remitted about £103 million. So there has been an increase in dividends coming back from United Kingdom subsidiaries of about 40 per cent. In 1960 foreign companies operating in this country remitted £58 million. In 1964 those selfsame foreign companies remitted £94 million, an improvement of about 60 per cent. It is also worth noting that in 1960 both foreign companies operating here and British companies operating overseas remitted about 46 per cent. of their earnings in dividends to their home countries. In 1964 British subsidiaries overseas remitted 47 per cent.—virtually no change—whereas foreign subsidaries operating here remitted 57 per cent. Therefore, it can be said seriously and dispassionately that there is a very good case indeed for believing that not all British capital invested abroad is as efficient as it should be, and this is a very strong justification of some of the unpleasant actions which the Government have had to announce.

I should like to go further in this connection and suggest that the Department of Economic Affairs as well as the Treasury could look into this situation. It is necessary to look at it not just from an accounting point of view but also from the point of view of industrial efficiency. British investment abroad is highly desirable, but in conditions of operational efficiency. Without any doubt some valuable case studies could be undertaken.

Comparisons might be possible between the efficiency of British firms operating overseas and American and Swiss firms operating overseas and in this country. Much might be learned from such a comparison which would assist in securing more efficient overseas investment. We should not rely on fiscal measures alone to put this problem right. It is vital for the country in the long run to have substantial investment overseas, but it must be value for money to the economy of the country.

A second point arising from this is that the problem which we face in investment overseas pinpoints the vital importance of greater incentives for direct exports from this country. It may well be that it is easier to market abroad from a British subsidiary overseas, especially when tariff barriers are high. Nevertheless, the Committee and the Government should be under no illusion that to the economy, the balance of payments and the wealth of the country, direct exports from this country bring a far bigger return on sales than do dividends remitted in respect of sales by a subsidiary company overseas. If I am right in my diagnosis, the case for even greater exports overseas cannot be over-stated.

Therefore, while welcoming the recasting of the national tax structure which was outlined by the Chancellor on Tuesday, I should like the Chancellor and the Government to look again at two specific things—at the export rebate situation and also at the whole structure of indirect taxation in this country. The export rebate scheme was a very good move, but I wonder whether even at this stage it would not be possible to alter the basis of computation of the rebate. At present it applies to all exporters. Could not a base level for the rebate be introduced in respect of existing export performance and then where a company exports above its present level the rebate would apply, but it would be a very much more substantial rebate? If the Government considered doing this, the rebates could be concentrated intensively on what really matters, namely, new export business, which is what the country needs, and not be spread thinly over the whole field of our exports. I realise that this scheme involves administrative problems. Nevertheless I hope that my colleagues will look seriously at it, because I believe that it will provide a stimulus to greater exports which are still badly needed.

Are the Government satisfied that more could not be done to make the structure of indirect taxation more conducive to exports? The experience of the last Conservative Government showed that one does not make exporting easier simply by making the home market more difficult. The last Government and the former Chancellor of the Exchequer rejected the added value tax when the Report of the Gordon Richardson Committee was received. Nevertheless, I should like to ask the present Chancellor to use his ingenuity, whether in that way or sonic other way, so that a much greater reform of our indirect taxation system could be undertaken which would provide a much greater stimulus to exports than the present rebate scheme Provides.

On Tuesday the Chancellor said that he would not cut the foreign travel allowance, but he urged people in this country to take their holidays in Britain. Today I was very glad to hear the President of the Board of Trade refer to a perhaps even more important thing—the vital necessity of getting people from overseas to spend their holidays here. Quite apart from what we heard this afternoon, I suggest to the Government that there might be concessions to the foreign visitor in indirect taxation, which would not be any breach of any international agreement—they are given by some countries—and which would encourage more people to come to this country. This is self-interest. It is also important to stress that if we want to keep up the level of British travel overseas this is the most vital action that we can take to protect the foreign balance.

Once the country has won the battle for sterling—and the latest news about the reduction in the French bank rate is encouraging for us—it is vital to be sure that the economy is not being squeezed too hard, because without a buoyant economy we do not get the level of productivity increase which is absolutely vital for the British economy. I expressed some anxieties about the sluggishness of the economy in November and I was proved wrong, but the risks at this moment are probably even greater than they were in November. My own bias has always been that of an expansionist. I should therefore like to read two quotations in justification of the anxieties which I hold.

The first from the Government's own Economic Report on 1964 states on page 16: … while the growth of consumers' expenditure at current prices was much the same during 1964 as it had been during 1963, in real terms this represented a much reduced growth of expenditure. Perhaps surprisingly, consumers do not seem to have stepped up their money expenditure at the expense of savings in order to maintain, at least in part, the rise in the volume of their consumption: personal savings continued to be high in relation to this disposable income. There it is. Expenditure is not rising, perhaps, as much as one would wish.

My second quotation comes from the Bank of England Quarterly Bulletin of March this year, page 14: On the other hand, some doubts were being expressed whether the rise in retail sales —and the very high level of activity in the motor industry—would be fully maintained in the New Year. There was also still much uncertainty concerning the eventual consequences for demand and for business confidence "— of the measures which have been taken at the end of the year— Taken together, these measures constituted an appreciable deflationary force, the effects of which might become increasingly apparent as time went on. Both those quotations show that within the public service there is some concern not about the present level but about what may emerge for the future level of economic activity. The Chancellor was perfectly right to ensure that demand does not get out of hand, and he was morally right, therefore, to introduce tax increases. But equally one cannot be sure about whether demand will hold up sufficiently. I take my last quotation from a short report on the City page in The Times yesterday to reinforce what I am saying. The heading is "More Debts Overdue" and it is said: Who says the credit squeeze is not biting hard? Latest figures compiled by Trade Indemnity, leading underwriters of credit insurance, suggest that it is causing some sectors of the economy real hardship. A little later it is said: It serves to reinforce what has been proved often enough in the past"— this is what I emphasise to my right hon. Friend— that while the economy seems to operate very much as before during the early phases of policies aimed at disinflation, the delayed action effect can be severe when it eventually shows through. To sum up: in the medium term, the measures which the Chancellor and the First Secretary are rightly taking to streamline our taxation and industrial system will bear progressive fruit, but in the short run it is the Government's judgment of the level of economic activity which is vital. The Chancellor has a host of instruments at his disposal for giving relief to the economy the moment he decides that it is necessary so to do. I emphasise that a reduction of interest rates at the appropriate time could well be the most desirable development in a few months. It could stimulate demand, which may be necessary a few months hence, but equally important it would reduce the cost of servicing the National Debt. All I say at this stage is that, if there is any tendency—an eagle eye will have to be kept open from now on—for the economy to slacken off, the Chancellor should have the courage to act without delay just as he has had the courage in past months to act in defence of sterling.

5.23 p.m.

Mr. Ronald Buxton (Leyton)

I ask the House to show its usual indulgence towards one more maiden speech. It is rather difficult to be entirely non-controversial about a Budget, but I shall do my best.

First, a few words about my constituency, Leyton, which, as hon. Members know, is a suburb of northeast London. Quite a number of hon. Members visited Leyton during January. I am sorry that there was snow on the ground at that time and Leyton was not at its best. I hope that some of them will come again in May when the flowers are out, the gardens are blooming and the shrubs are in flower along the roads. Then they will see a difference. Leyton is a lovely place in the summer time.

The people of Leyton are well known throughout the country and, perhaps, throughout the world because of the sturdy independence of their views which they have expressed on several occasions. I have worked in Leyton for many years. I started there in 1947 as a civil engineer —I am a qualified civil engineer—and I have known Leyton very well for a long time. Last week, Leyton was involved in a shot-gun marriage when we joined Walthamstow and Chingford, finding ourselves no longer in the County of Essex but now part of the new Borough of Waltham Forest and starting off on our adventures as part of the Greater London area.

We cannot claim great natural beauty for Leyton. I heard one of my hon. Friends from Scotland making his maiden speech from this very bench not long ago and talking about the beautiful hills and valleys of his constituency. We cannot claim that sort of beauty for Leyton. Nor can we claim famous ancient monuments, although we do have a fine church dating from the sixteenth century and a Conservative club built in the seventeenth century—two ancient monuments worthy of mention. Nevertheless, although we can make no great claims to natural beauty or ancient monuments, we have a fine history which goes back to Roman times. The name Leytonstone reminds us of the stone set by the Romans on the edge of the marshes bordering the River Lea which marked the beginning of the Roman Road which went to Colchester. Throughout history, Leyton has played a part. King Harold had land there, and other famous people have been connected with Leyton.

One hundred years ago, my constituency was just two villages set in the fields near the River Lea. It was a popular place to live. There were fine houses in Leyton, and the City merchants used to journey by carriage day by day to and from their businesses in London. My own grandfather was one of these. He lived near Leyton Church and he used to travel daily to and from the City brewery business in which he was a partner. I have that family connection. Later on, after the railway came, the villages were built up and, gradually, they came together in one entity to form the town as we know it today. Curiously enough, some of the older folk still living in Leyton talk of the rivalry between the two villages which used to prevail 100 years ago.

We have a certain amount of industry in Leyton, not so much large industry but small and medium-sized companies which work away and are very keen to export. They are very active now in trying to arrange an export council. My own company, a medium-sized engineering company, is one of these.

We are proud of our borough services. Our library is one of the finest in the London area. I am sorry to say that, since our amalgamation, the rates are now the highest in the Greater London area; but, never mind that, we get fine value for our money. I should mention also our well-known football team. Leyton Orient has done sterling work in the past and, even if it is at the moment not at the top of the league, it is struggling very hard and will, I am sure, come up again before very long.

We have one great disability in Leyton, the high average age of our people. Next to Worthing, Leyton has, I believe, the highest average age of population. Some statistics are available and these show that there are 16,000 people of pensionable age in my constituency out of a total electorate of 66,000, that is to say, 25 per cent., which is a very high proportion. Whether or not it is due to the great longevity of our people in Leyton or whether it is that old Leytonians do not like to leave when they retire from work, the fact remains that the problem is becoming serious, and this is why I shall devote a later part of my speech to the position of pensioners and old people generally and the impact of the Budget upon them.

I wish to refer to my predecessor, who now serves with distinction in another place. Lord Sorensen was connected with Leyton for a very long time. For 32 years he served as Member, first for West Leyton and then, when the constituencies were combined, for Leyton. Over all those years, he and his wife became associated with practically every aspect of the life of the borough. Lord Sorensen was a Minister of the Unitarian Church before becoming a Member of Parliament. He had a burning zeal for social service and worked in very many social service activities, as hon. Members will remember.

Lord Sorensen's other great interest was the under-developed countries. During his Parliamentary career he paid many visits to Africa and India in the course of Parliamentary business. He was a member of the Pethick-Lawrence Commission which laid down the terms of reference for the granting of independence to India. He served with distinction on that body. All of us, I believe, welcomed the honour bestowed on Lord Sorensen in November by the Prime Minister.

As I have said, we in Leyton face the problem of a rising average age. This problem will perhaps occur all over the country in a few years' time. The pattern set in Leyton may well be followed throughout the country. Whatever has been done by the Budget for pensioners, I am sure that hon. Members will agree that they are still among the worst off people in the community.

It is true that pensioners had a rise the other day. Some have called it the "Irishman's rise", but that is not altogether true. They are still among the worst off members of the community, however. The Chancellor said in his statement that he hoped that we would soon achieve a modest living for the elderly. At the moment, I believe that it is very modest and for some it is really hard living.

It is true that the Budget gives some tax relief to pensioners and we are glad to see them. On the other hand, they will have to pay more for their tobacco and beer. On the whole, I do not believe that their position has improved. I am sorry that this should be so. Perhaps next year they may be luckier.

We are providing quite a lot of extra money for the new pension increases. The sum being provided for the latest increases is £270 million, and in order to meet that cost the National Insurance Fund is being increased by £332 million. It is worth noting that, out of that £332 million, the sum of £265 million comes from extra contributions. Indeed, the extra contributions will, at this early stage, though not later, pretty well meet the outgoings of the new increases.

The Exchequer will be playing its part according to the laid-down formula and this will come to £67 million in the current year. Thus, the National Insurance Fund for the time being will be £60 million better off. I would have hoped that, with so much surplus money, some of it might have been put aside for those elderly people who do not receive any pension at all. I want to talk about them a little later, as their need is very great and I hope that it will soon be recognised.

The 6d. extra on the Income Tax was to help towards the pension increases. It is worth noting that 6d. on the Income Tax yields £130 million—more than double the amount being contributed to the Fund at the moment. There is, therefore, a sum of money that we could use perhaps for those elderly people who are not receiving benefit at the moment. The total Exchequer contribution for 1964–65 towards the National Insurance Fund was £212 million. Let us compare that with some other figures. Defence takes over £2,000 million; education, another social service, takes £1,365 million. The total Exchequer revenue is £7,400 million. These are tremendous sums of money, yet only £230 million is the Exchequer contribution to the National Insurance Fund.

Surely we are guilty of being too mean towards elderly people, those who are least able to fight. The £212 million provided by the Exchequer represents only one-sixth of the total available in the Fund. The rest, £1,000 million and more, comes from the contributors to the Fund. The Treasury, in fact, just primes the pump which produces the money from the contributors. Yet, as so often seems the case, it is the Treasury which calls the tune over pension increases.

I am not sure that this is right. With their huge contributions, the electorate and industry should have a chance to call the tune of raising pensions. It is really a case of the tail wagging the dog at the moment since the Treasury produces only one-sixth of the amount but seems to keep the level under strict control. I believe, however, that the national, conscience is being stirred. It is time that we had a reappraisal. The standard of living of our pensioners should be raised above the breadline. They are, perhaps, the weak link in our chain of social services.

Perhaps, if the Treasury cannot be more openhanded, the contributors can be called upon to bring pensioners to a high level. Pensioners look for security, but there are absurd flaws in the scheme. There is no built-in protection against inflation. There should be safeguards against depreciation and devaluation of currency.

So often, increases are linked to political rather than economic events. Party manifestos or general elections are more likely to be the signal for pension increases than budget surpluses or satisfactory balances of payments. I hope that this concept of political considera- tions in pension increases will die and that we shall be able instead to provide a long or medium term plan for the improvement of the position of our old people.

There are, I believe, two factors to be considered for the future. First, we want to provide some form of built-in security against inflation so that there is protection against what happened in 1948–51, when the value of the low pension of 26s. went down and pensioners were left worse off. Secondly, I believe we should have some way of linking increases in pension to average earnings in the country. Today, the average earnings total £17 10s. How small £4 a week seems in comparison with that.

We should aim to increase the percentage of what pensioners get compared with average earnings. Instead of being about 25 per cent. as now, it should rise to one-third or to 35 per cent. and we should make a long-term plan with this in view. I am sure that the country would respond if the Exchequer took the lead with a plan, along these lines, to provide pensioners with the security they look for.

In the short-term, there is the case of those without pensions at all. Pensions are a question of priorities in providing money from the Exchequer for so many people. But here, surely, is a case which deserves special consideration. The cost would not be too high. Out of the 6d. on Income Tax only 1½d.would be required to provide a modified pension for these people. They were disappointed on 26th March and I hope that very soon, whichever way it is done, whether by an incomes guarantee or whether provided by the Opposition, if they return to power, something will be done to provide reasonable pensions for them.

They, above all, are the victims of inflation. Many of them saved up for their old age and invested their money, some before the war in War Loan and others in Goverment stock, yet others in National Savings. All these have suffered severe depreciation and the earnings that these elderly people put on one side for their old age have so often been reduced in value.

Today, the young seem to have tremendous opportunities before them, opportunities for enterprise of every sort. But the elderly have little opportunity. They have the growing hardships of old age, the problems of failing health and perhaps the expenses of an invalid partner to look after. Perhaps they have a family which does not accept the responsibilities towards its old people which the older generation used to accept.

In London, of which Leyton is a part, the problem is greater because of the higher cost of living for these people and the higher rents and the higher expenses with which they have become involved. Some of the progressive boroughs could help a lot if they would compile registers of elderly people so that the aid available, both municipal and private, could be canalised directly to them. We might inaugurate a national senior citizens' day rather like Mothers' Day or Fathers' Day, so that the attention of everybody could be directed to their needs.

Last year's Budget resulted in a surplus of £440 million. The Treasury is overflowing with funds and yet all the nation is spending on the elderly out of the Exchequer is £270 million, less than 3 per cent. of total revenue. Year by year the number of pensioners increases. It is now 12 per cent. of the population and in a few years it will rise to 15 per cent. and possibly more. I believe that we can do more for our old people. I am sure that we are not spending enough on them and that what we are spending we are not spending right.

I hope that when he prepares his Budget next year, the Chancellor of the Exchequer will be able to save something more for the old people. I hope and trust that those outside the scheme will be brought in and that those in the scheme will be given an assurance that the promises of the politicians will, in the long run, be translated into reality.

5.42 p.m.

Mr. G. A. Pargiter (Southall)

It is a long time since I had the pleasure of immediately following a maiden speech and having the opportunity to congratulate an hon. Member, as I now congratulate the hon. Member for Leyton (Mr. Buxton) on his speech. When he rose, I wondered what sort of non-controversial speech one could make on a Budget. I admired the subject he chose, medieval Leyton, leading up to old people, and so on. Had I closed my eyes, I could have thought that the speech came from behind me instead of from in front of me; and no one can claim that a speech is less controversial than that.

I appreciate the sincerity with which the hon. Gentleman spoke on behalf of old people, not only in his constituency but everywhere. They were sentiments which were echoed everywhere in the Committee and might have been echoed by the then Government at any time during the past 13 years. They failed to do so, but, although I remind the hon. Gentleman of that, there is no reason why he should not prod the present Government into doing something. We shall listen to him with great interest, especially on this subject. I hope that he will return to it.

I have been interested in the condemnation by some hon. Members opposite of the Chancellor's taxation proposals. Their speeches have singularly lacked any alternative. The alternative to increasing taxation is to reduce consumption or reduce expenditure, and I challenge right hon. and hon. Gentlemen opposite to say precisely what expenditure they would reduce if they would not increase taxation. I recollect that the contribution of the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) was to increase unemployment to 700,000. I agree that that is a contribution to reducing expenditure, but if hon. Members opposite want to try that sort of solution again, they ought to have the courage to say so, rather than simply criticise what the Government are doing to provide a balanced economy.

From hon. Members opposite we hear the cry that the Government have increased taxation. We are now suffering the sins of commission because of the sins of omission by the previous Government over the past two years, when they knew that the condition was building up and yet completely failed to deal with it. They had no intention of dealing with it until after the election. Conditions got worse and worse until we had a deficit bigger than any we have previously known. That is the situation which the present Government now have to put right.

When hon. Members opposite talk about what they did to reduce taxation, we can all recollect their techniques when they were in power. They increased taxation between elections and reduced for the purposes of elections. They have done that consistently for the time that I have been in the House, and I have heard Budget statements for 20 years. The present Opposition have never had much alternative to taxation when it came to trying to balance the economy.

This afternoon we heard about the emigration of the young scientists. One would suppose that coincident with a Labour Government there has been an emigration of young scientists, but there do not appear to be any figures to show that emigration under the Labour Government has been any greater than under Tory Governments. The bone of contention between us was that we said that it was Tory policies which led to emigration—the failure to provide opportunities, and so on—much more than is the case under this Government, so that this charge falls rather flat.

Mr. R. Gresham Cooke (Twickenham)

The hon. Gentleman should have read the newspapers this morning when he would have seen that the queues outside Australia House for emigration were longer than they have ever been.

Mr. Pargiter

I think that it will be found that the total numbers will be no greater than on previous occasions. I commend to the hon. Gentleman the final figures of emigration compared with those for when his party was in power.

The challenge we make is to ask hon. Members opposite what they would do if there were not an alteration of taxation. What would they do without as an alternative to what the Government propose? Yesterday, in his condemnation of the Chancellor's proposals for alteration of the tax system for company profits, we heard the right hon. Member for Bexley (Mr. Heath) say that in view of the tax proposals boards of directors would be more concerned with looking at their capital structure than with improving the efficiency of their organisations.

That was one of the most damaging comments which I have ever heard from the Tory Front Bench. It is an incen- tive to boards of directors not to bother about the efficiency of their organisations, but to take a careful look at their capital structure to see how they can legally avoid paying tax. That was the implied suggestion. It is regularly implied and there is nothing new about it. It is virtually what the right hon. Gentleman said.

Mr. William Clark (Nottingham, South)

I am sure that the hon. Gentleman means to be fair to my right hon. Friend the Member for Bexley (Mr. Heath), who said that, in view of penal taxation, more and more professional man hours would go into trying to find loopholes through penal taxation. It had nothing to do with the lack of efficiency in industry.

Mr. Pargiter

The right hon. Gentleman said that they would be doing this rather than attending to the efficiency of their industries. He used those words and the hon. Member can read them. If half the brains and intelligence employed in the City and elsewhere in looking for loopholes in the taxation system were applied to securing a more efficient economy, we would be in a far better position.

This is beyond question. We saw in the Press yesterday that somebody had thought up the ingenious loophole that he would be willing to fly foreign visitors here so that he could sit in on company lunches. This is the type of mind which goes into the question of how to avoid tax rather than honourably meeting it.

It is suggested that tax is such that it tends to increase costs. I have been in industry for a long time and know that it is inevitable that from time to time costs increase. The first thing which the sort of organisation with which I have been connected considers is whether there are ways and means of absorbing increased costs. The challenge of increased taxation, or any other form of increased cost, when methods are improving every day, is to see how we can overcome increased costs rather than say that prices should go up.

We have been living beyond our means, and we must get within our means. This must essentially be a challenge to industry which I am satisfied, in spite of the prognostications of right hon. and hon. Members opposite, is, in the main, willing to try to meet it, and it will get what assistance is possible from the Government to meet it.

Those are my general observations. There is one specific matter which the Chancellor of the Exchequer mentioned in his Budget to which I want to refer, and that is the Public Works Loan Board and its operations. I welcome very much my right hon. Friend's decision to increase from 20 to 30 per cent. the borrowings which local authorities can make from the Board. This is not because the interest rates are all that much lower. They are a little lower, because it is an easier way of borrowing money than waiting for the market or going to the market.

There are many problems facing local authorities in borrowing money. They go back, in the initial instance, to the period when the Conservative Party was in office and the decision of right hon. and hon. Members opposite to drive local authorities into the open market. They prevented local authorities from having the benefit of the facilities of the Board by saying that it was their job to go into the ordinary money market and that it was not the Government's job to provide money for local authorities for their social services. It was a deliberate act on their part, because it was far more profitable to the City that local authorities should go for their money to the City than to the Board and have the advantage of the credit and facilities of Government borrowing.

Local authorities could not all get into the market at the same time because of difficulties about which everyone Knows—the necessity to queue to get into the market and the shortage from time to time of mortgage money, and so on. Local authorities were, therefore, unable to get money, and were driven into the short-term money market in order to finance their ordinary day-to-day operations. That situation continued up to the present time. Now, many local authorities, because of their inability to get into the money market and because they cannot get enough money from the Public Works Loan Board, are paying very nearly 10 per cent. for day-to-day money.

This is an extraordinary and alarming figure. This is the figure which local authorities are having to pay for the purpose of running their social services. This is not unconnected with the rise in rates. It is certainly time that the Government did something about this, so that local authorities were relieved from the need of going into the money market and borrowing short money at this rate. What incentive is there for anyone with money to invest to put it into long-term investment if he can get nearly 10 per cent. on day-to-day money? It is much more profitable for people to invest it long at 6 or 7 per cent., or even more. With the best will in the world, local authorities are unable, because of the need to queue up before issuing stock, and so on, to get into the market for anything like the amount of money required.

The Chancellor of the Exchequer has decided to increase the availability of the Public Works Loan Board to the extent of 50 per cent. of the requirements of local authorities in certain areas with the intimation that, at some time, this will be available to the whole country. I ask my right hon. Friend to consider the desirability of making this available to the whole country immediately, because there is a very urgent need to deal with the question of short-term money and to get local authorities out of the hands of the short-term market. It will always be convenient to go to the short-term market for certain money, but if the figure reaches unhealthy proportions it is not good for the taxpayer or the ratepayer. It is certainly not good for the ratepayer.

I recognise that my right hon. Friend is making a start in this respect, but it is by no means enough. There is a need to do more. Equally, there is a need for it not to stop at 50 per cent. But if the necessity for local authorities to borrow short-term money continues, I would ask whether they might be given the advantage of short-term borrowing through the Government or Government agencies—perhaps through the Public Works Loan Board—rather than be at the mercy of the money market. That is, perhaps, the main burden of my argument.

I congratulate my right hon. Friend the Chancellor of the Exchequer on his Budget speech. As I have said, I have sat through many Budgets during the 20 years that I have been here. Whether one liked the Budget or not, it was one of the most lucid that I have heard during the whole of my time here. I hope that the measures which my right hon. Friend has proposed will be carried through and that they meet with the success that they deserve. I hope that we shall hear less of the carping criticism of the taxation proposals concerning companies and that we shall in future be able to enjoy some degree of confidence.

I should like to say something about gilt-edged. I should have thought that people who bought gilt-edged as an investment with the idea of holding them to maturity, and who are content with a relatively modest return on their money, with possibly a 2 per cent. capital appreciation—it is seldom very much more at the time of maturity—might be treated differently from those who gamble in gilt-edged. There are many institutions which buy and hold gilt-edged, and I hope that the Chancellor of the Exchequer will consider this matter again with a view to seeing whether he can give them some encouragement, not to gamble in, but to hold, gilt-edged, because this must make for greater stability of the nation's money which is constantly being turned over at the behest of the City.

I am grateful for the opportunity to congratulate the hon. Member for Leyton on his maiden speech, and I thank the Committee for listening to my remarks. I hope that the Chancellor of the Exchequer will consider the two points which I have put to him.

5.58 p.m.