HC Deb 17 December 1948 vol 459 cc1594-616
Mr. Speaker

In view of the fact that the hon. Member for Central Bradford (Mr. Webb) is unfortunately incapacitated, it would be more convenient for him if he were allowed to deliver his speech sitting, and accordingly I give him that permission. Might I also appeal to hon. Members, as we are seriously over running our time, to be as brief as possible.

2.56 p.m.

Mr. Webb (Bradford, Central)

Thank you very much, Mr. Speaker and the House for the indulgence you have accorded to me. I do not like to impose on the House, but two nights ago I had rather a nasty fall, and it would be better for the subject to which I want to address myself, if I tried to do it sitting. I hope it will not do any damage to the dignity of the House, and I will let hon. Members, who want to follow me, know when I am likely to be "sitting down."

I do not think anyone would want to apologise for raising the subject which I am about to raise today. All of us whatever side of the House we sit on, including the Government and particularly the Government, must understand that this is a matter of serious concern to all the people we represent. I am grateful, Mr. Speaker, to you for calling the subject and to my hon. Friend the Economic Secretary to the Treasury for coming along to reply. We require much more time for probing this subject today than we have got, because it raises wider consideration including the whole consideration of the Government's economic and financial policy. I am afraid also it raises considerations involving legislative action, and as we are on the Adjournment, I would be out of Order in going into those. Therefore, there will be some unbalance in my constructive proposals, but I cannot help that because of the rules of Order.

First, I should like to make it clear, since I raised the question of the cost of living publicly, that I have in no way set out to disrupt the general framework of the Government's policy. I believe it would be quite reckless to destroy the basic principle on which this Government is trying to secure the economic solvency of this nation. By trying to wreck those proposals we would serve no purpose other than that of wrecking any hope of achieving solvency within a measurable period of time, but my concern, accepting the broad purpose of the policy on which the Government are now proceeding, is to find some practical way within that policy for, at least, easing its harsher effects by making it more equitable in its consequence. We have seen its effects since about April last. We have seen our economic system, much more disciplined and much more taut, effectively co-ordinated and organised, and we have been able to measure the impact of that very successful operation upon the lives of our people. I believe it has disclosed some degree of inequity and it is our duty, without trying to disrupt the purpose and the consequences of the plan, to consider that inequity, and, if we can, without damaging what we are trying to do, to put it right.

I recognise that we cannot as a nation consume all that is available to us. We have the needs of our export drive, which are inescapable needs; we have the needs of the capital programme, which are equally inescapable needs; and we can only enjoy as a nation in consumption goods what is available to us out of our collective resources after we have dealt with the export programme and with the capital programme. We must recognise that that means going without and it means hurting our people. I do not need the strictures of the "Economist" or "Investors' Journal" to prove that. But this is my complaint and it is a very important complaint—so long as we are trying to reduce consumption by stiffening the price, as we have been doing, we cause a situation in which some of our people are not going without enough and other people are going without too much. That is the whole point of my complaint, and it is on that that I base what I have to say this afternoon.

The serious thing about it is not so much the inequity of it, though that is serious, but because it threatens the success of the whole Government's programme. I do not believe that the Government disinflationary programme can be carried through to effective and final success, and bring us solvency unless we deal with this problem of the cost of living. The "Economist," a newspaper which has had a lot of harsh things to say about this, and economists as a whole cannot assume that it is enough to draw up some sort of statistical balance sheet and prove that it is impossible to modify the balance. We here have to consider the effects of the plan upon our people from the point of view of the ordinary people, who have to work for the life of this country.

If we are mobilising this nation to secure solvency, we have primarily to consider how far our people can go, how they can fulfil what they undertake and their general morale in this situation. There are laws which we have to consider, just as much as we consider the economic law—laws of human justice, human equity and above all, the physical laws of human ability to sustain undue physical burdens. That is what I am concerned about at this time.

If the Chancellor is to succeed in reaching solvency by 1952—and that is the year he has put himself—he must do two things. First of all, he must get greater output from the workers, and, above all, he must prevent any resumption of wage demands. His plan is threatened on both sides, because of the excessive cost of living. In the first place, the excessive cost of living arouses a sense of inequity and that sense of inequity will lead, before very long, to an inevitable upsurge of fresh wage demands. If that comes, particularly in the textile trade which I know very well, it is bound to have effects on other costs—the costs of clothing and so on. Once again we shall be involved in a rising spiral. Therefore, in facing the danger, we must see where the risk of inflation lies. It does not lie in giving the lower income groups more cash to spend or by easing the burden through cutting prices. There is no real risk of inflation there. The only danger is that the Chancellor's policy, which in every other respect I regarded as admirable, is in danger of an unanswerable outbreak of fresh wage demands in the very near future.

Let us agree that the Government have done much to restrict prices. The Opposition's attempt to raise prejudice on this score will not bear examination. I hear it said that the cost of living today in the country is due to Socialism but it is a very small dose of Socialism which has brought about that increase. There is very little Socialism in America and America is constantly presented to us as a highly successful private enterprise country, but the increase in the cost of living there is immeasurably greater than it is in this country. Any such inflation as there has been in this country has not led to the catastrophic increase in prices which we have seen in other countries, largely because of the effective measures taken by the Government. We must say that because it is a very relevant and important part of the picture we are trying to draw.

While we give all credit to the Government for what they have done, it is clear that they must now do more to secure a drop in prices—not just to hold them and maintain them stable where they are—if they are to get their policy through to success. As I have said, the policy of disinflation must hurt people, but this House must be sure that it hurts the people most able to be hurt and does not hurt the people least able to be hurt. The lower income groups are not all in the working class; there are sections of the working class which, I am bound to say as a result of the enlightened policy of the Government, are much better off than they have ever been. There are sections of the working class in which wage increases have not kept pace with the increased cost of living and sections of the middle class with fixed incomes who have not been able to deal with their excessive costs. However, my inquiries show that the lower income groups, whether they be in the working class or in the middle class, are now having to do without to a greater extent than is the case with those in the higher income classes.

I am glad to say that the Treasury asked me for copies of the family budgets which I secured during this investigation, and they are now being analysed. I hope that my hon. Friend the Economic Secretary to the Treasury will look at the results of that analysis. They are most revealing. They show the grave human effect of this, and the House would be failing in its duty if it did not consider it. That is the purpose of this Debate. There is a disparity between different sections of the community in carrying the burden of disinflation. Indirect taxation grossly aggravates that disparity. The Beer Duty, the Tobacco Duty, and the Purchase Tax are examples of that. I cannot go into the Beer Duty or the Tobacco Duty because that would involve legislation. The Purchase Tax is different, and I will come to that before I—I was going to say, sit down—shut up.

What do I suggest? First, I want the Government to restrict consumption by rations and quotas instead of prices. That is fundamental. We were successful in our policy so long as we kept to that, but in recent months we have shown a tendency to get away from it, and in so far as we have gone away from it, we are making a mistake. I am quite apprehensive—many hon. Members on this side of the House share my view and the Government would do well to note it because we are very much behind the Government in all their work and we do not speak irresponsibly about these matters—about the recent removal of controls and the promised reduction of quotas which was threatened in a Sunday newspaper last weekend. We shall want to inquire very fully into the effect of such removals when they come along.

Does it mean that by again abandoning quotas and price control, and by stiffening prices, we shall place a greater burden on the lower income groups in the business of restricting consumption? It should be possible to get consumption within the limits of what we can afford as a nation in the light of our very restricted resources simply by seeing that materials and manpower are not used improperly. The whole apparatus of our controls and economic organisation should be effective for that purpose. That is my first point.

I want to see a much more stringent limitation on profit margins. Here is a field which, in my view, urgently needs re-examination, particularly on the distributive side. When we look at the profits of such firms as Woolworths, Marks and Spencer and firms similarly engaged in the distributive side, there is a prima facie case for cutting the final price to the user. Surely, there is room for inquiry and action to at least make some sort of observable reduction of price to the final user. The whole business of getting goods from the maker to the user is wholly uneconomic and indefensibly expensive, not only in terms of money, but in terms of the gross misuse of resources and manpower, and it requires urgent examination. I think also—and the Government recognise this, because they have done so much in this field—that there must be more efficiency in the field of distribution. While it is important to bring about a considerable reduction in final costs, we must make sure that trade rings do not exploit such economies to enhance their profits instead of cutting the prices.

I come back to the immediate situation. So much of what I have said is a long-term business, and I do not want to under-estimate what the Government has already done, but I do want to remind them of the importance of these considerations. What is it that the Government can do now? I want to see something done, as it were, to prime the pump that would draw off excessive prices, and I believe that the only means available to the Government capable of doing the job is the instrument of indirect taxation.

I can only mention the Purchase Tax, because it is the only one that is subject to Order and not to legislative action. I believe it is an inflationary tax. I have never liked it, but I have put up with it because of its advantages in the situation in which we find ourselves. Now that that situation has very considerably changed, and it is to this changed situation that I am drawing attention, let us consider the impact of the Purchase Tax. I believe we should cut it out on all household and personal necessities and should pile it up considerably on all non-necessities and luxuries. The whole thing should be most carefully overhauled and re-applied. I believe that, in the end, the amount of revenue might not be much different, but that the consequences of the change, in its effect on the life and wellbeing of our people would be considerable.

I do not want to go on, because you, Mr. Speaker, have asked us to be brief, and other hon. Members wish to speak. I have tried to sketch the general picture, and I would emphasise, in conclusion, that I do not believe that this proposal in any way involves going back on the Government's plan. That plan must primarily depend upon effective control to keep consumption down to the proper level, but I would warn the Government. I think the House will agree that I do not speak rashly, but that I am seriously concerned about this matter, representing a textile constituency which has to carry a very heavy burden in responding to the demand to meet our desperate needs, and in which the average household income is, for the greater part, below £5 a week. I am deeply conscious of the facts concerning the lives and interests of those people who are working hard to produce the clothes which we need for home and export.

I warn the Government that there are already signs of incipient industrial unrest unless this problem is faced. I believe that the Government's overhaul plan involves a reduction in prices as being just as important as the freezing of wages. On every other side we have done well, but, on this side, not as well as we ought to have done. It is because I want this plan to succeed, and because I believe it will not succeed, but will fizzle out in all kinds of serious situations, that I ask the Government seriously to consider the plea that I make and to apply their minds to the problem of cutting prices.

3.15 p.m.

Mr. Spearman (Scarborough and Whitby)

The hon. Member for Central Bradford (Mr. Webb), whom I could describe as my hon. Friend in any other place but this, has put forward his case in a skilful and moderate manner. I think he will agree with me that it is only possible to skim the surface of this subject and I hope it will be possible to go over it at much greater length another time. I thought the first portion of the hon. Member's speech consisted of pious platitudes of what he would like to see and the second part of entirely impracticable remedies. Does he not realise that if purchasing power is released on a large scale by reduction of taxation, that money is going to press on other things and force up other prices and thereby undo the very advantage he wishes to get? That is going to raise the cost of living.

The hon. Member suggested that that should be dealt with by controls. Surely our experience of the last three years has shown us clearly that suppression of inflation by controls is disastrous. It distorts men and material; if there is more money to be made out of making things which are not controlled, men and material go there, thereby creating shortage of necessities. In America we have seen inflation take place without these disastrous consequences, because it is not suppressed in this unhappy way. The hon. Member referred to profit margins. I should be pleased to see them cut down, but the only way to cut them down is by competition, and the controls which he is advocating are those which prevent proper competition. I have no doubt that many industrial companies today are making far wider profit margins because they are protected by the fact that other people cannot come into their field.

Mr. Webb

I mentioned the distribution side. Surely there is effective competition there. There is the widest possible competition between the different firms I have mentioned, but that has not served to bring down prices.

Mr. Spearman

In the short time at my disposal, I cannot go into the whole point, but I say that, generally speaking, the very controls the hon. Member is advocating, cause the prevention of competition, and that must be recognised. Of course, prices have risen a lot in America. Profits have risen rather more and wages have risen a great deal more. Consequently, in that country, in spite of rising prices, all except the very rich are far and away better off than ever before. Our own difficulties about food are not caused because Americans are eating a great deal, but because the poorest sections of Americans are able to buy more expensive food such as meat, eggs and butter than before.

Sir Arthur Salter (Oxford University)

And there is the fact that production in America has almost doubled since before the war.

Mr. Spearman

I am very glad that the right hon. Gentleman brought that out. It illustrates my point that where there is no attempt to suppress inflation by controls, production can expand far more. I suggest to the hon. Member for Central Bradford that, whereas I entirely sympathise with his anxiety on this question, as we all do, in order to get it into the right perspective we should remember that at the present time between two and three times as much is spent on alcohol and tobacco as on rent, rates and water. When one remembers that that enormous amount is spent in this manner, it gives a slightly different outlook on the hardship involved. It cannot come entirely out of the rick, because the amount spent on tobacco and drink consumed is about four times the net available income of those who have a gross income of £2,000 and over. That, of course, does not mean that I do not entirely sympathise with the hon. Member's point about the danger of inflation. In the first stages it produces hardship and distorts production, thereby making the situation worse. In the second place, it could lead to general disaster and the least deserving part of the population might make a fortune on the way. There is no easy way out. We only have to look at the net amount left to Super Tax payers to know that there is no short cut. We all have to go without if we are to get rid of inflation.

There are two cures. One is to expand production. We cannot do that unless we have a better supply of stocks, a better distribution of labour and materials and better machinery. All that means going without for a bit. The other alternative, apart from expanding production, is to reduce consumption. That means either higher taxation or higher prices or cutting Government expenditure, and if the hon. Member was talking about the latter, of course I would entirely agree with him, but he omitted to refer to that. What I would emphasise is that higher prices are not the cause of inflation. They are the result of it. They are, as it were, nature's remedy. They are like a man who has measles and has spots on his face. The spots do not cause the measles; they are the inevitable consequence of the disease. Those remedies are the best way out of the difficulty if we do not have higher taxation, to which there is a limit, or a reduced demand through economies in Government expenditure.

Mr. Webb

The hon. Gentleman has addressed himself very intelligently to this problem, if I might say so, but he left out one point which I mentioned. What are his views on the possibility of getting some reduction in prices by better rationalisation on the distributive side of our economy?

Mr. Spearman

That is another subject altogether. It is an immense field. There is nò question that there is not one solution which could put the matter right by itself. It can only be one of many solutions.

In a way, I am in the slightly uncomfortable position of trying to defend the hon. Gentleman's Government against himself, but let me say how strongly I feel that there is no failure which the Government have made so great or so disastrous to the country as a whole, as their failure to get a balance between supply and demand. The Government often talk a great deal about planning, but to my mind the fundamental plan that all modern governments ought to accept is the necessity to balance demand and supply so that we get neither the evils of inflation nor of deflation. The Government have failed to do it partly because they have not enabled production to increase as much as it could, and partly because they have distorted expenditure by excessive expenditure themselves. But the hon. Member for Central Bradford has given us this degree of consolation: he has shown us that we could indeed have an even worse Chancellor than we have got. Indeed I wonder whether he has not shown—though that may be stretching the imagination of the House too far—that we could have as bad a Chancellor of the Exchequer as even the present Chancellor of the Duchy of Lancaster was.

3.23 p.m.

Mr. Norman Smith (Nottingham, South)

The hon. Member for Scarborough and Whitby (Mr. Spearman) is perfectly right. High prices are not the cause of inflation. They are the symptoms of what is wrong. If His Majesty's Government have not succeeded in dealing with them, that is because the Government have not seen fit to introduce a closed economy in this country such as they have in Russia. My case is quite simply this: No Government has any control over a high cost of living under the existing rules of the financial game. That is all.

I congratulate my hon. Friend the Member for Central Bradford (Mr. Webb), to whom all of us are indebted for having brought this question to the fore in the way that he has, upon his penetrating intelligence in putting his finger right upon the one administrative action by which the Chancellor could effect an early reduction in prices. My hon. Friend pointed to the Purchase Tax. It is true that by reducing Purchase Tax one could reduce the cost of living. It is true that if one regarded a reduction in the Purchase Tax not merely as a matter of what has been done before by Chancellors of the Exchequer, but of what might be done if Chancellors of the Exchequer were algebraically minded, and instead of contenting themselves with reducing Purchase Tax to nil, brought it down to a minus quantity, so that it was a subsidy reducing the ordinary price, then we should have found the remedy we want.

But the problem which the Economic Secretary—whom I am glad to see here although he has not many of the attributes of the festive season—will be up against is this: how is he to reduce prices in that way, not only by wiping out Purchase Tax but by increasing subsidies? That is the general problem he is up against. The answer is that it cannot be done under the capitalist system—just that, and that is all. We are really beating the air on this, and I want the people of England to know that the Government will not be successful in getting the cost of living down so long as they accept the present financial mechanism of distribution. It cannot be done.

Where was the hon. Member for Scarborough and Whitby right when he said the high cost of living is merely a symptom and not a cause? Simply in this way: to a great extent we are still a free economy. If the Government controlled everything, we should have so many officials that the thing would be top-heavy. To a great extent we are a free economy, going according to the good old rule that the price of a thing is what it will fetch. That is the rule and apart from controls there is no other rule. Since the price of a thing is what it will fetch, and since we are having an attempt in this country at a tremendous capital formation—I do not know whether we are successful or not; but if we do not improve and extend our capital equipment we shall be much worse off in the years ahead—and since, because we are trying hard at a big capital formation, we have great bodies of workmen busy every day of their lives making goods which never get into the shops because they are capital goods, we face this problem.

The income of these people nevertheless goes into the consumers' market; and since the price of a thing is what it will fetch, it is in the consumers' market where industry recovers all it has paid to the producers of consumer goods and capital goods alike. The public pays high prices to cover the capital extensions which companies finance with money allocated from reserves, which they have built up by charging more to consumers. That is how it is done. Unless the Economic Secretary has some method of dealing with that, he will never get the answer to this question. I should be out of Order were I to start to tell the Economic Secretary the way to do it. I will content myself by saying that there is a way, and that it is quite easy to understand. It is not beyond his capacity, and any time he likes I am willing to explain the way to the Economic Secretary.

We have to bear in mind that this business of prices is a modern substitute for what used to happen years ago when Socialist speakers at street corners talked, as some people still talk, about the working man being robbed at the pay-table. That is complete nonsense now. The system of control over the public is at the retail counter and nowhere else, and it is to the retail counter that the Economic Secretary and the Chancellor of the Exchequer have to look in applying the negative Purchase Tax which alone can do the trick. They cannot do it under the existing rules of orthodox finance.

3.30 p.m.

Mr. Gammans (Hornsey)

I would comment on the speech made by the hon. Member for Nottingham, South (Mr. Norman Smith) if I understood what he was driving at. I thought he started by trying to convert the House to Communism and finished up by getting back to 19th century Liberalism.

We are grateful to the hon. Member for Central Bradford (Mr. Webb) for giving us the opportunity of discussing this important question. There is no domestic matter causing greater concern to the whole of the country than the rising cost of living. Where, of course, I do not agree with him is in his belief that this problem can be solved within the ambit of Socialist policy. I will say a word about his remarks about the United States. Whatever may be wrong with the economy of the United States, at any rate they manage to feed themselves and they are feeding us, too. At least they have some turkey to eat this Christmas, which is more than we have.

Mr. Harold Davies (Leek)

Some of them have.

Mr. Gammans

I do not blame the Government for having created the situation in which this country finds itself today. They are not responsible for the loss of our overseas investments, the interest on which before the war brought us about 6s. in every £1 worth of imports. I do not blame them for the damage which was done to our capital equipment during the war or for the vast leeway which has to be made up. I do not blame them for the present wave of economic nationalism growing throughout the whole world. I do not blame them for the fact that the terms of trade have gone against us, and as far as food is concerned, are likely to go against us. What I do blame them for is trying all the wrong remedies. That is where I disagree with the hon. Member for Central Bradford. So long as these present policies are continued, not only will the question of the cost of living remain serious, but, in my opinion, it will get worse.

Today, for the first time perhaps, we see the Socialist chickens coming home to roost. We can hear their wings fluttering round this Chamber. Before this Parliament is up there will be many more chickens fluttering round this Chamber. I think that what is happening today is the result of the Socialists' preaching for 40 years the economic nonsense that we can get a quart of wages out of a pint pot of work, that enterprise and initiative do not really matter, that exports and overseas investments do not much matter either. I can quote chapter and verse for all this having been said by hon. Gentlemen opposite, and right hon. Gentlemen, too.

There was the sort of nonsense that suggested that there was a gold mine here in Westminster from which the expenses of the State could be paid, or the sort of nonsense that it is only the rich who pay taxes. The hon. Member for Central Bradford rather gave that one up, but there is still an idea about, that there is some enormous margin to be got out of profits that can make up for deficiencies in other directions, and we have the old Socialist nonsense that output is just a Tory trick from which only the bosses benefit. I do not believe we are going to get anywhere until all that propaganda of 40 years has been put into reverse.

Mr. Webb

Will the hon. Gentleman allow me? Which one of the points he has just quoted has been made in this Debate from this side of the House today?

Mr. Gammans

The thesis has been made, because the hon. Gentleman has suggested that this situation can be remedied within the ambit of Socialism. My whole point is that it cannot. I do not think we can get anywhere until hon. and right hon. Gentlemen opposite are prepared to confess that they have been talking piffle for 40 years, and until they put all that propaganda into reverse. I know it is not easy. There is nothing so indigestible as swallowing one's own words, and no brand of bicarbonate of soda has been invented to help in the process.

What is to be done? The hon. Gentleman touched on some of the things that have got to be done, but he was cagey about the most important one, and that is a reduction in taxation. Taxation is the largest single factor in rising costs, and the number of individuals who have been dragged out of productive industry and put into snooping and administration, all of whom have to be carried on the backs of the wage earners of this country.

Mr. Piratin (Mile End)

Both the hon. Member for Central Bradford (Mr. Webb) and the hon. Member for South Nottingham (Mr. Norman Smith) declared that they would like to take the Debate wider than the subject allows. The hon. Member for Hornsey (Mr. Gammans) knows very well that such matters involve legislation.

Mr. Gammans

I am not suggesting introducing a Bill today. That would be out of Order in this Debate. However, the hon. Gentleman was trying to show the reasons why the cost of living is so high, and he did not touch, except in a very oblique way, on what I contend is the most important one, namely, the high cost of taxation.

Mr. Webb

It would not have been in Order.

Mr. Gammans

The hon. Member also touched on the question of increased output. I do not think there is any good in pretending that we are going to get increased output from industry while so large a part of industry remains on a five-day week. There is only a limited field in industry in which we can get the same sort of output in a five-day week as in a week of five and a half days. Only in those types of industry which are tied to the conveyor belt, or in which the work is of such an arduous nature as to be subject to the law of diminishing returns, can we get as large an output in a five-day week as in a week of five and a half days.

Mr. Harold Davies

The hon. Gentleman talked about the factor of supply and demand. Does he not also admit that in this problem of raw materials for output there are factors over which we have no control? Does he not remember that there have been eight million strike days as compared with 150 million strike days under a Conservative Government before the war? Does he not admit that the workers have pulled their weight so far as output is concerned?

Mr. Gammans

All I know is that three and a half years after the end of the 1914–18 war, we did not have rationing of food, nor did we have to admit that in the fourth Christmas in the postwar world, only one family in 10 could get a turkey. I think that the hon. Gentleman must realise that unless he is prepared to get up and say how this greater output can be obtained, not merely, as he suggests, by greater incentives, but by frankly admitting that we cannot get, in the vast majority of industries, the same output in a five-day week as in a five-and-a-half-day week, his remedies will not take us very far.

The last point I want to make is that the only way to get increased output is by incentives. It is no good pretending that there are incentives today in any field of industry. Unless enterprise and initiative get additional reward, we shall not get enterprise, initiative and hard work, and unless laziness and inefficiency at the bench, in the office, in the board room, or anywhere else get their reward, then we shall not get efficiency and increased output. I would also say that if the Government really want to get increased output, they will have to call a halt for the time being to their nationalisation plans, and prove to the country that the industries which have been nationalised already can be made a success, before they start tinkering about with other industries.

I warn the hon. Gentleman that, in my humble opinion, this situation will not automatically get easier; it will get worse. Since wages were supposed to have been frozen in the spring of this year, over five million people have received increased wages without any corresponding increase in output. One thing which I do not want to limit or freeze in this country is earnings; but hon. Members opposite seem never to have realised that there is all the difference in the world between wages and earnings. The situation will get worse. We have had a good run up to now with a sellers' market, and with Germany and Japan, our two greatest competitors, out of the market. Unless the Government realise that fact, instead of prices going down and instead of our position getting better and of our being able to balance our external budget by 1952, we may find the position in three years' time even worse than it is today.

3.38 p.m.

Mr. Paget (Northampton)

Whenever we try in this House to have an intelligent discussion someone intervenes with a constituency speech. I suppose that has to be endured. I should have liked to answer the intelligent contribution to the Debate made by the hon. Member for Scarborough and Whitby (Mr. Spearman), but I have only the time to make one short point. I will confine myself to those articles on which physical control operates.

For instance, the amount of beer still brewed is controlled by the barley allo- cation. When we have a commodity of that sort, there seems to be no object at all in fixing a price which does not allow the quantity which is planned for to be absorbed. That is what is happening at the moment. Beer stocks are building up in all the public houses and clubs, and they cannot be sold simply because of prices. That seems to me to be the very nadir of planning. It is perfectly true that the brewers could make a considerable contribution in that respect. Their profits last year were £49 million, which is £1 per head for every man, woman and child of the entire population. Obviously, they can do something to bring down the prices, and pressure ought to be put upon them to make them do so. But the Government will have to do something, too. The taxation of beer is, of course, the largest feature in its price, and something will have to be done to bring down the price of beer to a level where the supplies to which we have a claim because of our barley allocation, will be absorbed.

3.41 p.m.

The Economic Secretary to the Treasury (Mr. Douglas Jay)

I noticed that while the hon. Member for Hornsey (Mr. Gammans) and my hon. Friend the Member for South Nottingham (Mr. Norman Smith) disagreed with the basic economic policy of the Government, my hon. Friend the Member for Central Bradford (Mr. Webb) made it clear that he is in agreement with it. I may say that I disagree with what my hon. Friend the Member for South Nottingham said, if I understood him aright. On the other hand, I should like to assure my hon. Friend the Member for Central Bradford that we are extremely glad to have his eloquent support for the policy of holding down the cost of living, which we have been pursuing for the past year. That has, indeed, been the major aim of our internal economic policy, just because, for the very human and psychological reasons which my hon. Friend gave, it does go to the root of the whole policy of recovery by consent and co-operation, which we have been pursuing. And although my hon. Friend did not mention this, the movement of the retail price index shows that we have already achieved some fair measure of success.

As he knows, we have pursued this policy by three main instruments: first, the co-operative effort to stabilise prices and incomes, as set out in the White Paper of last January; secondly, the Budget surplus; and thirdly, the continuance, and indeed the increase, of the food subsidies. In that White Paper policy we have had most valuable co-operation from the trade union movement, from a great number of industrial companies which have limited their dividends, and also from the Co-operative movement. Without all these we could not possibly have succeeded.

In our Budget policy, since November, 1947, we have also, I think, contributed greatly to the objective of keeping down prices by swinging the national finances right over from a condition of deficit to a condition of real overall surplus. My hon. Friend the Member for Central Bradford suggested a shift of emphasis in Purchase Tax from more to less essential goods, in which I think my hon. Friend the Member for South Nottingham backed him up. But that is, of course, precisely what we did last spring when we overhauled the whole of this tax; we did make such a shift; and we did, on balance, relinquish to the public as much as £39 million worth of revenue as a result.

We have also maintained the policy of food subsidies, and actually in the course of last summer increased the total. We are confident that if that general policy of subsidies had not been maintained, and if it is not continued while world prices are at their present extremely high level, the stabilisation policy would have broken down, and the inflationary pressure become overwhelming. We have, of course, been advised from time to time by Opposition spokesmen to cut down these food subsidies to "negligible proportions"—which was the phrase once used. It may interest the House to know that if we followed that sort of advice, and if we abolished those subsidies completely, there would be a rise in the retail price index of as much as 13 points. The price of eggs would go up by 44 per cent., butter by 94 per cent., sugar by 40 per cent., flour by 77 per cent., lard by 121 per cent., and so on. I am sure we shall have my hon. Friend's support in resisting suggestions from the Opposition, or anywhere else, that we should follow that policy.

Mr. Webb

Would my hon. Friend say a word about the possibility of restoring the subsidies on certain commodities, such as bacon, which were taken off some months ago, with the effect of increasing the prices of very important commodities?

Mr. Jay

I do not rule out the possibilities of adjustments between individual subsidies. What I am saying is that we have continued the general policy of subsidising the cost of living by that method, because, as he pointed out, if we relaxed, it would cause hardship to fall on those least able to bear it.

Mr. Spearman

Does not the hon. Member think he is giving a distorted figure when he stresses the rise in the cost-of-living figures, because if he were drastically to reduce the figures, he would be able to reduce the very taxation to which he has referred?

Mr. Jay

I was merely pointing out that if we removed the subsidies on certain foods the prices of those foods would go up by that amount. As a result of this instrument of policy we have succeeded in holding the retail price index more or less stable. Between October, 1947, and April, this year, the index had gone up by 101 to 108. In October, this year, it was still at 108, although it may move a little one way or the other in the coming months. The food index has actually gone down from 109.3 in April to 107.6 in October. I have no doubt that, apart from what might happen if we removed the food subsidies, there would have been a disastrous further rise in the cost of living if the policy of the White Paper and of the Budget surplus—unpopular as they were with some people—had not been resolutely pursued. We are, therefore, determined to continue this resolute struggle against the upward surge of prices, through the instruments of price policy, subsidies, taxation, financial policy, and so forth.

We can, accordingly, regard ourselves as in agreement with the hon. Member for Central Bradford on the main issue, and with his main objective. But there are, I think, one or two weaknesses in his argument, although they did not seem so apparent in his speech today as in his interesting article in the "Tribune" last weekend. The hon. Member seems to argue that it is possible to reduce prices without any measures to damp the flow of purchasing power. It is, of course, possible to hold down prices on selected necessities by the continuation of subsidies and price control. But the hon. Member for Scarborough and Whitby (Mr. Spearman) made a valid point when he said that releases of purchasing power tend to force up the price of something else. He was perfectly correct, and I am, therefore, convinced that subsidies and control must be supplemented by other Measures to absorb this spending power.

Mr. Webb

I cannot follow the argument. What does it matter if the price of certain commodities is forced up by this excess of purchasing power, provided that those commodities are not in common demand and are not necessities? What does it matter if they reach the sky?

Mr. Jay

The hon. Member said, in his "Tribune" article, that he thought the surplus had done its work and that we no longer needed its protection against inflation. That is wholly false. That is like arguing that if one lives within one's income one year, it is not necessary to live within it next year; or that if one sleeps one month, it is not necessary to sleep the month after. It is, in fact, just the policy of holding down prices that makes the absorption of purchasing power in some other way necessary. To over-simplify the point, it is by making tobacco more dear that we have been able to keep bread cheap. My hon. Friend was therefore on weak ground in arguing that if price control is rigidly sustained, it will be perfectly adequate without forcing up the price of other commodities. That is true to some extent, when we consider a few really essential commodities. We have, indeed, had more success in doing that in this country than in any other.

I also agree with my hon. Friend in his very important point that any switch from coupon rationing to price rationing, as I think he calls it, tends to benefit the well-to-do and, incidentally, those without dependants, in all classes, as against those with lower incomes and larger families. I think the family budgets my hon. Friend let us see tended to confirm that. I agree that it is a good argument against going too far in present circumstances away from coupon rationing towards price rationing, mainly for the reasons which my hon. Friend advanced.

But there is also this point which I think he missed: if total spending power remains excessive, then price control will be fighting a losing battle over a large part of the field against black markets and evasions which, in the end, will defeat us. Here, I find myself in a middle position between the view of the hon. Member for Scarborough and Whitby and my hon. Friend the Member for Central Bradford. If the initial flow is not reduced then, sooner or later, it finds its way through, or over, the dam. One way, as the hon. Member for Scarborough and Whitby said, is that it will stimulate the production of less important manufactures, on which there is no control.

Mr. Webb

Surely, if we have labour and raw material controls, my hon. Friend can see that there is no danger.

Mr. Jay

My hon. Friend forgets that none of these controls is perfect. Some are very effective, some less so, and some, in the end, so ineffective that they have to be abandoned. My hon. Friend also rather over-rates, I think, the opportunity there is left to force down distributive margins by price control. We must go on trying to do that as far as we can, and the effort was intensified last winter, at the time of the White Paper. The fact is that the whole Government machine has been concentrated on this effort for eight years, and I think it would be misleading to raise hopes that any further rapid and dramatic results can be expected from it.

Mr. Daines (East Ham, North)

Did not the Chancellor say, in our last Debate on this subject, that the margin for distribution must be sufficient to allow the least efficient to operate? Is not that still the policy?

Mr. Jay

I am aware of that, and that is one of the difficulties which causes me to deprecate hopes of any further dramatic results.

My hon. Friend the Member for Central Bradford also, I think, rather ignored the necessity for increased savings if we are to win the battle of the cost of living. Here, the public will really have to help as well as the Government. If we are to have an ambitious investment programme for housing and industrial re-equipment—which, I think, we all want, including my hon. Friend the Member for South Nottingham—then either the public must save enough or the Government must raise money by a Budget surplus.

Mrs. Nichol (Bradford, North)

How can people save if they have to pay excessive prices for household goods and the like? High prices are preventing people from saving today.

Mr. Jay

The trouble is that if voluntary savings are not there, the problem solves itself by forced saving. The fact is that if savings are not available, either from private people or by way of a Budget surplus, the cost of living inevitably and inexorably increases. We must not blind ourselves to that fact. Unless, in practice, we get enough private or public savings, or both, we shall either jeopardise our re-equipment and housing programmes, or lose the battle against rising prices.

Finally, my hon. Friend the Member for Central Bradford seemed rather to under-rate—although he did mention it—the inevitable effect on every individual of the movement of the terms of trade against us, and the determined effort which the country has made during the past year to balance our overseas payments. The price of imports actually moved further against us in the last recorded month, October, after a short-lived fall in September. If we are to import less, and have to pay higher prices for these imports, and export more, and keep our investment programme going, it is quite impossible—I think the hon. Member for Central Bradford recognises this—for every individual to feel no effects of that either in limited consumption or, in the case of the less essential commodities, higher prices. One or other of those things is bound to happen.

For instance, if we were to try to consume the amount of tobacco which the public would buy at the prices of two years ago, our chances of dollar solvency would disappear. In fact, if we export more and import less, it is only by increased production that we can possibly consume more. That is an arithmetical fact which no amount of manipulation of price, income and taxation can, I am afraid, possibly get over. The steep rise of import prices and the movement of the terms of trade against us are the root cause of the upward pressure of prices over the last three years.

Mr. William Shepherd (Bucklow)

I agree with that, but will the hon. Gentleman agree that the Government have in no way solved the problem of how to keep costs down in a situation of full employment?

Mr. Jay

I would say that over this year we have achieved a situation in which we have retained full employment and stopped any further rise in the cost of living; and that is some measure of success. The hon. Member for Central Bradford finally spoke of the possibility of getting an actual reduction in prices. It seems to me that, for the reasons I have given, there are only three ways in which we can, over the whole economy, achieve an actual outright drop in the cost of living such as he asked for. The first is by increased saving on the part of both the public and industrial companies. The second is by more production at home, particularly production of food and other necessities. And the third is a movement of the terms of trade in our favour, which can only come slowly as world production of foodstuffs and raw materials recovers from the war. We shall do all we can to make those things happen as quickly as possible. Until they do, we shall stick to our policy of holding down living costs by all the instruments which we have used in the past year; and I am sure we shall continue to have the support of my hon. Friend the Member for Central Bradford in so doing.