INCOMES, COSTS AND PRICES

HC Deb 08 February 1949 vol 461 cc299-327

8.17 p.m.

Mr. Ellis Smith (Stoke)

At about this stage of the Parliamentary programme all Chancellors of the Exchequer answer questions of the character I am about to tonight, by stating that they cannot anticipate their Budget statements. That is understandable. But the people in the country are now anticipating it and are considering what action should be taken. It is for that reason and because of the policies now being followed that I have put down a series of questions to show the concern which this question is causing us.

My first question yesterday was to ask the Economic Secretary to the Treasury if he will give in tabular form as much information as possible to enable a measurement to be made of the percentage of the national income distributed in the form of wages, salaries and profits, respectively, in the years 1939, 1946 and on the latest possible date. In the reply I was referred to the Annual Abstract of Statistics, table 253.

My next question was to ask the Economic Secretary: if he will give in tabular form the total profits made by companies showing returns, the amounts put to reserve and the amounts paid in debenture; and the total wages paid for the years 1938, 1945, 1947 and 1948, respectively."—[OFFICIAL REPORT, 7th February, 1949; Vol. 461, c. 18.] The answers given to those questions were very disappointing. I do not think they uphold the Treasury standards.

Two other questions of mine, which appeared on the Order Paper today, but were not called, were as follows: To ask Mr. Chancellor of the Exchequer if he is satisfied with the response made to his appeal for restraint in profits, wages, salaries, price reduction and control; what steps he intends to take to reduce prices; and when does he expect that his policy of restraint will satisfy the economic needs of the country. The answer was as follows: As my right hon. and learned Friend the Chancellor has said on a number of occasions, I regard the response to the policy set out in the White Paper on Personal Incomes, Costs and Prices as satisfactory. The Departments who administer price controls will continue to make such reductions as are practicable in the light of costs and margins. … The answer to a further question was: … I would refer my hon. Friend to the Annual Abstract of Statistics. … I find on examination of the Index of Retail Prices, an official publication, that taking food and all other items in June, 1946, as an index figure of 100, on 14th September last year the figure had risen in the case of food alone to 107 and in all other items to 108. I suggest that while it is correct that the wages of work people have risen, the value of wages is determined by what they can buy and it is real wages which count. One of the most patriotic acts of any section of the community since the policy of restraint was adopted, was taken by the Co-operative movement. To its everlasting credit the Co-operative Society met immediately and considered the Chancellor's statement. They called a special conference and used their newspapers and the whole of their propaganda instruments for the purpose of appealing to the whole movement to play their part in this policy of restraint. Unfortunately, that example has not been followed by others. The same applied in the main to the trade union movement.

While it is true that wages have increased, the most serious increase has been in direct and indirect taxation. The workers of the country feel direct taxation most, because in comparison they suffer under the division of the national income. When the Budget is presented, it will be too late to raise this matter, because the Chancellor will have made his statement and, in the main, that will become accepted policy. Now is the time for hon. Members in this democratic institution to place their views on record and, above all, to reflect the ideas of the people they represent, in order that between now and the introduction of the Budget, the Chancellor and the Financial Secretary to the Treasury can give consideration to what is said in Debates of this kind.

The biggest proportion of workers' wages is spent on food and it is on food that indirect taxation has a very serious effect. In the White Paper on National Income and Expenditure of the United Kingdom, 1947, Command Paper 7371, we find that the division of the national income is set out very clearly. I think the authorities are to be congratulated on the way in which it is set out. I wish it could be carried further, so that the people could measure more accurately and scientifically the allocations and divisions of the national income.

The people for whom I am speaking are making the greatest contribution towards our economic recovery and the Budget instrument and legislation should be used for the purpose of improving their standard of living as soon as possible. As soon as the economic position of the country makes it possible for us to afford it, we should increase the purchasing power of the people. We find on page 7 of the White Paper that the composition of the national wages bill for 1946 is set out against that of 1947. In 1946 the total wages paid were £3,095 million against £3,530 million in 1947. The total wages paid in 1938 amounted to £1,735 million and in 1947 to £3,530 million. That should be contrasted with profits in 1938 of £1,570 million and in 1947 of £3,242 million. On page 10 we find that the proportion of personal income required to meet taxation in 1938 was £4,884 million and in 1947 £9,153 million.

On page 12 we begin to see the very serious effects of national taxation on various grades in the community. We find that on current market prices on durable household goods we spent in 1946, 129 per cent. against 168 per cent. in 1947. In clothing in 1946 the figure was 137 per cent. and in 1947 158 per cent. There we see the serious effect on people with limited incomes. I am not complaining because it was necessary to make our immense contribution to winning the war, but I am concerned about the effect upon the people of this country. The time has arrived when the matter should be reconsidered in the light of the record of the people and the present situation.

Mr. Deputy-Speaker (Mr. Bowles)

The hon. Member should be careful. He is not entitled to refer to legislation, as he knows, nor is he in Order in suggesting proposals for inclusion in the Budget which is not yet legislation.

Mr. Smith

I thank you, Mr. Deputy-Speaker. I recognise that and I shall be careful to keep to what you suggest.

I find that between 1924 and 1935 the workers of this country were responsible for an enormous increase in output, but that did not reflect itself in increased earnings. I remember that when the Economic Secretary to the Treasury was the financial editor of the "Daily Herald," he won great admiration throughout the country for the most in formative statements which appeared in the financial columns of the "Daily Herald" at that time. They were always written from the point of view of the people for whom the paper was catering. He set out at that time what I am saying now. If any hon. Member wishes to look it up, they will find it in the "Daily Herald" of 19th September, 1939.

In the Statistical Memorandum provided by the Library staff we find this statement setting out wage increases since the Statement on Personal Incomes, Costs and Prices. Let me make it clear that I am not speaking critically of the preparation of this material because a great deal of credit is due to the people who prepared it. Someone must have been putting in a great deal of hard work. But there is some misunderstanding in Page 4, about the obligations of those engaged in the engineering industry. It is well known that those in the engineering industry were far behind the rest of the community in receiving increases in their wages. Because of that, they were not able for some time to accept this policy of restraint. There were mountains of misrepresentation by people who ought to have known better, against the engineers because of the policy they pursued. Even in so far as their present wages are concerned, measured by their output and contribution towards economic recovery they are nowhere near as high as they should be. I hope that that will be taken notice of.

Command Paper 7371 states that in 1938 the national income was £4,707 million. In 1947 it was £8,770 million. I said that the people are rightly looking forward to the Budget instrument being used for the purpose of making adjustments in the allocation of the national income to the various people engaged in industry and life generally. It is the manual workers in this country, in the main, who are making the greatest contribution to economic recovery. They are working faster and harder—and there is a difference between them as everyone in industry knows—as a result of scientific motion study, micro-motion study and new ideas of piece work. All this is having its effect upon the tempo and speed of industry. They do not mind it, but they are expecting that the Budget instrument will be used for the purpose of making adjustments in the way they are entitled to expect. I hope that the Economic Secretary will report this to the Chancellor and that they will consider an adjustment between the various grades of the people. Consideration should be given to the continuance of the Purchase Tax on household needs and the urgent needs of the people.

There should also be a more scientific policy adopted with regard to price control and here is the principal point I wish to raise. In the policy of restraint, not only were wages to be affected, but profits. We do not lose sight of what can be done with debentures and how modern accountants can deal with such matters. We do not wish to say too much about that, except that it needs to be mentioned. It was also said in this policy of restraint that steps would be taken to control prices and to reduce prices. Prices have not been reduced. I am not asking for legislation but for an examination between now and when the Budget is introduced, so that an announcement can be made simultaneously with the introduction of the Budget that it is the intention of the Chancellor to introduce a more scientific policy of price control. In addition to that, there should be price reductions. If there is to be restraint in the various allocations of the national income, there should be restraint and reduction in prices. It is that which is causing great concern in the country.

I think therefore that time is being well spent if hon. Members this evening put on record their views on this matter, in order that between now and next April the Chancellor, the Economic Secretary, the Treasury staff, and also other right hon. Friends can give consideration to this problem.

8.46 p.m.

Mr. Spearman (Scarborough and Whitby)

When the hon. Member for Stoke (Mr. Ellis Smith) draws attention to the fact that it is the common man in the street, the ordinary person with the low income, who is suffering very much from the way the economy of this country has been handled during the last three years, I quite sympathise with him. I think it was the week before last that the Chancellor of the Exchequer gave us figures showing that the purchasing power of the £ had fallen, since this Government came into office, from £1 to 17s. 6d. in spite of the immense amount of help, the extraordinary help, we have received from the United States—as I said the other day it is equivalent to £1 a week for every family in the country for every week in the year—and also in spite of enormous subsidies which have been paid out.

When, however, the hon. Gentleman suggests that by some juggling of redistribution of the national income, the matter can be cured, I would draw his attention to what was said by one of the members of his own Front Bench, the Secretary of State for Scotland, a short time ago. He said at Edinburgh: If every penny was taken from the people with over £2,000 a year it would not increase the workers' income by a shilling per day. Whatever redistribution is necessary is a simple budget operation, but our social problems will not be solved by chasing the will-o'-the-wisp of mere distribution of incomes.

Mr. Ellis Smith

May I explain to the hon. Member that I was not using the word "juggling" in a bad sense but in the sense—

Mr. Spearman

Only adjustment?

Mr. Ellis Smith

Yes, and secondly, we stand for increase in production whereby the national income will be increased. All that I am pleading for is that the people for whom I speak shall receive consideration.

Mr. Spearman

I entirely agree with the hon. Member if he means increasing the national income in actual production and not in pounds, shillings and pence. That is another matter. I thought he was thinking that the national income should be redistributed.

I also would quote from the White Paper from which the hon. Member quoted. If we take all the incomes in the country under £500 a year, according to page 9 of the White Paper they amount to over £5,000 million, whereas all the incomes over £2,000 a year taken together amount to only £300 million. If we look at it from another point of view, that of the proportion taken by wages and profit—and I have now the figures of two or three years back—wages took 41 per cent. of the national income and the distribution on ordinary shares took 5 per cent. of the national income, of which more than half went in taxation.

I am not saying that those are unfair proportions nor am I quarrelling with them. I am merely saying that that distribution, being what it is, there is no way of altering the present distribution of the national income which would enable any materially greater burden to be borne by the better-to-do over the poor.

Mr. Scollan (Renfrew, Western)

Is the hon. Gentleman not aware that last year the owners of industry took out almost as much in profits as the workers took out in wages?

Mr. Spearman

No, I am certainly not aware of that. If the hon. Gentleman looks up the facts, I think he will find that that is completely untrue. I am trying to make the point that there is no way of altering the present distribution in order to relieve a burden on any particular section. I think that the hon. Gentleman exaggerated a little the hardships inflicted by this Government. I do not want to be in the position of defending them. I think that we would be much better off without them, but the hardship is not perhaps quite so great as he suggested. If we take the amount spent on tobacco and alcohol, we find that that is nearly three times as large as the total amount spent on rates, rents and water. It is obviously not just a few people who are eating and drinking. No stomach could stand all that. Obviously it is the bulk of the people who are spending the money in these ways. There is not quite the hardship that the hon. Member indicated, though I do not wish to belittle the sins of this Government in any way.

We all agree that the only way in which we can keep down prices is by producing more. The hon. Member suggested that we should increase incomes. We should increase, not the pounds, shillings and pence—that can be done by the printing press—but what can actually be purchased. I do not believe that we can do that unless we have a healthy economy. It can be done in a totalitarian State by concentration camps, machine guns and things like that; but in a free economy it can only be done if the Government get a fair balance between demand and supply. That is a point which I know is accepted by the present Chancellor of the Exchequer, and which, most unfortunately, was not accepted by his predecessor.

Mr. Fairhurst (Oldham)

Would the hon. Member explain how he reconciles the point he had just made with the period when the shops were full of commodities and prices dropped steadily month by month until they reached a very low ebb, yet even then people could not afford to purchase them?

Mr. Spearman

I am a little confused by the hon. Member's question. Surely, he does not deny that there has been a greater demand than there has been supply of goods. That has what has been driving up the prices. I thought that the whole point of the hon. Member for Stoke in raising this matter was that prices had been rising and living was costing more. The two hon. Members must fight that out between themselves. I do not want to intervene there.

I am trying to say that the only way in which we can get efficiency is by getting a balance between demand and supply, Then we will get drawn into those industries where they are most required the necessary men and materials. Today we have got them where they are not required. The Government admitted that in their White Paper a year ago. They made plans how they would draw men into vital industries and out of Government service, certain building activities and the distributive trades. In that they have completely failed. They have not reached a portion of their target. I have the figures if anyone wants them.

Therefore, first, we must get people in the right jobs. Second, we must be efficient. I always stress that it is not only a matter of the men being in the wrong place, it is not only men not working hoard enough, but it is also a question of employers not being sufficiently enterprising and efficient. I am sure that there are all sorts of examples of that. There are bound to be so long as employers are protected by a Government who do no allow free competition. So long as we have a position where efficient people cannot start up in competition or where people's quotas are based entirely on what they did in 1939—and therefore the old people are protected against newcomers—we shall not get enterprise and competition. That is one of the troubles today.

The third and perhaps the most important point of all is our failure to re- equip industry. I know that the Economic Secretary to the Treasury will tell us that that will turn out all right. I can only say that up to date we have not spent anything like what we ought to spend on re-equipping capital industry in this country. We are spending £2,000 million but I think we will find that a large proportion of that is going in repairs and not in new equipment, and in financing the much higher cost of stocks which must be carried now. Mr. Chambers, in a most interesting article in a recent issue of the "Lloyds Bank Review," stated that he thought that the actual capital equipment of the country was diminishing in volume instead of increasing. Mr. Chambers is a former official of the Treasury.

It is clear that we cannot increase the equipment of the country unless we produce more—and that is a vicious circle—or the consumers spend less—and that is what the hon. Member is fighting—or the Government spend less. Therefore, it seems to me that what the hon. Member for Stoke is really saying, though I am sure he will not accept this interpretation, is that we cannot get more than a quart out of a quart bottle. The only solution is to make more, and we cannot make more without being more efficient and having better equipment. That means apparently that either consumers must spend less or the Government must spend less. I suggest that the hon. Member should read his speech and think over the matter from that point of view. He may possibly come to the sad conclusion that we cannot get the economy of the country right unless there is a drastic reduction in Government expenditure. I do not believe that there is any other solution.

The hon. Member suggested that there should be cuts in Purchase Tax. I am all for reduction in taxation if there is a greater supply of goods, but obviously we bring about a disequililbrium at once, if we reduce taxation without increasing supplies. Apparently under present conditions we cannot increase our supplies at the moment. Therefore, until we can do so, we must see that the third party—the Government—spends less. For the time being the Government must spend less. They must do without all sorts of things on which we would like to see them spending money. They must not merely avoid waste but they must not, for a time, do even desirable things, so that we can get the economy of the country right in order to produce the maximum.

8.48 p.m.

Mr. Tiffany (Peterborough)

We are all obliged to the hon. Member for Stoke (Mr. Ellis Smith) for raising this subject, which is of vital interest. In any little criticism we might make of the Government in this matter, we on this side of the House recognise that the problem facing them after the last war was far greater than that which faced the Government after the first world war, and they have tackled it in a far better manner. Even on the question of food prices one recognises that prices after the last war did not reach the heights that they reached after the first world war. The Government played a good part in that respect.

The hon. Member for Stoke made reference to the Co-operative movement and the response which it made to the plea by the Chancellor of the Exchequer for reduced prices in order to reduce the cost of living. The movement reduced their prices of rationed commodities generally and the cost to them varied between £28 million and £30 million. This had tremendous repercussions upon the Co-operative movement. Instead of co-operation between the Treasury and the Ministry of Food in order to endorse this action and to drive it still further home, so that it would have a greater impact upon private traders throughout the country, we found that there was a lack of co-operation between the two Departments. The impact of the cut-price policy had its effect upon the Co-operative movement, and one saw that the dividends of Co-operative societies dropped by 1d. to 7d. in the £, and interest rates were being reduced simply because, at the same time as the price cuts were inaugurated, there were demands for increased wages.

I am not complaining about that; I am merely saying that the demand for increased wages came along at the same time as the price cuts. There were also extra charges to meet in relation to the new social insurance. Again, I am not complaining, but pointing out that the sum total of these things made its impact upon the Co-operative movement. There is not the slightest doubt that, if there had been more co-operation between the Treasury and the Ministry of Food, and other Departments with which the Co-operative movement is in contact, there certainly would have been a better position than exists at present.

Let us look at one of the staple commodities—bread. Under its price reduction policy, the Co-operative movement reduced the price of its bread by a halfpenny per loaf. The result of that was that, where the private trader did not reduce the price of his bread, there was an increase in the sales of bread by the Co-operative societies. It was natural, and it was just what the Chancellor wanted. He wanted the trade to go where the price was lower, in order to bring about a further reduction in prices. But what happened as a result? We found that the Co-operative movement was placed up against a brick wall, because, when bread rationing was taken off, flour rationing was imposed upon the bakers, and the datum line of flour supplies was fixed as June, 1938. Above that datum line, additional flour would not be supplied to bakers unless it was to meet the needs of an increased community due to re-housing.

The Ministry of Food could not depart from this policy, simply because the Ministry did not possess the necessary dollars with which to buy the additional wheat and flour, but still the tendency of the people was to consume more bread. The increase over pre-war has been approximately 17 per cent. So we had this ridiculous position arising, due to the lack of co-operation between the Ministry of Food and the Treasury that, where this cut-price policy was operating as the Chancellor wanted, they found themselves up against a brick wall of the cut-price policy, the increased demand and the restriction on flour supplies. That was obviously a peculiar situation, but one that could have been eased if the Treasury had been prepared to look at it with the Ministry of Food and to suggest that the supplies should go into the cheaper market.

We had a similar position operating in relation to subsidies. When the subsidies were taken off footwear and clothing, I remember putting our point of view about it. In the Co-operative movement we have expressed ourselves time after time. When these subsidies were taken off they were running at £11 or £12 million a year, but coincidental with the removal of the subsidies came demands for increased wages by the boot operatives. The result was that when the subsidies were removed from boots and shoes, the prices increased from 10s. to 15s. per pair.

Mr. Scollan

Even £1 in some cases.

Mr. Tiffany

As my hon. Friend suggests, up to £1 in some cases, although the general average was from 10s. to 15s. per pair. One would have expected that, if the Chancellor was seeking to secure a reduction in retail prices, he would have seen at least that some of these subsidies were reimposed on these commodities in order to reduce the prices of footwear. Although it might not have been possible to cover the whole 10s. or 15s., nevertheless the return of the subsidies would have reduced the prices of footwear to something like what they were before the subsidies were taken off. I believe that the Chancellor will have to look at the subsidies again and perhaps restore them as the best way of reducing prices and reducing the cost of living to the people of this country.

Mr. Spearman

If the hon. Gentleman hopes to reduce prices without increasing the supply, will he not simply find that the increased purchasing power thus released will drive up the demand for goods?

Mr. Tiffany

I am not prepared to accept the argument that the danger of inflation lies in the hands of the people for whom we are speaking. The reverse has been the situation. The danger of inflation was not in the direction of the ordinary working-class people. What have we found in the case of the Co-operative societies? We have found that during the last 12 months share capital has been withdrawn from the societies, whereas previously, during the war and after, when we had a danger of inflation, capital was being handed back to the movement. Now the position is altered, and capital is being withdrawn, a clear indication that there is a shortage of purchasing power in the pockets of the people at the present time; otherwise, there would not have been these withdrawals of capital.

In relation to the Purchase Tax, we have had no hesitation in stating our point of view, and we have pressed the Chancellor to see if methods could not be agreed upon whereby the removal of the Purchase Tax would not operate with any great detriment to the retailers who are holding their stocks. We are convinced that, if the Treasury will get down to it, a method can be found whereby the retailer will not have this heavy burden to carry when the tax comes off. We are hoping that the Chancellor will assist the reduction of the cost-of-living figure by doing something in this direction, and if he does so, he will have the enthusiastic support of this side of the House.

8.59 p.m.

Mr. Norman Bower (Harrow, West)

There are some brief comments which I should like to make on the interesting speech of the hon. Member for Stoke (Mr. Ellis Smith). In the first place, I personally deprecate the view which he expressed, although I know he holds it quite sincerely, that the people whom he represents, whoever they may be—and I gather that he was referring to manual workers—are making the biggest contribution to our economic recovery. They are certainly making a very big contribution, and nobody would deny that for a moment, but, in my view, with very few exceptions, people of all classes are making an equal contribution to our economic recovery, and I think that an incentive is required for everybody at the present time. If we are to achieve the fullest production of which we are capable as a nation, there is just as much need for additional incentive to the £10,000-a-year executive as there is for additional incentive to the £6-per-week workman. I would differ from the hon. Gentleman, therefore, on that point.

Mr. Scollan

Did the hon. Gentleman ever hear of a £10,000-a-year executive director dying, and of production stopping because he was dead?

Mr. Bower

I have certainly heard of many cases and known of many cases where production has suffered very severely as a result of the death or retirement of £10,000-a-year executives and other executives, and I have known of cases where businesses have been dis- rupted, have gone downhill and completely disappeared as a result of the disappearance of people of that type. That, however, is irrelevant to the argument. If we are to achieve the fullest production of which we are capable it is necessary to give incentives to everybody who is contributing to production, and I maintain that people in this position, provided they are working hard and are efficient, as most of them are, are as much in need of additional incentives at the present time as people lower down the scale.

The hon. Member for Stoke referred to the distribution of the national income. I would point out to him that at any rate that distribution is still steadily becoming more favourable, on the whole, to labour as opposed to capital. We have been given figures for last year and have been told that 93 per cent. of the capital invested in public companies has subjected itself to the voluntary dividend limitation. There has been no increase in dividends during the whole of last year in respect of 93 per cent. of capital. We are also told from the report of the Ministry of Labour for last year, published in the Press only this morning, that 7½ million wage earners have received wage increases during the last year. I am not complaining about that or saying that it was necessarily wrong; nor am I saying that most of the wage increases were not justified for one reason or another. I think some were justified and some probably were not. At the same time, if one looks at the situation fairly, one must appreciate that the balance is still being steadily if slowly shifted in favour of labour as opposed to capital.

Mr. Scollan

The hon. Member gave some figures. The figures given about wage increases since the Statement on Personal Incomes and Costs is 6,783,500 personnel who received £1,619,300.

Mr. Bower

I said 7½ million and I gather that the figure was nearly 7 million. If I made a slight mistake I apologise, but I do not think it invalidates my argument.

In an interruption when the hon. Member for Scarborough and Whitby (Mr. Spearman) was speaking, the hon. Member for West Renfrew (Mr. Scollan) said that last year the owners of industry, by which I presume he meant the share- holders, took nearly as much out of it as the wage earners. It so happens that I have here, just by chance, two specimen figures which I think shed a certain amount of light on the hon. Member's statement. These figures refer to two of the largest companies in the steel industry in which, I think, we are all interested at the present time. One of those companies is Colvilles, a very big company. Last year, after their last financial year, out of every £ of income which they received, wages and salaries accounted for 5s. and dividends for 2d. In the case of another large company, the United Steel Company, whereas they paid out £12 million in wages the amount paid out in dividends was only £553,000, or in other words 1.4 per cent. of their total income.

Mr. Fernyhough (Jarrow)

What the hon. Member does not seem to appreciate is that it is a question of the number of people among whom the respective sums are divided. If we divide £12 million amongst, say, half a million people, it is not quite so good as dividing £500,000 between 5,000 people.

Mr. Bower

I am not saying that every individual wage earner necessarily received the same amount or more than every individual shareholder. That is a thing which it is quite impossible to say. I do not know whether it has ever been analysed; I should imagine not. Certainly I would not say that it invalidates my argument. The hon. Member for West Renfrew was referring to the total distributed amongst the shareholders, on the one hand, and the wage earners on the other hand. In my submission the figures I have given, which I think I am safe in saying are fairly typical throughout industry as a whole—and I do not think the Economic Secretary to the Treasury will dispute that—show that what the hon. Member said in his interruption was completely wide of the mark. I submit that these figures also show that there is comparatively little scope for an actual redistribution of the national income at the present time. As my hon. Friend the Member for Scarborough and Whitby said, any improvement which is to be hoped for must be obtained through a general all-round increase in production.

Finally, the hon. Member for Stoke referred quite rightly to the contribution made by taxation, including Purchase Tax, to keeping up prices and the cost of living. That, of course, is perfectly true, but at the same time he must surely realise that the social services we have today and all the other desirable forms of expenditure, which I am sure he supports, have to be paid for, and because there are so few wealthy people left and because there is so little scope for redistribution of the national income, these things have to be paid for by the people as a whole. I think that is becoming more and more appreciated in all parts of the House and throughout the country. I, therefore, submit to the hon. Member that the best thing for him to do, if he wants to achieve the wholly laudable and desirable projects which he mentioned in his speech, is to encourage the Government which he supports to economise in every possible direction and to cut out all extravagance. That, I suggest, is the best way to reduce prices, to keep the cost of living down and to improve the position of the people as a whole.

9.7 p.m.

Mr. Parkin (Stroud)

I intervene only to reply to a point made by the hon. Member for Scarborough and Whitby (Mr. Spearman) and mentioned again by the hon. Member for West Harrow (Mr. Bower). I think neither of the hon. Members has done any great service to the cause they have at heart, the cause of increasing production in this country, by adopting the line which they have adopted.

My hon. Friend the Member for Stoke (Mr. Ellis Smith) referred emphatically to his basic desire to get an increase in production first of all. There is all the difference between an hon. Member on this side going to the workers and saying, "Look, boys, there is only so much to be divided from profits and if you take it all and divide it amongst yourselves at the present time it will come only to a penny or 2d. an hour or a bob or two a week; therefore, the main problem is one of increasing production." There is all the difference in the world between a trade union leader saying that to the workers and an hon. Member on the other side getting up and saying, "You have taxed us so much and there is very little more for us to contribute; you get very little if you divide all the moneys and, therefore, we are not called upon to do anything more and the only thing is either for the worker to work harder or the Government to spend less." Hon. Members opposite shake their heads, but that has been the approach of those speeches. I do not think they were meant in any hostile manner.

Mr. William Shepherd (Bucklow)

What is the difference? I should have thought that if you say something which is a statement of fact, it does not really matter very much whether it is said by someone on that side of the House, by someone on this side of the House, or in Aberdeen. It remains a statement of fact.

Mr. Parkin

In one case it is an appeal for greater production, whereas in the other case it appears to be "We cannot do anything more; it is up to you."

Mr. Spearman

That was far from my meaning or that of my hon. Friend, I am sure. All that we thought it right to do was to try in a humble way to expose the fallacy that the matter could be put right by any juggling. It can be put right only by producing more. There are certainly not only workers but managers, too, who can contribute more.

Mr. Parkin

I do not disagree with the hon. Member at all, and I am anxious that we should reach full agreement on the point. Let me complete the case I was trying to make, which was to show the bad effect on productive workers of speeches of the sort which hon. Members opposite have made tonight. There is far too much apathy in industry at present because directors and managements appear to be satisfied with the profits that are maintained at something like the rate at which they have been maintained during the last few years, with a fair amount going to reserve, with the Chancellor taking a fair amount, with the directors having a car each, with the directors' canteens very well run, and with the profit on turnover only a few pence in the £.

The effect of that attitude—that satisfaction of directors and managers—is that the workers are not encouraged to make their suggestions for improvements in productive efficiency. The bad moral effect of this complacency on the part of the managements about the amount of profit that may or may not be available for distribution is the discouragement of the workers from making their practical suggestions, through joint production committees and trade unions, and so on, for economies, for greater efficiency, which are necessary to procure that greater standard of living we all so ardently desire.

It is not a matter of a few pence to be distributed from existing profits among the workers, but a matter of economies of thousands of pounds per day in some factories which could be achieved if only managements would contrive to tap that vast reserve of good will, experience and knowledge amongst the workers in the factories. If only we could do away with the sort of argument which says. "I am taking only a halfpenny from each of you, and it is not immoral to do that," and the attitude of mind which asks whose turn it is next to put something into the "kitty," and if we could get down to the fundamental problem raised by my hon. Friend the Member for Stoke, that is, of increasing production and giving real incentive to production, we should do something practical. So long as the argument consists of saying, "It is the other fellow's turn to do something about it," we shall preserve this animosity, this dull suspicion of the intentions of managements, and we shall not obtain from the workers the help they will give us if we invite them to give it.

9.13 p.m.

Mr. Scollan (Renfrew, Western)

I want to thank my hon. Friend the Member for Stoke (Mr. Ellis Smith) for raising this matter, in spite of the fact that it has had a very hectic and stormy reception. My hon. Friend asked the Chancellor of the Exchequer in the next Budget to do something to redistribute the burdens placed upon the people of this country, to lighten the heavy burden the ordinary manual worker suffers; and he spoke particularly of the injustices to the engineers. Many hon. Members on the other side have taken the opportunity to try to prove—to their own satisfaction, no doubt—that the burden is equally onerous upon the owners of industry, the investors in industry, the executives in industry, and on the ordinary workers in industry.

There is one point I would ask the Economic Secretary to deal with when he replies. The fiduciary issue in 1947 was £1,450 million; that is the money in circulation in this country with which to purchase goods. The large bulk of that was paid out in weekly, fortnightly and monthly salaries to the workers. It always is. In 1948, in October and November, it was £1,300 million, a reduction of £150 million. I want to ask the Economic Secretary to tell us from which section of society that £150 million was taken. That is what the Chancellor of the Exchequer called disinflation as drawing a distinction between deflation and inflation. There disappeared out of circulation £150 million between 1947 and 1948. Where has it gone? I suggest that it was largely taken out of circulation owing to the increased productivity of industry. I hope that the House will forgive me for being so presumptuous as to say a word of explanation on what comes out of industry and what does not.

When I said that as much came out of industry in profit as came out in wages, I was dealing with the total production of the country, and the total overheads that come out of it. When hon. Members opposite were dealing with the matter they were dealing with productive earnings only. It had not penetrated their skulls that there is not an insurance company in the country that declares a profit, not a bank that declares a profit and not a distributive agency that declares a profit without that profit originally coming out of the productive processes of this country. The original source of the profit declared by every concern in this country is the productiveness of the nation. What is the most productive machinery of the nation? The most productive machinery is the farmer in agriculture, the miner in the coalmines, the cotton worker in the cotton mills, and the engineer and shipbuilder. These are the main industries of this country, and as soon as we put Purchase Tax on the things that the workers in, those industries need in order to live an ordinary decent life—on dungarees and on a pair of boots—we are reducing their wages. That is where the £150 million has gone.

The hon. Member for Scarborough and Whitby (Mr. Spearman) made a point of the amount that was spent in alcoholic liquor, in tobacco and, he might have added, in greyhound racing, and so on. This money is not spent, it only changes ownership. What he ought to have done was to take the total consumption of tobacco before the war and the total consumption of tobacco now and add to that the increase in the population of 5 million people. What do we get? We get the fact that of 50 million people in this country, 20 million are working class, and the 20 million are rationed and doing with less than they could have got in 1938.

Mr. W. Shepherd

Surely the hon. Gentleman is not trying to tell the House that the average consumption of tobacco per person is now less than it was in 1938 because, if he is, he is entirely misleading the House. It is true to say that the average consumption of tobacco today is somewhere between one-third and one-half as much again as in 1938.

Mr. Scollan

Since 1938 we have an added number of people who have become addicts to smoking. In 1938, there were half the number of females smoking that there were in 1940. The rationing of the 20 million working people today is so arranged that the money they have barely covers their needs. It varies from trade to trade, but taking an average, with the purchases they have to make and the taxes and other things they have to pay, they are not one whit better off.

The main point I ask the Economic Secretary to consider is this. The productivity per worker in Great Britain in 1948 is at least 25 per cent. greater than in 1938. I am not asking him to cheer that; nobody would do that, because the country has just emerged from the second world war almost on the verge of bankruptcy. But because of these figures we are entitled to ask, as my hon. Friend asked, that when the Chancellor introduces his Budget he should give some kind of relief to the ordinary worker and place the burden where it can be carried.

I turn now to the distribution of profits. Surely hon. Members read in the Press quite recently how at the shareholders' meeting of one company the chairman deliberately defied the White Paper and said they would pay more in dividends. I noticed that one or two economists hailed that as a challenge to the Chancellor's powers, and I am watching and wondering what the Chancellor will do, I know what he ought to do.

Mr. Spearman

That case is a great exception. Indeed, I think the Chancellor said the other day that on 93 per cent. of capital, there had been no increase on dividends, but that for a small proportion there was good reason for the increase that had taken place.

Mr. Scollan

Yes, that is quite possible. I am not accepting it, although the Chancellor has said it, for the simple reason that many companies which are making a profit now, never made a profit before 1939, not because the workers did not work hard enough, and not because the directors were not diligent in their duties, but because of the stupidity of putting capital into an industry that was already overcrowded in the market at that time. That is one of the wastes that we have had under the capitalist system, and the worker always pays for it.

I ask my hon. Friend when replying to bear in mind the main point, that between 1947 and 1948, £150 million has disappeared from the fiduciary issue—the money in circulation.

Mr. Spearman

Surely the hon. Member realises that to measure that, he has to measure the velocity. A small amount of money circulating very quickly will do the work of a large amount of money circulating very slowly, so that that figure is meaningless by itself.

Mr. Scollan

I cannot accept that, because this is the ordinary medium of the circulation of commodities. At the week-end the workers draw their wages; they give them to their wives—sometimes; the wives then pay the rent and purchase what they require from the grocer, the butcher and the baker; and then the grocer, the butcher, the baker and the factor take the money back to the bank. That happens weekly, fortnightly and monthly. That is the medium of circulation which keeps things going; that is the ordinary circulation that must operate if the people are to, be fed, clothed and housed. To treat it as hon. Members opposite are doing is to deny that that is how it operates. That is in fact how it does operate.

Mr. W. Shepherd

No.

Mr. Scollan

Certainly it does. And because it operates in that way, if £150 million is taken out of circulation and put into the till, some section of society must have lost it. Nobody can tell me that that was the investing class, because in their case the money is dealt with only once a year: it is not in circulation.

Mr. Shepherd

Surely the hon. Gentleman is not trying to tell the House again that velocity plays no part at all. Obviously velocity must be a factor that has to be calculated. It is also a fact that a great deal of money was rushed back to the bank some little time ago, when certain Questions were asked in this House which gave the impression that the Chancellor might be cancelling the existing notes.

Mr. Scollan

The hon. Member may remember that on three or four different occasions I put down a Question to the Chancellor and to the previous Chancellor asking him to change the note issue back to the old Treasury note. When that Question was put down, there was a rush of loose change back to the bank by the people who thought it might operate. That does not alter the issue at all. That loose change has been taken in, unless hon. Members are trying to make us believe that £150 million in the black market was brought in. If it were in the black market it could not be in circulation and counted as such. Hon. Members opposite cannot have it both ways.

On this issue there is one point I want to raise with the Economic Secretary. I hope he will impress upon the Chancellor that we on this side of the House are not at all satisfied now that all the sacrifices have been made and asked for from the workers of this country. I make no apology for saying "the workers of this country." They have made tremendous sacrifices for the Chancellor, the Prime Minister and the Foreign Secretary. The Foreign Secretary told us in this House that if he had ten divisions he could barter and argue better at the United Nations organisation. What was the result? It was conscription of the workers, who were taken out of the industry, and other workers had to carry the burden. They are still carrying that burden. There is a limit to that burden, and I would ask the Parliamentary Secretary to impress on the Chancellor of the Exchequer that it is time the workers got something better than they got during the last 12 months.

9.29 p.m.

Mr. Fairhurst (Oldham)

Hon. Members present are indebted to my hon. Friend the Member for Stoke (Mr. Ellis Smith) for bringing forward this interesting subject, and I should say that the import of it all was to impress in an indirect way on the Chancellor of the Exchequer what are our wishes. Now that he is building up the national housekeeping burget, he should have certain objects in mind, and the primary one, as I see it, is that he should lighten the burden of taxation on those least able to bear it. How can that be done today? All the arguments on the different aspects of the economic situation which have been tossed backwards and forwards tonight bear some relation to the facts of the case, but the whole thing seems to resolve itself into a system of society that has grown up in this country over many years, and has resulted in a chaotic system developing, but has, at the same time, enabled us for generations to import from other countries what the workers here could not produce.

That state of affairs is reflected in the investments which we had in other countries, and on which we largely drew in the 1914–18 war and again in the 1939–45 war. They enabled us to bring into this country cheap commodities, made by cheap labour in other countries than this. As a result of two wars within 25 years, we have practically exhausted all those foreign investments, and in 1945 we found ourselves a debtor nation with a National Debt of about £24,000 million and having to pay our way. In future our social standards will be determined by our productivity. If we can increase our productivity by 10 per cent., our standard of living will improve by 10 per cent. What we received in the past from our overseas investments has now gone, and our standard of living will be the result of the contributions of the engineers, the farmers, the textile workers, the miners, and all those who make up the social value of a commodity. In his way the Chancellor is probably trying to equate the uneven balances we had in the past, but we are not satisfied that he is doing it. We still feel that the investing classes are taking a higher margin out of the national income than they ought to do. We may be wrong, but no evidence has been produced to show that we are wrong.

We are also satisfied that the lower income groups are finding it very difficult to live. It has been suggested that they are spending far more money on alcoholic liquor, tobacco, horse-racing and dog-racing, but that does not seem to be correct. The major portion of a man's wage is spent on his family and any left over is spent on tobacco, beer or some other special luxury. However, all the evidence today is that less money is being spent on beer, horse-racing, dog-racing and the pictures. It is a gradually diminishing quantity, showing that something has happened in relation to individual incomes which is resulting in less being spent on other than absolute necessities. I have asked for the observations on this matter of scores of people in our industrial towns and the general opinion is that they do not find it easy to live a normal life on the wages they are getting now.

It should be borne in mind that this is at a time when employment is better than it has ever been, an age of full employment. If people cannot maintain their standards today, what will be the position if unemployment comes? That problem is exercising the minds of many people in our industrial areas. Fear of unemployment and memories of a bad past have not yet been eliminated. When we say that people should increase their productivity, should apply themselves to new methods of production, and should be prepared to readjust their outlook in the workshop, they cannot be persuaded that the bad past has gone for ever. It is difficult to convince them that they should reconcile themselves to increased productivity knowing that, as a result, a time may come again when unemployment or semi-unemployment will he knocking at the door. At a time when this country had the world at its feet, when we were sending our goods to every corner of the world unchallenged, we did not take advantage of it and build up our machine in the way we should have done. Instead of ploughing back what had been taken out, it went into profits.

Sir William Darling (Edinburgh, South)

Where?

Mr. Fairhurst

I will give my hon. Friend from Aberdeen an illustration of what I mean—

Sir W. Darling

That is much too far North.

Mr. Fairhurst

I apologise, I should have said the hon. Member for South Edinburgh (Sir W. Darling). I am referring to the textile industry and to coalmining. It has been said that coal and cotton made the industrial might of this country. The profits taken from the textile industry have been fabulous. There is no argument about it. Yet we find our textile industry, even today, in a condition where it cannot meet foreign competition. Why? Because we omitted to build up our machine and improve its mechanism. That was due simply to the stubbornness of the people who controlled the factories of this country. They said, "The machine is all right, we need not improve it." And so we found ourselves losing badly in the international race of productivity.

Sir W. Darling

Would the hon. Gentleman allow me to interrupt? It is a most interesting argument, but has he reflected upon what happens to profits, even phenomenal profits of the character of which he spoke? Would I be wrong in saying that three things happen to them: one, they are used for reinvestment in industry; two, they are used for investment overseas; three, they are used for consumer goods. The limitation on the third category may be very small. Would I not be right in saying that all accumulations in any British industry, textile or coal, were reinvested in the standard of living of this island?

Mr. Fairhurst

The answer is that all the profits extracted from industry are not reinvested. The luxury trades can answer the question of the hon. Gentleman.

Sir W. Darling

What happens to the luxury trades?

Mr. Fairhurst

Even the prices of today do not matter in the luxury trades. People buy luxury goods because they have the money to buy them. Returning to the textile industry, I say that we did not equip our machines with the profits taken from it as we should have done. Had we done so, we would have been in a far better position today to meet the next challenge that may come before long from foreign competition in that industry. All these profits have been gathered out of the labour of the textile workers. The same thing applies to miners. The same applies to engineers. The universal cry today is that prices are too high and purchasing power has a tendency to fall. If prices are too high, what is the reason? I suggest that the Treasury ought very closely to examine the number of times people handle a commodity as it travels round, from the time when it is produced to the time when it is sold. Every time it passes from one to another, a percentage goes on, and I suggest that thousands in this country are getting an extraordinarily good living, but never see the commodity they are passing on.

Sir W. Darling

The transport industry, for instance.

Mr. Fairhurst

The Chancellor ought to examine this question. There are plenty of drones in this country who could be put to useful work. Does the hon. Member for South Edinburgh agree with that?

Sir W. Darling

Is the hon. Member thinking of railwaymen?

Mr. Fairhurst

We are indebted to my hon. Friend the Member for Stoke for this very interesting discussion on something of much importance to ordinary men in the street. They are expecting that the Chancellor will ease the burdens they have to bear and make it possible for wages to buy sufficient commodities, not only food, clothing and shelter, but give them a little extra to enjoy luxuries they have earned by working hard. If they have to do nothing but work hard and cannot enjoy anything, people begin to ask whether it is worthwhile living at all, and the incentive to work is lost. It is on the hewers of wood and drawers of water that the main burden falls, although I agree that administrative workers and the executives play their part. These factors must co-operate as never before. The question arises whether they can co-operate when we know that in the majority of industries the sole objective is to make more profit and not to consider how much social good can be done. When the people feel that these industries are nationally owned and controlled and that production is in the interests of the community at large, we shall have a revolutionary experience which will do nothing but good.

9.43 p.m.

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

The hon. Member for Stoke (Mr. Ellis Smith) has raised a large subject at very short notice. I assure him he was wholly right in one thing, his surmise that tonight I should be unable to anticipate my right hon. and learned Friend's Budget Statement.

My hon. Friend the Member for Stoke, having taken note of the answers I gave him this afternoon, went on to pay a compliment to the Co-operative movement for the help they have given in bringing down prices and the cost of living. I wish to associate myself with that My right hon. and learned Friend has often paid that tribute to the Cooperative movement and we know that we shall continue to have their assistance. I do not think my hon. Friend the Member for Peterborough (Mr. Tiffany) was quite correct in saying that there had been a lack of co-operation between the Ministry of Food and the Treasury in assisting the Co-operative movement in this matter. As a matter of fact, there was continuous co-operation, and as a result some of the increased allocation of materials was made to the Co-operative movement, which roused so much wrath on the benches opposite.

Mr. Tiffany

It is true that certain increased allocations were made at Christmas, but they were far below the fair share which the movement should have had for a considerable time and no increase was made in the allocation in regard to flour and bread.

Mr. Jay

I was merely making the point that there was co-operation between the Treasury and the Ministry of Food. The hon. Member for Stoke also paid a tribute to the trade union movement. Their co-operation in the past year has been of the utmost assistance to the whole recovery which we have achieved. At the same time, however, I repeat that we have had co-operation also from the great bulk of industrial companies in the matter of dividends. True there have been one or two weak spots, but by and large the requests for voluntary limitation of dividends have been observed. Had it not been for the help we have had from all three sections of the community, our policy could not have succeeded.

The hon. Member for Stoke said that the major part of the credit for our recovery, in the last year is due to the manual workers. Broadly speaking, that is true, but I agree with the hon. Member for Stroud (Mr. Parkin) that I should deprecate any suggestion that there is any large section of the community which has failed to play its part. When we have had an increase in production of 25 per cent. over three years, it is perfectly obvious that most workers and managers both in private and in public enterprise, must have done a pretty good job.

The hon. Member for Stoke mentioned also indirect taxation and its part in deciding the level of prices. He rather forgot, I think, that in last year's Budget we made sweeping changes in Purchase Tax by switching the burden from the more necessary to the less necessary goods which did, of course, result in falls of prices over a very wide field. Indeed, we relinquished about £50 million of revenue in doing so. He spoke also of indirect taxation in relation to food prices, but he failed to point out the part played by subsidies in the past year in holding down the cost of living. Were food subsidies not now being paid the retail food index would rise by something like 12 or 13 points.

I think it was my hon. Friend the Member for Peterborough who spoke about the possibility of restoring subsidies to other items such as clothing and shoes. My answer to that is that my hon. Friend is being very unrealistic if he thinks that anything of that kind is possible. He is not really facing up to the economic and financial situation which confronts us. After all, we have established and extended very extensive social services, including the National Health Service in particular, during the past year, and those services must be paid for. If we allow ourselves to get into a situation of having a Budget deficit in order to pay for them, the inflation will be made worse instead of better.

Several hon. Members have asked how we can make further progress in bringing, down prices. In the Debate a few months ago on the cost of living I expressed my opinion that, broadly speaking, there were really only three ways of materially getting down prices. One is by a movement of the terms of trade in our favour; that may or may not happen, and we can do very little about it. The second, and most important, is by producing more and at a lower cost. The third is by saving more. I do not think that hon. Members tonight have placed enough emphasis on the importance of both public and private savings in the battle against inflation and against the cost of living in the next year.

The hon. Member for Stoke finally said that he was pleading for reconsideration—those were his words. I am not quite sure what he meant, but if he meant that he was pleading with the Government to relax the disinflationary policy we have followed in the past 18 months, I must assure him that the time has certainly not come to do so. My impression tonight is that he and some other hon. Members may have underrated the difficulties in the economic problems which still face us. The inflationary pressure is still there and the terms of trade are still running against us. The dollar deficit, although it has been greatly reduced, is also still there. We are not actually losing gold on balance—that is merely because the Marshall Aid payments we are receiving are covering the dollar deficit—but the deficit itself is still there. It would be misleading the House and the country to suggest that this is the time or opportunity for any major relaxation of any of the main measures in our policy of disinflation which we have been following throughout the last 18 months.

Mr. Spearman

May I ask the Economic Secretary whether he would give an assurance that he will consider sympathetically the plea put forward by the hon. Member for Peterborough (Mr. Tiffany) that when the Purchase Tax is reduced, the whole burden should not fall upon the distributor?

Mr. Jay

I have been continuously and exhaustively considering that ever since the Finance Bill, and so have a number of other people.