HC Deb 29 July 1952 vol 504 cc1272-405

3.45 p.m.

The Chancellor of the Exchequer (Mr. R. A. Butler)

I beg to move, That this House welcomes the determination of Her Majesty's Government to maintain the progress so far made towards improving the balance of overseas payments and to take such further measures as may be necessary for the economic security of the country. I made a statement in the House on 12th June, and I emphasised then that it was the fixed purpose of Her Majesty's Government to establish our economy on a secure basis and to put the balance of payments first in all our considerations Policy is and has been a continuous process, and I will tell hon. Members how our continuing policies have already achieved definite results. But I shall also stress the need for renewed and intensified effort.

This is not a time when a Chancellor of the Exchequer can announce changes in taxation or impose fresh charges, or in some way carry out his classical role of fleecing the taxpayer. Heaven forbid that we should have another Finance Bill—[HON. MEMBERS: "Hear, hear."]—and I feel that that is voiced in various quarters of the House. The Government have however, reviewed the position with the utmost sense of responsibility. We are satisfied that the steps we are taking now, those we have taken and those we propose, will steer our country through the very real anxieties of the future, not in a negative, fearful mood, but with courage, imagination and, above all, resolution.

A difficult time is not a time of crisis but a time of opportunity, and it is in this spirit that I shall tell the House of the steady and systematic manner in which we are holding our present position and of the radical approach we must make to the much longer and harder task of restoring once more our economic strength. This strength, as the House will realise, is vital if we are to maintain our standard of living and to restore, as we are gradually doing under the lead of my right hon. Friend the Foreign Secretary, whom we are so glad to see back with us again, our position of influence and leadership in the free world.

On assuming power, the Government were faced with the immediate task of averting a major balance of payments crisis. Unless we succeeded, all would be lost. We are now half-way through the calendar year and it is still too early for the figures for the first half-year to be firm, but it is clear that substantial progress has been made.

We had two objectives for the United Kingdom. The first related to our current balance with the non-sterling world, and the second to our current balance with the world as a whole. The first was to bring the United Kingdom into current balance with the non-sterling world in the second half of this year, after taking credit for defence aid from the United States.

The House will remember that we started front the position that in the second half of 1951, when U.S. aid was negligible, the United Kingdom current deficit with the non-sterling world was running at an annual rate of no less than £1,200 million. In the first six months of this year, I estimate that, after taking credit for defence aid, which amounted to about £75 million, our current deficit had been reduced to an annual rate of some £400 million—that is, one-third of what it was before.

Our second objective was to achieve in the latter half of this year at least a balance in the United Kingdom's accounts with the world as a whole, excluding United States aid. The position from which we started was that in the second half of 1951 our current deficit on this basis was running at an annual rate of £850 million a year. We now estimate that in the first quarter of 1952 this deficit was reduced to an annual rate of about £150 million, that is, to nearly one-sixth, and in the second quarter there has probably been a further significant improvement.

So far, so good; but what of the half year now beginning? There are, of course, as the House will realise, great uncertainties in looking ahead even for so short a time. Our surpluses and deficits are the small marginal differences between the vast totals of payments and earnings involved in our share of the world's trade. Very small changes in the world situation can alter the total of payments or earnings enough to make a very big difference to the comparatively small figure of a deficit or a surplus. But, bearing in mind this uncertainty, which may work either way, I will now examine our prospects in the current half year.

First, what has been the effect of our import cuts? In the third quarter of last year our imports from all sources—that is, on the c.i.f. basis shown in the Trade Returns—were at an annual rate of £4,250 million. In the fourth quarter the rate fell to £4,000 million. In the first quarter of this year it fell a little further to £3,950 million and in the second quarter, which has just ended, the annual rate was down to £3,700 million, a very substantial drop indeed. However, taking into account the export situation, we were not satisfied that we should get through without further reduction in our buying programmes for the second half of this year. I therefore had to insist that our forward purchases should be strictly limited, so that the rate of imports will continue to fall even more sharply during the next few months.

We have managed to keep up—in this general action we have taken —the general level of the basic rations, but this has been possible only by' a very drastic cut in other foods. Imports of unrationed foods, apart, of course, from wheat and flour, represent about one-third of our food and agricultural imports from all sources. In the second half of this year they will now be about 25 per cent. less than they were in the second half of 1951. This figure covers the whole range—canned meats, fruit and vegetables, confectionery and the like.

What about our policy on raw materials? We have consistently aimed in our policy on raw materials to maintain employment and production in industry and agriculture. But we have had to find room in our programme for the very large increase in imports of steel for the engineering industry. This has meant heavy savings elsewhere; for example, imports of paper and pulp for the remainder of this year will probably be less than half what they were in the latter part of 1951. We have already reduced our purchases of dollar tobacco very heavily. Recent decisions will mean that our imports of manufactured goods —other than machinery and defence supplies—will be about 40 per cent. less during the second half of this year than in the second half of 1951. For 1953 we have already taken the decision to limit future programmes of imports from the non-sterling world strictly to what we can afford.

Incidentally, let me make it clear that, taking 1952 as a whole, we expect our basic stocks in total of imported foodstuffs and raw materials to remain fairly steady. In the last six months they have actually increased. During the next six months they will fall, but probably by less than the amount of the rise in the first half year. I am sorry to tell the House that we have had to cut imports, but our action, combined with the immediate extra export earnings, which I shall describe, is calculated to make a decisive contribution to our achieving a balance during the next six months.

Now I want to talk about extra export earnings. The Government have decided that we must make more coal available for export. In the first 29 weeks of this year 2½ million more tons have been produced than in the same period of last year. On 12th July the total distributed stocks were 3¾ million tons higher, that is, at 16.9 million, than at the same time in 1951. At the same date there were 18,000 more men in the mines and 6,400 more were working at the face—which is the vital figure. This larger labour force should show increasing results in output as the year goes on. I hope that those who have toiled to produce these extra tons will realise how invaluable is their contribution to our recovery and how much they will be applauded at home and overseas.

Mr. Emrys Hughes (South Ayrshire)

Give them a rise.

Mr. Butler

In 1951 we exported 7.8 million tons and I hope that we shall double this figure in 1952.

Next we are looking for a contribution from the export of defence equipment to our friends and allies. I told the House on 12th June that we had made an agreement to settle part of our debts to the European Payments Union by exporting nearly £9 million worth of arms and equipment over the next two years to Belgium, one of the main creditors in the European Payments Union. For this we have already received credit, and by this we save direct payments in gold.

I am glad to state also that the U.S. Administration have already placed orders for their own forces and under their off-shore Procurement Programme to the value of nearly £25 million. We are at the moment discussing the possibility of substantial extra sales. Apart from these special arrangements, we expect to secure a further £l0 million this year from the sale abroad of arms which we can spare from our production, over and above the amounts we had formerly envisaged, and I expect to receive the whole of this sum from exports to non-sterling area countries. These sales will help us to earn a certain amount more foreign exchange during the second half of this year. Moreover, they have the advantage, which hon. Members must realise, of keeping in being, and in operation, industrial capacity for the production of the latest weapons; and they are a valuable contribution to the arming of our friends in the free world. They will include as already stated some of the latest types of weapons, for example, Centurion tanks.

My right hon. Friend the Prime Minister will deal tomorrow with the strategic and technical review of our defence situation which has been carried out with the advice of the Chiefs of Staff. It is a complex matter, with which no one more than he is so admirably equipped to deal. I confine myself to the effect on our balance of payments, which can be simply stated. With this new pattern of our defence effort which he will describe it will be possible to limit the demands made by defence on the engineering industries in the near future. Consequently the further increases in output that can be achieved in these industries by improved methods, greater productivity and new capacity will be available to swell the flow of exports and help relieve our balance of payments. Here is one sensible instance of the application of the principle of giving the balance of payments priority. So much for the contribution to be made by coal and defence.

Mr. Aneurin Bevan (Ebbw Vale)

Will the right hon. Gentleman allow me to intervene? It is a very important statement that has now been made, that priority is to be given to exports from the engineering industries. Will the right hon. Gentleman tell the House to what extent that priority will affect the figures of the armaments programme?

Mr. Butler

I am not poaching upon the ground which my right hon. Friend the Prime Minister is to cover at length tomorrow. So if the right hon. Gentleman will be patient, he will hear a full explanation of these matters in the debate tomorrow.

Mr. Bevan

As this is the opening speech, and we are anxious that the debate shall proceed with the utmost information, if priorities are to be given to products of the engineering industries, surely the figures have been worked out of the impact that is likely to have on the armament programme itself; and unless some figure is present in the mind of the right hon. Gentleman, no one knows at all to what extent the priorities will impinge on the arms programme. Why this coyness about giving that figure?

Mr. Butler

The whole project and conception of the defence plan, the figures which the right hon. Gentleman desires, and all aspects of it will be discussed by the Prime Minister tomorrow. As I have a great many other subjects to mention, I think I had better continue with my speech, confining myself to the balance of payments aspect which I have described.

Mr. Woodrow Wyatt (Birmingham, Aston)

Will the right hon. Gentleman just answer this simple question? Does he, or does he not, mean that there is to be a further slowing down of the speed of the armaments programme?

Mr. Butler

I mean exactly what I have said, and perhaps the hon. Member will study my words, because he will see that in fact what I have said indicates that there will be an advantage to the balance of payments problem with which we are all concerned; and what I have said frequently before, namely, that the triple impact on the metal-using industries of exports, defence and home demand will be somewhat relieved in the interests of the balance of payments.

Now I will go on with some further remarks about exports. The outstanding task remains, namely, to bring about a big increase in our export earnings, especially outside the sterling area, not only this year, but for many years to come. We must count on a great part being played by the so-called "invisibles," especially by our international businesses of oil and shipping, British enterprise overseas, the growth of tourist income, and the combination of banking, merchanting and insurance. Tourism especially this year will have a great part to play in our recovery, and we look for a considerable increase in its earnings.

Now for visible exports. We know that some industries are adapting themselves with resource and vigour to the new situation. But if we look at the general figures of exports we cannot possibly be content with our present export effort. In the first half of this year, exports, although 9 per cent. better than in the first half of 1951, were only slightly higher in value than in the second half of 1951. In volume they were probably slightly lower; and in the second quarter the value of exports was 13 per cent. lower than in the first.

The prime task of increasing exports generally depends for its success on the energy, initiative and ingenuity of industry itself. The Government propose to help with some day-to-day administrative measures of some value to exporters. In allocating raw materials we shall continue to give preference to exports, and particularly those to the dollar area. We shall moderate the exchange control over credit terms, and widen the facilities under the Export Credits Guarantee Act so as to help to make our export offers competitive. It is very often just that little bit extra which makes it possible to sell a car or other commodity in the dollar or other markets.

I stress again how important it is for the commercial banks to continue to give priority to exports in their general administration of credit. I shall be saying more about our overseas policy and exports later, and the President of the Board of Trade will be speaking at the end of this debate.

I wish now to refer to the prospects of the rest of the sterling area and of the European Payments Union. The efforts of the other sterling area countries are showing results. I do not think that the right hon. Member for Leeds, South (Mr. Gaitskell) had any right to say that the financial conference we held in January was a failure. That is certainly not the view of the other Finance Ministers of the Commonwealth who took part, and, as I shall be showing the results themselves will confound the right hon. Gentleman and his criticism.

I had hoped that the other sterling area countries would have achieved a surplus with the non-sterling world during the second half of 1952. Had it not been for the fall in the last six months in the prices of those commodities, such as rubber and jute, on which the economies of some of our partners in the sterling area depend, we might have been able to report more spectacular results. But despite the circumstances, which could hardly have been foreseen, I expect that our partner countries, taken together, will be just about in balance with the non-sterling world in the current six months.

I now deal with the situation during this half year in the European Payments Union. It is difficult to make precise calculations because of the great variety of transactions which involve ourselves, the sterling area and the rest of the world. There are bound to be considerable margins of error. I have, however, made the most careful calculations possible as a result of the cuts made and the steps we have taken.

I must warn the House that in July our deficit will be considerably larger than it has been recently, but this present quarter is normally the worst for the whole sterling area in its balance of payments with Europe, and our best estimates show that the July figure does not indicate the start of a worsening trend. Indeed, the steps we have taken should result in restoring us to a position of balance with the European Payments Union, I hope by the end of the year, provided we stick determinedly, as we must do, to the task of reaching balance and then earning back the gold which we have paid out.

This brings me to the end of my review of the factors affecting our situation in this half year. I can now sum them up and put my conclusion before the House. Provided no new adverse factors arise and provided we carry through to their logical conclusion the strict measures which we have consistently adopted, and have now recently reinforced, I expect that, after taking credit for defence aid, which for this purpose I calculate at £115 million, the current account of the United Kingdom, in the second half of 1952, will be in balance with the non-sterling world and at least in balance with the world as a whole. That is to say, if we are constantly on the alert we may well attain both the formidable objectives which we set ourselves.

If we do, and if the current account between the rest of the sterling area and the non-sterling world is also balanced, that will indeed be evidence of the inherent strength and stamina of the country. My right hon. and hon. Friends may feel that the account I have given today may well be the answer to that expert draftsman, the former Attorney-General, who at Swindon the other weekend, referred to those palsied Conservative Ministers, unable to give a lead and incapable of consistency. We welcome the mild, former Attorney-General in these new and sinister phrases, but he had better turn his attention to what the Minister of Works said at Magor in Monmouthshire, in describing the right hon. Gentleman the Member for Ebbw Vale (Mr. Bevan) as, the downright abuse of a small, ambitious and highly organised minority within his own ranks. We advise right hon. and hon. Members opposite to turn their attention to their own ranks, and to cease criticising a Government which, in a few months, has achieved results which are in the interests of us all and of the whole country.

Now, we must move out of the danger area and seek some solution to our fundamental problems which will last and endure. We should, indeed, be complacent in the House as a whole if we under-rated the fundamental changes which have taken place in our economy since 1939. Many of these burdens have been born of honour—of the part we played in the war.

In the war, we lost one quarter of our national wealth in capital losses both at home and abroad. We were transformed from the world's biggest creditor, a surplus position of about £3,500 million, to a debtor position of about £2,500 million. The gold reserves, both in relation to our liabilities and in relation to the turnover of our external transactions, have dropped by five-sixths. The change in the terms of trade has added up to £1,000 million a year to our import bill. It means that another three hours' work a week has to be done by every worker in the country to get the same amount of commodities from abroad as we got before. [Interruption.] I do not think hon. Members should get so excited about these facts, because they are very important, and it is very important, too, that people at home and abroad should understand them.

In the world of cold war, our overseas military and political commitments, which cost us only a few millions in the 'thirties, came to nearly £200 million in 1951, and now cost even more, and that represents the efforts of our far-flung forces in Korea, Egypt, Malaya and elsewhere. We have to devote far greater sums to defence, in men, material and money, than we ever previously needed to contemplate in peace-time. Our island economy can no longer rely on cheap and plentiful supplies of food and raw materials from abroad, and we have to fight every inch of our way in the markets of the world.

But this is not all. We have capital commitments which should not be forgotten—debts to the United States and Canada—to the European Payments Union; obligations under the Colombo Plan and also to provide funds for investment abroad for the development of British-owned and Commonwealth enterprises, and for the benefit of the underdeveloped areas. These commitments are very real and have to be paid for in exactly the same way as current imports of food or raw materials. If they are not, then the loss must fall, directly or indirectly, on the gold reserves, whereas our real need is to build them up again.

Of course, we are proud of what we have been able to achieve as a country—our defence programme, the most impressive of any nation of our size in the world, and our system of social services, second to none. [HON. MEMBERS: "Tell it to the benches behind you."] It might be a good thing if hon. Members sometimes gave credit to those on this side of the House who took their part in these policies.

Surely, we must strive, with that resolution, that skill and inventiveness in new design and production which we still have and which is still the envy of the world, to preserve and fortify our proud position by ensuring solvency in our current accounts, and securing the surplus that we must have if we are to pay our way and enable our economy to take the shock of external changes.

Here is a formidable task which calls for all the energies and skill of our people, and it is certainly not a task which can be solved in terms of restriction. Our whole plan and policy must have as their aim, expansion—expansion of production and expansion of exports of the kind the world wants and at prices which the world is ready to pay. We must enlarge our ideas and kindle our imagination. We must seek to establish the conditions, both at home and abroad, of an expanding economy.

I will look first at home and then abroad from the point of view of encouraging expansion. At home, industrial activity has been stable since the Budget. In fact, in the first two months of the financial year, output was, if anything, slightly lower than in the corresponding months of 1951. In some industries, things are better, especially in coal, to which I have referred. The steel outlook, too, is more promising; more supplies will be available this year than last, and since it has been the shortage of steel which has held back production in many industries, it is probable that these new supplies will lead to an expansion of output in the engineering industries.

Here I want to say something about the White Paper published yesterday. Consistent with our election pledges, the Government have outlined a plan for the future of the steel industry. Now will be the time, during the long Recess, for constructive criticism and for proposals to be put forward designed to effect a lasting and accepted national settlement of the future of this great industry. I want to say this in all seriousness to the House. I can assure the House that we shall be ready to consider any ideas put forward, from whatever quarter they come.

Taking the chemical industry, we also have encouraging reports. Its output has already grown by over half in recent years. And when we turn to agriculture, we must produce more home-grown food through conscious and energetic encouragement, and not criticism, of the agricultural industry. We are aiming to bring production to 60 per cent. above pre-war, with particular emphasis on meat production. This will be done partly by Government help and partly by further improvements in grassland management. There is already a fresh spirit of endeavour and determination on our farms.

Another industry in which the Government believe that expansion is possible is the building industry. Here we must get higher production without increasing the labour force or placing an undue burden of imported materials on the balance of payments. The Government believe—as has been shown in the lead given by my right hon. Friend the Minister of Housing and Local Government—that much more building work can be done, with a given amount of steel, by the more general adoption of methods of building which use steel economically. Constructions which use the old-fashioned methods will have to be drastically reduced.

We look to all in the building industry and to the professions to assist us in this task. At the same time, further economies are being made in the use of timber in building work. On these assumptions we shall continue our housing drive, which is already achieving success. In general, we intend to give a larger share of building output to productive industry in 1953. We had to cut back here because of the steel shortage in 1952. But in our present economic situation new building for industry is of the first importance, and will be so treated.

I should now refer for a minute or two to the action which we have taken in the field of monetary policy.

Mr. Ellis Smith (Stoke-on-Trent, South)

The right hon. Gentleman made an important statement with regard to increased production by the engineering industry for export purposes. What concerted plans has he to propose that will see that the capacity of the engineering industry is used more in the national interest, and that the national interest will be given priority?

Mr. Butler

I cannot enlarge on that here, but, judging from the lead already given to the industry, I am certain they will work with us in this general objective.

I want to say a word or two about monetary policy. The rise in the Bank rate and other measures which were used have brought about a more cautious use of credit at home and have made credit more difficult and more expensive for foreign borrowers. Already at home I was able to say in March that the level of bank advances had become virtually stable. That restraint has been fully maintained. The dangerous growth in credit has been halted, but credit for industries vital to export and to defence has still been given where need was shown.

We have also got to keep a careful eye on the level of Government expenditure, and not only on Government expenditure, but also expenditure by local authorities. If we are to achieve our objectives, these expenditures must be kept within the limits of what we can afford, and so, as the time comes for the Estimates, we shall continue with our policy of curbing public expenditure in order to maintain a healthy economy and currency. The present Government have already made great efforts in this direction, and as an example I should like to tell the House that my aim of reducing the Civil Service by 10,000 in the first six months of the year has been achieved and surpassed. The usual White Paper giving the details will be presented on 1st August.

Such controls of credit and expenditure help exports not only by keeping down competing demands for resources, but also by helping to avoid rises in costs. It is essential to avoid these rises in costs. We cannot afford them—the House will have heard what I said about the export trade—faced as we are with such severe price competition for so many ranges of goods.

Our policy on profits should ensure that there will be reasonable restraint in their distribution. As regards wages, moderation must be the keyword. Everyone must know that increases of wages not matched by increases of productivity would force up our prices and diminish our prospects of attaining the level of exports which is necessary for our salvation.

I trust the House will realise on all sides that any statement of mine, such as I made at Exeter, or action by my colleagues springs from a deep desire to meet the nation's needs, as well as to preserve constitutional practices. If this is understood we shall come through our difficulties on the home front successfully, however much we disagree.

If we price ourselves out of world markets and lose exports, or if the cost of living spiral starts whirling again we shall risk falling right back to bankruptcy. Then our pound would lose its value and we should not be able to afford our daily bread or the materials for our daily work. This, on the home front we ask for moderation in demands, that extra reward shall go as far as possible with extra effort, that we shall expand production and put more into export.

The expansion of our own earnings, visible and invisible, to the extent necessary to enable us to pay our way, is a formidable task. We have to do this in any case, whatever the world conditions may be, but our task would be infinitely eased if world conditions were favourable. I come, therefore, for the last few minutes to our attitude to this major question.

Mr. R. H. S. Crossman (Coventry, East)

Before the right hon. Gentleman comes to that, may I ask him one question on exports? Without poaching on what the Prime Minister is to say tomorrow, could the right hon. Gentleman tell us how much he hopes to increase in pounds, shillings and pence the value of our exports by his different pattern with regard to arms? He must have some calculation as to how much extra is to be earned from exports by the reduction in arms.

Mr. Butler

I have already said to the right hon. Gentleman that I cannot add any more today, and that must be my answer to the hon. Gentleman.

Mr. Herbert Morrison (Lewisham, South)

May I put this to the right hon. Gentleman? Half the period allocated to this debate will have gone by tonight. This factual element of the matter is an important element of the debate, whatever view may be taken, and therefore it is surely not treating the House properly that this material point—and it is a material point whatever views people may take about it—should be hidden until we start the debate tomorrow, by which time half the period of the debate will be gone. Therefore, we are in a muddle as far as that situation is concerned.

Mr. Butler

I cannot add anything in the way of factual statements today to what I have already said. The right hon. Gentleman says he is in a muddle.

Mr. Morrison

No, I did not.

Mr. Butler

Perhaps the right hon. Gentleman will just let me say that to develop the case on defence demands a considerable preparation, and I do not propose to enlarge on it further today.

Mr. Morrison

I did not say I was in a muddle. The right hon. Gentleman has no need to misrepresent the situation. I said that the House is bound to be in a state of some confusion today if these facts which are known to the Chancellor—I am not asking him to deploy the whole argument—are not given to the House today. Surely it is reasonable and fair to the House that the bare facts at any rate should be given today.

Mr. Butler

The main facts have been given both to the right hon. Gentleman and to the House, namely, that the impact of defence on the metal-using industries will be limited.

Mr. Morrison

To what extent?

Mr. Butler

I cannot evaluate that exactly. If one did that, one would have to stand by it. I think it will be of great assistance to the balance of payments position, but I think that if one cannot evaluate something exactly it is not fair to put it to the House and to be expected to stand by it. Therefore, I cannot add anything to what I have said.

Mr. Morrison

The right hon. Gentleman has told us nothing at all.

Mr. Butler

I was saying that if we are to have expansion on the home front, we must have expansion and take our share in a greater degree of world trade. If trade is increasing and there is a favourable atmosphere for a growth of world trade, our prospects are greatly improved. If we are going to expand this world trade, we must have the help of the sterling Commonwealth and Canada, and we need the good will of the United States in helping with capital for overseas development and purchase of our available raw materials and exported goods. We must also recreate sterling as a strong and respected currency and a sought-after medium of exchange.

Thus we have decided to embark on what we hope will develop into the greatest effort made since the war to establish with our friends and allies the conditions for a real expansion of world trade. The Prime Minister has already announced that a Commonwealth Conference will be taking place in the autumn. The fact that six out of eight Commonwealth Prime Ministers have informed my right hon. Friend that they propose to come to London can be taken as unmistakable evidence of the importance which they and their Governments attach to securing the highest possible degree of working together in our joint problems.

Not only will the Commonwealth Conference follow up the work of the Finance Ministers' Conference, but we shall also be able to broaden our discussions into the whole field of economic and trade relations. We shall also take in, in the preliminary discussions which will pave the way for the conference and later, the whole of the system of Imperial Preferences to which we attach so much importance. We hope also to consider what part the various international agencies, whether financial or economic, should play in the solution of our problems.

We must link this development in the Commonwealth with the lead which the Foreign Secretary has already taken in Europe by being elected Chairman of O.E.E.C. The result is that this country will have the priceless opportunity of linking up the special problems of Europe with those of the Commonwealth and the free world. When in a position of lead, as we shall be, we have linked up the problems of the Commonwealth with the problems of Europe and then sought the co-operation—

Mr. Wyatt

Will the right hon. Gentleman—

Mr. Butler

—of the United States and the friendly comradeship of Canada—

Mr. Wyatt

May I ask—

Mr. Butler

—then we shall have thought out in detail our plans and designs for establishing our material prosperity and our strategic security on lasting foundations. These plans are of vital importance to our country and to every hon. Member in this House. It will need much time and patience to carry them out, but I believe that the actions we are to take will eventually result in the long-term—

Mr. Wyatt

May I ask—

Mr. Butler

—establishment of the economic future of this country. When this conference has taken place I feel certain that, with the other developments to which I have referred, we can put our long-term affairs on a solid basis.

I would say to hon. and right hon. Gentlemen opposite, who seem to mock a great many of these developments and who seem to have taken very lightly some of the serious remarks that I have made today, that they do not seem to have accepted the problems of our country in the spirit that they should, which is that if we fail we fail together, and if we succeed we succeed together.

Mr. Wyatt

Before the right hon. Gentleman sits down, may I ask him a question?

Mr. Deputy-Speaker (Sir Charles MacAndrew)


Mr. Wyatt

On a point of order.

Mr. Deputy-Speaker

I do not see how a point of order can arise while I am proposing the Question.

Mr. Wyatt

It is customary to be allowed to ask the speaker a question. May I put to the Chancellor of the Exchequer one question before he sits down? What I should like to ask the right hon. Gentleman—

Mr. Deputy-Speaker

Since I have been in the Chair I have noticed that the right hon. Gentleman was not willing to give way. There is no point of order.

Mr. Wyatt

On a point of order. It is customary in this House to be allowed to put a question—

Mr. Deputy-Speaker


Mr. Wyatt

I have not yet finished my point of order. It is customary in this House to be allowed to put a question to a speaker before he finally resumes his seat. That is what I was trying to do. The Chancellor has not resisted my so doing. May I put my question?

Mr. Deputy-Speaker

The right hon. Gentleman appeared to be unwilling to answer the question earlier.

Mr. Wyatt

No, Sir. It was not the right hon. Gentleman who was unwilling to hear the question; it was the hon. Member sitting behind him. The right hon. Gentleman said nothing. You, Sir, were allowing me to put the question which hon. Members behind the Chancellor would not allow me to put. Surely I may be allowed to put the question now.

Mr. Deputy-Speaker

As I understood the position, the hon. Gentleman was asking the Chancellor of the Exchequer to give way to him and to answer a question before he sat down. The right hon. Gentleman was unwilling to give way.

Mr. Wyatt

I was trying to put a question before the Chancellor finally sat down. He made no motion or sign whatever that he resisted, but there was so much noise from the back benches opposite that I was unable to put the question. May I put the question now?

Mr. Deputy-Speaker

I thought that the right hon. Gentleman was not willing to answer the question, because he did not sit down.

Mr. Wyatt

He does not know what the question is.

Mr. Deputy-Speaker

No, of course he does not; but he was not willing to answer.

Mr. Wyatt

What I wanted to ask the right hon. Gentleman was whether—[Interruption.]

Mr. Deputy-Speaker

I think I understand the position. The right hon. Gentleman was unwilling to give way to answer the question while he was speaking, and I do not suppose that he is willing to answer it now.

Mr. H. Morrison

On a point of order. Surely, it is customary when a Minister has resumed his seat for an hon. Member to say, "Before the Minister resumes his seat, will he deal with so and so?" It is open to the Minister whether he does or does not. The grievance from which my hon. Friend is legitimately suffering is that, instead of allowing that legitimate and customary procedure, hon.

Members opposite are misconducting themselves. They are shouting for the purpose of preventing my hon. Friend from being heard. I submit now that it would be right for you, Mr. Deputy-Speaker, to ask hon. Members opposite to behave themselves.

Mr. Deputy-Speaker

I certainly will do that if it is necessary. If the Chancellor wishes to answer the question, I have no objection. I concluded that he did not wish to answer it.

Mr. Wyatt

May I now put to him—

Several Hon. Members rose

Mr. Deputy-Speaker

Order. I can deal only with one thing at a time.

Mr. Wyatt

What I wanted to ask the Chancellor of the Exchequer was whether, before he finally resumes his seat, he would tell us what proposals the Government have to deal with the economic situation which the Prime Minister said was so serious.

4.40 p.m.

Mr. Hugh Gaitskell (Leeds, South)

This debate was heralded by a strange series of confusing statements by various members of the Government, but one thing which those statements had in common was that some important statement was to be made by the Chancellor of the Exchequer this afternoon. There never has been such an amazing anticlimax. I can assure the Chancellor that a certain amount of the clamour with which some of his speech was greeted was not in fact due to disagreement with what he was saying. It was due to anxiety and surprise that all he could give us was a series of platitudes with which most of us agree. After all that has happened before, it is really a very surprising situation.

My hon. and right hon. Friends have drawn attention to the peculiar position which we are in as far as the defence programme is concerned, and I shall return to that subject later on; but I must say straight away that it makes it extremely difficult for us to debate such proposals as there may be from the Government when we have not the slightest idea what they are.

Let me remind the House of statements that were made beforehand. The Prime Minister started it all with a speech in which he introduced, in his own colour- ful and dramatic way, the conception of the treacherous trap-door. He said on 11th June: What I wonder is whether they have realised the treacherous trap-door on which it all stands. It is an alert that I am sounding, yet it is more than an alert—it is an alarm. One thing certainly happened. It was an alarm to many holders of sterling because, according to reliable accounts, we lost something like 100 million dollars in capital. And I imagine that the Chancellor must have got rather anxious about this ebullient statement which the Prime Minister made on his own.

The Prime Minister (Mr. Winston Churchill)

I did not make it on my own.

Mr. Gaitskell

If the Prime Minister tells me that the Treasury put in his brief all the bit about the treacherous trap-door, I will accept it.

The Prime Minister

I make my own speeches by myself, but as a matter of fact I took the precaution of having what I was about to say checked by the authorities.

Mr. Gaitskell

I should be very surprised indeed if the Chancellor's advisers really thought it was a wise thing for the Prime Minister to speak at a moment of exchange difficulty about a treacherous trap-door on which it all stood. The Chancellor himself, as usual, was very much more moderate on the following day and I imagine that he was very glad to be able to speak on the following day. He said: We are holding the position. … And using a mountaineering analogy, he added: It is not a question of getting over a hump. It is much more a question of building up our position steadily over the next two or three years."—[OFFICIAL REPORT, 12th June, 1952; Vol. 502, c. 408.] Lord Swinton, in another place, said on 3rd July: … I wish people would not talk about 'a crisis.' This is not in the nature of a crisis. And then he became medical in his analogy. He said: It is not like a fever where your temperature goes up and you either get the right prescription and take the right medicine or you do not, and then either you are cured or you die."—[OFFICIAL REPORT, House of Lords, 3rd July, 1952; Vol. 177, c. 692.] So, although the trap-door was there and although one might not be feeling very well, if one went down one did not go down very far. There was a bed waiting.

I see that the Chancellor today sides with Lord Swinton in describing this, not as a time of crisis, but as an opportunity. So one can get up from the bed again. Later on the Prime Minister became much more coy as to what this debate would contain, and in answer to various Questions he said various things. In answer to the second supplementary question on 16th July, he said: The House is going to be informed of the very serious measures which are being taken in all fields … He said: …which are being … and not "will be" taken. In answer to the sixth supplementary question, he said: … we are going to have a two days' debate at which very grave and far-reaching matters affecting every branch of our national life, … will have to be brought into a new survey and presentation of our present position."—[OFFICIAL REPORT, 16th July, 1952; Vol. 503, c. 2149–50.] When I asked him later what he meant and asked whether he meant "measures" or "matters" he could not remember. I am told that equally after that obviously impromptu answer the Treasury again expressed more alarm at the situation which would be created in the foreign exchange market if the Prime Minister went on making these statements about far-reaching, grave matters and measures. I must say that the Chancellor must be relieved to have got in first on this occasion.

I hope that the Prime Minister is not feeling that I am trying to stir up controversy between him and the other side. I never noticed that there was any restraint on his part in trying to stir up controversy in Parliament, particularly between the two different parts of the other side of the House.

The Prime Minister

That is not very difficult.

Mr. Gaitskell

There is not much difficulty here either. The Chancellor of the Exchequer today gave us very little on which to go and I am bound to follow my own course in this speech to a considerable extent, though I would have wished to have something on which to comment.

I want to begin by saying a few words about the dollar problem and to emphasise once again, as we must emphasise, that this is not the same thing as the problem of the United Kingdom overall balance of payments. The two things overlap, of course, and they are associated, but it really is dangerous to confuse them.

May I give one reason why that is so? In 1949 the United Kingdom had a small surplus on its balance of payments and in 1949 the dollar situation was so serious that we were driven right off the pound. It is perfectly obvious, therefore, that one can have a moderately favourable United Kingdom position and nevertheless have a very difficult dollar situation. To some extent the opposite can be true also, and therefore we must draw that distinction and always bear it in mind.

My first complaint against the Government on the dollar situation is that they have not disclosed their plans. They never told us after the Commonwealth Conference in January exactly how it was proposed that we were going to get into balance—that is the sterling area—with the rest of the world.

It is true that we were told that we in the United Kingdom had to achieve our balance by the end of the year with the rest of the world, allowing for United States aid, but nothing has been said about what other countries in the sterling area are to do—whether some are to have a surplus or some a deficit, and whether the rest of the area is to be in balance with the European Payments Union or not. We have not even heard from the Chancellor exactly what the target for our dollar exports is to be. Everything is grouped together: we are just told that the whole of our non-sterling trade is to be in balance.

The only thing with which one can deal in detail therefore is our own contribution; and here I was a little surprised at the rather favourable picture which the Chancellor gave us. I might say, in passing, that this habit of contrasting the first half of 1952 with the second half of 1951 is extremely misleading. It surely is well-known to the Chancellor that the second half of 1951 was extremely abnormal for various reasons.

For example, the level of our invisible exports in those six months was no more than £25 million as compared with £250 million in the previous six months. [An HON. MEMBER: "Abadan."] Some of it, no doubt, was due to the loss of Abadan, but that certainly does not explain the whole of it. The Chancellor himself has allowed for a very different position in the case of invisible exports this year. It is equally known to everybody, surely, that in that period the stocks of materials were rising fast in this country and that the volume of our imports was swollen very considerably by that element of stocking up.

I am going to compare, not the first half of 1952 with the first half of 1951, though there is a case for that, but the average monthly figure for 1952 so far with the average monthly figure for 1951, and in doing so I follow the lead of that well-known paper, the "Financial Times." Here we find, in comparing these two years on that basis, that for 1952 the level of imports was £317 million per month as compared with £326 million for the whole of 1951. That gives us a saving of about £9 million a month, or, say, £108 million in the year as a whole.

The Chancellor has told us—it is part of his plan—that we must cut imports for 1952 as a whole by £300 million compared with 1951, and if the House will follow me it will be seen quite easily what a tremendous amount of ground there still is to cover. In fact, according to my calculations, we have to make in the second half of this year a further cut of around £35 million a month. That is a very formidable task indeed, but it is all the more formidable when we remember that, I imagine, virtually the whole of this must fall upon non-sterling imports.

The Chancellor of the Exchequer has not, I think, ever suggested that it was necessary or desirable to reduce imports from the sterling area as an act of deliberate policy, though it may be, for example, that the purchases of wool are reduced because there is a depression in the woollen industry here. If that is so, we have to cut £35 million a month out of a total of some £200 million a month for non-sterling imports at the present time.

One is bound to ask: can this be done, and what are the consequences going to be? Can we really hope that cuts on that scale can be made without seriously affecting the level of our stocks? I find it extremely difficult to believe. Are we quite sure that when the Chancellor speaks of stocks he is thinking not merely of Government stocks but of industrial stocks as well? I should like to have some further details from the President of the Board of Trade when he replies.

There is another matter closely connected with this. I believe that most hon. Members must have been worried during the past six months by the extraordinarily high level at which imports continue to run, and there has been a good deal of rumour and discussion about the delay in imposing the import cuts which were announced—the first lot in November and the second lot in March. I should like to quote a few figures.

First of all, does the House realise that in the first six months of the year there was actually a rise in dollar imports of £8½ million a month? That is really an extraordinary situation when one considers how serious the dollar situation was. I am also advised that a number of the quotas that have been fixed, and were fixed by the Board of Trade earlier, have already been exceeded.

The "Financial Times" has some interesting figures here. Most of them are for foodstuffs. Take, for example, biscuits; apparently the monthly average under the quota was £87,500, and the actual average imports were £374,000—that is to say, a figure about four times as much. For cocoa butter £78,000 is the quota and £216,000 is the actual figure. For raw cocoa the figures are £30,000 and £132,000 respectively. I will not go on with the table; perhaps the President of the Board of Trade would look it up and give us his explanation of these rather extraordinary discrepancies.

I should like to quote one last figure in this connection because it is one in which hon. Members opposite will be particularly interested. It is the figure for the import of fresh soft fruit which was fixed under the quota, according to my information, at £550,000; and, so far as one can work these things out—it is not very easy because the categories differ in the Trade and Navigation Accounts from the original Board of Trade statement—there has been imported, not £550,000 worth, but over £2¼ million worth. If that is so, it suggests that whichever Department is responsible, whether it is the Board of Trade or the Ministry of Food, has been extraordinarily inept and incompetent in this whole business. I hope the President of the Board of Trade will be able to throw some light on the situation.

If one turns to the European Payments Union balance as a whole, which of course covers the rest of the sterling area as well, here again everyone has been very alarmed by the continual high level at which our deficit has been running. We have been told that not only was it £17 million in June—I am not counting in the special arrangements under E.P.U.—but it is going to be even worse in July.

What is the reason for this? Can the President of the Board of Trade give us an explanation? Is it that the other members of the Commonwealth have not applied their cuts so rapidly? Is it that there are capital movements involved in these figures? I am bound to say that I feel very little confidence in the Chancellor's assertion that we are going to get so rapidly into balance with the European Payments Union.

I do not believe, even so, that the short-period dollar outlook is necessarily very grave, and I will tell the House why. In the first place, I suppose we can confidently rely on the fact that the cuts imposed by the rest of the sterling area much later than our own original ones will begin to operate and affect the position of the sterling-dollar account.

My second reason is a different one. I, personally, think that in the immediate future the prospect in the United States is rather better than it has been recently. I should like to explain why. If one looks over the history of the last three years, it is fairly evident that there is a kind of cycle of demand, stock-building and imports in the United States which has wide, and indeed world-wide, repercussions. In 1949 there was more than a mere movement of stock in the United States. There was a recession—a fairly mild one, but it affected imports and it affected the prices of raw materials and created, to a very large extent, the difficulties which led to our devaluation.

In 1950 the opposite movement took place. There was an expansion of demand in the United States following, and even before, the Korean war; there was a period of building up of stocks there, a rise in raw material prices, and of course greater dollar earnings in the sterling area. That happened to coincide with another favourable movement, namely, the cutting down of imports from the dollar area by the whole sterling area; so that both sides were working in favour of the sterling area.

The Prime Minister

A sort of trap-door?

Mr. Gaitskell

No, the appropriate analogy would probably be a figure of eight, if the Prime Minister is interested. He must not be too tender on these points. After all, he is not very tender in his comments sometimes. In 1950 exactly the opposite took place, and again in 1951 the contrary movement. The level of United States imports fell, not throughout the whole of the year but in the second half of the year, this time not because of any fall in production but simply because the rate of stock-building declined in American industry.

It is a most alarming and striking phenomenon that even a change in the rate at which stocks are built up should produce such really devastating consequences for the rest of the world through the decline in United States imports. That happened, and simultaneously, of course, with the repercussions of the large earnings that had been made only six months before, the volume of imports by the sterling area from the dollar area was rising, so that the position was developing again much as it did in 1949. I believe that we are now moving back on the next bit of the figure of eight, that is to say, the United States imports are beginning to rise because inventories are again being accumulated, while, at the same time, we are getting the benefits of the various cuts made here.

Therefore, although I cannot say that I think what the Government have done in the way of restricting imports has been either successful or well administered, nevertheless, quite apart from anything they may do, I think that the situation at the moment may be rather better. But I think that we should be very unwise if we reckoned on anything more than a very short period of recovery. After all, the present dollar-sterling situation is a most precarious one, despite an extraordinarily high level of activity in the United States.

One is bound to admit that the 1950 price relationship—the very high prices for wool, tin and rubber that obtained—was quite abnormal, and I do not see any likelihood of it reappearing, but if it be agreed that small changes in the rate at which stocks are built up in the United States can produce so much effect, we cannot but ask ourselves what will be the consequences if and when there is anything like a serious recession in the United States.

One other cause for anxiety is that the United States are now adopting a policy of price support for many of their major raw materials. That means that if there were to be any sort of recession we could be fairly sure that the prices of those commodities would not be allowed to fall. In the sterling area as a whole we shall therefore be faced with the terms of trade moving sharply against us, that is to say, we shall be losing on our earnings all the time while having to pay as much as before for those dollar commodities.

The Prime Minister

Is not that pessimistic?

Mr. Gaitskell

It is pessimistic so far as the longer run is concerned. I do not know whether the right hon. Gentleman—who now takes such an interest in these questions and is making a speech tomorrow—has any comment to make. If so, I have no objection to his interjection if he wishes to join in.

It is these fears which led some of my hon. and right hon. Friends to forecast a crisis before very long. I do not think that anybody can tell if and when there is to be a major recession in the United States. I offer no special views on that; but although I do not think that we need anticipate a very serious decline of trade, we ought to be considerably worried about the situation, for the reasons I have given—that even a very slight decline can produce such very grave consequences.

Mr. Cyril Osborne (Louth)

Will the right hon. Gentleman say what he thinks is to happen to our trade when the rearmament programme in America is completed early next year? What effect does he think that will have?

Mr. Gaitskell

I do not want to go too far into the question of American policy. The short answer is that it depends on what the American Government does and what American Government does it.

What are the lessons for our own policy so far as the long-term situation is concerned? Some people even now speak as though the convertibility of the pound was a remedy for our present situation.

Sir Waldron Smithers (Orpington)

It is.

Mr. Gaitskell

I see that the hon. Member for Orpington (Sir W. Smithers) still believes that. It is nice to feel that he is still with us, ready to voice an unusual opinion. He is supported in some quarters—possibly inside the House; certainly outside it. In one sense there is convertibility today. If one is an American exporter to this country and acquires sterling by one's exports one can convert that sterling into dollars. Equally, if one is a member of the sterling area and holds sterling balances here, in the technical sense those balances are convertible into dollars.

But that is not what we really mean by convertibility. What we mean is that we cease to discriminate against dollar countries. There has been a good deal of talk about the importance of this. Indeed, the Minister of State for Economic Affairs is the chairman of a committee set up by the Commonwealth Conference to investigate that very matter. I hope that we shall hear something from the Minister of State for Economic Affairs in the course of this debate. After all, the committee have now been at work for six months and I should have thought that they must have reached some conclusions. At any rate, I will give him my conclusions in advance and if he has not any of his own he can comment on them.

I would say that we should not contemplate adopting a policy of nondiscrimination in our present circumstances. The only consequence of a policy of that kind is bound to be a severe deflation here. In the circum- stances, we should be forced to deflate or to devalue. Deflation would mean grave unemployment and the waste of resources and, if we chose devaluation instead, possibly a complete breakdown—because I do not feel sure that we should reach a position of equilibrium even if we did devalue—or certainly a sharp loss through adverse terms of trade and a consequent fall in our standard of living.

Let us agree that the conditions of convertibility in the full sense are, first, adequate gold reserves—I would say at least four or five times their present level—and, secondly, the prospect of a balance between the sterling and dollar worlds, without any restrictions. Both those conditions seem to me to be quite unrealisable for a very long time to come and it is simply misleading the world to talk in any different sense.

I would ask the President of the Board of Trade to make clear what are the views of the Government on this matter. There are lots of discussions in the Press which are really moves to push us in the direction of convertibility. I hope that the President will agree with me and make it plain that the Government do not intend to do anything of that kind. That being so, by positive steps we must seek to maximise our dollar earnings and minimise our dollar expenditure. That leads me to say a few words about the European Payments Union. I was disappointed with the Chancellor's remarks about this. Since the Budget a new phase has started in the European Payments Union and a new agreement has been reached, but he said not a word about it.

I should have thought that it would have been merely common sense to try to restrict our dollar expenditure to the dollar area and try to avoid paying gold out anywhere else. It was with that in mind that we negotiated the original European Payments Union agreement. I confess straight away that while I was anxious to see the establishment of multilateral trade in Europe, and the possibility of deficits and surpluses being offset one against the other between different countries, nevertheless I should have preferred to see no gold element in the scheme. That is an extreme point of view but it is one which, in the light of the dollar situation, seemed to be not entirely unreasonable. We already had arrangements of that kind with the Scandinavian States and it would have been a matter of trying to make them general.

At the opposite extreme, some of the countries concerned would have liked to have seen a completely full gold standard applying in Europe and they were not prepared to join a club where it was possible for one country to hold an indefinite amount in the way of balances in the Union and for another country to borrow an indefinite amount from it. I do not propose to argue the matter in detail again. There was a compromise in which a certain amount of gold was brought into the scheme.

But one principle was laid down which, I thought, was of the greatest importance. That was that each member of the Union should try to maintain itself in balance, neither in surplus nor in deficit with the Union. An obligation was placed upon creditor as well as debtor countries to get themselves into equilibrium. That was one of the essential principles, and one of the things that worry me about the new situation is that it appears to have been abandoned. I should have liked to have gone further still. I think it is a pity that the Union rules did not permit discrimination in favour of debtor countries and against creditor countries. There again, that was not acceptable to other countries and we all realise that in these international negotiations we always have to compromise.

Now, for two years, we have had an experience of E.P.U., and I venture to say that those two years bear out the view I held at the time and expressed—that the credit swings provided were not large enough. In fact, there have been very large changes. First of all, we had Germany heavily in deficit and Holland heavily in deficit; then we were very much in surplus; and then the swing went the other way and we came into heavy deficit. But when we were in surplus, at least we did abide by the rules. We relaxed import restrictions, we deliberately encouraged trade with those other countries and, in fact, largely as a result of that, we fell into deficit ourselves.

What I feel is that other countries now in surplus ought to be doing the same thing as we did before and, from what I know of the discussions, I do not think that the Chancellor and his colleagues insisted nearly enough upon that principle. What, after all, are these new proposals? First of all, there is a greater amount of gold commitments now in the scheme in the early stages of indebtedness than there was before, and that is bound to create a far worse fear of losing gold and therefore a restrictive mentality among the various members of the Union.

Secondly, there is to be a guarantee fund. Out of our very inadequate reserves we have to provide £27 million as our contribution. There is some vague reference to creditors being the first to subscribe, but no idea of how that is to be done. Worst of all, in the case of Belgium, which has been in almost continual surplus, there seems now to be a recognition that she may go on being in surplus. I remember the Chancellor speaking with some pride of the fact that the Belgians were, after all, going to agree to run up some further credits with the Union, provided they could get half of it in gold again.

There should not be any talk of the Belgians continuing to be in surplus. We should say, "No; if you want to go on you can allow the credits, but you cannot go on taking out gold indefinitely"; because if we continue to give that incentive, of course, they will continue to take it. I have no doubt that they would like to cover their own dollar deficit by sucking gold out of the rest of Europe, but if we get into that situation we shall all be doing it, all clamping down on trade with each other in Europe in order to try to protect our gold reserves and to acquire a surplus with Europe in order to meet our dollar deficit.

I therefore feel that the Chancellor has allowed the new agreement to take a form which is quite contrary to our interests and quite contrary to the right principle if we are interested in European unity and in a greater volume of trade in Europe, and interested in helping our own dollar situation.

Mr. R. A. Butler

I should not wish either myself or Her Majesty's Government to be associated with the right hon. Gentleman's criticisms of the Belgian Government. I do not accept them as being correct and I think that they should not be made.

Mr. Gaitskell

The right hon. Gentleman must speak for himself. I only wish he had done so; that is part of the trouble. He did not say anything about it at the time. Perhaps his right hon. Friend will do so later. I certainly intend to criticise the Belgian Government for their point of view. They know my point of view very well. I cannot see any difficulty about this.

The trouble is that if we have this sort of system we shall have a cumulative sequence of import cuts. We impose import cuts, and then somebody else does the same because they get into difficulties, and so trade is restricted all over Europe whereas if, at the same time, the countries with surpluses were being obliged to expand their imports, we should have a counteracting disinflationary force.

I want to put two other questions in connection with E.P.U. There was an agreement, I believe signed in 1950, which is generally known as the Katz-Gaitskell Agreement, under which the American Government undertook to refund to us in dollars any loss of gold which we sustained as a result of European countries who were members of the Union drawing down their balances with us. I believe that under that agreement we have been paid a certain number of dollars and are due to receive other dollars. Would the President of the Board of Trade, or whoever else is to speak in the debate for the Government, please give us the figures? Is it the case that we have obtained in this way 40 million dollars—or more than that, or less than that? I believe it is something of that kind and it should be a considerable help to the dollar situation.

The second point is much more important and it relates to the problem of the cost of our Forces in Germany. The history of this problem, as far as we are concerned, is quite simple. When I was Chancellor of the Exchequer, and my right hon. Friend the Member for Lewisham, South (Mr. H. Morrison) was Foreign Secretary, we made it perfectly clear in Washington that we could not accept any additional expenditure as a result of German re-armament and any consequent fall there might be in the German contribution to the cost of our occupation Forces. I took the view at that time—and certainly the position of our gold reserves is no better—that we could not possibly afford any expenditure of that kind.

When the Foreign Secretary made a statement on this matter I am bound to say that he gave a far from clear account of the situation. I and some of my hon. Friends endeavoured to clarify it by asking supplementary questions. Where do we stand in this? Have the Government taken no steps to protect themselves against the danger of having to meet very large commitments for our Forces in Germany after the German Army begins to be built up? I realise that probably in the current fiscal year the problem may not be a serious one, but after 1953 it may be very serious indeed, and I had hoped that the Government would at least have made their position plain to all our Allies—that we really could not accept any additional burden from that quarter whatever. I hope that we may have a full and clear statement about this matter during the debate. I am sure it will assist the debate which is to take place later in the week.

Turning to the long-term dollar problem, I do not want to delay for very long, but I must say this: once we reject the solution of convertibility, it seems to me to talk as some recent correspondence in "The Times" did—as though there are alternative solutions to this: either we rely on expanding our exports to the dollar area or we rely on replacing our dollar imports by imports from elsewhere—is quite misleading. Obviously, we have to adopt both courses and there is no inconsistency in them at all. There is nothing new in this. We were doing it for five years and with very considerable success. We very substantially increased the proportion of our imports from non-dollar areas.

We do not know exactly what the position is going to be in the United States of America. There may be a continually high level of demand, with rising imports and a big Point Four programme. There is also the possibility of a recession, even a slump, a drastic fall in imports and an end to Government overseas grants. We all know that the consequences of this last possibility would be very serious indeed.

Personally, I do not think the latter is a very likely combination, but it seems to me that the enormous importance of the United States situation points to the need of what I suggested in a speech I made in America—an international conference with the Americans to consider the whole situation. After all, it is now eight years since the Bretton Woods Conference took place. I think many of the principles and ideas which were thought out then have been seen in various ways to be inappropriate in post-war circumstances.

Although I know there will be differences of opinion, I should like to see a serious effort made both by Governments and by experts together to sit around a table, to see whether we cannot devise new possibilities of economic co-operation to prevent the very grave consequences which might follow anything like a recession in the United States, and generally to see what further steps can be taken to deal fundamentally with the dollar problem.

Of course, I have no doubt that one aspect of this solution must be a development of production in the underdeveloped areas. I am not going to say anything about that, because my right hon. Friend the Member for Ipswich (Mr. Stokes), who hopes to speak later in the debate, will deal with it in much greater detail, but I must say, in passing, that the possibility of encouraging increasing supplies of materials from the sterling area will, I hope, be one of the major points to be considered at the conference in November.

But if, meanwhile, the dollar problem remains, we have to consider, I think, the operations of the sterling area, and one of my criticisms of the Commonwealth Conference in January—why I think it was a failure, despite the touchiness of the Chancellor on the subject—is that nothing seems to have been done to tighten up or co-ordinate the policies of the different members more effectively. I freely admit that it is open to the Chancellor to say, "Why did not you do it when you were in office?" Well, we were not faced till right at the end with anything like so serious a position; but I think he knows quite well that it was a pre-occupation of mine, and I certainly think a great deal remains to be done in that way.

It seems to me that if we are operating a dollar pool on a basis of general agreement, from which each country is legally—indeed, morally—free to draw dollars when it wishes, we really run the risk of a serious breakdown in the system unless we have a much greater co-ordination than we have had hitherto. I should like to ask, has anything been done about that? Are, for instance, officials meeting regularly now to try to co-ordinate policy more successfully?

There is one other point I would mention also in that connection. I do not think it can be denied that the freedom to export capital from this country to the sterling area was one of the factors which resulted in unusually high sterling balances being held here. I am not in any way criticising the export of capital for genuine development purposes. Indeed, it is obviously essential. But I am saying that the export of hot money, or of capital which is simply to evade higher rates of taxation here, accompanied by higher balances held by those other countries, whether South African or Australian balances, here, has created a danger and was one of the factors responsible for the tremendous run on the dollar pool which occurred in the second half of last year.

Although I realise that this is a delicate matter, I would suggest to the Government that it is one of the questions that will have to be faced if we are to go on with the sterling area as it is now. I am not saying, of course—I repeat—that the export of capital from this country should be stopped, but I am saying that we ought to see that whatever is allowed to be exported is employed for productive purposes and does not compromise the working of the sterling area.

Mr. Robert Boothby (Aberdeenshire, East)

Does not that presuppose some effective co-ordinating machinery for the sterling area as a whole?

Mr. Gaitskell

I entirely agree with the hon. Gentleman, and I was a moment or two ago stressing the importance of that. It is one of the most astonishing features of the situation that the O.E.E.C. has a large staff—that every member of it has a large and expert delegation in Paris—but that the sterling area has nothing whatever: no central staff, no delegations—nothing; and it is certainly overdue that we have machinery of that kind.

Let me pass for a moment to the question of defence and exports—so far as one can, that is, in the light of the very obscure statement that we have heard from the Chancellor. Of course, it is not surprising in all the circumstances, with the difficulties we face in the United Kingdom and in the sterling area, that people should say, "Well, we must cut defence." Of course, it is a burden to have to carry re-armament. Manpower in the Forces, industrial capacity, materials, manpower in industry—all of these in time would be available for civilian purposes if they were not used for defence.

We all can agree on that. It may be the case that during the period of transition there may be difficulty in getting the whole of it, but, in the long run, the economic gain of a reduction of the burden of defence is, or course, undeniable. But then, of course, we did not start re-armament because we thought it would cost us nothing. We knew it was a burden, but we regarded it as a necessary burden.

I think we can all agree that the issue of defence or civilian use, whether for exports or home investment or the home market, must be a matter of balance—that we must always compare the military and the economic implications; both of them, not one without the other. I think we can also agree that our defence programme here is, after all—and was always—related to our commitments overseas. I am not for the moment discussing whether those commitments should or should not have been accepted, but it is quite wrong to assume that the defence programme was not closely related to them.

That leads me to my next point, on which, I hope, the Prime Minister will say something when he speaks tomorrow. It does seem to me quite wrong that each member of the North Atlantic Treaty Organisation should try to settle its defence programme independently. These are matters which, because they relate to the commitments of all of us, must surely be discussed in common; and, if possible, agreement should be reached in common; and one of the points that rather worries me—though we do not know exactly what is implied—is that the Government may, without consulting our allies in this, have simply taken a unilateral decision.

It may be the right decision. I do not know, without having all the facts in front of me, and the comparison of the economic consequences. In those circum- stances, it is difficult to decide. But I am quite sure of this, that it would be far better that this should be discussed in common, rather than that each country should take a stand on its own, because—and here I come to something which I, personally, attach a great deal of importance to—there is real danger of anxiety and misunderstanding within the alliance—in all these areas.

There are many people in this country who think, not so much that the total level of Western defence is too high, but that we are carrying an unfair share of the burden. [HON. MEMBERS: "Hear, hear."] I think that that is a very widely held view, but let me say to my hon. and right hon. Friends—and I am not dissenting from it—that I also am quite sure that the same opinion is held in virtually every other member country of the North Atlantic Treaty Organisation. [An HON. MEMBER: "Even Belgium?"] Even Belgium, and certainly in the United States. And we shall always get that sort of feeling unless, somehow or other, we can get people to know through publicity—unless we take the trouble to give that publicity to convince them—that the burden-sharing operation is being worked, and that what has been decided is decided by all of us and, in the light of all available evidence, as far as possible between the different countries.

Therefore, I do urge upon the Government, whatever they may be deciding to do in this matter, to pay special attention to that part of the matter. That was, after all, the main reason—one of the main reasons, anyway—why at the Ottawa Conference we proposed the setting up of the temporary committee—the so-called "Wise Men Committee"—and I am bound to say to the right hon. Gentleman that I think the treatment of its report has been extremely disappointing. We have heard nothing about it. It has received no publicity.

I do not suppose there is more than a fraction of the population here who have the slightest idea of what proportion of the national income of the United States, Italy, Canada is being spent on defence at the moment. There should have been a great publicity campaign dealing with all that. Yet nothing of the kind was done. It was put away. It was shelved—pigeon-holed—as though it were something we did not want to talk about too much.

One other important matter on defence the Chancellor referred to was the offshore purchases—that is to say, purchases by the United States of equipment here. I must say I take a rather less favourable view of that development than the Chancellor himself. It is, of course, easy to say we are getting some more dollars out of it. May be, But, after all, if this puts an additional burden on our engineering industry over and above what we were carrying before it is simply going to divert materials and manpower from exports or home investment to that purpose, and it is going to leave us surely in this situation, that we are going to do just as we did during the war—provide more armaments for our allies while they are getting civilian trade.

That is, I think, a serious danger. Again, I do not wish to say—far from it—that this is the kind of thing that should be settled unilaterally, but it is a matter which we are entitled to expect the Government to press in international conversations with our allies.

Mr. Bevan

Before my right hon. Friend leaves that point, he has said on two occasions that before action about defence estimates is taken by the Government, and before they sell arms abroad, there should, first of all, be consultation with the North Atlantic Powers. Is he therefore opposing the immediate reduction in the arms programme? Is he not aware that the United States have already cut their arms programme quite substantially; and does he say that we should consult the United States before we cut ours?

Mr. Gaitskell

I am expressing regret that during the last months the different members of the North Atlantic Treaty Organisation have acted independently in this matter. I think it has had a thoroughly bad effect on the alliance. I agree with my right hon. Friend that the United States have cut their programme; but where do we go to with that? Is everybody to go on in that way, cutting one programme after another? If so, what will happen to Western defence at the end of it? Surely, on a point of procedure, that is quite indefensible. We must somehow or other get together with our allies and settle this thing together. That is all I say.

Now I must turn very briefly to the United Kingdom position. I shall leave most of that to my right hon. Friends, but I must say that if there has been progress in the United Kingdom balance of payments situation it is, surely, largely because of automatic factors happening, not because of any action taken by the Government, but because of a change in the general economic climate.

Now, there is nothing wrong with that. When he put forward his plan the Chancellor said, if I remember rightly, that he wished to improve the balance of payments position by £600 million. Of that £600 million no less than £400 million was to be at nobody's expense. When I say nobody's expense, I mean here in this country. One hundred and fifty million pounds of it was to come from improved terms of trade; another £100 million from improved invisible exports—the reflection, if you like, the reaction after last year, the change in the general economic situation; another £150 million was to be found not by taking out of stock in the sense of destocking, but because it was no longer necessary for stocking up. All we were left with in a reduction of resources was £200 million.

If we look at what has happened so far, the important part of the improvement, I think, has been in the terms of trade. The Chancellor so far has guessed right on that. Whether it will continue, I do not know. I am very glad it is so. I, also, anticipated earlier in the year that the terms of trade would be better. Whether the invisible exports position is better, I do not know.

When we turn to imports and actual Cuts in consumption, as I have already explained, they seem to be the one thing that has not happened to any great extent so far, so that I think the Chancellor should be a little careful when he goes about the country talking of sacrifices, because in a general sense there has not yet been any sacrifice. There has been a redistribution of income, but that is a very different matter.

Now I turn to another factor of great importance, to which again the Chancellor seemed to me to pay much too little attention, and that is production. I should have thought it was clear that so far the outlook there was very disappointing indeed. I realise that part of this is due to lack of demand. It may be that the home demand for textiles is at last beginning to pick up again. I think there is some evidence to that effect. Some of it is perhaps due to the shortage of steel.

I think we are entitled to ask the Government: Are they satisfied with the present level of unemployment? Do they take the view that a figure of 440,000 in mid-June is one which, in all the circumstances, they would be prepared to see continue. It means, I suppose, a figure for the end of the year of somewhere between 600,000 and 700,000, because seasonally the situation is now much more favourable. What is their policy here? Are they trying to absorb that unemployment, or are they saying, "No, we think you want at least as much as that, or more perhaps"? I think that we ought to have a statement from them about that.

I had thought of saying something about monetary policy, in the light not only of the Chancellor's comments but also of the O.E.E.C. report on this subject, but I propose to leave that on one side, making this comment only. I hope the Chancellor realises that if one chooses one's economist carefully one can be fairly sure of what he will say; and if one chooses five or six of them carefully one can equally be fairly sure of what they will say. I would, however, also draw his attention to the fact that that report does not by any means reflect universal opinion among economists. I would, indeed, remind him of the comments, and very critical comments, of the Economic Committee of O.E.E.C., and I hope that the Government will follow the O.E.E.C. Economic Committee and not the experts' report in their general attitude on this matter.

I think we can all agree—and there is no reason to dispute it—that we must build up our exports further. We must clearly work for a surplus. There is nothing new in that; we have said that long ago. The question is: How exactly are we to do that? Here, again, we had only vague generalisations from the Chancellor. I venture to suggest that the time has come when we need rather more guidance to British industry on this subject, and I suggest that if we are looking ahead, if we are really aiming at a surplus of £200 million or £300 million a year—which is what we ought to be aiming at—there is not very much chance of getting it unless there is a substantial change in the pattern of British industry. The change which I think is clearly the right one is a switch over to the metal using, metal goods industries, the engineering industries, from the consumer goods, domestic soft goods industries. It seems to me that, at the moment at any rate, it is extremely difficult to expand exports in consumer goods—although, of course, we must try to do so—whereas in the capital goods field we are not able to export simply because we cannot supply.

It might be said that that will be only a temporary phenomenon. I do not believe it. I think it is far more likely, looking ahead over the next five or six years, that we can see, at any rate short of a major recession in the United States, a continuing demand for the output of our engineering industries.

Mr. C. R. Hobson (Keighley)

Heavy engineering.

Mr. Gaitskell

Not only heavy engineering, but light engineering as well. Both, I think, are important in this connection. There will certainly be an immense demand for these products. For development work in producing more raw materials and producing food in other parts of the world we can be fairly sure of a market here, not only under boom conditions, but if a recession should come and we had to go back to bilateral agreements we should have a far more powerful bargaining weapon. I therefore suggest that a definite line should be given by the Government on this matter.

I was glad to hear the Chancellor's approving remarks about the coal situation. I thought he might have said a kind word about the National Coal Board while he was at it, but no doubt they are so accustomed to abuse from hon. and right hon. Gentlemen opposite that they will not notice it very much. I would say this to him. Although we are all glad to see the coal situation improving, he is no doubt aware that the possibilities of greater exports this year flow largely from the fact that consumption has been at a lower level than last year. That is partly due to the accident of fine weather and partly due to the fact that we are not getting an increase in production in other indus- tries. With a combination of bad weather and good output we should have a very different situation in regard to coal. Therefore, there is certainly no reason for complacency there.

I realise that steel is one of the great problems, and I must say that I think it is very regrettable that at this moment, when expansion in steel production in this country is probably the most important thing of all to provide the basis for the engineering expansion I mentioned, the Government should have seen fit to introduce their ridiculous offer for handing back the industry to private enterprise. It cannot be denied that this—what is it called?—this agency which is to hold the shares and generally keep an eye on the different companies in the steel industry will create uncertainty; it is likely to hamper capital development at the very moment when it ought to be pushed right ahead.

The Chancellor held out a queer looking olive branch on that subject this afternoon, but from his own point of view I hope that he, as the Minister chiefly responsible for the economic situation of the country, will realise the danger of that, and even now call a halt to this very regrettable step.

I refer, finally, to the wages position. I do not think that there is much doubt about our attitude on this. We realise, of course, the danger to the export trade of wage increases causing inflation. Of course, the Trades Union Congress realise that. There is nothing new in this. We have discussed it again and again in the past. We have had a very reasonable attitude adopted by the trade union leadership, but one must admit that it is a difficult thing to get into operation a spirit of restraint in industry.

We cannot ignore, in that connection, that it is mixed up with the whole issue of distribution—in other words, of "fair shares"—both between different sets of workers and between workers and employers. I can only repeat what I have said on earlier occasions, that if the Chancellor wants the trade union leaders and trade unionists, too, to behave in a responsible manner, he must do something to help them, instead of placing difficulties in their way.

First, we have the Budget with the deliberate increase in food prices. Now we have the Minister of Labour taking action on it with regard to the distributive workers' wage increases. In my judgment, the wages council procedure in which he has a constitutional right and, indeed, a duty, if he thinks so, to send back decisions is not an instrument which can or should be used to impose a policy of wage restriction. I frankly admit that when my right hon. Friend was Minister of Labour he used this procedure. What happened? It was sent back to him, it was reaffirmed, it was brought into operation straight away and no gain resulted from it.

I am surprised that the officials who advise the right hon. Gentleman did not point out to him that it was not going to lead him anywhere. We cannot really impose wage restraint by picking out one bit of a statute which gives power to fix wages in low paid industries, and say, "Right, we will put the freeze on there." That is quite impossible. If that is done it is bound to be regarded, as all the distributive workers do regard it, as simply a discrimination against them.

Mr. Spencer Summers (Aylesbury)

Will the right hon. Gentleman not agree that he is completely misrepresenting the facts in attributing to the Minister concerned a deliberate policy of freezing wages?

Mr. Gaitskell

The Minister has evidently sent back his proposal for wage increases on the basis of the Chancellor's statement. No one questions his sincerity or integrity in this matter. I am telling him that he will not get anywhere by this policy because it is not fair.

Another thing which the Government must understand is that they will not get co-operation, in my view, from the Trades Union Congress and from the workers of this country unless the workers feel that they are behaving fairly. That brings me to one other question which I should like to ask the Minister of Labour. Is it the view of the Government that the wage earners of this country must be prepared to accept a cut in real wages? Is it the view of the Government that they should not have their wages advanced even to keep pace with the cost of living?

Mr. Osborne rose

Mr. Gaitskell

I cannot give way.

I think that we ought to have a little clarification on that point. I will tell the right hon. Gentleman why. According to the Government's plans, there is to be no fall in consumption in total for the country as a whole. If he is going to say that the wage earners have to accept a cut in real wages, that means that someone else's consumption is going to go up. If that is their policy, let me tell them that it is not a starter. They will never succeed in getting a united effort on that basis. I have some reason for saying this because whatever the Chancellor may have done about the excess Profits Tax and E.P.L., dividends are, in fact, still rising and are about 8 per cent., the latest figure, as compared with last year.

In those circumstances, we must have regard to the fairness or otherwise of the policy which the Government are adopting. That is our major criticism of the Government. We recognise the reality of the economic problem, and we know the effects of the war and post-war period very well indeed. We tried to teach hon. Members about it when we were in Government. We know the loss caused by adverse terms of trade and low invisible exports. At last they are beginning to learn. We know the difficulties of trying to maintain ourselves as a great Power. We find very little signs of the Government dealing adequately with the situation. The improvement in trade has, to a large extent, been automatic or the results of import cuts, which certainly no one seeks to oppose.

Mr. Butler

The right hon. Gentleman devoted the major part of his speech to saying that import cuts do not work. Why does he say that the result is now due to import cuts?

Mr. Gaitskell

I said that they did not work so far as they could have done. I did not say that they did not work at all. I hope that the right hon. Gentleman will give me credit for more honesty than that.

Mr. Charles Ian Orr-Ewing (Hendon, North)

We used to.

Mr. Gaitskell

The improvement of trade is automatic, but the fact remains that production and exports are lagging at the moment, and there are no signs of any plans for a long-term solution. The fact is that the Government do not believe in planning but find themselves unable to escape from it. Their half-heartedness and hesitation in these circumstances leads from one delay to another. They favour out-of-date economic doctrines which are really consistent only with a level of unemployment, which they shrink from for political reasons. They pander to the vested interests behind them only to find that they lose still further support in the the country. They pursue a policy of social re-action and find themselves facing serious industrial trouble. Is it surprising, in these circumstances, that neither we nor the country have any confidence in them whatsoever?

5.45 p.m.

Mr. Ralph Assheton (Black burn, West)

The right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) has covered such a very large field that I know he will not expect me to follow him all over it. In any case, I only propose to detain the House for a short time. If I may make one observation with regard to the question of wages, which the right hon. Gentleman referred to in the latter part of his speech, I am reminded of the time I spent at the Ministry of Labour. I wonder whether the right hon. Gentleman thinks it right that, at this stage, when many of these industries are now quite well enough equipped to have a proper full blown negotiating machinery between workers and employers, such industries should still have trade councils or trade boards. Could they not now reach the stage of having full blown negotiating machinery?

I think that until we get that situation the Minister of Labour will constantly find himself in an awkward position, and I should like to avoid that. I entirely agree with the line which he took because, after all, what the Chancellor had said was very important. Many of these bodies had not had the opportunity to consider it, and it was reasonable for the Minister to ask them to consider it. I do not propose to touch on the question of wages in general. I want to discuss one or two other matters, and, of course, to support the Motion which the Prime Minister put on the Order Paper, and which was moved by my right hon. Friend the Chancellor of the Exchequer in such very sincere terms.

The Prime Minister said, "We must pad our way." That is a very plain statement. The Prime Minister uses very plain language. A great many people do not understand the economists' jargon to which they are frequently subjected these days. They do not understand "balance of payments," the "dollar gap," the "dollar pool," "sterling balances" all those phrases mean very little to a great many people in this country. They only mean anything to the people who have studied these matters. A great many people, in all walks of life, do not study these matters, and do not understand what these phrases mean.

Mr. Alfred Robens (Blyth)


Mr. Assheton

The right hon. Gentleman can say that this is nonsense, but I am expressing my view—

Mr. Robens

The right hon. Gentleman is completely out of touch.

Mr. Assheton

I am saying that there are only a few people who understand these economic phrases, who know what they mean and who have studied these things. What the Prime Minister said was that we must pay our way, and that is absolutely plain. If we are not paying our way, it is clear that we must earn more or spend less, or do a bit of both. I prefer the idea of earning more because it is not so disagreeable as spending less, but that may not be everybody's view. I should like to think that as far as possible in this world people get an opportunity to do as they like, but the people who want to have more must be prepared to work for it.

How can we reach a state of affairs when as a country we shall he earning more or spending less? I suggest that we first stop nagging at everyone to work harder and better and export more, and instead of that see that it pays people to do so. That is the more sensible approach. I suggest to the House and to the Prime Minister a Nine Months' Plan to pay our way and set the people free to earn their living. The four points with which I shall deal are taxation, expenditure, housing and currency.

In the first place, taxation at its present level is highly inflationary. It is raising prices and the cost of production. It ought to be reduced. If we reduced taxation—I am now talking particularly about direct taxation—we should reduce prices all round and reduce the cost of living, and both of those are very important objectives. What is more important still, we should reduce costs and would thus enable this country to export more. We are fast being priced out of some of our export markets, and the burden of taxation on business is reflected in the prices which exporters have to charge for their goods. Thus, it is vitally important for those two reasons to reduce taxation.

In addition to that, to reduce taxation encourages work and, moreover, it increases savings. If there is less taxation there is more opportunity to save, and it is more important now than it has ever been to increase saving because the country has never been as short of capital as it is today. We have been spending capital like water for the last 12 years and we have not given anyone the opportunity to build up capital. Businesses all over the country are desperately short of capital. Hon. Members can see that if they look at the balance sheets of both large and small companies; many companies have large commitments and are desperately short of cash. It is difficult for companies to get capital, and, in addition, the rates of interest are high.

If all those things will follow from a reduction in taxation, is it not highly desirable that taxation should be reduced? I suggest that by the end of our Nine Months' Plan the Chancellor of the Exchequer should have announced to the House that he will take 2s. off the standard rate of Income Tax. I cannot expect my right hon. Friend to answer that until the Budget.

How are we to do that? [HON. MEMBERS: "Hear, hear."] I am not so innocent that I did not expect that question to be asked. We must cut down expenditure. Where can we cut it down? There are one or two matters that I want the House to examine. First of all, there is the Ministry of Food. Cannot we get rid of it altogether by the end of the nine months' period and thus end the Government monopoly on the buying of food? I believe we could. The war has been over for seven years. I believe we are about the only country this side of the Iron Curtain which still has food rationing.

Seven years after the war it is still illegal for a man to buy a box of choco- lates for his girl or a leg of mutton or a pound of sugar for his larder without a licence from the Government. It is a ridiculous situation. Not only are all the human beings in the country rationed; so are all the cows, pigs, hens and other animals. The system is being operated by 15,000 admirable servants of the Ministry of Food. It is a tremendous burden on the community, and I believe that we should be able to get rid of it within nine months.

Mr. Harold Davies (Leek)

Will the right hon. Gentleman give way to enable me to put a serious point?

Mr. Assheton

If I give way I may begin saying many controversial things.

Mr. Davies

The point relates to animals and animal feedingstuffs.

Mr. Assheton

I had better finish my point first. The system of controls is one which rations scarcity. Freedom would produce plenty. We have heard much about fair shares. I believe a man who works harder ought to be able to eat better. We want fair shares, not equal shares.

I congratulate my right hon. Friend the Minister of Housing and Local Government upon his succes with the housing programme, which seems to be embarrassing the Government's expenditure figures.

Mr. Harold Davies

The Minister has embarrassed the right hon. Gentleman with the fight that he has put up.

Mr. Assheton

My right hon. Friend has not embarrassed me. He is doing well. He is getting the houses built. I believe that a lot of hon. Members opposite do not like it, but we are very pleased with the Minister of Housing and Local Government. Nevertheless, somehow or other my right hon. Friend must reduce the burden of cost on the taxpayers and ratepayers, for they are too high. Much the same thing happened after the first world war; the price of houses went up enormously, sometimes four or five-fold, and then after a period the prices fell again, but it was not until private enterprise had really been brought into it that the costs were brought down and houses which had cost £1,100 or £1,200 to build came down to about £400.

Several things must be done to help my right hon. Friend reduce costs. We must look at the whole question of the Rent Restriction Acts to begin with and see the effects on the community. As property owners do not get enough from such rents even to keep property in repair, houses are falling down nearly as fast as my right hon. Friend is getting them built. That is not very sensible, and we must check it. We must also abolish the development levy. It is a tremendous handicap to private house builders. Its abolition would remove a check on private building and would also save £300 million which the Government will have to pay to the owners of the expropriated development rights.

I should like to get rid right away of licensing for the building of houses up to a certain size. That could be done without any detriment to the community. Every house built would be an additional house built. Anyone who builds a house now against the huge Government subsidies which are given to houses built with public money is really a bit of a hero, for it is not much of a proposition There is tremendous competition from houses which are subsidised by the Government to the extent of £40 a year, an enormous burden on the ratepayer and the taxpayer. People who are ready to build houses of a reasonable size should be able to go ahead and do so; each one built would reduce the burden on the taxpayer and the ratepayer.

The last point I want to make about housing shows one of the ways we shall get the money to cut Income Tax. In the Budget there is a figure of £364 million for loans to local authorities. Before the war these local authorities, except for the small ones like rural district councils which were not very strong financially, had to borrow money themselves in the market, and one of the advantages of that system was that the more cautious and more conservatively managed local authorities could borrow their money rather cheaper than some of the others. One of the consequences was that there was no figure below the line in the national Budget of £364 million, which is provided under the present system. If that figure can be disposed of there could be considerable cuts in Income Tax.

Mr. Bevan

The right hon. Gentleman no doubt realises that under the system of which he speaks local authorities in the coal, steel and textile areas had to pay 6 per cent. and even 8 per cent. for money for loan purposes, and that very often the Public Works Loan Board would lend no money at all. What he is suggesting now is that the poorer local authorities in the older industrial districts upon which we depend should be handed over to the moneylenders.

Mr. Assheton

Not at all. I could not disagree with the right hon. Gentleman more. I know how much was paid for the loans raised before the war, and he is quite wrong in saying that they cost 6 per cent. to 8 per cent.

Mr. Bevan

Not now.

Mr. Assheton

If he will look back at the greater part of the loans raised by local authorities by glancing at the Stock Exchange lists, the right hon. Gentleman will not find one as high as 8 per cent. I do not think he will find many at 6 per cent.

Mr. Bevan

Not now.

Mr. Assheton

He will not find any at as high rates as that, although money was dear at one time after the First World War. It is untrue to say that local authorities in those areas could not raise money. It is not true of Lancashire where I live. What I am suggesting is that the system which I have mentioned would relieve the Budget of a great liability and it would also have a healthy effect throughout the country. It would not in any way check houses being built in any part of the land.

The final point I want to make is related to relieving the burden upon the Government. I want them to reduce their sphere of activity very considerably. They are still trying to run the business of the country. They inherited a most awful mess from right hon. Gentlemen opposite. They inherited almost the most Socialist State in Europe, and they are having great difficulty in dismantling it. I believe that if they reduce the sphere of activity of the Government they will be able to do their job of governing properly. They are all trying to do too much and, under a system whereby the Government pf the country try to run the business of the country, burdens pile up on Ministers which are tremendous. Issues demanding decision come upon them one after another, and they have to be taken with very little time to consider them, all because they are trying to do too much owing to the system that very largely was left to them by their predecessors.

We have got to get back to the system whereby the trade, commerce and business of this country is run, not by Governments, but by the citizens of this country trading with the citizens of other countries and not with other Governments. That is the only way in which we shall recapture our position in the world. That is the way in which we shall pay our way.

I come last of all to the question of convertibility. I do not agree with the right hon. Member for Leeds, South in what he said on this subject. I think the convertibility of sterling is an absolutely necessary ambition.

Mr. Boothby

With the dollar?

Mr. Assheton

What is the good of money which cannot be converted into other money? What is the good of £s at the present time if they cannot be converted into other currencies? By a system where one sort of money can be converted into another we will certainly be letting money do its work properly. My hon. Friend the Member for East Aberdeen (Mr. Boothby) asked me whether it would be with the dollar. I hope we shall reach convertibility with the dollar. I do not think that I am keen to try convertibility with the dollar at a fixed rate again. That was the mistake the late Sir Stafford Cripps and right hon. Gentlemen opposite made. They tried to do it at the fixed rate, and I should not try that again.

It must be tried, but only the Government can say when that experiment should be made. I do not profess to be able to say when it should be attempted, but I know that exchange control has got to be got rid off because that is the master key that will unlock all doors. By keeping foreign exchange control we are keeping the main buttress of Socialism. That is one of the reasons why it has got to be done away with.

Mr. Roy Jenkins (Birmingham, Stechford)

The right hon. Gentleman says he does not favour convertibility at a fixed rate. Presumably he says that it will work more advantageously at a floating rate. That can only mean that it would work if the £ were depreciated below 2.80 dollars. A floating rate instead of a fixed rate in turn means less favourable terms of trade than at the present time. Is the right hon. Gentleman, therefore, willing to pay as a price for convertibility less favourable terms of trade in the near future?

Mr. Assheton

I cannot say whether, if the £ were free, it would rise above or fall below the present level. We would have to wait and see. But, generally speaking, the object of fixing something is to fix it at a price either below or above what it ought to be, and such a proceeding is more likely to distort affairs than if it was set free.

The Prime Minister said not long ago that men of daring are needed in England today. He has got plenty of them in his Government, and I hope he will dare within the next nine months and set England free.

6.8 p.m.

Mr. Harold Wilson (Huyton)

I will say this for the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton), that he has given us the city of London Bourbon talk without any attempt to cover it up—they have learned nothing and have forgotten nothing. It is probably true to say that he would find a great deal more support for what he has told us in his former constituency of the City of London than he would in his present constituency of Blackburn, West.

Mr. Jack Jones (Rotherham)

He is on the way out anyway.

Mr. Wilson

The most significant thing in his speech was his trying to find words to describe the Chancellor's speech. He fished around and then all he could think of was that it was "sincere." No one denies the Chancellor that, but that is all that can be said for his speech. I never heard a speech on economic affairs like it from the Treasury Bench, certainly not while I have been in the House. We had seven perorations in the course of the speech, about 70 clichét a single one of the further measures referred to in the Motion on the Order Paper.

There is one probable explanation for all this. The Cabinet have been debating the matter for the last three or four weeks and they cannot find a single thing on which they agree. We have all heard the rumours about the cuts that were going to be made, but we were not told a single thing this afternoon, except that there is going to be a cut of 25 per cent. in non-rationed food imports in the second half of this year. I think a possible second explanation for it—and I take no credit for having forecast this in a Sunday journal two days ago—is that the Cabinet have not the courage to tell us what are the real measures which are to be introduced until the Recess begins, and then we shall not be here to debate them.

Mr. Godfrey Nicholson (Farnham)

What explanation does the right hon. Gentleman accept?

Mr. Wilson

I think there is a little truth in both of them, but I shall remind the hon. Gentleman of that interruption when we come back to the subject a little later.

Mr. Nicholson

They are completely inconsistent, surely?

Mr. Wilson

The hon. Gentleman should realise that it is quite possible, and very likely, that this Government cannot agree on which measures to announce before the Recess begins.

The Motion on the Order Paper is one of the most fantastic we have had for many months past. It talks about the "progress that has been achieved." I am bound to ask the Government what progress do they think they have achieved in solving our balance of payments difficulty. This Motion perpetuates the myth that the economic situation has been improving for these last six or seven months.

All that has happened is that there has been a temporary slowing up of the speculative loss of gold and dollars. In January a number of us—my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), I myself and others—said that much of the drain of gold and dollars going on at that time was a purely capital movement, and we advised the Chancellor then not to panic unduly about it. We said that if it could be reversed, it might lead to quite a spectacular movement of funds in the opposite direction. Of course, that was what happened.

The Budget speech of the Chancellor contained two measures which, in fact, fundamentally weakened the country. I am referring to the slashing of the food subsidies and to the raising of the Bank rate. Although they weakened the country, the announcement of them seemed to have a sedative effect on the abnormal psychology of the fraternity of international speculators. It gave them that mysterious thing which the financial newspapers call confidence. And so they thought the economy of the country had been strengthened, when actually it had been weakened. Gold began to flow back into this country, but that improvement was short-lived. Of course, every time the Prime Minister makes a speech, it starts to flow out again—until the Chancellor makes his reassuring speech the next day. That is the situation we are in today. I am told that it has been authoritatively calculated that a recent utterance of the Prime Minister cost the country about three and a half million dollars per word, which is a high rate even for the right hon. Gentleman.

These ebbs and flows of funds have been responsible for the optimistic speeches of a large number of Ministers. Not long ago the Chancellor of the Duchy of Lancaster, speaking in Yorkshire, suggested that the economic problems were almost solved. Then we had the Lord President of the Council, speaking in my constituency, talking about light at the end of the tunnel. I want to tell the right hon. Gentleman that the real factors in our balance of payments situation are immeasurably worse than they were six, eight or nine months ago. There are one or two features which have shown an improvement, I agree. One of them is the improvement in the terms of trade due to the fall in world prices. The ratio of import to export prices, which was 105 in June, 1951, has now fallen in June, 1952, to only 93, an improvement of 11 per cent. in our terms of trade. But the Government cannot claim any credit for that, and if we turn to the real factors, we see a desperate worsening of the situation.

I want to draw attention to three of them: the production situation, the export situation and the dollar situation. What are the facts about production? Production is falling for the first time since the war. There are many reasons for that, but the principal one, which some of us foresaw, is that it is an inevitable result of trying to impose an excessive arms programme on a fully strained economy. The tooling up, conversion, the overstrain of basic services in the country, the shortage of raw materials—these things are bound to lead to a loss of production.

Look at the steel situation today. There were some horrifying figures published only last week of new shipbuilding started in the second quarter of this year ended 30th June. Those figures show that the new shipbuilding started in this country in that quarter were the lowest since the end of the war. It was not due to lack of orders. It was due to lack of steel, and of the right kind of steel. And this was occurring in a primary defence and export industry. If it is happening in a primary defence industry, what is happening in the rest of the country?

The fact is that the distortion of the economy, the lack of balance of the economy, has produced a situation, as some of us said six months ago it would do, in which tens of thousands of workers have materials, on the one hand, but lack orders—they are unemployed—and, on the other hand, tens of thousands of workers in other industries have the orders, but lack the materials—and they are unemployed as well. And now with unemployment increasing we are facing a serious situation. I would remind the President of the Board of Trade that his import cuts, now slowly beginning to become effective, are producing a heavy rate of unemployment in the docks on Merseyside, and that is the inevitable result—

Mr. Peter Roberts (Sheffield, Heeley)

I am following the argument of the right hon. Gentleman, but does he not equally appreciate that there are more people employed at the present time than ever before in the country?

Mr. H. Wilson

I am sorry if the hon. Gentleman did not see the point. I was explaining that, because of this unemployment, more particularly because of the high degree of the concealed unemployment which may not appear in the unemployment figures, we are getting a serious loss of production and we shall go on doing so until the arms programme is put into proper balance.

It is only right to underline the warning of my right hon. Friend the Member for Ebbw Vale (Mr. Bevan) in his speech in Manchester two or three weeks ago.

He said that the workers, through the trade unions of this country, will press in vain for increased wages if production is not increased, and that production cannot increase when the economy is distorted by this arms programme.

Of course that is not the only factor. Production is also vitiated by the financial policy of the Government. The increased Bank rate, the credit squeeze, the attempts to force weak selling by merchants and manufacturers—all these are part of deliberate Government policy. In the Budget debate the Minister of State for Economic Affairs, of whom we see so little these days, said that the intention of the Government was to purge the economy—not a pleasant phrase. It is a phrase which used to be associated with Nazi leaders.

I can tell the Government what they are doing. They are driving small businessmen into bankruptcy in thousands and in tens of thousands at the present time. They have always claimed to be the party of the small businessman. Look at their Election speeches. The hollowness of those claims will be shown when the President of the Board of Trade publishes the bankruptcy figures at the end of the year—if, indeed, he dares to publish the figures—

Mr. C. I. Orr-Ewing

That was an interesting figure. Could the right hon. Gentleman quote the source of his statement that 10,000 businessmen are being driven to bankruptcy almost every day?

Mr. Wilson

I said that they were being driven in thousands and tens of thousands. If the hon. Gentleman is in close touch with the business situation up and down the country, he will know that is true. However, if he challenges it, let us wait to see the figures when the President finally publishes them. The combination of high prices resulting from the policy of the Government, of enforced stringency is bringing to this country, as we warned him from this side of the House months ago, the certainty of grave conflict on the industrial front before many more months are over. Yet the whole Budget position and the security of the country depend on a gamble on increased production, and we are finding production going down and the danger of industrial conflict growing every day.

Now may I turn to exports. The Prime Minister has been going round sounding an alarm on this, that and the other thing, but he would be quite right to sound an alarm on the present export position as it has been recorded month by month. Exports, like production, are falling for the first time since the war. It is a bitter thing to have to read the export figures produced by the Department of the President when we recall the great records and achievements of our export trade from 1946 to 1951.

The value of exports in the second quarter of 1952 was £628 million, against £660 million in the same period of 1951. That is a quite serious fall in the value of exports. But of course, prices are rising, and export prices have risen by 12 per cent. over that period, yet the value of exports has fallen. What that means is that the volume of our exports in the second quarter of this year, compared with the second quarter of last year, is down by 15 per cent.

What are the Government doing about this fall in the export trade? Making speeches? Setting the pubs free? It is a desperate situation, and, as the President of the Board of Trade knows, it is getting worse. The Board of Trade Journal—an excellent publication; it is a pity that it has to contain so much bad news, and worse speeches, these days— last week said that the daily rate of exports remained steady in January to April of this year but that in April to May it fell by 8 per cent., and in May to June it fell by a further 4 per cent. That was the daily rate.

Sir Herbert Williams (Croydon, East)

It rose in April.

Mr. Wilson

I can read the Board of Trade Journal for myself. I suggest that the hon. Member looks at it, reads it, and sees what I have said about the daily rate of exports. He is even looking at the wrong publication. I cannot waste time in educating the hon. Gentleman.

Sir H. Williams rose

Mr. Wilson

I cannot waste time—

Sir H. Williams

The right hon. Gentleman should give way.

Mr. Wilson

If the hon. Gentleman listens to what I say and compares it with the Board of Trade Journal, he will find that what I have said was an exact quotation.

Sir H. Williams

Will the right hon. Gentleman give way?

Mr. Wilson

I am sorry. I cannot spend time teaching the hon. Gentleman to read the Board of Trade Journal. His right hon. Friend can explain it to him.

Sir H. Williams

The Board of Trade Journal is based on this other book, but the right hon. Gentleman does not even have a copy with him.

Mr. Wilson

If the hon. Gentleman is suggesting that the Board of Trade Journal figures are wrong, he should take it up with his right hon. Friend the President of the Board of Trade. I know all about those figures—I have seen them.

We all know the serious position in export textile markets. The Government have given up any hope of increasing textile exports this year—they said so in the Economic Survey. We know the situation in Australia, in South Africa and in the other countries which have imposed bans or cuts on our exports. These underline the need for the Commonwealth Conference which the Prime Minister, at long last, has announced today.

But I support the view, which has been expressed from this side of the House on more than one occasion, that what we need is not merely a Commonwealth Conference. Let us have that by all means. We also need a world economic conference to stop these beggar-my-neighbour import cut policies which were started by the Government last November. The import cuts have saved very little for Britain, up to now, at any rate, but the effect on the other countries has harmed our exports far more than the cuts have saved our imports. It is not only—

Mr. Osborne

Surely the textile slump started long before last November, and yet the right hon. Gentleman accuses the Government of starting the restrictions, Furthermore, what on earth could the rearmament programme do to affect the world textile slump, which, the right hon. Gentleman knows, is a world problem?

Mr. Wilson

The hon. Member is all mixed up, as usual. I have often agreed that the world textile slump started before last November. When the hon. Member interrupted, I was talking about import cuts and not about re-armament. He is all mixed up in the three things. No doubt he will sort them out in time.

The real trouble that we are facing is the danger to our engineering exports. Our export of engineering goods has been reasonably well maintained up to now, but they are beginning to fall. In the second quarter of this year, they amounted to £266 million, as against £290 million in the first quarter, and we must expect them to get worse. They have been well maintained up to now because of the time lag from the placing of orders two, three and four years ago; those exports have still been going on. But month by month, as the impact of last year's defence orders makes itself felt on our export trade, we shall see our engineering goods falling off. That will have not only a bad effect on our total export figures, but a disastrous effect on Commonwealth development, which, it has been said on both sides of the House, holds the key to our economic security in the future.

Only two or three weeks ago the "Economist." in an article on Commonwealth development, listed the various things that we need for Commonwealth development—tractors, railways and rolling stock, trucks, dock and harbour equipment, agricultural equipment, and so on. The "Economist" concluded with these words: If the items on this list have one feature in common, it is that they all compete directly with re-armament. Even if Britain had the savings and the balance of payments surplus, the part it could play in Commonwealth development would clearly be limited for a number of years to come. I say to the Government, as I say to my right hon. Friend the Member for Leeds, South, who dealt with the same point this afternoon, that we cannot make both tanks and tractors at the same time and in the same factory. The Colombo Plan is seriously affected now by the rearmament programme, and if that plan fails it will have a tremendous effect, not only on our economic standard of life, but on the prospects of peace in Asia.

I come, thirdly, to the outlook for the dollar situation, which is immeasurably worse than it was six months ago. The basic factors are worse. Our dollar position does not depend so much on what we sell to the dollar areas as on what the rest of the sterling area can sell to the dollar areas. Our exports are, of course, most important, but one is bound to admit that the outburst of protectionism in the United States is a very disturbing feature indeed. [HON. MEMBERS: "Hear, hear."] The President of the Board of Trade did extremely well to make such a frank statement when he spoke recently to the Anglo-American Chamber of Commerce. I only hope that he will not also be accused of anti-Americanism for having put the facts so plainly.

Twenty American industries appealed recently to the Tariff Commission for relief on almost every item from motor cycles to Maraschino cherries. Nearly all of those industries are squealing before they are hurt by European exports. I am glad that the Tariff Commission threw the motor cycle manufacturers out on their necks, but can they maintain this attitude in the face, possibly, of a hostile Congress?

I was glad to see also, as the whole House will have been glad, the news of the Ferranti contract in the United States. But the price that they had to quote had to be 23 per cent. below the lowest American price before they were allowed to land the contract, otherwise they would have fallen foul of that iniquitous Buy American Act. The President of the Board of Trade will agree that that is a fantastic piece of legislation for the world's greatest creditor country to maintain in being at the present time.

The right hon. Gentleman was right also to mention the Customs administration in the United States. That is not a machinery any more for collecting revenue. It is a system of organised obstruction of imports from overseas. I well remember not many years ago, when some British shirts were being exported to America, that because they had a little neckband inside, a specially high rate of duty had to be paid on them, because they were classified as lined or braided garments. I am sure that the President of the Board of Trade can give a whole list of similar anomalies and obstructions to our export trade.

The real danger however to our dollar position comes from the prospects for materials sold from the rest of the sterling area, and in this regard the most serious news is the fall in the price of rubber. Last year, the sterling area earned 464 million dollars from the sale of rubber. This year, we shall be lucky to earn 200 million dollars. I should like the right hon. Gentleman when he replies to confirm this figure.

That loss of over 250 million dollers in a single year is a tremendous one to make up on our dollar payments. It is equal to the whole of our purchases last year of wheat and wheat flour from Canada and the United States; or, to put it another way, it is equal to the whole of our 1951 purchases of North American cotton and timber. Even so, the price of rubber at present is being partially maintained by stockpiling. When stockpiling comes to an end we shall face a truly desperate situation in our dollar balance.

We are up against subsidised synthetic rubber of which the present production is running at 900,000 tons a year—equal to the whole of the pre-war demand and production of natural rubber. We are sorry that the hon. Member for Bury and Radcliffe (Mr. W. Fletcher) is not here today. We regret his absence. We know he would support us in these arguments about synthetic rubber. That brings me to an argument about East-West trade.

Mr. Harold Davies

It has not yet been mentioned in the debate.

Mr. Wilson

I do not intend to deploy all the arguments about the need to extend East-West trade—I should have thought they should be widely appreciated in all parts of the House—but I shall mention one short-term factor. It is that if we were now to promote the sale of more rubber to the Eastern world that would have a direct effect, not only on East-West trade, but also on our dollar balance of payments by stiffening the market for rubber at the present time and would have a very helpful effect on the economic and political situation in Malaya. I am bound to ask the President of the Board of Trade, are the Government going on encouraging Communism in Malaya by blockading the Eastern world and at the same time hoping to stamp out Communism in Malaya by collective military measures? Those are the conditions we are getting.

The urgent need is for international planning of materials. We must overcome the doctrinaire prejudices of the United States and persuade them to enter into international commodity planning—international agreements to allocate materials when they are short and when prices are high, and also to provide a fair price and guaranteed market when demand is deficient.

Mr. P. Roberts

I am very interested in what the right hon. Gentleman is saying, but why did he and his hon. Friends oppose so strongly the Schuman Plan which dealt with these commodities?

Mr. Wilson

I am not aware that the commodities dealt with in the Schuman Plan loom very large in the sales of the sterling area for dollars. I am talking about such commodities as jute, rubber, tin and cocoa, and some of these other things on which there was widespread international agreement in principle to have international commodity planning.

I wish to ask the President what the attitude of Her Majesty's Government is to those international planning schemes. What is their attitude to a plan for the international allocation of cotton—it would be very valuable to Lancashire if we could see one introduced—or an international plan for rubber, or tin? What is their attitude to the International Wheat Agreement, a very valuable piece of machinery now coming up for review? I appeal to the President and the Government not to destroy the International Wheat Agreement.

Facing this desperate dollar situation, we are bound to ask whether Her Majesty's Government have a policy for earning more dollars because, if not, we are facing a very desperate situation indeed in a few months' time. I have said in the country that what we are facing is not merely another 1947 or another 1949; it is another 1931, with foreign exchange difficulties on the one hand and heavy unemployment on the other. We shall find—if that crisis materialises, and I believe it is materialising—the whole sterling area in peril. In that connection I support my right hon. Friend and appeal to the Government not to listen to the silent voices of the conver- tibility cranks, among whom I include the right hon. Member for Blackburn, West. There can be no convertibility of sterling until sterling is strong. That should be the first lesson the Government should learn.

What we must ask them is, have they a policy, have they an international economic policy? We heard nothing at all from the Chancellor about it this afternoon. Or are they counting purely on American military aid? We have a situation in the world today in which we have unfair shares of the arms burden—unfair shares partially compensated by dollar payments from the United States to Western Europe. Those dollar payments are given to us at a price and with strings. This was not the idea of the burden sharing exercise to which my right hon. Friend referred. If it were demonstrated that one country was bearing an excessive burden, what should have been done was that that burden should have been reduced, not that we should have been compensated financially by military aid from the United States, aid which we only get with strings attached.

My hon. Friend the Member for Coventry, East (Mr. Crossman), in the defence debate on 5th March, said—and it was purely an estimate—that we ought to cut the arms programme by £250 million this year in order to set our balance of payments right. Of course, the contribution to the balance of payment would be more than £250 million, because we would be able to get greater production if there were a cut in the arms programme. I wonder if the Government have looked at that and have seen what it would mean in terms of a redistribution of the burden among the Atlantic nations? It would only mean about 3 per cent. more on the American arms programme if they relieved us of £250 million. It would only mean ¼ of 1 per cent. of American national income. Their national income itself is increasing at a rate 20 times as much as £250 million, yet the Government—and this view is not confined to a single party—are prepared to see our economy crippled for the sake of £250 million when it would mean only ¼ of 1 per cent. of the American national income.

So far, at any rate until the speech of the Prime Minister tomorrow afternoon we are standing fast and refusing to cut our arms programme, yet we find that the United States have calmly cut their arms programme and are to spread it over 4¾ years instead of three. I wonder if the President of the Board of Trade will tell the House if Her Majesty's Government were consulted before that cut was made? We are told we must not cut our expenditure until we have the agreement of everyone else to do so. I wonder if the British Government were consulted before the Americans made this tremendous cut in a tremendous programme.

The Americans cut their arms programme because they wanted easy living. They have already scrapped practically all the controls on the consumption of raw materials, hire purchase restrictions, credit restrictions, controls on house building, factory building and all these other things. Now we are told, and I suspect that the Treasury have been urging it on the Ministry of Housing and Local Government, that we have to cut our house building programme in order to fulfil the arms programme, while the Americans take off all controls.

Another serious matter is that the Americans are pushing ahead with capital investment while our Government are mortgaging our industrial future with still tighter capital investment this year than last. I saw the calculation the other day that the gross investment in the equipment of manufacturing industry in this country this year is likely to be not more than £350 million or £400 million.

I do not know what the estimate of the President will be, but in America the corresponding figure is 12 billion dollars in 1952, or £4,300 million. If we express that in terms of capital equipment per worker, which is the real test, we find that America—which is already much more highly capitalised than we are—is providing her workers with six times as much capital investment per head this year than we are providing for our workers. Is that supposed to be fair shares and equality of burdens within the Atlantic nations?

The Government must think about the future of our export trade. It is impossible to see whether the United States are moving into a position of more active economic affairs and a policy of inflation, or a slight recession. If they move into a position of inflation, if their removal of controls and their splitting up of the armaments programme increases their economic activity, our production will have a thin time this year, because they will be draining away raw materials once again. The American economy is so big that when it moves into top gear it draws raw materials from the whole world. We have seen the horrifying but, in some respects, the progressive report of the Committee which reported to the President of the United States on the raw materials situation and which talked about a 90 per cent. increase in requirements of mineral raw materials by 1975.

Mr. Boothby

How does this square up with the right hon. Gentleman's previous argument that our great danger was that we shall be unable to sell raw materials from the sterling area in the United States? If they are taking so much, how does that square up with his previous argument? He cannot have it both ways.

Mr. Wilson

If the hon. Member for East Aberdeenshire (Mr. Boothby) will allow me to develop my argument I think he will understand. I said that none of us know whether America is going to move into an inflation or a recession. If they move into an inflation—and I do not think they are going to—we shall not get the raw materials for our production. If they move into a recession—which is far more likely—we shall have this collapse, this further collapse in our sales of raw materials and in the prices we get.

Mr. Osborne

They are wrong whatever they do.

Mr. Wilson

The hon. Gentleman is beginning to see a glimmering of the truth, that our dependence on the American economy is so great that even a small percentage move either way could have a disastrous effect on our situation in this country—[HON. MEMBERS: "Alibi."]. If there is even this slight deflation it will not only affect the raw material sales and prices, but this highly efficient and highly capitalised industrial machine will be competing with us in every market in the world.

They have built up their steel production in the last two years by an amount equal to the whole of the size of the steel industry in Britain. Belgium and Luxembourg. The increase in the size of their chemical industry is four times the total size of the British chemical industry. That is the size of the thing with which we are grappling. And, of course, we shall be facing competition from Germany and from Japan, driven into more ruthless competition with us because American policy denies them access to their normal markets in Eastern Europe and China.

We are not claiming—and I am not saying this for the first time—that rearmament is the cause of our difficulties. We have never claimed that it is. The causes are far older and deeper than that. But we are fighting the economic crisis with our hands tied behind our backs so long as we try to maintain this excessive re-armament programme. Now we have the economy cut along with this ludicrous scheme of arms exports. First the Chancellor of the Duchy of Lancaster says that exports must have priority over defence. The Prime Minister is doubtful about that, and then we find the Government putting defence considerations second to economic considerations, as in the running down of stocks. And now, to stem the flow of gold to Belgium, we are to export fighter aircraft to Belgium.

And this in 1952; the year we were told was the year of the greatest peril for this country. We are exporting fighters to Belgium, a country which is growing fat on the economic situation in Europe and a country which is doing far less in the way of armaments than we are in this country. The President of the Board of Trade announces that we are to export arms to Spain next. The idea appears to be, and it is a simple economic argument which the Government have got hold of, that by re-arming too fast in this country we are crippling the export trade. That is the first point the Government have made. "But we have got to do that," they say, "because we must have arms at all costs."

Having established that, they say, "We must export the armaments to make up for the loss of exports." That is the present economic policy of the Government. I do not know about Marx, but the Marx Brothers could not have invented anything crazier than that. The Government really ought to tell us more about this new economic policy. How many more arms shall we have to export abroad, and to what countries, in order to earn the gold we shall need to pay for the re-arming of Western Germany? There is no limit once they start on this economic policy.

Of course, it completely destroys the argument about priority needs for arms and aircraft. We could earn far more foreign exchange by setting the engineering industry free from the incubus of the present level of arms at this time. So here we are faced with a short-term and a long-term problem. We shall not solve the long-term problem without international planning of economic forces and raw materials. I hope that the United States will co-operate in these things and will get rid of some of their protectionist devices. If not, we shall have to go on alone, and face a siege economy in this country, and go in for a policy of ruthless discrimination against the dollar with all that that means, not only for our standard of life, but for our relations with Canada —and one could think of many other problems which will arise from it.

So far as we ourselves are concerned —and I am sorry the Chancellor of the Exchequer was so evasive about this this afternoon—it is essential that we reduce the burden of our own re-armament. The £4,700 million programme in three years is dead, as my right hon. Friend the Member for Ebbw Vale said in his resignation speech that it was dead in April, 1951. But what is now dead as well is the defence White Paper on which this House divided on 5th March. If the Government dare to come out honestly—and I hope that tomorrow the Prime Minister will—they will say that they have looked at the position and that the balance of payments problem has to come first; that my hon. Friend the Member for Coventry, East was right, and that we are having to make a cut of something like £250 million this year in the arms programme. That would he an honest appraisal by the Government, and I appeal to them to give the House and the country the facts.

What I am afraid of is that the Government have learned this, even if some of my hon. Friends have not, but they dare not admit the truth of it, and they dare not carry out a policy based on the truth —because they are afraid of admitting that somebody else was right. As a result of 18 months of trying to maintain an excessive programme we have had the worst of both worlds. We have not had the arms and our standard of living and economic situation have deteriorated. We have had neither the guns nor the butter. After 18 months we are not stronger, we are weaker—[HON. MEMBERS: No."]—yes. It is no use just allowing the programme to slow up naturally. It is no use just waiting for deliveries to stretch out. The effect on the economic situation of straining to do the impossible is just as serious. What we need is a clean cut in the volume of resources allocated for re-armament this year.

I hope that the Government, and especially the Prime Minister will realise what is at stake. It is not only our standard of living. It is not only even the satisfaction of paying our way. What is at stake in this question we are facing today is our survival and our independence of external aid. Because without independence of external aid there can be no real independence in foreign affairs and Britain will be prevented from exercising that great moral influence which she can exert in the councils of the world.

Mr. Robson Brown (Esher)

Before the right hon. Gentleman resumes his seat, may I bring him back to the question of international arrangements for the distribution of materials and production with which I have general sympathy? I was not at all clear what his mind was with regard to the Schuman Plan. May I ask him specifically what his mind is with regard to the basic ideas underlying the Schuman Plan, particularly with regard to steel?

6.50 p.m.

Mr. Robert Boothby (Aberdeenshire, East)

I shall deal with one or two of the points raised by the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) in the course of my speech, but I would say now that I think he was a little too determined to be gloomy. He could not see a ray of light in any direction at all. The short-term prospect was hopeless and the long-term prospect was equally hopeless. If the United States has a boom, all our raw materials are to be taken away; if they have a recession, we are not going to sell them a single thing. We have got no results from our re-armament programme; we are weaker now than when it was started. Everything is absolutely hopeless; there are no guns or aeroplanes in this country. Really, if we were to take the speech of the right hon. Gentleman at its face value, there is only one thing left for us to do, and that is to go into the Lobby and cut our throats.

Mr. Bevan

Go on, then.

Mr. Boothby

I have not the slightest intention of doing that. Unlike the right hon. Member for Huyton, I see no necessity for it whatsoever. I think that the outlook for this country is pretty serious, but it certainly does not justify the suicidal attitude adopted by the right hon. Gentleman.

We had a little argument, earlier, about the sort of situation we were in, and the question of a crisis arose. The right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) brought in Lord Swinton as saying that we were not in a crisis at all, but that it was something permanent. I would compromise with that and say that we have been in a position of permanent crisis for some years past. It is not so grave as the right hon. Gentleman suggests; but, nevertheless, it is quite serious. It arises, as we all know, from the fundamental economic disequilibrium between the old world and the new; and it is the outcome of a process that has been going on steadily since the beginning of the present century, and which has been accelerated, but not caused, by two world wars.

The right hon. Gentleman made an attack, in his speech, upon the tariff policy of the United States; and seemed to suggest that they, as the dominant world economic power, should pursue the same policy as we pursued in the 19th century. I would ask the right hon. Gentleman this question: When we go on hammering away at the United States over their tariff policy, why should they import manufactured goods in large quantities from abroad, and particularly capital goods, when they do not want them and will not take them simply because they do not want them? They themselves are actually producing far more than they can consume, and their surplus of exports over imports, is colossal.

In the 19th century, we were the biggest buyers of goods in the world, because we wanted them—food and raw materials—and we got them wherever we could find them and imported them as it suited our book. The United States are not the biggest buyers in the world. but the biggest potential sellers. For the right hon. Gentleman to suggest that the currency of the world's greatest seller can do the same job, which was to provide an international yardstick of value, as the currency of the world's greatest buyer, is nonsense.

Our position in the 19th century was fundamentally different from that of the United States today; and one of the greatest mistakes we make is in persuading ourselves that the present position of the United States is the same as our position was then, and in insisting that they should do what we did then. They never will, and I do not see why they should

Mr. Sydney Silverman (Nelson and Colne)

Unlike some of my hon. Friends, I agree with what the hon. Gentleman says about American tariff policy —that they will not import goods because they do not want them, and it is very natural that they should do so. Will the hon. Gentleman, however, explain to the House how, on that basis, which I accept, the United States can continue to be a creditor nation and expect to be paid?

Mr. Boothby

I can see all that, and I shall come to that point in a minute or two.

The United States has a great part to play in developing the backward countries of the free world; and I agree with the right hon. Gentleman that they will be, in years to come, very large buyers of raw materials from that world. I think we must develop the sterling area countries in order to find ways in which they can supply those raw materials.

I want to turn now to our own situation. The position of this country and of most of the countries of Western Europe is one of serious illiquidity, due to a lack of convertible assets, due to lack of reserves. The European Payments Union, to which reference has been made in several speeches, has so small a reserve of convertible assets that the creditor claims are bigger than the total amount. As for the sterling area, the poor banker of the sterling area, at the moment, is in- solvent. This is an impossible situation; and it has to be rectified. Today, we have less gold and more debts than we had in 1945. We have, in fact, short-term liabilities amounting to over £4,000 million—fluctuating, I admit—and a prospective, but as yet unattained, surplus on trading account of no more than £100 million a year.

I say to my right hon. Friend and to those who talk about restoring convertibility between the £ and the dollar that to talk of it in this situation is absolutely ludicrous. It took convertibility five weeks to get rid of the American Loan last time. It would take, I should think, not more than five days, and, very probably, only five hours, to get rid of the few half-crowns that we have left in our reserves today. Everybody would instantly convert their pounds into dollars. That is inevitable in the present situation.

I am quite certain that there will be no solution of this problem by orthodox methods, or by trying to apply 19th century remedies to 20th century diseases. We have already tried that out. The right hon. Gentleman the Member for Ebbw Vale (Mr. Bevan)—who I am sorry to see has left the Chamber, because he might have approved what I am going to say—has frequently expressed his disapprobation of the Treasury. I have also taken a rather dim view of the Treasury. They have had a very long run for our money; and, in my memory and experience, which now, alas, goes back over 28 years in this House, I have seldom known them to be right.

Whenever I think of the Treasury, I am reminded of a story told by the late Lord Fisher. When he hauled down his flag for the last time, he asked for his coxswain in order to say goodbye to him, and his coxswain said "Well, goodbye, Sir; 40 years in your employ, and never done right yet." There is an element of truth in that, for those who sit in this House, as far as the Treasury is concerned. Away back in 1925, there was the old gold standard at the pre-war parity of exchange, and the long deflationary period with heavy unemployment. Snowden was one of the worst, but they were nearly all blind to the fact that those so-called orthodox measures were no longer effective in the modern world.

Although many of us fought against them, these measures did nothing to stop the biggest economic crash known to history. The curious thing is that the subsequent recovery of the 1930's was achieved by methods of which the Treasury profoundly disapproved, and fought to the last ditch. They never wanted to have a free £ as so many people suggested we should have; or to extend the preferential system and protect the home market, by means of which that remarkable recovery between 1934 and 1937 was achieved.

We ought not to forget that since the war the Treasury have successively committed us to the acceptance of the principle of non-discrimination in trade; to working for the elimination of Imperial Preference altogether; to fixed exchange rates, that is to say, rates fixed at Bretton Woods in conditions of chaos, when nobody knew the governing factors; to complete national economic independence of everybody; and finally, to convertibility with the dollar, into which they ran us once, and into which I believe that, if they had the chance, they would run us into again.

I want to suggest to the House that these things cannot be made to mix. It is an impossibility. Any attempt to keep rates fixed when the relationship between independent national price levels is constantly changing is bound to cripple trade, bring about disequilibrium in the national accounts, and distort the composition of production. Fixed exchange rates, uncoordinated national monetary policies and non-discrimination in international trade simply cannot be made to mix. Whatever else may be made to mix, that combination is not possible.

I agree with those hon. Members who have suggested in this debate that our fundamental problem is one of productivity, not only for this country but for the whole of the free world outside the dollar area. That is a very important point. It will not be solved by convertibility or by any other currency manipulation, because no currency can, in the end, be stronger than the economy on which it is based. Therefore, we must set about strengthening our economy. One certainly cannot stop the leaks in a waterlogged ship by opening the seacocks, which those who are now advocating free convertibility of the dollar are suggesting that we should do. All one achieves in doing that is a straight slide to the bottom; and I should have thought that nobody who remembers those agonising five weeks in 1947, when we did just that, would forget it.

The other day I read the debate that took place in July, 1947, just before we restored convertibility. I must say that I came out of it with some credit. But the things some hon. Members on both sides said at that time about the prospects when we made the £ convertible with the dollar! If only they would read what they then said—it would do us all a lot of good sometimes to read our old speeches—they would hang their heads in shame. One thing they would never do would be to attempt again to intervene in an economic debate in this House.

I said that our immediate objective was to strengthen our economy. How can we do it? We can do it by increasing productivity; but productivity depends on adequate capital investment in industry, skill, enterprise, hard work and the existence of assured supplies of raw materials and of markets. That, I think, sums it up fairly adequately, and I do not think anybody would dispute it. How many of these things have we got now? We have the skill, but that is about all.

Before I turn for a moment or two to the wider aspect, I want to say this about capital investment. I believe that the Chancellor was right to raise the Bank rate when he did because, as the right hon. Gentleman admitted, it restored confidence in the on the part of the rest of the world, and checked the torrential outflow of gold and dollars. I think, therefore, it was right as a move in the international economic game of chess which has still to be played with skill, especially by this country. But I do not think we can go on for ever depriving industry of capital. In the long run we shall only get through by the re-equipment and modernisation of our industries.

It takes some time to get under way a policy of credit restriction enforced by means of dear money; but it is bound after a time to gather momentum, and to be rather difficult to check, because it operates through capital investment and, therefore, the production of capital and manufactured goods, and seeps through them to the consumer goods. Therefore, it is potentially rather dangerous.

In the United States, the rate of new industrial investment per worker employed is five to six times greater than in this country. This really should give us food for serious thought. I would also suggest to the right hon. Gentleman that one of the reasons for this may be the fact that people in the United States are able to save, and we in this country are not. Nevertheless, I cannot think that in the long run a policy of credit restriction so far as industry and agriculture are concerned is the right policy for this country, and I have a feeling that even the Treasury might agree with me on that. We shall have to watch this aspect very carefully, and be prepared to alter course.

When it comes to physical production, everyone has been congratulating everyone else on the increase in the production of coal. But the fact remains that our production of coal, food and steel during the last five years has not been anything like adequate to sustain the standard of life which the people of this country have enjoyed; and which they have only been able to enjoy because we have received gifts and loans from the United States and Canada amounting to over £2,000 million. We really must face up to this fact.

I am not going to flog dead horses or go back over old ground, but I would like to have a slight bat at the rejection of the Italian miners. Equally, I would like to have a slight bat at the imposition of an Excess Profits Levy on industry at the moment. That gets in a crack at both sides, because both those things are deeply wrong at a moment when increased production is absolutely vital not only for our recovery, but even for our existence.

I feel that the taxation of industry will have to be seriously reconsidered before the next Budget. I do not think that the Exchequer can continue to take two-, thirds of the profits of industry and expect industry to find enough capital to re-invest and keep itself up to date and its equipment right. Under the present system an expanding industry making more than its "standard" profit may have to pay up to 80 per cent. of its profits in taxation. We can never keep British industry in the forefront under these conditions.

There is one other point on the question of production, and that is the use of our available manpower. I do not blame hon. Members on both sides for shying away from that as they would from the devil because it is a certain vote loser. I am not in favour of the direction of labour; but there are far too many people in this country wasting their time. I am not saying where they are; they are, in fact, pretty well everywhere. There are a lot of people doing work which is not vital in the national interest. I think we can get over this problem, in co-operation with the T.U.C., by attraction. Of course, to get this result, there may have to be differential wage rates, which will cause a bit of a squawk in some quarters; but I think we shall have to put up with that.

I now come to the question of efficiency, and to the old horse which we have all flogged in this House—incentives. I still believe that we are not giving enough incentives in this country. By that I mean taxation incentives for hard work, enterprise and skill. We have not gone far enough down that road. We all agree that we can no longer use the stick. But are we not to use the carrot either? If we throw out the carrot, and if we cannot use the stick, there is nothing left but talk.

We have talked to this animal in the most sombre terms during the last five years, and sometimes we have got it to move a bit. But I think it is getting fed up with talk. Donkeys, in the end, do get fed up with talk. After a time talk, however sombre and impressive, does not achieve the desired results; and, therefore, the use of the carrot should now be very seriously considered.

On the question of efficiency, I propose to say something which will upset some hon. Members, but I cannot help that. I have done it before and I must do it again. I want to say this about agriculture. I sincerely believe that the standard of farming in England, as opposed to that in Scotland, is far too low. I believe that any hon. Gentleman on either side of the House who forgets that he is a Member of Parliament, and forgets about votes, and takes an objective look at the countryside in England and in Scotland, will come to the same view.

One is far more adequately, effectively and efficiently farmed than the other. In England there are far too many farmers just carrying on, leading quite a good life and not producing from the soil anything like what they could. There is far too much fallow pasture-land without half enough head of livestock on it. They do not take the plough round their farms. After coal, food production is more vital to this country than anything else. It is the duty of any Minister of Agriculture to see that the maximum efficiency is obtained in agriculture; and it is not being obtained today.

I come now to the wider aspect of the economic problem confronting this country. Whatever we do the United States will very largely determine the economic climate in which we live. There I agree with the right hon. Member for Huyton. They have all the gold, and we are all in debt. But the economic tempo at which they live is no longer our tempo. What may be just a ripple on American waters can become a mountainous wave by the time it has crossed the Atlantic. That is why the possibility of a recession, which might not be so very large in the United States, fills me with apprehension. We have no defences against it. I do not forget that a 5 per cent, drop in American output in 1949 imposed a 30 per cent. devaluation on this country and on Western Europe. That is the measure of the problem.

I believe that no system which denies all defence against the instabilities of an economic system so dynamic and so out of proportion to our own can indefinitely survive. I believe that if, as a result of an American recession, we have massive unemployment in this country and in Europe, the workers might well take the view that that is a price not worth paying for the somewhat nebulous benefits of multilateralism and non-discrimination. We might then easily get in a revolutionary situation, if there was a repetition of what happened in 1920 and 1930. I feel that strongly.

Since 1945 the United States exports have exceeded their imports by 31 billion dollars. That is a staggering figure. Of this the United States taxpayers have paid 18 billion dollars. It really does give us cause for thought, and makes talk about convertibility and a large increase of exports of manufactured goods to the United States absolute nonsense. This clouds and distorts the issue, and just does not make any sense at all.

What is the future for the United States, so far as we and Western Europe are concerned? I think that the future is dollar investment. The future lies in one form or another, in President Truman's Point Four—the development of the backward countries. If we are to get that American investment and to get the Americans to invest dollars in developing these countries, which would then be allowed to buy goods from us and Western Europe, we must provide an area for them in which it would be worth their while to invest. That area does not exist at present.

I listened recently on the Third Programme to a remarkable talk by Richard Kahn, the Cambridge economist. I propose to quote from it the concluding passage, because I think that it well sums up what I am trying to say. He said: The extraordinary idea seems to be getting about that this is a good moment for considering less discriminatory trade and currency arrangements. Nothing could be more misleading and more perverse than talk of this kind. What we should be doing is what so often has been done before, and not unsuccessfully—to get it recognised that the dollar countries cannot expect the non-dollar world to be able to take from them more than the equivalent of what the dollar countries import, lend and give away; and that if, as a result of the formation of discriminatory trading groups, the rest of the world buy more, say, motor-cars from one another and less from the United States, that may be the only way to maintain their purchases of American tobacco and cotton. This will secure a larger volume of world trade than would survive under a sauve qui peut régime of non-discriminatory and indiscriminatory mutual cutting down of one another's exports. That, I think, is profoundly true. The logical conclusion of competitive national import cuts is the elimination of all trade. If everybody goes in for import cuts, there will not be much trade left. Whatever country in the world can afford that we cannot; because we are more dependent on international trade than any other. I do not say to my right hon. Friend the President of the Board of Trade that Her Majesty's Government were not right to make the import cuts which they have made in the emergency which they found. Of course they were right; but my right hon. Friend knows as well as I do that competitive import cuts are not the long-term answer to the problem.

I think that the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) was right in deploring the lack of any effective machinery for running the sterling area. It is astonishing. There is absolutely nothing. For Europe there are at least four separate committees trying to direct the economy on an international basis. I think that there are three too many. It probably would be much better if there was one. But it is fantastic that in the sterling area there should be none; and that at the last sterling area conference of Finance Ministers, which the Chancellor acclaimed in his speech, cuts in imports which the Australian Government were subsequently forced to impose were, as far as I know, never even discussed.

There is no machinery now to deal with an emergency arising from any sharp change in the balance of payments in the sterling area. A new sterling area conference has been mentioned. I hope that at that conference some discussion will take place about the methods by which the sterling area can be run. If it is allowed just to slide along under its own steam as it does at present, without any effective co-ordination of the economies of any of the participating countries, it is bound to collapse, sooner or later, under the strain.

I will not talk, at this stage, about the methods by which the kind of economic area that I have in mind, outside the dollar area in the free world, can be built up. I believe, as some hon. Members know, that we can build such an economic unit out of the complementary economies of Western Europe, which is essentially industrial, and of the sterling area, which could produce, if it was given the chance, the greater part of the raw materials and foodstuffs which Western Europe requires.

I believe that it requires a number of revolutionary measures. It requires a new currency system, which would be far more flexible, and which would permit of the inter-convertibility of the currencies of the sterling area with those of the European Payments Union at varying rates of exchange. I believe that it involves a redirection of production accompanied by industrial specialisation; and, last but not least, discrimination on a scale which, at first glance, will not be palatable to the United States.

I have said this often enough. There seems now to be a growing realisation in the United States, and certainly in Washington, that all this non-discrimination business no longer works; and that G.A.T.T., for which, incidentally, they have not shown any real enthusiasm themselves, is now making rules for a game which is no longer being played. The unconditional most-favoured-nation clause is as dead as the dodo. So are the restrictive clauses. All these must be swept away. We must think again.

In conclusion, I say that the age of laissez-faire and multilateralism has gone. The age of mass production and large economic units is here, and our business is to build out of the free world outside the dollar area, and take the leadership in building, an economic unit that can stand on its own feet, in which we can breathe and live, and where we may find the raw materials and foodstuffs we require in exchange for our manufactured and capital goods. That is the short answer to our problem.

On one side of us is the vast, totalitarian economy of the Soviet Union with unlimited potential power; and, on the other, the equally powerful and highly protected continental economy of the United States. What have we in between? A lot of little, sprawling nation-States, all thinking that they can cut each other's throats in free markets as they did in the 19th century. But that game is finished: that game can never be played again.

The alternative to building up the unit which I have described is abject economic dependence on American charity. That is the only alternative; and I am sure that, in the long run, that will be much less palatable to the United States than discrimination, and an effort to pull ourselves up by our own boot strings. Meanwhile, we must have this conference, and make it constructive, and get the O.E.E.C. and E.P.U. boys into it as well to discuss ways and means of getting something effective done.

If I may end on a slightly critical note, I beg the Government to stop talking about alerts and alarms and grave situations and trap-doors and new presentations; and then, when the markets of the world have been shaken, and everybody is in a state of tension, and the House of Commons is assembled for a great economic debate and everybody says, "My God, what is coming now?" nothing very much comes. We have been led up this garden path so often by the last Government and the one before that, and now by this one, that we are beginning to doubt whether there is an alert, or an alarm or even a trap-door. I say to Her Majesty's Government, "Do not alarm us any more. Send for us when you have really got something to say, when you have really a constructive policy—and get it as soon as you possibly can."

7.22 p.m.

Mr. Norman Smith (Nottingham, South)

The House has listened to a really lively speech from the hon. Member for East Aberdeenshire (Mr. Boothby), who appeared to be greatly enjoying himself. Such a thing was possible from the Conservative benches only because most of the things in which he believes are not the things in which his party believes. Because of that, he is able to make that sort of speech.

I am certain that the House greatly enjoyed the contrast between the picture painted by him and that painted earlier by the Chancellor of the Exchequer. The picture painted by the hon. Member for East Aberdeenshire was of farmers following lackadaisical methods—not Scottish farmers who vote for him, but English farmers who vote for his party. The Chancellor, on the other hand, painted a picture of miners by their hard and magnificent work contributing so much to the country's welfare that it is to these members of a nationalised industry that he looks for what little improvement he sees in the immediate future.

Then, returning to the hon. Member, there was the contrast between his really delightful castigation of the hon. Gentleman the Member for Blackburn, West (Mr. Assheton), whose mid-Victorian views the hon. Member criticised as ludicrous—the contrast between that on one hand, and the lamentable anti-climax that followed when the Member for East Aberdeenshire, this apostle of unorthodox finance, this Tory who voted for the nationalisation of the Bank of England, this Tory who coquets with the Economic Reform Club, went on to applaud with all his heart and soul the Bank rate policy of Her Majesty's Government.

I want to draw the attention of the House to the consequences of that Bank rate policy because, so far as I am aware, no responsible politician ever gets up either in this House or out of it to interpret precisely what the consequences of that policy are and have been up to now. I know that the hon. Member for East Aberdeenshire referred to the melancholy period between the wars when restriction and deflation were the order of the day under the inspiration of the late Montagu Norman, with the connivance of Labour and Tory Governments.

He was quite right about Philip Snowden, who was as bad as any. The imprimatur of Philip Snowden lay on my party for a long time, but it appears that at long last it is fading. Did not my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) come down very emphatically today against convertibility and the principles of Bretton Woods? Only three or four of us dared to say in this House seven years ago that Bretton Woods was based on wrong ideas and on a wrong conception?

The influence of Philip Snowden is at long last fading out from my party, but the party opposite is still following the policy of Montagu Norman, which gave this country an army of at least one million unemployed for 20 years. That was 20 million unemployed who ought to have been earning £200 a year making capital goods. That means that £4,000 million worth of capital goods were not made between the wars, which could have been made but for the fantastic Victorian superstitions of Montagu Norman and the subservience to them of both political parties.

But that is the policy to which the Government are seeking to return at the present time. Those years which the locust hath eaten are apparently the era which the Government want to bring back. When I was a boy there were only Liberal and Tory parties. The Liberals were fond of making targets of the aristocracy, and Liberal speakers loved to quote a couple of lines from the Tory Duke of Rutland, who was formerly Lord John Manners: Let wealth and commerce, laws and learning die, But leave us still our old nobility! I would paraphrase those lines to meet the changed conditions of the era in which we live, and I would say that the policy of Her Majesty's Government with regard to the Bank rate can be summed up as follows: Let business languish, unemployment rage. So long as bankers balance every page. That is what it will amount to.

I want to draw the attention of the Government to the immediate, tangible, palpable, undeniable consequences of their Bank rate policy in so far as that policy has been pursued up to now. It was the Chancellor of the Exchequer himself who said in this House in his Budget speech: One of the surest ways to make sterling stronger is to make it scarcer, and that is what we intend to d0."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1282.] Those words were underlined in the Second Reading debate on the Finance Bill by a back-bencher on the other side, of whom not so much notice is taken as ought to be taken. I refer to the hon. Member for Oswestry (Mr. Ormsby-Gore), whom I do not see in the House. His noble father is in the apostolic succession to the late Reginald McKenna as Chairman of the Midland Bank. I suspect that the father was speaking when the son said in this House, echoing the Chancellor's words: I therefore welcome this policy of making money scarcer and dearer."—[OFFICIAL REPORT, 7th April, 1952; Vol. 498, c. 2394.] Let us look at how it works out. The Government announced in November the raising of the Bank rate from 2 per cent. to 2½ per cent., and in February from 2½ per cent. to 4 per cent. The consequences happened with almost automatic precision, like a delicately articulated mechanism. We all agree that we badly need more food and that we should encourage those Conservative farmers who South of the Border, not North of it, are said to be so lackadaisical. But the way the Government propose to encourage the farmers is by raising the Bank rate to have this effect on the interest charges of the Agricultural Mortgage Corporation—that in November, 1951, folowing the first rise in the Bank rate, up went the Corporation's rate from 4½ per cent. to 4¾ per cent.; and in February, 1952, following the second rise in the Bank rate, up it went from 4¾ per cent. to 5¾ per cent.

The farmers pay more for their loans, but I would invite the attention of the House to the reciprocal of that state- ment. If the farmers pay more for their loans, somebody else gets more. It is no use merely saying that we have got to take money out of people's pockets so that they cannot spend so much in order to free resources for exports. Because the Bank rate is raised, farmers have to pay more for their loans. Goodness knows, there is enough farming carried on with borrowed money!

I had a brother who was on the Wheat Commission. He was a very important solicitor in the City of London, and most of his clients were farmers or corn merchants. He used to say to me, "Norman, you can bet you life that if you travel from King's Cross to Peterborough and look out of the window, 90 per cent. of the farm land you see will be mortgaged to the banks." Now the increased Bank rate makes them pay more, and that is how the Government encourage food production in this country.

Not only the Agricultural Mortgage Corporation but the Public Works Loan Board have raised their charges. That has been discussed in this House before, and I am not going to be guilty of repetition. We know what happened. Because of the effect upon the cost of housing, of which loans comprise the most important ingredient, the Government had to introduce a Housing Bill raising substantially the subsidies on council houses, burdening the taxpayers with more than £3 million per annum. Again the reciprocal of that statement applies. The taxpayers are mulcted in another £3 million. But somebody gets that money. The banks and all sorts of people ultimately lend it, but it is the taxpayers who are mulcted for the benefit of moneylenders.

But the loans of the Public Works Loan Board are not confined to housing. They apply to all kinds of other local activities, such as the building of schools, hospitals, roads, river improvements and goodness knows what else. There is no special Bill passed to compensate for these added interest charges which are a substantial burden on the ratepayers. I am told that in my constituency of Nottingham the City Council pays 4½ per cent. for its running week-to-week overdraft, and I further understand that that 4½ per cent. is a comparatively favourable rate of interest.

But by far the most egregious instance of the effect of raising the Bank rate is to be found in the cost of Treasury bills. For short-term borrowing by the Government, Treasury bills are a very important item. Outstanding today there are £4,200 million of them. When this Government came in there were £5,300 million of them. They funded £1,000 million at a cost of £15 million per annum to the taxpayer. That was new Government expenditure because Treasury bills were funded and interest went up from 10s. per cent. to 1¾ per cent. or a little less.

But that was only the exordium, the prelude. The big business was to come. Since this Government came in, because —in the Chancellor's words—they have made money scarcer and dearer, the interest rate on Treasury bills, two months or three months, has risen by about 2 per cent. It used to be 10s. per cent. a year ago. Now it is 213/32 in the case of two months' bills, and 215/32 in the case of three months' bills.

Remember, there are £4,200 million of these bills running altogether, 60 per cent. held by the banks and 40 per cent. held by some striped-trousered gentlemen who call themselves the money market. It is simple multiplication to arrive at this fact, that because of the increase of interest and because money has been made scarcer and dearer, more than £80 million a year has been added, in respect of the Treasury bills still outstanding, to the cost which the taxpayer has to meet to pay the interest on short-term loans. There is very nearly £100 million a year additional Government expenditure falling on taxpayers merely to meet the cost of short-term borrowing in the money market in the City of London. This is perfectly preposterous.

Nothing is ever said of this £100 million, and no responsible politician or statesmen or newspaper of any political persuasion calls attention to it. It is simple arithmetic which I learned at school in 1895 when I was five years of age. The Government will fight tooth and nail in this House to bring in a Bill to extract £20-odd million from the people who, like me, take prescriptions to the chemist. I pay 1s. a time now, and I have taken three prescriptions in the last three weeks. When I am asked for a Is. in my chemist's shop, which is always full of people in this working class area, I say in a loud voice, "Oh, yes; this is the Tory Government, isn't it?" I always say that very loudly, and pay my 1s.

The Government went to a lot of trouble to get £23 million out of us all for prescriptions, but they have quietly added some £95 million per annum for financing Treasury Bills in 12 months. That needs explaining. It is not only the £95 million or £100 million per annum added burden on the taxpayers. How does this help the balance of payments, when the Government take money out of the pockets of the farmers, the ratepayers and taxpayers in this way and give it to the moneylenders? The matter goes further than that. The Electricity Board have recently put out a loan of £150 million. I know that loan is not a straightforward thing. It is not what it looks like; it is not quite what it pretends to be. There is this to be said about it—and I am quoting from the "News Chronicle" financial correspondent, Mr. Oscar Hobson, a knowledgeable man to whose writings I pay tribute, though I do not agree with him in anything. He wrote on 24th April: This stock affords the highest running yield (£4 5s. 10d. per cent.) of any dated Government stock. If that is the burden which is going to fall upon the users of electricity, every consumer in the land will have to help carry it. I do not see how it helps the balance of payments to make my wife pay more for the electricity she uses, when the extra money which she pays goes to some striped-trousered gentleman whose business it is to lend money.

Nor does it end there. I represent one of those constituencies which is very evenly balanced between Conservative voters and Labour voters. I was extremely lucky to get in last time. Half of my constituency consists of the type of people who usually vote Conservative because they are either houseowners or have taken out mortgages with building societies and hope one day to be house-owners. I managed to get just enough of their votes to hold my seat. But since I got in last time I have been getting letters from the two extremes in my constituency—not from where the wage-earners live, but from the villa people who did not vote for me.

They have been sending me letters which they have received from building societies stating that as from a certain date, usually in October, their mortgage interest is to be increased from 4 per cent. to 4½ per cent. My constituents have asked me whether this is legal, and I have had to reply, "Yes, it is perfectly legal. The building societies are entitled to do that with due notice."

I wish the Chancellor could explain to a simple person like myself how it helps the balance of payments of the country to make the mortgagors, the people who are buying houses, pay extra interest to building societies when that interest goes to some moneylenders who have put their money into the building societies. If the Chancellor said: "I am going to make them pay more; make them hand it over to the Government, who will then cancel it out of existence "—in the well known method of the late Sir Stafford Cripps—that would be deflation, which might conceivably be helpful; but this appears to me to be nothing better than the Conservative Party, even at the cost of hurting their own supporters—the people who are buying houses—striving to benefit the moneylenders at the expense of everybody else.

Sir Edward Boyle (Birmingham, Handsworth)

The hon. Member has asked several times how dearer money can help the balance of payments position. Surely one answer is that the increase in short-term rates raises the charge on carrying stocks of goods against borrowed money. Increased short-term rates will therefore lead to a falling-off in replacement orders, which must help the metal-using industries in their export drive.

Mr. Smith

That could be done without putting money into anybody's pocket. The right policy for the Government is to say, "There shall be no such thing as this discount market, this short-term money market in the City of London."

I do not believe that that market serves any useful purpose whatsoever. It consists as to 60 per cent. of the commercial banks and as to the remaining 40 per cent. of people who call themselves acceptance houses, discount bankers or what you will. They run around all day for as many hours as there are in the working day of the City of London. The situation changes from hour to hour. They are on the telephone; they have messengers and runners, and every now and again, in deep and abject humiliation, they go to the Bank of England to be punished more or less as their master may decide. I do not believe that their activities serve any purpose whatever from a social or business point of view, and I suggest that the time has come when the whole money market business should be converted into one exchange department of the Bank of England and run accordingly.

The time has come when the commercial banks should be nationalised. Either they are run for profit or they are not. If profit is not their motive, there is no sense in leaving them to carry on as private enterprises; and if profit is their motive, they cannot be defended, because what the Conservative Government is doing in raising the Bank rate is taking money away from the ratepayers, taxpayers, people who are buying houses, people who are consuming electricity, farmers and all the rest, and handing it over to the banks and profit-making institutions.

But I do not think that the banks are run mainly for profit. There is plenty of evidence that they are not. After all, the profits have remained remarkably stable over the last 15 or 20 years. They have paid out year by year to their shareholders almost exactly the same amount. But consider the appalling waste of manpower which is entailed in the running of these competitive banks. On every street corner there are four, five, or in some cases half a dozen competing branches of the various banks.

I have had a modest banking account ever since 1913. I have never known banks in the City of London or the country to be crowded except on Fridays. There are far too many branches. We know why they are there; the late Walter Leaf, Chairman of the Westminster Bank, explained that because of their multiplicity of branch premises—many admittedly redundant—the banks were able to accumulate vast hidden reserves which exist in the form of premises that have been either written down or written off in the books.

There has been a hullabaloo lately because the banks are said to have lost money due to the fact that gilt-edged securities have fallen. Gilt-edged securities were bound to fall once the Bank rate started to go up. I do not need to explain the reason for that. But I deny that the fall in these securities has really hurt the banks. The banks are not quite so foolish as to have among their investments any of those Government securities which are undated. I am quite sure that the banks' holdings of Government securities are dated and therefore have an eventual redemption value which is unalterable. The banks have only to hold on to them, and they will not lose money.

Nobody is saying that the banks are obliged to sell those holdings, which have deteriorated because of the Government's policy. It may be argued that the banks might have to sell if there were a run on them. Such a thing as a run on the banks is surely quite inconceivable. If it is conceivable, the sooner the banks are nationalised the better. If the banks were nationalised we should be able to bring about far-reaching reforms and get rid of chronic nuisances. If a Government desired to increase the Bank rate and tighten up credit, there would then be no need to expose themselves to the charge which every Conservative candidate will have to meet at the next election —of putting money into the pockets of moneylenders. All this work should be done by one nationalised bank.

The first consequence would be that the investments of all the banks, which now amount to some £2,000 million, could be converted into Treasury notes. The investments could be washed out and Treasury notes substituted to form the necessary assets of the banks against deposits. In that way the taxpayers would be saved the interest, which I estimate at £50 million to £60 million less Income Tax. That would be a substantial saving. There would be no point in the nationalised bank holding Government securities which were bits of paper said to be a debt against the Government. We should just cancel them out and save the interest, substituting non-interest-bearing £notes.

Moreover, we could shut down large numbers of these redundant branch premises. The manpower of the banks has risen in the last few years. In 1939 they had a clerical staff of 64,300. By the end of the war it had fallen to some 50,000; but by 1948 it was up to 81,500, and it has gone on increasing year by year until last year it was 86,800. or 35 per cent. above the pre-war figure. One hears talk about the waste of manpower in the Civil Service. The waste of manpower in the commercial banks also needs looking into. If the banks were nationalised and the money market brought to an end, nobody would lose anything. A whole lot of wasteful, competitive, capitalistic activities would be brought to an end and, above all, a source of loss of confidence would be suppressed.

There is another very important question arising out of the present policy of allowing private banks to co-exist with the nationalised Bank of England. Under the 1946 Act the Bank of England had the power, in theory, to dictate to the commercial banks, but in practice it does not do so. It makes suggestions to them. There has been no dictation. All the time Sir Stafford Cripps was trying to deflate and squeeze the water out of our monetary economy by heavy taxation—having got the public's money in taxation, he destroyed it—the banks, at the other end, were creating additional credit and lending it to industry at their own sweet will, acting under the motive of private profit.

I have the figures for the increase in bank deposits during those years. I do not propose to weary the House by giving them; they are well known; but it stands to reason that if anybody is going to create new money, it should be the Government and nobody else. I do not know if any hon. Members have read the works of two very distinguished American writers—Thorstein Veblen, who died 20 years ago, or Stuart Chase, who is still alive. They are economists who, unlike most economists, can write English perfectly. They have a habit of making their books live and have never been inhibited by political preconceptions in the way that political writers on both sides of the House in this country are inhibited.

Long ago—20 years ago and more—they drew attention to the obvious necessity of a continuous increase in the total quantity of money in a country, due to the continuous increase in population and productivity, the latter resulting from science and inventions. Obviously there must be a continuous increase in the quantity of money.

When I was a boy bank deposits were £1,000 million; at the end of World War I they were £2,000 million; at the end of World War II. £4,000 million; and now, nearly £6,000 million. All this increase represents new money brought into existence by the banks, merely by making book entries—all coming into existence as debt owed to the banks. These two writers in America pleaded that this increase should be socialised. If one socialises the increment of money resulting from the continuous increase in population and in wealth, one socialises the future.

I wonder that my hon. Friends, the Fabians and all the rest, have never seen that. The reason they have never seen it is because they have been prevented from seeing it, partly by the late Mr. Philip Snowden, who would not allow discussion of any such topic, and partly by the London School of Economics, which was endowed in 1922 to the tune of £472,000 by Sir Ernest Cassel, a banker, who wanted to keep the Socialist movement safe for orthodox finance.

I have been rather longer than I intended, and I will make only one further point. The right hon. Member for Blackburn, West applauded the policies of the Government Front Bench because he said they were an attempt to return to convertibility—that is to say, an attempt to return to a situation in which the £ is interchangeable with the dollar at anybody's option. But if we are to return to convertibility, we are to return to a gold standard. That is inevitable, because the dollar is fixed by the law of the United States in terms of gold. The Bretton Woods Agreement made that perfectly clear.

A return to convertibility is a return to the gold standard, and if we are to have an international gold standard, then we are making quite certain that there shall be a continuous repetition of the unhappy process of slump-boom, boom-slump. That inevitably follows, because inventors and scientists can expand the output of wealth far more rapidly than a financial system based on gold can safely expand the output of money; and any industrial system where the output of money does not keep pace with the output of wealth, must be an industrial system of steadily falling prices—and steadily falling prices inevitably spell depression. It was the present Prime Minister who, in this House in April, 1932, pleaded eloquently against any return to a gold standard. He pleaded that the progress of the human race should not be barred and regulated by fortuitous discoveries of gold.

I beg the Government to reconsider this Bank rate policy. It is all wrong; it is an attempt to return to the Victorian age. It can only bring us back to the days of slump and boom. I warn hon. Members opposite that if they persist in this policy a heavy retribution will overtake them. Let them not forget that we on these benches had more votes at the last election than they did. Their constituencies are those of the seaside boarding house towns, the snob suburbs and the hunting shires. Ours are the industrial constituencies, where the wealth of the country is produced. Let them not persist in these policies. If they do, there will be nothing of their party left, which would not matter; but there will also be nothing of England left, which would matter.

7.54 p.m.

Mr. John Baldock (Harborough)

I find it difficult to follow the hon. Member for Nottingham, South (Mr. Norman Smith), because I do not pretend to have such an intimate knowledge of the workings of some of our branch banks as he does, and I am unable to discourse on the merits or demerits of convertibility, on the return to a gold standard and on the other rather more theoretical aspects of the economy on which he has touched. I want to return to what I believe is the basis of this debate—our economic situation and the balance of payments position, which largely depends upon our ability to increase our production and exports, on the one hand, and to control our imports at a reasonable level, on the other hand.

I want to make a few proposals towards these ends, all of which I believe are practicable and could be put into operation without too much difficulty. Greater production, whether agricultutal or industrial, depends to a very large extent on the exertions and the interest, or even the enthusiasm, of the management and workers concerned in industry and in agriculture. I believe that of all the factors governing production which are within our control, none would have a greater effect or produce a greater increase than incentives—incentives to those in industry and in agriculture, both in the management half of the team and among manual workers.

These schemes are by no means universally popular and, as one who has been responsible for the inception of such a scheme in one section of the building industry, I can understand why. To some extent they are unpopular on both sides of industry, and certainly with some trade unions. I noticed a report in the newspapers of a conference of one of these building trade unions last week, in which the conference asked for the withdrawal of all incentive schemes in the building industry. It seems to me that that would be a most retrograde step at a time when, partly as a result of the stimulus given by the change of Government, but also because of the new atmosphere which is coming into the industry, we are beginning to see results.

It would be a very retrograde step indeed if the incentives schemes which have been introduced were withdrawn, and I was very sorry to see that this trade union was opposed to them. I cannot see that they can bring anything but benefit to members of the trade union, who are given an opportunity to increase their earnings by participating in them.

The schemes are also unpopular with management, and it is no use shying away from that aspect. Undoubtedly they involve management in extra work and possibly in extra staff when it may appear difficult, at first sight, to justify the extra overheads involved in keeping the schemes operating. They also result in headaches of all kinds arising from disputes in the administration of the schemes. No matter how long schemes have been in operation, and no matter how nearly perfect they are, it is inevitable that differences and difficulties will arise from them. Nevertheless, I believe that profit-sharing schemes and bonus schemes of this kind have the greatest contribution to make to every kind of productive industry in this country.

It is unfortunate that they cannot be applied to some of the services, such as transport and, for instance, the railways. But they can certainly be applied to every productive industry, and I believe that if they were introduced more generally a great deal of the pressure for higher wages which is now taking place in many directions would disappear, because these scheme would provide a satisfactory way of earning extra money which many people feel they need, without at the same time prejudicing the prices of the products concerned.

I was very glad that the Chancellor of the Exchequer mentioned this aspect of the wages problem and, while saying that it was irresponsible to press for higher wages at present without greater production, he pointed out that there were opportunities of this kind by which men could get higher wages each week. If we do not follow some policy of this sort there is no doubt that we shall price ourselves out of competition with Germany and Japan. We have been threatened with this competition for several years, and it is at last really beginning to be felt. This is one of the ways in which it can be met.

Mr. R. Ewart (Sunderland, South)

Will the hon. Gentleman tell me what is the advantage of the policy which he is advocating, especially in the shipbuilding industry, where steel allocations are being cut, and Japan and Germany are becoming the biggest competitors of that industry in this country?

Mr. Baldock

I can reply in two ways. First, the Chancellor said that he was hopeful of an increase in the amount of steel that would be available. I hope that this shortage is only a temporary situation, and I do not think that it can affect our attitude towards incentive schemes. Secondly, I believe that we shall be able to compete certainly with Germany in shipbuilding. A friend of mine who went to Hamburg the other day, seeking to find out the prices of ships being built there, found that certain types of vessels— tankers—were more expensive to build in Germany than to build in Britain. I think that is an encouraging sign. I believe that if development of this kind can take place, we can keep the position as it is and certainly meet German competition in regard to shipbuilding.

I think that responsible trade union leaders appreciate this position very fully. Only this morning, there was a letter in "The Times" from Mr. Harries, who was for 20 years a member of the staff of the T.U.C., in which he described the unions as being now in the position of an Estate of the Realm. They are a thoroughly responsible and important section of the community, and their leaders mostly understand their position of responsibility and do not want to press for financial burdens on their industries, which would make them unable to compete with foreign competition. Here is a way which, by incentive schemes, and by profit-sharing schemes, it is possible to satisfy the desire on the part of many people for higher incomes without in any way endangering the export drive.

We all agree that more production must be obtained. In these circumstances, I feel that while we ought to offer every encouragement to further output, we ought also to investigate even more closely than we have done the restrictive practices which are equally dangerous to increasing production.

Mr. Hobson

Where are they?

Mr. Baldock

They are partly on one side of industry and partly on the other. Whereas we have on the employers' half of the partnership, the Monopolies Commission to investigate the position—

Mr. Hobson

Where are the restrictive practices appertaining in the engineering industry so far as the trade union movement is concerned?

Mr. Baldock

If the hon. Member will allow me to develop my argument, I would point out that I have been referring to no specific industry. I have only mentioned that there are restrictive practices on both sides of industry, and it does not follow from that that there are restrictive practices in every industry. I suggested that there are restrictive practices on both sides of industry, and I think that is generally accepted by most fair-minded people. So far as the employers' half of the partnership is concerned, there is the Monopolies Commission to deal with this position, and I hope that it will get into higher gear than it is running at the moment and investigate more firms and, perhaps, be given even more searching powers to do so.

What about the other half of the team? Is there any kind of investigation which takes place into the restrictive practices on that side? I think that it is reasonable to suggest there should be some kind of impartial committee able to investigate and corresponding to the Monopolies Commission to look into the alleged restrictive practices on the manual workers' side of the industry. If those restrictive practices do not exist, I am sure that we shall be more than pleased. But as there are insinuations that they do, would it not be a good thing if there was some kind of impartial committee to investigate them, and to report, in the same way as the Monopolies Commission, back to this House and through this House to the country, as to whether these restrictive practices do exist. I believe that they do.

Take, for instance, the case of mechanisation. We all agree that there should be more horsepower behind the arm of every worker. Every Anglo-American productivity team says that, and almost everyone in this House on either side says the same. We want more horsepower and more machines, and yet we read of dockers strongly resisting the employment of mechanised equipment, such as fork-lift trucks, in the docks.

We also read—it may be false—of bricklayers who are restricted to laying only so many bricks a day. Then, I do know that there certainly exist absurdly rigid rules as to what operations tradesmen may do in particular industries. They are only allowed to use their own particular tools. That is, by and large, reasonable, but we get absurd cases in which a man wants to do an operation which would only last for two or three minutes and some other tradesman has to come in at great expense to do it. That certainly is a restrictive practice.

The most obvious example of all that has occurred recently, however, was the indefensible action of some trade unions in refusing to work with foreigners who were unemployed in their own country, an action which was very rightly and courageously castigated by Sir William Lawther. There are certain cases of this kind where people on both sides of industry are holding up production.

Let us clear all that away, and let us get the Monopolies Commission bearing on the employers and have an impartial committee to investigate some of these allegations on the other side. Then, at least, the nation would know who was holding up production, if anyone.

I would like to say a word on agricultural production, because that is every bit as important as exports. Every extra morsel of food produced in this country is saving us from importing food from abroad. There are some who advocate keener prices for agricultural produce because they say that the farmers can only be caused to give greater production if they find it harder to earn their living. An argument frequently used in the "Economist" is that by reducing the prices of agricultural products offered to farmers, the farmers will find it harder to earn their living and will therefore have to produce more in order to maintain their standard of living. I think that is a thoroughly spurious argument, and one has only to look at the slump years and time of agricultural depression to see how completely unfounded such an argument is.

If it were the case that low agricultural prices increase production, we ought to have had enormously high production in the twenties and thirties when agricultural prices were so low throughout the world. Yet we find the contrary. We find today with higher agricultural prices that production is nearly 50 per cent. above prewar. I think that argument is completely hollow.

I think that prosperity in the agricultural industry is what is required for increased food production because, when that industry is prosperous it attracts more efficient and progressive people, the type of people who will build up the production of their farms. I think that the only way, unfortunately, to deal with cases of bad farming—the inveterate and determined bad farmer—is by putting greater pressure on him through the county agricultural committee, which, I understand, the Minister of Agriculture is hoping will be done.

The labour position on the land is giving great cause for concern in many parts of the country. We cannot have increased food production without an adequate labour force. I read only last week that in Leicestershire, the county in which my constituency is, over 500 men were lost from agriculture to other industries in the last 12 months. These were figures provided by the Farm Workers' Union. That is a very disturbing position. In many parts of the country the same story can be repeated. I hope that the Minister of Labour and his Parliamentary Secretary, whom I see is here, will give the most favourable possible consideration to the deferment of farm workers in all cases where he can. The labour situation on the land will develop into a very serious one in the next year or two now that young farmers and farm workers are being called up.

A further significant increase in production could be obtained by putting some of our commons and heaths in the South of England into agricultural production. There are thousands of acres now under bracken, fern and heather which could well carry a number of stock on a ranching system if they were simply fenced in and water was provided. If we are really anxious to increase our meat supplies that is a way in which it can be done with very little loss of amenity to those who like to walk about the countryside.

Those are some aspects of increasing production, and I now want to turn to the other side of the picture, which is the holding of our imports at a reasonable level, for that is equally necessary if we are to obtain a satisfactory balance. I believe there is not the slightest hope of the United Kingdom ever getting into balance with the dollar world. We could probably do it as the sterling area but not as the United Kingdom. It is obviously impossible for us to increase our exports to the United States threefold in order to get into balance.

We ought to give much more serious consideration to reducing dollar imports. Many people do not appreciate how much our fortunes have declined since before the last war and before the previous war. We are an impoverished country and must do what many others in our position have done; we must cut dollar imports. I was glad to hear the Chancellor say that cuts would be made in the purchases of tobacco. I am certain more tobacco could be grown in the Commonwealth and the sterling area. The present imports are a luxury that we cannot afford. If one travels on the Continent one sees very few Virginian cigarettes, and that has been the position for years. When European countries got into a similar financial position to our own they could not afford to import American tobacco and had either to grow their own or import tobacco from soft currency areas. That is what we should do. This is an instance where savings in dollars could be made.

Savings could also be made by reducing the imports of dollar films. Now that television is growing I believe that the demand for popular entertainment which the cinema has met will turn more and more towards television, especially if we allow some sponsored television programmes. People will get more and more of the entertainment they want in their own homes, and the demand for this large expenditure on American films will become less and less necessary.

Many other dollar imports could be reduced. Considerable savings in expenditure on timber could be made in most forms of building by greater use of concrete and particularly pre-stressed concrete. In some cases this might put up the price of the building a little but if it helped us in our dollar balance problem it would appear to he a worthwhile price to pay.

Those are a few suggestions which might help on the imports side, from the dollar area. If some of those practical steps were taken, together with steps towards greater production, particularly incentive schemes, we might return rather more quickly than we anticipate to the position of an over-all balance.

8.15 p.m.

Mr. W. E. Padley (Ogmore)

Both of the opening speeches in this debate referred to the importance of the wages issue in any attempt to frame a satisfactory policy for dealing with our serious economic problems. Both speeches also referred to the action of the Minister of Labour in referring back to 12 wages councils certain proposals for wage increases for distributive and other workers. I propose to concentrate on the wages aspect of Britain's economic problem.

The reference back of the wages councils' proposals has become a symbol to millions of our wage earners. Hon. Gentlemen opposite should not underestimate the importance of the issue. Within a few days the leaders of the T.U.C. had intervened with the Prime Minister. When I went back to my constituency, in which mining is the largest single industry, miner after miner said to me, "In the old days when there was a Tory onslaught on wages the miners were the first victims; now it appears to be your men." That was a reference to my position as President of the Distributive Workers' Union.

I do not pretend for a moment that distributive workers are the only low-paid workers whose grievances must be remedied. But I do say that it is iniquitous to refer back these proposals for modest increases, ranging in most cases from 6s. to 10s. a week, which, in the overwhelming majority of cases, would still leave a total wage well below £6 a week, and in some cases below £5 10s. a week. This issue threatens to become a turning point in the relationships between the present Government and the trade union movement.

The proposals have been referred back to the wages councils with a copy of a statement made by the Chancellor of the Exchequer on 15th May. The Chancellor's statement is open to most serious criticism, but before I finish I hope to prove that, even on the basis of the Chancellor's statement, the decision of the Minister of Labour, if it was his decision, to refer the proopsals back was utterly indefensible.

Before I deal with the Chancellor's statement I want to say a word or two about the rather complex negotiating machinery in the distributive trades. In Britain there are about 750,000 shops and other retail establishments, and the number of employers runs into hundreds of thousands. It is the set-up of the distributive trades which has always been a barrier to the development of highly organised machinery on both sides of the industry. Before the war it was possible to get voluntary trade union agreements with some of the larger employers. During the war voluntary joint industrial councils, supported by the legally enforcible decisions of the National Arbitration Tribunal, worked tolerably well.

Wages councils were established, largely as the result of the work of the late Ernest Bevin, as much on the demand of the employers as on that of the trade unions. The reason for this attitude on the part of the employers is not hard to see. So long as larger and better employers with voluntary agreements with the trade unions were facing competition from those sections of the trade where trade union organisation is difficult, it was not easy for the employers and the trade unions to negotiate satisfactory wages scales. That is why the wages councils came into existence with the agreement of the employers, the unions and the Government of the day.

It is important to point out that the union of which I am president has voluntary agreements with the Co-operative movement and the Multiple Grocers' Association covering all the workers of all the multiple grocers throughout Great Britain. They provide a wage in excess of that which the Minister has referred back. The present wages council rate in the food trades is the princely sum of £5 5s. 6d., and had the increase been ratified by the Minister it would have been £5 15s. 6d. in the larger towns in Britain. The voluntary agreement with the Co-operative movement provides for a rate of £6 7s. a week and that with the multiple grocers a rate of £6 a week.

It is possible for some people to argue that the majority of the members of my union are not directly involved, since they are covered by voluntary agreements, but the fact remains that many thousands of them are so involved. In addition, the indirect effect, even to well organised workers, would in the long run, be quite considerable. I have always found, in negotiations with even the best employers in the distributive trade, that there has at some stage been the argument, "What about our competitors?"

One of the penalties one pays for statutory wage regulation machinery is that it is rather cumbersome. Let us take, for example, the present wages councils' proposals which have been referred back. They arise from wage demands tabled in January. The negotiations took place in February and March. At that stage an agreement had been reached with or without the help of the members nominated by the Minister of Labour. By statute, the proposals had to be circulated and for three weeks posted in every shop in Britain. During that period employers and workers could send objections to the council. At that point the council met, again by statute, in order to consider the objections and that, of course, is the reason why the wage applications put in in January and negotiated in February and March did not reach the Minister for ratification until the beginning of May.

That, as I say, is one of the penalties of statutory wage regulation, but it is a point which has a real relevance to the action of the Minister in this case. These wage applications were put in in January. During the negotiations the January cost-of-living index figure was the last figure available. The cost of living largely governed this set of negotiations. Hon. Members may have seen a statement by Mr. Donald Barber, secretary of the employers' side of the Drapery Wages Council. Mr. Barber, the spokesman of the employers, said these wage increases, which the Minister has referred back, bore a strict relationship to the rise in the cost of living between the last increase and these proposals.

That statement is, in my view, an under-estimate of the true position. Between January, 1951, and January, 1952, the cost-of-living index figure rose by 13 per cent., and in the case of the Drapery Wages Council it would have required a wage increase of 14s. 2d. to maintain real wages up to January last. In fact, the proposed increase which the Minister has referred back is 10s. I would claim, therefore, that on a strict calculation even if the Minister ratified the Drapery Wages Council's proposals there would, even up to January, have been a decline in real wages of 4s. 2d. a week. That calculation takes no account of the rise in the official index figure of six points between January and the present time.

When he was answering Questions the other day the Minister made some word play as to whether these were agreed proposals. Some of them were agreed proposals in the sense that as a result of negotiations, the employers' representatives and the trade union representatives agreed, but in other cases the independent members nominated by the Minister arbitrated on differences between the two sides. But that is surely a normal practice in collective bargaining machinery which has been built up in Britain.

These independent members nominated by the Minister himself are among the most distinguished arbitrators in Britain. The chairman of the old National Arbitration Tribunal, the present Industrial Disputes Tribunal and the arbitrators in machinery covering many other industries are included. It would seem to me that this action by the Minister is challenging the capacity of these distinguished men and women who are among the most experienced arbitrators in Britain. No hon. Member can overlook the point that since these arbitrators operate in other industries the effect of this action is bound to spread to other trades.

The Minister of Labour has referred the proposals back and sent with them a copy of the Chancellor's speech on 15th May. I think that speech by the Chancellor is open to very serious criticism, but even if we study the precise text of the Chancellor's statement we shall still find no support for the action of the Minister of Labour. The Chancellor states: The rise in prices which started about two years ago have been very largely compensated for by the increase in wages which were obtained up to the early part of this year. As I showed, these proposals affecting the distributive trades are precisely the increases negotiated at the beginning of the year to compensate the workers for the rise in the cost of living.

The Chancellor goes on to say: Remember that the money saved by reducing subsidies has been returned to the public by lower taxes and by increasing a wide range of allowances. Earlier in my speech I mentioned the rates that were involved. Obviously, when the Chancellor referred to the money saved by reducing food subsidies being paid out in Income Tax remissions, it had no relevance whatever to the position of well over one million distributive workers, whose wages are well below the figure at which Income Tax would be paid. Therefore, on the second point, the Chancellor's statement is utterly irrelevant.

Indeed, immediately after that he went on to say: Nothing that has happened since would seem to me to justify a general increase in wages today, though this is not to deny there may not be a case for some very moderate adjustments in certain instances. So it seems to me that we have two clear-cut admissions by the Chancellor even in the warning speech: first, that these increases which the Minister has referred back to the wages councils are thoroughly justified because they are increases barely in proportion to the rise in the cost of living up to the beginning of the year. Secondly, since these workers, in the majority of cases, got no Income Tax concessions, they are in the special category which are entitled to a further increase to cover the six points rise in the cost of living since the beginning of the year.

I defy any hon. Gentlemen opposite to challenge the logic of those deductions from the Chancellor's own statement. In that statement the Chancellor said much about inflation, but it is hardly necessary to say to hon. Members that the workers in these trades have probably been more the victims of rising prices than most sections of our community.

I want now to turn to another aspect of this issue to which I referred briefly in supplementary questions to the Minister of Labour a week ago. I asked the Minister, on that occasion, whether it was not a gross abuse of the ministerial power to use it in this way. I do not for a moment challenge the right of the Minister in appropriate circumstances, whatever they may be, to refer proposals back to wages councils. However, on weighing the evidence of these cases, I have come to the firm conclusion that the action of the Minister was a gross abuse of the ministerial power under the Act, and I am glad of this opportunity to give my reasons in some detail.

The right hon. and learned Gentleman the Minister of Labour seemed a little put out when I put this briefly in the form of a supplementary question. It will be clear, when I have explained my point, that this is no reflection on the integrity of the right hon. and learned Gentleman. It is important to remember, first, that in every case the negotiations on these wages councils were completed before the Chancellor made his statement on 15th May, and in most cases had actually been submitted to the Minister before then. In other words, these low-paid distributive, laundry and other workers—[An HON. MEMBER: "And railway workers."]—are being singled out for a retrospective action of the policy announced by the Chancellor on 15th May. When I made that point at Question time the other day I was considerably encouraged to see the "Manchester Guardian" saying, in a leader, that there was considerable force in that argument.

Secondly—and this is a most important point—it seems to me virtually certain that the Minister did not consider the proposals submitted to him in his judicial capacity as a Minister but that, on the contrary, he referred them back as the result of a political decision by the Cabinet. How else can we explain the fact that a pile of a dozen, ranging over a period of nearly two months, were held up and the decision announced on the same day?

I find it really hard to believe that the Minister carefully considered all the proposals which he has referred back though, under the Wages Councils Act, he would be expected to do this before exercising his ministerial right. I find it hard to believe that the Minister gave careful thought to each one of these proposals. For example, take the Newsagency, Tobacco and Confectionery Wages Council. The existing wage rates for shop assistants aged 24 and over are as follow: 97s. 6d. for the smaller towns, 103s. 6d. in the larger provincial towns and cities, 107s. 6d. in London.

Surely that is the kind of case the Chancellor envisaged when he said that some wage increases were justified. Did the Minister seriously consider this case? Does he really say that the proposal to raise these rates by 8s. a week is likely to cause difficulty to the nation? Is the Minister really saying to the people in the smaller towns that a wage of 97s. 6d. is adequate and that an 8s. increase will imperil the British nation?

Mr. Malcolm McCorquodale (Epsom)

If I may interrupt the hon. Gentleman, he knows well that the Minister never said anything of the sort. The Minister is merely giving the wages council an opportunity of considering the statement of the Chancellor. If, after considering that, it chooses to proceed with this scheme, it can come back to the Minister again. He is not prejudging the case at all.

Mr. Padley

My reply to the right hon. Gentleman is the simple one that if the action of the Minister is to be defended at all it must be defended within the four corners of the Act under which the Minister acts in a judicial capacity.

I have read out the rates before the increase and after the increase and I am prepared to leave it to the verdict of every hon. Member in this House as to whether, in a judicial capacity, any fair-minded Minister would refer back those rates. The right hon. Gentleman, of all people on the other side of the House, should realise that the overriding purpose of wages councils—and now I quote the Act—was to guarantee adequate minimum remuneration to workers in industries where, without wages councils, they were not likely to receive it.

In other words, the first victims of the policy announced by the Government have been men and women in industries where, in general, wages are low and, in some cases, much lower than in industry generally. Therefore, it seems to me that this is a monstrous perversion of any reasonable interpretation of the power of the Minister. Parliament decided that these groups of workers were in need not of an attack by the Minister of Labour but of his protection by the Wages Councils Act which he administers. I suggest, therefore, that simply to make reference to the literal text of the Act, and for the right hon. Gentleman the Member for Epsom (Mr. McCorquodale) to drag in the name of the late Ernest Bevin is not good enough.

Perhaps this is the appropriate point to anticipate the argument that a former Minister of Labour did something of the same kind. If hon. Members quote that precedent, I hope they will see that their Front Bench follows it in detail so that the proposals will, in fact, be signed without the alteration of a comma. Since Ernest Bevin was mentioned in an earlier discussion on this, I feel impelled to say that when my union and the Trades Union Congress were having some differences with their own Government, I believe that it was the influence of Ernest Bevin, though at the time he was Foreign Secretary, which solved this matter quickly, at the critical point. Ernest Bevin took a long-standing interest in the wages machinery of the distributive trades. He was the principal architect not only of the wages councils but of the joint industrial councils for this industry.

I have referred to the fact that most of the men and women concerned receive no remission in taxation. Yet it is precisely at a time when the Chancellor of the Exchequer has decided, whatever the crisis that confronts us, that the nation's position warrants handsome presents, ranging from 12s. a week to men getting £20 a week, to 30s. a week to the man with £50 a week, depending upon their family circumstances, that men and women earning less than £6 a week are having wage increases either vetoed or held up.

It is important to remember that given wages council machinery, if the wages councils—which, I understand, are due to meet between 6th and 29th August—vary these proposals for wage increases, the whole machinery has to be gone through again and these people will wait until November and December before wage increases are forthcoming.

Sir H. Williams

The hon. Member is not quoting the subsection accurately.

Mr. Padley

The subsection on what?

Sir H. Williams

The proviso, on page 79, as to what happens when recommendations are referred back and are resubmitted, with or without amendments. The hon. Member is quite wrong in his description.

Mr. Padley

No. If the hon. Gentleman's acquaintance with the Wages Councils Act was of as long standing as mine he would know that if there is substantial variation of the proposals when they go back employers and workers in the trade must be given an opportunity to submit objections to them. That is the position as I have understood it and as the legal advisers to, I think, both sides of the industry have understood it.

Mr. Jack Jones

The hon. Member for Croydon, East (Sir H. Williams) has a lot to learn. His P.P.S. has gone over to help him now.

Mr. Padley

I was about to quote another rank inconsistency of the Government. Since these wage increases were negotiated, the Government, by the Ministry of Food, have given £10 million a year extra in margins to the grocers. I have no complaint about that; anyone in the trade knew that the position was getting somewhat difficult. But it is a most extraordinary position when a Government can give £10 million a year extra to the grocers, but freeze the wages of hundreds of thousands of grocery trade employees at £5 5s. 6d. a week.

Therefore, I come to the conclusion that the most charitable explanation of the Government's action in this matter is that, as usual, none of the leading Ministers knew what he was doing. The alternative would he to condemn the leading Ministers of the Government as lacking in elementary moral principles and sense of human decency. At a time when handsome presents are made to the wealthy, some of the lowest paid workers are singled out not only for a wage freeze, but for a restrospective wage freeze.

Make no mistake, that is what it appears to be, not only to the million and a half distributive workers involved, but to countless workers up and down Britain, who believe that this is the beginning of a calculated Government policy.

The Parliamentary Secretary to the Ministry of Labour (Mr. Harold Watkinson)

The hon. Member is making his case with great moderation. I hope he means what he says, that it only appears to be a wage freeze. I want to make one thing quite plain—and I am sure that the hon. Member knows what is in the Act better than I do: that is, that under the Act—a Coalition Government Act, and under the late Ernest Bevin—the Minister has only two choices: either to sign the Order, or to refer it back. He has no alternative to suggest any variation in rates or anything else. He can only do one or other of those two things. His duty is clear.

Mr. Padley

With due respect to the hon. Gentleman, that is not a very strong point.

Mr. Watkinson

I am merely trying to get the facts right.

Mr. Padley

Yes, but under the wages councils there is the employers' side, the trade union side and, because this is statutory machinery, the Minister of Labour usually nominates three independent members. They are among the most distinguished arbitrators in Britain. I therefore submit that in all kinds of cases that can be envisaged the national interest is protected by the nominees of the Minister. Otherwise, it seems that there is scarcely any purpose for this tripartite set-up.

I really think that right hon. and hon. Members opposite should look carefully where they are going. When the Budget was published there were warnings in this House and outside by responsible trade union leaders that it would have an adverse effect on industrial relations. The case of several million lower paid workers—not only distributive workers but agricultural workers, day workers—

Mr. L. M. Lever (Manchester, Ardwick)


Mr. Padley

—lower-paid railwaymen, and so on—was cited. But the Chancellor and his right hon. Friend the Member for Aldershot (Mr. Lyttelton) hypnotised themselves with a mass of figures to show that these warnings really had very little substance. They quoted averages in the main, and averages are notoriously deceptive. Even if they hypnotised themselves and hon. Members who sit behind them, when the local elections came they wondered what had hit them because these masses of statistics made no real impact on the minds of men and women with £6 a week, or less.

Britain faces serious economic problems and, certainly, no trade union leader who has at heart the welfare of the men and women he leads—just because there is a Tory Government in power—would react in the words of the music hall song: We don't care a damn if the boat goes down, She doesn't belong to us. But it is equally true that no responsible trade union leader can acquiesce in rank injustice.

The fact is that since this Government took power almost every action they have taken in economic and social affairs has been to redistribute income from those who are not well off to those who are better off. They have attacked the food subsidies and the social services, which have always meant more to the lower paid workers than to most other sections of the community.

I hope that the Government will not only allow the Minister to sign these Orders forthwith, but that the outcry on this occasion will prevent similar action with regard to proposals for agricultural workers and some others. If hon. Members opposite look at the Press reaction to this event they will find that, for the first time in my life, I have had an editorial in the "Daily Express" giving me backing. That is a new experience.

They will also find that the "Manchester Guardian" and "The Times" have written powerful editorials backing the justice of our case whilst expressing some sympathy for the Minister concerned. The "Manchester Guardian" said that the sensible thing for the Government to do would be not to await battle on this issue but to revoke their decision with regard to the Wages Councils Orders and, instead, give some general warning on wage claims generally.

But even if the Government decided tomorrow to sign these Orders and not to repeat this offence in the case of agricultural workers and others, that would be but a beginning to the kind of policy which is required if Britain is to overcome its serious economic problems. Make no mistake, in the second half of the 20th century the only foundation for economic stability is social justice.

It is quite useless for the Chancellor of the Exchequer to make appeals to the nation with his hand on his heart, unless he is prepared to underpin those words with economic and social policies which do not discriminate against the lower paid people in favour of the higher paid people. It is only insofar as this Government appreciate that social justice is the foundation of economic stability that they will be able to confront and solve the economic problems which face Britain today.

8.50 p.m.

Sir Herbert Williams (Croydon, East)

I listened with care and interest to the speech of the hon. Member for Ogmore (Mr. Padley), but I do not think he has applied his mind to what is the real problem of the debate today. It is whether, unless we solve the external problem, we shall be able to maintain existing wage rates. That is the real issue. I do not know what animated the mind of the Minister of Labour. I did not know about it until I read about it in the newspapers. But that is the real issue. The issue is survival, and, therefore, it is no use talking—

Mr. Padley

Would the hon. Gentleman answer this simple question? Was the issue survival when the Chancellor gave 12s. to those with £20 a week and something like 30s. to those with £50 a week?

Sir H. Williams

The Chancellor of the Exchequer did not give anything to anybody. My income is my own income. The State may decide to abstract so much from it in taxation, but if taxation is diminished it is not a gift. That is an absurd attitude to adopt.

Mr. Padley

The hon. Member says my attitude is absurd, but if he will refer to the speech of the Chancellor of the Exchequer on 15th May, which has been sent to the wages councils, he will find that it is not I who make that point, but the Chancellor of the Exchequer.

Sir H. Williams

The hon. Gentleman is not quoting precisely what the Chancellor said when he says that the Chancellor gave certain people 12s. a week when he reduced taxation. On that basis every reduction of taxation is a gift by the State to those from whom the State took it in the first place. That is just a Robin Hood theory. Hon. Members opposite have been pressing for an increase in their salaries.

Hon. Members

That is not true.

Mr. Jack Jones

Will the hon. Member produce any evidence that hon. Members on this side of the House have made a direct approach about increasing their salaries?

Sir H. Williams

I know that a very large number of hon. Members have spoken to me and suggested that I should talk to the powers that be. There is no reason why I should not if hon. Members opposite thought I was a suitable channel of approach. And after all, we know perfectly well that at their party meeting the Leader of the Opposition announced the result of his conversation with the Prime Minister. Do not let us be dishonest about it; of course it is true. I do not blame hon. Members opposite. One reason is—

Mr. Albert Evans (Islington, South-West)

Is the hon. Member now retailing to the House spoken rumours and things which have been said to him in confidence?

Sir H. Williams

I am talking about what has been published in the Press—

Mr. Deputy-Speaker (Mr. Hopkin Morris)

I would ask hon. Members to refrain from interruptions, because the winding-up speeches for today are due in a few minutes and I hope that full opportunity will be given to right hon. Members to make their speeches.

Sir H. Williams

Hon. Members opposite have had far too much time given to them up to now and I should like to be allowed to have the few minutes that remain.

The hon. Member for Ogmore said there was no remission in taxation for those for whom he is speaking. That statement is quite inaccurate. If the minimum wage rates he quoted are accurate and if he will examine pages 27 and onwards of the Financial Statement he will see that for single persons and for some married couples there are definite remissions. But I do not want to be led into that subject. I wish to say a few words about other matters although I shall not have time to deal with the main issue which I wanted to discuss.

The right hon. Gentleman the Member for Huyton (Mr. H. Wilson) referred to the change in our export trade. I saw fit to challenge one thing which the right hon. Gentleman said. I happen to have with me this document—the Trade and Navigation Accounts—and certain things which the right hon. Gentleman said did not appear to fit with the figures in this document. I therefore desired to quote it to him, but he would not allow me to quote it on the ground that what he had read was in the Board of Trade Journal.

I think the right hon. Gentleman knew that he was not being quite candid in the matter, because he must know that articles in the Board of Trade Journal are based on information which is published in this document, which, until a few months ago, bore the name of the then President of the Board of Trade. I think that, when a right hon. Gentleman makes a statement which is open to challenge, he ought to have the courtesy to give way in order that his statement can be challenged.

My hon. Friend the Member for Aberdeenshire, East (Mr. Boothby) referred to the speech of my right hon. Friend the Member for Blackburn, West (Mr. Assheton) on the probability of convertibility, and he also referred to what happen in 1947, and indicated that what happened then was a complete reply. I think my hon. Friend was under a complete misapprehension, because what happened in 1947 was this. The £ was then exchanging with the dollar at a fixed rate; I think it was 4 dollars 3 cents. We had certain assets placed at our disposal by the United States Government, and, from a certain date, persons who had sterling in this country were entitled to buy dollars at a fixed rate of exchange, but that is not the problem of covertibility which many of us are talking about.

What we are talking about is allowing the £ to find its own level, and, in that event, there will be no fixed rate between the £ and the dollar, nor any fixed rate between the £ and the franc. If Frenchmen sought to buy sterling with their francs, it would send up the price of sterling against them, and if they used sterling to buy dollars. it would raise the price of dollars against them. Hon. Gentlemen opposite do not appear to understand that.

There is no time at this hour to go into the whole complex problem regarding convertibility and all the rest, but I do not regard convertibility as an objective. I regard it as a method for bringing about the desired effect. The plain truth of the matter is that, if we allow the £ to exchange freely we cannot have that and an adverse belance of payments. It is the complete and absolute cure, always provided that we do not allow the printing presses of the Bank of England to run away. When the Chancellor of the Exchequer has complete control over the printing presses of the Bank of England we can cure the balance of payments problem, although any correction of an adverse balance of payments is unpleasant.

The present system, inherited from the Socialist Government, means that the choice is to be made by Whitehall. I want the choice to be made by the people, because that is what convertibility means. I should decide, by my daily actions and purchases, what is to he imported, but, at the present time, we do not decide it. It is decided by the autocratic actions of Ministers, but it does not follow that they are right.

Therefore, I am in favour of convertibility at the earliest possible moment, though I realise, of course, that we have to have certain precautions. Let us not run away with the idea that the stocks of gold and dollars are small for the purpose. My hon. Friend the Member for Dover (Mr. Arbuthnot) and I were dis- cussing earlier this evening what happened prior to 1914, and I looked up the figures. We were then on the gold standard, and the stock of gold, the instrument of the Bank rate and certain other operations were the sole defence. In June, 1911, and in 1912, the stock of bullion in the Bank of England was worth about £39 million. The stock of gold and dollars today is 15 times as great, and the duties of the £ were very heavy in those days. It is not true to say that £600 million is a small figure for operating this system.

I would ask hon. Members, when they have time, to go into the Library and read a most interesting speech made on 18th August, 1919, by the then Prime Minister, Mr. Lloyd George. He described the situation. It is fascinating to read the speech because it is slap up to date. In the course of that speech Mr. Lloyd George, as he then was, announced that on the following day we would cease to support by borrowing the exchange value of the It dropped heavily, I think from 4.60 dollars to 3.20 dollars—I am speaking from memory—and then gradually it built up again. But within six months it had eliminated the adverse balance of payments. That was a time of what we now call "full employment."

It will be remembered that in April, 1925, the present Prime Minister, then the Chancellor of the Exchequer, restored the gold standard. I think there was only one mistake made in doing that, a mistake in which all political parties joined, and that was in going back to the old parity instead of choosing a new one. But, in spite of that, industrial production in the next four years went up by 10 per cent., and the figure of those employed increased by three quarters of a million.

Mr. Emrys Hughes

And there was the 1926 strike.

Sir H. Williams

The strike of 1926 was not due to that. It is perfectly well known that the late Lord Stamp gave that false impression, but the strike was due to the coal situation in the Ruhr Valley of Germany, as everyone is aware. However, I do not want to be led into those details because I see that the right hon. Member for Ipswich (Mr. Stokes) is getting restless. He wants to break into the debate soon, and I do not want to delay him much longer.

Then we come to the tragedy of 1929–31. Week after week from the time the Labour Party took office unemployment increased. Then we come to the end of July. 1931, and ultimately, on 24th August, to the tragic collapse of the Labour Government. They ran away from their responsibility exactly as they did last October. They knew what was coming. Hon. Members opposite rejoice beyond measure that they are not in office at this moment. I observe that they make very few efforts in the Division Lobby to win; that is very evident.

In August of that year the Coalition Government was formed, and then there came the tragic mutiny of Invergordon and the collapse of the gold standard. That is a fact. Anybody can go into the Library and read the HANSARD of that time or read the summary of it in "The Times." There was a period of great difficulty for some six months, and there was the Import Duties Act. But the combination of the two restored the adverse balance of payments. So the same method which restored the adverse balance of payments on two occasions at intervals of 22 years—the first occasion when we had full employment and the second occasion when we had about the worst unemployment in living memory —must have something to be said for it.

I shall not develop that any further except to say that when we approach the problem of convertibility I hope we shall approach it jointly with other matters and see that it does not have that terrible restriction on our economic liberty. The General Agreement on Tariffs and Trade is hampering us in the most appalling way at this time, and I think that that view is widely held on both sides of the House. We must also rid ourselves of that other restricting thing in our commercial treaties, the most-favoured-nation clause, which makes it impossible for us to do a bargain with one nation without extending the benefit of that bargain to every other nation.

There arc other things which I might develop, such as the need to reduce the burden of taxation, but I think that I have taken more than my fair time having regard to the wish of the right hon. Member for Ipswich to speak. I am sure it will be a pleasure to listen to him. It will be a delightful speech. At times, I am sure, it will be delightfully irrelevant and now I am looking forward to listening to it.

9.5 p.m.

Mr. R. R. Stokes (Ipswich)

I am greatly obliged to the hon. Member for Croydon, East (Sir H. Williams) for shortening the period of my anxiety neurosis, and I hope I shall not disappoint him. I do not propose to follow his vagaries except to say that he is quite wrong, as far as my memory serves me, about the history of unemployment in the 1920s and 1930s.

Sir H. Williams

The Labour Government took office in June, 1929, when unemployment was much lower than for some time previously, but thereafter, until August, 1931, it went up to nearly the largest figure ever known.

Mr. Stokes

The hon. Member also put questions about what happened before 1914 with regard to gold. Surely he ought to remember that one thing happened before then and one thing has happened since. Before 1914 there was practically no variation in the rate of foreign exchange anywhere. The situation is quite different now, and since 1914 there have been two world wars, which he seems to forget, and our economic situation has changed.

But I do not want to deal with the hon. Member for Croydon, East. I want to deal with the Chancellor of the Exchequer. When the right hon. Gentleman opened the debate we were all full of expectancy that we should hear something fairly substantial, perhaps unpleasant, certainly probably constructive. But really and truly, without wishing to castigate him too much, there was nothing at all in his speech. On the only point on which he could have told us something—that was what the Prime Minister was going to say tomorrow—he would not tell us anything at all.

All he said was that consultations and talks had been going on and will go on, but really we had no proposals at all. The only comfort that I have derived out of the debate so far is that there seems to be general agreement that to refer to our balance of payments problem in isolation and as a short-term problem, instead of a world and long-term problem, is wrong. Most people now recognise that at last.

The hon. Member for East Aberdeen-shire (Mr. Boothby), with whom I am inclined to agree in some of the things which he said, pointed out that he did not think that there was an orthodox method of curing our problem. I am inclined to agree with that view because, as I understand it, all methods so far tried have failed to bridge the gap or to offer any more than a short-term palliative for our immediate embarrassment. It is not merely a question of closing the gap or trying to keep it closed. There is a great deal more to be done. The problem does not concern only ourselves, because in addition to closing the gap we have to find some way or other of coming to the aid of all backward peoples everywhere.

Before I put forward my suggestions I want to put up one or two general considerations. The first is that we in this country realise, or if we do not realise it we ought to do so, that our standard of living is much higher than that of probably 75 per cent. of the rest of the world. We realise that if we are to keep that standard or to advance it still further, as we all hope we shall, and at the same time be of some help to other people, then it is perfectly true that we must have more and more production and higher and higher efficiency and that everybody must work harder. [HON. MEMBERS: "Hear, hear."] I really mean everybody. I am not talking only about the chaps on the benches, but also of some of those to whom the hon. Member for East Aberdeenshire, referred as being engaged in the wrong job or doing nothing at all. They must all come in. and it is as well that we should realise that from the very outset.

Secondly, there is no way out of our difficulty except by the closest cooperation economically with the United States. It seems to me that for stability in Western Europe and overseas development we must have American cooperation—and who doubts that we shall get it? Surely a nation which had the imagination to invent Cash and Carry, Lend-Lease, Marshall Aid and the rest will come in on one or other of the solutions which must be found to put the world back on its feet and ensure a really lasting peace. I know that means that there will be sacrifices all round. But, as Mr. Stevenson said in his adoption speech in Chicago the other day, there are no gains without pains, and it means that despite our efforts to advance ourselves, we shall have to do without in order to get things right elsewhere.

The cornerstone of any progress which we can make elsewhere must be security in Western Europe. If we do not have that security, we cannot improve conditions overseas. I am not going to talk about defence, because that will be dealt with tomorrow, but I want to say this to the Chancellor who, no doubt, will pass it on to the Prime Minister. If cuts are contemplated I hope that they will not mess the programme about.

I am thinking of what happened in the last war when it was found, for example, that it was more economical to complete bad tanks and run them into the scrap yards than to stop production. I hope that any cuts that are made are made carefully, constructively and after due and proper consideration with the other members of N.A.T.O. Otherwise, it seems to me that the situation will go wrong.

I do not wish to talk about Germany, but I hope people appreciate the tremendous advantages which Germany enjoys at the moment in that she has no arms burden, and that owing to our futile dismantling policy she has more efficient production than she had before and is able to compete with us much more acutely in world markets than she would have been able had the situation been handled differently.

I do not believe there is any sense in trying on our own to battle this out with the United States of America. The Prime Minister has talked of a Commonwealth Conference to be held in November of this year. I should like a Commonwealth team to approach the United States of America on this whole question of the development of raw materials and capital investments overseas. What we obviously want is more and more production, especially of food. Otherwise there will be catastrophic shortages in about 10 years time. That is, indeed, borne out by the Paley Report which, no doubt, the Chancellor has studied. That states that whereas there was a 15 per cent. surplus in raw materials in 1900, there was a 9 per cent. shortage by 1950 and there will be a 20 per cent, shortage in raw materials by 1970.

"The Times" in an article in the City columns yesterday said: If this is the direction of events, it will open a huge and growing market from now onwards to the primary producers in other parts of the Commonwealth and the sterling area. And this in its turn would mean…the dollar gap, in the form that it exists now, would be closed without any difficulty. That is the theme to which I wish to turn. What a bright prospect is offered if the situation is tackled properly and the dollar gap is closed for ever.

In the proposals that I want to make, I want to make it clear that I am not intending anything that is unfriendly to our friends across the Atlantic, or to the Australians, the Canadians or anyone else. The main point is simply this. There is, as the hon. Member for East Aberdeenshire said, absolutely no solution to the dollar gap problem by exporting manufactured goods to a country which already overproduces them. The situation will not get better; indeed, it will get worse. Before the 1939 war American productive capacity was about 33 per cent. below that of the whole of Western Europe. By the time the war ended it had increased so much that it was 25 per cent. above that of the whole of Western Europe.

Now there is this huge defence programme in America. Since it started she has increased her steel output by an annual amount equal to our total output and by the time defence is out of the way, in a year or two's time, who knows what will be her productive capacity in relation to Western Europe? Surely it is going to he higher again'? I agree that in the period 1946–50 Europe caught up a bit, but the productivity gap will surely open out again.

I do not agree with the view that because the amount that we want to import into America is so little it will be easy of achievement. I agree with the hon. Member for East Aberdeenshire that there is no reason on earth why American manufacturers should be content to let us do that, and they will be even less inclined to help us out of our difficulty with manufactured goods as and when and if they run into or find themselves in a slump.

I want to make one or two proposals which I consider to be constructive, as to what should be done on the short-term problem. The first trading area which I want to consider is Canada. I hope that my friends over there will not take amiss what I want to say. Canadians have always been most generous to us and have wholeheartedly co-operated with us in every respect. I pay tribute particularly to the help given by Charles Howe when he was over here last year at the Materials Conference. Cannot we get nearer a balance between ourselves and Canada? I know that in 1950, as a result of great efforts, we reduced the gap to about £50 million, but that was by restricting imports into this country from Canada, and it did not really suit either of us. By 1951 the gap had opened again to £130 million.

My point is that the gap can be closed without inconveniencing anybody. It is not a question of trying to sell to Canada something which she already has, as we have been trying to do in the case of America. Canada imports from America something in the order of £186 million of capital goods—or she did in 1951—and she imported from us only £13 million, whereas the out-of-balance between Canada and ourselves was the difference between £261 million worth of imports from Canada and £127 million worth of exports in return—which is a difference of £134 million.

Even if half the capital goods now purchased by Canada from the United States came from this country—and I agree that under present circumstances that would mean that we would have to have some sort of system of priorities to ensure that the right goods went to Canada—that gap would really start to disappear. I want to ask the Chancellor if the Government are doing anything about this. Has that particular point been considered and, if so, with what degree of success?

I want to touch lightly on one matter which the Chancellor mentioned—tobacco. I am glad to hear from him that something is being done, though he did not say what. All he said was that the dollar purchases were down heavily. I call to mind that in 1951 the imports of tobacco from the United States amounted to £51 million. That ranks as the second biggest import from the United States, after grain. It ranks ahead even of cotton. I do not understand why we should not get more tobacco from Eastern Europe. I am perfectly aware that at the moment we have to pay in gold; but I cannot see that that matters because we have to pay in dollars for the tobacco we buy from the United States.

What is being done to increase the imports of tobacco from Rhodesia? The trend seems to be wrong. The United States have been shipping tobacco in increasing amounts over the last two years. The figure has risen from 65 million kilos in 1950 to 97 million kilos in 1951, whereas the imports from Turkey, Greece, Bulgaria and Rhodesia have all gone down. It seems to me to be a completely wrong trend. To those who say that people do not like that sort of tobacco, my answer is that they will jolly well have to like it, and that is all about it. I am fortified in my point of view by reflecting that no self-respecting American ever smokes a Virginian cigarette.

There is a third point I want to put to the Chancellor. I chased the President of the Board of Trade about this even when I was a Minister, and he was my colleague, and I never got a satisfactory answer from his Department. It is not a very important thing, but it seems to me that there is something funny about whisky.

Mr. Emrys Hughes

Hear, hear.

Mr. Stokes

This is our best dollar earner, and £20 million worth of whisky goes to America every year. Everything we buy from America has gone up in price three, four or five times, yet for some astonishing reason the Americans pay us only 10 cents a bottle more for Scotch whisky than they did in 1938. There is something very odd about it. It is nonsense to say that we cannot sell the stuff because it is a snob drink over there. About 75 per cent. of it goes in what they call Scotch on the Rocks, which is a lump of ice with a splash of Scotch on it. They drink a lot of whisky over there—300 million gallons a year; and we send six million gallons, which is only 2 per cent. of the whole.

Try as the distillers will to persuade me, I do not believe that more could not be done and that we could not get a better price for whisky. All the Americans pay at present for a case of whisky is 86s. If hon. Members work that back into dollars, they will find that it is just over 12 dollars a case, which is an absolutely ridiculous price. I hope the Chancellor of the Exchequer will look into this and not be fobbed off by his Department. I have tried this subject with several Chancellors of the Exchequer before, and the backroom boys have always done them down. On one occasion the matter was referred to the Foreign Office, although how on earth they got into it I cannot think. It may be that they thought there was something peculiarly fishy about it.

May I refer briefly to films? I believe we could do without some of these Hollywood stars. We spent £9 million in 1951, which I agree was a great improvement on the previous year, but if people had to choose between tobacco and films, on the one hand, and food, on the other, surely they would sooner have food.

I come now to the question of gold, which I know is a controversial subject on which views differ very widely. I have asked previous Chancellors of the Exchequer whether they have tackled this problem with the International Monetary Fund in order to raise the dollar value of gold and get an adjustment all round. Indeed, I cannot understand why we in the sterling area put up with a price of 35 dollars a fine ounce. I am perfectly well aware that if the price were increased we should have to pay more for it in this country, but as we in the sterling area produce 75 per cent. of the gold produced outside Russia, a rise in the price would benefit the sterling area as a whole.

People tell me it could be double the present price. I do not know what it should be. Certainly the free market price is above 35 dollars at the present time. Let us suppose it went up to double that figure. There would be 680 million dollars more coming into the sterling area, assuming, of course, that the Americans agreed to play—and I do not see why they should not, because they would get an automatic enhancement of the 24,000 million ounces or whatever it is which they have buried in a hole in Fort Knox. [Laughter.]

What bemuses me—although I am not laughing about this; it is not a laughing matter—is this very curious aspect, which is very similar to that of Scotch whisky: dental gold, which is of less fineness than monetary gold—monetary gold is 24 carats, whereas the stuff you stick in your teeth is 18 carats—has a price about 30 per cent. more than the other gold. There seems to be something funny about that. I do not want to labour the point, although my hon. Friend the Member for Leeds, South (Mr. Gaitskell) and myself pursued the Minister of Economic Affairs at Question time the other day without getting a satisfactory answer.

Will the Government look into it and will they consider, too, this next point, which is the most important point of all? The gold and dollar reserve of the world is supposed to provide a cushion on which we conduct international trade. Since 1937 the gold and dollar reserves in the areas outside the United States have increased by one-fifth but their imports have increased by two-and-a-half times, so that the moment there is fluctuation, a panic follows. There is not a big enough cushion on which to conduct trade, and the result is that imports are cut, restrictions are imposed and unemployment follows. I should have thought that one result of revaluing gold would be a much softer cushion upon which trade could be conducted, and that we should avoid many of these bumps. So much for the short-term proposals. I want to suggest one or two things on the long-term side.

I think that we all agree that what we want today is to provide alternative sources of supply for some of the things which we now get from the dollar area. I do not see why this should not be done if it is tackled properly. I am perfectly aware of what the late Administration did in giving a start to the Volta River project which was to produce 200,000 tons of aluminium a year. Will the Government tell us what has happened about that? When will production start, and how is that scheme getting on? What about tungsten and more cotton from Uganda? Tungsten replaces molybdenum and all the molybdenum we buy comes from America to the tune of about 3,000 tons. Both are in short supply.

I was interested in this when I was Minister of Materials, and I have been to Uganda since. I gather that the tendency of the Government is not to do anything about it. I believe that without very much trouble we could very speedily get the tungsten production up in Uganda from what it is today—50 tons or 60 tons a year to 500 or 1,000 tons. What is being done about nickel and lead from Tanganyika? At present about 14,000 out of the 15,000 tons of nickel which we get comes from Canada, for which we have to pay dollars, and a great deal of lead comes from America. What is being done to push on with that development in Tanganyika?

Again, I had a look at that, but things seem to have got bogged down because years ago people were given wrong concessions. People who are given concessions which they will not work ought to be blown out of the way. I hope that the Government will do something about that. [An HON. MEMBER: "Groundnuts."] I am not talking about groundnuts today. I want to say a word about Australia.

We get both wheat and meat from Australia. Are we paying the Australians enough for their meat? It is no use offering them 8½d. per lb. when we offer British farmers 2s. 8d. per lb., because obviously the Australians will not produce the meat. It seems to me that the economic scheme which runs between ourselves and Australia, the capital investment scheme, seems to have gone wrong. The effect of it all now seems to be that Australia is rapidly becoming a secondary industry country and will grow less and less food, and we shall find ourselves in greater and greater difficulty here. She will take less and less from us, and, as we know from recent experience, that leads to disastrous unemployment.

Finally, on the precious metals, which concerns shipments from America, are the Government satisfied that the copper produced from the Rhodesian Copper Belt is sufficient to meet the whole of the sterling area needs? I know that depends not only on just getting the copper ore out but depends on coal from Wankie, too. I hope that energetic measures are being taken to obtain the necessary coal production from Wankie and to overcome the transport difficulties of bringing coal from the South to the Northern Copper Belt.

I also want to say a word about overseas investment. All that I have been saying really turns on that. If we are to get more materials, obviously more has to be invested overseas. I do not see how we shall ever get for ourselves and others a sufficient supply of raw materials without a long-term investment programme. This must be worked in collaboration with other members of the Commonwealth and with the Americans. If this conference of the Commonwealth Ministers takes place in November, perhaps it will be speedily followed with a conference with America and other countries as well. I hope that we shall go into it on a big enough scale. Places like India, Pakistan, South-East Asia and Central Africa are crying for capital goods.

I understand the difficulty at the present time, but what is the long-term scheme, and are we really going about it in the right way? I know people do not always agree with me on some of these economic matters, but what always surprises me is that when war breaks out there is no difficulty about money or materials, whereas the moment there is peace there is an awful quarrel and there are always shortages. That does not seem to me to make sense. Surely it is not beyond the wit of man to find a way out of the economic absurdity that a lot is available when we are determined to blow it into thin air but not enough when we want to have peace and plenty. What is wanted is a new approach to the whole problem.

I now want to say something about the home front. What are the Government attempting to do here? Most hon. Members who have spoken have said that what we want most is an increase in the production of food and an increase in engineering production and so on. But what have the Government done to encourage the farmer? One of my hon. Friends said with truth that the only thing the Government have done to encourage the farmer is to put up the Bank rate, the interest charges and the rates of the Agricultural Mortgages Corporation. That will not help very much to stimulate increased production.

To refer to one of my old themes, we should relieve the marginal producer and stimulate greater production by the people who have the better land. The way to do that is to put a rate on site value. We should get better production that way without pouring money into the pockets of the landlords and putting a penalty on those who do not use land to its best advantage. But that is a rather wider theme which we can discuss another time.

I want to say a word about engineering, for that is my trade. We have been short of men in the engineering industry ever since the end of the war. I do not know whether anything can be done by putting up the retiring age. When presenting his Budget the Chancellor kept saying what a tremendous amount of incentive he had produced for the workers. I fail to understand where the incentive lies. It is true that some of the lower-paid workers were relieved of Income Tax, but that is not the problem in the engineering industry.

The chap we want to encourage in the engineering industry is the skilled man, and, more particularly, we also want to encourage men to become skilled. I do not want to tread on the toes of my hon. Friends from the trade unions, and I recognise that it is their affair and not mine to work this out, but if we are to get the right number of skilled men in the engineering trade the gap must be opened again in an upward direction between the semi-skilled and the skilled men, for otherwise it is just not worth anybody's while to become skilled.

I have a note here about the balance of payments between ourselves and America and what the last administration did in helping to close the gap by means of the refinery at Fawley. After all, the cost of buying oil from America is about £35 million a year.

I hope that the President of the Board of Trade when he speaks tomorrow will tell us what is being done about the production of Cornish tin. At the beginning of the century about 12,000 tons a year came from Cornwall, and I understand that the amount is now about 1,200 tons. I am assured by the Cornish tin miners that if they were given proper encouragement, and, no doubt, some relief in direct taxation, they would be able to raise their output to 7,000 tons a year.

There are two other matters to which I wish to refer before I conclude. I believe that it is fast becoming recognised, as was said by my right hon. Friend the Member for Leeds, South and the hon. Gentleman the Member for East Aberdeenshire, that there is a new approach to the question of creditors and debtors. It is more and more being recognised that it is as much the responsibility of the creditor to get out of credit as it is for the debtor to get out of debt. I am speaking not about individuals but about international affairs—and that the old game of getting one another into unpay-able debt is simply not a runner any more. The only way it can be done is taking goods in exchange or giving goods away. If a nation does not like to take the goods in exchange it can give them away, as we in the past have, in effect, done.

I wonder if the Chancellor will examine what is known as the 20th Century Economic System in International Trade. It was studied by the British Chambers of Commerce assembled at their annual meeting in Johannesburg in 1948 and recommended for the consideration of the Finance Ministers of the Commonwealth as being worthy of adoption. I have not time to go into the details, but briefly the system was to pay the exporting country in the currency of the importing country and that gives the exporting country an option on the goods of the importing country, which, if it is not exercised within a term of seven years, lapses on the principle that if a man goes without his breakfast for seven years he can go without it altogether. [Laughter.] There is a great deal to be said for it. It may be a comical way of putting it, but I hope the Chancellor will examine it because the United Nations Report on Full Employment suggests pretty well the same sort of thing. I have not time to develop that.

One other point is this. I have always been puzzled at the way nations run their affairs. I am thinking of our old friends, the backroom boys of the Treasury. As the hon. Member for East Aberdeenshire said, if they were given a chance they would bog everything down. If we were to run our affairs and businesses the way the nation runs its affairs we should never get on at all, but what I want to ask is whether the Chancellor would consider a greater trend towards what I call the capital and revenue budget. They do it successfully in South Africa. Why can it not be done here? It is the only way in the foreseeable future that I can see of relieving the groaning burden on the taxpayer.

By that I do not mean what the right hon. Gentleman the Member for Blackburn. West means, namely, taking 2s. off the Income Tax. I am thinking of indirect taxation because indirect taxation falls very heavily on every member of the population. It is an absurd idea to think of paying everything back within a short period when it can be done on the capital and revenue budget basis of spreading over the peak loads to the disadvantage of nobody and to the great advantage and relief of the people as a whole.

I come to my conclusion. I heard the Chancellor the other day say that the cost of living was coming down in everything except food. I hope the people of this country realise that much of what has happened in the way of the fall in the cost of raw materials was brought about as a result of the visit of my right hon. Friend the Leader of the Opposition to Washington in December, 1951. As a result of that the International Materials Conference was formed, and a more orderly system of buying was brought into existence instead of everyone going on a sort of smash and grab raid and forcing everything up. It is due to that effort that prices have come down.

In my opinion prices will continue to come down. I am not one of those persons who thinks it a good idea that they should go up.. It is much more important to get prices down instead of wages up. [HON. MEMBERS: "Hear, hear."] That is not the reason why the people living here stopped digging for tin in Cornwall and went to Malaya. The reason they did it was to get more profits out of it. It is all very well for hon. Members opposite to cheer me on this, but that is the honest fact.

I want to re-emphasise in an absolute conclusion that this is a world problem. It really is a fact that there is enough in the world for everybody. All we need to do is to tackle the job, not only to satisfy ourselves but to bring peace and plenty to the teeming millions in the backward countries and to remember that there is no answer to Communism by being anti-Communist. We have to show that we can provide something better. There is plenty everywhere if we only tackle it aright. What the world expects from this great Christian country of ours is that we shall give a lead, and I hope that the Government, despite its predilections, will bend its efforts in that way in order that peace and plenty shall prevail everywhere.

9.41 p.m.

Mr. Malcolm McCorquodale (Epsom)

My hon. Friend the Member for Croydon, East (Sir H. Williams) said that he would sit down quickly in order to hear what he was sure would be a delightfully racy and amusing speech from the right hon. Gentleman the Member for Ipswich (Mr. Stokes).

We have certainly had that, and I am sure that the House has enjoyed his widespread comments about various things ranging from the defence of Western Europe, the futile, dismantling policy for Germany which was the policy of his own Government, to his sensible comments on skilled operatives. The right hon. Gentleman had evidently been reading a speech of mine on the Budget. He even made some comments on whisky, and I am glad that he drinks Scotch and not rye. Then he made some remarks in which I was particularly interested, on the subject of gold, and I am glad that he raised that question.

I only wish that he and his right hon. Friend the ex-Chancellor of the Exchequer, when they were in office, had done something about the price of gold. I believe that one of the things which upsets the equilibrium of our currency at present is the absurd fetish which keeps the price of gold much below the world price. I have not time to expand that tonight, but I hope that the Government will look into this matter seriously.

The right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), in opening the debate for the Opposition, said that my right hon. Friend the Chancellor of the Exchequer had not given him much to talk about. He then proceeded to talk for over 70 minutes. He was followed by the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) for over 40 minutes, followed by the hon. Member for Nottingham, South (Mr. Norman Smith) for 35 minutes, followed again, from the opposite side of the House, by the hon. Gentleman the Member for Ogmore (Mr. Padley) for over 35 minutes—over three hours from those four right hon. and hon. Gentlemen. [HON. MEMBERS: "Shame."]

I think that a protest should be made from the back benches on both sides of the House against the length of the speeches of those right hon. and hon. Gentlemen. Much as I enjoy listening to the right hon. Member for Leeds, South, 70 minutes is rather a strain. As he always has something interesting to say, we would prefer it in instalments of one a month instead of having the whole dose at one time.

On the other hand, I much welcomed the confident tone and tenor of the opening speech of my right hon. Friend the Chancellor. I believe much too much has been made out of the difficulties of this country. There is a proneness to cry "wolf" by all sections of the community. I think we should be proud that in the last six or seven months we have been able to win back this country from a position of acute anxiety and difficulty into a position where we are, at any rate, in more or less balance with the rest of the world.

That has been done by the wise policy followed by the Government and also by the hard work of all the people of this country—miners, steel workers and everybody else. We ought to take credit for it and not disparage our position too much and not be as gloomy as the right hon. Gentleman the Member for Huyton was.

I want to make a few remarks about currency problems. Some people seem to think that the adoption of right currency and economic and monetary policies work miracles. I do not believe that it does. However much we adopt the right monetary policy, if we have not got hard work and efficiency in industry to back it up we shall not get anywhere. Conversely, even though we have hard work and efficiency in industry, if the wrong economic policy is followed by the Government of the day then, in spite of whatever efforts the individual may make, the country goes downhill.

It must be clear, I think, to all that the policy followed by the last Government in these monetary fields was wrong, because in spite of all the hard work which was done in other spheres by the Government, by hon. Members here and by innumerable people up and down the country, the result at the end of five years was that we were in worse difficulties than we were at the beginning.

It also appears from these facts that the start which my right hon. Friend has made in his monetary policy must be more correct, because over the last six months the result has been that we have considerably improved our position. Therefore, I say to him. "Go ahead with the present policies that you are following. Expand them. Build up trade with the Empire, and I believe that all will be well."

There was one point on which I did agree with the right hon. Member for Huyton. The speech of my right hon. Friend the President of the Board of Trade the other day about American tariffs was very valuable and necessary, and will be well received in large circles of people in the United States of America. I am very glad that he adopted the robust attitude. It follows on the successful negotiations in which he persuaded the Swiss, for example, to play their part and to take in, as they ought to do, our woollen goods free of tariffs. I trust that my right hon. Friend will continue these robust practices in dealing with our trade with other friendly countries and I believe that they will bear fruit. Timidity in these matters never pays.

In the few minutes that remain, I wish to refer to the export policy, the results of the export position, and to the effect of certain tendencies in this country towards what may happen to the export trade. As has been said, the export trade position, especially in consumer goods, is at present extremely difficult. Not only is the seller's market over, but other factors have arisen.

The wild ascent of world raw material prices when war broke out in Korea; the consequent panic restocking and overstocking of consumer goods, and especially of textiles, throughout the world; and the subsequent drastic fall in the price of raw materials, which inevitably followed that wild rush upwards in world prices, have caused the most acute indigestion in the consumer markets of the world.

Anything that the Government can do to ease the overstocking position, especially of this country, will be most welcome, but I think that the situation is bound to right itself within the next few months. Indeed, there are indications that the position is beginning slightly to improve, not only here, but in other markets. World consumer trade will inevitably revive. The world has got to have consumer goods, and especially textiles, but what we have to consider is whether we will get our fair share of that world consumer trade when it does revive. The only way that we can guarantee to get it is if our costs and qualities are right. If they are right, we will get our fair share of the markets of the world and will keep our people in employment.

It is everybody's desire, in every party, to maintain a full and high level of employment. I say this in no spirit of controversy, but I believe that ever since the war the Opposition have been too fearful of the evils of deflation—and they are very real evils; being so fearful, they have not been fearful enough of the evils of inflation.

At present I believe inflation is the greatest danger to our employment position. As the right hon. Gentleman said, our prices have to be right. If we have inflation it pushes up costs and our prices are wrong. If inflation continues we shall not be able to sell consumer goods overseas and there will be unemployment in the export trades. Today, inflation is even more dangerous than that because, if we do not get foreign currency by our exports, we shall not be able to buy raw materials and other than those in the export trades will be thrown out of work as well.

I therefore maintain that today the chief danger to a good stable level of employment in this country is inflation and that everything we can do to stop inflation and keep our costs down is in the best interests of maintaining full employment.

Of what do our costs consist? Costs of production consist of three things: cost of raw materials, which is going down at present, wholesale prices are falling; the profit level, the amount of profits earned; and the wages and salaries paid. Her Majesty's Government have endeavoured to limit profits by means of an Excess Profits Levy. In any case, profits are beginning to fall owing to competition in world markets.

But we have to remember that wages are ten times more important than profits in industry today. A 1 per cent. increase in wages is equivalent to a 10 per cent. increase in profits over the general level of industry. Hence, if on both sides of the House we are really serious in our determination to maintain a high level of employment in this country—and I believe we all are—we must support the urging of the Chancellor for wage restraint which is not allied to increases in production.

As much as anyone in the House, I dislike Government interference in negotiation on wages conditions. I have been in a highly organised trade—the printing trade—all my adult life and I believe that we can get on better ourselves by dealing in the trade than by any Government advising us. I believe that is the general opinion of those in industry. If that is so the responsibility rests directly on the shoulders of industry, both management and trade unions, to see that restraint is maintained in anything which might put up costs.

I think that Parliament, statesmen and politicians should urge the same. I am, therefore, glad to be able to compliment right hon. and hon. Members opposite in putting this firmly before the nation. The right hon. Member for Ebbw Vale (Mr. Bevan), speaking this month in Manchester, said: I say to the miners, the steel workers and the whole trade union movement who are putting in for increased wages…face the grim facts that you cannot have increased wages if production is lowered. If you try to get them, what will happen will be inflation of a most serious kind.

Mr. Emrys Hughes

Go on.

Mr. McCorquodale

I will go on. Mr. Deakin, Chairman of the T.U.C., said at Scarborough: I make no apology for having advocated a policy of restraint. We have leaders in industry and leaders on the other side of the House advocating restraint.

That brings me to the question, raised by the hon. Member for Ogmore (Mr. Padley), of the desirability of the Minister of Labour sending back for reconsideration by wages councils certain agreements for wage increases sent to him for consideration. The reason which my right hon. and learned Friend gave to the House seemed a very proper one to me, and I believe that if the situation had been reversed and right hon. Gentlemen opposite had still been forming the Government the Minister of Labour.

whether it was the former Minister or his predecessor, would have acted in the same way. Indeed, they both did act in the same way, and from time to time referred back decisions to wages councils for reconsideration.

Mr. Padley rose

Mr. McCorquodale

No. I cannot give way. I have only three minutes, because I have to sit down at 10 o'clock, as the hon. Gentleman knows.

The hon. Member for Ogmore made a very reasoned and, I thought, moderate speech, but he missed the whole point. His whole criticism seemed to me to miss the point of the action of the Minister The wages councils came to the decision they did before the Chancellor made his statement to the National Joint Advisory Council. The National Joint Advisory Council consists of representatives of the trade unions and the employers, but not, I think, representatives of the wages councils in industry.

The Minister thought it was right to bring to the notice of the wages councils the remarks which the Chancellor of the Exchequer thought fit to make, in all seriousness, to industry generally. If my right hon. and learned Friend had not done that, if he had not given the wages councils the chance to consider what the Chancellor of the Exchequer had said, he would have laid himself open to the charge that he was ignoring the Chancellor's statement; that he regarded it as of no importance, and that it was merely words.

I think it absolutely inevitable, if he took the Chancellor seriously—and we do take the Chancellor seriously, and all the arguments I have been addressing to the House tonight have been designed to show that wage restraint is a most serious subject—that in pursuance of his duty, and in the national interest, he should refer this back for consideration.

I would urge the hon. Member for Ogmore to push forward with reconsideration as fast as possible; to get a new decision. Whether it will be the same as the old one or not I do not know; whether his council and other councils, having considered the Chancellor's statement, will come to the same decision or not is up to them. But they should get that through quickly and bring it back to the Minister again for ratification, and get on with the job. I do not believe that then his people will for very long be held out of whatever the wages council recommend in their reconsideration. It is now up to the wages councils to push on with their reconsideration of the problem.

This has raised the whole question of wages councils and the matter should be gone into again. I was Parliamentary Secretary to the late Mr. Ernest Bevin when he introduced the wages councils. He stated in the House, and privately to me, that he hoped these wages councils would be able to be replaced by joint industrial councils and normal negotiating machinery after they had stimulated organisation on both sides of industry, so that we could give up interference by the Government and get on with proper wage negotiations between the two sides of industry.

That has not happened. The position of the three independent members who have acquired complete responsibility for the wage levels and the conditions in industry if the two sides disagree, has lessened the responsibilities of either management or trade unions instead of increasing them. I believe that the hon. Member for Ogmore, if he reflects on this, will agree that his good work of organising his members is retarded by the fact that wages councils, by law, guarantee wages to the people, whether they are within the union or not. I would recommend to the Government and to industry that we reconsider the whole question of the organisation of these trade unions being governed by the wages councils, because I believe that they could do better with voluntary machinery.

It being Ten o'Clock, the debate stood adjourned,

Debate to be resumed Tomorrow.

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