BUDGET PROPOSALS

HC Deb 13 March 1952 vol 497 cc1620-94

6.12 p.m.

Mr. H. Wilson

That, I suppose, is the price of mentioning William Pitt, but I was at least congratulating the Chancellor that he is able to start this year's accounts with that very substantial surplus, which was equivalent to the whole amount raised by William Pitt for fighting the Napoleonic wars. This was a nice thing to be able to do, but I am certain that with the hardships our people have been going through in the post-war world, this was hardly the year in which to pay off that particular amount of debt.

Turning from the purely financial to the economic background of the Budget, it seems, reading through the Chancellor's speech and those of the Ministers who followed him, that they are placing their hopes on five main things—on import cuts, on running down stocks, on increasing exports, on slackening investment and on increasing production.

Let us have a look first at import cuts. These cuts which are proposed are partly possible through the running down of stocks. It is quite clear to the Committee that cutting imports is a disease that is very catching. Some of us said that last November. Other nations get the same idea, and in the long run there is no nation which suffers more from the progressive cutting of imports than the United Kingdom.

We have now had this very regrettable occurrence in Australia, and I thought that the President of the Board of Trade, in his failure to answer some of the questions put by my right hon. and hon. Friends today, showed a very lamentable control over what is going on. I think that, for the first time in any debate on economic affairs since the end of the war, we have had to debate a situation in which Commonwealth trade is falling.

The right hon. Gentleman did not "come clean" about the Commonwealth Finance Ministers' Conference, and, I thought, neither did the Chancellor. At that Conference there was a skeleton at the feast. I am referring to the Minister of Finance from Canada. Of course, we are all very glad to have him at any conference, but I believe that it was the presence of the Canadian Finance Minister which prevented the Chancellor from proposing outright discrimination against the dollar, which it is clear is what we ought to have done at the Conference.

It is all very well for Australia to say that she faces heavy balance of payments troubles and must cut her imports. We all agree that Australia should plan to cut her dollar imports—non-sterling area imports—and increase her imports from the United Kingdom and the rest of the sterling area. The Chancellor could not do that, because he had the representative of Canada sitting round the table with him, and I sympathise with him in his difficulty.

I repeat, as I said in an intervention earlier this afternoon, that the Government ought to make clear to Australia that when, a year ago, we faced a very serious decline in our balance of payments with Australia, we did not cut imports from Australia, and that there is no reason now for Australia to cut imports from here. It is all very well the President of the Board of Trade saying—

Mr. Burden

Surely, the right hon. Gentleman will agree that the position was a bit different. It is different because Australia was able to sell us the food that we must have and raw materials which would be processed and on which dollars might well be earned.

Mr. Wilson

The hon. Gentleman is preaching a very dangerous doctrine, and I commend him to think before he rises. The situation was different, but in another sense—and I grant this to the hon. Gentleman—that at that time, and now, we were heavily in debt to Australia, but, although in debt and with our debts increasing, we did not cut down our imports from Australia. Today, we are still in debt to Australia, but Australia cuts her imports from us.

The second point I would ask the President to explain is this. There is in Australia, as I said in the House three or four weeks ago, a certain degree of protectionism and some very powerful protectionist lobbies supporting the interests of secondary industries. I am afraid that, as a result of import cuts of this kind in Australia, powerful vested interests will be built up behind these import cuts, and it will be very difficult once again to secure the flow of trade between this country and Australia.

Another thing that surprised me in the speech of the right hon. Gentleman and that of the Chancellor was that one heard so little about South Africa. South Africa is now coming into the picture. Are they to cut imports from us, or pursue a discriminatory policy? The Commonwealth Finance Ministers' Conference should have led quite simply and plainly to an increase of trade within the sterling area and to discrimination against the dollar area by the sterling area as a whole. That is what should have been done, and there would have been nothing in that which would have been contrary to our international obligations, because the right hon. Gentleman knows that such measures are permitted when we are in balance of payments difficulties, as we most certainly are.

The second point on which the Chancellor has been basing his case is the running down of stocks—the stocks we built up so painfully and at a heavy cost in 1951, and about which hon. and right hon. Gentlemen opposite made some very powerful speeches. I remember the eloquence of the Secretary of State for the Colonies on many occasions. Now he is a member of a Government which is running down stocks, and I do not know—

Mr. A. C. M. Spearman (Scarborough and Whitby)

Would the right hon. Gentleman agree that, if they had cut them in 1950, there would have been none at all?

Mr. Wilson

The hon. Gentleman has not produced any arguments at all for running them down in 1952. I do not know by how much they are to be cut, because the Ministers have been very "cagey" about telling us. My own impression is that they will be cut by at least £150 million this year.

Perhaps the right hon. Gentleman will tell us whether that figure is right or not, but how, in heaven's name, do they square the cutting down—how do they reconcile this dangerous depletion of stocks—with the fact that this is nominally a re-armament and defence Budget? I am not going into this question further, because I think the Committee knows my views on that position, and it is certainly very plain and clear to the Committee that, if defence expenditure had been smaller, we could have had a very different Budget.

I am asking about the reduction in stocks. Let me take the case of softwood, on which there was a Question today to the Secretary for Overseas Trade. I understand that it is the intention of the Government to run down timber stocks this year by about 250,000 standards. Perhaps, if I could have the Chancellor's attention for a moment, he would tell me if that is correct. He should know, because his Budget centres on that. I presume that that figure is roughly correct. [An HON. MEMBER: "He does not know."] Perhaps he does not know.

Stocks at the end of 1951 were three-and-a-half times as great as they were at the end of December, 1950—a remarkable build-up last year; and they are higher than at any time since the end of the war. One reason they were accumulated last year was that they formed part of the defence preparations. Timber is a bulky commodity. If we were to run into an emergency we should, of course, need a large amount of shipping space to bring timber to our shores, but now the Government are to run down their timber stocks this year by 250,000 standards. This is equivalent to over 600,000 tons of timber in the year.

Has the Chancellor worked out, has the Minister of Defence worked out, what this would mean if war broke out? This is a re-armament Budget; this is a period of national emergency. I will tell the right hon. Gentleman what it would mean. It would mean, if war were to break out, when the Government have run down stocks by that amount this year by deliberate action, that to replace that amount of stocks we should require to take 60 large Liberty ships, or 120 5,000-ton vessels, and immobilise them for five or six months while they could go through the Panama Canal and round to the west coast of Canada and back.

I do not know how many destroyers, corvettes, frigates, and other escort ships of that kind, would be required to convoy those ships—perhaps, convoying them up the west coast of Canada, as well as across the Atlantic. Has the First Lord of the Admiralty put in a bill to the Chancellor asking for these additional destroyers to be built? He must have if he is to face this danger of war that we hear so much about.

This is an important fact. This run-down of stocks shows how fundamentally insincere the Government are in certain aspects of their defence programme. Or else, at least, it shows their willingness to put national solvency ahead of the defence effort. But if they are willing to put national solvency ahead of the defence effort, why are they not willing to do the same thing in relation to the engineering industries, for the improvement of our export trade? If it is right to do this with timber stocks, it is right to do it with engineering exports.

I go further. If we had a real partnership in defence in the North Atlantic community, I should have thought that the United States would have been horrified at the proposal to run down bulky stocks at this time; and I should have thought that the United States would have proposed taking and holding those stocks in this country; because the United States have a very real interest in the Atlantic, and would have a very real interest in the battle of the Atlantic if war were to break out.

I am not saying whether it is right or whether it is wrong to run down timber stocks. I am simply saying it is inconsistent to do that if at the same time we are pressing on with defence expenditure in general on the scale which is proposed in this Budget. But I should say that, if the United States did hold stocks in this country, that would be a much more valuable and real form of assistance than this very dangerous military security aid.

Now I come to exports, on which the President of the Board of Trade addressed us. It is quite clear—for the Chancellor said it, the Minister of State for Economic Affairs said it, and the President of the Board of Trade said it—that we are counting on increased exports. But how do they propose to get those increased exports? In what commodities? And to what markets? Because the significant fact of the last few months is that there has been a stagnation of our export trade. Let us consider the volume of exports. Taking the base year 1947 as 100, the volume had risen to 140 per cent. in 1949. In 1950 it had risen to 162 per cent. Last year it rose only to 167 per cent. In other words, while exports increased by 16 per cent. from 1949 to 1950, they increased by only 3 per cent. from 1950 to 1951.

Let us look at particular types of exports. We find that metal manufactures and engineering goods, which were half of our total exports as recently as 1950, are now barely rising. The index number of metal manufactures and engineering goods, which increased from 144 in 1949 to 167 in 1950, rose only to 168 last year. Textiles and clothing, which had risen from 139 per cent. in 1949, two years ago, to 148 per cent. in 1950, rose only to 150 per cent. last year. Woollen and worsted exports, of course, fell very sharply in 1951.

In what industries are we to see this exciting increase, and in what markets? Our two most important markets, Australia and South Africa, are now to be closed, to us, at least as regards quite an important part of our exports. Australia accounted for more than 12 per cent. of our total exports last year, and South Africa more than 6 per cent. What hope have we now of expanding exports to those markets?

Then there is the problem of our dollar export markets. Our exports to the Western Hemisphere in 1949 were 15.26 per cent. of our total; in 1950, 18.26 per cent. of the total—some sign of the success of the dollar export drive carried on by the late Government. Last year they fell from 18.26 per cent. to 16.97 per cent. and in the fourth quarter of that year they were down to 14.87 per cent. The exports of cars to Canada, one of our most important dollar earning sources, were of the value of £2,647,000 in 1950, and they were down to £1,760,000 in 1951. Where do the Government think they are going to get those exports, and how do they think that the Budget proposals will help?

In South America we are facing 'dangerous and growing German and Japanese competition. Are the Government hopeful that they will increase our exports there? What single step have they taken in the proposals put forward for increasing those exports? What about our trade with Eastern Europe? Including re-exports, our total shipments to Eastern Europe last year were up on the previous year, mainly as a result of rubber shipments. Are those shipments to be maintained? I have asked Questions on many occasions in this Chamber about that, but have had not a murmer from the Government. I hope that before the debate is over we shall hear something about this, otherwise we shall be forced to conclude that this hope of increased exports on the part of the Chancellor of the Exchequer is a delusion.

At present we are facing a long-term crisis in our export trade. I think that that is what the Chancellor really meant when he referred to the 50-year development of the crisis. Many countries have developed their own industries now, and the leadership we had in the 19th century has disappeared. In many countries they have their own consumer goods industries, and we cannot export our textiles to them. We hear that even Pakistan, the hopeful new post-war market, will be self-sufficient in textiles by 1956. At any rate, that is the policy Pakistan proposes.

We have to direct ourselves now to a very different pattern in world exports. We can no longer look to exporting consumer goods on the scale that we have been doing in the past. When an export market reaches a certain stage of development it will provide its own consumer goods industries, and it will look to us for machinery with which to develop them. When a country starts like that, it will take piece-goods from us. Then it will make its own and we must be prepared to supply textile machinery. Then that country will start to make its own textile machinery, and we must adapt ourselves and export, perhaps, steel or machinery for making steel. We must keep up with the markets and with the changes in the markets in all these countries. We have to recognise that, as these different countries develop, and at a different pace, we have to swing about our exports from one country to another and from one trade to another.

The only answer that the Government have given when we have said, "How will you increase exports, particularly of engineering goods," which the President of the Board of Trade rightly said is what the world wants, is to say that they intend to cut capital investment and restrict imports. That is a most dangerous course of action. It is weakening our competitive force in the world markets for many years ahead.

This is the year in which the Government are saying, "Things are so bad that we have to sell the seed corn." That is the basis of their economic policy. They are providing nothing for the future. They are running down our stocks of raw materials and, at the same time, cutting down investment, which is the very lifeblood of our export industries.

This is at a time when the United States, partners with us in the defence effort, are increasing their capital investment on a scale unparalleled in their history. This is at a time when Germany and Japan, our most dangerous rivals, are building up their war-shattered industries with new machinery and highly efficient machinery, and the Government are saying, "We can spare nothing for replacements in Britain." How do the Government propose to deal with this problem? They tell us, by increased production.

The Secretary of State for the Colonies (Mr. Oliver Lyttelton)

Do I understand the right hon. Gentleman to say that the Government have devoted nothing to capital investment? If so, that is a slight over-statement.

Mr. Wilson

The right hon. Gentleman is, of course, correct. I should have said, "We are cutting capital investment."

The Government are counting on doing this by increasing production, and the Chancellor of the Exchequer has merely counted on an increase of 3 per cent. in production this year. That was the figure he hinted at. The plain fact—and here again we are facing a new situation—is that production, for the first time since the end of the war, is falling today. National production is falling.

If we take the production index, in November last year it was 152 compared with 153 the previous year. In December, it was 137 compared with 140. And that production index carries behind it considerable increases in coal production and mining; if we look at the index for the manufacturing industries, we find that in November it was 157 against 159 the previous year, and, in December, 139 against 144.

We are facing a very serious fall in our national production at the present time That is the most significant factor. How do the Government hope to get these increases in production? Purely by tax incentive?—because they are creating conditions in which production cannot increase. In the first place, we cannot increase production when we have a shortage of raw materials. Secondly, we cannot increase production if we are to have a growing fear of unemployment. It is no good coming along and saying, "You will have tax incentives, so work harder," if the workmen in one industry can see themselves working themselves out of a job through shortage of materials, or asking people in another industry to increase production when they can see themselves working themselves out of a job through shortage of orders. Thus, all the Chancellor's exhortations and tax incentives will be useless.

There is one other serious thing about production. It is that the Chancellor is producing a situation in which he will disrupt large parts of our economy. I am not going now into and and sterile discussion as to whether the Budget is inflationary or deflationary. These terms do not apply in the industrial world we have today, because what we have had for several months is the situation in which some industries are already facing slump conditions through lack of orders, while other industries have plenty of orders but cannot get raw materials. That is the situation in the country.

It is no good arguing whether prices in general will go up or down. What will happen as a direct result of this Budget is that food prices will go up still further, the need for higher wages will be all the greater, while, at the same time, the harsh Tory deflationary policy being operated by the State—the 4 per cent. Bank rate, the squeeze on bank loans and all the rest of it—will force very large numbers of small firms into bankruptcy. Make no mistake about it, it will act in the most devastating manner in the Development Areas, where we had to spend six years clearing up the mess left by hon. Gentlemen opposite.

Now they are coming back again with the same financial policies to create the same mess. But what is the situation going to be? If prices rise more and more, people will need, and rightly demand, wage increases. At the same time, many firms and industries, through slump conditions and this financial squeeze, through bankruptcy, will not be, or will say they are not, in a position to give these wage increases, and so there is a grievous danger of industrial conflict. Therefore, I ask how the Government are to get this increase in production if industry is short of material, paralysed by the fear of unemployment and liable to be torn asunder by the industrial conflict which must be the natural result of the Chancellor's policy.

Mr. W. Fletcher

The right hon. Gentleman keeps saying "shortage of raw material." Does he remember his speech one Friday afternoon in the last Parliament, shortly after he had left office, when he admitted that it was entirely the fault of his own Government and their lack of foresight that the materials were not there?

Mr. Wilson

Is the hon. Gentleman referring to the speech which I made on 2nd March, 1951, or to the one I made on 16th April? In neither did I suggest, even remotely, because it would not have been the truth, that the situation referred to by the hon. Gentleman was the fault of the last Government. If the hon. Gentleman wants to look it up, he can.

It is against this production background, of which we have heard so little from right hon. Gentlemen opposite, that this debate must be judged, and judged against that background it is seen, like the Chancellor's previous proposal, as totally irrelevant and doctrinaire, just as the attack on the health services was a month ago. It is a redistributive Budget —redistribution of the whole of the income of the country in such a way as, on the whole, to make the poor poorer and the rich richer. The Chancellor appears before the country as a kind of "Robin-Hood-in-reverse" who will rob the poor to give to the rich.

We have had figures from my right hon. Friend this afternoon. Take a married couple with an income of £5 a week. They will be 2s. 6d. a week worse off, while the man with £2,500 a year will be 18s. a week better off. A couple with one child, earning £6 a week, will be 5s. a week worse off and the £2,500 a year man will be £1 a week better off. A couple with two children, earning £8 a week, will be 3s. a week worse off and the £2,500 a year man will be 24s. a week better off, and so on.

If we take the whole group which might loosely be called the working class and lower salaried workers, that is, roughly speaking, those below £550 a year, which accounts for three-quarters of our total population, they will bear, quite obviously, at least three-quarters of the cuts in the food subsidies—say, £120 million. They will get probably more than three-quarters of the previous increases, but even with the concessions put forward, they are worse off as a group than they were before the Chancellor's Budget. They cannot recover that from the improvement in the tax tables, whereas the other quarter of the population do gain it on the tax tables.

I should like to refer to the right hon. Gentleman's speech about the D scheme. We are all interested in this international problem, and we all recognise that something had to be done. I certainly feel—so do my hon. Friends—that in many respects the scheme goes too far. In the first place, the D figures in the statement are far too low, and we shall press for increases in them in order to reduce the volume of clothing and textiles which will be subject to Purchase Tax. Secondly, I believe we are all agreed—the right hon. Gentleman showed that he had it very much in mind—that it is vital to provide some assurances about quality.

As he said, during war-time there were simple Utility schemes which were fairly well standardised with specifications. After the war they were relaxed and widened, partly because the Board of Trade wanted to exempt a good many of the items from Purchase Tax—they were put into the Utility scheme because we did not see why people should be paying Purchase Tax on very many of them—and partly because that extension was essential to encourage the promotion of our export trade.

What is needed now—I hope that the right hon. Gentleman will bear this in mind before he goes too far in otherdirections—is the reintroduction at the very base of the scheme of a real war-time Utility scheme based on specifications and full price control. It should be tax-free, and I strongly suggest that, if possible, it should be subsidised. That is particularly important in connection with children's clothing and footwear.

Within the range of goods now covered by the Utility scheme, I welcome what the right hon. Gentleman said about obtaining guarantees of quality and also in regard to the Merchandise Marks Act. He will agree, that the Bill to amend that Act was one of the legacies that we left him. I agree with all that he said about the British Standards Institution, in which we all have very great confidence. It is fortunate that the Director of the Institution, who was transferred from the Board of Trade, had many years' experience of running the Utility scheme.

It is important that these things should have statutory backing to give some real assurance of authority. In introducing the new Utility scheme, the right hon. Gentleman might have referred to basic standardised goods such as towellings, sheetings and shirtings, which could still bear the label "CC41." But on the rest of the goods now in the Utility scheme, instead of our having all these labels, why cannot we have something to which everyone could easily refer—it might be "DD52"—to show that the goods conform to the standards of the B.S.I. or other marks, such as that of the Cotton Board.

It is important to push on with this so as to get some general assurance of quality for the whole scheme; for instance, in regard to such things as freedom from fading, freedom from shrinking, wearing quality, anti-abrasion quality and weight. I hope that the right hon. Gentleman will press on actively with this and that when he introduces legislation he will make it illegal to put the new mark on anything which does not fulfil the stipulated tests.

I foresee a real danger. As the Chancellor plunges more and more families into real poverty, as he will do through unemployment and high food prices, as he cripples the clothing and textile trades with the financial squeeze, we shall find more and more firms who are short of money wanting to dump shoddy goods on the home market in order to raise money. We shall see that danger more and more as 1952 goes by. That is why the right hon. Gentleman must push on and get some assurance of quality and some guarantee against shoddy production.

I summarise the Budget proposals in this way. They make no contribution at all to the solution of our economic difficulties. They make no contribution to our exports. They give us no hope at all of even staying the reduction in production, let alone of increasing production. They entail a transfer of burdens inside the country on the whole in favour of the rich against the poor. They rely on deflation and on bankruptcies to do what the Minister of State for Economic Affairs calls "purge the country," a phrase which I do not like.

If that is the Tory policy, we can at least say that we have been warned. The Tories are relying on high food prices, high rents, dearer coal and dearer transport to reduce the demand for the basic foods and consumer necessaries and thus to reduce imports. The right hon. Gentleman talked about "realism." What does he mean by it? He means that the purchasing power of the people is to be cut until they cannot afford to buy their rations. That is what it means, and that is what this policy is designed to do.

What is it all for? What is behind the Budget? What is the purpose in all of this? Is this supposed to increase our strength as a nation? Are we stronger now than we were when we embarked on the re-armament programme a year ago? Shall we be stronger after 12 months of this Government's economic policy? If our aim is to be strong in the face of Russia—right hon. Gentlemen opposite say that that is our aim—shall we be stronger as a result of the Chancellor's proposals?

If our aim is to be independent of the United States—I trust that is the Government's intention, although they have not stated it quite so clearly as that—shall we be more dependent or less dependent on the United States as a result of this policy? Will the Budget and the economic policy strengthen the unity of our people, or will they act as a new disrupting influence? I submit that these are the tests on which our Budget and economic policy must be judged, and on those tests right hon. Gentlemen opposite and their colleagues must stand condemned.

6.47 p.m.

Captain Charles Waterhouse (Leicester, South-East)

If I were to attempt to answer the right hon. Member for Huyton (Mr. H. Wilson) I should have to inflict another very long speech on the Committee. I completely disagree with almost every point that he has put before us. After all, he held an exalted position in the last Government, for he was the President of the Board of Trade, and he must know that a great many of the evils to which he has referred are directly and indirectly his responsibility.

The right hon. Gentleman gave a list of the afflictions which are likely to fall upon us: Our trade with Australia was likely to disappear; our trade with New Zealand was to be cut; our trade with Eastern Europe was in jeopardy; by 1958 our trade with Pakistan would go altogether. Then he went through the ordinary economic sequences of events, how one first of all exports consumer goods and then machinery and then the machinery to make the machinery; but he never came down to the real fundamental basis of our trade, which is its excellence and its resilience and the fact that, even when markets become full of home-made goods, we can make things which are desired by other manufacturing nations.

In the early part of his speech the right hon. Gentleman made a rather unfortunate and uncalled-for side attack on Canada, remarking that Canada was at my right hon. Friend's Conference. We all realise that it is most unfortunate that Canada has to be on a dollar basis. If Canada could be on a sterling basis we should have no dollar gap and no dollar trouble at all. The right hon. Gentleman might in fairness have said that Canada has, in the time of our emergency since the war, when he was in office, given us many hundreds of millions of dollars, free, gratis and for nothing, which tided us over.

Mr. H. Wilson

I am sure that the right hon. and gallant Gentleman does not wish to be unfair. If he will look up the speech I made on 1st May, 1950, and also my speeches on several other occasions, he will find that I have spent a great deal of time paying tribute to Canada's help to this country, and I should be glad to do it again. Nevertheless, I am making clear what ought to be clear to every hon. Member in the Committee, and that is that as long as Canada is based on the dollar there is this problem about a Commonwealth finance conference, and that is why we were not able to increase trade within the sterling area.

Captain Waterhouse

I appreciate the difficulty, but I did not like the inference that in some way Canada was the black sheep of the family. [HON. MEMBERS: "He never said that."] If hon. Members opposite would do me the justice of listening to what I say, they would have known I did not say he said it; I said that was the inference. If the right hon. Gentleman had not got that in his mind then why did he make the challenge to my right hon. Friend the President of the Board of Trade and bring in Canada at all?

The right hon. Gentleman spoke about the cutting of imports as if that were new. We were cutting imports during the whole of the last six years though we did it in a different way. The right hon. Gentleman also spoke about timber. That import was cut, and cut rigorously under his control. I myself happened to be the Chairman of an Estimates Sub-Committee upstairs which examined the timber trade, and with such effect that the right hon. Gentleman thought it advisable to come down to the House and say that he was going to throw the buying of softwood back to the trade.

Mr. Wilson

The right hon. and gallant Gentleman is misrepresenting the facts. If he knows anything of timber and of the situation, he will know that there was a partnership between Timber Control and the private trade. I can only say that my decision was taken in spite of the right hon. and gallant Gentleman's report and not because of it.

Captain Waterhouse

The right hon. Gentleman is wrong again. He has to remember that his decision was taken before our report was ever produced, and while we were still in session discussing it.

I do not want to dwell too long on this matter, but I want to deal with one other point. The right hon. Gentleman cried out loudly that we were reducing stocks of timber. He knows quite well that our stocks, even after they have been cut, will be far larger than they were when the trade was within his control. What is more, I think he was wise to give up that control, and he obviously thinks he was wise for he has been kind enough to give the benefit of his great ability to that particular trade.

Mr. Wilson

The right hon. and gallant Gentleman must not mislead the Committee in this way. I did not give up the control, and if the right hon. and gallant Gentleman will ask his friends on the Front Bench he will find that the control is still there. Secondly, may I point out that as a result of the association between private trade and the timber control, stocks last year increased from 200,000 standards to over 700,000 in the course of the year.

Captain Waterhouse

That is precisely what I said. I think I am right in saying that when we had this matter before the Estimates Committee timber stocks had gone down to something like 250,000 standards. At that time the right hon. Gentleman de-controlled the whole of the Scandinavian trade, practically the whole of the trade except the hard dollar trade. We are in agreement that that was the right thing to do. It was after that that timber stocks began to be built up, and throughout the whole of the country in the timber yards one heard for the first time since before the war that buyers were getting the specifications that they wanted.

Mr. A. C. Manuel (Central Ayrshire)

rose—

Captain Waterhouse

No, I shall not give way, as many Members on both sides of the Committee want to speak, and I must not take up too much time.

In his very few remarks following the Budget statement, the right hon. Gentleman the Leader of the Opposition said: Broadly speaking, this is a Budget in which there are good things, bad things and indifferent things."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1325.] The majority of hon. Members of this Committee and of the people in the country will agree with me that the good things arise from the clear mind of the Chancellor of the Exchequer and from the fact that he was following a Conservative policy, and the bad things were necessitated by mistakes in the long period during which the party opposite were in power. [Interruption.] I know hon. Gentlemen opposite do not like it but I will give them one example, the tax on petrol.

Speaking in North Berwick during the Election on 12th October, the Chancellor of the Exchequer make a rather remarkable prophecy. He said that as a result of the Government's policy in Persia and the evacuation of Abadan, the British taxpayer might well have to bear a cost of something like £50 million. My right hon. Friend imposed this tax, which amounts to £66 million, and hon. and right hon. Gentlemen opposite are to a large extent, by their blunders, responsible for our loss of oil in Abadan and, therefore, responsible for this onerous tax in the Budget.

The Budget we are discussing—and this in a way deals again with what the right hon. Gentleman the Member for Huyton said—seems to me to have a completely new approach to our problems. The right hon. Member for Bishop Auckland (Mr. Dalton) coined the phrase which has now become a classic of too much money chasing too few goods. What happened was that he was so anxious to cut down the amount of money that was doing the chasing, that he destroyed the will to produce goods. We, in our effort today, are doing something and going some of the way to give incentives where we think it is necessary.

For the first time we are considering in this House a Budget which deals both with economics and with psychology, in this country and in the world. It deals with economics by the restriction of imports, by the remodelling of Purchase Tax and by budgeting for a large surplus. It deals with the psychological side by giving incentives for better production at home and by giving confidence abroad in our will to put our house in order.

Money is flowing out by hundreds of millions of pounds per month. It is a position not dissimilar to that of 20 years ago. There are economic reasons behind it, and there are reasons of confidence, too. If we can do anything to restore abroad confidence in this country, we shall have done much indeed to solve our problem.

The main attack which has been levied has, of course, been on the food subsidies. We on this side of the Committee have never disguised our dislike of subsidies. Anything that makes it more difficult for the purchaser to realise what he is paying for and what he is buying is in our view wrong and bad.

Mr. William Ross (Kilmarnock)

Why did the right hon. and gallant Gentleman not oppose the Agriculture (Fertilisers) Bill, which was discussed in this House last week?

Captain Waterhouse

That has nothing to do with this Budget.

Mr. Ross

It provides subsidies for the farmers. Why did the right hon. and gallant Gentleman not vote against it?

Captain Waterhouse

I should be called to order if I embarked on a discussion on that Bill. [Laughter.] I do not mind the jeers of hon. Members. I have been jeered at for so long by them that I do not care a scrap about them.

I want to deal, if I may, with a point made by the right hon. Member for Colne Valley (Mr. Glenvil Hall)—what he called Lord Woolton's pledge. I have made no reference to Lord Woolton on this matter, and the explanation I shall suggest is my own. I do not know whether he will think it the right one or not, but to me it seems perfectly good and sound. The remarks which he made in his broadcast have to a large extent been taken out of their context. I will read them. Please do not shout too loudly while I read them. Wait until I finish my argument.

Lord Woolton dealt with this matter twice in his broadcast. First, he said: It is all of a piece with the other rumours"— he was talking about the rumours of warmongering, about which hon. Members opposite of course no nothing at all— that are designed to frighten you—rumours that the Tories will reduce old age pensions, that they will cut food subsidies, abolish rent control and put up the cost of living, that they will reduce the family allowances. That was the first of his references.

The second, and last one, is that to which I want to draw the special attention of the Committee. He said: Of course, we don't pay the full cost of our food over the counter, because of food subsidies but of course we pay for the subsidies through taxes on other things that we buy. There is the story that the Conservatives would cut food subsidies, that is not true. What we want to do is to get rid of the need for subsidising food. That last sentence is the key to the whole. That is precisely what the Budget will do. My right hon. Friend the Chancellor of the Exchequer has brought in a great measure of Income Tax relief and he has increased family allowances and allowances in many directions. He has made it unnecessary for the bulk of the people to get these subsidies.

That is only one leg of my argument. The other leg is that the statement of Lord Woolton was made in the context of the facts at the time. Was there anybody in this House who knew last autumn that we were losing dollar currencies at the rate of £1,200 million a year? [HON. MEMBERS: "Yes."] We were told nothing of the sort. The then Chancellor of the the Exchequer made a speech in September which was alarming enough, but he never made any such declaration as that. It is a condition which has been brought about by hon. and right hon. Gentlemen opposite. If, by our present policy, we can undo the harm they did, the country will have every reason to be grateful to us.

Mr. Roy Jenkins (Birmingham, Stechford)

Will the right hon. and gallant Gentleman explain how a cut in food subsidies, used to give Income Tax concessions—by which it cancels itself out, so far as the general effect on purchasing power is concerned—can possibly be justified by the rate of the gold loss?

Captain Waterhouse

Certainly: it is the crux of the whole position, because it made the Income Tax concessions possible it thereby removes the dis-incentive or deterrent effect of direct taxes on lower incomes.

I congratulate the President of the Board of Trade on his tackling of the Purchase Tax. I put taxes into three broad categories: the harmful, the very harmful, and the disastrous. Therefore, any alleviation of a tax pleases me. This particular tax has become extremely onerous. It was a good war tax, and the Utility scheme was a good war scheme. The former President of the Board of Trade was primarily responsible for debasing that scheme.

Mr. Turner-Samuels

What does the hon. and gallant Member mean by saying the tax was onerous: onerous on whom?

Captain Waterhouse

The tax was extremely onerous on producers of almost all high-quality goods produced in the country.

Mr. Turner-Samuels

It was necessary in order to help the people.

Captain Waterhouse

The hon. and learned Member must have a very peculiar idea of what is necessary to help anybody. I am discussing Purchase Tax, which was a necessary tax in war but became thoroughly undesirable in peace. The Utility scheme was a desirable measure when it was first initiated but it was so altered that quality disappeared. As we have heard, it no longer became a test of quality, and it was high time it went.

The boot and shoe trade is undoubtedly extremely hard hit by the proposed change because 98 per cent. of its total production was free of the old tax. I do not know how much the tax on the 2 per cent. amounted to, but I hope that it may be possible, by collaboration with the Chancellor of the Exchequer, to see whether the tax on boots and shoes, which are so necessary for every man, woman and child in the country, cannot be taken off altogether. There are other trades too to which his attention will be drawn at another time.

Income Tax revision removes that which is called, very cumbrously "the disincentive" or the deterrent to extra effort. To that extent it is wholly good, but there is one way in which I think it is not so good. It releases 2 million people from payment of direct taxes. I do not think that is desirable. It is desirable that as many people as possible should pay some measure of direct taxation because the larger the number of people paying taxes the larger the number who want rigorous economy in Government Departments.

My final point is on economy. I applaud the Budget from every angle but if there is one direction in which we may not have gone so far as we should like it is in the cutting down of expenses. I am fully aware that time is young and that the Government have only been in office for a very few months. They have inherited a mass of extravagance and it is extremely hard to go through any Department and make all the possible economies. I know that all the Civil Estimates are not yet open to us, but in so far as they are and in so far as we can judge by the Vote on Account, it does not seem that there have been very great economies.

In one or two cases there have been actual increases of staff. In the Foreign Office the cut is only three per cent. I hope that the Chancellor will look with very great care at the Foreign Office, the Board of Trade and the Ministry of Agriculture. I assure him that if he is able to make economies in those last two Departments by cutting down the overlarge staffs he will receive the approbation and blessing of industry and the whole farming community.

7.9 p.m.

Mr. Anthony Crosland (Gloucestershire, South)

The Committee has just heard from the right hon. and gallant Gentleman the Member for Leicester, South-East (Capt. Waterhouse), what must be the most unconvincing defence of a broken election promise that has ever been heard. To judge by the faces of hon. Gentlemen opposite, he did not seem to be carrying a great deal of conviction even there, and he certainly did not convince anybody on this side of the Committee. I do not think that he will convince anybody in the country.

The right hon. and gallant Gentleman is suffering from a very serious delusion if he thinks that the cutting of food subsidies has been made good by relief elsewhere. He seems to be quite unaware of the fact that very large numbers of the lower paid wage earners have no sort of compensation to meet the increased cost of food which they will have to pay.

One mystery which has not been cleared up by any of the speeches of hon. Members opposite today is why the date of the Budget was advanced. We had all this elaborate, psychological build-up; all this bally-hoo in the Press about what a dramatic crisis Budget it would be; and then the maestro comes along on Tuesday, weeks earlier than usual, with the flags flying and the trumpets blowing, and merely announces that he intends to raise the Bank rate—which he could do on any Thursday of any week; and for the rest he says that there are to be no cuts in civilian consumption, for these are not necessary at all. This is the crisis Budget for which the country has been prepared by all the psychological propaganda of the last few weeks.

I agree with my right hon. Friend the Member for Huyton (Mr. H. Wilson), that the Budget is little related to the national crisis, but I think there are some extremely disturbing things in it. First of all, one thing which I do not think has been sufficiently noted was the speech—if I may say so, the very verbose, rambling and platitudinous speech—of the Minister of State for Economic Affairs last night. In that speech he tried to pour scorn on the method of estimating the inflationary gap by a series of arithmetical calculations.

Of course, it is quite true that several of the calculations made last year were wrong. It is quite true that this sort of economic forecasting is still in its infancy and it is quite true, in particular, that if we have a year like last year, in which there was a great shift between the first half of the year and the second half of the year, these calculations are likely to be wrong.

But the answer, surely, is not to pour scorn on this sort of method and to fall back, as he was doing, on a kind of divine intuition. The answer is to try to improve and perfect these methods, Indeed, the logical answer, as I suspect we shall find in this country in the long run, is to have a Budget every six months and not once a year. At any rate, I should myself prefer to trust the most imperfect forecasts of the economic planners rather than rely upon the intuitive judgment of somebody like the Minister of State for Economic Affairs. I very much hope that this speech does not mean that the party opposite propose to turn their backs entirely on the national income planning which has been developed in the last few years and, instead, to revert to the laissez faire policies of pre-war days.

A word, next, on the Excess Profits Levy. I do not think anybody on this side of the Committee would dispute the proposition that in a period of re-armament it is desirable to increase the taxation of profits, but how ironic that the Tory Party, of all parties, should choose the one method of increasing the taxation of profits which will clearly have the maximum disincentive effect and which is the clumsiest method that could conceivably have been chosen.

If we consider the effects of this new levy, we have the situation in which a company which, by its greater efficiency, has increased its profits finds that 80 per cent. of the increased profits are taxed away; whereas a company which has stagnated, and whose profits are no higher today than they were during the standard period, will actually pay less in taxation after the introduction of the new levy than it was paying before. What a marvellous incentive to extra effort and efficiency!

That is surely the most ludicrous situation we could possibly imagine. For instance, to take one example, after the new levy we shall have a situation wherein all the brewery companies in the country will be paying less taxation than they were, whereas an expanding engineering company will be asked to pay very much more. That is the most clumsy and disincentive method of achieving what the Chancellor wanted that I can imagine. Why put a high tax on marginal earnings, and decrease the tax on average earnings? Of course, the right method would have been greatly to increase the existing Profits Tax, particularly on distributed profits, and not to come along with this ridiculous new idea which shows that now the Tory Party cannot even run a capitalist economy, let alone a planned one.

Mr. James Hudson (Ealing, North)

They can run a brewery economy, though.

Mr. Crosland

I should like to say a word about the Bank rate and the raising of interest rates. In so far as this is intended to force traders to disgorge their stocks, or intended to cut down capital investment, to release engineering goods for export or the arms drive, personally I have no objection to it; but the point about these monetary and financial methods of achieving these aims is that they are extremely clumsy, because they are completely non-discriminatory.

If we put up the interest rates it is possible that it may have these good effects. But, as one of my hon. Friends has pointed out, it may equally have the effect of increasing the number of bankruptcies in the consumer goods industries. The Chancellor of the Exchequer himself said in his Budget speech that he did not think we should gain any advantage today from increasing unemployment in those industries, but this could be one of the effects of raising the interest rates.

All these so-called financial weapons, of which the experts and the City pundits are all so fond—and which they claim are subtle, flexible weapons—are, in fact, the clumsiest weapons that we can use, precisely because they are non-selective and non-discriminating; and, even if we get one or two good results, in the process we are likely to get a lot of very bad results as well. That is why we on this side prefer, in principle, the use of controls which are selective and discriminating and which enable us to concentrate the force of economic policy precisely where it is needed.

The one thing on which I should like to congratulate the Chancellor is the fact that he resisted the pressure, which was very strong, from orthodox financial and economic circles to cut the standard of living severely in the coming year. It was urged upon him a great deal in the pre-Budget discussions from these circles, and urged upon him again and again in articles in the "Economist." the "Financial Times," and the "Investors' Chronicle," and all the rest, that Britain was still caught up in the midle of a serious inflation and that, therefore, neither the arms programme nor the export drive could be carried through without a serious cut in British civilian consumption.

I am sorry, and surprised, to see that this view received a good deal of support in the defence debate from my hon. Friend the Member for Coventry, East (Mr. Crossman). Against this view, it has surely been clear for some time—and the Chancellor of the Exchequer accepted this in his speech—that under present circumstances, with growing unemployment in the consumer goods industries, it was nonsense to talk about general inflation and nonsense to say that the arms programme and the export drive could be carried through only by a serious cut in civilian consumption. It has been clear, on the contrary, that what these two programmes of exports and armaments would require, particularly given the steel shortage, was a cut-back in civilian investment because, fundamentally, as my right hon. Friend the Member for Huyton said, this is a problem of the engineering industries.

I suggest that in this rather curious alliance, both the orthodox banking experts in the City and my hon. Friend the Member for Coventry, East, have failed to notice the fact that in the last few months there has been a most striking change in the whole world economic climate—a striking change from a situation of world inflation of a very serious character to one of incipient deflation.

This can be seen in all sorts of ways. Every hon. Member in the Committee, on the basis of his own constituency experience, knows about the unemployment, and the growing unemployment, in consumer goods industries in 'this country. This is not just a problem in Britain. There is a textiles depression in every country in Europe. The Belgian Government take this threat of deflation so seriously that they have proposed to N.A.T.O. that there should be a N.A.T.O. conference to discuss the problem of unemployment.

It is the same with the raw materials situation. Whereas a year ago we had scarcity and rising prices, today we have falling prices and the beginning of a raw materials surplus. In fact, half our difficulties in the sterling area over the gold and dollar problem in the last few months has been not rising prices of raw materials but falling prices of raw materials. Even the world steel shortage appears to be on the point of coming to an end. If we look at the United States we find that she is at considerably less than a full employment level of industrial activity at the moment.

I suggest that the entire world economic climate has changed from what it was a year ago and that the problem is not today one of general inflation. Therefore, it is not true today that either re-armament or the British export drive need involve a cut in the British standard of life or in the Welfare State, as my hon. Friend the Member for Coventry, East suggested it would involve. I was glad that the Chancellor admitted this.

We all regret that it must involve instead a cut in civilian investment, because nobody wants a cut in that. I agree with my right hon. Friend the Member for Huyton that it is deplorable to cut down capital expenditure at home, but the Committee will note that we are cutting it down from a very high level. Investment in this country increased by £175 million in 1951 over 1950. It has been increasing steadily since the end of the war, and for the last four years it has been considerably higher than pre-war, both absolutely and as a proportion of national income, and it has been a great deal higher in Britain than in any other European country.

My hon. Friend said that in this country in 1951 the figure for plant and machinery was £300 million whereas, in fact, the figure from the White Paper is £800 million. The required cut in investment is, therefore, not of disastrous dimensions.

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

The figure I gave was for civilian investment, and I think my hon. Friend has included armaments.

Mr. Crosland

I have taken the full figure for plant and machinery—

Mr. Crossman

I was only quoting for civilian machinery, not including armaments.

Mr. Crosland

I think my hon. Friend will find that we have not spent £500 million on plant and machinery for armaments over the past year.

The admission of the Chancellor that a cut in the standard of life is not necessitated during the coming year either by the export programme or the armaments programme is surely in itself the most damning indictment of his Budget, because the sacrifices which he has certainly imposed on a large section of the population are not necessitated by the crisis in which this country finds itself. In other words, they are a deliberate choice of the Government, a quite natural reflection of the Tory attitude to these affairs.

Many of my hon. Friends have pointed out, with examples, how large a number of wage earners will be worse off. They have drawn attention to the fact that anybody with a four-figure income is bound to be better off. It is a curious commentary on the Tory argument about the food subsidies. Everybody knows it—food subsidies are wasteful because they are applied alike to the Prime Minister, the millionaire, and the poor people of the country. How wasteful they are; therefore, we must cut them. And what the Government do is to give an Income Tax concession which not only gives money away to the Prime Minister, the millionaire and everybody else, but gives far more money to the rich than it gives to the rest of the population. At any rate, food subsidies were not as wasteful as that.

I am bound to say also that, since the result of the various measures which the Chancellor has introduced is to make the distribution of income in Britain less equal, whereas last year it was getting more equal, it is the most extraordinary moment to do that when the country finds itself faced with a re-armament programme. Surely, if there is one time when we need to keep to the principle of fair shares and equal distribution of income, it is when we have a re-armament programme to put through.

It seems to me also a misconceived time to cut the subsidies from quite a different point of view. I imagine that Members on all sides of the Committee will agree that price stability is a desirable aim of economic policy. They will probably also agree that prices in Britain are largely dependent on the behaviour of import prices, and at a time such as last year was, when import prices were rising at a furious rate, it was impossible to aim at complete price stability in Britain since to do so would involve a level of subsidies which would be quite insupportable.

Surely, however, now, when import prices have been falling, and would appear to have reached stability for the moment—although they may fall a little further—this is precisely the moment when price stability becomes a possible aim of policy. Yet this is precisely the moment when the Chancellor throws all possibility of price stability out of the window by cuts in food subsidies.

It is a most extraordinary time to go in for a large increase in food prices which will set the whole process off once again. In my maiden speech I criticised Sir Stafford Cripps for making an insufficiently flexible use of food subsidies, but I never suspected we would one day have a Chancellor who, facing a position when stability was a possibility, deliberately gave a twist to the spiral upwards when he could have brought it to an end.

My last point on subsidies is this: we hear an immense amount of mystical semi-religious talk about subsidies, about the need to get down to real prices. I am sceptical about this talk of real prices. The Chancellor himself cannot believe his own mystique very devoutly, because one of the things he has done in his Budget is to extend Purchase Tax over a range of goods which did not bear it before, thus breaking the link between prices and costs over a range of goods much more completely than it was done before.

It is nonsense for a Government which keeps beer, spirits and tobacco taxes at their present level to talk about the virtues of real prices. The Chancellor has made no attempt to bring prices back to this mythical real level. The plain fact is that all this talk about real prices is nothing but mumbo-jumbo and is only believed on the Tory Front Bench and by a few people in the City of London, and certainly nowhere else in the world. All this went out with Adam Smith a century ago.

I suggest to hon. Members that all we can say about prices is that any price change involves a redistribution of income and, of course, the set of price changes involved in the reduction in the food subsidies is a backward redistribution of income from the bottom to the top. That is all that has happened and it is nonsense to talk of a return to a more "real" situation.

Lastly, one word on the foreign balance. Nobody on this side of the Committee has made any attempt, as far as I know, to deny the seriousness of the present crisis in the foreign balance However, I must disagree with what my right hon. Friend the Member for Leeds South (Mr. Gaitskell) said, and what a number of my hon. and right hon. Friends have said, on a particularly important issue, the Australian import cuts. I think we are quite wrong to blame the Australians and to give the impression that we should have gone on with the same trade situation towards Australia as we have had in the last few months.

I agree entirely that the import cuts will have serious consequences in certain industries, in the textile and motor industries in particular. Those must be taken care of by Government policy. At the same time, I suggest seriously that we should make a great mistake if we pretended that it was really desirable to go on with the enormous export surplus with Australia that we have been running in the last few months. We have been in a ridiculous situation, as the Minister knows. We have had an export surplus at an annual rate of £400 million with the sterling area and a deficit at a rate of £1,200 million with the non-sterling world. But what has the surplus of £400 million given us? It has not brought us any gold or dollars, but has merely meant running down the sterling balances.

It is about time we woke up to the fact that in the kind of situation in which we find ourselves today we cannot afford to run down sterling balances at that rate. We cannot afford to repay debt and to finance unrequited exports at this rate for the rest of the sterling area. So I suggest seriously to my hon. Friends on this side of the Committee that we should not get into a position of saying that we must go on with this enormous export surplus with the rest of the sterling area which enables them to run down their balances without bringing us any corresponding advantage. Our export problem in the next year is, partially, at any rate, a problem of switching. It is a problem with which the former Government were very familiar, of switching exports from the sterling area to the whole of the non-sterling world.

The main criticism of the Budget so far as economic policy is concerned is, as has been said from this side before, that it does not seriously help either the arms programme or the export drive.

Mr. A. Edward Davies (Stoke-on-Trent, North)

My hon. Friend speaks of switching to the non-sterling area. Suppose, however, that the non-sterling area will not accept our goods and that America, for example, is unable to accept consumer goods from us because of their own interests or their tariffs. What should we do then?

Mr. Crosland

I quite agree with what my hon. Friend says in the case of the United States in particular, which as he well knows, is only a tiny part of out non-sterling markets as a whole. I entirely agree that, of course, we shall find difficulties, particularly in American markets. What I am suggesting is that that should be the aim of our economic policy. It may not be 100 per cent. successful, but it should be the aim of our export policy this year.

All that the Budget does is to make for a less equal distribution of income than before, just at a time of national crisis, when the whole emphasis ought to be on equality and fair shares. Most hon. Members on this side will say that this is the sort of first Budget which they expected from a Tory Chancellor, but it is none the more agreeable for not coming as a surprise.

7.32 p.m.

Mr. John Peyton (Yeovil)

It is with very real trepidation that I rise for the first time in this Chamber to address the Committee, and I ask the Committee to show me that indulgence and sympathy which is normally extended to those passing through this very painful ordeal. I come from the Yeovil Division of Somerset. I represent a constituency which is, in large part, at any rate, agricultural, and it is on the subject of agriculture and its general economic position that I wish to address a few words to the Committee today.

I think that the Budget has placed upon our home agriculture a heavy burden. In the first place, there are the very substantial cuts—the necessary cuts—in food imports. The responsibility upon our home agriculture is, therefore, proportionately heavier. There are the increased taxes on petrol and the increased costs, therefore, of transport, and there is the rise in the Bank rate. These must be viewed against the background of the past three years, when the costs of this industry have risen by substantially over £200 million, £60 million of which has not been recouped.

Full consideration should be given to agriculture now. I recognise, as has been generally recognised, that my right hon. Friend's Budget is a hopeful one. It is one of incentive. I most earnestly hope that those notes of hope and incentive will be echoed in the forthcoming Price Review. That review is now taking place, and I wish to make only a few very general comments upon it.

First, I believe that the principle of the Price Review represents a sound policy. It is fair to say that in many cases it has been badly administered; it is a good vehicle which has been badly driven. The main purpose and aim of the policy behind the Price Review is the very necessary expansion of our home agriculture. The means of getting that expansion is to breathe into agriculture that extra working capital which at present is so badly lacking. The whole purpose of the policy is likely to be undermined, first, by the danger of rising costs, and second, by mistaken and sudden changes in price emphasis.

If prices are switched suddenly and without warning simply because the output of a product has reached the target which represents the nation's needs, there is likely to be a disastrous and discouraging effect upon the industry. In particular, I refer to milk, in which, of course, the county of Somerset is so deeply interested. The target for milk was reached, but in the 1951 review recoupment for rising costs was not given. As a result, the cattle population of the country has fallen, and is falling today. We are faced with a situation when dairy cattle are sent, not to the bull, but to the butcher. Such action as that undermines the confidence which is at the root of any healthy and prosperous agriculture.

I say very strongly indeed that no industry needs to much and such constant assurance as the widespread industry of agriculture, consisting, as it does, of some 350,000 individuals. The other day in my constituency, a farmer remarked to me, "We know what Governments do. They look for cheap food from overseas; and as soon as they have found it they will pull out the props from under us and let us down." I do not believe there is any foundation whatever for such apprehension, but I am quite convinced that there is a real need for constant and repeated assurances to be given to this industry, which is so largely composed of individuals as against large concerns.

The second point which the agricultural community require, perhaps, more than anything else is some stability, or, at any rate, some progress towards stability, of costs. Instead of the business of having from year to year ad hoc price increases, can we not aim, at any rate in the long term, for stability in costs, which would give to the consuming public the assurance that prices will not go up and may well come down? This would give to the farmer the reasonable opportunity which he must have for taking the longterm view.

That could be done, I think, by administering an early stimulus to production rather than by the ad hoc price increases to which I have referred. The fertiliser subsidies and the ploughing up subsidies, introduced by my right hon. Friend the Minister of Agriculture, are two notable steps along the road to which I am referring, but such things as calf subsidies, acreage payments and grassland improvement schemes could well be considered.

Let me give just three reasons why I believe that this system of giving an early stimulant is so much to be desired. The first is that it does much to offset one of the chief difficulties of the farmer, lack of working capital. In this respect, particularly, the agricultural industry is in a very much more difficult position than any other industry. They have not got a well organised issue market to which they can resort; they simply go to the banks and their only means of capital is their revenue. In addition, the stimulant, which can be injected in the early stages of production, is valuable in that the benefit is confined to the man who is really genuinely making the very much needed effort to produce.

The third point in its favour, which I think is the strongest of them all, is that it is a first-class investment from the point of view of the nation. Instead of the results we are seeing as a result of the purely ad hoc system that we have had over the last few years, we will get a steadily increasing volume, a volume which will increase with confidence, and with that increase in volume we shall get a reduction in overheads and the stimulant will be needed less, and not more, as time goes on.

I have been advised that the best quality of a maiden speech is brevity. Perhaps it is its only virtue. Therefore, I will conclude with a few remarks about that class of man on whose behalf I have spoken—the small farmers, the small horticulturists, all over the country. It has to be remembered that the average farm—in Somerset certainly—is not larger than 80 acres. The small farmer is a man who is patient. He has to put up with much, he is loyal, he is hard working and industrious. I would remind the Committee that he has to work a longer week than most sections of the community, even including hon. Members of this House. His normal working week is one of about 70 hours, and he is paid no overtime.

We would do well to remind ourselves that if the small farmer were working for another employer, as a farm labourer, his statutory wage would very often be well in excess of what he earns working for himself. He has no feather bed—I am not trying to be controversial—I see that the hon. Member for Wednesbury (Mr. S. N. Evans) is not in his place—but I do believe that the lot which these men have to bear is a hard one. I am not suggesting that it does not get its reward, but I do say that it is to the small farmer we in this country have to look if we are to have the increased food production upon which so very much depends.

We look to him, not as a man who is a member of a favoured class, not as a man who is in rivalry with our great urban population, but as a man who is willing, ready, and anxious to do a vital task in the interests of the country, a man whose principal aim is to safeguard and care for the land of which he is a part and to keep that land in full production and in good heart.

I wish to thank the Committee for the courtesy with which they have heard me.

7.45 p.m.

Mr. H. Rhodes (Ashton-under-Lyne)

It is conventional to congratulate an hon. Member on his maiden speech and I am sure that no one has done so more sincerely than I do tonight. I remember when I made my first speech in the House; the clock at the end of the Chamber looked as large as Big Ben—and was I not pleased when I was able to sit down!

I am sure the hon. Member for Yeovil (Mr. Peyton) can sit back for the rest of the evening and relax, because he has made a first-rate speech, and I am certain that when he speaks—as I am sure he will from time to time—on agricultural subjects in particular, representing, as he does, the town of Yeovil in that grand county of Somerset—hon. Members will listen with more than usual interest.

This is a season in which a lot of words are spoken and a lot of ideas produced. My thoughts at the moment go to the comic opera of Gilbert and Sullivan, "Iolanthe," in which the Lord Chancellor had a nightmare. One of the things which afflicted him was A scheme of devices To get at low prices Of goods from cough mixtures to cables. It is to that section of the Budget that I wish to confine myself—the scheme of devices To get at low prices. I followed with interest the speech of the President of the Board of Trade. He explained his views to us very carefully and very clearly, but unfortunately he went too close to the report of the Douglas Committee and he took too many of their ideas for his own. The Douglas Committee overplayed some of the arguments that were advanced from time to time to the ex-President of the Board of Trade and myself when we were in office. One of the things that Committee overplayed was quality. On the question of quality, if I may deal with that at once, the Douglas Committee never really got down to the question of how far flexible specifications in Utility ranges had affected deliveries.

I put it to the right hon. Gentleman that in point of fact the fixed specifications have been very well supported throughout the whole of 1951, and in the absence of figures which in my view should have been produced by the right hon. Gentleman to support the contention that the quality of Utility goods has gone down, I submit some figures myself. He can tell me whether I am right or wrong. Of apparel cloth, cotton, sheetings, pyjamas and velvetings, rubber proofings and so on, I estimate that in the second quarter of 1951 8 per cent of flexibles only were delivered in the Utility scheme and in the third quarter it was only 17 per cent. That means that there was a tremendous amount of trade in the fixed specifications through the year.

The allegation was made that there had been a lot of debasement in curtain cloths. It is easy to generalise on topics like this. During the third quarter of last year there were 33⅓ per cent. deliveries of flexibles in that Utility range. In upholstery cloths, in the third quarter of 1951, the figure was only 2½, per cent. If my figures are wrong, I should like them to be disproved.

What the Utility scheme did for the poorer and middle-class elements in this country will never be forgotten, because, coming immediately after the war, it was a stand-by for the newly-married couples who were setting up house. It provided families with goods at low prices and of good quality, and to families with young children it was a godsend. Here let me pay tribute to the personnel in the Board of Trade who so painstakingly and enthusiastically worked for the benefit of the consumer in this country.

May I ask the Chancellor or the President of the Board of Trade, or whoever is to reply to this debate, whether it is their intention to dispense with, or whether they have already dispensed with, that little, neat, tip-top unit called the Consumer Goods Service that there was in the Board of Trade, because we found it to be one of the best sounding-boards we had? Its personnel were able to go out into the country and find out what were the needs of the consumer and the quality of goods supplied, and I should like to know what has happened to them.

The Utility scheme was designed for a period of scarcity. So long as the acute sellers' market persisted, there was need of a tightly-drawn scheme. The less acute the sellers' market became, the less tightly-drawn a scheme of this description had to be, and that was why, with the need for exports looming up, as it did in the middle of last year, the flexible specifications were introduced. Even so, the volume of goods coming forward to fixed specifications was high throughout the year.

If the Committee will pardon me, I want to put on record something that I myself believe with regard to price control schemes of this nature, perhaps it is time it was done. I disagree with my right hon. Friend the late President of the Board of Trade on one or two of these particulars, but I am now giving my own views.

The indispensable pillars in the successful Utility scheme, in my opinion, are, first, production control; second, specifications; and third, price control. Production control is necessary to direct the raw materials to the right end use, specifications are necessary to define quality by marking and price control is required from top to bottom to prevent excessive conversion costs and undue profits.

All these are necessary in a time of an acute sellers' market, and, when we have all these three pillars, we have next to make up our minds what sort of export policy we are going to pursue. If we differentiate in price between home consumption and export, we are likely to get into trouble with the overseas people, who say, if the prices are too high, that we are subsidising the home market. That is what happened in 1949, and it is a problem that has to be solved against when, as we all hope, a sellers' market returns.

In a buyers' market, a tight scheme is quite impossible. Production control is of no use, because people cannot be forced to make what they cannot sell. In regard to specifications, we cannot have in such circumstances a long list of specifications tightly drawn, and, thirdly, neither can we maintain price control in a falling market. It is just impossible, and it is a fatuous thing to do, because prices can never be followed quickly enough and a price cannot be set for the man who is keen to sell quickly. That means price fixing is behind events. It is totally impossible to put on price control with any success at all in a falling market.

In addition to this, may I pose the query whether a scheme could be designed generally which is resilient enough, if the Treasury itself cannot be resilient enough, in the application of Purchase Tax to a changing pattern of trade. There, I want to ask the President of the Board of Trade, if he is replying to the debate, one or two questions.

First, how has the D level been arrived at? I believe that this has just been a stab in the dark. I do not believe that there has been any real scientific working out as to where the D level should be. I am not going to jump in and say at this juncture that the levels are all too low or all too high, because I think we have to look at the scheme and see how it works out in practice during the next days and months. I do say that the D levels are not right to the extent that we have variable commodities to deal with, and the same prices are fixed for all the B class materials. The prices of the B materials are level throughout, and yet the variety of materials that goes into the making of these articles is very great. It is very likely that some of them will go up in price and that others will come down. I should like to have an answer to my questions on that aspect of the problem.

Another question I should ask the right hon. Gentleman, and it is a very serious one, is this: does he visualise that there will never be a sellers' market again? I ask the right hon. Gentleman again—does he visualise that there is never to be a sellers' market in textiles again? Is he hopeful? Can he give me an answer?

Mr. P. Thorneycroft

I am not a prophet.

Mr. Rhodes

May I ask the right hon. Gentleman to what extent he hopes so? What action has he or have his advisers designed for dealing with non-tax goods in a sellers' market? It could be that by devaluation or a sudden twist in the pattern of world events we could get a sellers' market instead of the present acute buyers' market in textiles. If that happened, I say that within six months there would not be a yard of Utility material in the shops. I challenge the right hon. Gentleman or his Ministry or the officers of the Inland Revenue to put up a case that it would not be so. I think it is obvious that the shops would be denuded of Utility cloths.

The right hon. Gentleman's colleagues have done the same thing again with the consumer goods industries as they did in 1920. They are forcing out into the street employees of Lancashire and Yorkshire through allowing credit restriction to go too far. I want the right hon. Gentleman to take notice of what I am saying because this is very important. There is industrial life blood at stake here, and maybe empty stomachs in Lancashire and Yorkshire. We can sit here, and maybe empty stomachs in and worried people in Lancashire and Yorkshire today.

The action of the Government in restricting credit has made it necessary to clear out of the warehouses and the mills the cloth which has been accumulating because the manufacturers have been unable to get delivery instructions for the last few months. If one goes through the streets of Manchester on a fine day and looks through the open doorways, one can see stacks of cotton cloth. That means a shortage of money and the necessity for the small man to get new capital in order to carry on. In those circumstances, he goes in for the cloths that will cost him least in capital outlay. He will go for cloths under the D scheme, in fact there will be a concentration on that type of cloth; I heard that again this morning in the City when I went there to make inquiries.

Let nobody think that D stands for Douglas; it does not. The D scheme was the product, months ago, of some fertile brain way down in the bowels of the Treasury. The idea of the scheme was to support and encourage exports, and the exports to be encouraged, so it was said, were in that portion of the price structure known as the blind spot, the kind of vacuum that has been described.

But it will not happen quite like that because the mere fact that they are bringing down prices and are bringing competition into a smaller area of tax-free cloths will mean that they will be undoing what the Douglas Committee had in mind. The Douglas Committee said that encouragement should be given to the cloths just above the top price Utility cloths. If there is not the home trade to back the export trade in the future, what encouragement are they to give through having altered the structure of the Purchase Tax to what it is now?

I want to ask the right hon. Gentleman one or two questions about imports. Can he tell us what exactly is the position about the restriction of imports? I have heard during the last day or so that the figures about which the Chancellor spoke in his Budget speech referred to the cuts announced in November. If there are no new cuts, does it mean that the work of the Douglas Committee has been designed to bring in cloths from abroad at much lower prices than our own—cloths from Holland, Germany, Italy and India—or what is it proposed to do? The Chancellor said there was likely to be as much consumed in 1952 as there was in 1951 Whose goods are to be consumed? Our own, or those coming from abroad? Because the principal idea of the Douglas investigation was to make it possible for those cloths to come in.

If, on the other hand, these cloths have already been prevented from coming in, due to the imposition of a quota system, why has the Douglas Committee been wasting its time on investigating how to do it in another way? Lancashire and Yorkshire are concerned about these figures. I understand that at the present time there is any amount of cheap woollen cloth in bond in London ready to come on to the market. I should like an answer on this question of imports from the right hon. Gentleman.

The Committee will pardon me, but I did have this job to do while I was at the Ministry, with regard to the specification and quality. But we shall have to watch the manufacturers here. There is no question that the right hon. Gentleman's promises are good ones; but if times are difficult and there is acute pressure through competition, a start is made immediately in debasing the quality in the cotton industry and wool industry.

Mr. Gerald Nabarro (Kidderminster)

Not necessarily.

Mr. Rhodes

I will prove it. There is in the spun rayon group of the Utility scheme, which has never had any flexibles at all, a cloth known throughout the world as one of the finest textile quality products of this country. It is Utility specification 1,005, of which millions of yards have been sold. Since Tuesday manufacturers are already being asked to debase it. If a fine cloth like that is subject to debasement within two days of the Budget, what about other more ordinary cloths.

I ask the right hon. Gentleman to get busy on this subject at once. I am sure he will, because I am sure he is as keen as anybody on preserving the standards that Utility specifications have set. I hope it will not be long before he is able to tell the Committee what he intends to do, with the help of the British Standards Institute, about quality definition by specification.

I will not keep the Committee very much longer because I see the hon. Member for Bury and Radcliffe (Mr. W. Fletcher), waiting patiently. But I should like to ask what is to be the future of the Central Price Regulation Committee. That Committee is a body of people who have laboured so unselfishly without any pay, not only in London but also on local committees in the Provinces. They have done yeoman service throughout the country in looking after the interests of the consumer.

May I ask the President of the Board of Trade also what is to happen to himself? [Interruption.] No, I do not ask that discourteously. The right hon. Gentleman will see that on page 5 of the Budget Resolutions he has been slipped a fast one. It is not good enough, and I will explain why in a moment. The Resolution says: (c) there shall no longer be power to define the classes of goods affected by any such Treasury order by reference to marks the use of which the Board of Trade have power to regulate; Let me tell the right hon. Gentleman that in that little sentence, under the heading "Purchase Tax," has been sold the birthright of the Board of Trade in the matter of consumer goods. There is no question about it.

The Treasury have been aiming for a long time to get other Departments under their thumb and in this case they have done it. The Douglas scheme suited the Treasury down to the ground. By removing the Utility scheme from its previous basis, the birthright of the Board of Trade has been sold, because the Board of Trade can no longer increase prices. The right hon. Gentleman has to go to the Treasury and ask, "Please can I do something about prices?" It is an iniquitous position that the Treasury, simply because it is a revenue and tax-gathering institution, can dominate a production Department as it is doing at the present time.

Mr. Nabarro

No Department produces anything except bureaucracy.

Mr. Rhodes

The Board of Trade is a production Department; and the Treasury now have power of life and death over the consumer goods industry. They decide restriction and expansion, and the prices at which defined products shall be sold. The right hon. Gentleman smiles but he will know all about this when he is blamed by industry in the future for certain price levels, and he has to go running to the Treasury and say, "Please, please, please."

And all this, of course, is carried out by the permanent officials. They have their little bit of domination, too. One can see it in Parliament Square any time one likes. If one goes out at lunch-time and sees the civil servants who can afford to go out for their lunch—they are usually in the class who are in the running for senior promotion—one can see them passing the Treasury and genuflecting in public and crossing themselves in secret.

I repeat that under this Budget Resolution the Board of Trade have lost their birthright; and I repeat that the incidence of the D scheme is now hopelessly out-of-date. It was really out-of-date before it began, because events are moving so fast. I give the message to the President of the Board of Trade, to be passed on to his right hon. Friend the Chancellor of the Exchequer, that it is no use paying lip-service in this House by way of sympathy for the disasters which have overtaken Lancashire and Yorkshire industries if there is not a practical demonstration of assistance given from the Government Front Bench before very long by the removal altogether of all Purchase Tax on their manufactures. That is the gesture that is needed in this desperate situation. Those industries need a fillip and some help. I ask the right hon. Gentleman to pass on that plea to his right hon. Friend.

8.20 p.m.

Mr. Walter Fletcher (Bury and Radcliffe)

I have always had the very greatest respect and friendship for the hon. Member for Ashton-under-Lyne (Mr. Rhodes). To that I must now add amazement at his ability to pick the winner of the next race; because he said I should follow him and that was something not in his gift.

I agree with him on the question of the debasement of quality that may result from what comes out of the Budget, in relation to Lancashire. As the future of Lancashire depends on continuing as a quality producer, I think it as well that his words on that subject should have some reinforcement and should be studied very carefully.

I shall not follow him further into the bowels of the Treasury. I should like to get back to the speech of my right hon. Friend the Chancellor of the Exchequer, and to the beginning of that speech, because so many of the speeches today have been devoted to the effects on the superstructure of the vessel—whether we are going to put in minor improvements here or there—and so few to the question whether the vessel will remain afloat.

The first part of the Chancellor's speech was devoted to drawing the picture of our true position. I think the compliment that was paid him immediately after his speech, when it was said that he had spoken with great clarity, is one that I have already heard paid to three previous Chancellors. To understand our situation and the remedies which are proposed, I think it would be well to go back and see what the clarity of his three predecessors has revealed.

The right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) showed a breezy optimism in his Budget speech. Prosperity was round the corner. We had the American Loan. It did not matter very much whether there were certain clauses in it which meant that most of the dollars would seep away to others. There was a carefree song in his heart. But from his finance then, and the errors of finance of that epoch, arose so many of the evils from which we suffer today.

He was followed by Sir Stafford Cripps, who had precision and clarity to a very high degree. He showed us that he could wield with skill—and, we thought, relish—the whips and scorpions of austerity. But he was infinitely too inflexible and, under that régime, we were led by his inflexibility—by what I might call his "Bed of Procrustes" mentality—into the position where events had to be fitted into his theories, rather than his theories follow events. That led us directly to inflation and, immediately after inflation before the Korean war, to a period when that great opportunity existed to stockpile, when there was no rise in commodities; there was an opportunity for informed people—and advice was not lacking—to provide at low cost those commodities which today are the cause of anxiety throughout the country—a prime cause of the justifiable fear of some unemployment.

Then came the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), who inherited a very uneasy and difficult job and who suffered from a strange uncertainty of deed but a great clearness in explaining the errors of others that all young economists have. Just now we had an instance from the hon. Member for Gloucestershire, South (Mr. Crosland), to whom old businessmen of a good many years' experience have listened with deep respect. But the hon. Member for Leeds, South never knew in quite what direction he was going.

The right hon. Member for Leeds, South accused the Chancellor of being a conjurer—of being not only Maskelyne but also Devant—and then he proceeded to give the next turn in the programme. It was an uneasy turn. It was obvious that his party had not yet decided its line and he was put up—because he is a skilled debater—to report the many fallacies we have heard so many times before.

But as he went on with his speech he receded, on his tight-rope, over to the left, probably because the wire was being pulled to the left by someone whose hand we did not see. The right hon. Gentleman certainly did not deal with the two real questions we have to ask about this Budget. Will it restore confidence in sterling? In other words, are we to have sufficient time in' which to put our house in order without pressure from our creditors or others; and, second, will it help the export drive, which will be, and still remains, the chief means of salvation and the chief preventative of the outflow of gold and dollars which has brought us to such a dangerous position.

Throughout this debate and from what I have read in the newspapers, I must say that I have sensed the feeling which still prevails in this country—"It can never happen here." We have got to that point of inflation when not only can it happen here, but it is not much more than a 50–50 chance that we can stop it happening here.

What can happen was brought home to me very vividly in France. France is a country with an economic situation which is in many ways better than ours, because it produces much more of its own food. An old man recently said to me, "If I had put my money into Russian bonds in 1914 I should have lost the lot. If I had put my money into French Government scrip I should have lost 97½ per cent." That is the effect of the devalution from 22½ francs to about 1,000 to the £. It is quite clear how near we are to that form of inflation.

Hitherto this country has not known that sort of thing. We have only known a form of inflation which is so gradual that it has hardly been perceived, and we have been able, by various projects, to make it felt not as heavily as it might be. We have had some lucky breaks. We have had loans, Marshall Aid and other support from America; but now we are out in the wind of a competitive world, with a totally different sort of market for our exports. On this question of exports and exporters there seems to be a considerable degree of confusion as to who is the exporter. It is not usually the manufacturer; it is the merchant firm which has connections with countries all over the world, and if his situation is made impossible a great deal of its effort is completely negatived because the machine—the export part of our invisible export trade which is so valuable to this country—has been put out of gear.

That brings me to the question on which I intervened earlier today, at Question time—the effect of the latest steps by the Government of Australia on our export drive. Even without an incident of that sort, the export situation and the industrial situation in this country at the moment are already in some jeopardy. We have to meet the new competition from Japan and Germany. The terms of trade in the whole world have altered against us, and are continuing to alter. We have the re-armament programme, which must have a very considerable effect.

If, on top of that, we are to have the sort of unilateral action which has been taken by the Government of Australia, we must realise the seriousness of the position. We must realise that such an action will do a great deal of harm. [HON. MEMBERS: "Oh!"] It is in the tradition of this country that a back bench Member of the Government party is doing the right thing by his party and by the House if he ventures to make constructive criticism of this sort, and in my experience in this party such criticism is not resented in any way.

In 1914, Sir Edward Grey said that the lights were going out all over Europe. Today, we say that the tariff barrier is going up all over the world—and that after a period of six years in which those who have devoted themselves to having conferences all over the world, and who were to arrange everything by planning and by international amity, have had control. We can see to what extent they have succeeded. The first breath which hit Australia, and which brought the enormous reversal in the figures, which we have been given, resulted in action of which we must take notice.

Let me say this about Australia. This country is under a deep and permanent debt of gratitude to Australia. In two wars she has sent us not only what was probably a higher proportion of her men than anyone else, but also the very highest quality of man for the Services that we received. She has been an ungrudging helper to us since the war, and on more than one occasion she has willingly and generously helped us in the contracts which have been made with her when she could have sold her produce better elsewhere.

If I make any criticism of her now, it is in no spirit of bitterness, nor do I forget all that she has done. I believe that the action which she has taken, and into which I will go in a little detail, is just as much against her interests as it is against ours. The credit standing of any country is its most precious possession, and it has taken Australia some 20 to 25 years, or even a little more, to recover from a period when her credit standing was not so high.

Australia has achieved this recovery because she has a young and able people who have built themselves up from being an agricultural community into being manufacturers to a considerable extent, and also secondary producers. But what she has done now has in it the seeds of great evil and considerable disruption.

After all, the cancellation of existing contracts is a most serious thing. It is what in private life brings a man or a firm into that kind of disrepute from which it is difficult to recover. We discover people's real qualities in times of adversity, and nobody knows that better than we, because Australia came to our aid when we were in adversity. But on this occasion, this action of cancelling existing contracts, however great the necessity, is essentially wrong. No plea of necessity, no plea of how difficult things will be for her, no plea about the fear of increasing a tendency which she does not like, can stand against the principle of the sanctity of contracts.

We use the word "sanctity" very sparingly, but it has always been attached to contracts in this way. There has been considerable erring from the straight and narrow path in this connection, and we have always condemned it. We have been guilty of it to a slight extent ourselves on more than one occasion, but there is a distinct group on both sides of the Committee which believes that the failure to abide by the sanctity of contracts is a very bad and dangerous thing.

What is the effect? It is no good the Australian Government saying they will try to mitigate the horrors of this step, as my right hon. Friend the President of the Board of Trade tried to suggest today. It is no good their saying that they will let this fall on only that portion of the trade which is to be delivered later. In the textile industry, at any rate, if an order is received from a country like Australia, it is quite probable that by the time it has gone through the whole process which is necessary, from the grey cloth into the finished article, seven or eight months have elapsed.

It is not sufficient to say that the ban will affect only those goods for which an irrevocable letter of credit has been opened. Those are not the terms on which Australian business is done to any extent. Nearly always it is done by opening a letter of credit when the goods are ready. The shipper says, "The goods are ready; please open the credit." He has not asked for an irrevocable letter of credit seven or eight months earlier.

If that is the only protection to be offered to these people, it is not enough. If this wrong is to be put right in only a certain number of cases, it will not help us. When the Chancellor of the Exchequer announced that there were to be cuts in the imports into this country, he was most careful to say that when he cancelled the open licences he would give a licence for all existing contracts. That gives the measure of this Government's respect for the sanctity of contracts, and the previous Government showed it in a very practical way, too.

When they insisted on the cancellation of all rubber contracts made by certain Chinese firms in Malaya with China last year, they themselves under-wrote those contracts and bore the difference between the prices at which they were made and the ruling price, which was considerable. Both sides in this Committee have shown their respect for the sanctity of contracts.

I am certain that what the Australian Government have done is inadvertent and without malice aforethought, and certainly without the idea of harming Lancashire or Yorkshire or anybody else likely to be affected by this decision. When they see the strength of feeling which has been displayed here and in this country about their move, they will realise that there is still time for a great nation—which is what they are—to show the greatest quality of all by admitting that there has been an error of procedure and by putting it right.

I have not the slightest doubt that everybody would be quite ready to step forward and say to them, "You wish to delay and to hold up shipments by arrangement between the two parties. Very well, we will help you." But that is a very different thing from a unilateral decision. I am sure that if they do as I suggest, the matter can be smoothed out, but it must be done on the basis that both parties are willing to make these changes and are willing to co-operate to preserve a trade which is of great importance to both countries.

After all, exporters were exhorted to make these contracts. At the time when most of them were made, Australia was selling her wool for gold and dollars, and it was a very proper and right move for exporters in this country to meet the needs of Australia by exporting from here. It was the sort of international trade which we encourage. But if we are to have any sort of suspicion that this respect for sanctity of contracts is not to prevail, then international trade must and will shrink to a very great extent.

It has already shrunk considerably. There are already too many countries which have gone almost as far as unilateral cancellation by putting obstacles in the way of exporters when the contracts have been made, by not issuing the necessary licences and by forcing their central banks to refuse credits to frustrate the fulfilment of a contract at one price in the hope of getting a better price.

The lot of the exporter is very hard. He has received little sympathy and little encouragement in this or any other Budget, but when we realise that he is not necessarily the manufacturer but is the man with the connection overseas, who knows what is wanted in the country overseas, who has his office in that country and who has the personal connections in that country which are of such value, then I think it is not unreasonable to ask the Government to come to his rescue and, at the same time, to affirm a principle which they have already underlined as one they themselves hold.

If we do not attain the volume of exports anticipated by the Chancellor, then the whole of the superstructure of the distribution of benefits—and there may be some disagreement on both sides of the Committee as to whether these alleviations are properly distributed—will mean nothing at all.

I should like to turn now to certain other features of the Budget. First of all, I come to sterling balances. The hon. Gentleman the Member for Gloucestershire, South, made an interesting speech and brought out rather clearly one or two points about sterling balances. Is it really a sensible thing at the present moment to continue to send invisible exports to these countries in fulfilling sterling balances that arise from loans we received during the war? In our situation have we not got a very good right, not to alter them unilaterally, but to go to the various countries concerned and say, "We are in need of assistance ourselves. We want more time to put our house in order. We have had a greater burden thrown upon us through re-armament than we thought earlier. We wish delay in fulfilling these, to give ourselves a chance to get afloat?

Sir Richard Acland (Gravesend)

Would the hon. Gentleman press that particular point even to the extent of postponing or slowing down the financing of the Colombo Plan, which, I understand, is financed almost exclusively by the release of sterling balances?

Mr. Fletcher

I do not press the point. The point will be pressed by circumstances. If we do not get the improvement in our trade and in the volume of exports, and an improvement in the dollar business, neither the Colombo Plan nor the unrequited exports of areas having sterling balances will be fulfilled. It will be a question of necessity and not of our wish in the matter. We wish none of these things. They are forced upon us by circumstances.

The other question is: Could not some greater encouragement be provided for invisible exports? Here comes the question of E.P.T.—or E.P.L., for the Chancellor seems to think it might be called a levy instead of a tax. The word "levy," to our ears, has a rather nasty sound. We had a capital levy. It was supposed to be once for all. We have been told honestly by the Chancellor that this is a twice or three times for all levy—possibly more. I suggest that no great alleviation can be drawn from a change of name. The Excess Profits Levy will have certain very disastrous results.

I do not complain that it has been put on; we have got to pay and those who can afford it have to pay the most. But we should look very carefully at what the result of it will be. Let there be no rejoicing on that side of the Committee as they see, as the balance sheets come out, enormous contributions made by a great many firms under E.P.L. It will mean this, and this only, that the creation of new capital, on which the future prosperity and the future safety of the country depends, will be seriously cut.

We have talked in this Committee on both sides for six years about developing the undeveloped areas of the Empire and of the world. With what? Not with Government resources. They are totally insufficient.—What have they been developed with in the past?—The accumulated wealth arising from successful private enterprises. If this is cut down, as it undoubtedly will be by the enormous incidence not only of E.P.L. but of Profits Tax and of Income Tax, if there is no surplus over for the creation of wealth, then the lectures we have had from the other side on the duties of risk capital will come very hard..

The risk becomes so great as to be out of all proportion to the reward and I must point out on that particular point that, if we reach a certain level, at which the directors of a company are asked to take—as they frequently are—a permanent five-to-one bet on behalf of their shareholders, we retard colonial development.

We have had great developments in the past—the great copper, tin, rubber developments—out of accumulated resources. If they are no longer to be there, and if that takes place at a time when the value of money is steadily decreasing, then the necessity which we may be under to do it now will be paid for by a very sterile era which will follow in a few years time. That is quite inescapable. The incidence of E.P.L. may be particularly hard for colonial development at a time of rehabilitation after the war.

We have talked in these last five or six years about a growing partnership between labour and management. That is very desirable, but what we have got to face, with determination but without relish, is the fact that there will be great disincentive, that it will be paid for very dearly in the future.

Another question is the increase of the Bank rate to 4 per cent. Now, that again is a most disagreeable, unpalatable fact. When I first heard it I felt, "Well, is this really necessary?" Then my mind went back to the picture drawn by the Chancellor at the beginning of his speech, and I realised the desperate situation which called for an advance of this sort.

It made my right hon. Friend vulnerable politically, and, therefore, it was all the more courageous of my right hon. Friend to do it. He was called upon to do it. It was satisfactory to hear that this was not a policy dictated by the Government, but that this was a result, as it should be, of the Bank of England consulting those concerned at every phase of industry and of finance, and then taking into account the needs and necessities of the biggest user and biggest creator of money in the country, which is the Government.

We must get away from the pattern of money rates being used solely as political means, or their being dictated solely by the Treasury. It is good to think—as, I gather, is the case from the Chancellor's speech—that we have, at any rate, regained that amount of independence in the area decried by hon. and right hon. Gentlemen opposite, the City.

Let me, in conclusion, say this. Everybody will find, as one always does, reasons for criticising the Budget; but when critics become so voluble, and so glib, and so loud, they should pause for a moment to ask themselves this question: Will this Budget fulfil—and I come back to where I started—its main functions? Will it permit us to get through the extremely difficult period ahead without wrecking ourselves in the process?

Mr. W. Nally (Bilston)

No.

Mr. Fletcher

The hon. Gentleman says, "No," by which, I presume, he is an advocate of even more stringent measures, as that is the only possible alternative.

To me the outstanding danger is that the Budget may be a little bit too optimistic in judging what can be achieved by exports. It is not, in my view, a problem of productivity. This country can and will produce. The question is whether we shall be able to sell, and whether, if every country adopts this tariff war policy, this self-sufficiency line, we in this country, with our exceptionally vulnerable position, will be able to carry through our intentions.

However, the confidence which has been generated in other countries in the two days that have elapsed since the Chancellor announced his Budget must be a great source of strength and consolation to him and his colleagues and to every one of us.

8.51 p.m.

Mr. Frank Tomney (Hammersmith, North)

The hon. Member for Bury and Radcliffe (Mr. W. Fletcher) has talked this evening in somewhat of a different vein from that which he usually adopts, and I think that some of the things he says find acceptance on this side of the Committee. I share his apprehension with regard to productivity and also with regard to the Bank rate.

During the last few days, the various aspects of the Budget debate have followed the conventional pattern with regard to its effect upon industry, exports and commerce. The Budget is once more to be regarded as an instrument by which we calculate and formulate the economic policy of the country for the ensuing 12 months. The practical thing about it is that if it is a measure of what we may expect from further Budgets while the Tory Government are in power then, indeed, both industry and commerce and the workers in this country have something to look out for.

In the last analysis, this Budget and previous Budgets depend upon the productivity capacity of the nation to procure the wealth and services by which the nation must survive in free competition with other nations of the world. As a result of the Budgets of the Labour Government, we were beginning to see the development of economic policies which would put us back as a producer nation in the markets of the world. Now the burden of re-armament has been placed upon us—which I for one accept as a necessity—and it not only upsets the plans of previous Governments but will also fall heavily on the Government now in office. We cannot deny that, and it would be wrong for us to do so.

The sellers' market, which is constantly diminishing, and which we held chiefly in regard to quality and price, will be still more difficult to maintain in the coming years. The restrictions on credit and capital investment, due to the rise in the Bank rate, have put upon us an additional risk which we should be wise to look at, and prepare future plans for dealing with it. Make no mistake about it, the position with which we are now faced as an exporting nation as the result of restrictions on credit and, indeed, the suspensions of import licences, is something which will affect us considerably.

The position of the small manufacturer will be extremely difficult, because he cannot hope to compete with the large industrial and financial houses in obtaining credit, for the banks will support only those who are the best risks, and they are generally those people with capital in the form of large buildings and plants.

The Budget has been called a rich man's Budget. It is certainly not a poor man's Budget or a middle class Budget, for both those sections of the community have been hard hit. We should do an injustice to ourselves if we did not look most urgently at the effect of the long-term programme for the suspension of the import licences for machinery.

The Labour Government were most insistent about the provision of capital for investment. The economy and material life of Great Britain was founded chiefly on the steel industry, and in 1946 the Labour Government ploughed back £16.6 million into steel development, in 1947 £23.7 million, in 1948 £33.2 million, in 1949 £45 million and in 1950 £50 million. All that was an encouragement to industry to expand and to capture the world market by which we live, and the export figures prove that industry responded in a remarkable manner. Will all that go? If it does, we shall be in a very difficult position.

The position is the same in the case of the value of machinery imported on duty-free licences. In 1945–46 the figure was £2.79 million, in 1946–47 £5.4 million, in 1947–48 £12.9 million, in 1948–49 £22.2 million, in 1949–50 £50 million and in 1950–51 there was a fall to £16.1 million.

It is only on the basis of imported machinery under the licences which are available, and the development of industry by new machinery and methods, that we can hope to survive. We cannot hope to compete with the United States, where the capital investment per man is five times greater than in Great Britain.

Before long we shall be faced with German competition in every field of industry. We are today faced with Japanese competition in textiles. That has grown at such a rate that the Japanese have attained the output figures which Lancashire attained in 1947. Between 1920 and 1938, the Lancashire industry was suffering from under-capital development, and that was the time when we should have been modernising and re-capitalising. No matter what we do now about capital development in the textile industry, we can never catch the Japs, because they can always live cheaper than we can.

That is a very sorry position for one of the main industries in Lancashire and Yorkshire. The majority of the workers in the industry are trained in that craft and cannot quickly be transferred to other industries, including armaments. This state of affairs will cause us great concern in the next few years.

Quite frankly, unless we have expansion and capital development in Lancashire with new machinery and new methods, on the basis of competing not solely in those goods at which Lancashire is good, but in the general mass production lines which are now being made in Pakistan, Japan, and in some cases in the United States, where weavers in some cases are looking after 20 to 40 looms, we shall not be able to hold our own in the world. That is what we have got to do, and this Budget, in my opinion, does not help us.

I want to say a word about coal. As is well known by my hon. Friends who have been associated with the coalfields, the mines in this country were neglected during the inter-war years. There was very little capital development during the years when it was needed. If we could lay our hands on 30 to 40 million tons of coal today, most of our problems would be settled. Are we to understand that the import under free licence of machinery for the coal mines is to be suspended in accordance with the policy announced by the Chancellor yesterday? If that is so it will be a grievous thing.

This industry needs new machinery as quickly as it can get it. It may well be that men will be out of work in certain parts of the country and they may seek other avenues of employment, as men will do rather than be unemployed. It is quite possible that they may desire to assist in the coal mines. What will be the position if men apply for work and cannot be used because of lack of machinery, such as coal-cutting machinery? I know that the Chancellor said that the needs of industry would be considered carefully, and I hope the position of the coal-mining industry will be because it is an important question for it.

Those things which impinge upon the production of the country are more important than any other aspect of this Budget, because, willy nilly, this Government or a future Government has to use, conserve, direct, and extend the productive capacity of the nation. A nation of over 50 million people has to export more and more to live. During the last six years we had a lead in this matter to which the nation responded. When the urgent appeal of armaments dies down, that will be the testing time, and if the machines are not available we shall be in a very serious position indeed.

In Germany this year the steel capacity will be greater than the steel capacity of Great Britain. Germany is the natural leader of Europe in ingenuity, skill and engineering ability. It will quickly regain its former position in the world. We have to compete with all these countries when our only primary raw material is coal. Therefore, no matter what decisions have been or are to be made about the import of machinery under free licence, the coal-cutting machinery and the coal-mining machinery must not be stopped. It is something we cannot contemplate and something which every Member of the Committee should be prepared to advocate to the Government.

I am trying in my speech to be a little different from some of the speakers whom we have heard. There are one or two other things mentioned in the Budget with which I should like to deal. For instance, I am sorry to see the cutting back by £3 million of the money for the Development Areas. These areas were a blot and a stain upon the social conscience of this nation in the years before the war.

All Members of the House should be concerned to see that unemployment does not return. No matter what we think collectively, it is not nice individually to see our fellow countrymen suffer, and there is no worse degradation than the degradation of poverty which unemployment brings. I know from personal experience. I was on the means test in Lancashire with 4s. a week, the price of a packet of cigarettes today. Because of wrong economic policies I was thrown on the scrap heap. I know how it feels. It is soul destroying.—It makes scars on a man's soul for the rest of his life.

The proposed £7 million reduction in the Ministry of Supply Vote for giving assistance to industry should not be allowed. Such things are the very essence of our economic life. I know that hon. Members cheered the Budget when the Chancellor sat down because he seemed to have fulfilled some of their election promises, but on closer examination we know that it is not so.

During the last six years we in the trade union movement have done a good job in guiding and restraining workers in regard to wage claims, in explaining the position of the Government and of the country, and keeping peace in industry. It will be awfully difficult to keep peace in industry in the future if we are to be faced with widespread unemployment. I ask the Chancellor and the Minister who is to reply to note that in the last analysis the electorate call the tune. The Budget's effect can be examined now, but its after effects will be felt in six months' time and it is then that people will begin to understand it.

I ask the right hon. Gentleman to look, in the interim period, at some of the things which I have said and to realise that it may be false economy to do some of what is projected. The position is exceedingly serious and I can go all the way with the opinions which some of my hon. Friends hold. We must go forward, despite the difficulties, but if we cut the things which I have mentioned we shall find ourselves back in the backwoods of despair that this country knew in the years gone by. I ask for full consideration of the points which I have raised.

9.8 p.m.

Sir Edward Boyle (Birmingham, Handsworth)

We have listened to a very sincere and well-informed speech from the hon. Member for Hammersmith, North (Mr. Tomney) and I am sure that every Member of the Committee heard it with close attention. The simplest answer to the hon. Gentleman's main point is this. He says that if we cut our capital investment down and do not import sufficient machinery we shall be in a very serious situation; but we are already in a very serious situation, and that is the justification for certain measures which the Chancellor has taken.

I am sorry that the hon. Member for Gloucestershire, South (Mr. Crosland) is not in his place. He made an extremely interesting speech, to which I should like to reply in full, but perhaps as he is not here I may refer to just one point he made which is of great importance. He said that we must be prepared, when the rearmament programme begins to taper off, to be faced with a general world depression. I think that is true. But the experience of the last few years shows how difficult it is to foresee the economic position even a year from now.

I have long felt the truth of the view expressed by the late Professor Sir Hubert Henderson in his Rede lecture—I am sure that everybody, on either side of the Committee, who knew of his work will regret his recent death. He said that economic planning is very difficult because it involves looking beyond the immediate present. That is very true. It really is impossible to forecast what will be the economic scene a year from tonight.

For the second year running the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), has done me the courtesy of listening to me in a Budget debate. Before I get on to my main point I must reply to one of the things that he said yesterday and which is of very great importance. He asked: Is it perhaps that hon. and right hon. Gentlemen on this side hope somehow or other to deal with the problem of the wage-price spiral by curtailing demand and producing enough unemployment to fortify employers in rejecting wage Increases and weaken the trade unions in claiming them? "—[OFFICIAL REPORT, 12th March, 1952; Vol. 497, c. 1414–5.] My answer to that question is exactly the same as that which I gave a year ago. That is absolutely not the intention of hon. and right hon. Members on this side of the Committee. Indeed, in normal times I am sure it would be the hope of all my hon. and right hon. Friends that an increase in the value of the total volume of national production should always be accompanied by some increase not only in money wages but in real wages as well.

It seems to me that when one is considering a Budget it must be seen against the background of the general economic situation. I wish, so far as I can, to avoid repeating what other speakers have said, but there are obviously three important factors which we have to take into account today. First and foremost there is the grave position of sterling. As the Chancellor said in his Budget speech, our gold and dollar reserves are the foundation on which is built the whole structure of trade between the sterling area and the rest of the world."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1274.] I think we can go a little further than that. Until sterling is strong once more, Great Britain can never play its full part in helping to secure a stable world peace. My hon. Friend the Member for Carlton (Mr. Pickthorn) once said in this House that when anyone utters a sentence beginning with the words, "History teaches us," one can be sure that he will say something very silly. Notwithstanding that remark I do think history teaches that no country with a weak currency has ever played a worthy role in international affairs.

Secondly, our economy today is overloaded so far as capital goods and the investment programme are concerned. We certainly have not all the resources we require for investment at home, for the export of capital goods and for our defence programme. I shall have something to say in a moment on the question of increasing the Bank rate as a means of checking capital investment at home. It will certainly be a hard task for our exporters to increase the total volume of our exports next year by £50 million. I am glad that the Chancellor has recognised this and that my hon. Friend the Member for Bury and Radcliffe (Mr. W. Fletcher) emphasised it just now.

Thirdly, we have to consider the serious recession in the textile industry. Obviously, the sellers' market in consumer goods was bound to come to an end some time, and on consulting the March number of the "Bulletin for Industry," which is not exactly a cheering document, I find that in the third quarter of last year the personal consumption of household goods and clothing was between 15 and 20 per cent. less than a year ago.

In this connection we on this side of the Committee are entitled to draw attention to the disservice rendered to the textile trade by the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) shortly before the Election. There is no more certain way of inducing a recession in any industry than by persuading a large number of people to postpone their purchases. I cannot help thinking that the right hon. Gentleman failed to draw a distinction between, for instance, carpets, where the raw material is worked up into a finished product in a short time, and other textile goods where it takes much longer before the raw material has been fully worked up.

That is the situation as I see it, and it is against this situation we have to consider the proposals of the Chancellor. In the first place, I believe my right hon. Friend is to be warmly congratulated on having at any rate pursued a clear cut budgetary policy. I do not think it could be said of this Budget, as was said of the Budget of Sir Stafford Cripps two years ago, that it was a thing of shreds and patches.

The Chancellor has made two major decisions. First, he has decided that home investment and the claims of Government expenditure on real resources must be cut in order to make room for increased exports and for the defence programme. He has decided that this is a year in which we as a nation must live on our own capital to a considerable extent, and it is in accordance with this same policy that the reduction in imports is to be partially offset by a reduction in our stocks.

I believe that this decision was the right one in view of the overloading of our economy. The Chancellor himself pointed out that it was a short-term decision when he said: In the long run our factories must have the equipment they need for expansion and the improvement of efficiency."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1283.] I believe that in the long run the whole question of taxation as it affects industry will have to be most carefully considered. In the short run, however, I do not believe that the Chancellor can fairly be criticised for his policy.

I turn now to the thorny question of the Bank rate. As I see it, there are two main advantages in having put up the Bank rate. First, it will certainly convince the outside world that we intend to defend sterling and to stem inflation due to excess of investment over savings. The right hon. Member for Leeds, South, said in his speech that the higher Bank rate would not deter those who still thought that the £ would be devalued. Surely the answer to that is that the very decision to put up the Bank rate to 4 per cent. will help to convince a very large number of people that we do not intend to devalue the £.

Second, as my right hon. Friend the Minister of State for Economic Affairs said last night, the putting up of the Bank rate should induce a more cautious approach to the financing of capital investment—including unnecessarily large stocks—on the part of everybody."—[OFFICIAL REPORT, 12th March, 1952; Vol. 497, c. 1500.] That, of course, is not a new argument. I rather think that it is the argument which has been especially associated in the past with Professor Hawtrey. I was reading the other day Mr. Manning-Dacey's recent book on the principles of banking, and I thought I recognised something of Professor Hawtrey's argument in what the Minister of State for Economic Affairs said last night.

It is the old argument that interest changes constitute an important element in the cost of carrying stocks of goods against borrowed money, and that a rise in short-term rates will mean a falling off in replacement orders and, thus, a slowing down of economic activity. I thought it was common ground among most schools of thought today and among most economists that variations in working capital were more important than some earlier economists had supposed.

I see that the hon. Member for Gloucestershire, South, is now in his place. I listened to what he said about monetary controls working in such a haphazard way. I should have thought that there were several answers to this. For one thing, monetary controls bring home to the individual the need to economise more effectively than any other sort of controls. For another thing, there is always the difficulty, as Professor Lionel Robbins suggested in his Stamp lecture, that physical controls are apt to be behind the gun. They seldom work as promptly as monetary controls. There is also the point that physical controls will never work effectively unless monetary policy and financial policy are both working in the same direction.

For all those reasons, I should have thought that to say we could get on today without monetary controls, was to make a rather sweeping statement, although I certainly listened with great care to what the hon. Member had to say.

The second decision of the Chancellor was that civil consumption this year should remain stationary. That decision has surprised a number of people, but I quite understand that in view of the recent recession in the consumer goods industries the Chancellor does not want to depress home demand any further. Even so, in view of the very heavy cut in imports that has been made, it will be surprising if there is not some tendency for goods which ought, perhaps, to have gone for export to be sucked back into the home market.

The full effect of the import cuts has not yet been felt, and I am sure that we shall only be able to gain the full benefit of these cuts, so far as our balance of payments is concerned, if every encouragement is given during the coming year to personal savings. I am not sure that we in the Committee always realise or appreciate sufficiently the enormous amount of work that is being done by volunteers in the National Savings Movement.

Mr. Edward Davies

In that respect I agree with the hon. Member, but would he suggest that there should be some encouragement given to the small saver? Would he favour the view that the interest rate might be scaled up now, in view of the new value of money?

Sir E. Boyle

I certainly agree with the hon. Member and it was a point I had thought of making myself, but, as I thought there would be a lot of hon. Members who would wish to take part in the debate, I felt I should cut down my speech.

Finally, I come to the controversial subject of food subsidies. I do not want to repeat too many of the arguments which already have been canvassed. I think that as a result of this debate we already know the lines on which controversy over this subject will be carried on, both here and in the country. But I do think that hon. Members opposite, when arguing this question in their constituencies, really must say what will be the effect of this Budget, considered as a whole.

I quite see the force of the point made by the right hon. Gentleman that it would have been possible to increase family allowances out of the petrol tax, and that the switch between food subsidies and Income Tax reliefs can be considered financially as something separate. For all that, people in the country will want to know how they will be affected by the Budget as a whole; and it is only fair to take into account the effect of the increased family allowances, particularly in view of the fact that in two consecutive party manifestos we have said—and the same point was made by my right hon. Friend the Member for Warwick and Leamington (Mr. Eden) when he propounded our policy in this House—that if there were any reduction in the food subsidies, some compensation would be made in increased family allowances at the same time.

Whatever the noble Lord, Lord Woolton, may have said on the wireless, I have a clear conscience on this matter. Indeed, one of the principal weapons of my opponents at two consecutive Elections was an article I contributed to a university periodical in which I stated something about cutting the food subsidies. The hon. Member for Dunbartonshire, East (Mr. Bence), knows that, and no doubt the hon. Member for Perry Barr (Mr. Poole) would also remember it if he were here, as he read it aloud to an audience of three men and one Conservative worker on a very wet Sunday afternoon.

We heard from the hon. Member for Gloucestershire, South, on the subject of fair shares in connection with the food subsidies—

Mr. Frank McLeavy (Bradford, East)

Before the hon. Member passes from the food subsidies, may I ask whether he now repudiates the definite assurance given by Lord Woolton, on behalf of the Conservative Party, that food subsidies would not be reduced?

Sir E. Boyle

I am not intending to pass from the food subsidies—my last point is also concerned with them—but I do not think I, as a humble back bencher who has only been a Member of Parliament for the last 15 months really am qualified officially to repudiate Lord Woolton.

My answer to the point about fair shares is that fair shares and equal shares are not the same thing. The whole purpose of this part of the Budget, surely, is to enable as many productive workers of this country as possible to benefit from the results of their extra efforts. It had become clear by this year that it was impossible to make significant reductions in direct taxation unless some reduction was made in food subsidies as well. One of the most important figures in the Chancellor's speech was the estimate he gave for increased production. This, indeed, was one of the estimates which "The Times" fairly described as "hopeful."

But we badly want an increase in the volume of production, at least as great as the increase last year. We must make the fullest use of manpower, materials and machinery at our disposal; and for those reasons it is essential, to make changes in the incidence of Income Tax, so as to encourage as many people as possible to put in extra hours, and to make them feel that they were not getting into a higher tax bracket through doing overtime work.

There is no question that in the past, the way in which Income Tax scales have worked has discouraged many people from undertaking extra work. Also, the Minister of State for Economic Affairs made a very good point last night when he said that higher prices increased the weight of taxation without the rates actually being raised, because if incomes rise in proportion to higher costs they automatically come into a higher tax bracket.

To conclude, this is the first time for many years that there really has been a significant reduction in direct taxation. I hope it is a sign that my right hon. Friends are not prepared indefinitely to put up with a system whereby 40 per cent. of the national income is disposed of by the Government. I hope that this Budget is only the beginning of a process of letting fresh air into the economy—a process that can be hastened when the back of the re-armament programme has at last been broken.

9.25 p.m.

Mr. Norman Dodds (Dartford)

Because I have given an undertaking that I will sit down by 25 minutes to 10, I will make my comments as briefly as possible, and without reference to the speech to which we have just listened.

Before making the point for which I have risen, I should make a passing reference to the statement made by the Chancellor of the Exchequer in justification of reducing the food subsidies. The right hon. Gentleman's main point was that the food subsidies were going to all, whether the people needed them or not, and, therefore, the Government were going to give them to those who had the greatest need. It was a matter of some amazement to me that he should have said that. Is it not a fact that millionaires or rich people with children can benefit from the family allowances and the subsidies, and is it not also a fact that there are some very rich old age pensioners?

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

rose—

Mr. Dodds

I cannot give way; I have only 10 minutes, and I have risen to put one viewpoint in that 10 minutes. I speak on behalf of the Co-operative movement, and on behalf of millions of people in this country who have a point of view on this new Utility scheme. Tens of millions of people will be reading in the evening papers tonight and the morning papers tomorrow about a new Utility scheme, and they will probably read the words of the President of the Board of Trade, who said that it is a better one for the lower income groups.

That is a fantastic claim to make. The Co-operative movement appreciates that the old Utility scheme was full of holes, and that one could pull it to pieces, but there is not the slightest reason why we should rob the lower income groups of some of the blessings still to be found in it.

We in the Co-operative movement were attracted by the idea of a new scheme. We must find out what its effect will be, however. In reading the Douglas Report, I found that it made reference to the disparity between some of the percentages on goods in the Utility range. For instance, furnishing fabrics, 50 per cent.; cotton and linen, 84 per cent.; pillow cases, 77 per cent.; and sheets, 83 per cent. If the new scheme is likely to be accepted, it will mean that, in the case of pillow cases and sheets, there will be a terrific amount to be transferred to liability to Purchase Tax which previously was in the Utility range and free of taxation.

My hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes), who speaks with a great deal of knowledge on this matter, went very far in some of the statements he made, but he did have a little caution when he said that we would look round and find out what the new scheme meant. I speak for the Co-operative movement, and I say that the managers met last night and again this morning to see what the actual effect will be, and the result of their investigations makes it possible to indicate some of the weaknesses in the scheme.

My hon. Friend the Member for Ashton-under-Lyne said that the D level might be too low. The experts are absolutely certain that it is much too low. For instance, in the case of nightdresses—and it does not take an economist to know this—we see there is the figure of 15s. per article. This is much too low. There is no distinction between wool, cotton or rayon garments, despite the considerable variation in cost of production. Of course, it might be that my hon. Friend the Member for Peckham (Mrs. Corbet)—who has one of those girlish figures—might be able to get one free of tax, whereas my hon. Friend the Member for Liverpool, Exchange (Mrs. Braddock) would find it was not possible to do that. Therefore, the new scheme will tax one person more than another in consequence of the physical dimensions of the citizen.

In the case of men's shirts, the proposal is that any above the price of 17s. 11d. will be taxed. As as result people in the lower income groups will now have to pay Purchase Tax on shirts for the first time. There is no doubt that the burden is being transferred from the higher income groups to the lower income groups. Women's shoes up to the price of 37s. are to pay no Purchase Tax. The figure should be no lower than 45s. We in the Co-operative movement have no doubt whatever that as time goes on people will realise that once again they have been robbed of the benefits of the old Utility scheme. It is completely fantastic for the President of the Board of Trade to claim that once again the present Government are looking after the lower income groups.

Under the old scheme a non-Utility fur coat costing £100 was previously liable to 100 per cent. Purchase Tax, making the total price £200. Under the D scheme, the first £6 10s. is exempt from tax, leaving £93 10s. taxable at 100 per cent., thus making a final price of £193 10s. But a Utility fur coat costing £20 was liable to Purchase Tax at the rate of 33 per cent. making the price £26 6s. 8d. Under the D scheme the same exemption from tax—£6 10s.—will apply to the £20 coat as to the £100 coat. The final price of the £20 coat will thus be £33 10s—It is typical of the whole scheme that the more expensive coat will be £6 10s. cheaper under the new scheme than under the old scheme, whereas the £20 coat will be £7 3s. 4d. dearer.

When we come to the other stages of the scheme, we shall have more to say. I will conclude by saying that the business men who have looked at the D scheme believe it to be an example of the bureaucratic mind which has an ambition for tidiness without regard to its sociological effects.

As to the fixing of the D limit, we should like to know how and when that limit is moved up and down. Since it is now under the control of the Treasury we anticipate that it will require legislation but if it is done by an Order it may be abused. It is our view, from what we have already seen of these Budget provisions, that this is once again a case of re-distributing wealth whereby the rich become richer and the poor poorer.

9.35 p.m.

Mr. Ian Horobin (Oldham, East)

I hope that the hon. Member for Dartford (Mr. Dodds) will not think me discourteous if I do not follow him, especially as I am an old Co-operator, but perhaps I, too, can see him outside later. I want to bring the debate back, at the end of the second day of discussion of what is admitted to be one of the most important Budgets of recent times, to the main question on which it has to be judged, namely, whether it effectively deals with the inflation which, if not checked, will destroy our savings, our businesses and our employment.

I will try to tidy up the figures and relate to each of them some of the points made in this debate, because I think I shall have very little difficulty in persuading the Committee how "close run" are the Chancellor's estimates and how little margin there is for error. And if I can show the Committee that that is true it is quite useless for hon. Members opposite, or even for hon. Members on this side of the Committee to claim that some of the benefits are not big enough or that some of the cuts are too severe unless they are prepared to show what they will give up.

We start with the external account. The Chancellor took as his figure of what ought to be the rate of improvement in comparison with the whole of last year as £600 million. The right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), though he knew better, pretended to be confused about how that was related to the £800 million which was of course the annual rate at the end of last year. But I repeat that the £600 million is the figure at which we have to put the improvement compared with the whole of last year.

The Chancellor allowed £200 million odd from an increase in invisibles—which none of us is in a position to check—and from an improvement in the terms of trade and a number of hon. Members have pointed out that to allow anything substantial for an improvement in the terms of trade is, to say the least of it, risky. Although we have a little in hand still compared with last year's average, the terms of trade are now moving against us.

The Chancellor allowed £300 million-odd for cuts in imports. Nobody liked that. All agree that if we could have done so we should have made a smaller cut. For the balance we want more export trade and the Chancellor allowed £50 million extra, making up the received total of £600 million improvement. Everybody has pointed out the position in the textile industry and the position in Australia and that to allow even this comparatively small figure of £50 million extra for exports is a doubtful proposition. It has also been pointed out that most of those increased exports can only be in capital goods.

The result in that part of England which I represent is that manufacturers of engineering products in one half of the constituency are busy putting industrialists in the other half out of business. To sum up, so far we have only made up the required figure of £600 million by a series of steps none of which we like, and are by no means assured.

We now come to the home account. Taking the above figure of £600 million with which the Chancellor stated he felt we should only have to find, £400 million as extra claims on our current home resources. He only allowed for £150 million less imports available for consumption because, as he pointed out, he had run down stocks. Nobody likes to run down these stocks. They ought not to be run down and the Chancellor has at least nothing to spare there. We have also to provide the £50 million for the extra exports, making £200 million so far.

The balance of the £400 million, namely £200 million, is all he has allowed for an increase in armaments. Everybody admits they are increasing too slowly—at least everybody on the Front Bench opposite and as many of their followers as they can persuade to agree with them and everybody on this side of the Committee. Nothing is allowed for supplementaries. It is, therefore, quite useless for hon. Members opposite to say that the Chancellor has understated his problem. How does he find this £400 million? He has allowed for a balance of £250 million from extra production, as last year. Everybody agrees that that is doubtful, and there is, moreover, a possibility of a mistake here, because in so far as an increase in production does occur and in so far as it occurs by extra overtime, the production generates its own extra income and does not assist in cutting away inflation. He therefore has nothing to spare.

That allows him £250 million out of the £400 million. He allows £50 million less for civil Government expenditure and here, I confess, he has perhaps for the first time been cautious. The money value has been cut and prices have gone up; and I should think he has a little in hand. Whether or not he has, everybody on this side of the Committee agrees that the present expenditure is too high and if the cuts could have been bigger they should have been.

Mr. Douglas Houghton (Sowerby)

May I ask the hon. Gentleman if he would care to make any suggestion?

Mr. Horobin

I was trying to sum up. I am defending the suggestions of the Chancellor of the Exchequer and explaining to the Committee how they must hold the field until the party opposite is prepared to show what they will give up. My argument is directed to show that the Chancellor has done his best at every point, even to the point of taking risks in under-estimating rather than over-estimating what is required of the country.

So far, we have found £300 million out of the £400 million which is his figure of required extra resources. He finds the remaining £100 million from investment cuts. Everybody dislikes these cuts. We realise we should be re-equipping and most people also realise that industry has been living on its capital in recent years and has not been adding to its capital to any appreciable extent. It is quite clear that the balance sheet as presented by the Chancellor does not err on the side of being over-severe. He has nothing to play with on either side of the account.

We shall have the opportunity of discussing the Excess Profits levy later at great length, but it really is ridiculous for hon. Members opposite to pretend that this is a Blass Budget, if they realise that on all distributed profits over a very bad standard year the Chancellor proposes to take 95 per cent.

Lancashire is one of the parts of the country which is very heavily hit by this Excess Profits levy. It would hardly be possible to find three years which will damage Lancashire more than this. It is only on this basis that the Chancellor has been able to say that the resources available to home consumption this year will remain roughly the same as they were last year. If there are to be no further rises in prices it means that we have to keep incomes about the same as last year.

Once again I think I shall have little difficulty in persuading the Committee that the Chancellor has erred, if at all, on the kind side. He pointed out that to buy the same amount of goods would require about £400 million more this year than last. We can add to that £400 million very nearly another £100 million in effective deflation from insurance contributions and food price rises which would have occurred above the old ceiling of subsidies. That means that he has £500 million to play with. But last year personal incomes went up by £900 million and they were going up faster at the end of the year than at the beginning. That suggests perhaps £400 million of extra purchasing power to buy the same amount of goods.

I think it extremely improbable, on the figures we have so far, even if we agree—with some diffidence, as I have shown—that real resources will remain the same next year, that nevertheless there will not be more incomes chasing those same real resources and that we shall not, therefore, still have some inflation, which is what we are trying to stop.

If there is any error, it is not on the severe side and it is, therefore, to show oneself completely out of touch with the realities for hon. Members opposite to start saying that 10s. for war pensioners is not enough and things of that sort. [HON. MEMBERS: "Who said so?"] Well, it was argued by at least two hon. Members opposite.

Mr. Crosland

rose—

Mr. Horobin

I cannot give way. I have not referred to any hon. Member by name, and I must get on. The next point which I think we have to bear in mind is that all these figures are extremely doubtful, and if we err at all we must err on the right side. The Minister of State for Economic Affairs pointed out the grave errors in the estimates which the late Chancellor of the Exchequer made last year, and I will take the point further—and I make no complaint about the late Chancellor of the Exchequer, for I am quite certain that his figures were made in good faith and on the best available advice.

The point is, not that I complain about these errors but that the whole system of trying to add up at the beginning of a year in the Budget and leaving everything else to rip is completely impracticable. [Interruption.] I will tell hon. Members. Apparently they did not listen to the Chancellor, and so I will tell them. The Chancellor of the Exchequer told them quite clearly.

The figures, then, are very doubtful, and in proof I will add a third mistake made by the late Chancellor of the Exchequer. He estimated last year that private and corporate savings would go up by £170 million, and in fact they went up by less than £50 million. I am not complaining of his mistake at all; it only shows how impossible it is, with the best will in the world, to make elaborate calculations of this kind except with a huge margin of error. If we are to err this time, therefore, we must err on the side of making sure that we have at least done enough.

The next point we must bear in mind is that some of these savings have been achieved by capital cuts which cannot be repeated. Moreover, re-armament expenditure must increase next year. Beyond that, there is the question of what foreigners will think we have done, for it is almost more important that foreigners and owners of large balances in London should feel we have done enough than that, in fact, we should have done enough.

I want to draw the attention of the Committee for a moment to some very significant figures arising out of E.P.U. Last winter, and in the early part of last summer, we were sitting very pretty and piling up very big settlement balances, but it has not been sufficiently appreciated—and I have the figures here, although I will not weary the Committee with them—that during all the months in which we were piling up surpluses with E.P.U. the balance of trade was against us. We gained our surplus because more and more people were leaving money in London because they thought London was a good place in which to have it.

On the contrary, in the last few months, as far as any figures are available, it appears that the trade and invisibles of the sterling area with E.P.U. roughly balance, but we have been about 900 million dollars in the red for exactly the opposite reason—everybody who could get out of London was getting out of London. Thus, the figures will show to anybody who is prepared to consider them that it is of vital importance in this problem that we should satisfy the world at large that we have done enough, and I have tried to point out to the Committee that if there is any doubt in the matter at all, it is that we may not have done enough.

I would sum up the position by saying that this Budget stands or falls by the rise in the Bank rate. Personally, I believe the Chancellor of the Exchequer has done probably just about enough to make the situation manageable, provided the Bank rate is allowed to fulfil its old functions. I will not argue at great length the value of the Bank rate, for I know hon. Members opposite will not listen, but I would remind hon. Members on this side of the Committee of two points about the Bank rate and about the related increase in investment rates of interest.

First, it is fundamentally wrong that scarce things should be made artificially cheap. That applies to food; it applies to steel; it applies to money. The trouble in the world today is that there is not enough capital, and as long as money is made artificially cheap we inflate the demands on it, and cause many of the troubles from which we have been suffering. It is fundamentally wrong that at a time like this the price of capital, the price of borrowed savings, should be low.

The other reason is of a different kind. Whether we like it or not, the world at large, judging by history, knows that we can kill any inflation if we are prepared to use the Bank rate weapon. It is perfectly true—and there was a very sincere and interesting speech about this from the opposite side of the Committee—that there is a danger in that. It is recognised by all sensible people. But it is no use worrying about what will happen if one dies of thirst if one's immediate trouble is to get over dropsy. So it is of no use for people to worry now about possible heavy unemployment in several years' time, when there will certainly be unemployment this year if we do not solve this inflation problem now. The long and short of the matter is that on a fair assessment of the figures, the Chancellor has, I believe, very skilfully made it possible to use the Bank rate and its associated measures to kill the inflation before it kills us. The thanks of the country are due to him for that.

I would, in the remaining few moments I wish to trouble the Committee, draw the attention of the Committee and of the Chancellor to something I know is well known to him but which cannot be too often borne in mind. The whole of the financial policy of the Socialist Government in the last six years foundered on the mismanagement of a central banking problem. It is an irony that the magnificent efforts of labour and of management in the last few years should have been thrown away. They were magnificent. By and large, and certainly up to a year ago, the responsible trade unionists and responsible wage earners, labour and management, behaved extraordinarily well.

There can be few, I think, if any countries in the world where business was faced with a Socialist Government which it hated and distrusted that behaved so well in backing up the lawful government as did the people of this country on both sides of industry in the last few years. It is a bad service for anybody to suggest—certainly I have never done so—that either side of industry did not do its best by and large in the last few years. The irony of the matter is that the whole of that effort on both sides of industry has been thrown away as a result of the gross mismanagement of our banking problem, primarily by the worst Chancellor of the Exchequer in history. Hon and right hon. Gentlemen on both sides of the Committee will, of course, at once recognise whom I mean—the right hon. Member for Bishop Auckland (Mr. Dalton).

Sterling balances constitute too big a problem to discuss at this late hour in detail. I hope to have another opportunity to remind the Committee of what has happened. However, the broad situation can be put in a very few words. I have the figures here, but I do not propose to give them now, for the time is too short. Taking the non-dollar and the non-sterling world, we allowed them to run down inflated balances by nearly £300 million by transferring their claims on us to the Commonwealth in return for goods they imported. We were making loans to E.P.U., and so on. We financed them to an enormous extent—by a small export surplus and a huge gold loss of nearly £300 million—more than we could afford.

These claims which were transferred to the Commonwealth were added to their already inflated war-time claims. We used the whole of our export surplus, plus gifts from the Dominions, partly to make real investment in the Commonwealth; but for the rest—about £700 million—it was a flight of capital from this country. The result was we had no claims on the Commonwealth at all, and as we had to have their gold, we bought it by yet further increasing their sterling balances. In effect, we borrowed it "on sight."

What did we do with it? We used the whole of it to keep ourselves going in the United States; in addition nearly £500 million came from our reserves in American aid. We were literally paying the dividends of the Welfare State out of new deposits. It was one gigantic Farrow's Bank. Now the bank is bust. [Laughter.] This is not a laughing matter. This is the fundamental problem which affects this country.

Mr. Glenvil Hall

We were not laughing at the hon. Gentleman personally but at what he was saying.

Mr. Horobin

I do not know what hon. Gentlemen were laughing at. This seems to me to be an extremely serious matter, and one which has landed this country in its present ghastly state. It is this problem which has caused this huge run on our foreign exchange. My reason for referring to it is not to accuse hon. Members opposite—because they have been proved guilty on the capital charge so often, and they can only be hanged once—but to make a friendly suggestion to the Chancellor, who at least has realised this dreadful problem, and is now asking the country for a final effort, and who has put into operation the banking measures which alone can deal with it.

We do not want once again this great effort in the export trade and in the way of cuts and sacrifices and the new pressure on industry which is being brought about by the Bank rate to be thrown away. I beg of the Chancellor—and I am sure this is much in his mind in the discussions which are going on to prepare the way for convertibility—to use all the skill which he has devoted to this Budget to seeing that his new financial régime does not founder upon the same problem that wrecked the financial administration of right hon. Gentlemen opposite. I am glad to see that my right hon. Friend apparently approves of what I have said. We are looking forward with confidence to his being able to do something about it.

In conclusion, I think that Members on this side of the Committee and people very widely throughout the country will feel that the right hon. Gentleman has in this Budget, faced with an appallingly difficult task—and after all his task is not to defeat the motley collection opposite but to deal realistically with difficult facts—has made a right appreciation, his fundamental strategy has been sound and his tactics skilful. He deserves support and I believe will receive it.

Chairman to report Progress, and ask leave to sit again.—[Mr. Redmayne.]

Committee report Progress; to sit again Tomorrow.