HC Deb 27 May 1952 vol 501 cc1206-31

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Douglas Jay (Battersea, North)

We should not let this Clause pass without some discussion of the question of the amount of Government expenditure on the Debt interest. We do not get many opportunities of discussing Government interest rate policy. Indeed, this is the only Clause in this Bill where we can strictly look at the subject of Government expenditure at all. As, in addition, the Government have made important changes in interest rate policy this year, it is worth trying to examine the position. The Clause says: The permanent annual charge for the National Debt for the financial year ending with the thirty-first day of March, nineteen hundred and fifty-three, shall be the sum of five hundred and seventy-five million pounds instead of the sum of three hundred and fifty-five million pounds. I think the Financial Secretary will confirm later on that this is strictly a legal enactment which arises out of a pre-war Act. The statement that the permanent annual charge shall be £575 million is not exactly equivalent to saying that Government expenditure on the Debt service will be £575 million this year. Nevertheless there is a relation between the two, and it is that relation which I want to ask the hon. Gentleman to elucidate.

6.15 p.m.

I notice in the Financial Statement issued with the Budget that on page 38. under the heading of "Estimated Expenditure" the Debt service is set down at the same figure of £575 million. I take that to be not a coincidence but the same figure. It also appears from page 36 of the White Paper that this £575 million is made up (under the heading of "Estimated Expenditure" for the present Year) of £540 million interest on the debt and £35 million on Sinking Fund.

I want first to direct the attention of the Committee to the fact that this figure compares with a corresponding figure for the Debt charge as a whole of £535 million in the previous financial year. Therefore, on the evidence of such information as we have before us at present, we are confronted apparently with a rise of £40 million at least in the Debt charge this year, and I think it is likely to be more. My first question is how that increase of £40 million arises. Secondly, is this likely to be the whole increase in Government expenditure under this head this year?

Again referring to the Financial Statement of this April and that of April, 1951. I notice that the figure given for interest on the Debt rose from £515 million last year to an estimate of £540 million in the present year. That increase of £25 million is precisely the same figure as the right hon. Gentleman gave us in his first speech as Chancellor on 7th November for the increase in the expenditure on Treasury bill interest resulting from the first increase in the Bank rate. Whether that is a coincidence or not, I do not know. If it is not a coincidence, and that is how that £25 million arose, it follows that there must be a further considerable increase in prospect from the second rise in the Bank rate made in the spring.

I take it that there is also a liability this year for the interest on the American Loan on which I think we paid the first instalment either on 31st December or 1st January. I presume that is included in the figure and perhaps it explains some of the increase. I hope that the Financial Secretary will tell us. It would appear, however, from the information we have on this side—and we have not had a great deal from the Government—that the actual increase in Government expenditure on Debt interest this year must he something much in excess of the £40 million which at present one finds in the relevant documents.

The first rise in the Bank rate in November resulted in a rise in the Treasury bill rate of about half per cent., and that, the Chancellor told us, would mean an increase of £25 million gross in the total. I use gross figures because they are the relevant ones. There was a further and steeper rise of the Bank rate to 4 per cent. at the time of the Budget, and since then the Treasury bill rate has settled down around 2¼ per cent.

I know that none of these things is as simple as it looks, but on rough arithmetic, if an extra half per cent. meant an addition of £25 million to Government expenditure, presumably an extra 1¾per cent. would mean something rather over £75 million gross—say, £80 million, perhaps, with some qualifications which the Financial Secretary may be able to explain.

We have not had many opportunities, but on several occasions we have asked the Chancellor what is the figure, since the second rise in the Bank rate, which he expects the country to be faced with for Debt interest this year He has never given an answer, partly, perhaps, because he anticipates further changes in the Bank rate one way or another. However, on the assumption that the Bank rate and the Treasury bill rate remain at the present figure, the Committee are entitled to know what the increased expenditure would be. Am I right in thinking that it would be something like £75, £80 or £85 million?

It is quite clear, if that is anything like true, that this is a very substantial extra burden of expenditure on the taxpayer. When listening, for instance, to the right hon. Member for Blackburn, West (Mr. Assheton) last night, talking about substantial decreases in Government expenditure next year, which, he said, if we did not have he would be voting against the Government, one wonders whether the Government have given any thought to the possibility of making a reduction in this item, or, alternatively, if, as some of their supporters in the Press are advising them, they intend further to increase the Bank rate, whether we may not be faced by even further increases in expenditure on the Debt interest.

This £80 million is a remarkable figure when compared with other items of expenditure and of revenue with which we have been concerned in recent debates. For instance—I use these figures only by way of illustration—when we were discussing the Purchase Tax, I think that it would have been possible to remit Purchase Tax entirely from textiles, which would have had very important effects on industry and employment for the loss of something like, perhaps, a further £60 million to the revenue. That in itself would have been a smaller sum than that with which we are concerned now as an addition to expenditure.

Furthermore, following our discussions on the National Health Service Bill, I think I am right in saying that the total which the Government are to raise in revenue by all the additional health charges, to which we take exception, is now something a good deal less than £20 million—that is, not more than one-seventh or one-eighth of what is under discussion here. In our view, this £80 million was a totally unnecessary increase in expenditure. It is an example of a wasteful and quite unjustifiable increase where a big saving could have been made for the benefit of the taxpayer.

We are entirely at one with the Government in thinking that a general policy of credit restraint and credit restriction is necessary. Indeed, we enforced and encouraged a policy of that kind ourselves. I should not be dogmatic in objecting even to an increase in the Bank rate if it was shown that that was necessary to achieve restrictions in credit and to help with the balance of payments and the exchanges. It would be carrying the discussion too far to say now whether that case could be made out, but if it was I do not think that there need be any necessary objection. What we do object to is the increased burden on the taxpayer. In our view, it would have been perfectly possible to have achieved this restriction in credit and even, if necessary, to have raised the Bank rate, without any change in the Treasury bill rate which the Government have to pay.

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

Can the right hon. Member suggest any way by which money could be made what is technically called "tighter" without making it dearer?

Mr. Jay

That is just the point with which I was going to deal. We cannot go too far into this argument this afternoon, but I should have thought that it was not necessary for the Government or, indeed, for local authorities to pay a higher rate of interest in order to induce the banks to limit their general lending to whatever figure is necessary in the national interest.

Mr. Nabarro

Is the right hon. Member suggesting a duality of rates, one for local authorities and another for the remainder of the borrowing community?

Mr. Norman Smith (Nottingham, South)

Why not?

Mr. Jay

Certainly. I am suggesting that the money required by the Government should be lent to the Government at a rate determined by the cost of the operation to the banks, and not by the supposed operation of the free market. That, after all, is the principle that we follow in the case of housing and in munitions manufacture, and all sorts of other instances could be given.

This is the essential point which I should like to make clear in reply to the hon. Gentleman. If it is possible for the banking system, as a result of these changes in rates and of the workings of their various conventional ratios, with which the hon. Gentleman is familiar, to limit their advances and their general lending to a certain figure, then, clearly, it is possible, as far as practicability is concerned, to do so in response to requests for such limitation in the national interest. That is the essential point on which we would rest our case. Therefore, in our view, no sufficient case has been made out for this enormous extra burden of expenditure which has been laid upon the taxpayer by this change in interest rate policy.

One of the disturbing things about this change is this. Quite apart from the burden that the taxpayer has to pay, it was mainly justified at the time of the Budget, when we had the second increase in the Bank rate, by supposed psychological influence on the exchange markets, the value of the £, and so on. But we now see that that psychological influence, though it may have some force for some weeks, tends after a time to wear off, and other influences begin to operate.

I ask the hon. Gentleman: is it proposed when that happens to proceed further in this direction? Are we, perhaps, to see this £80 million rising to £120 million, or even further? Can the hon. Gentleman give some estimate of what he expects the total burden on the taxpayer will be this year?

Mr. Horobin

Surely the logical conclusion of the right hon. Member's argument is that the Government ought to pay off the entire National Debt by borrowing on ways and means advances to the Bank of England, and paying no interest whatever?

Mr. Norman Smith

Why not?

Mr. Horobin

Exactly. Let the hon. Member fight it out with his right hon. Friend.

Mr. Jay

The hon. Member could not have listened to what I said. Of course, it is reasonable that the cost of borrowing should be covered. That was the policy which the Coalition Government followed throughout the war, when the rate remained at a level very much lower than it is now, and as a result, the cost of Government borrowing, as the hon. Gentleman knows, was far lower than during the previous war.

It may well be asked: if the taxpayer is having to find this additional £80 million, where will the money go and who is getting this very large increase in income at a time when the community as a whole is being asked to make sacrifices? Of course, it is an addition to the gross revenue of the banks and the various financial and lending institutions. It is often said, quite rightly, that those institutions have had to meet many increasing costs and many increased expenses at the same time. That, no doubt, is true, and with the level of gilt-edged prices to which Government policy has at present reduced the markets in the City, no doubt those institutions have anxieties as well as increased revenue.

6.30 p.m.

Nevertheless, the fact remains that this money is being paid out by the Treasury and it is being received by these various lending institutions. Furthermore, quite a proportion—the hon. Gentleman will correct me if I am wrong—of the Treasury bills outstanding are held, not by United Kingdom firms, but by overseas Governments, overseas firms, banks, and so forth, particularly, I think, in the sterling area. They are indeed these sterling balances of which we have heard so much in recent years.

By increasing the rate from ½ per cent. to 2¼ per cent. the Government have not only put a further load on the Budget, but also they have added quite appreciably to the strain on the United Kingdom balance of payments. I remember that the hon. and gallant Member for the New Forest (Colonel Crosthwaite-Eyre) used to question and criticise the previous Government a great deal about the sterling balances. He has fallen remarkably silent since his own party came to power, although the party opposite is, with one important difference, following precisely the policy we followed in the matter of the sterling balances.

They called on us continually to repudiate or to scale down those balances. They are now doing nothing of the kind. What they have done is to increase the rate of interest from ½ per cent., which we successfully maintained over something like £2,000 million or £3,000 million in those years, to a rate which presumably, at the moment, is three, or three-and-a-half, times as high. Although we permitted a certain flow of exports to pay off those balances, at least we kept the current interest payment at a very low level indeed, and therefore we achieved a great saving on the balance of payments as well as on the Budget.

I think we ought to have some more information about this. We ought to know what the full load will be on the taxpayer this year. We want to make it perfectly plain that in our view this is a real example of a very high and quite unnecessary addition to Government expenditure which the Government ought to have been able to keep under control.

Mr. Boyd-Carpenter

As I understand, both from the Clause and from the tone and substance of the speech by the right hon. Member for Battersea, North (Mr. Jay), we are on the comparatively narrow point of the figure of £575 million in Clause 64. As the right hon. Gentleman said, that is a figure which has to be placed in the Bill by reason of the somewhat archaic procedure which we and previous Governments have followed of keeping in effect the Act of 1928, which fixed the permanent Debt charge at £355 million, and then put in a different figure in lieu each year. It is a procedure which is not without its inconveniences, as I think the right hon. Gentleman knows.

As he pointed out, last year the figure was placed at £535 million, and as he may not be aware, that figure did, in point of fact, prove to be too low an estimate, falling short of the amount actually expended by very nearly £6 million. Consequently, the £575 million which we put into the Bill takes account of a number of factors. If I may answer the direct question which he put, it does take into account the provision for interest on the United States and Canadian credits of 1945, but does not include provision for the repayment of the capital of these credits.

Mr. Jay

Could the hon. Gentleman give us the figure of interest? Would it be £30 million?

Mr. Boyd-Carpenter

It is of that order at a very rough figure. We take into the total figure a number of variations up and down, individual items, with which I do not think I need trouble the Committee, except the specific one to which the right hon. Gentleman referred. As he pointed out, the funding operation of last November, and the rise in the bill rate which took place at the same time, increased the charge by a net figure of the order of £25 million. That was the figure which the right hon. Gentleman quoted from my right hon. Friend; and it is with those factors taken into account that the figure of £575 million has been inserted in the Bill.

I think I should be putting the matter as clearly as I can if I said that what is taken into account here are the changes of last November and any other changes up or down in various items which have taken place in the normal way; but what is not taken into account are changes from the time of the Budget, or onwards. In fact, the figure represents the best estimate that could be made on the basis before the Budget. That is the substance of the matter.

As the right hon. Gentleman pointed out, these figures have to be assessed on some basis. They have very rarely proved to be wholly accurate in the past, but they have to be assessed for the purpose of the procedure laid down under the 1928 Act on the type of basis that has been adopted. I cannot answer his question as to what figure can be put as the result of the changes announced in the Budget. The right hon. Gentleman will appreciate that it is of the essence of a monetary policy such as we are pursuing that it is flexible. There may be changes up or down, and at this stage there is is no figure which it is possible to give to the Committee which would be of the slightest assistance in the discussion of the Bill. Indeed, were we to give an additional figure the calculations which could be based on it might be of considerable interest to a number of people outside this Committee.

Therefore it is not possible, taking into account the developments over the year, and taking into account the changes which events may make it wise to make upwards or downwards, to carry the matter beyond the point to which I have carried it that is to say, the position at which it was at the time when the Budget was introduced.

Mr. Jay

If it is possible for the Chancellor, on 7th November, to give the House a figure of £25 million, which was gross and not net, why is not it possible to make a similar estimate now? Why has the Government become so cagey? Would it be right to estimate that if the Treasury bill rate remains at the present level—we do not know whether it will—but if it does, that the figure must be something like three times that £25 million?

Mr. Boyd-Carpenter

It is one thing to give figures for one series of transactions at one particular time, but what I understood the right hon. Gentleman was asking was for a forecast of the result over the whole year, and that is a very different matter.

The second question he put is hypothetical, depending on what is the Treasury bill rate. I do not dissent from the basis of the calculations he gave in his speech. In round figures I think his mathematics were correct, but the inference to be drawn from them is another matter. I cannot say, and nobody can say, precisely what the figures will be during the year. Therefore, while as a mathematical exercise, what the right hon. Gentleman has said is perfectly valid, it would be a great mistake for hon. Members on either side of the Committee to base any very clear inference upon it.

I pass from the purely factual part of the right hon. Gentleman's speech to the comments which he made. Here I am in some amount of difficulty. It is really part of the accident of procedure which we follow that the purely budgetary side of monetary policy arises on this Clause. I have no doubt that I shall have to follow the example of the right hon. Gentleman and not go too far into the wider aspects of the matter. As I understand, the only point strictly material at this stage is the £575 million figure.

The right hon. Gentleman said, however, that he thought that this figure would go to swell the gross revenues of certain institutions. Indeed, in somewhat combative form he has made that assertion on previous occasions. Again, we are in the difficulty that we are touching only the fringe of the main problem of policy when we discuss this £575 million. It is true that, whatever the figure may be, there will be a gross increase in the revenues of certain institutions. It will be far from being a net increase because, not only in the case of banks is there the question of the rate that they will have to pay to their depositors, but there is the point of what may happen to the capital value of their holdings and stock.

Therefore, it would give a false impression to suggest that this is a measure which necessarily will be of special benefit to certain institutions. Its purpose is very different. It is part of the general monetary policy of the Government. This is not the occasion—neither the rules of order nor the circumstances make it the occasion—for a further argument on that general line. But perhaps I may be allowed to say, without incurring the displeasure of the Chair, that it is of the essence of this policy, by the disinflationary effect of it and by the way the monetary instrument is used, to strengthen the economy generally.

By its effect on our economy not only is it our view that it will, both from the balance of payments and other points of view, work beneficially, but even from the narrow budgetary point of view, with which strictly at this moment we are concerned, the effect on prices will affect even the budgetary problems. Therefore, it would be wrong to consider whatever the gross figure of increased interest charges may be in isolation from the effect which the policy of which that is an essential part will have on the general budgetary position and, still more, on the general economic position of the country, with its repercussions upon the narrow budgetary questions with which we are concerned.

I know that I shall not convince the right hon. Gentleman that I am right any more than he will convince me that he is right on the question of the broad policy, on which there is sincere and open disagreement between the two sides of the Committee. But I ask him when we are considering, as we are in this Clause, the narrow, isolated fact that the annual charge for Debt service will no doubt be somewhat higher than it has been, to bear in mind that this is part of the price which must be paid for a policy which on balance we believe to be right and which we believe to be helpful to the economy of the country.

Finally, I ask him to bear this in mind. I do not want to follow the example of some hon. Members and drag in the Budget surplus, but it is of the essence of a Budget surplus of this magnitude that it should have a disinflationary effect. That is the purpose which the late Sir Stafford Cripps advocated for his own substantial Budget surpluses. These interest charges are part of the same disinflationary process.

Therefore, I suggest to the Committee that, in the narrow sense, this is a proper form of budgetary expenditure which is not, for that reason, comparable with the other matters to which the right hon. Gentleman referred relating to direct Governmental expenditure. Within the rather narrow limits with which we are faced on this issue, I have put to the Committee to the best of my ability the fact that we simply cannot look at this figure in isolation. It is part of the general economic policy which the Government are pursuing and which I am sure hon. Members on both sides of the Committee have been pleased to note has had a steadying effect on world confidence and the economy of this country.

6.45 p.m.

Mr. Norman Smith

The Committee have listened to what I am sure most of us will have appreciated was a thoroughly unsatisfactory statement by the Financial Secretary. I believe that he is, in his own mind, in a complete muddle as to the whole business of this Clause. I listened most carefully to what he had to say. I am sure that I am not being unfair if I put it in this way: he led the Committee to understand that a sum of money of the order of £40 million per annum was a reasonable measure of the increased interest charges in respect of the National Debt arising from the policy of Her Majesty's Government.

The bare idea is quite fantastic. Demonstrably, the figure exceeds £100 million, as I shall show the Committee, but the Financial Secretary, in making his reply to my right hon. Friend the Member for Battersea, North (Mr. Jay), betrayed that in his own mind this provision of £575 million allows for increased interest in respect of Floating Debt, mainly Treasury Bills. Really, it does no such thing, nor can it do any such thing.

Let us look at the facts. I am sure that the Financial Secretary was hopelessly wrong, too, when he said that the funding operation last November involved a charge of £25 million. It could not do that. What happened was that £1,000 million of Floating Debt was funded, and the increase in the rate of increase was of the order of from ½ per cent. to 1¾ per cent. or less. If one multiplies 1.25 by 1,000, one does not get anything like £25 million a year. I have a fairly good memory. If I remember rightly, the Chancellor told the House at the time that the cost of that funding operation was £16 million per annum. The funding of £1,000 million of Floating Debt last November cost £16 million and not £25 million.

Mr. Boyd-Carpenter

The cost of the total operation was £25 million—the funding plus the increased bill rate.

Mr. Smith

Let us examine that statement. Over what period was that alleged figure of £25 million supposed to apply? There were last November outstanding some £5,500 million of Treasury bills, £1,000 million of which were funded and £200 million or £300 million have since been paid off, leaving a residue of about £4,200 million of these bills. My right hon. Friend the Member for Battersea, North said that the Treasury bill rate was now 2¼ per cent.

That is the sort of studied meiosis in which he likes to indulge—not a bad thing. Actually, the rate is now 2 5/16 per cent. It has touched 2⅜ per cent., and no doubt it will again. The difference between one-half and 2 5/16 is roughly 1.81, and if that is multiplied by £4,200 million—because the higher interest rate will have taken effect by the summer over the whole body of the Treasury bills, all of which are short term—elementary arithmetic shows that the increase is something approaching £80 million a year plus the £16 million to which the Chancellor referred.

That makes a total of more than £90 million in a full year once the higher rate has become fully operative over the whole field. If I take the figure at £78 million and add the £16 million, that comes to £94 million. It is not less than £90 million, and that is quite apart from the American Loan or anything of that sort.

I suggest that we have had a gross under-statement from the Financial Secretary. It is a thoroughly unsatisfactory statement, which reveals not merely that he cannot explain the matter, but that he is not even capable of working out most elementary arithmetical calculations or of using a sliderule. This £575 million surely applies to the funded Debt, and does not bring in the floating Debt to which my right hon. Friend referred. I think that the hon. Gentleman had better look at it again, and have it explained to him by his permament officials.

I am very glad indeed that this Clause has not been allowed to go through unchallenged. After all, it is a very important Clause, the proof of which is that, of all the 65 Clauses in this Bill, this is the only one which is mentioned in the four lines of big type at the beginning of the Bill defining the Bill's purpose—"to amend the law relating to the National Debt." We are being asked to accept that the permanent charge for the National Debt is to be £575 million a year, which is increased by £40 million. If that includes the interest on the American Loan, surely, we have a case for pleading that our circumstances are such that we could rightly ask for a waiver of interest in the next financial year. This may not be the time to ask for it, but it is certainly the time to raise it.

The Government cannot have it both ways. If they say that the country is in a serious financial position, that we have to do this and that, that the trade unions must exercise restraint and all the rest of it, if it is all that serious, we have fulfilled the qualification in the Washington Agreement about waiver of interest. There is no disgrace in doing that in a situation of this sort. It ought to be done, and it should be done to save £40 million for the taxpayers of this country, and I hope it will be done.

After all, £575 million is a large sum for this Committee to consider. I can remember when the annual charge for the National Debt was of the order of £20 million a year, and my father used to grumble because the Income Tax was 4d. in the £. In between the wars, the annual charge rose to £355 million, and now it is £575 million. The very vicious part of it is that the Sinking Fund, at a time when the National Debt is of the order of £25,000 million, has no impact on the capital value of that debt. When the permanent annual charge was £20 million, the Sinking Fund had a very perceptible impact and, indeed, during the 100 years following the Battle of Waterloo, one quarter of the National Debt was paid off merely out of the operation of the Sinking Fund.

It was convenient to rentiers to have this National Debt, which is about the one solid permanent benefit to them arising from the putatively glorious revolution of 1689, and it is convenient to the party opposite to have it. When I look round the Committee, what do I see? I am a grandfather. It looks to me as if a considerable number of my colleagues on both sides of the Committee are not merely grandfathers, but something even more venerable, great-grandfathers, and I put it to them whether it is fair to posterity to take it for granted that we are going on for years in Finance Bills making provision for permanent annual charges of this order in order to find the interest for the rentier class owning a National Debt of this size.

In one respect, the Financial Secretary was right. He said that nobody could foretell what would be the total increase in interest charges in this financial year arising out of the Government's policy. I have already shown that it is not less than £90 plus £40 million, which makes some £130 million a year and it may be more. It may be necessary to raise the Bank rate again, and then the whole structure of gilt-edged may be undermined. If the Government remains in power for a few years, it certainly will be necessary, and we shall have an annual charge of a considerably higher sum, and my right hon. Friend was quite correct to remind the Committee that this increase is going into somebody's pocket.

The Financial Secretary's statement was most unsatisfactory, and, because of its unsatisfactory nature, and because he under-estimated the increase in the Budgetary charge, which he under-estimated to the tune of something like £70 million a year, I suggest that it would be a good thing to divide the Committee on this Clause and thus place our objection to it on record.

Mr. Chapman

The Financial Secretary was fairly generous towards a proposition which I put forward earlier, but I suspect that he will not be generous any more.

It is more than surprising that, when this Bill increases the amount to be paid in interest on the National Debt by some £200 million, there is no comment at any length from the benches opposite, except the defence of the figure by the Financial Secretary. It is even more surprising, in view of the fact that we have heard for many days throughout the whole of the debate on the Budget and the earlier stages of the Finance Bill, impassioned pleas from the other side for a reduction in the amount of money to be raised by the Government in taxation.

Throughout, we have had this moan, this carping criticism and this pressing of points on Ministers—and then running away from them—on the whole problem of reducing the size of the national expenditure. Yet, when these hon. Members come to the Clause on which they could voice their protests with some effect, we find them silent, and, I suppose, cowed by the bludgeons of the Chancellor exerted on them in a private committee.

Finally, we get the position which we have reached this afternoon, when we have an impassioned plea from the hon. Member for Oldham, East (Mr. Horobin) about the difficulties of raising money from people when the national expenditure is so high. Here, again, when the hon. Member has a chance to get at a couple of hundred million pounds which the Chancellor is extorting from unwilling taxpayers, he is not in his place to make a protest.

This Clause embodies all that is evil in this Bill, and I certainly hope that we shall vote against it. It embodies it to such an extent that it is the kind of Clause which has been picked out, not by some Socialist organisation, but by the Economic Commission for Europe, a body set up by United Nations, and which has said that this Budget in its total effect, and particularly through Clauses like this, is—and I quote the words of the Economic Commission—"generally regressive."

Here we have an impartial international body— [Interruption.] Certainly, it is an impartial international body, which has looked over the whole field of the Budget and the kind of proposal made in this Clause, and which, with no direct interest at all in what is happening in Britain, comes to the conclusion that this Bill is "generally regressive." I should have thought that, at this stage we should have had more support from hon. Members opposite.

What is to happen later this year? We have now reached the situation in which, although the Financial Secretary is quite correct in saying that certain effects of the Chancellor's raising of interest rates were partly good, we can now see difficulties ahead in the balance of payments position and similar matters. Are we to have another twist of this screw? Shall we be faced later in the year with the position that because this present figure has not done all that was expected of it, it is to be even further increased? If we once start on that sort of thing, goodness knows where it will end.

7.0 p.m.

We on this side of the Committee certainly view this Clause with some alarm, and I now come to its effect on wage negotiations in this country. It is rather ironical that at the present stage, when the Chancellor is appealing for restraint in wage demands, we should have a Clause before the Committee which does more to incite wage demands than almost any other Clause in the Bill.

Mr. E. Partridge (Battersea, South)

Rubbish. Propaganda.

Mr. Chapman

The trouble with the hon. Gentleman is that he regards a pure statement of fact as propaganda. The fact is that a couple of hundred of million pounds will be voluntarily given to the rentier class, and this is a direct incitement to wage claims in this country.

Mr. Ralph Assheton (Blackburn, West)

The hon. Gentleman is surely aware that he is entirely wrong in suggesting that £200 million extra is going to be put on the National Debt this year. If he thinks that, he does not understand in the slightest what he is talking about.

Mr. Chapman

I know that the right hon. Gentleman is referring to the fact that a considerable proportion will be returned in taxation and that the net cost of the raising of interest rates will not, in the end, be as much as £200 million; but he has to face the fact that this is only the expression of the total view taken in the Budget about the increase in incomes and allowances which will have the effect of making the rich richer and the poor poorer. That is the general underlying factor of this Budget.

Mr. Assheton

I wish to draw the hon. Gentleman's attention to the facts. He is suggesting that there is an additional charge in this year's Budget of £200 million in respect of interest on the National Debt. He must know, if he has studied the financial statement put forward by the Government, that that is quite incorrect. It is nowhere near that figure at all.

Mr. Chapman

The right hon. Gentleman is correct in challenging the exact total figure, but I am merely stating that the full effect of raising interest rates from 2½ to 4 per cent. will in the end be this kind of figure. The hon. Gentleman says that it is deflationary. Certainly, and that at a time when we can least afford to be more deflationary than we are at the moment.

In view of the fact that this Clause is a direct incitement to demands for increased wages, I think it is about time there was some plain speaking on the question. I personally believe that the full effect of the Budget is so strong in inciting wage increases that those increases are now justified, and that it is nothing less than hypocrisy for this Committee as a whole to express a view against wage increases when passing a Clause of this kind.

Mr. Frederic Harris (Croydon, North)

On a point of order. Is it in order, Colonel Gomme-Duncan, for the word "hypocrisy" to be used by one hon. Member about another? When the word was used the other day, the hon. Member using it had to withdraw it.

The Temporary Chairman (Colonel Alan Gomme-Duncan)

I think the case in point was a complaint against an individual Member. This is a more general statement, but exaggerated statements of all kinds are undesirable.

Mr. Chapman

I was only saying that it would be hyprocrisy on my part as well on that of others to pass without protest a Clause which will do such untold harm to the economic situation of this country. Therefore, I hope we shall show our disapproval of it by voting against it.

I believe that in the next six months we shall have to face a considerable amount of industrial difficulty following demands for wage increases which the Government will try to prevent. It is opportune on this Clause to say that there are many people on this side of the Committee who believe that those wage demands will be justified and that the unions will be quite right to press them as hard as they can.

Mr. John Strachey (Dundee, West)

If a layman may intervene in this discussion, there is a question I should like to press upon the Financial Secretary. It is the question put to him very clearly by my right hon. Friend which he did not seem to deal with one way or another. That seemed to reveal an attitude of mind on the part of hon. Members opposite which I want to probe for a moment. As I understood, the most important thing which my right hon. Friend said was this. He agreed, and we on this side of the Committee agree, that there was need for some method or other of the restriction of credit, but we pressed strongly the view that one could have a quantitative restriction of credit without an increase in the price of money.

Mr. Spearman

indicated dissent.

Mr. Strachey

I see that the hon. Member is shaking his head. When my right hon. Friend was speaking, the hon. Gentleman intervened and made it quite clear that in his view it was literally inconceivable that there could be a quantitative restriction of credit without an increase in the price of money.

Mr. Spearman

That is not something which could be done in a democratic society, but if the right hon. Gentleman is prepared to adopt totalitarian methods that is another thing.

Mr. Strachey

But were we not a democratic society after the last war, when we certainly had a quantitative restriction of trade? What we want is conscious decision and planning. If the hon. Gentleman thinks that physical controls are anti-democratic, then I do not agree with him in his definition.

I think it is an extremely important point because future Governments may well want to make restriction of credits at any time, and may want to employ a deflationary policy. Is it the view of hon. Members opposite that that can only be done by increasing the price, because we on this side of the Committee deeply dissent from that view owing to the very great liability and very great disadvantages which the increase in the price of money obviously entails?

I think that the outlook for future Chancellors of the Exchequer and for the country generally is a bad one if we really take the view that we cannot use quantitative methods without using the price mechanism. We are not sworn enemies of the price mechanism, although at times some of my hon. Friends do, I think, criticise it unduly in some fields. But, surely, it is fairly common ground that most contemporary opinion takes the view that where price mechanism works really badly is in the monetary field.

To try to regulate the monetary field, above all others, by the price mechanism seems to me an archaic point of view, if the hon. Member for Scarborough and Whitby (Mr. Spearman) will forgive me for saying so. Therefore, I was distressed by the failure of the Financial Secretary to deal with that issue. If he takes the same view as does the hon. Member for Scarborough and Whitby I think we ought to hear it.

This involves a deep issue of economic principle and, before we come to a decision upon it, it would be interesting to hear from him whether he thinks quantitative restrictions, on balance, are undesirable. I can understand that view. of course. They have disadvantages, but they are much lesser disadvantages than the disadvantage entailed in putting up the price of money. We should like to know whether, on the other hand, the Financial Secretary takes the view of the hon. Member for Scarborough and Whitby that it is inconceivable that one can reduce credit without putting up the price of money. That brings us up against the important difference of principle which divides us.

Mr. Boyd-Carpenter

Before I reply to the right hon. Gentleman the Member for Dundee, West (Mr. Strachey) perhaps, in order to prevent any misunderstanding remaining, I might deal with one matter raised by the hon. Member for Northfield (Mr. Chapman). He suggested that the increased charge on the Debt was of the order of £200 million. I suspect, though I may be wrong, that all he did was to look at Clause 64 and subtract one figure in that Clause from another. If he did that, of course, he was in rather agreeable innocence of the fact that the figure in Clause 64 is the figure for 1928, the figure fixed by the 1928 Act. The figure last year was £535 million, which I have already given to the Committee. Therefore, the increase, as far as this Clause is concerned, is an increase of £40 million. Whether it is an increase that ought to take place is another matter.

Mr. Chapman

I assumed that if the interest on the National Debt is about £500 million and a great deal of that was based on a 2½ per cent. rate, then by the time the full complex of the interest rate has reacted to the increased Bank rate of 4 per cent. the increase will be of the order to which I referred.

Mr. Boyd-Carpenter

The hon. Member is entitled to his opinion, as we all are, but I understood him to make a statement of fact on the Clause, and I still have a lingering suspicion that he arrived at that figure in the way I suggested.

I very much disagree with the description the right hon. Member for Dundee, West gave of himself as an amateur in these matters. I am sure we would all agree that he has fully acquired professional status. The point he raised was interesting, and I think it is quite right to say that it is here that there is a fundamental difference between the two sides of the Committee. The right hon. Gentleman's view and that of many of his hon. and right hon. Friends is that one should use quantitative restrictions anyway. I was glad to hear him say that the objective of restriction of credit was accepted by him and his right hon. Friends, and therefore we are concerned not so much with the objective as the means.

Our view, of course, is not, as he sought to suggest, that one should only use interest rates and not quantitative restrictions. Our view is that one should use both, and that the one will assist the other. The late Administration relied almost entirely on quantitative restrictions; and it is not unconnected with that view of theirs, if one looks at what was set out year after year in the Economic Survey as to what they thought should be invested, that when the year ended the amount in every case—I think I am right in saying—was substantially exceeded. I think that was because of their reliance solely on quantitative control.

In our view it is easy to use quantitative control if by increasing the price one diminishes the demand, but one should back physical controls with the general influence of monetary policy. If one opposes physical controls to the whole flow, push and surge of economic forces, one makes them work much less effectively than they would work if both the forces were working on the same side. That is really the difference between us.

I do not know how far all this comes within discussion of this Clause, but you, Colonel Gomme-Duncan, in your tolerance, have allowed me to put that view. I think the Clause has now been fully discussed, and I hope that in view of the fact that a great deal of work is still before us, including a large number of new Clauses put down by hon. Members from both sides of the Committee, we shall be able, in whatever way the Committee thinks fit, to get on with this Clause.

7.15 p.m.

Mr. Jay

I think the discussion has served two purposes. First, it has elicited from the Financial Secretary an agreement, or an admission, with my calculation that if the present Treasury bill rates continue to prevail throughout this year the additional Government expenditure under this head will be something in the order of £80 million or thereabouts.

Mr. Boyd-Carpenter

All I accepted was the right hon. Gentleman's mathematics.

Mr. Jay

I think that is precisely the same point.

Mr. Boyd-Carpenter

Not quite

Mr. Jay

When the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) was talking about this somewhat mythical figure of £200 million, I do not think he had been in the Chamber or knew that we reached agreement—or whatever precise interpretation the Financial Secretary gives toit—on a figure of something like £80 million. Secondly, we are agreed that what really divides us is not the question whether some reasonable disinflationary restraint is necessary, but whether, in order to have that restraint, it is really necessary to have this very large increase in Government borrowing.

We are convinced that in order to obtain this extra disinflation this enormous sum—in relation to the kind of items we have discussed—is not really necessary, and that no case has been made out for it. It is because we do not think that case has been made out that I shall advise my hon. and right hon. Friends to divide against the Clause.

Question put, "That the Clause stand part of the Bill."

The Committee divided: Ayes, 241; Noes, 199.

Division No. 148.] AYES [7.20 p.m.
Aitken, W. T. Bowen, E. R. Crouch, R. F.
Allan, R. A. (Paddington, S.) Boyd-Carpenter, J. A Crowder, John E. (Finchley)
Alport, C. J. M. Boyle, Sir Edward Crowder, Petre (Ruislip—Northwood)
Amory, Heathcoat (Tiverton) Braine, B. R. Cuthbert, W. N.
Anstruther-Gray, Major W. J Braithwaite, Lt.-Cdr. G. (Bristol, N.W.) Darling, Sir William (Edinburgh, S.)
Arbuthnot, John Bromley-Davenport, Lt.-Col. W. H. Davidson, Viscountess
Ashton, H. (Chelmsford) Buchan-Hepburn. Rt. Hon P G. T Deedes, W F.
Assheton, Rt. Hon. R. (Blackburn, W.) Bullard, D. G Digby, S. Wingfield
Astor, Hon. J. J. (Plymouth, Sutton) Bullock, Capt. M. Dodds-Parker, A. D
Astor, Hon. W. W. (Bucks, Wycombe) Bullus, Wing Commander E. E Donaldson, Cmdr. C E McA
Baldock, Lt.-Cmdr J. M. Burden, F. F. A Donner, P. W.
Baldwin, A. E. Butcher, H. W. Doughty, C. J. A.
Banks, Col. C. Butler, Rt. Hon. R. A. (Saffron Walden) Douglas-Hamilton, Lord Malcolm
Barber, A. P. L. Carr, Robert (Mitcham) Drayson, G. B.
Barlow, Sir John Carson, Hon. E. Drewe, G.
Baxter, A. B. Cary, Sir Robert Dugdale, Maj. Rt. Hn. Sir T.'(Richmond)
Beach, Maj. Hicks Channon, H. Duncan, Capt. J. A. L
Bell, Ronald (Bucks, S.) Clarke, Col. Ralph (East Grinstead) Duthie, W. S.
Bennett, F. M. (Reading, N.) Clarke, Brig. Terence (Portsmouth, W.) Eccles, Rt. Hon. D. M
Bennett, Dr. Reginald (Gosport) Cole, Norman Elliot, Rt. Hon. W. E
Bennett, William (Woodside) Colegate, W. A. Fell, A.
Bevins, J. R. (Toxteth) Conant, Maj. R. J. E. Finlay, Graeme
Birch, Nigel Cooper-Key, E. M. Fisher, Nigel
Bishop, F. P. Craddock, Beresford (Spelthorne) Fletcher-Cooke, C
Black, C. W. Cranborne, Viscount Fort, R.
Boothby, R. J. G. Crookshank, Capt Rt. Hon. H. F C Fraser, Hon. Hugh (Stone)
Bossom, A. C. Crosthwaite-Eyre, Col. O. E. Gage, C. H.
Galbraith, T. G. D. (Hillhead) Linstead, H. N. Robinson, Rowland (Blackpool, S.)
Gammons, L. D. Lloyd, Maj. Guy (Renfrew, E.) Robson-Brown, W.
Garner-Evans, E. H. Lloyd, Rt. Hon. Selwyn (Wirral) Rodgers, John (Sevenoaks)
Glyn, Sir Ralph Lockwood, Lt.-Col. J. C. Roper, Sir Harold
Godber, J. B. Longden, Gilbert (Herts, S.W) Ropner, Col. Sir Leonard
Gough, C. F. H. Low, A. R. W. Russell, R. S.
Gower, H. R. Lucas, P. B. (Brentford) Ryder, Capt. R. E. D
Graham, Sir Fergus McAdden, S. J. Salter, Rt. Hon. Sir Arthur
Gridley, Sir Arnold McCorquodale, Rt. Hon. M. S. Savory, Prof. Sir Douglas
Grimand, J. Macdonald, Sir Peter (I. of Wight) Schofield, Lt.-Col. W. (Rochdale)
Grimston, Hon. John (St. Albans) Mackeson, Brig. H R. Scott, R. Donald
Grimston, Sir Robert (Westbury) McKibbin, A. J. Simon, J. E. S. (Middlesbrough, W.)
Harden, J. R. E. McKie, J. H. (Galloway) Smyth, Brig. J. G. (Norwood)
Hare, Hon. J. H. MacLeod, Rt. Hon. Iain (Enfield, W.) Snadden, W. McN.
Harris, Frederic (Croydon, N.) Macpherson, Maj. Niall (Dumfries) Soames, Capt. C.
Harrison, Col. Harwood (Eye) Maitland, Comdr J. F. W. (Horncastle) Spearman, A. C. M
Harvey, Air Cdre. A. V. (Macclesfield) Maitland, Patrick (Lanark) Spence, H. R. (Aberdeenshire, W.)
Harvey, Ian (Harrow, E.) Manningham-Buller, Sir R. E. Stanley, Capt. Hon. Richard
Harvie-Watt, Sir George Markham, Major S. F. Stevens, G. P.
Heald, Sir Lionel Marshall, Douglas (Bodmin) Steward, W. A. (Woolwich, W.)
Heath, Edward Marshall, Sidney (Sutton) Stewart, Henderson (Fife, E.)
Higgs, J. M. C. Maudling, R. Stoddart-Scott, Col. M.
Hill, Dr. Charles (Luton) Maydon, Lt.-Cmdr. S. L Storey, S.
Hill, Mrs. E. (Wythenshawe) Medlicott, Brig. F Strauss, Henry (Norwich, S.)
Hinchingbrooke, Viscount Mellor, Sir John Stuart, Rt. Hon. James (Moray)
Holland-Martin, C. J. Molson, A. H. E Sutcliffe, H.
Hollis, M. C. Nabarro, G. D. N. Taylor, Charles (Eastbourne)
Holt, A. F. Nicholls, Harmer Teeling, W.
Hopkinson, Henry Nicholson, Godfrey (Farnham) Thompson, Kenneth (Walton)
Hornsby-Smith, Miss M. P. Nicolson, Nigel (Bournemouth. E.) Thompson, Lt.-Cdr. R. (Croydon. W)
Horobin, I. M. Nield, Basil (Chester) Thornton-Kemsley, Col. C. N
Horsbrugh, Rt. Hon. Florence Noble, Cmdr. A. H. P. Tilney, John
Howard, Gerald (Cambridgeshire) Nugent. G. R. H. Turner, H. F. L
Howard, Greville (St. Ives) O'Neill, Rt. Hon. Sir H. (Antrim, N.) Vane, W. M. F.
Hudson, Sir Austin (Lewisham, N.) Ormsby-Gore, Hon. W. D. Vosper, D. F.
Hudson, W. R. A. (Hull, N.) Orr, Capt. L. P. S Wakefield, Edward (Derbyshire, W.)
Hulbert, Wing Cmdr. N. J. Osborne, C. Wakefield, Sir Wavell (Marylebone)
Hurd, A. R. Partridge, E. Walker-Smith, D. C.
Hutchinson, Sir Geoffrey (Ilford, N.) Peake, Rt. Hon. O. Ward, Miss I. (Tynemouth)
Hutchison, Lt.-Com Clark (E'b'grh W.) Perkins, W. R. D. Waterhouse, Capt. Rt. Hon. C
Hylton-Foster, H. B H. Peto, Brig. C. H. M Watkinson, H. A.
Jennings, R. Peyton, J. W. W. Webbe, Sir H. (London & Westminster)
Johnson, Eric (Blackley) Pickthorn, K. W M Wellwood, W.
Johnson, Howard (Kemptown) Pitman, I. J. White, Baker (Canterbury)
Jones, A. (Hall Green) Powell, J. Enoch Williams, Gerald (Tobridge)
Joynson-Hicks, Hon. L. W. Price, Henry (Lewisham, W.) Williams, Sir Herbert (Croydon, E)
Kaberry, D. Prior-Palmer, Brig. O. L. Williams, R. Dudley (Exeter)
Keeling, Sir Edward Profumo, J. D. Wills, G.
Lambert, Hon. G. Raikes, H. V. Wilson, Geoffrey (Truro)
Lambton, Viscount Rayner, Brig. R. York, C.
Langford-Holt, J. A. Redmayne, E.
Law, Rt. Hon. R. K. Remnant, Hon. P.
Legge-Bourke, Maj. E. A. H. Renton, D. L. M. TELLERS FOR THE NOES:
Legh, P. R. (Petersfield) Roberts, Peter (Heeley) Mr. Studholme and Mr. Oakshott.
Lennox-Boyd, Rt. Hon. A. T. Robertson, Sir David
Acland, Sir Richard Clunie, J. Glanville, James
Albu, A. H. Cocks, F. S. Greenwood, Anthony (Rossendale)
Anderson, Alexander (Motherwell) Coldrick, W. Grey, C. F.
Anderson, Frank (Whitehaven) Collick, P. H. Griffiths, David (Rother Valley)
Attlee, Rt. Hon. C. R. Cove, W. G. Griffiths, Rt. Hon. James (Llanelly)
Awbery, S. S. Craddock, George (Bradford, S.) Hall Rt. Hon, Glenvil (Colne Valley)
Baird, J. Crosland, C. A. R. Hall, John (Gateshead. W.)
Balfour, A. Cullen, Mrs. A. Hannan, W.
Barnes, Rt. Hon. A. J Daines, P. Hardy, E. A.
Bartley, P. Dalton, Rt. Hon. H Hargreaves, A.
Benn, Wedgwood Davies, A. Edward (Stoke, N.) Harrison, J. (Nottingham, E.)
Benson, G. Davies, Ernest (Enfield, E.) Hastings, S.
Bevan, Rt. Hon. A. (Ebbw Vale) Davies, Harold (Leek) Hayman, F. H.
Bing, G. H. C. Deer, G. Henderson, Rt. Hon A (Rowley Regis)
Blackburn, F. Delargy, H. J. Herbison, Miss M
Blenkinsop, A. Dodds, N. N. Hobson, C. R.
Blyton, W. R. Ede, Rt. Hon. J. C. Holman, P.
Boardman, H. Edwards, Rt. Hon. Ness (Caerphilly) Holmes, Horace (Hemsworth)
Bowles, F. G. Field, W. J. Houghton, Douglas
Braddock, Mrs. Elizabeth Fienburgh, W. Hoy, J. H.
Broughton, Dr. A. D. D. Finch, H. J. Hudson, James (Ealing, N.)
Brown, Thomas (Ince) Fletcher, Eric (Islington, E.) Hughes, Cledwyn (Anglesey)
Burke, W. A. Follick, M. Hughes, Emrys (S. Ayrshire)
Castle, Mrs. B. A. Forman, J. C. Hynd, H. (Accrington)
Champion, A. J. Fraser, Thomas (Hamilton) Hynd, J. B. (Attercliffe)
Chapman, W. D. Freeman, John (Watford) Irvine, A. J. (Edge Hill)
Chetwynd, G. R. Gaitskell, Rt. Hon. H. T. N Irving, W. J. (Wood Green)
Janner, B. Nally, W. Steele, T.
Jay, Rt. Hon. D. P. T. Noel-Baker, Rt. Hon. P. J. Stewart, Michael (Fulham, E.)
Jeger, George (Goole) Oldfield, W. H Stokes, Rt. Hon. R. R.
Jeger, Dr. Santo (St. Pancras, S) Oliver, G. H. Strachey, Rt. Hon. J.
Jenkins, R. H. (Stechford) Orbach, M. Summerskill, Rt Hon. E
Johnson, James (Rugby) Oswald, T. Sylvester, G. O
Jones, David (Hartlepool) Padley, W. E. Taylor, Bernard (Mansfield)
Jones, Jack (Rotherham) Paling, Rt. Hon. W. (Dearne Valley) Taylor, John (West Lothian)
Jones, T. W. (Merioneth) Pannell, Charles Taylor, Rt. Hon Robert (Morpeth)
Keenan, W. Parker, J. Thomas, David (Aberdare)
Kenyon, C. Paton, J. Thomas, lorwerth (Rhondda, W.)
Key, Rt. Hon. C. W. Pearson, A. Thomas, Ivor Owen (Wrekin)
Kinley, J. Porter, G. Thurtle, Ernest
Lever, Leslie (Ardwick) Price, Joseph T. (Westhoughton) Tomney, F.
Lewis, Arthur Price, Philips (Gloucestershire, W.) Ungoed-Thomas, Sir Lynn
Lindgren, G. S. Proctor, W. T. Usborne, H. C
Lipton, Lt.-Col. M. Pryde, D. J. Viant, S. P.
Logan, D. G. Pursey, Cmdr. H. Wallace, H. W.
McGhee, H. G. Reid, Thomas (Swindon) Webb, Rt. Hon. M. (Bradford, C.)
McInnes, J. Rhodes, H. Weitzman, D.
McKay, John (Walisend) Richards, R. Wells, Percy (Faversham)
McLeavy, F. Roberts, Albert (Normanton) Wells, William (Walsall)
MacMillan, M. K. (Western Isles) Robinson, Kenneth (St. Pancras, N.) West, D. G.
MacPherson, Malcolm (Stirling) Rogers, George (Kensington, N.) Wheatley, Rt. Hon. John
Mainwaring, W. H. Royle, C. White, Mrs. Eirene (E. Flint)
Mallalieu, J. P. W. (Huddersfield, E.) Schofield, S. (Barnsley) White, Henry (Derbyshire, N.E.)
Mann, Mrs. Jean Shackleton, E. A. A Whiteley, Rt. Hon. W.
Manuel, A. C. Shawcross, Rt Hon. Sir Hartley Willey, Frederick (Sunderland, N.)
Marquand, Rt. Hon H A Shinwell, Rt. Hon E. Williams, David (Neath)
Mellish, R. J. Short, E. W. Williams, Rt. Hon. Thomas (Don V'll'y)
Mikardo, Ian Shurmer, P. L. E. Williams, W. R. (Droylsden)
Mitchison, G. R. Silverman, Julius (Erdington) Williams, W. T (Hammersmith, S.)
Morgan, Dr. H. B. W. Silverman, Sydney (Nelson) Winterbottom, Ian (Nottingham, C.)
Morley, R. Simmons, C. J. (Brierley Hill) Winterbottom, Richard (Brightside)
Morris, Percy (Swansea, W) Slater, J. Woodburn, Rt. Hon. A.
Morrison, Rt. Hon. H. (Lewisham, S) Smith, Norman (Nottingham, S.) Wyatt, W. L.
Mort, D. L. Snow, J. W. Yates, V. F.
Moyle, A. Sorensen, R. W. Younger, Rt. Hon. K.
Mulley, F. W. Soskice, Rt. Hon Sir Frank
Murray, J. D. Sparks, J. A TELLERS FOR THE NOES:
Mr. Wilkins and Mr. Arthur Allen.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 65 ordered to stand part of the Bill.