§ 7.5 p.m.
§ Mr. Harold Wilson (Huyton)
I beg to move:That this House takes note of the Report of the Cotton Import (Review) Committee (Command Paper No. 8861) and the Annual Report and Statement of Accounts of the Raw Cotton Commission or the year ended 31st August, 1952 (House of Commons 197).I suppose that it is an unusual procedure for the Opposition to put down a Motion to take note of two Reports which have been presented to the Government, but the House will be familiar with the reasons which have led us to do that, namely, the technical fact that we cannot debate the activities of the Raw Cotton Commission either on a Supply Day or in a debate on the Consolidated Fund, because the finance required for the Raw Cotton Commission is not provided under the mechanism of the Consolidated Fund.
We certainly make no apology for raising the question of the Report of the second Hopkins Committee. One reason why we feel it necessary to have this debate is to draw attention to the fact that there has been a major change of policy without consideration or express sanction by Parliament. I am not suggesting that the President of the Board of Trade has acted in any way illegally. So far as I can see from reading the Act, he has not done so, but he has certainly strained to the fullest possible extent the legislation which we bequeathed to him, and it might be argued that he has overstrained it.
I cannot claim that he has acted in a way which is contrary to the letter of the Cotton (Centralised Buying) Act, 1947, but he has certainly acted in a way contrary to its spirit. I know that in a court of justice the intentions of Parliament are not considered. What is important is what is in the Act. But there was certainly no doubt about the intentions of Parliament in connection with the Measure which was introduced into this House and piloted through all the stages of its legislative career by my right hon. Friend the Member for Middlesbrough, East (Mr. Marquand).
At all times in that debate, the only thing being considered was a monopoly for cotton buying. There were one or two 1612 minor loopholes, some of which were introduced in Committee, providing, for instance, for re-export purposes, for samples, and certain other purposes, requiring the assent either of the Board of Trade, after consultation with the Commission, or of the Commission itself. Now that we have reached a state of affairs where well over half the raw cotton coming into this country in the coming year will be on private account, for the President still to operate that by an Act which sought to create a monopoly in cotton buying is over-straining this Act and straining the relations between the Government and the House more than one would have expected him to do.
Since we are so near the Recess, I am not going to say all the harsh words about the President's action which would be appropriate to the occasion. I shall not even attempt to guess what the party opposite would have said if we had tried to introduce nationalisation by a back door in this way. Here is the President—perhaps he did not know what he was doing, because he did not know the percentage contracting out—introducing denationalisation by a loophole in a Nationalisation Act.
§ Mr. Wilson
The right hon. Gentleman seems to be amused, but if he will reflect upon this for a moment I think he will decide that it is not the right way to treat this House. In the next Session the President of the Board of Trade should introduce legislation to give effect to what his policy now is.
I want to ask him to look into another question. I am not a lawyer, although the right hon. Gentleman is, but I have said that as far as I can see there is no direct breach of the Act. I am sure that is right and I am sure that he was well advised on these matters, but I notice in the Act a point to which my right hon. Friend drew attention, that permission to import is dependent on written permission from the Raw Cotton Commission in each case. Will the President assure us that written permission has been given by the Commission in each case of importation and that the Act has been strictly complied with? Again, I hope he will look into 1613 the question before the next Session and put the relations between the Government and the House right by introducing legislation covering what he is now doing.
Our second reason for choosing this subject for debate was to underline some of the main conclusions of the Hopkins Report, one in particular, to which the President has already referred—their statement on page 7,… we are unanimously agreed that it is intrinsically undesirable that cover for private trade should be provided at the risk of public funds, and that the time has now come for this issue to be faced.That unanimous recommendation of the Committee was endorsed by the President when he reported to the House that he had received this Report. As soon as he said that, his statement was, of course, instantly supported from both sides of the House. We all agree, in all parts of the House, that it is thoroughly undesirable to provide cover for private trade at the risk of public funds. That is one of the purposes of this debate, but I want to warn the President, also, of some of the dangers into which we may be running as a nation, and Lancashire in particular, with this swing over from public to private buying and to warn him of some of the dangers of the policy which he appears, perhaps rather un-surely, to have marked out for himself in this matter since he took office.
The whole question of private cotton buying arose from one of those sudden and unpredictable economic decisions for which the Prime Minister has sometimes been famous. We have had other cases, such as the Excess Profits Levy, but it would be out of order to debate them tonight. Opening the Conservative Party's Election campaign at the beginning of October, 1951, the right hon. Gentleman gave a clear pledge to reopen the Liverpool Cotton Market. That raised hopes in Liverpool and caused a depression in very many hearts in other parts of Lancashire.
When he took office the President obviously wanted to give effect to the Prime Minister's pledge, and he has certainly been subjected to pressure by some of his more doctrinaire supporters, especially those who represent residential constituencies well inhabited by members of the Liverpool and Lancashire Cotton Exchanges. The right hon. Gentleman 1614 has, however, found that this problem has turned out to be much more complicated than he expected. He therefore set up the Hopkins Committee very quickly after taking office.
I do not think the right hon. Gentleman could have chosen anyone better to head that Committee than Sir Richard Hopkins, a public servant with a particularly great reputation since he has left the public service for finding a way to reconcile two opposing and apparently contradictory points of view. We certainly found that when he presided over the discussions on the proposals for a development council in the wool industry, where there were two entirely incompatible points of view. If anybody could have brought the two sides together it was Sir Richard Hopkins.
He was therefore the right person to appoint to head this Committee to reconcile the desires of the Prime Minister, on the one hand, with the facts, on the other hand. Of course, the Committee itself was bound to reflect the prevailing tendency and views of the Government. Certainly the trade union members of the Committee went along with the main recommendation, although they must have had many doubts and reservations in their minds. One of the things on which I imagine they insisted was the maintenance of the Raw Cotton Commission.
From the Hopkins Committee came an unusual proposition, namely that a public body, the Raw Cotton Commission, should provide, ultimately at public risk, cover for the private buyer. This is a tremendous reversal from the days of the debates on the Cotton (Centralised Buying) Bill, as my right hon. Friend will remember, because in those debates, in 1947, we had one hon. Member after another from the party opposite contending that private buyers alone were capable of providing cover for the spinner and the manufacturer against changes in raw cotton prices.
It has been a surprise, although perhaps a welcome surprise, to hon. Members in all parts of the House that the Raw Cotton Commission has been able to work out an extremely valuable system of providing cover and to do it in what has been a much more difficult situation than any which the Liverpool Cotton Market ever had to face. Here we had this reversal, nevertheless, by the first 1615 Hopkins Report, going right back on what was said in 1947 and asking that a public body should provide cover for private merchants.
§ Sir John Barlow (Middleton and Prestwich)
How could private buyers provide that hedging if they were not allowed to work at all?
§ Mr. Wilson
I am coming to that point, which is absolutely bound up with the present economic situation which the country faces, whatever Government we have in power. It does not seem to have been very clearly considered by the Prime Minister before he gave his pledge in October, 1951. The result, in any case, of the first Hopkins Report and its acceptance by the Government was that the Commission had to provide its umbrella for the private buyers as well as the public buyers. We all realise that in the conditions of the post-war world, with the dollar shortage and other difficulties, and with the need for non-dollar growths, the private buyers could not provide the facilities which it was possible for them to provide before the war. The hon. Member for Middleton and Prestwich (Sir J. Barlow) is quite right about that. It was impossible for them to provide dollars for hedging. I am not criticising the private buyers but merely describing the kind of world in which we live. Again, this suggests that my right hon. Friend and the Government in 1947 appreciated the kind of world in which we live rather better than some of the Tory critics at that time.
The second Hopkins Committee, of 10th March last year, was asked to review the situation for the coming 12 months. I thought at the time that this was rather an unusual procedure. The President announced that cover was going to be provided for another year by the public body, and then set up the Committee to tell him how to do it. Surely it would have been desirable to set up the Committee first and to find out how to do it before coming to the decision on principle of whether it was right for cover to be provided.
His announcement perturbed many hon. Members on this side of the House and probably some on his own side. It was felt that there would be a danger of public capital being involved to cover the normal risks of private trading, even 1616 the risks of private miscalculation, but nevertheless the Committee was appointed and we awaited their Report. I think we must congratulate the Committee on the commendable speed with which they produced their Report, which was issued a few weeks ago.
There are one or two points in the Report to which the attention of the House should be drawn. First, they had a rather important pronouncement on the subject of prices. There has been a great deal of propaganda in not disinterested quarters in Lancashire suggesting that private buyers have been buying a great deal more cheaply than public buyers during the period of the dual purchases. The Report says:But we have the impression that if a thorough general examination of results over a complete trading period, conducted in the light of all the circumstances, were practicable, it might well appear in the net result that differences were only marginal.The Committee therefore award equal points to both sides. That is on page 4 of the Report.
The second point, which I think is the essence of the problem which the House faces, is that the Commission could not hope to provide as good a cover for contractors out as it could for its own customers, simply because they could not identify the precise qualities of cotton for which cover was being asked. The Commission could not provide a service for other than its own customers because of the difficulty of identifying particular grades of cotton.
The first Hopkins Committee a year earlier had proposed that rough cover could be provided by relating the cover offered to a choice between the whole range of the price indices and the sterling equivalent of the New York futures market or the Alexandria futures prices. What the second Hopkins Report said was that this system would not work well at all and had been virtually ruined so far as Egyptian cotton was concerned by the closing of the Alexandria futures market.
I should like to draw the attention of the House, or, at any rate, of those hon. Members who have not already seen it, to paragraph 27, which draws attention to the very serious state of affairs—indeed, something approaching a racket—in which the cover system provided by 1617 the Commission is being played for private advantage by a number of importers. The Hopkins Committee says that:A cover scheme based on public funds should not be capable of misuse in this way.The third point mentioned in the Report, of some importance to the House in considering this matter, is the obvious failure of the merchants to build up a stock for spot use, despite the help given by the Minister of Materials earlier this year when facilities were provided for the very purpose of building up such a stock.
One can quite understand the difficulties of the Cotton Association and its members. They may well feel that this is not the time for building up stocks with the price trends as they are, but what it means is that if it were left to them Lancashire would be extremely vulnerable in an emergency, if, for instance, we ran again into a new dollar crisis necessitating economy in dollar purchases, or if we ran into another state of affairs such as those in 1950 and 1951 when there was a short American crop and the American Government severely rationed supplies to us far below the proportion of the supplies we ought to have had, or if there were a military emergency. This really makes the Lancashire industry very vulnerable to any changes of that kind.
The fourth point which struck me as I read the Report—and, certainly, I read it with very considerable relief—was given in the key passage I quoted a few minutes ago and the unanimous view that it was intrinsically undesirable to provide cover for private trading at the risk of public funds. One purpose of this debate is to strengthen the right hon. Gentleman in his clear statement that he accepts this principle. I think it will be valuable if we make it clear in all parts of the House that we are all opposed to the use of public capital for this purpose, and if we remove any illusions which may well exist in certain interested quarters in Lancashire about this question.
I do not think I need argue this case. One has only to consider its reactions on other industries. The wool industry, for instance, has suffered far more violent fluctuations in the prices of its raw material in the last few years than the 1618 cotton industry, and this is a privately bought non-dollar commodity. One can imagine the difficulties the President would face if the wool industry came along and said, "Cotton has got public cover. Why cannot the wool industry have it as well?"
§ Mr. William Shepherd (Cheadle)
I should like to get this quite clear. To whom does the right hon. Gentleman refer as being the private traders in this industry? Is a private trader one buying cotton from the Raw Cotton Commission and spinning it?
§ Mr. Wilson
I was referring to private importers in this case, the customers of the private importers. The House will see the difficulties in which we should get if, in fact, public cover could be used in this way. The Committee recommends that there should be close study of alternative means, private means, for giving this cover, and says that that study is urgently necessary.
I think it is our duty to warn the right hon. Gentleman about the reference in the Report to convertibility. I do not think anybody on this side of the House or many on his own side feel that convertibility is something which is a likely or desirable economic policy of this country. I should be out of order if I were to debate that now. We have debated it on a number of occasions, but it would be wrong for the cotton market to assume that convertibility would provide for them the escape from this problem they are facing.
Equally, however, we must emphasise that it would be entirely wrong to provide for any further use of scarce dollars for hedging purposes on the New York market. I hope the right hon. Gentleman will put his foot down firmly on any proposal of this kind. I asked him for an assurance on this point at Question time some five or six weeks ago, and I hope to get it tonight.
I ask the President to realise where we get to on this. There is a danger that this urgent examination, which has been called for, will find there is no way out, that there is not any way of providing adequate private cover. If that should be the position I think the President should be told he must not come back to the House at the last minute and again announce there has not been a 1619 solution and that he must provide cover for a further year. Yet it is evident that in the interests of the cotton industry the maximum possible cover should be provided.
I think the right hon. Gentleman may find before long that events will put him back to a higher proportion of public buying instead of to the 100 per cent. proportion of private buying to which he is obviously directing himself. I think he should be warned against further encouragement to contracting out. Whatever may be the views of some on his side of the House I do not think there are many of us who would be guilty of pressing him to wind up the Raw Cotton Commission entirely. If he were to do that it would be a body blow to Lancashire's future.
I think that he will recognise that the Raw Cotton Commission has done a first class job in difficult circumstances. I think the whole House would wish to compliment Sir Ralph Lacey and the other independent members and part-time members and all those concerned with the work of this Commission. Also, I think, a special word should be said about the staff. As the annual Report makes clear, the staff have had to face over the last year or two the most unpleasant atmosphere charged with partisanship, misleading rumours, and attacks to which they were not able to reply.
What is one rather serious thing is that a considerable number of the staff, of the senior staff, are under notice at the present time and will be leaving the Commission's employment this week—tomorrow—and as far as I know there is no provision for compensation for them. I hope the President is going to look at this as a matter of urgency. This really bears on my opening remarks, when I said the President has entirely changed the policy without coming to the House and telling it. I shall not use the word which is a favourite with the Secretary for Overseas Trade and say the right hon. Gentleman had not the "guts" to come to the House about it.
But certainly he ought to have come to the House, because if he had done so I think one thing we should have insisted upon putting into the Measure 1620 would have been compensation for loss of office of some very good members of the staff who came into this employment thinking, on the authority of a decision of the House, that it was going to be permanent. They are suddenly cast off without any change in the legislation governing their employment. I am told that the suggestion that they should be compensated for loss of office has been rejected on the ground that the President has no statutory authority to pay compensation. I should have thought that a little thing like that would not have stood in his way. He has done what he has done with a scant amount of statutory authority for doing it.
If he needs statutory authority, I hope he will ask for it. I can certainly promise him that if he makes a request for any authority he needs for compensation of the staff it will be readily supported from this side of the House. Certainly in Measures of nationalisation and of denationalisation the House has been concerned with compensation, but in this case what has been done has been done by administrative means, and nothing has been done about that.
The Commission should be complimented particularly on the reputation they have earned for the quality of the cotton that they have been buying. This, again, is a reflection on a lot of earlier criticisms, which were more a reflection of the supply and dollar position than of the competence of the Raw Cotton Commission. Now, the Commission have a good name for the quality of the cotton they buy. One knows that throughout the spinning and weaving districts of Lancashire there is a real fear on the operative side that the return to private buying would mean a return to some of the poor qualities that they knew so much about in pre-war days. [Laughter.]
The hon. Member for Cheadle (Mr. Shepherd) laughs, but I suggest that he should show that attitude in some of the weaving districts before a good trade union audience who know even more about good spinning and bad spinning than he does. I draw the hon. Member's attention to the leader in the "Manchester Guardian" of 19th June:On the operatives' side good cotton has come to be associated with State buying, and there are fears that private buying might lead to the use of inferior cotton and so to a lessening of the operatives' earnings.1621 However, I leave that question to my hon. Friend the Member for Farnworth (Mr. Thornton), if he is fortunate in catching Mr. Speaker's eye.
There have, of course, been big price fluctuations in the sales of the Raw Cotton Commission; they have been a reflection of world events. One has only to look at the price fluctuations in the United States for raw cotton last year; and I have already referred to the much bigger fluctuations in wool. It was inevitable that if the Commission set out to effect replacement prices for its cotton sales, there were bound to be fluctuations corresponding to those which occur in world markets.
I am sure that the hon. Member for Cheadle is only itching to get up and talk about the loss of £22 million last year. I suggest to him, or to anyone else so itching, that such a loss was inevitable in a falling market and that it was made out of past profits, which were made equally inevitably on a rising market. It is a familiar effect with other raw materials. The Minister of Materials has come to the House on a number of occasions with Supplementary Estimates. Of course, we did not criticise him about them, because we—I take no credit about this—had made big profits on a rising market, and it was always envisaged that those profits would be set aside for meeting the losses which would be inevitable when some of the goods bought at the higher prices were finally sold off.
But there are other reasons too. The Commission last year or the year before made some uneconomic purchases of American cotton—I grant that readily. They had to do that in order to build up stocks after the action of the American Government in cutting supplies to us in the previous year. I do not think any Member of the House would criticise the Commission for placing such large orders in the Sudan a year or two ago, because those were necessary as an insurance against troubles in Egypt. The Commission were right to buy. I do not know whether or not private buyers would have bought. If they had not, they would have been running undue risks of the necessary supply for the Lancashire industry.
The Report shows that the Commission provide better cover for those who buy from them than they can for others, and a better choice from stocks, but it empha- 1622 sises that this position cannot be maintained if a majority of the mills contract out. The Commission cannot be a supplier of last resort if they are supplying only a minority of buyers within the industry.
I warn the President against any ideas he may be entertaining of scrapping the Commission. He will probably find that private buying has gone as far as it can go, and there will be no return to pre-war conditions for a very long time to come. Already three import crops—Egypt, Brazil and Pakistan—are being offered for sale by tender or barter and other methods which by-pass the ordinary mechanism of the market. Even the American crop is now dominated by political considerations and price support policies. As for Colonial products, the whole House knows that we shall not get an adequacy of Colonial supplies except on the basis of long-term contracts, which simply cannot be provided by the private Liverpool market.
Recently "The Times Review of Industry," not by any means a Socialist journal, stressed thatThe world market for cotton … seems to be in or near a condition where the process of transferring importation and distribution from a State-supported monopoly to private traders may be checked. In present circumstances buying involves an unusual amount both of risk and of complexity; thus there is greater scope and, perhaps, a greater need for centralised buying than there would be under more normal conditions.Does the President of the Board of Trade see any hopes of a return to the "more normal conditions"? Have not the conditions described by "The Times Review of Industry," that were met with last year, come to stay?
How does the President think that the present dual system, or, worse still, an entirely private system, would operate if we run into a new dollar crisis? The changes that have so far taken place have been against a background of a favourable—I believe, a temporary favourable—economic climate. Suppose there were a dollar crisis. Can we imagine private buying working in those circumstances? The first thing that the President would have to do would be to allocate dollars and cut down dollars. Then, we would find that certain merchants were getting a scramble for the cotton that they import, and there would be an artificial premium on some of it. The mills who were closely 1623 tied to the merchants, perhaps by some of the new integrations going on in the industry, would be specially favoured and others would be left out in the cold. Worse still, there would not be any mobilisation of stocks for meeting a crisis when we need the very last ounce of imported supplies.
In 1949 we just got through without a single mill closing down, because the Commission were able to squeeze out the very last ounce of their stocks and ensure that supplies were allocated fairly, although not always in accordance with the desires of particular mills for the particular grades they wanted. But is there any hope of that system of fair shares if we run into a dollar crisis on the basis of private buying? Would private buyers also have the ability or the incentive to switch from dollar to non-dollar cottons?
The right hon. Gentleman gave some figures in answer to a Question the other day, showing that since 1938 Commonwealth supplies of raw cotton have come to account for, not 23 per cent. as in 1938, but 37 per cent. of our raw cotton imports last year. That is a very fine achievement, but it is partly due, at least, to long-term contracts and centralised buying. Does the President think that that will continue if we abolish the Raw Cotton Commission, or even if we continue the present dual system with a preponderance of purchases coming through the private traders?
I hope the President will realise that he may have already gone too far. I hope he will be ready to put more reliance than he has been doing on the Commission. Especially he must be ready to face the consequences for Lancashire of a dollar crisis, which has more than once since the war threatened Lancashire's supplies of raw materials. If the right hon. Gentleman is prepared to look at the problems in this way and not in accordance with any doctrinaire ideas about whether it should be private or public buying, he will find a ready support from this side of the House.
I hope that the President tonight will answer some of these points, especially about his use of the legislation, about the assurances for which we have asked, about the methods of private cover that will be made available, about his assurance that he will not wind up the Raw 1624 Cotton Commission, and about what he will do to encourage Commonwealth development. Last, but by no means least, I hope that the right hon. Gentleman will give us some assurance that the staff of the Commission, who have served the Commission, the industry and the nation faithfully and well for many years, now that they are being discharged, through no fault of their own, will be adequately looked after, and that he will give his personal attention to the problem that is created by these redundancies on the staff of the Commission.
§ 7.40 p.m.
§ The President of the Board of Trade (Mr. Peter Thorneycroft)
Her Majesty's Government welcome this debate. I think it is an appropriate moment at which to have some discussion about some of the future problems concerned with the purchasing of raw cotton not for the purpose of announcing policy for this season, because I have already done that and it is now implemented and going forward, but because, in cotton as in most other industries, it is important to look ahead and decisions have to be taken early in order that merchants, traders and others concerned in the industry can make their plans.
The reports which we are considering here are, first, the Report of the Cotton Import (Review) Committee and secondly, the Annual Report and Statement of Accounts of the Raw Cotton Commission. As the right hon. Gentleman said, the Cotton Review Committee sat under the distinguished chairmanship of Sir Richard Hopkins, and I should like to agree with the right hon. Gentleman in saying how big a debt we all owe, whether in Government or in industry, to the work of Sir Richard Hopkins on these two inquiries. This Committee, like the previous one, included representatives of all aspects of the industry, including the trade unions.
Before I turn to the details of that report, I want to say something about the background and the context in which its conclusions were reached. The report deals with the question of how we should buy raw cotton and how we should cover the traders, but it must be read against the background of the original Hopkins Report which was produced just over 12 months ago, and it must also be read in the context of the Report 1625 and Accounts of the Raw Cotton Commission.
Perhaps the most convenient way of presenting these problems, so that hon. Members may direct their arguments towards them, is to take the position of the Raw Cotton Commission first of all. After all, it has in recent years purchased the bulk, and still purchases a very substantial part, of all the raw cotton that is coming into this country. Like the right hon. Gentleman, the first thing I would say about the Raw Cotton Commission is to pay a tribute to its staff and not least to the work of Sir Ralph Lacey. The work he has had to carry out is of an extremely difficult and technical character, and it has been done at a period when textiles throughout the world have been going through a difficult patch. Throughout all those times Sir Ralph Lacey has not only shown his outstanding ability, but he has earned and kept the respect of men of very varied interests and views throughout Lancashire.
The Raw Cotton Commission has two jobs. One is merchanting and the other is cover, and I want to say something about both of them. The Report and Accounts to which the right hon. Gentleman referred were published on 23rd June of this year and they show a total loss of just over £25 million as set out in detail on page 41. Of this, about £2 million relates directly to the cost of covering its clients on a falling market, though I think I should tell the House that substantial losses on the Raw Cotton Commission's covering of its clients on a falling market are also probably concealed in the remaining £23 million; that is to say, the total cost of cover is probably more than the £2 million incurred directly.
Allowing for the profits and losses in previous years, including the £25 million loss just referred to, the reserve fund is now down to just under £10 million. As to the likely position in the current year, it is too early to say with any certainty, but I should warn the House that until the spring of 1953 prices continued to fall and some further loss is likely in the current year's trading.
Whatever else is said about all this, it must be recognised that these figures face us all, on whatever side of the House we sit, with a really serious problem which we must face calmly and dispassionately. What can be said about it? I agree with 1626 what has been said by a great number of the financial commentators on this point, that the real cause of these losses is not to be found in some lack of skill in the Commission but is inherent in the system, in trading conditions which have operated during this period. The fact is that the Raw Cotton Commission are absolutely committed to supply all the cotton that the industry needs, and this commitment has forced the Raw Cotton Commission to hold larger stocks than the private operators might have done, as the right hon. Gentleman indicated. While it is true that the Raw Cotton Commission may gain on a rising market, it is almost certain to lose on a falling or a fluctuating market.
It may be that the normal accountancy practice which requires stock to be valued at cost or replacement, whichever is the lower, may tend to emphasise the losses on a falling market and minimise the gains upon a rising market. I accept that at once, but that is not a fact which alters the true nature of the problem we have to face. It may alter the size of the picture, but not its true nature. The basic cause of the problem lies in the statutory obligation on the Raw Cotton Commission to hold stocks of all types large enough to service the whole industry. It was this statutory obligation which compelled the Raw Cotton Commission to buy expensive Sudanese cotton in the winter of 1951–52, part of the losses of which are reflected in the accounts we are now considering.
One word as to the quality of the service. I believe that the general view in Lancashire is that the Raw Cotton Commission has done a fine job within the limits imposed upon it. I was going to call attention to paragraph 4 of the Cotton Import (Review) Committee's Report, to which the right hon. Gentleman referred, which compares the various types of service extended to spinners and which comes to the conclusion, I think fairly, that both contractors in and contractors out could be very well satisfied with the service which was extended to them.
If I might summarise this side of the matter, I do not stand here to apologise for the Raw Cotton Commission. I am firmly of the opinion that the staff of that organisation have done a good job in the circumstances with which they were 1627 confronted, but equally I do not minimise the real difficulties which arise from the statutory obligations that have been imposed upon them in the market conditions which have obtained. The truth is that these facts and trading results, and these inherent risks to public funds, provide a background against which future action must be judged.
We recognised this two years ago and we have been anxious to solve it. May I ask right hon. Gentlemen to believe that I have always been anxious to solve this not on a basis of party passion at all. I have always been anxious to solve it on the basis of an objective approach. I have always felt that if we tried to tackle it that way we would be likely to get a better solution, and I am quite certain we would be more likely to get a lasting solution. That is why, as the right hon. Gentleman pointed out, within a very short time of being appointed to my present office I appointed the first Hopkins Committee, which reported in 1952. I thought it was a matter of satisfaction to see the way in which all the interests in Lancashire showed their willingness to work together in what was, after all, a controversial sort of problem. The trade unions, the spinners, the merchants, the Cotton Board, the Raw Cotton Commission and the Liverpool Cotton Association were prepared to sit down together and see whether they could work out a satisfactory solution to a problem which concerned the whole industry.
That Committee in their report recommended two things. First, they recommended that the spinners should have a right to contract out, that is to say, a man could buy either directly if he wished or through the Raw Cotton Commission. The second thing they recommended was that cover should be provided for the whole industry by the Raw Cotton Commission. The result, I thought, was interesting. The result was not a landslide towards private buying. There was a cautious approach, and I think it was quite right to be cautious. There was much at stake. The situation and the conditions of the world particularly were most uncertain, and the amount of contracting out varied for different groups. On an average about 30 per cent. was being bought direct, 1628 that is, not through the Raw Cotton Commission.
At the beginning of this year we were faced with the possibility that more spinners might contract out. The choice, after all, was theirs by a unanimous decision of the industry itself. Only they could take it. It was not for me to tell them which way to buy or which way they ought to choose, but it was clear to me that if large numbers were to contract out it might affect the Raw Cotton Commission's ability to carry out its statutory obligation.
Last, but by no means least, spinners trade privately and for profit. A change in the price of their raw material is part of the risk they run. We have always had to consider, and we always must consider, how far that risk could or should be taken off them and carried by the public purse. After all, there are other traders in other trades running similar risks, and they might start to ask for the same beneficent treatment.
The right hon. Gentleman sought in this matter to draw a distinction between contractors-in and contractors-out. I do not want to be dogmatic about it, but I am not altogether clear why those trading as contractors-in should be regarded as less private than those trading as contractors-out. The difference is not completely obvious, at least not at first sight. I am not going to be dogmatic about this nor am I making final decisions on it but I rather thought that the right hon. Gentleman was leading himself towards the conclusion that we might have, as it were, one lot of cover operations or methods for one lot of spinners, and another for another. I am rather doubtful whether that would really be a workable proposition.
Against that background we did appoint a further Hopkins Review Committee. As I say, I make no apology at all for trying to move in this matter as far as possible in agreement with all sides of the industry and on a basis of joint Government and industry study. The Report which is the subject of this debate is, I think, in many ways encouraging. It states that the previous year's experiment worked smoothly, and I think it is generally agreed that the Raw Cotton Commission, under the able chairmanship that it has had, has certainly given 1629 as good and probably better public service since it ceased to have a monopoly of cotton imports.
The recommendations of this second Hopkins Committee, like its predecessor's, were unanimous. They considered that the previous year's experiment should continue for a further twelve months with certain detailed modifications. The spinners were invited to declare their option for the coming buying season, and the result of those options is again interesting. There was no landslide. They moved quietly and on a considered basis. The number of mills buying all their requirements direct actually equalled the number of mills buying entirely through the Raw Cotton Commission. About 56 per cent. of the cotton will be bought directly or through merchants. For both main groups the proportion of contractors-out has risen substantially.
The right hon. Gentleman did not challenge the legality of these operations, but he said that he thought we were straining the purposes of the Act. As he knows, the Act contains powers which enable the Government and the Raw Cotton Commission to permit private importation and sale under licence. I should like to give him an assurance that the statutory requirements are being carried out in every case. We have used these powers in accordance with the unanimous recommendation of the Hopkins Committee in two successive reports.
I would agree with the right hon. Gentleman that it is perfectly right to draw this point to my attention and to the attention of the House, and I can assure him that we will watch these developments very closely with an eye on the ability of the Raw Cotton Commission to carry out their statutory obligations, and if, in the interests of the cotton industry, it should appear necessary that some modification of the existing Act should be made, we will naturally approach Parliament for that purpose.
I should like now to say a word about the cover side. As I have already said, the Committee confirmed the view that for the 1953–54 buying season we should continue on similar terms. I make no apology for having announced it beforehand, because if there is one thing that is required in the industry it is certainty 1630 for the future, and it was right that I should say in advance that I accepted the principle that cover should be extended on broadly the same terms in the coming season.
The Committee made some useful technical suggestions designed to limit the risks to public funds, which are being considered by the Raw Cotton Commission, and it proceeded to examine possible courses for the future. May I emphasise that these courses for the future are still for examination, and I am having discussions with various sections of the industry on a technical level to explore some of the suggestions made by the Import (Review) Committee.
Let me say a word about what were those courses. It is, in theory, possible to remove cover altogether, but that would be in direct conflict with the view of the original Hopkins Committee. In my view it would be very damaging to the industry and it would be difficult for any spinners, particularly the small horizontal spinner, to spin for stock without cover being provided. To remove cover would cause some danger and risk of unemployment, and a decline in exports, and therefore to remove cover is, I think, a solution more in theory than in practice.
Secondly, the Government could continue to provide cover, either through the Raw Cotton Commission or otherwise, at the risk of public funds. I have already referred to that. I draw the attention of the House to the possible methods, apart from the use of public funds, whereby some cover could be provided. It was suggested, as a possibility only, that facilities might be granted for hedging on the New York futures market. The right hon. Gentleman invited me to say something about that. If it were done that way there would be a certain expenditure in dollars, with no return of the sort which would flow from a revived international commodity market here. Speaking for myself, and without pre-judging the opinion of anyone else, I would say that I find that to be a not very attractive proposition.
There was another possibility, to reopen the Liverpool futures market on the old basis, with the full pre-war facilities. But to do that would require conditions of full convertibility—the right hon. Gentleman is, of course, quite right—and 1631 the unrestricted operation of a free market. While I am sure that Her Majesty's Government may be reasonably satisfied with the improvement which has taken place in our economic situation, I would say at once that it has not yet reached that stage. So I think there would be difficulties about pursuing that course to its ultimate extreme.
Another course which was examined was to open the Liverpool futures market on a modified basis. That could be done without convertibility. Under that method foreign operators would have free access to the futures market, settling their transactions in sterling. But international dealings in cotton would be subject to whatever exchange control restrictions were in operation at the time. For example, a Frenchman could hedge on Liverpool, but he could not buy dollar cotton for delivery in France and pay in sterling. That would obviously be a strain on our dollar resources.
§ Mr. Thorneycroft
If the hon. Gentleman presses me too far I shall probably give the wrong answer. I would say, and I think that the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) would agree, that unless one has spent many years of his life actually operating a futures market one ought not to give too many spot answers about what could happen. But I will look into that.
The fourth possibility which is mentioned in the Hopkins Report was for a futures market not based on raw cotton, organised co-operatively by the various interests in the trade which would not depend on the foreign exchange position. All I wish to say about that is that it is an entirely new idea and something quite different from the Liverpool futures market or the Raw Cotton Commission or Government cover. I make no comment, except to say that it would require very careful study by many sections of expert opinion before it could be put into operation. What requires to be done now is to consider these various alternatives in the light of our present exchange position.
My right hon. Friend the Minister of Materials and myself are already engaged in these discussions. I think it would be wrong to announce final decisions in 1632 advance of their conclusion. This is not a simple situation. There is, in fact, despite all that has been said, no ready-made precedent for solving all the problems existing today, and which are not necessarily the same problems as those which confronted us 10 or 15 years ago. Some of them are concerned with stockpiling, some with the development of cotton throughout the Colonies and throughout the Commonwealth in general. It is the desire of everyone to see that development maintained and if possible improved. I am in consultation with the interests concerned on matters of that kind.
I believe that these problems are not insoluble. So far we have moved in an atmosphere of minimum controversy and maximum co-operation. I think it essential that so long as possible we should continue so to do. I wish to examine these matters for what they are, problems of practical business, in which the Government and all concerned in the industry should combine to find the answers. The future of Lancashire cotton must be based upon ensuring that we have the best and the most economic methods of buying our raw material, and covering the traders against some of the risks inherent in processing it. It is upon that task that we are now engaged, and to which I hope this discussion will contribute.
§ 8.7 p.m.
§ Mr. Ernest Thornton (Farnworth)
I hope the President of the Board of Trade will not mind if I do not follow him into the intricacies of the technical arguments about the Liverpool cotton market. I make no pretence of understanding these highly technical problems, but I wish to express views indicating the apprehension felt, particularly among operatives in our industry—and to some extent among some employers—about the changes envisaged.
I do not for a moment question the right of the Government to hand back completely the importation and distribution of raw cotton if they so desire, but I should have questioned their wisdom, if they had at heart the interest of the public as a whole and the well-being of the cotton textile industry. As my right hon. Friend the Member for Huyton (Mr. H. Wilson) remarked, the promise made by the Prime Minister at 1633 Liverpool was not one of his most discreet utterances. I feel it was that promise rather than the pressure of the appeals and demands within the industry which led to this chain of events. I submit that had it not been for the undertaking of the right hon. Gentleman to provide cover there would not have been an increase in contracting out this year but rather a decrease.
In setting up the Raw Cotton Commission the Labour Government were not motivated primarily by ideological considerations. In fact, what happened was that it merely passed from one form of public statutory authority to another; from the Cotton Control established by the Coalition Government during the war to the Raw Cotton Commission. The driving force for the handing back to private hands comes without doubt from the Liverpool and Manchester raw cotton interests. That is, we have a self-interest which is involved and not the common well-being.
This self-interest is unquestionably the main driving force. I am not saying that self-interest of itself is always bad. But self-interest, before establishing itself at the bar of public opinion, should be weighed against the public interest, and, in this case, against the well-being of the cotton textile industry as a whole. It is well known in the trade that early last year there was a keen division of opinion within the Federation of Master Cotton Spinners Associations as to the desirability of a fundamental change in the method of buying and distributing raw cotton.
After the first Report of the Hopkins Committee, within a few days of the last date for contracting out, it is true that by weight of cotton only 10 per cent. had indicated that they intended to contract out. That led to a last minute ramp. There was a hastily convened meeting of cotton spinners. To use the blunt Lancashire expressions used in our industry, something like this transpired at this meeting of employers. It was said, "Well, now look here, lads. We are all gathered together here. We believe in private enterprise, we stand for private enterprise, and yet 90 per cent. of us are going to elect for public enterprise and only 10 per cent. for private enterprise. We have to do something 1634 about it" That was the tone of the meeting.
We get to know what happens at employers' meetings just as the employers get to know what happens at our meetings. I do not think that I am giving any secrets away. As a result of ideological considerations—and self-interest was not completely absent because there is a considerable tie up between the big spinning concerns and the raw cotton merchanting firms of Liverpool—the percentage which contracted out was eventually built up to 30 per cent. I do not think that the statement I have made can be denied. An illusion is being built up that private trading in raw cotton served the industry well between the two world wars and before the First World War, but that is not true, as I will attempt to indicate. The "Economist" for 26th February, 1949, said:Before the war cotton spinning employers were vociferous in their complaints about the Liverpool Cotton Market.That is not cotton trade unionists speaking; that is the "Economist." The President of the Federation of Master Cotton Spinners Associations in the early 1920's, Sir Charles Macara, who was a very formidable figure in his day in the cotton spinning industry, on numerous occasions and over a period of years voiced strong criticisms of the methods of importing and dealing with raw cotton in the Liverpool market. On 18th December, 1923, the Cotton Spinning and Weaving Employers' Associations made a report from which I will quote. They said:In our opinion one cause which contributes very seriously to the bad trade which has been for some time experienced in the cotton industry is the fact of the excessive gambling on the Liverpool Cotton Exchange Futures Market. It should be noted that, although the Liverpool Cotton Exchange does not keep any record of the transactions which go through its Futures Markets daily, it is estimated on most reliable authority that the average number of bales bought and sold on the Liverpool market in the course of a day is 200,000. A similar number of bales of raw cotton is bought and sold on the Futures Market in New York and quite a considerable number are to be added to this for the transactions which take place in New Orleans. It would be a very moderate estimate to say that an amount of business goes through the three exchanges in Liverpool, New York and New Orleans in futures per annum which is equivalent to ten times the amount of American cotton grown in any one season, and this dealing in futures to such a large extent must 1635 seriously hamper purchases of cotton for legitimate purposes.These are the opinions of the employers within our industry. I know that the attitude of mind has changed. I do not say that my last quotation would stand very complete analysis today, but I suggest that the whole weight of evidence in the years between the wars and before the First World War was that the Liverpool Cotton Market and its system of importing and distributing cotton did not serve the industry well especially during the difficult years.
§ Mr. Charles Fletcher-Cooke (Darwen)
May I ask the hon. Gentleman a straight question? Is he or is he not in favour of permitting people to contract out?
§ Mr. Thornton
I do not object to a limited system of contracting out in special instances, if it can be devised. I believe in a pragmatic approach, as the President of the Board of Trade indicated in some parts of his speech. I am concerned about the elimination of the Raw Cotton Commission which would be a disaster to Lancashire. I will come to that soon. In the few instances which I have quoted from the great weight of evidence which is available, there is an indication that all was not well when private trading held full sway, and it held full sway in a period when raw cotton was in plentiful supply throughout the world and when there were no currency or exchange problems.
The Government would have been wise to have heeded the advice given early last year to the Cotton Import Committee by the trade unions. That advice was to concentrate on improving the operational efficiency of the Raw Cotton Commission. The Commission, in incredibly difficult conditions, has served the industry and the trade well. One of the services it provided was that of the Commission's spot stock. Mr. W. T. Winterbottom, who is probably one of the leading employers in the spinning industry today, called attention to this in the "Manchester Guardian" on 15th July. He said:We must admit, however, that the existence of the Raw Cotton Commission's spot stock is extremely convenient and reduces the necessity of employing one's capital to carry cotton stocks.1636 If cotton spinners are to employ great amounts of their capital to finance cotton stocks, we shall not get the degree of capital re-equipment for which some of the more optimistic of us hope. The Government would have been well advised to wait until more normal trading Conditions returned. Then, and only then, could a really objective assessment have been made of the relative merits of public and private operations in raw cotton.
Whether we like or not, whether it is true or not, the cotton operatives of Lancashire associate better spinning and weaving with the public buying and distribution of raw cotton. The records of the trade unions are conclusive on this point. During the last 10 years there have been fewer complaints of bad spinning and bad weaving than in any other 10 years since the keeping of records was begun, and the records go back for more than 50 years. This point is of great importance to the workers.
§ Mr. Shepherd
Is the hon. Gentleman telling the House that this is caused by better buying, or does he believe that it is caused by better grading facilities and more attention being paid to quality in the countries where it is grown?
§ Mr. Thornton
I am coming to that. I do not want to distort any arguments I have to put across, and I am at least trying to be fair. It is of great importance to cotton textile operatives that the quality of raw materials is adequate for the task, because they are mostly paid on piece rates. If we have a lower grade cotton than is required for spinning, or a lower grade yarn than is required for weaving the cloth, we get yarn breakages, which reduce output and proportionately reduce wages under the piece rates system.
I agree that, in saying that, it is an over-simplification. It is true that, during the last 10 years, we have been operating mainly in a buyers' market, and because of that, employers' margins have been good. The supply of operatives during most of the period has been short, and it was up to the employers to get a better grade of cotton to ensure that they got the maximum productivity from the machines and from the limited supply of labour.
1637 In a period of real scarcity of raw cotton, the Raw Cotton Commission has succeeded in providing a choice in an upward, and not in a downward, quality direction, and, when all allowances are made and when all the factors are taken into consideration, it remains a very unusual coincidence that 10 years or so of public enterprise in raw cotton has synchronised with a quite unparalleled period of relative freedom from operatives' complaints about the inferior quality of raw materials. It is very strange and an unusual coincidence, and it would be the responsibility of the private dealers in raw cotton, and of those who contract out, to explain away this factor if it so happens that we get back to the old conditions in which stuff that was not equal to the job was being put through the machines.
I do not think it can be denied that the Raw Cotton Commission operates primarily to serve the needs of industry and trade, and not to extract a profit for certain private individuals. The driving force for the return to private trade comes from people who hope to extract a substantial private profit, and, I may add, also have a tax-free gain from private speculation. Under these circumstances, the well-being of the industry as a whole would be a mere by-product of these activities. I am not denying that there are occasions when private interests and the public interest synchronise, but the history of the Liverpool Cotton Market during the 50 years prior to World War II indicates that raw cotton does not come within this category.
The hon. and gallant Member for Rochdale (Lieut.-Colonel Schofield) made an excellent speech in this House on 16th July on the need for increasing cotton growing in the Colonial Empire. The hon. and gallant Gentleman is very knowledgeable on this particular subject—far more knowledgeable than I could hope to be—and he indicated in that speech that, before the war, only 8 per cent. of our raw cotton imports came from the Empire, whereas in 1952 26 per cent. of our raw cotton imports came from the Empire. Although dollar problems have contributed to this, the main reason, I submit, is that the Cotton Control, followed by the Raw Cotton Commission, were able to give the long-term assurances and guarantees which led to a growth of 1638 confidence in developing and extending cotton production in the Empire.
If the Raw Cotton Commission ceases to exist, or exists in a position in which it is only handling a minor portion of cotton imports, the danger that I see is a decline and not an increase in Empire cotton growing. One of the weaknesses of the cotton textile industry in our national economy at the present time is, as I think the right hon. Gentleman opposite would agree, that the cotton textile industry is a heavy dollar spender and a small dollar earner, and it is of vital importance that nothing should be done which would in any way retard this growing development of cotton growing within the Colonial Empire.
Leading Liverpool cotton merchants have been talking openly of the need for foreign—presumably, American—capital being brought in. It is intended that this capital should be used for financing cover schemes and spot stocks. I hope the Government will completely reject this idea. It would do immeasurable damage to the future of our industry and to the development of the Colonial production of cotton, and would certainly not contribute to improving Anglo-American relations as far as the population of Lancashire is concerned.
One last point. The Chancellor of the Exchequer, a few days ago, was making a speech calling for higher productivity and increased efficiency in industry, sentiments with which I agree. One thing I should like the President of the Board of Trade to bear in mind in this problem which we are discussing today is that, in the Lancashire cotton textile industry, as in most industries, there has been co-operation between the trade unions and the employers to attempt to increase productivity by redeployment schemes and so forth.
I should like the President to examine this problem from the point of view of how much more personnel will be required to operate cotton importation and distribution on a private basis by a whole series—scores, even hundreds—of firms, as compared with the present method through the medium of the Raw Cotton Commission, and particularly of the Raw Cotton Commission set-up when it was importing 100 per cent. of our requirements. We in the trade union movement will take a very dim view of an outlook 1639 that seems to indicate that re-deployment and increased productivity is for the manual worker, but that it can be put in reverse for the administrative workers, and private profit seekers.
I hope that the President of the Board of Trade will examine that aspect of the situation. While in terms of manpower it may not be important, psychologically it can be very important indeed. I appeal to the Government to go with infinite care in this matter of handing back to private interests dealings in the whole or in a substantial portion of our cotton imports. As has already been indicated, great dangers are involved, and I feel quite certain that any steps taken on this matter in the next year or so will be of fundamental importance to the future of the County Palatine.
The Government, I submit, will be taking a serious risk with the livelihood and wellbeing of scores of thousands of Lancashire people if they hand back this vital trade to private interests whose past record overall—and I say this quite frankly—has not been good, and whose motives are not altogether above suspicion.
§ 8.32 p.m.
§ Sir John Barlow (Middleton and Prestwich)
I consider myself fortunate in having the opportunity of following the hon. Member for Farnworth (Mr. Thornton) who, apparently, has a great knowledge of this industry, and who, of course, represents considerable cotton interests. If I emphasise some of the differences of opinion between us, I hope that he will not think for one moment that I do not agree with a great deal of what he said. We are both out for the improvement of the Lancashire industry and to maintain the prosperity of the Lancashire cotton industry, especially the exporting of cloth. Therefore, if I do not mention the points on which I agree with him, I hope he will not think that I disagree with him in everything, which would be very far from the truth.
In the early part of his speech, the hon. Gentleman said that the original idea of the Raw Cotton Commission and of Government buying was not motivated by ideological considerations. I think that if he had sat through the debates of 1946 when the Bill was passed, and previously when the Motion discussing this 1640 matter was before the House, he would not altogether take that view now. Many arguments were put forward at that time in favour of Government buying which were very difficult to refute, because there was really no experience and no argument to show how it would work in peace-time. We knew how it had worked during the war and that the ordinary methods of buying privately would have been impossible in war-time, but we did not know how it would work in peace-time. Therefore, in many cases, it was a mere expression of opinion on the part of individuals regarding the possible advantages and disadvantages of Government buying at that time.
I wish to point out two or three arguments—which have proved to be inaccurate—that were put forward in March, 1946, when this matter was being discussed, and when the principal Government speaker of the day based his argument largely on three views as to what would happen. One point has been mentioned by the right hon. Member for Huyton (Mr. H. Wilson) tonight, the difficulty of great fluctuations in the price of cotton. No consuming industry such as the woollen industry or the cotton industry likes violent fluctuations. But there is always the difficulty of considerable fluctuations in raw commodities. In some industries it is far greater than in others. At that time the then Chancellor of the Exchequer said:I will quote one figure only in order to state the case to the House"—that is on this general point—If we take the 10 pre-war years and consider the fluctuations over the yearly periods, we find that in no fewer than five out of these 10 years there was a fluctuation between the highest and the lowest price in the course of the year of 45 to 65 per cent."—[OFFICIAL REPORT, 28th March, 1946; Vol. 421, c. 658.]That may have appeared to be high at the time, but if we look at the figures given in the Report which has just been issued by the Raw Cotton Commission, it will be seen that fluctuations in the past year have been very considerable indeed, that is with Government buying, after it was supposed that fluctuations had been diminished and the undulations of prices had been ironed out.
The Chancellor of the Exchequer of that day quoted the views of that great individualist in Lancashire, Sir Frank Platt, who is so well known throughout 1641 the industry, and who had said that he welcomed the idea of Government buying. The Chancellor went on to say what fine work had been done during the war by Sir Frank Platt in helping and organising the cotton industry, with which remark we all agree. It is interesting to see that recently Sir Frank Platt indicated that all the spindles for which he is responsible had opted or contracted out of the scheme and were going to buy direct. Sir Frank says, in his usual outspoken way, that he much prefers and thinks its much better and more economic to have private buying rather than through a Government body.
A third point mentioned by the Chancellor of the Exchequer in the same debate concerned the argument put up that centralised buying would lose a considerable amount of invisible exports, that is, trading from country to country outside England. The Chancellor said it had been computed that the value of the business amounted perhaps to £1 million a year, and with centralised buying he hoped that that figure might easily be increased to as much as £10 million a year. I have heard that that business has been almost entirely lost to this country, although we know that we require all the invisible exports we can get. If, in time, the Liverpool Cotton Exchange is restored, we may win back some of that very valuable trade.
Obviously, as has been pointed out by other speakers, when the Raw Cotton Commission was first brought in there was a sellers' market. Cloth was in great demand all over the world and the Commission could not help making enormous profits. It was a most unusual situation that we knew could not last very long. Now the market has turned round and values have diminished, while the demand for cloth in this country and in foreign markets has diminished very substantially indeed.
We have arrived at a moment when it is of the utmost importance for us to buy cotton in the most economic way possible to supply the spinners of Lancashire. The fact that 30 per cent. of them contracted out of the scheme last year, and that 56 per cent. have contracted out this year when they had the option, in view of the experience of both systems they have had, it is clear that the majority are gradually coming out. We must assume that the spinners 1642 know their job in buying in the cheapest market.
I should like to pay my tribute to the buyers of the Raw Cotton Commission. They have done a very fine job in most difficult circumstances, and whether one agrees with centralised buying or not we can all agree about the fine work that Sir Ralph Lacey has done in this sphere.
It is clear that a change is needed. That is being brought about by the greater competition in the world's markets. Whilst the home market is important, it does not matter so much as the export markets of the world which, unfortunately, have been diminishing owing to foreign competition. We shall have to fight by every means to hold on. If direct private buying is, in the view of the spinners, the best and cheapest way to do it, and they ought to know, that should be encouraged and facilities should be given to do it.
To give some indication of the immensity of this market and of its importance, hon. Members should know that probably the value of cotton, at present values, amounts to some £200 million a year and that it is necessary to hold in this country stocks of something approaching £150 million worth of cotton. That is a very large figure indeed. If the Liverpool Cotton Market is to be restored it will require a great deal of capital. When it was closed at the beginning of the war a large number of people went out of business. Many firms closed down entirely, funds were invested in other directions and the personnel were dispersed. It will be a slow and difficult process to find the people with sufficient experience to re-open the market.
For that reason I hope that when the re-opening is a practical proposition the Government will do all they can to supply funds for the purpose. Not only do we have to carry very large stocks in this country but it should be realised that it only takes three months at the most to pick the cotton crop and that crop is consumed over a whole year. Obviously, therefore, much of the cotton is in warehouses and in the course of shipment, and a large amount of finance is required to carry it, whether the Government or private enterprise carry it.
The advisability of hedging in New York has been discussed. The difficulties of doing so and the drawback of the 1643 cost of dollars have been pointed out. I would add another reason why hedging in New York is not a complete cover and is not very satisfactory. It does not guard against a change in the rates of freight or insurance, or indeed against any change in the value of the pound. So any hedging in New York could never be so satisfactory or complete as hedging would be in Liverpool.
If and when this Liverpool market is re-opened, as I hope that it will be, because it is for the benefit of the trade, some changes and possible improvements might well be made in the Liverpool contract. I am told that in the past it has only dealt in spot cotton, whereas if documents representing nearby cotton were allowed it would require less money to finance those transactions and it might be a considerable help.
Another change which I suggest would be the incorporation of colonial growths. I believe that the standard Liverpool contract dealt primarily with American cotton, but there is no reason why Colonial cotton from Nigeria, Uganda, Nyasaland or other cotton of comparable staples should not be included. That would help to promote the growing of Empire cotton, which would be a very great advantage and would tend also to save dollars.
One other advantage to cotton merchants in Liverpool would be a saving in taxation. I believe that firms in America doing similar business—it may apply to all businesses; I do not know—can carry profits forward for a period without being taxed. In this sort of business it would add to the security of the market very greatly and would facilitate the provision of the capital for this purpose, of which there is an undoubted shortage, if a similar system were allowed here. It is allowed in certain other industries in this country, and it might well be advantageous if this system of carrying profits forward without taxation for a limited period were allowed in Liverpool. For that reason, I hope the President of the Board of Trade will look into this matter.
Although there is disagreement on both sides of the House about details, we Lancashire Members in particular are very conscious of the fact that this should 1644 not be a political matter. It started, I believe, largely politically, but the sooner it gets away from politics the better. We are out for the good of Lancashire and the improvement of cotton exports.
§ 8.47 p.m.
§ Mr. F. Blackburn (Stalybridge and Hyde)
My hon. Friend the Member for Farnworth (Mr. Thornton) said that he was not an expert on this aspect of the subject, but for a non-expert I think he put a very formidable case. If my hon. Friend is not an expert, then I myself must come very far down the scale, although for many years I have tried to understand this question of cotton buying. More years ago than I care to remember I was at the university studying and trying to understand the working of the Liverpool futures market, and my judgment then was that it was a crazy system. I do not think anything ever happened later to make me change my views.
I am very interested in how the Tory mind works, and I am particularly interested to understand exactly why this Raw Cotton Commission should be discontinued and replaced by the Liverpool Cotton Exchange. I am afraid that the hon. Member for Middleton and Prestwick (Sir J. Barlow), in whose constituency I live, has not exactly convinced me of the importance of re-opening the Liverpool Cotton Exchange. It is not very convincing to mention the number of firms that opted to buy their cotton privately last year. I think my hon. Friend the Member for Farnworth exploded the myth about the 30 per cent. last year, and I am sure that everyone will agree that there would not be 56 per cent. this year were it not for the fact that the cover is being provided by the Raw Cotton Commission.
I have risen not to make a speech but as a searcher after the truth, and I shall content myself with asking one question only. I presume that the Minister of Materials will be replying to this debate, and I should like to know whether, for the benefit of such Members as myself, he will try to explain, in words of one syllable if necessary, exactly what reasons there are, other than ideological, for doing away with the Raw Cotton Commission and re-opening the Liverpool Cotton Exchange.
§ 8.50 p.m.
§ Mr. William Shepherd (Cheadle)
As another Member who has no expert knowledge on this issue, I should like to reply to one or two of the points raised by the hon. Member for Farnworth (Mr. Thornton) and the hon. Member for Stalybridge and Hyde (Mr. Blackburn). I was rather intrigued by the speech of the hon. Member for Farnworth, who told us how dreadful the spinners thought the Liverpool merchants were and how shockingly they had behaved in the past, and then told us that 56 per cent. had voluntarily opted to buy their cotton from those merchants. The argument did not make a lot of sense; nor were the quotations from that lone gentleman—a distinguished spinner—really convincing against the background of the body of opinion on this issue in Lancashire.
I agree with him that we have jumped from the Cotton Control to the Raw Cotton Commission, and that only now can we see this issue in a broader and more open perspective. I also agree that the issue should not be one of politics, but a question of how best we can buy the cotton for Lancashire so that the big battle which Lancashire has to face in the future will be dealt with in the best possible way. We want the best ammunition for Lancashire, in the form of the right cotton at the lowest price.
I do not attack the Commission for what they have done. As my right hon. Friend said, they have done extraordinarily well, and have been served by a body of men most anxious to do their best for the county, and they have done so according to their limitations. I think they were a little petulant in their Annual Report, about the manner in which they were regarded. The Raw Cotton Commission should realise that a single seller is never popular. They ought not to imagine that the spinners of Lancashire would see a halo round the head of a single seller, and it was rather silly of them to include that rather petulant paragraph in their Report this year.
The hon. Member for Farnworth was a little less than straightforward when he quoted what Mr. W. T. Winterbottom had said. I do not mind him quoting from Mr. Winterbottom, who is a great authority in this industry, but he should have finished the quotation so that we could have got a clear idea of Mr. Winterbottom's views. I shall do him the 1646 service of quoting Mr. Winterbottom's conclusions on this issue. He said:We consider that your Company"—that is, the company of which be is chairman—has derived considerable benefit from the facility to secure from the growers the cotton of its own choice for contracting-out mills.That is his considered opinion. The hon. Member for Farnworth ought to have been good enough to quote Mr. Winter-bottom's conclusions, and not merely one aspect of the case.
§ Mr. Thornton
I did not quote all Mr. Winterbottom's speech, but there is another quotation which the hon. Member might consider, and that is:No industry should be content to rest on public funds and the return to private trading must be the aim of the cotton industry, but an excess of zeal could lead to complete chaos and prove a dis-service to those who are most anxious to restore private trading in full.
§ Mr. Shepherd
I still think that the hon. Member should have quoted Mr. Winterbottom's conclusions upon this issue. The hon. Member told a romantic story about a meeting in some part of Lancashire, where the spinners got together and said: "We are, after all, very altruistic, and we do not care whether our competitors steal the advantage over us. We, for the common good, are going to band together to contract out." Knowing some of the spinners in Lancashire, I do not regard them as being motivated mainly by altruism. I am prepared to believe that the 56 per cent. or the 30 per cent., who have contracted out have done so for their own benefit, and for no other reason.
Contrary to what the hon. Member says, I believe that more spinners would have contracted out than have done so up to now. When one realises that 56 per cent. have contracted out in the face of a most difficult situation, one appreciates how strong must be the pressure against the Commission in the minds of the spinners. A spinner contracting out runs a good deal of risk. In the first place, for example, he has very little chance of getting any Sudanese cotton between now and the new crop in the spring. I am prepared to believe that had that position not existed many more spinners would have contracted out, especially for the Sudanese crop, than have done so.
1647 The House should realise that the spinner has to lose the advantage of the Commission's spot stock, and he has to be content with a cover scheme which, as hon. Members have admitted, is less satisfactory for the contractor-out than for the contractor-in. He has also to accept supplies from merchants with a very much more limited range. I therefore consider the fact that spinners have been prepared in all those circumstances to contract out shows how strongly they must feel the desire to go to the wicked merchants whom the hon. Member for Farnworth believes to be the real enemies of the spinners.
As I expected, the right hon. Member for Huyton (Mr. H. Wilson) made some play over the failure of the merchants to keep a spot stock. I agree that that would appear to be a legitimate criticism, especially as they had an extra allocation of currency for the purpose, but I ask the House to realise that there are very special circumstances involved which we ought to bear in mind before condemning the merchants on this account.
In the first place, I think it is agreed that the pattern of trade has somewhat changed, and many spinners prefer to buy c.i.f. rather than to buy from stock. They save handling charges and make some saving in the general cost of cotton. The need does not exist, therefore, for such large stocks on the spot as before. Secondly, the exchange offer came too late in the buying season for merchants to buy last season and, in addition, it is difficult for merchants to hold large unhedged stocks in Liverpool while the Raw Cotton Commission is itself the holder of very large stocks and has no need to meet the cost of the cotton. It can, as it has done in the last 13 months, lose £22 million on its sales.
It is not unreasonable, therefore, to believe that the merchants would be hesitant in those circumstances to provide spot stocks. I am perfectly satisfied that if a cover scheme can be initiated to their satisfaction, merchants will carry the stock which Lancashire needs. I do not think we need doubt that, because obviously if they cannot serve the needs of Lancashire properly they will not do the business they ought to do.
The right hon. Member for Huyton said that we should not cover private 1648 traders at Government expense, and we had a little difficulty in learning whether he believed that a spinner who was buying cotton from the Raw Cotton Commission and spinning for private profit was, in fact, a private trader. I agree that this is a very doubtful question, but I am inclined to side with my right hon. Friend in the view that if we supply a spinner who is buying from the Raw Cotton Commission, and give him cover, we are still covering the cost of private enterprise on public funds. The argument is not quite in the light in which the right hon. Gentleman presented it. There is even less justification, in my view, for covering by public funds people who contract out.
The right hon. Gentleman performed a most remarkable feat in his speech, because he produced a long string of arguments to prove that the only thing to do was to re-establish the Liverpool futures market, but he carefully refrained from emphasising the logical conclusion to which his arguments were in fact directed. I invite him to say what proposals he has in mind if he has not in mind the establishment of that market.
§ Mr. H. Wilson
I dealt with most, if not all, of the proposals for providing private cover, and I thought I made it quite clear that the way in which people would work the Liverpool futures market would require convertibility of sterling. That was made clear by the President of the Board of Trade. Surely convertibility must be ruled out at the present time? Surely there is not a single one of all the items which it is considered feasible at this moment? The result of dismissing all of these means that the only hope is the restoration of greater power in the hands of the Raw Cotton Commission.
§ Mr. Shepherd
The right hon. Gentleman is now saying that he wants, apparently, the policy which he has already said is unsatisfactory of providing cover for private traders out of public funds. He cannot have the argument both ways. I want to deal with this question whether it is practicable to re-establish the Liverpool cotton market on the basis of limited facilities for foreign exchange.
Let me say straight away that I am wholeheartedly in favour of re-establishing the Exchange. I much prefer to see 1649 £1 million or £2 million or £3 million of foreign currency earned by this country than see the Raw Cotton Commission spend £2 million of the taxpayers' money in providing cover. The former is a much better proposition from the national point of view. I do not see the serious objections—not, at any rate, in the insuperable sense—of re-opening the Liverpool Cotton Exchange even in the light of the difficulties over dollars.
After all, we have got commodity markets operating now, and they operate under an arrangement with the Exchange Control. They are authorised by the Exchange Control to engage in certain transactions. They make a certain code of conduct binding upon their members. If they overstep the mark, the Treasury comes in and causes the body with the authority to put the matter right. If that body did not respond to the requirements of the Treasury quite readily, the Treasury would close down on the scheme.
It is not impossible—surely the House will realise this—to visualise a commodity market based upon a restrictive access to foreign exchange and having the safeguard which already applies to one or two, or perhaps three or four, existing commodity markets. That is not impossible, and I suggest to my right hon. Friend that the best thing to do is to proceed as fast as we can, bearing in mind the need to get a satisfactory arrangement, to set up the Liverpool cotton market with these restrictions and safeguards as far as foreign exchange is concerned.
I agree with some hon. Gentlemen opposite that there was in the past, so far as the Liverpool market was concerned, some element of outside speculation. I am not quite sure who is right in this argument, whether the speculator helps the market and is indispensable, or whether he ought to be excluded. I have listened to both arguments, and I am not at all sure that the speculative element, however undesirable it may be ethically, is not indispensable, especially as one has to give speed of reversal in acute price fluctuations.
However, the future Liverpool market is determined, from what I can gather, to avoid the element of speculation which existed in the past, and they are proposing, I am told, to have daily settlement of differences, which, as the right 1650 hon. Gentleman knows, will make a substantial difference to the speculative element. Moreover, for any outsider who wants to buy futures they will insist upon a pound per bale deposit on the order. These provisions will make a substantial difference to the extent to which speculation will go on in the Liverpool cotton market.
The remarks of the right hon. Member for Huyton have led the House to the inevitable conclusion that something in the form of a market must be established. If we are to have private buying—we all admit this to be the case, and 56 per cent. of the industry, under difficult circumstances, has accepted that and has voluntarily opted for it—we cannot continue a system under which public funds are put up to safeguard the private trader. Therefore, the only conclusion one can reach is that a futures market ought to be established. There is no other way in which a spot stock can be carried.
It is nonsense to say, as some hon. Members opposite have said, that we are going to run immense risks of losing foreign exchange in hedging. Apart from the minor operation of straddling, if we had a futures market in Liverpool the whole of the arrangements could be conducted in Liverpool. There would be no need to go to the New York futures market save for straddling purposes—that is, a two-way traffic. Moreover, there is no reason why we could not get American cotton sent here on consignment and sold by American agents in this country to the advantage of the balance of trade.
There have been many estimates as to the value in terms of foreign currency of trading in cotton in this country; but it is certainly true that from £2 to £5 million ought to accrue to this nation as a result of the re-establishment of the Liverpool market. The handling, the re-exporting, insurance and financing all contribute to the amount of foreign currency that we could obtain.
I agree that this is not a political problem. The right hon. Gentleman himself has shown that this course is inevitable.
§ Mr. Shepherd
I do not know what alternative the right hon. Gentleman has 1651 in mind. If it is wrong to have the private traders being backed by public funds for cover, and we are to allow the existence of private trade, I do not know what alternative the right hon. Gentleman has; and I am afraid that in this debate he will not be able to supply us with an answer.
§ Mr. Wilson
I merely said it was wrong for public cover to be provided for the spinners and the productive people in the industry. I played a leading part in persuading the Raw Cotton Commission to work out a system of cover for them. That is entirely desirable. But it is a different thing to talk about providing cover when the buying is done, not by the Commission, who provide the cover, but by private persons, and then to ask the public body to provide cover for the mistakes—possibly for the speculative mistakes—of the private buyer.
§ Mr. Shepherd
We have already been over this point, and we are not at all certain whether a spinner buying from the Commission is not a private person from the point of view of being a spinner working for profit. I doubt whether ethically the right hon. Gentleman is right on that point. He says that he admits the desirability—he certainly does not object to it—of allowing 60 per cent. of the spinners to buy their cotton privately, and he says——
§ Mr. Shepherd
Say, then, that the right hon. Gentleman admits to 30 per cent. being satisfactory. Whatever percentage is admitted, provided one admits of the possibility of private buying of cotton and simultaneously says that there should be no public guaranteeing of losses, obviously one admits of the necessity of the re-establishment of some form of futures market. The best thing that my right hon. Friend can do is to encourage the re-establishment of this market as rapidly as is consistent with careful planning. It must be carefully planned, and the national interest must be safeguarded in every conceivable way.
§ 9.10 p.m.
§ Mr. H. Rhodes (Ashton-under-Lyne)
We need tonight from the right hon. Gentleman a clear interpretation of the phrase,intrinsically undesirable that cover for private trade should be provided at the risk of public funds,because various interpretations are being given to it. It has been used by the people in Liverpool to demonstrate that the Raw Cotton Commission should be got rid of as soon as possible, but I cannot believe that to the trade union representatives who sat on the Hopkins Committee it meant the same thing. It may be that the President of the Board of Trade has an idea of his own about this, and if so I should like to hear it.
The right hon. Gentleman mentioned the two Reports, and it is most interesting to compare the terms of reference of the two Committees. The Raw Cotton Commission, which reported in April, 1952, had these terms of reference:To consider and report to the President of the Board of Trade and the Chancellor of the Duchy of Lancaster on the question how, in the current foreign exchange position, cotton can best be supplied to the United Kingdom cotton industry on the most advantageous terms as to quality and price.Now notice the difference between that and the terms of reference of the Cotton Import (Review) Committee:To consider whether, within the framework of the Report of the Cotton Import Committee, any change would be desirable in the obligations and duties at present imposed on the Raw Cotton Commission, with respect in particular to the supply of cotton and provision of cover to the United Kingdom cotton industry; and to make recommendations.There is a certain hardening of position there, which I also detected in the remarks of the right hon. Gentleman, despite his usual affable and nice way of getting his points over.
The right hon. Gentleman said that the large stocks held by the Raw Cotton Commission were a handicap and were larger than the private operator was prepared to carry. Of course they were. It is elementary. The private operator, operating in a dangerous time as it was towards the end of 1950 and even 1951, approaching a bearish condition of the market, runs down his stocks. That is precisely why in 1951 the Government had to come in and start buying wool, because of the run-down conditions of 1653 the stocks in this country due to the fact that the bearish conditions were obvious to the people in the trade and they did not buy. For safety, therefore, the Government had to step in, and they bought perhaps 50 million or 100 million bales of wool. I believe the President of the Board of Trade when he says that he approaches this with no party bias. That may be, but it is very difficult not to. We are all professing that there is no party bias about this, but it is not far from party bias to political opinion.
On the other hand, most people present are agreeable to a system whereby cotton can be purchased for Lancashire in the best possible way. The argument is in the way it is done. My right hon. Friend the Member for Huyton (Mr. H. Wilson) mentioned the legal aspect, and he got an answer of sorts. The President of the Board of Trade went on to say that they were considering various suggestions. I take it that the suggestions they are considering are contained in paragraph 21. They include a futures market not based on raw cotton, a New York futures market, principal imports from abroad and so on. We shall be interested to see how far they get with that as and when they are ready, but it struck me tonight that the right hon. Gentleman had the idea that sooner or later the Raw Cotton Commission was going to be replaced by some other form of organisation.
Mention has been made of the losses by the Raw Cotton Commission. I want briefly to say a word about them and some of the conditions leading up to those losses. The outbreak of the Korean war found everybody short of cotton. The House will remember that in 1949 there was a minor slump in America which culminated in the devaluation of the £ in September of that year. That caused a strong bearish market in the United States and apprehensions about the disposal of their cotton crop were very strong indeed. In fact, in 1949 America instituted what was known as the bag system. Cement bags and other kinds of bags were made of cotton—they were almost given away—with patterns on them so that housewives could cut up the bags if they so desired and make them into frocks.
All this had a tremendous effect on the planting scheme for 1950. America 1654 planted no more than enough for the normal year in the 1950 crop. It was equal to about nine million bales. Any student of the subject, as I am—I am very keen on this cotton-growing subject—knows very well that the Texas cotton crop is planted in March, the Central American crop about the 1st April and the Northern crop in mid-April. That is significant because the planting in this year was before the Korean war began, and the Americans had no time to catch up on their cotton supplies, so that the amount for the ensuing 12 months to which they were committed was what they could produce from the planted acreage. That could give them no more than nine million bales, and they could use that themselves and more, because American production for some time was running at something like 10 million bales a year.
What happened? There was a shortage of cotton and a shortage of dollars. Outside buyers cashed in and premiums of 24d. were paid for Brazilian cottons The result was it forced the Raw Cotton Commission to start averages with the American cotton they had bought with limited dollars. Everyone outside the United States had planted for bumper crops. The Colonies did so. Planting took place from September and October for picking in January, February, March and April. What was the Raw Cotton Commission to do? By its legal obligations it had to keep good stocks. If it had not bought stocks to cover the needs of the day adequately, what would this House have said had the trouble in Korea flared up all over the world? That was the very thing on which the Liverpool Cotton Association went wrong in 1939.
When the then Government wanted cotton for strategic purposes they went to Liverpool to buy it. The Minister of Materials knows this story better than I do, because he was in on it. They asked the Liverpool Cotton Association to buy 600,000 bales for them and the Association refused. The reason they needed 600,000 bales was because there was a bearish market and the stocks had run down. That is why it needed Government intervention to see that stocks were adequate.
The Government of the day had the same responsibility exactly, not in quite 1655 the same circumstances, but in circumstances which looked as though they could be just as serious. Let me deal with one point here about how that buying policy saved Lancashire last year. If private buying had been in operation, instead of the Raw Cotton Commission, there would have been no stocks available. I have explained what happened in 1949. The slump would have come, and instead of having adequate stocks ready to be moved into the mills as soon as the slump was over, or getting over in April and May of last year, Lancashire would not have been able to take part in the world trade available. The Raw Cotton Commission saved the Lancashire trade last year and the £25 million, or whatever was the sum, was a little enough price to pay for that.
The normal take-up from the trade was about 450,000 tons. The stocks the Raw Cotton Commission had kept was about 260,000 tons. They had to be adequate. The Commission may have been handicapped, but I will show in a moment what has taken place since the new arrangements have come into being. Before I move on to that, may I say that the losses sustained by the Raw Cotton Commission which offset some of the gains in the previous years were severe. But let us see what happened to one large consumer of cotton who covered their own cotton and brought their own stocks.
I have here an account which gives the annual report of J. P. Coats. In the period when the Raw Cotton Commission was operating and making this savage loss on account of world conditions—they made a loss of £5 million—J. P. Coats used about 3 per cent. of the total used in this country. If that is multiplied in terms of percentages, it means that unless the Raw Cotton Commission had been very astutely handled we could have run into a loss of somewhere near £150 million, if my reckoning is right. The chairman of this great organisation said:As I informed you last June, we decided to stop buying our cotton from the Raw Cotton Commission and for this season have purchased our requirements of Egyptian and Sudan cottons through our own organisation. It is as yet too early to make a comparison of how we have fared ….I think that, taking it by and large, that has been the keynote of the speeches 1656 tonight. There has been a little bit more restraint than I expected, and it is a good thing too.
It has been said by many that before the war Colonial cottons were used here to the extent of about 8 per cent. Now, if we include Sudanese cotton, it is perhaps 30 per cent.: if we do not, it is something like 26 per cent. Why has this change taken place? I believe that it is no use talking about want and of raising the standard of living of people in other parts of the world, on the one hand, and then going out and doing something which takes away everybody's good will in the matter.
I have no objection to a futures market as such. What I object to is what goes with it. Futures depend on being able to tender cotton against them. When we sell cotton we sell futures; when we buy cotton we buy futures; and when we are dealing in the futures market what we are actually doing is having a second shot to be able to sell our stuff. That depends entirely on how tight the contract is for what we tender against the futures if anybody takes us up. I never heard so many half truths in a speech as there were in that made by the hon. Member for Cheadle (Mr. Shepherd). The tighter the contract the easier it is for a futures market and the less risk there is. That was why——
§ Mr. Shepherd
Would not it be a good idea, if we are to enter into this technical discussion on the futures market, to get what we do precisely clear. We do not sell futures when we sell cotton. When we buy cotton we sell futures.
§ Mr. Rhodes
The hon. Gentleman had better go to school. That was why 15/16ths was the basis. Liverpool before the war would not accept Empire or Colonial cotton except at a considerable discount. The reason for Sudanese bitterness about the Cotton Exchange was exactly because all their cotton was sold in Liverpool at a discount when it went through the futures market. It was always under-valued. When Sudanese cotton was at 9d. a 1b. more often than not there was a 2d. discount, which is a considerable one. Now, about 26 per cent. of raw cotton comes from the Colonies. There is no Liverpool futures market, and all the territories are encouraged to grow more cash crops in 1657 order to create better trade and earn a better standard of living.
The question of the futures market was mentioned at the annual meeting of the Empire Cotton Growing Corporation in Manchester a few weeks ago, which I attended. The Corporation are keen on the growing of Empire cotton, and they are doing a fine job. The chairman made an appeal to all the cotton interests present to include in any futures contracts that may be brought out at some time Empire and Colonial cotton, but the Liverpool Cotton Association know perfectly well we cannot do it.
§ Mr. Rhodes
No, I will not; I shall read it out to the hon. Gentleman. It is a waste of time answering that sort of question.
A variety of cotton cannot be included in a futures contract at the present time. They have already drawn up a tight contract, so tightly drawn that colonial cottons will have no place in the market at all. Listen to this. This is a statement made by Mr. J. R. Reynolds on 8th July at a general meeting of the Liverpool Cotton Association:Full consideration has been given to the possibility of establishing a broad contract against which a large number of growths would be tenderable, but, with so many of these arbitrarily controlled by foreign governments, such a contract was not thought practicable at the present time. At the initial stage, and until an adequate private stock had been built up, the Board felt that the best and safest procedure would be to start off with a pure American cotton contract which could be freely arbitrated with the American Futures markets and thereby assured of reasonable stability.We do not need anything more than that; that is quite definite. If they do open a futures market, they are going to do it with pure American cotton.
§ Mr. Shepherd
It is perfectly true that they would want futures at a discount if outside growths were included and tenderable. But is if not a fact that it is intended that Empire and outside growths should be included but not tenderable?
§ Mr. Rhodes
What is the use of having them on contract if they are not tender-able? We shall never be able to use them at all. Good gracious me, I am not going to give way again for that sort of question. It may be said that those who 1658 have used Colonial cotton in the past few years will still buy futures if they are tenderable. How can they buy? I am asking the Minister of Materials to give us some information on this point, because we need it. How can they buy?
I do not want a waffling sort of reply; let us have a proper reply. Was the right hon. Gentleman not listening? What I said was that it may be said that those who have used colonial cottons in the past few years will still buy if they are not tenderable, and I am asking how can they buy. I am asking the question, and perhaps the Minister of Materials will tell me. I will give my opinion. I think they will only be able to buy 12 months' supply.
Who is going to buy a 12 months' supply if that cotton is not tenderable against futures? If it is not tenderable in Liverpool, nobody is going to take the risk. I think that the small spinner or small manufacturer will find that his best hope lies in the Raw Cotton Commission.
Let us take the facts as they are, and as we have seen them unfold during the last 18 months. The Cotton Import Committee made its Report last year in which it recommended that contracting out should be allowed. It was timed to coincide with major growths reaching this country. That was all right. But 30 per cent. contracted out on the United States and 50 per cent. on the Egyptian supplies. Most of them were large units, and I will answer the hon. Member for Cheadle right now.
In the main, the people who came out of the Raw Cotton Commission did not buy their cotton from the merchant. They went direct. When the hon. Member for Cheadle, in reply to my hon. Friend the Member for Farnworth (Mr. Thornton), spoke about the merchant and the spinner, he really was wrong because he did not add that it was for the merchants' benefit. I do not think that Sir Frank Platt was mentioned. He was never a merchant's man. Several in this organisation who have contracted out are quite big enough to buy direct, which they are doing. They may have an agent, but it does not alter the fact that they buy direct.
Then we see the entitlement for dollars. At long last this is what the Liverpool Association wanted. Most of those who went out did not go to the merchants; they went direct to the United 1659 States of America. Here I shall quote the Liverpool Cotton Association again. This is interesting because it throws a new light on this subject so far as modern times are concerned. It says:It is surely a misconception to suppose that a Futures Market of reasonable stability could be created with a large part of the industry still patronising centralised trade. A re-opened Futures Market will, in any event, have to look for support to a much wider circle of participants than in pre-war days.But the intake of cotton is not as big as it was before the war. Just let the President think about that. The present day pattern of the private trade is based, to a large extent, on direct importing by spinners rather than by buying in merchants' spot markets. This is not secondhand; this is what the Liverpool Cotton Association says. It goes on:It would, therefore, seem to be vital to the initial stability of a Futures Market that a high proportion of those who will look to it for cover should be established as elements of the private market well before the time when Futures trading has to start.That was at a time when they were touting for business, and when they were really looking at the market as it should be looked at from the point of view of participating in the scheme. The merchants were bound to be short of entitlements if the spinners were not giving them any. The merchants were short. They pleaded for some of their own, and the Minister of Materials gave them 30,000 tons of American cotton to buy. Ever since then they have not had more than 5,000 bales, that is 1,100 tons, in stock, despite the fact that the cover for the merchant was far better than any cover under the Liverpool Cotton futures market before the war.
There is no question about it that if they had been fulfilling the role which they said they could fill they would have increased the amount of stuff that they were carrying. The truth is that they had cold feet about it, and they have not carried what they led the committee to think they would do. It will be very difficult in the present world situation to open a futures market which does not do a lot of damage to colonial cotton growers. The trend is for large organisations to shake themselves free of merchants but they may be putting a noose round their necks because the focus 1660 will be on United States cotton all the time. For the small element in the trade, American cotton is something easy, just across the Atlantic, with no trouble or difficulty. The cover will be automatically on that alone, and meanwhile the picture elsewhere is one of barter and exchange.
The background in which all this is set shows Japan going to Pakistan and giving her textile machinery for bales of cotton, Brazil forcing cotton growers to keep their cotton rather than sell it at market prices and all over the world barter as a common means of trade. It will be exceedingly difficult for us to establish an exchange of this description. We should go very slowly about it. The smallest bidder should think very hard during the next few months, because if he does not it is quite likely that with the Government plus the small element of Liverpool merchants on the one side and the big spinners on the other, the small man might fall down between the two. That would be a big pity. I am a believer in the small man. I am one myself. It is the duty of the President of the Board of Trade to protect the interests of the small man.
I have one or two questions to address to the right hon. Gentleman. If he allows the Raw Cotton Commission to decline any more, how will they cope with the repayment of £30 million, the amount that had to be repaid over 50 years? The turnover will be less; what effect will that have on the finances of the Commission? The Commission are to carry adequate stocks, but already it is suggested that they will not be able to carry the stocks necesary to cover the trade, on account of the financial considerations.
The staffing problems have been mentioned by my right hon. Friend. The propaganda which went about that the spinners were able to buy more cheaply outside the Commission was accounted for by the 1.35 pence per pound for cotton bought two clear months before delivery. It may be that there will have to be a futures market of some sort. I am not saying that there will not, but it might have to be one made up so that it takes colonial cottons first and foremost. If there is a futures market for colonial cottons, the Colonies and the growers in the Colonies will have more faith in us in this country in the days to come.
§ 9.47 p.m.
§ The Minister of Materials (Sir Arthur Salter)
I have very little time but perhaps enough, for a reason which I will mention in a moment. This has been a rather unusual and distinctive debate. It has been conducted before a select audience, though perhaps that is not so unusual. It has also had a very intimate character. The right hon. Member for Huyton (Mr. H. Wilson), who opened the debate, preceded my right hon. Friend in his present office, and he preceded me in my present constituency except for a short intervening period. In addition, most of those who have taken part in the debate have a special interest in the cotton industry, either by virtue of their present or past official positions or by reason of their representing constituencies with a special interest in the industry. Finally, I am facing the hon. Member for Ashton-under-Lyne (Mr. Rhodes), as I did at 2 a.m. on another rather technical subject.
Those are not the only ways in which this debate has been rather distinctive. There have been criticisms of the Government, of course, but on the whole they have been constructive criticisms. They have not been directed so much to what we have done or are now doing but rather to what we may be doing after the period to which the second Hopkins Committee Report relates. We have been asked to state our policy. The general direction of our policy has been explained by my right hon. Friend the President of the Board of Trade tonight and on previous occasions, but the interest of the House has been in what will be the next steps after the period to which the second Hopkins Committee Report relates.
As everybody here knows, what has made the distinctive character of this debate is that we are now starting upon our consideration of the further steps that we shall take after this immediate period. We are doing it, as we have done in the past, with the closest consultation with those who are interested in and are expert in the industry. The distinctive character of the debate has been that those who have spoken have brought their own personal knowledge and have contributed at the first stage to this consideration of policy for the next ensuing stage. The speech of the hon. Member for Farnworth (Mr. Thornton) was an admirable example of 1662 that. He brought what was obviously direct personal expert experience to his speech in which he made certain suggestions on the way in which we should proceed.
He was immediately followed by my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) who again brought personal experience of a rather different kind, and whose suggestions to some extent complemented what the hon. Member for Farnworth said. He was followed by the hon. Member for Staly-bridge and Hyde (Mr. Blackburn) who said—and I should like to feel myself in his company—that he was a searcher after truth. So are we all. So are the Government interested both in the period to which the Hopkins Report relates and that which has occupied the interest of the House.
Then there were a number of exchanges of opinion as to the relative merits of a futures market of some kind, and of public trading, of which the Raw Cotton Commission is an example. Because I think we are right in proceeding along the lines that we are following towards greater freedom and liberty in private purchasing, I do not say that a greater measure of public purchasing was not desirable in the preceding period. We are feeling our way, but we are certainly not the slaves of any ideology or political dogma as to the particular steps or the pace or the methods by which we should proceed.
§ Mr. H. A. Marquand (Middlesbrough, East)
I hope the right hon. Gentleman will forgive me for intervening at this late stage. The Act on the Statute Book at present provides for a public monopoly of purchasing raw cotton. I, personally, still believe that that is the right way to do it. The hon. Member for Cheadle (Mr. Shepherd) wants to see a free futures market re-established. At present we have a half-way house between those two positions. If the Government, in their search after truth, should incline to the view of the hon. Member for Cheadle, will they undertake to do it by a new Act of Parliament and not by messing about with the present Act?
§ Sir A. Salter
We are, in a sense, in a half-way state of policy, as indeed the conditions of the world which affect this industry are in a middle position between 1663 the conditions which we faced during the war and immediately after the war, and what I might call normal peace conditions such as we had before the war. The right hon. Member for Huyton agreed that we are acting legally in what we are doing. He agreed that if the present procedure tended towards the complete destruction of the central purpose and principle of the Act of 1947, there might well be a time when we should have to ask for a modification of the present Statute or the substitution of another for it. The answer is that the development that the right hon. Gentleman had in mind would require new legislation.
I must now turn immediately to the rather numerous and sometimes very difficult questions asked by the hon. Member for Ashton-under-Lyne.
In the first place, he asked what was our interpretation of the sentence in the Report of the Hopkins Committee which has attracted so much attention, as to its being intrinsically undesirable to use public funds as a cover for private trade. I can quite understand that different people may give a somewhat different interpretation to that sentence. It is not for me to interpret either the collective mind of the Hopkins Committee, still less what may have been in the minds of the Members of that Committee when they assented to that particular sentence.
§ Sir A. Salter
If the hon. Member is asking in what sense I believe in the principle enunciated in that sentence, I would say that even if it is interpreted in the wider sense, if we are not thinking of today or tomorrow but of a permanent system, I still think that it represents good sense.
The hon. Member raised the question of Empire cotton. As my right hon. Friend said, we realise that it is important that we should seek to maintain the development of production in the Commonwealth and Empire which has been witnessed in recent years. There are various ways in which that might be done. This week we have explored the matter with the relevant Government Departments and others. I cannot go into what is one of the possible ways in 1664 which we might help to solve this problem—the way in which the futures market develops in the future. There was quite a sufficient exchange of very technical expert knowledge between the hon. Member for Ashton-under-Lyne and my hon. Friend the Member for Cheadle (Mr. Shepherd).
The hon. Member for Ashton-under-Lyne asked me one or two further questions. I cannot answer him as to the precise financial arrangements that would be made in respect of the advance to which he referred. It is true that if we have a system of public trading it may be very well worth its ultimate cost in view of its particular purpose under the particular and temporary conditions which we may have to face when we wind up the whole concern. This question relates to other forms of public trading with which my Department is concerned. We may have to make special financial arrangements and recognise that a real service has had to be met.
As to the question of staff, this has been brought to our special notice in the last few days by Sir Ralph Lacey and we are definitely considering that problem now.
§ Sir A. Salter
We shall undoubtedly make a statement after the Recess.
The fifth question about which the hon. Member for Ashton-under-Lyne asked concerned the propaganda against the Raw Cotton Commission. Both sides of the House have paid perfectly genuine and well-deserved tributes to the way in which the Commission, under Sir Ralph Lacey, have carried out their work. As to the point to which a great deal of propaganda was addressed—the prices which the persons contracting out paid as compared with the prices at which the Raw Cotton Commission supplied cotton—the answer is probably sufficiently given in the Report of the Hopkins Committee, which specially deals with that point.
§ Mr. Blackburn
The right hon. Gentleman has not said a word to help the searcher after truth. It is not that he has been using words of more than one syllable, but he has not said a word to explain why the Raw Cotton Commission should be done away with.
§ Sir A. Salter
Repeating what my right hon. Friend said, I did explain that we were adopting a procedure which was in itself a method of seeking the kind of truth which is wanted in connection with this problem. That must be my last word, because of the time.
§ It being Ten o'Clock, the debate stood adjourned.