§ 3.29 p.m.
§ Mr. Hugh Gaitskell (Leeds, South)
In the course of his speech yesterday the Chancellor of the Exchequer did not confine himself to the immediate past and the present financial year. He made several excursions into the record for his whole period of office and he introduced certain comparisons. As this is the last Budget he will present in this Parliament, and probably for a long time ahead, it was very natural that he should go into these wider issues. I propose to do so, too, and to make some comparisons. I will begin immediately with some remarks about production. I do so partly in order to correct something which I said in the debate on the Queen's Speech last December.
I then gave these figures. I pointed out that in the last three years, 1951–54, the increase in industrial production was just 10 per cent., that is, an average of just over 3 per cent. a year. I said then that between 1946 and 1951, under a Labour Government, the increase had been 30 per cent., or an average annual increase of 6 per cent. But I made a mistake. Between 1946 and 1951 the increase was not 30 per cent., but 35 per cent., and the average annual increase was 7 per cent. and not 6 per cent. That is to say, production rose more than twice as fast under the Labour Government as it has done under the Tory Government.
186 I am aware, of course, that the Chancellor will point with pride—indeed, he has already done so—to the increase of 6½ per cent. in 1954. Well, that is his best, and it is below the Labour average. But the Economic Survey foresees an appreciable increase for 1955, and yesterday the Chancellor himself, rather to my surprise, went further and spoke of the scope for increased production being as great as, if not greater than, in 1954. So far, this does not seem to be happening.
Two days ago the Treasury published the latest seasonally corrected figures of production and I wish, if I may, to read them to the Committee, because they are rather serious. Taking 1948 as 100, in the first quarter of 1954 the figure is 125; in the second quarter, it is 127; in the third quarter, 130; in the fourth quarter 131; and in January and February, 1955, the figure is still 131.
What does that mean? It means, in fact, that according to the Treasury's own index, and allowing for seasonal variations, there has been virtually no increase in production for the past five months. I am a little surprised that the Chancellor made no comment about this. Perhaps one of his assistants will tell us later what the Treasury feel about this; whether they are disturbed about it. These are the Treasury's own figures, and in view of the fact that the Chancellor's whole Budget rests on the assumption of expanding production, I think that we are entitled to hear an opinion about it.
There is one other comment I would make. I do not think it will be denied—certainly not by the Chancellor—that at present there is little slack in the economy and if, therefore, production has not been rising in these past five months, there is, I think, only one conclusion to be drawn; that is that productivity has not continued to increase.
I turn now to investment and I will make some comparisons here, also. Of course, the Economic Survey shows once again that in this field the great advance has been made by the nationalised industries. If hon. Members will turn to page 23 of the Economic Survey, they will see that clearly enough. In the case of mining, the increase in investment last year was £19 million. In the case of electricity, gas and water, it was £29 million. In the case of transport and communications the figure is £25 million, 187 and in the case of the whole of manufacturing, which is, broadly speaking, the private sector, the increase was £12 million.
I do not think that one can leave it there. I am not certain of this, but I presume that the manufacturing figure includes the steel industry and certainly, any investment—any increased investment—which took place in the steel industry in 1954 was planned when the industry was still nationalised. If we deduct what I suspect that increase was, it is fairly evident that there was virtually no increase in investment in the private sector last year at all.
I noticed that the Chancellor seemed to take quite a lot of pride in the achievements of the nationalised industries.
§ The Chancellor of the Exchequer (Mr. R. A. Butler) indicated assent.
§ Mr. Gaitskell
I am delighted to see the right hon. Gentleman nodding his agreement. I hope he will stand up for nationalisation in the future as the most successful child in his industrial family. Perhaps he will even come over and encourage further measures of nationalisation.
§ Mr. Butler
May I say to the right hon. Gentleman that if we produced more coal then we could be even more satisfied with this investment?
§ Mr. Gaitskell
It is certainly a regrettable fact that in the last year or two, under a Tory Government, the miners do not seem to be inspired with the same will to produce as they were under a Labour Government.
However, since the Chancellor has made comparisons in progress under a Tory Government and a Labour Government, I will mention one other set of figures. It is always difficult to get figures of net investment, although, of course, that is what really matters—the net addition to capital. There was an article by Mr. Redfern published recently in the Statistical Society's Journal, which throws some very interesting light on this subject. In fact, it shows just this: in manufacturing and distribution there was a steady rise in real terms in the rate of investment from 186 in 1948 to 267 in 1950 and a fall back since 1950–51 to 188 191 in 1953, actually a substantial fall in net investment.
The same kind of development is shown in Mr. Redfern's figures for plant and machinery; a rise from 190 net investment in 1948 to 261 in 1951, and a decline to 214 in 1953. Again, I think that the Government might give us a little more information on this subject. If they really believe that there has been any progress in the private sector in the rate of net investment since they came to power, let them prove it. Let them show Mr. Redfern's figures to be wrong.
I pass now to a subject which, I think, must concern all of us particularly at the present time: that is, the balance of payments of the United Kingdom. There is no need for me to stress its importance and there is no need for me to stress what has to be done in this field. The Chancellor told us and the country nearly two years ago, when he spoke to the National Joint Advisory Council in July, 1953, that what we needed was an average annual export surplus of £300 million to £350 million.
I have asked the right hon. Gentleman once dr twice whether he still stands by that figure, and I believe I am right in saying that he has not withdrawn from it. Certainly, for my part, I would say—in fact, I have said—that a surplus of that order is needed. It is needed if we are to play our part in investing in the backward areas of the world, particularly in the Commonwealth. It is needed if we are to pay our debts. It is needed if we are to accumulate gold reserves.
What, in fact, has been the surplus in these last three years? In 1952, which one might suppose to be the most difficult year, the surplus was £138 million. In 1953, it was £115 million, and in 1954 it was £110 million. Whatever we may feel about that, it is a very long way behind the target which the Chancellor has set himself. One must ask, of course, whether there are any reasonable explanations, because we would all agree that a Government is not completely in control of all the circumstances, and that external economic factors can make things more difficult or more easy.
I think we all recognise the importance of the terms of trade, but nobody could possibly say that they have not been extremely favourable in these last three years. Even in 1954, we were still able 189 to buy the same as in 1951 for £500 million less, and we know, of course, that this fall in the price of imports is the sole explanation of the improvement in the balance of payments since 1951. It is not the volume of imports or exports, or the prices of exports, which have materially changed; the whole change has been in the cheaper prices at which we have been able to buy our imports in the world markets.
I have not included in these figures defence aid. I have never taken the view that aid of any kind should be included in showing a true balance of payments figure. But what is included, and must be included, in these figures is something which, at any rate, closely approximates to aid. It is the United States offshore purchases and United States and Canadian expenditure in dollars in this country.
I do not know whether the Committee realises that the amount of offshore expenditure and other expenditure here by Americans and Canadians rose last year to the high level of £100 million. The significance there, of course, is that it is something on which we cannot and should not continue to rely. The real trouble in this field is undoubtedly the failure of our export trade to expand. In the last three years we have had an increase in volume of 3 per cent., an average rise of 1 per cent. a year.
The Chancellor may claim that things have been difficult, but it is hard to understand how that can be so when one looks at the record of other European countries in this field. I quote here these very remarkable figures from the "Survey of Europe," published by the Economic Commission for Europe. Between 1950 and 1954, exports from Italy rose by 16 per cent., from France by 20 per cent., from Belgium by 45 per cent., from Holland by 56 per cent. and from West Germany by 109 per cent. as against a rise in British exports of 4 per cent.
I cannot feel that any of us could possibly be satisfied with that comparison. The fact is that in the last three years virtually no part of our expanding production has gone to exports whereas, under the Labour Government, the large part of our much more expanding production did go to exports. Whatever hon. Members or others outside this Committee may say about the Labour Govern- 190 ment, there is one thing which they cannot deny, and that is that under that Government there was a spectacular increase in British exports.
I will not make any claims about the immediate post-war years when, of course, one would expect a rapid expansion, but, if we take the years 1948 to 1951, we find that the rise was 30 per cent., 10 per cent. a year and ten times as fast as it has been in these last three years. I must say that the expansion of exports under the Labour Government was part of our deliberate policy, and I say that very deliberately now because of the claims which the Chancellor has made for rising consumption under his Administration.
Of course, we can see that consumption has risen faster in the last three years. But why was that? It was because the under the Labour Government we had to pursue a policy of austerity in order to build up our export trade. We had to pursue a policy of austerity and restraint so that we could devote enough of our resources to repairing the ravages of war. [Interruption.] I wonder whether the noble Lord and other hon. Friends of his have thought where this country would be today and what sort of prospects we should have of a rising standard of living if the Labour Government had not pursued a policy that was unpopular—and which was bitterly attacked by hon. Members opposite—for the sake of the future.
The second question that arises in connection with the rise in consumption is who has got the rise, and that is something to which I shall return a little later. This unsatisfactory record leads us into the far more serious situation which has developed during the past nine months and on which, I thought, the Chancellor spent surprisingly little time. He mentioned, of course, the fact that there was a deficit of £38 million in our balance of payments in the second half of 1954, but the first quarter of this year shows a very much worse situation.
The trade gap in those three months—we have not, of course, got the total payments figures—has averaged £77 million, the shortfall of exports from imports, compared with £55 million in the previous six months when there was already an overall deficit. In March, we had a huge gap of £92 million. Can it be denied that on the basis of these figures, and assuming 191 that they continue at anything like this rate, we are heading in 1955 for a deficit in our balance of payments of at least £100 million or £150 million?
Why has this happened? The Chancellor, quite rightly and fairly, pointed to the change in the terms of trade. I am not going to blame the Government for that, because I always have said that there are a lot of things which we cannot control. We may, perhaps, criticise the Government for abandoning what we believe to be the advantages of bulk purchase, but let that rest on one side.
What really is shown by this change is how extraordinarily misleading the Government's whole propaganda has been. It shows that this quite small change in the terms of trade against us—only about one-third of the way back to the difficult position which we faced in 1951—has produced a critical situation. The second reason for the change is the rise in the volume of imports, not so much in 1954, when, in fact, the volume of materials and food imported was actually lower, but in the last three months where there have been substantial increases, particularly from the dollar area.
In the five months, October to February, there was, I think, a rise of about 30 per cent. in the rate of our dollar imports. Why was this? I suggest that there are two reasons for it. First of all, an expanding production undoubtedly requires a higher volume of imports. That is why it is impossible to conceive of our being in a satisfactory position for long if we are importing less raw materials than before.
But there is another reason. I do not think that it can be denied that there are more dollar imports coming in because the Government have lifted a lot of controls as a result of which people are free to bring in things which they were not free to bring in before. The result has been exactly what one would expect, that we are running into a balance of trade deficit. I have details of the kind of increases that have taken place, but I will not weary the Committee with them. They are, of course, available in the official returns.
There is a third reason for the worsening situation, and that is the decline in our invisible exports for 1954. The most significant figure here is the increase in 192 the payments by this country of interest, profits and dividends. The following figures are quoted from the Economic Survey. In 1951, we had to spend in this way £178 million. In 1952, the figure had risen to £208 million, in 1953 to £226 million, and in 1954, to £258 million. These figures show that in two years an additional burden of £50 million was imposed upon us.
Why has the burden been imposed upon us? There are obviously two reasons. First, there is the rise in interest rates, which affects the Treasury and also affects the balance of payments position, because we must remember that we are not in the situation in which we were before 1914, when we had substantial short-term net assets; we have a substantial short-term net liability, in the form of sterling balances, to the tune of £4,000 million, and when the interest rate goes up we have to pay out more on that account. Secondly, there is the rate of dividends paid last year.
The sterling area position, to which the Chancellor also referred, is, in my opinion, even worse than that of the United Kingdom. Over the year 1944 we were barely in balance; there was a small surplus of £7 million. There was a deficit of £164 million in the second half of the year, compared with a surplus of £171 million in the first half. It is true that over the year as a whole the gold reserves rose by £87 million, but they fell by £92 million in the second half of the year, and have fallen subsequently by a further £33 million.
The Chancellor made play, yesterday, with the fact that we had repaid the E.P.U. and the I.M.F., between them, £75 million. That is perfectly true, but what the Chancellor did not mention was that during that year we borrowed, on dollar account, £115 million. Those are the figures given in the Economic Survey. Nor, when describing the sterling area position, did the Chancellor mention that we achieved that increase in the gold reserve partly by borrowing, partly through defence aid—amounting to £50 million—and partly with the help of offshore purchases of £100 million, to which I have already referred.
That would not matter very much if our gold reserve were really substantial These are not enormous figures; I do not claim that for a moment. A decline of 193 £130 million is not enormous in itself, but, unfortunately, the reserves are far from large. They stand today at 2,667 million dollars—just 300 million dollars more than in December, 1951, 600 million dollars less than in October, 1951—when the Government came into office—and 1,200 million dollars less than the peak figure reached, in June, 1951. I am not seeking to score a point; I want the Committee to realise just how serious is the gold and dollar situation.
One might say, "Has it not been very difficult, in these last three years, to accumulate gold and dollars?" The rest of Europe has not found it so. During those three years, since December, 1951, while we have increased our reserves by 330 million dollars, the rest of Europe has increased its reserves by 4 billion dollars. It has not been a question of America mopping up the gold of the rest of the world; she has been losing gold all this time—but it has not been coming here.
What was the Chancellor doing during this period of deepening deterioration in the second half of 1954? What were his colleagues doing? We know what one of them, at any rate, was doing. The noble Lord the Chancellor of the Duchy of Lancaster was busy planning his posters. He was thinking out some nice slogans that would suit the country. We all know them, and I need not repeat them. I do not know whether the right hon. Gentleman will have them changed before the General Election. If so, he had better hurry up.
The Chancellor himself was not really doing very well just at that time. He was removing restrictions upon hire purchase in August to make it easier for people to have a good time in view of the coming General Election, and he was conniving at the biggest inflation of Stock Exchange prices that has occurred in the last quarter of a century. It is even more extraordinary that at this very moment, when things were turning against us, the Bank of England was making substantial advances towards convertibility.
Because of the time available I do not propose to go into that question. I simply record my view that in the action taken by the Treasury and the Bank of England in this matter, in the last year—in the reckless decontrol of foreign exchange which has occurred—we have been weakening our defences at the very 194 moment when a storm was blowing up, and weakening those defences in such a way as to handicap our own exporters and threaten the stability of the present sterling area.
The Chancellor was also saying things. For instance, he was speaking in Blackpool in October, at a Conservative Party conference—and we are told that he had a great personal success there. He was speaking, as we recall, about investing in success and doubling our standard of living in 25 years. Before this, he had said one other thing:Our future policy will emerge like a cat from the bag, in due course, when the time has come for it.The period of gestation, if that is the right word—ended last February, and the cat came out of the bag. But it was not a gentle pussy at all. It was a nasty, fierce, mangy, hungry cat, called "Bank Rate at 4½ per cent."
Let us look briefly at the prospect ahead. I do not think the Chancellor will deny that, taking the first three months' figures, it is a rather gloomy one. He may hope that the terms of trade will move in our favour—and I make no prophecies about that. It is possible. Indeed, basic raw material prices have fallen slightly in the last few weeks. On the other hand, if the American recovery proceeds we should expect the upward movement to continue.
Then there is the question of invisibles. There is one extra cost which we have to meet. I am not contesting the necessity of it, but we know that from the beginning of 1956 we have to meet what has been estimated to be at least £70 or £80 million a year for the cost of our troops in Germany. The crux of the matter is exports—and the Chancellor, yesterday, gave us very little ground for optimism about those. He made no reference to the question of Australian import cuts.
§ Mr. R. A. Butler indicated dissent.
§ Mr. Gaitskell
I am sorry. I beg the right hon. Gentleman's pardon. They have to be brought into the picture, and they are not exactly encouraging. I concede to the Chancellor his dilemma. As production expands we need to import more raw materials, and the whole question is whether, in the free economy in which he believes, we are going to be able 195 to increase our exports sufficiently to pay for those additional imports. It may be that we can, but there is certainly no certainty about it. I would go so far as to say that in the free economy in which the right hon. Gentleman believes there is a very natural tendency for consumption to increase at the cost of investment and exports, as production rises.
Let us suppose that the Chancellor does not get his increase in exports, or does not get any of the advantages of further favourable terms of trade. What will his policy be then? We know what his policy is. It is under no circumstances to reimpose import controls, but to rely entirely upon what he calls a flexible monetary policy, and what other people call a fierce tug on the reins from time to time. But what does this mean? When one thinks it out, it means that if we get into the position where production is expanding, and we are not exporting enough, the Chancellor, by his Bank Rate policy, deliberately slows down that expansion.
The whole purpose of raising the interest rates is to discourage borrowing—but to discourage borrowing is to discourage firms from placing orders, and the effect of their not placing orders is to damp down production. The sole object of this policy is, ultimately, to reduce imports and perhaps make room for exports. That is a very serious situation. If it develops—as I, personally, think it will quite soon—we shall be faced not only with the danger of a fall in production, but with the danger of unemployment.
There is something else. Suppose that, in these circumstances, productivity continues to increase, as we want it to because our future depends upon it. Suppose that the Chancellor, because of the balance of payments situation, cannot allow any increase in the imports of raw materials. What is the conclusion one must draw? It is that we shall get technological unemployment. That is a very grave danger, because if it developed it would wholly undermine the work of the Productivity Council—excellent work—and the faith that is being built up that people need not worry about unemployment resulting from higher productivity. That is, I am afraid, the logic of the Bank Rate policy.
196 There are other disadvantages. There is the increase in the interest charge on the Budget, which goes up by £30 million next year. I note, in passing, that whereas the interest charge on the National Debt was £515 million in 1951–52 when we left office, next year it will be £600 million, an increase of £85 million. I will not hesitate to mention what we all know is the very unsatisfactory consequence for local authorities, and I have already mentioned another very awkward circumstance, the increased burden on our own balance of payments, because we have to pay higher interest abroad.
All this places the Chancellor in a very difficult position. He may hope that good fortune will once again come to his assistance. He may hope that the terms of trade will move in our favour. He may believe that by a slight and temporary reduction in stocks he can scrape through. But it is a hope. The situation is dangerous. The Bank Rate may be sufficiently high at the moment to attract funds from overseas and hold the exchange position. I do not doubt that it is doing that, but it will not continue to do that if those who own this money and these funds believe that there are risks about the fundamental situation, and if they are pessimistic about our balance of payments. If that happens, then the new moves to convertibility will make for a far greater rush on the £ than we have ever had before.
The Chancellor is in a dilemma. If he turns the credit screw hard enough to slow down the demand for imports, he damps down production and creates unemployment. If he keeps full employment he risks a balance of payments crisis. If he imposes direct control on the less essential imports he eats a whole mouthful of words. So, in this situation, he asks his right hon. Friend the Prime Minister to have an early General Election.
What else does he do? He comes to the Committee and tells us that he has decided to give away £140 million in tax reliefs. It is very difficult for outsiders who have no access to the detailed estimates of the Treasury to pass a fair judgment on whether or not this or that surplus or deficit is exactly right in any one year. The Chancellor has given us very little help in arriving at any judgment ourselves. He seems every year to give us less and less information in his Budget statement.
197 He spoke yesterday of the economists' argument being clear, but it seems to me that it was only clear to him because no figures were involved. It is impossible from what he told us to know why he settled on this particular amount or on any give-away at this stage. He did not explain why he had assumed that demand would be slacker and production greater, and there is precious little evidence that these statements are right. He has not told us what kind of export surplus he has in mind.
Is the right hon Gentleman really saying that the state of the country is less inflationary today than it was a year ago when he decided on a "No change" Budget? Above all, how exactly does he reconcile his decision to give away £140 million with his statement in February which preceded the announcement of the rise in the Bank Rate? I can only say that I have my doubts, and I hope that the right hon. Gentleman will forgive my saying that the suspicion crossed my mind that he had lemembered that there would shortly be a General Election. If he wishes to dispel that impression he will be able to do so when he speaks later in the debate.
Suppose that the Chancellor is right. The further question arises how exactly money of this kind and degree, £140 million, is to be used. How should the benefits be distributed? Perhaps, for the moment, we can all agree that the aims must be higher production and fair distribution. We can certainly all agree about the first, but I am not so sure about the second. I propose to examine in the light of those two tests the measures which the Chancellor announced. First, therefore, a word or two about the reduction of Purchase Tax.
I make only one comment. After all the pressure from the cotton industry—natural pressure, because the industry is very anxious about the situation in Lancashire—this concession seems miserably inadequate to meet the situation. I understand that the President of the Board of Trade will be speaking tomorrow and will announce the Government's policy for the cotton industry, and that my right hon. Friend the Member for Huyton (Mr. H. Wilson) will develop our views on this matter further, after the President of the Board of Trade has spoken.
The rest of the concessions are all in the field of Income Tax. We have no 198 objection to, indeed we welcome strongly, the increases in the allowances for single persons, married persons and children, and the otner minor changes which the Chancellor has made. I only wish he had been able to adopt some of the more modest and not expensive proposals which the Royal Commission suggested in its second Report. If we are in order, we shall certainly seek to obtain further concessions in that direction during the passage of the Finance Bill.
There are less favourable things to be said about the change in the standard rate of Income Tax. I thought it rather a mean gesture to confine the reduction in the lower rate of tax to 3d. instead of 6d. The concessions are, of course, set out in the tables in the Financial Statement, and they are clear, but I must make three points about them. There is not the slightest doubt that companies are once again the favourite children of the Chancellor. On his own admission, they receive £40 million—I am told that the actual figure is £45 million—out of the £100 million which these changes in the standard rate and the other rates will cost, if we exclude the allowances.
I believe that this sum of between £40 million and £45 million will go to just over 200,000 companies, of which £21 million, or about half of it, goes to only 300 companies, each of them making £1 million a year profit or more. I am indebted for this information to my hon. Friend the Member for Sowerby (Mr. Houghton). Perhaps the Financial Secretary will correct me if I am wrong, but I understand that this figure of £40 million or £45 million does not include the tax concessions on distributed profits, on dividends, and on interest. Indeed, according to my calculations, that will involve another £20 million, so that between £60 million and £65 million—nearly two-thirds of the total—will go to companies and property owners.
The right hon. Gentleman may claim that all this will help investment. He claimed that in 1953. There never has been any evidence whatever that it did anything of the kind. I have already mentioned the very poor showing of the private sector in investment. We were prepared to endorse and support what the Chancellor did last year in investment allowances to the companies—that was specifically directed to stimulating invest- 199 ment—but merely giving away money to companies in this way brings no security whatever that it will be invested.
The second comment that I would make on these proposals is, of course, that if one looks at the tables it will be seen at a glance that the man who gets his income from investment does better than the man who gets his income from the sweat of his brow. That is true all the way along the line, whether one takes the very low incomes or the very high incomes. Take, for instance, a married man with two children and an income of £600 a year. If his income is all earned he gains £7 16s. 8d. in the year. If his income is all from investment his gain is £12 a year. It is the same throughout, and I shall not weary the Committee with the figures; hon. Members can read them for themselves.
The third comment I have to make is that the larger the income the greater—far greater—the benefits obtained. Once again, the tables show this perfectly clearly. The married man with two children earning £600 a year—and I take only earned income now—benefits by £7 16s. 8d. a year, roughly 3s. a week. The man with £1,000 a year benefits by just over £16—an increase of about 6s. a week. The man with £1,500 a year benefits by £28 a year—10s. a week or just over. If one takes a man with £5,000 a year the benefit is £112 a year. That is well over £2 a week. A man with £10,000 a year receives a benefit of £237—a clear gain of nearly £5 a week.
I know that hon. Gentleman opposite think that that is perfectly natural. They say, "After all, you are reducing taxation. The rich pay more in taxes; they should get greater benefits." This is the difference between them and us. The whole assumption on which a Budget of this kind is produced is to get back to the palmy days when the rich were taxed much less heavily, whereas we in that situation would ask ourselves, "If we have money to give away where can we best relieve hardship?"
This matter cannot be judged, however, without taking into account the background of the last few years. It must be looked at in the light of the changes in the way in which wealth and income have been shared out over the last three years. We have heard a good 200 deal about higher consumption. Where has it gone? We know where the big increases have gone so far as commodities are concerned. The figures are in the Economic Survey. By far the largest increase this year has again been in motor cars; an increase of 19 per cent. It was 27 per cent. last year. The second big increase is in household goods; 10 per cent. as compared with the average of 4 per cent.
But, if I may say so, last year's figures of the incomes of different sections of the community tell the story even more clearly. It was a period of rising prices. I think I am right in saying that there was a rise in the cost of living of 4 or 5 per cent. during the year.
§ Mr. Gaitskell
If the hon. Member wishes me to be quite correct—4½ per cent., and, if he wants it, an increase of 8 per cent. in food prices.
Those who depend on social service benefits, about which the Chancellor spoke yesterday, in 1954 received no improvement, except for a few people on National Assistance. They were worse off during this year. Wage rates went up 4 per cent., and the Survey says that earnings went up 7½ per cent. But dividends went up 20 per cent. If the Chancellor of the Exchequer is inclined to deny that—and yesterday he gave a very queer figure of 4 per cent. increase in dividends—I would draw his attention to the Stock Exchange's own booklet on this subject. The Stock Exchange is not likely to make a mistake this way, at any rate. Its figures show an increase of just over 20 per cent in dividends in 1954.
Incidentally, so do some other figures in the Survey. The Chancellor referred to one table and I will draw his attention to another. If he will turn to page 33 of the Survey, he will see that the increase in dividend payments, which is defined in a footnote as:Ordinary and preference dividends before deduction of tax.was not £60 million, but £80 million. He says, of course, "Oh, but it is so little compared with the increase in wages." It is extraordinary to me that the Chancellor of the Exchequer can come here and make such a statement 201 without regard to the numbers of persons who enjoy those increases.
I turn to another matter, which was of some importance last year and still is, and that is the rise in share prices. I know that there has been a slight decline since the February Bank Rate increase, but the level of shares today still stands above the level it had reached by the end of last year. The index is 188, compared with 131 at the beginning of January, 1954. It is still true that anyone who had £10,000 invested in a miscellaneous collection of shares at the beginning of 1954 would be able to realise them for £14,000 today. That is a clear profit of £4,000—untaxed—with which he could do as he liked, with which he could raise his standard of living—and he does raise his standard of living to quite a large extent.
We all know why this has happened. We give the Chancellor the full credit for the Stock Exchange boom. We invite him to receive the plaudits of his friends in the City. First, there are the dividend increases, and against them only that small, timid voice saying from time to time, "Of course, we do not quite like this"—and that is as far as it goes. Then there is credit creation—loans from the banks to stockbrokers. They rose last year by nearly 50 per cent. I do not know whether the Chancellor has any control over the banks these days. One would have thought that, had he wished, he could have stopped that.
Finally, and most important of all, it is his own fiscal policy that is responsible. Look at what he has done for the companies in the past two years, from 1952 to 1954. I quote from the same table in the Economic Survey. Gross trading profits rose from £2,252 million in 1952 to £2,633 million in 1954—an increase of £381 million. And in those same two years the tax paid by companies, both Profits Tax and Income Tax, declined from £895 million to £759 million, a decline of £136 million.
No wonder that even after a rise of 28 per cent. in dividends in two years, the undistributed profits are up by £400 million. No wonder that every week that passes sees a new bonus issue. I know very well that this is really lifting the nominal value of the shares to their real value and that it makes no real difference, but—it is a curious thing—I have never 202 met anyone who did not feel very pleased if he happened to be a participant in a bonus issue. The real fact is that such issues almost always do yield a further increase in the actual amount of dividends paid. And now the Chancellor has handed another present to the same people who have already been doing better than anyone else in the past year.
I do not know whether the Chancellor of the Exchequer has seen the comment of the "Manchester Guardian" today on his Budget. This is what the city editor says:The Chancellor's optimism took the City by surprise."—They do not know him as a politician—The general reaction was that it should help to support Stock Exchange prices … because the reduction in the standard rate of income tax may lead to bigger dividends … The proportion of profit paid in tax by industrial concerns should fall, so that more should be available for shareholders and other purposes.That is fair comment. I think that they are right. I have no doubt that the Stock Exchange boom will continue now. Whether that is a wise thing is another matter. I have no doubt myself that it is not a just thing.
We have to consider this in the light of other claims. All of them have been rejected. The Chancellor referred to the deputations that came to him. He has ignored them. There is nothing off tobacco, nothing off beer, nothing but this trivial change in Purchase Tax, nothing off the petrol tax—nothing to relieve the people who travel by bus and who have to pay higher fares because of the tax on diesel oil. It would have been very easy to make a concession of that kind. We would not have opposed it.
§ Mr. R. A. Butler
May I ask the right hon. Gentleman whether he would have regarded such concessions as pre-Election bribes?
§ Mr. Gaitskell
The bribe consists of the Chancellor's decision to give away £140 million. He has decided to give that away; while what we are doing is to make a few suggestions that it might have been better distributed.
The Chancellor has done nothing whatever for the low paid wage earner who has to pay these indirect taxes. He has done nothing whatever to relieve those 203 who suffer hardship from high food prices. He has done nothing whatever to relieve the suffering caused by the rising cost of living. He has done nothing whatever to assist those—the poorest of all—who rely on National Assistance.
When, last December, the Government were asked to increase the paltry 2s. 6d. and 4s. which they conceded to National Assistance people, they refused. That does not prevent them from coming along now and giving £40 million or £50 million away to the companies. But there is something even worse than this. The Chancellor boasted about the rise in pensions and other benefits, but he said nothing yesterday about where the money to pay for this was coming from. I will remind him where it is coming from.
In June, every wage earner, every worker in this country, will have to pay out of his wage packet another 1s. a week. He suffers a wage cut of 1s. a week. Every employer will have to pay another 1s. a week on his employees, and that 1s. a week will be passed on in higher prices. The community as a whole will have to meet that. When we are considering what should be done with £140 million, is it not right and proper that we should take into account the additional burdens which are being imposed on the rest of the population?
This decision, which was opposed by us last December, alone made possible the Chancellor's gift to his favourite children. Indeed, I said at the time that the Government were doing this in glaring contrast to the normal proportion of the Treasury contribution. I said that the Chancellor was doing this in order to prepare his way for an electioneering budget. The only thing that he forgot was that we might remind people of the 1s. a week increase—and we shall. There could not be a more glaring example of the Tory redistribution of wealth. The £10 a week family man gets nothing out of this, and he pays 1s. a week more. The £10,000 a year man gets £5 a week more. That is the contrast.
There is no doubt that this will be the last major debate on economic affairs in this Parliament, and it is time to pronounce judgment upon the Government's record. In doing so, we must take into account what sort of external conditions 204 they enjoyed—for no Government is responsible itself for these—and we must make allowances if necessary.
But the conditions which this Government have enjoyed in the last three years have been exceptionally favourable—the easy terms of trade, the mildness of the American recession, the stream of extraordinary dollar expenditure poured out by the United States Government have all been a great help. When the Government came into power, the worst strain of the post-war period was over. The heroic effort and austerity which all the country had to endure, the build-up of exports, the rebuilding of industrial equipment, was all finished. The natural forces of recovery which follow after any war were already fully in action. Now was the opportunity to construct on a sound basis an even more flourishing export trade, an adequate surplus for investment abroad, reasonable gold reserves, and, above all, a high level of home investment. It cannot be denied that this opportunity has been missed.
Judged by the hard facts and figures, the Government have failed. Fundamentally, they have failed because they have not tried—because they have pushed too far their preference for economic anarchy, their dislike of positive action by the community, their belief that, somehow or other, everything will come right in the end. They have failed, in fact, because of their Tory philosophy.
They have failed in another and deeper sense as well. The war brought to all of us a greater sense of social unity and cohesion, a determination to do away with out-of-date injustices and inequalities. The Labour Government reflected that feeling in their legislation. Bold strides forward were made towards a classless society. In these last three years the whole process has been reversed. It is unquestionably the well-to-do who have done best and the poor people who have done worst under this Government. If there were any remaining doubts about this, they have certainly been dispelled by yesterday's Budget.
We accept the challenge of the forthcoming Election—eagerly, gladly. We accept it because it gives us a chance to turn out a reactionary Government and to enable us to proceed with the great task of realising for our country the ideals in which we believe.
§ 4.39 p.m.
§ The Financial Secretary to the Treasury (Mr. Henry Brooke)
I feel some diffidence in following so able a debater as the right hon. Member for Leeds, South (Mr. Gaitskell), who has himself held the distinguished office of Chancellor of the Exchequer, and the clarity of whose own Budget speech four years ago I remember with gratitude.
The right hon. Gentleman has the further distinction of living in my constituency. We are all picking up our electioneering handbooks, and we are reminded that it is unwise to pick quarrels with our constituents, especially in the weeks preceding a General Election. I am inclined, however, to think that the right hon. Gentleman must be written off as a dead loss. I have no desire to pick any personal quarrel with him, and I know that my right hon. Friend the Chancellor of the Exchequer will himself wish to answer a number of the questions which the right hon. Gentleman raised in the debate.
If the right hon. Gentleman can quote the "Manchester Guardian," however, so can I, and I invite the attention of the Committee to today's leading article. This is what the "Manchester Guardian" says:Mr. Gaitskell will have to do his best to pick holes in the Chancellor's reasoning, but it is really no use just juggling with figures. People are not going to be much impressed by mere words. They will want to know what Labour would do to make things even better. Mr. Butler has set the tone and it will be hard to match.I now want to apply another test, the historical one, because the right hon. Gentleman has exercised his judgment; he has sought to peer into the future, and we must test his words today by the judgment of history upon his words of a year and two years ago. Two years ago, in this corresponding debate, he said that my right hon. Friend was having to struggle witha stagnant economy with production flagging which had to be given a shot in the arm."—[OFFICIAL REPORT, 15th April, 1953; Vol. 514, c. 225.]Some shot, because in these past two years—in fact, practically continuously since the time when this Government were able to check the disastrous fall in the reserves—there has been a continuing rise in this country towards, at the present time, the highest prosperity which it has ever known.
206 I want to be perfectly fair to the right hon. Gentleman. His argument is that the success of these last few years is due to luck, to external conditions being exceptionally favourable. I am bound to say in passing that if I were choosing a test team I would be inclined to go for the man who did not constantly complain of the good luck of others. The test which we can apply here is that as between these two right hon. Gentlemen, the Chancellor of the Exchequer and the former Chancellor of the Exchequer, my right hon. Friend has an outstanding reputation throughout the world for his conduct of this country's economy.
Hon. Members opposite have recently been quarrelling among themselves. They are not only out of step with one another, but on this issue they are out of step with the whole of the rest of the world, because if they examine any impartial international document they will find that the growing prosperity of the United Kingdom is ascribed in those columns not to luck but to the wisdom of my right hon. Friend the Chancellor of the Exchequer. If I may strike a personal note, I have in these last few months had the privilege of watching his exercise of the tireless care and the cool judgment with which this world-wide reputation has been gained.
The right hon. Member for Leeds, South referred to the Economic Survey, and he thought that that demolished the Chancellor's Budget. He spoke of investment. I too invite him to examine pages 23 and 24 of the Economic Survey. He will see there that whereas in 1953 most of the increase in new building was in housing, in 1954 it was mainly in industrial and commercial building.
What about the right hon. Gentleman's complaint that private investment is not going forward as it should? He made some play with statistics, but evidently he had committed the economist's error of looking only at the figures and not reading the letterpress which followed. If he will examine the latter half of paragraph 40 he will see that after allowing for the decline in Government financed investment in private industry and the fall in investment in the petroleum industry,investment in the iron and steel industry was slightly higher than in 1953. In other manufacturing industries expenditure on new factory building rose by about £25 million.… At 207 the same time new orders placed for machine tools, and for some other types of manufacturing plant, were higher than in the previous year, while the area of factory space for which Industrial Development Certificates were issued during 1954 was considerably greater than in 1953. There is thus a good deal of evidence to suggest that the demand for investment by private manufacturing industry took a fresh upward turn during the year.I wonder why the right hon. Gentleman did not quote those words.
§ Mr. Austen Albu (Edmonton)
Has not the hon. Gentleman missed out one sentence? There is a subsidiary sentence after the words referring to new factory building:… and there was probably also some increase in deliveries of plant and machinery to those industries during 1954.That does not seem like much of an increase.
§ Mr. Brooke
I want to make further reference to the speech made by the right hon. Member for Leeds, South a year ago. He spoke last year about the figures of food consumption. He thought things were not going satisfactorily. He said:I should like to have the Government's observations on it."—[OFFICIAL REPORT, 7th April, 1954; Vol. 526, c. 375.]I will give him the Government's observations.
If the right hon. Gentleman will examine the Economic Survey he will see that in 1954, compared with 1951, the consumption of tea per head was up, as was the consumption of fruit, eggs, sugar, fats and meat per head. That sounds like a prosperous economy. That sounds as though the whole of the country was doing better. I would particularly invite the attention of the Committee to the fact that in those three years the consumption of meat rose from 76 lb. per head per annum to 103 lb. per head per annum. It is quite true that the consumption of two foodstuffs was substantially down over that period.
§ Mr. George Lawson (Motherwell) rose—208
§ Mr. Brooke
Potatoes and bread are the foods that people eat when they are hungry. Those are the foods with which people had to fill themselves up in the days of Labour Government.
§ The Temporary Chairman (Colonel Sir Leonard Ropner)
I must ask hon. Members to keep quiet during the Financial Secretary's speech.
§ Mr. Brooke
Looking at the figures, it does not seem to me that the Government have anything to fear from an early Election. The right hon. Gentleman made the allegation that the Chancellor had asked the Prime Minister to seek a dissolution of Parliament because he apprehended an economic slump. I can see one very sound economic reason for an early Election, and it is that there would be insufficient confidence abroad as long as apprehension persisted that the right hon. Member for Leeds, South might resume control of this country's economic affairs.
I listened to most of the debate yesterday evening in a thin House, and it was only too clear that the Labour Party could not make up its mind whether this was an electioneering Budget or a Budget which benefits only the few.
§ Mr. Brooke
If hon. Members still say it is both, that proves the utter confusion in which their minds must be.
§ Mr. Silverman
I appreciate what the hon. Gentleman says—that the Opposition are confused in their minds by being unable to decide whether this is a Budget intended to benefit the supporters of the Government or an electioneering Budget intended to win votes, and that we seem to be still more confused when we appear to say that it is intended to do both. Would the hon. Gentleman mind clearing up the confusion in our minds by telling us which it is—an electioneering Budget or one intended to benefit the Government's friends?
§ Mr. Brooke
I do not think I could possibly clear up the confusion in the minds of hon. Members opposite, but what I see clearly is that a true electioneering Budget, such as one which the Labour Party might have introduced in similar circumstances, would have given away not half the surplus but all the surplus, hon. Members opposite being well aware that they might not have a chance to introduce another Budget. It would have sought, in particular, to curry popularity by decreasing some of the indirect taxes—the taxes on sports, the taxes on tobacco and the taxes on beer—none of which my right hon. Friend has touched. If it is alleged that this is a Budget which benefits only the few, then I invite hon. Members opposite to explain how they manage to reconcile that allegation with the fact that it frees nearly 2½ million people from paying Income Tax.
I do not want to recapitulate last night's debate, but last night the hon. Member for Acton (Mr. Sparks), who is unable to be here today, made play with the argument that the Government were not sufficiently rapidly increasing their expenditure in various directions. This is, of course, a debate which covers the whole field of expenditure as well as that of revenue. He quoted from Table VII (a) in the Financial Statement, picking out, with I thought superb electioneering skill, the few items which had gone down and failing to mention that the increase shown at the bottom of the table was £30 million. He concealed from the Committee what my right hon. Friend had stressed in his Budget speech—that for war pensions he is finding £8 million more, that for education he is finding £25 million more, and that for the health services he is finding £32 million more; and everybody on these benches is highly proud of those figures.
I want to dwell for a few minutes on the subject of Purchase Tax, and I think it may be a help to both sides of the Committee if I go into my right hon. Friend's proposals in a little detail. I want to declare that I have no doubt at all that the Purchase Tax can have a bearing on the export trade of an industry. That happens because a heavy Purchase Tax may reduce home sales of some products and not provide the industry with a sufficiently secure home market from which it can branch out and capture export210 markets, and I do not deny for one moment that a 50 per cent. rate of Purchase Tax may have certain effects of that kind.
I also want to explain how my right hon. Friend has reached his decision, which he announced yesterday, about the concession which he is making in favour of Lancashire cotton goods and Northern Ireland linen. In passing, I invite the Committee's attention to a reply which I gave yesterday to a Question by the right hon. Member for Huyton (Mr. H. Wilson), in the course of which I pointed out that this Government had already, before the Budget, reduced the burden of Purchase Tax on textiles by almost half.
It is quite true that there still remains a sum of approximately £42 million which is gathered in from textiles. Of that, some £7 million comes from the cloth, the material, sold as such, whether woollen or non-woollen, and the remainder, about £35 million, comes from clothing. I think that the case which has been urged from some quarters outside the House has been that the whole of the Purchase Tax should be removed from the whole textile field. That would involve a loss of revenue of £42 million, and my right hon. Friend reached the conclusion that that was more than he could afford to give away, in addition, in this Budget.
Moreover, there is a further reason. It is not only by the textile trade that the Purchase Tax is felt, and it would be wholly unfair to relieve all textile goods and clothing from all Purchase Tax while making no change whatever to meet the comparable requests which are heard from other industries. As the right hon. Member for Leeds, South, well knows, it is necessary, in shaping the Purchase Tax, to be sure of avoiding unfairnesses such as that.
That is the difficulty, and I am inviting the Committee to face these problems with me because I am sure that my right hon. Friend's desire is that the action which he has taken may be understood, and I am equally sure that if hon. Members on either side of the Committee have better suggestions to make whereby he could help the textile trade without impossible loss of revenue, he will be glad to consider them.
§ Mr. J. T. Price (Westhoughton)
Naturally, as a Lancashire Member, I am following everything which the hon. Member is saying on this subject with great interest. I now invite him to say—if he is at liberty to do so—how he expects the small, infinitesimal concession granted to Lancashire in the Budget to have the effect which it is intended to have when nothing is done about the D line which fixes the point at which the tax becomes operative? How can Lancashire hope to maintain its present position when, from what the hon. Gentleman has said, he apparently thinks that the cotton industry can be considered only on an equal footing with other industries which are prosperous, whereas the Lancashire industry faces a situation causing great distress to the whole economy of the country?
§ Mr. Brooke
I hope that the hon. Member for Westhoughton (Mr. J. T. Price) will allow me to develop this argument, because I was intending to refer to the D level in due course, and I was not seeking to run away from any of the important points that arise here.
The next step in my argument is this. If it is not possible to remove the tax entirely, for the reasons I have given, could the Chancellor remove the tax wholly from the materials—the piece goods—while leaving it on the clothing? Obviously, that would have cost double the £3 million which my right hon. Friend has given away. It is £3 million a year—£2½ million in the current year and £3 million in a full year. The tax gathered in from the cloth is £6 million a year on the non-woollen cloths and £1 million on woollen cloth, adding up to the £7 million that I mentioned earlier.
I think that, here again, the right hon. Member for Leeds, South will realise the difficulties into which we might be led if we were to exempt the cloth entirely from tax, while retaining the present rate of 25 per cent. tax on clothing. Clearly, it would be liable to lead to a warping of the ordinary channels of trade if people could buy the cloth free of tax, arrange for it to be made up, and thereby get a finished article which had not paid any tax at all, and then seek to sell it in competition with articles made up under the present industrial and commercial arrangements, which would have borne a 25 per cent. tax.
212 Frankly, the more one examines such a suggestion, the more unsound does it appear to be to relieve material entirely from the tax and let it be sold in that tax-free state, while still seeking to collect 25 per cent. from the manufacturers and others who are making it up under present arrangements. I must warn the Committee that if we did that there would be an outcry about the anomalies that would be created.
I come now to the D level which the hon. Member for Westhoughton mentioned. I have taken into consideration, and so has the Chancellor, the argument which one hears from Lancashire that the D scheme, though it was liked, and indeed was pressed upon the Government originally three years ago, is now a failure on the ground that no one will buy goods which have borne tax.
Everybody, so the argument runs, will look out for the cheaper goods which are below the D level and escape the tax; and the manufacturer, therefore, so the argument runs, cannot find a market for the better quality goods. I entirely appreciate that it is the better quality goods with which we are more likely to be able to expand our export trade, and what we have to examine, if we are realists, is whether this argument holds water.
If one goes round the shops, I promise hon. Members opposite that they will discover—and they may have an easier way of learning it simply by consulting their wives—that the buying public on the whole is quite oblivious of the D level. If there is this rigid buying resistance to any goods which bear tax as being above the D level, how is it possible to account for the very large proportion of many kinds of goods in the shops which have clearly borne tax? I know that the D levels are complicated. They are not easy to understand, and it is certainly not easy to carry the figures in one's head, but I will offer to hon. Members the kind of experiment that any hon. Member could try.
He can go round the shops and see whether he finds on offer women's stockings costing more than 4s. 11d. per pair, because if he does these stocking are likely to be bearing Purchase Tax. He can, if he is a brave man, seek to buy a lady's petticoat; I believe they are called slips nowadays. He will find that these are on sale at varied prices, certainly, in many cases, above 12s., and 213 any lady's petticoat or slip which is selling retail at above about 12s. is likely to bear Purchase Tax. He can, if he is an even braver man, go into a shop to buy ladies' slumberwear.
§ Mr. Brooke
I gather that my right hon. Friend the Prime Minister repeated that word questioningly. Slumberwear is the modern equivalent of nightdress. A lady's nightdress—which I understand the Prime Minister thinks is a much better word—which sells in the shops at a guinea or more is likely to have borne Purchase Tax.
I could continue the list—[HON. MEMBERS: "Go on."] I thought I might come here to the successful part of my speech. If hon. Members will try this experiment in the shops, they will find for themselves that it is just untrue to say that there is no sale for those goods which are above the D level and, therefore, bear tax. That is the answer to a great many of the fears of Lancashire that the D scheme kills trade above the D level.
§ Mr. J. T. Price
I am extremely grateful to the hon. Gentleman but, as he has mentioned the question of slips, I hope he will permit me to point out that his own slip is showing. He has made a very serious slip in the way in which he has put the argument. The slip here is that he has missed the whole point of the argument about the D levels. We in Lancashire say—and the whole trade knows it, because it is one of the elementary axioms of the trade—that the existence of the D level in its present form, with high tax above the D level and no tax below, is encouraging and causing manufacturers to depreciate the quality of goods in order to get those goods below the taxation limit, and that is having a very serious effect on the export trade and our ability to compete in export markets.
§ Mr. Brooke
I was just asking the Committee to consider how true it could be, bearing in mind the fact that the shops are full of goods that are unquestionably above the D level.
214 These matters will undoubtedly be further debated on the Purchase Tax Order, if the Opposition decides to pray against it, but I thought I might be able to give some help to both sides of the Committee by showing how my right hon. Friend had reached this decision, and by putting before the Committee some of the difficulties which would arise if any other course were taken. I say in all seriousness that if the hon. Member for West-houghton, or any other hon. Member, can devise a better way of remoulding Purchase Tax on textiles so that the Chancellor will not have to give away about £40 million of revenue and yet be able to give Lancashire and Ulster greater help than by this proposal, I am sure that my right hon. Friend will be glad to consider it.
I turn to direct taxation. In the special circumstances of this year the Chancellor has not been able to deal as fully as I know he would have desired with several of the important Reports which have been presented to Parliament in recent months. I am not sure whether the name Millard Tucker has yet been mentioned in these debates. If not, I want to mention it now and to assure the Committee that my right hon. Friend has not forgotten, but has carefully studied, the last Millard Tucker Report. The fact that he does not feel able, in the short time between now and the Dissolution, to invite the House to take any action on that Report, by no means indicates that he has closed his mind permanently to the following up of some of the suggestions there made.
My right hon. Friend also paid his tribute yesterday to the Royal Commission on the Taxation of Profits and Income, and particularly to its Chairman, Lord Radcliffe, who, incidentally, is a constituent of mine, as I believe is the right hon. Member for Battersea, North (Mr. Jay). The Hampstead team on Income Tax might be able to take on almost the whole country.
§ Mr. S. Silverman: Did the hon. Gentleman say, "Take in the whole country"?
§ Mr. Brooke
I never take in anybody.
The Royal Commission made a number of most valuable observations and suggestions. The Second Reading of the Finance Bill may be a more appropriate 215 moment to go into them in detail. The three main conclusions of the Royal Commission were: first, that the starting point of liability to Income Tax is too low; second, that the present structure and graduation of the tax is hard on the family man—the parent of children—particularly in the middle and upper ranges of income; third, that there is too big a jump in the graduation of the tax at or about the £2,000 a year figure, when Surtax begins and almost at the same point earned income reliefs end.
It is quite true that my right hon. Friend has not followed precisely the recommendations of the Royal Commission for dealing with those three defects, but he has had to study the complications of P.A.Y.E. and to seek to frame proposals which would not cause the immense additional complications that some of the recommendations of the Royal Commission would cause. The scheme which he has outlined to the Committee will in large measure meet the first two criticisms of the Royal Commission.
I should like to give a few figures to illustrate what the Chancellor has achieved in these directions in the four Budgets he has introduced, which—despite the forecasts of the right hon. Member for Leeds, South—I believe will be the first four of a much longer series. In 1951–52, the last year in which the Labour Government were responsible for the Budget, a single person earning £300 a year paid £29 10s. in tax. By the four Conservative Budgets that amount is now halved—reduced to £14 13s. 4d. A childless married couple earning £400 a year, paid £29 10s. Income Tax a year under the arrangements of the Labour Government. Under the action of the Conservative Government that tax is now reduced to £9 7s. 6d. If we take the case of a married couple with two children, bearing in mind that it was the families with children which the Royal Commission said deserve particular attention, we find that such a family with £575 income a year in 1951–52 paid £29 10s. tax. Under the proposals of my right hon. Friend, that family will be exempted from tax altogether.
If we take the case of an elderly married couple living on an investment income of £600 a year, we find that under 216 the régime of the Labour Government that couple paid £114 a year tax—a great deal for an elderly couple. Under the proposals of my right hon. Friend, and as a result of four years of Conservatism, that amount is reduced to £48 per annum, a relief of £66 a year, or 25s. a week. That is the sort of household where relief will be particularly valued.
§ Mr. Brooke
I want now to show what the Conservative Government have done in the way of relieving people of tax altogether. We all bear in mind the claims of the Labour Party that it is the only party which cares for the people who have to make do on small incomes. In 1951–52, a single person started paying tax on an income of £137 10s. I am speaking in terms of earned income all the time. As a result of the four Budgets introduced by my right hon. Friend, that figure has gone up to £180. In the case of the married couple without children, the figure at which no tax is paid has gone up from £238 under Labour to £309 under the Conservatives. In the case of the married couple with two children, the tax-free figure has gone up from £413 to £566. I beg the pardon of the Committee, but a moment or two ago I said that a couple with £575 a year would now pay no tax at all. It is true that they will pay a microscopic amount of tax.
Finally, the married couple with four children—this is where family and household responsibilities fall most heavily, as I know, because I have four children—under the Labour Government would start paying tax at £588. Under the proposals of my right hon. Friend they will pay no tax until their income reaches £823.
§ Mr. Douglas Jay (Battersea, North)
Will the hon. Gentleman tell us how much relief has been given over these four years to the single man with an income of £10,000 a year?
§ Mr. Brooke
I cannot answer that question on the spur of the moment but it is true that reliefs have, on the whole, been given in proportion to the tax that is paid, with a considerable bias in favour of those who have the smallest incomes, as I am about to show.
217 I want now to give some figures which apply a different test. I have been trying to see how I can best present to the Committee the full effect of these changes over the four years. The allegation is made—I could see it peeping out from the apparently harmless question which the right hon. Gentleman has just asked me—that my right hon. Friend has introduced a series of class Budgets. Let me say at once that this allegation is not believed by anybody outside this House. I have analysed the figures in the following way: I want to ask the Committee to consider what certain classes of people would now be paying in additional taxation if the rates in force in the last Budget of the Labour Government were still operating. These figures are interesting.
First, we will take the Surtax payers, those people whose incomes exceed £2,000 a year. The entire class of those people would, if the rates of the Labour Government were still in force, be paying 12½ per cent. more in Income Tax and Surtax. We will take another band, those whose incomes are between £1,000 and £2,000. Those people, if the rates of the Labour Government were still in force, would be paying 37 per cent. more.
Now let us take the largest band, where we find most of the taxpayers, those with incomes between £500 and £1,000 a year. Those people, at the rates of the Labour Government, would be paying 75 per cent. more tax than they are now. And now we will examine the other great band in which there are many taxpayers, those with between £250 and £500 a year—
§ Mr. Brooke
At the rates of the Labour Government they would be paying almost 100 per cent. more tax than they are today. Finally we will take those whose needs are greatest, those whose incomes are below £250 a year, those to whom one would think the Labour Party, according to the claims it makes, would be more careful to temper the wind. Those people, at the rates imposed by the last Labour Budget, would be paying 400 per cent. more tax than they are today.
§ Mr. Brooke
If I may say so, these are matters which we might profitably pursue 218 further on the Second Reading of the Finance Bill, when there will be ample opportunity for hon. and right hon. Gentlemen opposite to refute my argument, if they can. It would be much better if they took a little time to think it over and to see what they can evolve.
My hon. Friend the Member for Tyne-mouth (Miss Ward), who has constantly urged successive Governments to pay greater attention to those who are experiencing the hardest time because there is so little money coming in, will be particularly happy to note that people with incomes of under £500 have been relieved, on the average, of half their tax, and people with incomes of under £250 will have been relieved of four-fifths of it. I am sorry that my hon. Friend is not here today.
The right hon. Gentleman, and other hon. Members opposite who spoke yesterday, sought to pretend that this was an unfair Budget, a class Budget, which gave only to the privileged—[HON. MEMBERS: "Hear, hear."] Even now I hear "Hear, hear" from the other side of the Committee. Yet I would invite the attention of the Committee to some perfectly true words which were used yesterday early in the debate by the hon. Member for Nottingham, South (Mr. Norman Smith) when he said:… we got a Budget concession which puts additional spending power into the hands of very nearly everybody."—[OFFICIAL REPORT. 19th April, 1955; Vol. 540, c. 72.]That does not sound like a class Budget; that sounds like a good Conservative Budget, and that is precisely what this is.
I heard yesterday, and again today, the argument that this Budget does nothing for the people who pay no Income Tax. That, of course, is true so far as the Income Tax concessions are concerned. People who pay no Income Taxmust now expect to see others get the benefits while they remain where they are—fully exempt from the tax."—[OFFICIAL REPORT, 13th April, 1948; Vol. 449, c. 917.]I am quoting words used by the late Sir Stafford Cripps on this very subject.
Much more could be said to refute the arguments which hon. and right hon. Gentlemen opposite are seeking to trump up against a Budget which I have no doubt will be exceedingly popular throughout the country. When, however, I hear arguments about class bias in these concessions and about doing nothing for 219 those who pay no tax, it is worth while for all of us to examine the programme of the Labour Party—which I realise may be withdrawn by next week. The programme of the Labour Party means more taxation not only from the rich but from every taxpayer, and I should say unquestionably from those who are not direct taxpayers at the present moment. It is sheer boloney for the right hon. Gentleman—
§ Mr. Scholefield Allen (Crewe)
On a point of order, Sir Leonard, is "boloney" a Parliamentary expression?
§ Mr. Brooke
I thank you, Sir Leonard, for your Ruling on the delicate line between what is Parliamentary and unparliamentary.
I sought to say that it was sheer baloney, on the part of the right hon. Gentleman, to seek to convey to the Committee that if a Labour Government were in charge they would be able to meet all the expenditure which their profligate programme would involve by further soaking of the rich. Though some of his hon. Friends may not agree with him, the right hon. Gentleman, the Member for Leeds, South, having held the post of Chancellor of the Exchequer, knows perfectly well that the programme which his party has so far put before the country would involve colossal additional taxation on everybody, and it is between that and the wisdom of the Budgets of my right hon. Friend that the country will have to choose.
§ 5.20 p.m.
§ Mr. J. Idwal Jones (Wrexham)
It is with some trepidation that I rise to speak for the first time here after my election for the Wrexham constituency, but I have been informed, and have seen evidence of it, that the House and this Committee are always prepared to give all encouragement to a new Member. I shall endeavour to be brief, and I shall endeavour to be as non-controversial as possible. The Committee will appreciate that I am succeeding the late Professor Robert Richards, who was a highly revered 220 Member of the Committee, and who was highly esteemed in the Wrexham division. I consider it to be a great privilege to follow him.
As my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) has so ably shown today, it appears to me quite clear that we are heading for very difficult weather in our economic affairs. We have heard a good deal in the last three or four years about the progress the nation has been making since 1951, and yet the fact remains that now, at the end of the present Parliament, the gold and dollar reserves are lower than they were at the time of the General Election of 1951 and very substantially below the level at which they were in June of that year. That is one reason why I find this Budget a baffling one.
Our reserves and resources in October, 1951, were considered by the Conservative Government to be in so very unsatisfactory a state that they slashed our social services, our National Health Service, and the amount spent on education, and yet at the present time, when our reserves are not much better, we find attempts being made to improve the lot of those people who are better off, while relief is not given to the general public. We do not see in the Budget very much hope of any real advance in our social progress.
At the same time the trade gap is widening. It was wider last March than it had been for a considerable period. As my right hon. Friend has pointed out, the Chancellor has safely ensured the process of widening it still further. Furthermore, the £ stands at its lowest value in its long and chequered history. These are very serious considerations, and despite them the Government have decided upon the policy contained in this Budget.
The Financial Secretary had a good deal to say about the Purchase Tax. Here is a form of indirect taxation which can never be justified in principle, which can be tolerated only in circumstances of grave necessity, and which we are looking forward to abolishing altogether. While there is some relief of the Purchase Tax on textiles, it is very insignificant, and there is no change in the Purchase Tax to lighten the weight of it on the people as a whole.
221 My right hon. Friend mentioned petrol. We know very well that if the tax on petrol were reduced, that would have an influence in reducing the cost of living for the entire community. Nothing, however, has been done in this respect. We are fully aware of the reason offered for that—that we do not want an inflationary pressure at the present juncture. That is the reason offered, and were it justified we, of course, could support it; but let us be perfectly clear on the point.
We know prices are rising, but it does not follow, because prices are rising, that we have an inflationary position. Prices rise at the same time as wages. As was stated in this Chamber two months ago, retail prices went up 4 per cent. and wages went up 4 per cent., and the relative position of retail prices and wages seemed to be fairly stable. So it does not appear that there is danger of inflationary pressure from that sector of our economy.
When, however, we look at another sector of our economy the situation is rather different. In the same year that retail prices rose 4 per cent. and wages 4 per cent., retaining relative stability between the two, company profits were going up 11 per cent., dividends 18 per cent. and share prices 34 per cent. If the correct definition of inflation is that there is too much money chasing too few goods, then I think that there we have an inflationary situation. There is too much money chasing too few shares, because shares are, in that sector, the goods in question. That explains, of course, the so-called boom and the so-called prosperity.
There is an inflationary pressure and that is why, personally, I cannot see that this Budget really makes sense. It increases the inflationary pressure at the very point in our economic structure where we can least afford it. As has been pointed out today already, there is a relief to industry, but it will, of course, find its way into this sector of our economy.
At the same time the Bank Rate is up to a higher level than it has been since 1932. This out-of-date monetary procedure is uncertain in its effects in some respects, certain in its effects in other respects. It will certainly add to the cost of living of the community; it will certainly add to the burden of our local government. It is uncertain in other 222 respects. As someone wrote recently in a periodical, the Chancellor, at the present moment, rather than tugging the horse, is being tugged by the horse, because the increase in the Bank Rate is not achieving the result it was meant to achieve.
Thus, I cannot see much really scientific basis for the proposals in this Budget. As the newest Member to enter this Committee, I say in all humility that the Budget is a very baffling one indeed, and to me is explainable only in the light of the impending General Election.
§ 5.28 p.m.
§ Mr. Geoffrey Stevens (Portsmouth, Langstone)
In the last few minutes my mind has been carried back very vividly to an occasion about five years ago, when we met in another place, when I made my maiden speech, as the hon. Member for Wrexham (Mr. Idwal Jones) has just made his maiden speech, and I remember how I learned from experience how kind, as he himself said, the House and this Committee are to new Members, and the encouragement they give to them.
I congratulate the hon. Member on the cogent way he has put his own views on the Budget, although I do not agree with them all. I am sure I should go on in traditional fashion to say that I hope that we shall frequently hear him address us in the future, but I must put in a slight proviso and add, in the unlikely event of his success on 26th May.
§ Mr. Stevens
I know what his majority is, but I was thinking of the landslide of 26th May.
I hope that the hon. Member will forgive me if I do not follow up his remarks, but go on to some rather different matters. I am sorry that the right hon. Member for Leeds, South (Mr. Gaitskell) has left, because I shall refer to one or two things he said. He referred in very scathing terms to the Budget proposals and financial policies of my right hon. Friend and said that we in the Conservative Party had frequently painted, and at present were painting, too rosy a picture. He said that much of our propaganda is misleading.
I am sorry that the right hon. Gentleman has not had the time to study the 223 "Preliminary Estimates of National Income and Expenditure, 1948 to 1954." If he studies that document he will find that it is not misleading propaganda but a matter of fact that in 1954, after three years of Conservative Government and Conservative financial policies, we as a nation earned more, spent more and saved more than at any time in the history of the country. That cannot be called misleading propaganda. It is a question of fact. It cannot be suggested that that is painting the picture too rosily, because I am quite sure that a Command Paper of this kind would never paint a rosy picture but only a factual one.
The right hon. Gentleman also had something to say about the high Bank Rate. He said that it discourages borrowing and development. It is perfectly true. That was the object of the exercise. It does indeed discourage borrowing and development with other people's money. What it also does is to act as an incentive to saving and development with one's own money, which, I should have thought, should be very much encouraged.
The right hon. Gentleman—and I know that this is a view which is commonly held on the other side of the Committee—referred, again in scathing terms, to the fact that a large part of the Income Tax concessions will go to limited companies. He referred to figures given to him, I am certain with great accuracy, by his hon. Friend the Member for Sowerby (Mr. Houghton), to indicate that some of these companies are very wealthy and getting along nicely anyway. It seems to me extraordinary that the right hon. Gentleman, who has been Chancellor of the Exchequer, and who has had wide experience of business and industry, should not realise that companies are the industrial life of the country upon which the standard of living of all of us depends. Unless these companies have sufficient profits to put to reserve and to invest, the standard of living of every one of us, instead of increasing as it has done in the last three and a half years, will tend to decrease.
My worry is a very different one indeed. It is whether or not the surplus of about £150 million above the line, which the Chancellor still has left, will be sufficient at a time when, quite clearly, there 224 are certain inflationary tendencies in the system. It is purely a matter of opinion and the facts will show in 12 months' time as they have done during the last three years, but and I believe that the Chancellor has it about right, unless people spend the whole of the tax remissions which it is proposed to give them in these Budget proposals. I am not in the least pessimistic about that.
Table 6 on page 8 of the "Preliminary Estimates of National Income and Expenditure, 1948 to 1954," shows, in the "Combined Capital Account," the savings of individuals, of limited companies, companies and public corporations in the seven years 1948–54. I find, for example, that between 1952 and 1953 the savings of individuals went up from £690 million to £910 million. The savings of limited companies, companies and public corporations in the same two years went up from £1,143 million to £1,309 million, rising again in 1954 to £1,437 million.
It so happens that these very substantial increases in savings of individuals, limited companies, companies and public corporations have coincided with the Budgets of 1952 and 1953 when my right hon. Friend, in his first Budget gave substantial personal Income Tax concessions to individuals and, in 1953, reduced the standard rate of Income Tax by 6d. It may be merely coincidental, but I do not think that it is. I believe that it is a good thing to trust the people, as we have done in the past, and I believe that a very substantial part of the tax remissions amounting to £153 million which it is proposed to be granted will go into savings.
Savings are of no avail unless they are invested. We have already had cross-talk on whether sufficient savings were invested in 1954 and I do not want to go into that again now. An indication is given in the Economic Survey for 1954. I believe that savings will be invested in industrial equipment and re-equipment provided that the net return from investing savings in plant, machinery and factory buildings is reasonable, and I believe that 6d. off the standard rate of Income Tax will make net earnings from new plant, machinery and factories more reasonable. I shall be surprised if the next Economic Survey does not have something very much stronger to say about industrial investment in 1955 than the Economic Survey had to say about investment in 1954.
225 These savings are essential if we are to have increased productivity. The Chancellor reiterated an important and urgent warning note when he referred yesterday to the fact that output per man, over the economy as a whole, rose in 1953–54 by about 2½ per cent. but the increase in wage rates was over 4 per cent. There, we have an inflationary tendency if ever there was one. But we are told by hon. and right hon. Members opposite that one reason at least for these constant demands for increased wages is the tremendous increases in dividends which are being paid.
Once again I turn to the really invaluable "Preliminary Estimates." The "Corporate Income Appropriation Account" shown in Table 3 of that document gives the increase in dividends, not over two years but over the wider period of the whole seven years from 1948 to 1954, a very reasonable thing to do. Dividends, interest, and so on, rose from £686 million in 1948 to £1,029 million in 1954, a rise of no less than 50 per cent. Well, well! But Table 2 "Personal Income and Expenditure," in page 4 of the same document, shows wages and salaries over the same period rising from £6,140 million in 1948 to £9,265 million in 1954. That was not a rise of 50 per cent. as in the case of dividends—and this is not misleading Tory propaganda but facts taken from a Government White Paper—but a rise of 51 per cent.
That seems to show clearly that, at any rate, wages have kept step completely with dividends. If we go back further still and take the 11 years from 1938 to 1948, we find that dividends in that period rose by about 50 per cent. but earnings in industry rose by 250 per cent. Consequently, dividends have a very long way to go before they catch up with the very considerable increase in wages. There is, therefore, very little indeed in that argument.
The Chancellor had a very difficult course to steer yesterday in view of the balance of payments situation. I believe that he has steered that course with the greatest possible success. As my hon. Friend the Financial Secretary has quoted from the words of the hon. Member for Nottingham, South (Mr. Norman Smith) yesterday, 6d. off the standard rate of Income Tax benefits a very wide range of people. It brings benefits to many of 226 those on whose behalf hon. Members on both sides of the Committee, in debates on the Adjournment and in Motions on the Order Paper, have tried to attract the favourable notice of the Chancellor.
It brings benefits to the wage earner, to the salary earner, to the Service retirement pensioner, and it makes things just a shade easier for those who have to pay school fees. It is of immense help and stimulus to trade, industry and commerce, and, provided the people save a substantial part of the remission of taxation and invest it, then I believe that the incentive and stimulus will pave the way to that increased productivity which alone will keep inflation at bay.
§ 5.41 p.m.
§ Mr. Arthur Holt (Bolton, West)
The right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) made a very brilliant speech and put very forcibly the Socialist Party's case against this Budget and the policies being pursued by the Government; but it was not meant to be impartial and it was not impartial. As I listened to the glowing phrases in which he described the Labour Party's efforts when they were in office, I wondered why it was that they had to devalue the £ and why, in 1951, they left office because there was a crisis with which they could not deal.
I was also rather surprised at the efforts of the Financial Secretary in trying to put forward the Government's case for helping the Lancashire textile industry and in apologising for not doing more for that industry. I have never been one who thought that the case for removing Purchase Tax above the D level was quite as great in its effect as some Lancashire people made out. I do not think, in fact, that it is so. Many quality articles are being made, have been made, and will be made whether Purchase Tax remains or not. But there are marginal cases where we get a cloth which is just above the D level. Those are the kind which are probably not being made and are being depreciated in value, but those well beyond the D level will be made in any case.
The case put by Lancashire for the removal of this tax is that when an industry is up against world competition to such an extent that mills are closed, people are out of work and some com- 227 panies are making a loss—as undoubtedly some are at the present time—surely it is hardly the time for any Government to keep on an irritant when those who have to sell the goods are aware that their sale is made more difficult by a tax which is maintained by the Government.
When one considers whether other sections of the community are being treated more favourably, and sees that the agricultural and food Vote is now at the colossal figure of £385 million, that the direct support given to farmers is now about £241 million, one cannot but be disappointed that when Lancashire is experiencing unemployment the Government say they cannot completely remove Purchase Tax on textile products.
I feel that on grounds of equity alone the Government have not made out their case. I appreciate the difficulties of reducing Purchase Tax on Groups 5, 6 and 7 down to nothing without altering Group I in the Purchase Tax Schedule, but that does not seem to dispose of the question. If Groups 5, 6 and 7 are not reduced to nothing, then either the tax should be removed completely on the whole range of clothing and textiles costing £42 million, or a substantial reduction should be made, say to 12½ per cent., on Groups 1, 5, 6 and 7. The Financial Secretary asked for suggestions. Those are mine to be going on with.
I should like briefly to make two points, one about the present inflationary troubles and the Budget proposals in relation to them, and the other on the Government's general policy about freeing trade and the liberalisation of trade.
I know that some economists will complain that the Government, by giving away some of their surplus, have made an inflationary situation slightly worse, but it seems to me that we should clearly distinguish between the causes which create inflation. If inflation arises from one cause, then it will not be dealt with by increasing inflation which comes from another source. If I may, I will put it in this simple way. From my experience, before coming to this House, in dealing with people looking after machinery, I often found there was a tendency for them, if they could not see what was the immediate cause of a fault in a machine, to make something else wrong and hope 228 that the machine would run all right rather than correct the real cause of the trouble.
Economists, and, I am afraid, particularly what I would call Liberal economists, have for a long time complained about the high level of Government expenditure and of direct taxation, arguing that these things had an inflationary influence. I would have thought that any effort to reduce them would, therefore, be described as deflationary. The fact that we may have an inflationary situation caused by other sources does not seem to spoil the argument for reducing the inflationary effect of high Government expenditure. I think that probably our present inflationary troubles arise from the fact that the terms of trade are turning against us, and it seems to me that they can be corrected to some extent at least by dearer money, which will prevent people from carrying larger stocks than are absolutely necessary.
§ Mr. Harold Lever (Manchester, Cheetham)
Why should the turning of the terms of trade against us be inflationary? Surely that will be deflationary in its consequences.
§ Mr. Holt
It is inflationary in the sense that it turns the balance of payments against us and eventually depresses the value of the £. The value of the £ is something which we have to maintain if we are not to have an inflationary situation.
The other element of inflation is, I suggest, unwise wage demands which are not related to productivity, and which do not, in effect, succeed in transferring a larger proportion of the cake from one section of workers to another. If the result of some people getting an increase in wages is that others do not, in fact, have as large a proportion of the wealth of the nation, there may not be an inflationary effect. However, those matters cannot be dealt with in the Budget.
As regards the general freer trading policy of the Government, I quite agree with the remarks of the Chancellor of the Exchequer that they are most concerned, chiefly through G.A.T.T. and other organisations, to make fresh efforts to remove barriers to the free flow of trade and payments, and that many of the practices at present being carried on by other nations are of great concern to us. 229 I feel, however, that we must differentiate between the types of restrictions which are now being imposed.
There are the taxes which are put on exports. There are the price interferences by Governments, for example, that which the Indian Government is at present practising against the cotton trade. There are the subsidies which the American Government is giving, also in regard to cotton—its support price for cotton—and there are the interferences in the wheat market. All these things are practices which we should constantly endeavour to get rid of. But we can only use our influence; they are not practices which we are able to control.
There are, however, restrictions which we ourselves impose. These are things that we can deal with, but I do not feel that the Government have their policy properly worked out in this respect. The Government seem to take the view that it is no good revising our tariff policy while we face those other major restrictions by which Governments interfere in the proper price of commodities which are being sold; and that to talk about altering the tariff structure is to talk of something which is of no moment. I suggest seriously that that is not the case and that even on a protectionist basis the tariff structure wants looking at, while on a free trade basis is wants a lot more doing to it.
Even on a protectionist basis, I should have thought that the Government should consider how tariffs are affecting the things which this country is buying and needs to buy to make itself competitive and which we require for turning into manufactured goods for sale abroad. There are, for instance, a number of commodities which are being imported over considerable tariff barriers. For example, some of the chemicals which are used in the plastics industry are imported over considerable tariffs which were imposed long ago, I think, in connection with the safeguarding of key industries. Furthermore, there is the question of import duties on machinery. I do not think that sufficient attention has been given to the Report on the Duty-Free Entry of Machinery into the United Kingdom, which states in page 9:… we see no substantial evidence over the whole field that the existence or non-existence of opportunities for duty-free entry has had any material effect upon the volume of imports of foreign machinery.230 And yet the idea of tariffs is to keep things out.
§ Mr. Holt
If that is supposed to be a good thing when industry requires the machinery, we seem to be rather upside down. I should have thought that it was a good thing to buy the items as cheaply as possible if they are required.
The Report goes on to say:On the whole, therefore, we believe that over the last few years the existence of an import duty has operated as a discouragement of imports only in a limited field.I suggest quite seriously that the import duty on machinery is utterly out of date. It serves no useful purpose, as some of my quotations from the Report show. One thing which I cannot understand about the Report is why there was no minority Report. In view of the eminent and sensible people who were on the Committee and bearing in mind those arguments which they presented, I fail to understand the conclusions at which the Committee eventually arrived.
If the Government are really to tackle the huge figure of £385 million for food and agriculture, they can tackle it only on the basis of making the farmer more efficient. The farmer buys fertilisers, machinery and other commodities which are protected, and until we reduce the farmer's costs it is obvious—each of our main political parties has had a shot at doing it—that we shall not succeed in getting the figure down to a reasonable amount.
§ Mr. Archer Baldwin (Leominster)
The hon. Member says that farmers get this huge subsidy, but he has pointed out that the Americans give price assistance—in other words, they subsidise the export of agricultural produce to this country. Would the hon. Member not agree that if we did away with price support and export subsidies, we as farmers might be able to stand on our own feet without any subsidy?
§ Mr. Holt
I agree that we want to get rid of all these undesirable things. I am merely pointing out that there are difficulties of one kind and another and that we must make a deliberate attempt to see our way through them. I ask the Government, whatever its colour after the Election, to face up to the problem of how 231 we are to reduce costs, whether to farmers or to manufacturers. It does not seem to me that the Government will successfully do it without, as a beginning, a complete overhaul of our tariff system.
§ 5.57 p.m.
§ Mr. Anthony Crosland (Gloucestershire, South)
I should like to start by putting one specific question to the Financial Secretary to the Treasury, in the hope that one of the Government spokesmen who is to reply to the debate will be able to answer it. It concerns a point which was mentioned by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) and is really an elaboration of something to which he drew attention: namely, the question of why our net overseas income appears to be falling every year.
In 1950, we were receiving on balance from our investments abroad—that is, net as opposed to gross—about £150 million. This figure has been going down steadily every year until, in 1954, it was only £35 million. This seems to me to be a rather serious position considering the immense importance that we all, on both sides, attached after the war to the damage which we had suffered by having sold our foreign investments and having piled up a great volume of debt during the war.
We spent so much time saying how serious this was for our foreign balance and how desperately important it was to rebuild our investments abroad, that it is disappointing to find that after several years of investing abroad at the rate, according to the Economic Survey, of £200 million a year, our net receipts from dividends and interest have been going steadily down in the last four years until they are now about only one-fifth of what they were in 1950. It seems a rather poor return for the sacrifices which the country has made in providing this foreign investment at what has been a quite substantially high rate.
My right hon. Friend mentioned one or two of the reasons for the reduction in the past year or two—for example, higher interest rates in this country and higher dividend payments from this country—but it seems to me that there is more to it than that. I should be grateful if the Financial Secretary will ask one of his colleagues to give an explanation. We are rapidly getting into the position once again of being a net debtor in the matter 232 of dividend and interest payments, which is an extremely disappointing result after the efforts we have made to build up a creditor position since 1945.
I should like to comment on one or two of the points made in the speech of the Financial Secretary and made also by the hon. Member for Langstone (Mr. Stevens). There seems to be confusion in the minds of the Financial Secretary and hon. Members opposite about our attitude on this side of the Committee to the distribution of the tax reliefs. The hon. Member for Langstone again brought up his favourite point that it is all right, under the circumstances, to help dividend recipients, because dividends have gone up much less than wages since before the war.
Of course, this is true. It is something which we on this side of the Committee think is thoroughly desirable. We are not at all impressed by the argument that because one form of income has gone up less since before the war than another it ought to be adjusted, for the logical conclusion would be that all incomes ought always to go up at the same speed and there should never be any redistribution.
§ Mr. Stevens
I thought the argument being used now was the other way round, that because dividends had so far outstripped them wages must rise.
§ Mr. Crosland
That is certainly the argument, because we think the relationship which applied four years ago was better than that in 1938 and we do not like to move away from that relationship.
The Financial Secretary made great play with a lot of extremely ingenious percentage figures. I congratulate him or his Treasury officials upon finding a totally new way of looking at tax concessions which, initially, I fully concede, puzzled some hon. Members on this side of the Committee. It seemed extremely impressive to point out that if we still had the tax rates which applied in 1951 Surtax payers would be paying only 12½ per cent. more in taxation, whereas people earning, say, £500 a year would be paying 400 per cent. more, until one perceives that people who are now paying nothing, but who in 1951 were paying a minute fraction of a penny per year, would be paying almost infinity more.This seems to reduce the argument to more or less its proper perspective. Of 233 course, if a man's tax liability rises from 3d. to 1s. per week he will be paying 400 per cent. more; if he is paying only a little, the percentage increase is enormous.
Hon. Members should look at the figures for the absolute amounts and not the percentages. It is extremely misleading to come along with percentage figures, as if doing so really had any value, suggesting that an increase of 400 per cent. in a person's tax burden when the increase is from 3d. to 1s. a week is a very much larger burden than a 12 per cent. increase when the tax burden is in hundreds or thousands of pounds. To get any reality, we must have absolute figures and not percentages.
The Financial Secretary indicated that he was puzzled by an inconsistency which he detected in our attitude, in that, on the one hand, we say that it is an electioneering Budget and, on the other, we describe it as a rich man's Budget. The hon. Gentleman wanted to know which was our approach. There is no inconsistency between the two attitudes which have been expressed. No one has said that the whole of the tax concession goes to a limited class representing some 10 per cent. of the population.
What we do say is that the bottom 40 per cent. or so of the population gain nothing and that people then gain an increasing amount right the way up to the top of the scale. It is true that some people who are not Surtax payers will gain something from the Budget, but the distribution of the reliefs is heavily biased towards the upper end of the income scale. It is consistent to say that this is, as I believe it to be, an electioneering Budget and, at the same time, that the reliefs are very heavily weighted in the direction of the higher incomes.
When the hon. Member for Langstone spoke in terms of the ordinary wage earners gaining, he implied that the sums were substantial. The tables in the Financial Statement show that the average wage earner has not gained a great deal. Average earnings for the country as a whole are now about £10 a week, or about £500 a year. But this average wage-earner, if married and with two children, was only paying tax before the Budget at the rate of ½ d. in the £, and will really not have a very large gain. The average married wage earner with 234 a child or two children who is earning the average weekly earnings for the country as a whole will gain an infinitesimal amount as a result of the concession.
I do not want to concern myself mainly—because it was partly covered by my right hon. Friend and will be covered again by other hon. Friends of mine—with the distribution of the tax reliefs. I want to deal with the arguments behind the Chancellor's decision as a whole. With due respect to him, it really is important that we should decide and the country should know whether or not it is an electioneering Budget. I have a great respect, as a much younger and less distinguished person, for the Chancellor's performance and integrity in the past, and it is a matter of interest to me to know whether the Budget can be justified on other than purely electioneering grounds.
The Chancellor started off with a sort of background justification by pointing out how very favourable our performance had been in the last year or two. He said that exports, investment, production and everything else were going up and our position was exceptionally healthy and reflected enormous credit on the Government. He omitted to say—my right hon. Friend hinted at it—that the last 12 months, during which all these things have been rising in this country, has been a period for the world as a whole of exceptional industrial expansion.
We cannot find a country where exports, investment and production have not gone up. It would be a unique performance on our part if we alone of all the countries in the world had not shown a rise in these various things in 1954. We do not need to be interested in whether these things have gone up. Of course they have gone up; they could hardly have avoided going up at a time of world boom. We need to be interested in whether they have gone up more or less than they have in our competitor countries.
When we look at the comparative figures for different countries we see that the background situation is a great deal less favourable than the Chancellor painted it. Take industrial production. It is true that it went up significantly in this country last year, by 6½ per cent. or so, but it went up more in Western Germany, France, 235 Italy, Austria, Finland, Holland and Greece. Take exports. It is true that we had a small rise in the volume of exports last year, but there was a larger rise in Western Germany, France, Austria, Belgium, Denmark, Finland, Holland, Switzerland, Portugal and Norway.
It is true that industrial investment went up here, by more in the public sector than in the private sector, though all forms of investment went up to some slight extent. But if we look at our investment in both the public and the private sectors in plant and machinery we find that in 1954 investment in plant and machinery actually rose at last by a few million pounds a year above the 1951 figure. It has taken the Government four years to regain the level of investment in plant and machinery which they inherited from the Labour Government in 1951.
When we look at the rises in exports, investment and production and compare what Britain has been doing with what other countries have been doing, we certainly cannot say, as the Chancellor tried to suggest, that the whole industrial background is an extremely favourable one in which great risks can be taken and great concessions can be justified.
Let us take the immediate Budget background. So far as I know, there is no disagreement about what the background is. It is one of definite inflationary pressure at home with our resources producing full-out, practically no slack in the economy, and with a marked upward pressure on prices. It is one of a deteriorating balance of overseas payments and dwindling gold reserves. There is no dispute about these things: that compared with a year ago our home situation is more inflationary and our foreign balance position is worse.
These are non-controversial statements. Surely, in these circumstances, there can be only one course of action open to a Chancellor who wants to gain a reputation for honesty and patriotism and not excessive generosity, namely, to keep an extremely tight hold on the reins and pursue a policy of—we may call it what we like; it does not matter—austerity.
All this was recognised by the Chancellor himself in his famous statement of 236 24th February, when he came to the House in an extremely different mood from that of yesterday and gave an extremely fair account of the inflation at home and the deteriorating foreign balance and said that it was so serious that we had to raise the Bank Rate to its highest point for 25 years and impose hire-purchase restrictions and, I use his own words:… moderate excessive internal demand."—[OFFICIAL REPORT, 24th February, 1955; Vol. 314, c. 1457.]On 24th February the Chancellor would not have had any disagreement with any of the analysis which I have just made. There was certainly no hint at all on 24th February that any honest Chancellor could possibly introduce a Budget giving away concessions amounting to nearly £150 million a year. That is also the view which the financial commentators took, the sort of financial commentators which hon. Members opposite, when it suits their purpose, are only too willing to applaud.
The "Manchester Guardian" said that a "no change" Budget was suggested by the rising inflationary pressures. The "Investors' Chronicle" said:The conclusion must be that, on economic grounds, there can be no consideration whatever of concessions which would release any mass of new purchasing power.The "Economist" said:The Economic Survey suggests strongly that he should leave existing tax rates alone … By stern reference to the economic conjuncture alone, the Chancellor can have little or nothing to give away.To be fair, the "Economist," like the Chancellor, then made an extremely unstern reference to the political conjuncture and suggested giving a good deal away for exactly the same reasons as the Chancellor did, thus destroying the last shreds of its reputation for being an independent non-party organ.
One can imagine what the "Economist" would have said if the right hon. Member the Member for Bishop Auckland (Mr. Dalton) had introduced a Budget like this, at a time when gold reserves were falling and the foreign balance deteriorating, a month before a General Election. That is not. the language that the "Economist" would have used five years ago.
237 There was thus no disagreement in the financial newspapers with the Chancellor's analysis of the situation on 24th February. Is it posible that the Chancellor was, in fact, being alarmist on 24th February? Is it possible that the detailed facts of the situation, if looked at closely, did not support the attitude which he was then taking? Of course, there is no suggestion that the facts were other than what I have been suggesting this afternoon and what the Chancellor then admitted. At home, there is every sign of serious pressure on our resources. There are certain slack spots, in Lancashire in particular, but, taking it as a whole, our economy is running flat out. Indeed, it is running so flat out that the Chancellor on 24th February came to the House and said that an increase of £100 million in hire-purchase loans was bringing us to the point of disaster and that he had to reimpose hire-purchase restrictions. That was how near to the inflationary point the Chancellor thought that we were on 24th February.
Wage increases this year are already nearly as great as in the whole of 1954. There is no sign of any slackening in inflationary pressure there. Home demand is manifestly spilling over into higher imports and so worsening the balance of payments. We can see that in the case of coal and in the rising trend of steel imports and certain manufactured goods. For instance, we are importing up to the full quota of cars from O.E.E.C. countries, which we were not two years ago. So there is no sign at home that on 24th February the Chancellor was exaggerating in the slightest degree.
And, clearly, there is no sign in the foreign balance situation that he was exaggerating. The foreign balance deteriorated badly from the first half of last year to the second half, and whether we take the United Kingdom home account, the dollar balance or the rest of the sterling area, nobody can possibly say that the Chancellor was then exaggerating the seriousness of our foreign position.
What, then, could possibly be the explanation of the extraordinary contrast of mood between the Chancellor's statement on 24th February and his Budget speech of yesterday; between the restrictions of 24th February and the lavish 238 generosity with which he made concessions yesterday? Possibly it may be said that there has been some improvement since 24th February and that his measures then were so effective as to justify a completely different attitude today. Is there any sign that since 24th February pressure on the home economy has slackened, any sign that there are now scarce resources, unused resources which we have to bring into employment? Of course there is none whatsoever, and the Chancellor knows it perfectly well.
Is there any sign that our foreign balance situation has improved? It is quite true that the strength of sterling has improved, an extremely welcome thing which everybody on this side of the Committee welcomes as much as the Chancellor does. Funds have been attracted to London partly by higher rates of interest, and for the moment we have stopped commodity shunting operations as sterling has improved, and that is excellent. But this is not a basic change. Funds which flow into London one month can flow out of London the next month and, in the end, confidence in sterling and the strength of sterling will not depend on the movement of short-term funds, but on what the world outside thinks about the underlying balance, in other words, the level of exports and the level of imports. That is the only test; and in the end the actual state of the foreign balance will determine the strength of sterling.
Is there any evidence at all that in consequence of the Chancellor's measures on 24th February our imports are falling relative to exports and that the balance of payments position is improving? There is none whatsoever and the Chancellor knows it perfectly well. The March figures are extremely alarming and, if anything, worse than the January and February trend. They show a level of imports which the Chancellor must know quite well—or his advisers must know—we cannot conceivably sustain with anything like the present level of exports. It is true, of course, that the Chancellor said that his measures had not had time to have effect by March. However, by 19th April he could not tell any more than we could whether the measures would be successful. So we can say that if we take the underlying balance, there is 239 no sign of improvement which could possibly justify the difference between the Chancellor's action in February and his actions in April.
Is there any sign that the Bank Rate is moderating excess demand? There is none whatsoever, and the Chancellor knows it perfectly well. "The classic medicine," as all the City journals call it with wonderful nostalgia for the way it used to work in the 19th century, or before 1914. But this classic medicine does not seem to be working very well. What is the Bank Rate supposed to do? This is a question to which there has never been any explicit answer, because all financial commentators, when writing of what the Bank Rate is supposed to do, take refuge in mystic terms and metaphors, and talk about things seeping into every crack in the economy and all the rest of it, but they do not complete the effect by telling us exactly what it is supposed to do.
Presumably, whoever is supposed to be influenced by the Bank Rate is influenced by the fact that a higher Bank Rate leads to a tighter money situation and a reduction of bank advances—unless everything which the Economic Secretary used to learn sitting at the feet of so eminent a tutor at his college at Oxford was completely false. A higher Bank Rate, or a higher rate of interest, is supposed to take effect through the reduction in the level of bank advances. What has happened to bank advances? Is there any evidence that bank advances have fallen? There is none, and the Chancellor knows it perfectly well. Bank advances in March, which is the last month for which we have figures, rose by £24 million. Not only did they rise, but they rose by more than for March last year.
In the light of this, can anyone feel able to say that the Chancellor's measures of 24th February are working so well and have produced such an improvement in our economy that he can now come along, without any hint of crisis in his speech of yesterday, apart from a few words at the beginning, saying that things were not very well, but there was the great spirit of this island country and all the rest of it? Nothing in the situation since 24th February would justify so complete a change of mood since then. There is no sign that inflationary pressures are less, 240 or that the foreign situation is better, or that the Bank Rate has restricted home demand.
Did the Chancellor himself give any justification in his Budget speech for saying that things had so far improved since February that we could have very large concessions? Of course, he gave none. He looked ahead and said that this demand may go up, that demand may go down, and that may remain constant; but all this was entirely without any figures on which either he or the Committee could possibly say whether or not his actions were justified.
Then he had a very curious argument about future consumption and future productivity in which he proved to his own satisfaction the reverse of what every single expert considering the matter has assumed, namely, that consumption would go up more slowly than last year and production would go up more rapidly. I can see no evidence for either of those assumptions. How one can say that consumption will rise more slowly this year than last year when, in the first three or four months of this year, we have had wage increases equal to those in the whole of 1954, is quite beyond me; how one can say that production will go up much faster than last year when last year we had an increase in the labour force of 350,000—a quite exceptional increase which the Economic Survey itself says cannot possibly be repeated this year—how the Chancellor could deduce those two things is a total mystery.
The right hon. Gentleman, clearly, did not take this argument very seriously and, in the end, he came down to his favourite argument and said, "Of course, we must not be timid; we must have faith in our people; our island history is a glorious one, so we must take 6d. off the standard rate." All this was justified by a lot of vague talk about incentives.
It is a curious claim that this year, of all years, we need 6d. off the standard rate to provide incentives. Why did not the Chancellor think about incentives on 24th February? What is the Bank Rate supposed to be except a disincentive to people to do various things? What are hire-purchase restrictions except a disincentive to people to do various things? Why was not there a lot of talk about our island story and incentives then instead of everything being put off until now?
241 If all the Chancellor is concerned about is incentives, why give this concession to companies? Companies are not short of cash. The Economic Survey shows that perfectly well. Companies will not invest any more because of this incentive. If the Government want an incentive to investment then they should give one directly. They should increase investment allowances instead of giving a general indiscriminate gift to companies, to be used exactly as they like.
In any case, there is a very curious implication in this incentives argument. It implies that the great majority of working people who are paying no Income Tax at all, or only very small amounts, are all working like niggers already. They do not need any incentive. It is only the middle and upper classes who are slacking, and who need a bribe to work rather harder. That is certainly a curious implication from a Conservative Chancellor of the Exchequer.
§ The Economic Secretary to the Treasury (Sir Edward Boyle)
As the hon. Gentleman was kind enough to refer to me, perhaps he will allow me to say that many people will know that as a result of the Budget they can work harder and earn more without becoming liable to tax.
§ Mr. Crosland
If the people paying a halfpenny a week in tax will be so much encouraged by this, may I put a question to the hon. Gentleman? If Income Tax concessions are so vital for incentives, as the Chancellor says they are, why did he not give them last year and not this year? Last year, there was less inflation and more slack in the economy. Last year, there was a surplus on our balance of payments and not a deficit. Last year, we had rising gold reserves and not falling gold reserves. But the Chancellor said, "No, we must still have a standstill Budget." He resisted all the pressure from his hon. Friends to give Income Tax concessions. He said, "The country cannot afford it; we are flat out; the position is not favourable enough."
Yet this year, when there is more inflation, when we have a deficit and not a surplus in our foreign balances, when gold reserves are falling and not rising, the Chancellor can afford it. The Committee must admit that it seems a very serious coincidence of events—a worsening balance of payments situation, an 242 Election in a few weeks' time and the sudden recollection by the Chancellor of the importance of incentives. It is a coincidence which will not impress the country as a whole very favourably.
It seems quite clear that one cannot say that there is any improvement in the situation since 24th February, and that either the statement which the Chancellor then made or his Budget statement yesterday is totally and completely fraudulent. He was either misleading the country about the crisis in February or misleading the country in the middle of April. In particular, to say on 24th February that we must take measures to restrain demand, and then, on 19th April, to increase demand by nearly £150 million, is an inconsistency so obvious as to amount to complete chicanery.
When the Chancellor, at one point in his speech yesterday, after relating the measures which he had taken on 24th February, said:… thank goodness that we took action in time … "—[OFFICIAL REPORT, 19th April, 1955, Vol. 540, c. 39.]there was a devout and complacent cheer from the benches opposite. What action; in time for what? This electioneering Budget in time for 26th May. That was presumably what the cheer was really for. Otherwise, can hon. Members opposite really justify this action at this time?
Do they deny that the economy is at full stretch? Do they deny that the foreign balance is still worsening? Do they deny that there is no sign whatever of improvement since 24th February? Do they deny that there is no sign that the Bank Rate is, in fact, moderating excessive home demand? Do they really suggest that the position is any better than it was on 24th February, that there is any improvement which can justify this total change in mood?
There is one thing about this Budget from our point of view on this side of the Committee and that is that we shall not have any more of this story of the Labour Government running away in 1951, because the present Government are also running away from an economic crisis; but they are doing much worse. They are leaving behind them a Budget which cannot possibly be justified as providing any help in that crisis.
Somebody said this afternoon, "Would not the Labour Government have intro- 243 duced an electioneering Budget?" With great respect to the Chancellor, I really cannot imagine a Labour Chancellor of the Exchequer coming along six weeks before a General Election, after what he had said on 24th February, and introducing a Budget like this. The howls of horror there would have been from the benches opposite can very easily be imagined.
It may be that the Chancellor was quite wrong on 24th February and that there really is not a serious crisis; everything is going to get better; consumption is being restrained; and by October we shall be in a very good foreign balance situation. I very much hope that that will happen. If it does it will justify the Chancellor's Budget and prove that he was extremely ill-informed on 24th February; but if it does not happen, and if the Chancellor was right on 24th February, I suggest to hon. Members opposite that they will buy their extra votes at a very heavy cost to the reputation of the Chancellor, to the reputation of the Conservative Party of Great Britain, and to the financial security of the country.
§ 6.28 p.m.
§ Sir Herbert Butcher (Holland with Boston)
The hon. Member for Gloucestershire, South (Mr. Crosland) is sometimes muddled in his thinking. In his concluding remarks he suggested that the Government were running away from their responsibilities, but in the previous sentence he had suggested that this was an electioneering Budget brought forward at this time and framed solely and exclusively for the purpose of securing the return to power of the present Government. Surely those two thoughts are mutually contradictory.
The hon. Member made a most interesting speech, to which the whole Committee listened with interest, but he allowed his enthusiasm for his cause to run away with his better judgment. He referred to the concessions in this Budget as "lavish generosity." When one regards a remission of taxation of £134 million in the part of the year we are now considering, and in a full year of £155 million, out of a total national expenditure of £4,305 million, it really is stretching language too far.
I found the hon. Gentleman in agreement with the former Chancellor of the 244 Exchequer, the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell). They both agreed in comparing the export achievements of this country unfavourably with those of other countries. But I found him somewhat in disharmony with his right hon. Friend, because, according to the whole tenor of his speech, this was an occasion when no concessions, no remission of taxation could be made at all. What did the right hon. Gentleman for Leeds, South say? He said that there is no relief of indirect taxation at all—nothing off beer, nothing off tobacco and nothing off petrol. So the right hon. Gentleman and his hon. Friend should get together, if they propose to speak on the same afternoon in the same debate.
On the other hand, I think we should congratulate the right hon. Member for Leeds, South on a remarkable political performance. I cannot help feeling that it gave great pleasure to all those who heard it. I doubt whether it will give the same amount of pleasure to some of his right hon. Friends who were not in the Chamber. Certainly, the cheers which greeted him when he sat down were the loudest I have heard given to any Socialist leader for a very long time. If I may comment in the absence of the right hon. Gentleman—I am sure he will forgive me—I would say that I fully understand the reason for his absence from the Chamber.
The right hon. Gentleman dealt with the question of production under the Labour Government—30 per cent. in five years—and suggested that it was so much better than what was being achieved now—[HON. MEMBERS: "Thirty-five per cent."]—but in a country which is converting from a war-time economy, with trained and skilled men pouring back into factories which have been closed or consolidated, it is a comparatively easy task to expand the economy. It is easy for many people to run a mile in six minutes. It is the stretch to get the mile within four minutes which taxes the skill of the athlete.
Again, the right hon. Gentleman contrasted the present position with that under a Labour Government and gave most attractive and illuminating figures of investment in various industries. For example, he mentioned the £19 million invested in the coal industry. To my 245 way of thinking, that proves at least one thing: that under this Government we have accepted and endeavoured to work wholeheartedly the policy of nationalisation which we inherited. If the result in terms of coal out-turn for the £19 million investment are disappointing, that is not due to the fact that we have starved the industry of capital in any way.
The right hon. Gentleman was somewhat unguarded and unfair to the miners when he went on to suggest that perhaps, under a Tory Government, the miners are not likely to be quite so active. I consider that to be a slander on any section of the working community. I believe that all members of the working community do not allow their production or the size of their wage packets to be influenced by the political complexion of the Government.
The right hon. Gentleman went on to criticise the policy of my right hon. Friend the Chancellor because of the Government's policy to expand our export trade during recent years. With much gusto, he gave figures for Italy, Holland, Belgium and for Western Germany. I am sorry that, in his desire, and quite laudible ambition, to wrest the leadership of the Socialist Party, the right hon. Gentleman the politician did not consult the right hon. Gentleman the political economist. The reason why exports have expanded all at the same time in the countries which he mentioned is quite simple.
It dates back from the time when the West German Government, under the Wehrungsreform, established a sound and stable currency. What happened? Instead of a currency that was depreciating even quicker than ours depreciated in value under a Socialist Government, real, good, honest money was available to the German people. With that honest money available to them, they started to produce goods which they sent overseas to get the food they needed. Among the countries to which they sent first was Holland, to secure dairy produce. Other countries included Italy, to secure fruit and similar produce, and Belgium, in turn, made a similar contribution.
That is the reason why the figures for Italy, Belgium, Holland and West Germany are available to be compared by the Socialist Party to the detriment of this country. It is the logical effect of mutual trading between those countries and it 246 stemmed from the one act of the West German Government in establishing a sound currency in its community.
The right hon. Gentleman made great play with the question, where would the country have been but for the policy of the Labour Government with regard to exports? I cannot help feeling that that was somewhat ingenuous on his part. After all, he was elected in 1950, and if he had any kind of desire to see what would have been the effect of the policy under a Labour Government, he could have had a little more courage and remained in office, and introduced a Budget in 1952, in 1953 and in 1954. Indeed, the term of office of that Government would have expired only about two months ago.
§ Sir H. Butcher
The right hon. Gentleman said that there is a substantial rise in the volume of our dollar exports. That, in the main, has been due to the fact that we have had to import large quantities of coal, because of the failure of the nationalised coal industry to give us the coal we need. A large proportion of the dollars expended could have been saved, if production by the nationalised coal industry had been higher.
The right hon. Gentleman referred to the rise in prices as the biggest inflation that the Stock Exchange has ever known. I thought him a little forgetful of his right hon. Friend the Member for Bishop Auckland (Mr. Dalton), who is now sitting on the Opposition Front Bench. If the right hon. Member for Bishop Auckland will allow me to say so, I have always had feelings of friendship for him. After all, a man who can nearly succeed in winning Holland with Boston cannot be entirely bad. But to be forgotten by his right hon. Friend as the architect of the greatest and largest inflation this country has seen since the South Sea Bubble really was unkind.
§ Mr. Hugh Dalton (Bishop Auckland)
I am obliged to the hon. Gentleman for his kind reference to me and to his own constituency. It may be that some day someone will do what I just failed to do some years ago.
On the relative size of the two price increases on the Stock Exchange—it is 247 a statistical question and, indeed, it will be found so, as I have checked over a number of figures—the rise in the Stock Exchange prices under the regime of the present Chancellor of the Exchequer has been greater—because it was much more widely spread over all classes of securities—than it was in my day. Without forestalling something which I hope I may be able to say tomorrow, if I am fortunate enough to be able to speak—I cannot go into this argument in detail now—may I point out that in my time it was the national credit that was greatly raised? There was a further appreciation of actual Government securities. There was not the comparable expansion in the securities attaching to the private sector. Under the present state of affairs the most grotesque of all the capital gains have been obtained in the private sector.
§ Sir H. Butcher
I am grateful to the right hon. Gentleman for his intervention and I shall look forward to his further remarks, if he has an opportunity to speak tomorrow.
It may be that under the present Government there has been a more steady and widespread rise, reflecting a more widespread measure of confidence in all securities. But the right hon. Gentleman must not be too modest. His name has passed into history. While, according to the custom of this House, it is not permitted to mention it in the Chamber, "Daltons" are frequently quoted on the Stock Exchange; and while good, honest, unsuspecting people contributed £100 of good money in those days—as we are frequently told by hon. Members opposite—currency has depreciated and stock as well, and, as a result, they have suffered a double loss. Nevertheless, the right hon. Gentleman is no longer Chancellor, although he is probably just as good as, though equally probably not much better than, the right hon. Member for Leeds, South, and doubtless one or other of those two right hon. Gentlemen would occupy the office of Chancellor of the Exchequer in any future Labour Government.
What are the complaints made by the right hon. Member for Leeds, South? They are that the remissions of direct taxation in the Budget are not accompanied by remissions in indirect taxation. If the Chancellor is prepared only to make so small a remission—and it is a 248 very small remission—of about £155 million in a Budget of this size, it really ought not to be split between these two categories unless there is a definite reason for doing so.
I do not know whether it is the policy of the Socialists that if anything is done by way of a remission of direct taxation it must automatically be accompanied by a remission of indirect taxation. In other words, that one must never step forward with the right foot unless one does so also with the left foot. I think that the policy of the kangaroo would fit the party opposite, because it has gone from place to place with great rapidity. But such a policy would not suit a Conservative Government.
The Chancellor is to be congratulated on producing this Budget. It is a Budget which will do a lot to help the family and to help thrift, which are things that the country needs at the present time. Some people have suggested that it is an electioneering Budget. It may be designed to bring help to all the people, but there is nothing wrong in that. That is what Governments are for. Their job is to improve the benefits given to the people of the country as a whole, and to ensure that those benefits are spread as widely as possible.
Who are the beneficiaries under these Budget proposals? There are 19 million taxpayers, of whom 2,400,000 will be entirely removed from the charge to pay tax, and every one of the remaining taxpayers will receive at least some concession. But 19 million is not the limit to the number of people involved. The figure must be augmented by the number of children who receive benefit by way of the child allowance. It must also be increased by the number of wives who are not themselves taxpayers in their own right. The result is that the total number of persons who will directly benefit financially is probably more in the neighbourhood of 25 million or 30 million than of the 19 million specific, known taxpayers.
It has been suggested that this remission of tax is inflationary. I do not believe that for one moment. What is obvious is that under the existing rates of taxation—before taking these benefits into account—the thrift movement has already taken quite a substantial upsurge 249 in recent years. If there is to be more investment by the lower income groups, then here is an opportunity which I believe they will eagerly seize.
The higher income groups will be able, owing to the tax remission, to make the necessary investments, thus enabling a thriving industry to make a bigger contribution in the field of capital investment. One thing that appeals to me about the Budget, apart from its universality of appeal, is that it is a recognition of the important part played by the middle-age groups. In the main, the remissions go to the married men of 35 to 45 years of age, because they are the people who, on the whole, have children dependent upon them.
It is on this group that so much depends. They are the young technicians, and it is from them that the leaders of the future will be drawn. We must encourage them at this time to give of their best. They are willing to work for the pride of job, but they equally wish to work and are determined and are happy to work because, out of their earnings, they can provide a better home and a better chance in life for their children. The Chancellor has recognised that. While maintaining the financial stability of the country, he has endeavoured to spread his benefits as fairly and as widely as he can, and he should be congratulated both on his courage and on his wisdom.
§ 6.45 p.m.
§ Mr. Austen Albu (Edmonton)
I am not surprised that the hon. Member for Holland with Boston (Sir H. Butcher) gave up the attempt to answer what I think all of us on this side of the Committee and most hon. Members opposite considered the brilliant speech of my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). I do not think that I have ever heard a speech more damaging to the political character of a right hon. Gentleman, and when what my hon. Friend said is known in the country I do not think it will be easy either for the right hon. Gentleman the Chancellor of the Exchequer or for his hon. Friends to restore his character.
While my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) was speaking, I noticed that, from time to time, the Prime Minister turned 250 towards his right hon. Friend the Chancellor with an inquiring expression on his face from which I gathered that he was asking whether or not the facts given by my right hon. Friend were correct. For one moment, I thought that the Prime Minister was thinking of giving his right hon. Friend the sack.
I wish to draw the attention of hon. Members on this side of the Committee to what I believe is going to be the alibi of the Government if towards the end of the year the economic situation takes the course which most of us think it is likely to take under the present Administration. It is quite clear from what the hon. Member for Holland with Boston has just said, and from something which the Chancellor said, that the Government are proposing to throw the responsibility for the collapse on to the coal industry, although they are well aware of the many factors which have made the winning of coal more difficult in recent years. I warn them that if they attempt to do this, they will draw down upon themselves not only the wrath of the miners, but that of every fair-minded person in the country.
§ Mr. Albu
This is the Chancellor's third Budget, but it is the first at a time when world economic factors are turning against him instead of, as they have been for most of the time that he has held his present office, moving in his favour. He and hon. Gentlemen opposite have for the last two or three years made some very extraordinary claims for the achievements of their economic policy. But the underlying factors are now beginning to reappear.
We have already heard—and nobody has denied it—that the gold and dollar reserves are still falling, as they have been steadily falling since June last year. It may be, as the Chancellor said, that at the present time they are only falling at half the rate at which they were falling in 1951–52. However, there is every sign that if things continue as they are at present, this rate of fall will accelerate, and there is no reason to believe that under the present policy the rate of loss will not again reach the 1951–52 level.
As my hon. Friend the Member for Gloucestershire, South said, the measures which the Chancellor has taken may 251 check the speculative moves against sterling, and may even have done so already, but they certainly cannot deal with the underlying causes. In the end, the Lord Privy Seal will find that he may have cause to blush for the exaggerated remarks which he made soon after the present Government came to office.
It is now clear, as my right hon. Friend pointed out, that all the improvements, particularly that in the balance of payments and the rise in the gold reserves in 1952 and 1953, were due not only to the change in the terms of trade which took place at that time, but also to a recession or, at least, stagnation of our economy during those years. Therefore, the improvements in the economy last year are not improvements on what had taken place under the Labour Government, but merely on the low level to which they had fallen under this Government.
For instance, the average rate of increase of production, which was rising by some 7 per cent. a year from 1946 to 1951, when the Labour Government were in office, fell in 1952, and between 1951 and 1954 it has only averaged some 3 or 4 per cent. In passing, may I say that it is not only in the textile industry that unemployment is beginning to grow. It is also appearing in the furniture industry owing to the clumsy methods employed by the Chancellor of the Exchequer. As a matter of fact, I am told that there are already more than 400 unemployed furniture workers on the books of the Tottenham Employment Exchange, and about 1,000 more who are working on short time. I do not know the figures for the country as a whole.
It is true that the volume of our exports at the present time is at an all-time high level, as it was in every year, under the Labour Government, after 1947—but it is also true that their volume today has risen only to a paltry extent over what it was before. My right hon. Friend the Member for Leeds, South said that it was 3 per cent. over 1951. Even some of the most advertised expansions are not really expansions over the 1950 and 1951 levels.
The motor-car industry, for instance, is frequently talked about as the great expanding industry. It is true that the value of its exports last year were at an all-time high level, but I wonder how many 252 Members know that the actual number of motor cars and chassis exported last year was fewer than in 1951. The total value of road vehicles and aircraft exported has been relatively stable for the last two years, and is certainly lower than it was in 1952. In the category of electrical machinery and apparatus, which is very important in view of the nature of present world markets, exports have been falling since 1952.
I now turn to the question of industrial investment. This was the subject upon which the heaviest and most pompous attacks were made upon the Labour Government and their policy. Those of us who were in the House at that time remember the heavy humour with which the present Lord Chandos supported his reputation as an industrial tycoon when he sat upon these benches, and the attacks which he made upon the late Sir Stafford Cripps and my right hon. Friend for the policies they were pursuing.
We all remember the speeches of the company chairmen of that period, who never seemed to spend much of their time at their annual general meetings informing their shareholders about their companies' policies, but spent it in making propaganda speeches. We also remember that the Federation of British Industries undertook research to find out what was happening about investment in British industries. It did not quite manage to prove what it hoped for, but that did not stop it from continuing to shout that under a Labour Government it was impossible for industry to replace its assets, and certainly quite impossible for it to expand.
I took the trouble to examine the relevant figures at that time rather closely, and I wrote a lengthy letter to "The Times" in which I showed that the figures proved exactly the opposite; that industry had succeeded in replacing its assets and had dealt with its deferred depreciation by 1949, and at that time was quite capable of carrying out a considerable industrial expansion and investment. The argument was then dropped, first, because the F.B.I. was not very sure of its figures and, second, because the Conservative Government came into office and nothing rude could then be said.
We now have some confirmation of my calculations. Not only Mr. Redfern but 253 many other economists have been examining the figures of British industrial investment, particularly in fixed assets, during those years, and it is now quite clear that the arguments which I used at that time were correct; that industry had made good the depreciation of its equipment by 1949 and was expanding at a record rate. In fact, investment in fixed assets in industry in 1950 was 40 per cent. above the pre-war level. Even in the manufacturing and distributive industries it was at that level, and that was quite apart from the expansion in the nationalised industries. By the end of 1953, under the present Government, however, investment by the manufacturing and distributive industries in fixed assets had fallen back to the utterly inadequate pre-war level.
§ Sir E. Boyle
I hope that the hon. Member will not forget that it was the right hon. Member for Leeds, South, who suspended the initial allowances in the 1951 Budget, and that suspension took effect only in the financial year 1952–53. I am not criticising that decision—I think it may have been a good one—but it was surely bound to have the effect of depressing the volume of investment in industry.
§ Mr. Albu
I am beginning to have some doubt whether these initial allowances have much effect. We shall see during the course of this year.
The Government claim that they have substantially increased investment, but the figures with regard to investment, at any rate in plant and machinery, last year, do not show any real expansion. I do not think that there has been any substantial change in investment, although at the present time industry has much more liquid assets than it had before.
It is clear, therefore, that we have been living on the fat built up under the Labour Government, during a period in which wage restraint was exercised by the trade unions, as the concomitant of a policy of dividend limitation, and that this enabled us to make the supreme effort of reconstruction. This dividend and wage restraint, and the consequent investment which the country was enabled to make, were matters upon which the late Sir Stafford Cripps was always attacked as "Austerity Cripps" by the more glib Members of the party opposite.
It was the fruits of this policy which have been the basis of the recent Stock 254 Exchange boom—the rising dividends and enormous capital profits that went with it. When the hon. Member for Portsmouth, Langstone (Mr. Stevens) referred only to the relationship of the increase in dividends to that of wages and salaries he was being a little ingenuous, specially for a chartered accountant, because we all know that the rise in dividends has brought with it an even more substantial rise in capital profits, which must be several thousand million pounds in value. Quite a good proportion of that has been spent upon current consumption.
In one of his usual glamorous passages, the Chancellor talked about encouraging the free and expanding mood of the economy, but the industrial expansion took place under the Labour Government, and what has taken place under the Conservatives is an expansion in profits and dividends. It is interesting to note that, with profits and dividends rising, investment has been falling.
I do not understand the Chancellor's policy on industrial investment. Last year he bribed industry with investment allowances, which constituted an indiscrimina-tory incentive, and this year he has raised interest rates, which constitutes an in-discriminatory deterrent. Now he gives industry between £40 million and £70 million in tax reliefs, at a time when there is no shortage of industrial capital but an apparent reluctance to use it. I do not see how that will raise investment.
It is not a question of incentives, but of the will to invest in the direction which is most advantageous to the country. We need a selective expansion, especially in those industries which are making capital goods which must increasingly take the place both of textiles and our other declining exports. This is not happening fast enough. We are still too dependent upon one or two exports, such as motor cars and consumer durable goods, which are also very vulnerable because they are products of the kinds of industries which are started up by countries which are beginning to industrialise themselves.
Parallel to our expansion of exports we have to reduce our imports. There is no merit in foreign trade as such; we have to find an optimum level. I cannot see why we should continue to export coal when by doing so we have to import even more expensive coal. The Government's own figures show clearly that in the vears 255 to come we shall be increasingly dependent upon other sources of power. There is, therefore, no need to retain our export market in coal. We shall need every single ton of coal that can be produced for our own use at home.
But it is in agriculture that the greatest opportunity arises for saving imports, and here we have the greatest example of the unplanned muddle which the Government have got into. Paragraph 140 of the Economic Survey refers to theunnecessarily high consumption of costly imported feedingstuffs …and the Chancellor reminded us of the need to encourage more home-grown feedingstuffs. That is exactly what we told the Government in the debate on agriculture on 3rd June last. The Government were at that time gambling on what might prove to be a temporary fall in the prices of coarse grains, and in the process of doing so they wrecked the grass-drying industry of this country, which could save the country tens of millions of pounds in imports.
Hon. Gentlemen on the Government side are trying to make "planning" a dirty word, but there is no solution to our problems in this world of giant industries and of permanently changing world markets, except that of planned, co-ordinated, and selective industrial expansion. It is no use arguing that better industrial decisions are taken by hundreds of thousands of individual entrepreneurs; they are not. They are taken by a handful of giant companies the policies of which affect other giant companies, and in that way affect the whole economy.
For instance, the proposed vast expansion of the motor-car industry by two or three firms only will have a serious effect upon the steel industry, again run by only a handful of firms. Let us bear in mind that in the coming year we shall have to pay a very heavy bill for imported steel. In the steel industry, decisions have to be taken by this handful of firms independently, and there is since denationalisation no central, government co-ordination or planning of their investment policy.
The only alternative to a plan of selective industrial expansion is the use of the crude financial policy of the Chancellor of the Exchequer, and if, as seems 256 highly likely, our balance of payments seriously deteriorates this year, and if, by an unlucky chance, the present Chancellor should still be Chancellor of the Exchequer in the next Parliament, we shall presumably be given more of the same medicine.
In the article in the "Manchester Guardian" quoted by my right hon. Friend the Member for Leeds, South, the City Editor of that paper has prophesied a 5½ per cent. Bank Rate in the autumn. That would be pretty stiff medicine, would it not? I do not know how it is supposed to effect the required result, for it seems to me that it can only have the effect of damping down our whole economy and of creating for the first time since the war large-scale unemployment. That is where the doctrinaire economic Liberalism of the Chancellor of the Exchequer and of the young theoreticians who support him on the Government benches is leading the country at the present time.
§ 7.3 p.m.
§ Mr. Geoffrey Hirst (Shipley)
We have listened to large slices of gloom from the hon. Member for Edmonton (Mr. Albu) in the very racy manner in which he always speaks and gives us his warnings of impending disaster. Hon. Gentlemen on the Opposition benches ought to know a good deal about impending disaster, because they landed us into one in 1951. Our party rescued the country from it. [HON. MEMBERS: "Oh."] There is no shadow of doubt about that, and the people of this country feel a great regard for the Chancellor of the Exchequer and for this party for what they have done.
Anyone who has listened to the whole of this debate, as I have done, will agree that all the talk from hon. Gentlemen opposite about dividends should cease. It has already been answered effectively by two speeches from this side of the Committee, and particularly by the speech made by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens). It should be remembered that the late Sir Stafford Cripps made his appeal for dividend and wage restraint about six years ago, and that when we were on the Opposition benches we supported him in that general thesis.
§ Mr. S. Silverman indicated dissent.257
§ Mr. Hirst
We did. After a very short time the tendency to restraint fell off in the case of wages, but maintained itself in the case of dividends. [HON. MEMBERS: "Oh."] It is a fact. I am not making a political speech now. More recently, there has been a certain amount of catching up on the part of dividends. Since the appeal to which I have referred, wages have increased by 39 per cent. and dividends by 37 per cent.
§ Mr. Silverman
Does not the hon. Gentleman see a connection of any kind between two contemporary and simultaneous manifestations, one a continuous rise in prices and the other a rise in wage demands?
§ Mr. Hirst
I am making a very simple point. Over a cycle of six years, when prices have been going up, there has been a substantial increase in wages to meet that rise in the cost of living. I see no reason why those who lend their money to industry and thereby create the circumstances which give employment should not have their turn.
Despite the gloom which is being spread from the Opposition benches, I uphold completely the opening phrase in the article in the "Yorkshire Observer" today that my right hon. Friend's Budget is a cheerful Budget. I do not see why we should not have a cheerful Budget. To judge from the restrictionist speeches made by hon. Members opposite, the country consists of people who work to economic formulas. That is wrong. The country consists of human beings who respond—and we have seen them in the last few years responding—to the way in which this Government has given them the lead. They are responding with a large amount of trust in my right hon. Friend the Chancellor of the Exchequer. They are repaying him, and they will go on repaying him, in that way. That is our basic ground for faith in his Budget and I am sure that it will be rewarded.
The various allowances, and the reduction in the standard rate of Income Tax, will be a very great incentive. The family man will appreciate them. Some people may find that they are relieved of paying Income Tax altogether. Sir Stafford Cripps once said that we could not take away tax from those who do not pay it. A great many people will gain something from this Budget, and it will be a great 258 incentive to overtime working. There is a psychological dislike to paying Income Tax on overtime earnings. Some of us have been paying Income Tax for years, and have had that feeling of dislike for a very long time. Other people have only recently come into the field of Income Tax, and they regard it as a disincentive.
I come to the only flaw which I find in the speech of my right hon. Friend, and I intend to be candid about it. It is in relation to Purchase Tax. On previous occasions I have been taken to task by the right hon. Member for Huyton (Mr. H. Wilson) for being too complacent about the Budgets of my right hon. Friend in respect of Purchase Tax, but, in fact, I wished to be fair to my right hon. Friend. In 1952, with other hon. Members, I urged him to help the textile industry, and I respected and admired the way in which he met that situation. I did not want to be unfair by badgering him every year. I am sorry that the right hon. Member for Huyton is not here at the moment. Nobody can get at me today, because I am going to say honestly to my right hon. Friend the Chancellor of the Exchequer that I am disappointed.
In his Budget speech yesterday, my right hon. Friend said:No adjustment of Purchase Tax can be a panacea for the complex problems of any industry."—[OFFICIAL REPORT, 19th April, 1955; Vol. 540, c. 56.]I absolutely agree, but it is an oversimplification. I have also heard it said that the D-line takes most textiles out of the range of Purchase Tax, and that is equally true. Both these beg the question. These are vital considerations to my constituency, Shipley, and to the neighbouring towns in it, Bingley, Bailden, Cullingworth, Wilsden, and Harden, all of which are substantially, if not entirely, dependent on the textile trade. That is my excuse for speaking on this matter.
The public are Purchase Tax conscious. There is a certain degree of consumer-resistance to Purchase-Taxed articles. The chain stores are reluctant to include Purchase-Taxed articles in their purchases, mainly because of that public feeling. That sets the general pattern. If the D-line were raised—of course, elimination is desirable, but perhaps that is to ask too much—the whole position 259 would be changed. The better qualities would then find a ready market. Such conditions could not but help our export trade. It is no less than a truism to say that a soundly based home market is essential to a competitive export trade, since, in particular, it gives the manufacturers those long runs which are so essential to low costing.
I was impressed with a further comment made by my hon. and gallant Friend the Member for Rochdale (Lieut.-Colonel Schofield) yesterday about design. I will spare reading it to the Committee; it is reported in HANSARD at column 78. His point is an important one. In the old days, before this difficulty to which the D-line gives rise, it was possible for manufacturers to "chance their arm" a bit in the matter of textile designs to gain export trade but in the realisation that if their hopes were not successful they would have the home market to fall back on. That is exactly what they had not got under these conditions.
Quite frankly, I feel a little militant on this Purchase Tax matter.
§ Mr. Hirst
No. Really, this cut of £3 million is rather mean, and to me is most exasperating because wool has been excluded. Purchase Tax is a disincentive to production of that quality which must be the main plank of British exports far more now and in the future than ever in the past. A small cut amounting to less than 1 per cent. of the whole Purchase Tax is rather—and I am not here to be taken to be speaking literally, because it is completely to the contrary—like fiddling while Rome burns. The only snag is that, so far as the West Riding is concerned, we have not even got "fiddling."
Purchase Tax started as a planner's device. It has become a revenue tax and descended down the line to a mopping-up exercise. I do not underrate the Chancellor's task and his need to watch and discourage over-consumption, but there are other and important aspects that arise particularly in the textile field where this imposition is a disincentive to the expansion of the export trade which is so vital to our economy.
To refer, briefly, to beer, I quite happily disclose a somewhat modest inter- 260 est. I am sorry that there is no reduction in the duty. The law of diminishing returns has undeniably begun to beset this very over-taxed industry. Yesterday, the Chancellor drew attention to a fall last year of £4 million in beer Excise Duty, and in page 24 of the Financial Statement he budgets for a further fall of £5 million this year—a total of £9 million. Perhaps my right hon. Friend cannot do anything this year, for reasons which we know, but I must make a plea that perhaps a modest reduction of 1d. a pint in the price of beer would cost the Exchequer very little, apart from the first year, but would encourage consumption.
I realise the need for simplicity in the Finance Bill in the circumstances of this year, but I still feel that we want a little more realism introduced into depreciation allowances; on the one hand, for commercial buildings—which is a matter of justice—and, on the other, for plant and machinery. I am grateful for the concessions made last year by the investment allowances, but we are still handicapped as compared with countries with which we have to compete, such as Germany and America. Plant and machinery are the tools for the job. If we are to meet the ever-growing competition in world trade, our workshops must not only be the most modern, but taxation should not penalise that outstanding and essential objective.
I am not of the opinion that some very modest help with Entertainments Duty would be other than directed into vital channels. Bearing in mind his generosity last year, I am afraid that I never had any hope that my right hon. Friend could seriously touch Entertainments Duty on cinemas this year—certainly not on the lines of the representations made to him. I wish to plead for the small cinemas which are undoubtedly being crushed out of business, and from which many consequences will flow. One will be to affect the independent film producers who need the wide scope of possible showings to justify their own work. The very small ones do not get very much chance. I hope that the Chancellor will bear in mind that we are going to lose a considerable number of small cinemas which will to a large degree affect the production of films by the small "independents" for whom I have most thought.
I turn now to death duties. Everyone, including the manual workers, should 261 recognise that if the country's capital in the form of death duties on private businesses is taken as income at the rates in force today there must come a time when efficiency, and even high employment, might be somewhat undermined. As I see it, the private business is the cradle of industry. As we take an increasing care of our children, so should we take care of these concerns.
Those businesses are affected in a way mentioned by my hon. Friend the Member for Bolton, West (Mr. Holt), who referred to the limit for duty-free imported machinery. We must get some sense into those provisions. At the moment, the limit is £2,000. That is a great penalisation on the small firms, and to a number of the smaller firms in the textile trades it is a real handicap. I am in touch with the Minister of State, Board of Trade, at present about many such cases. He always gives a most courteous answer—he is a most courteous person—but that is all I can say about his replies, though I have no doubt that he has his difficulties. Nevertheless, it is something which is definitely affecting the economy of smaller firms.
Much of my comment and criticism is intended for thought and action of some future occasion. For the present, I deplore the Chancellor's attitude to Purchase Tax on textiles. On the other hand, I applaud him for the soundness of his decisions in present circumstances and for the undoubted incentive given to greater productivity. I applaud him for his trust in the common sense of our people. As the "Yorkshire Post" editorial says today:Mr. Butler's policy represents an act of trust in the nation.I thank him for that, and I am confident that the nation will not be unmindful of that trust.
§ 7.19 p.m.
§ Mr. Harold Lever (Manchester, Cheetham)
I shall not follow for too long what was said by the hon. Member for Shipley (Mr. Hirst), but I warmly welcome his support of the Lancashire case for a reduction of Purchase Tax on textile goods. He said that he was a little militant about it, but I regret that he did not put Lancashire's case as forcibly as he might—although any help is welcome.
§ Mr. Lever
I was speaking about the Purchase Tax in relation to the textile industry, and I welcome the hon. Gentleman's support, even though I thought he over-estimated his own militancy.
As I have some very severe strictures to make upon the motives of this Budget, I think that I ought to begin by saying that the whole Committee recognises that the Chancellor has grown in stature intellectually and in the grasp that he has shown of the affairs of the country in the years that he has been in office. We all know that he has found great expression for his talent in the office he occupies, in spite of the many personal difficulties which have afflicted him during the period of his office. On the other hand, his Budget is something of an outrage from various angles.
It will not do to quibble, as the Chancellor has done, and to say that this cannot be a rich man's Budget and an unscrupulous electioneering Budget at the same time. Of course, it is both. It is both unfairly weighted in favour of the rich, and it is also an electioneering Budget. There is no contradiction, for this reason. In so far as Income Tax reliefs will benefit mainly the well-to-do, it is a Budget unfairly weighted in favour of the rich; and the fact that it does not give any relief to the poorest section of the community does not demonstrate the Chancellor's electoral or financial integrity. Not at all. What the Chancellor has done is to rally the ranks of his own supporters and to show a superb indifference to the poorest sections of the community whom he knows will, in any event, vote against the Conservative Party at the coming Election. Therefore, there is no contradiction in the assertion made by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) that this is, 263 at one and the same time, an unscrupulous electioneering Budget, and also a Budget unfairly weighted in favour of the well-to-do.
I do not suppose that any person who heard my right hon. Friend the Member for Leeds, South this afternoon, and heard him objectively, would voluntarily entrust the conduct of the affairs of this country at the moment, so far as foreign trade is concerned, any further in the hands of a Conservative Government. The only danger that exists for the country, and the only hope for the Conservative Party, is that the public will not perhaps appreciate as quickly as we must in this Committee, and as the party opposite clearly appreciated, how hopelessly indefensible Government policy is with regard to our import-export situation.
The ridiculous contortions, wriggles, and financial acrobatics which have characterised the Chancellor's policy show that the Government are at their wits' end—and no great distance has been travelled to get there. The Government are attempting to do two impossible things. They are attempting to have a glorious anarchic, free-for-all in foreign trade, and at the same time they are attempting to balance overseas payments. They hope that by some miraculous, spontaneous act on the part of hundreds and thousands of individual buyers all over the country there will be bought the right quantities of goods that will balance our imports. I suggest that such optimistic expectations cannot be seriously maintained.
By abandoning all control of our export-import position, the Chancellor has done precisely what he is accused of, and has thrown away a great opportunity for building up the reserves of this country. How important that is can surely be gauged by the fact that in order to catch up with six months of bad foreign trade all sorts of remedies are applied, hot and cold, to different parts of the economy in the attempt to find the balance, whereas if there are reserves one can take a long view and let things even themselves out.
It was fortunate for the economy of this country that the first half of last year was fairly prosperous in terms of export-import balance, and that it was only in the latter half that we went into serious 264 deficit. Had it been the other way round we should have had hot and cold poultices applied all over the economy and all sorts of things tried to remedy the position.
I do not want to talk about the import-export balance because, quite frankly, no serious-minded person in the Committee supposes that the Government have any kind of policy about it. I want to talk about the home financing of the Budget, which was dealt with in the Chancellor's speech. It was a rather remarkable speech, I think, because, for the first hour, it seemed to have been written wholly under the influence of the austere, calculating prose of the Economic Survey. As for the proposals, they all seemed to be written under the influence of that popular American classic: "How to win friends and influence people."
There is no relation between the theme of the first hour of the Chancellor's analysis of the principles on which he based the Budget and the taxation proposals which he then proceeded to make. Having pointed out that we could not afford any taxation remission, and having subscribed to the theory which, I must confess, is popular on this side of the Committee as well as on the other side, and which I do not in the least support, and having professed himself an adherent to the view that a Budget surplus is necessary to combat inflation, he then proceeded to demolish any prospect of a Budget surplus.
§ Mr. Lever
We had a Budget surplus of £433 million below the line last year, and the Chancellor is now budgeting for a smaller surplus. It seems remarkable in the circumstances that, as he has told us, we have a greater inflationary danger to face even with the £433 million surplus. It is a dangerous assumption that a Budget surplus counteracts inflationary pressures in a healthy and desirable manner. I hope to proceed to prove that even the exponents of that theory have not the courage of their own convictions.
What has happened? We have been told for several years by the economic 265 pundits that what is required if we are not to experience economic inflation is to take from the people in taxation more than is actually needed for current expenditure, not because we need it to finance our payments, but in order to prevent inflation, and that the bigger the Budget surplus the more counter-inflationary the Budget is.
I have hinted for some years past, when I have intervened in the Budget debates, that I do not subscribe to these strange theories. The most striking example of this fallacy is illustrated in the present financial year. Last year, the Chancellor did not budget for a surplus at all, or, I think, for only £10 million. I am sorry that I cannot absorb the blue book figures as readily and accurately as some of the more well-informed Members of the Committee. I do not claim to be an expert, and if anyone wishes to correct me I shall welcome his correction. I think, however, that the Chancellor budgeted for about £10 million surplus, which I think hon. Members will agree is negligible. He budgeted for a flat balance of expenditure and revenue for the current finances of the year. Quite unexpectedly he got a surplus of over £400 million, which, according to the theory to which all Chancellors have been wedded, is highly deflationary.
What has been happening? We have had an unexpected Budget surplus, and one would have expected an unexpected deflation to match. Having produced a deflationary surplus of over £400 million, however, instead of producing an expected disinflation to match the Chancellor's unexpected and unhoped for Budget surplus, what do we find—roaring inflation. That is very astonishing. It is not conclusive, but it means one of two things. It means that either the Budget surplus is not disinflationary and might even be inflationary, or it means that what was required by the present circumstances was not a Budget surplus of £430 million, which the Chancellor got, but a Budget surplus of £800 million, or something of that order, which is ridiculous and impossible to achieve.
I want the Economic Secretary, or whoever is to reply, to tell us two things. First, I want him to tell us why it is disinflationary to take more off the people in taxation than is spent; and, secondly, 266 I want him to say why, if it is disinflationary, it has not produced that disinflationary effect this year. I want to know why, when we need a greater disinflationary effect, the Government are budgeting for a smaller Budget surplus than the one we had this year. It is past all logical comprehension.
Let me demolish as speedily as I can a popular misconception on this subject. This theory of the Budget surplus proceeds from the erudite and is accepted by the ignorant. The ignorant say that that it is obvious that if people's purchasing power is taxed, they cannot spend what is taken in tax and, therefore, there is less inflationary pressure. But that assumption does not stand up to examination if one proceeds to follow the money into the Chancellor's pocket. The mere transfer of money from the taxpayer to the Chancellor is not necessarily disinflationary at all.
What does the Chancellor do with a Budget surplus? I am not saying that it could not be disinflationary, but I am asking where is the evidence that it is disinflationary. The Chancellor may use the surplus to pay off a debt. Let us say, for example, that he pays off to the Prudential a £1 million loan. The Prudential, instead of having £1 million of Government loan, have got £1 million back. Does it do nothing with it? Of course not. It puts it to a more inflationary use than when it held Government stock.
Suppose the Government have raised £1 million by taxation, instead of borrowing it from the Prudential. All the Government do by having a Budget surplus to pay off their capital expenditure is to avoid borrowing the money. They would have found the money anyway. Instead of borrowing £1 million from the Prudential, they would have taken it in tax from the citizen.
It may be more inflationary not to borrow from the Prudential and to take the money from the citizen, because if the Government do not borrow from the Prudential and other big lenders, the lenders have still got the cash and they may spend it more vigorously—I do not say they may not spend it desirably—than if it was borrowed from them.
Let me give a single example to show that the so-called infallible logic does 267 not always apply, and that this matter is far from simple. Take Mr. Poorman, and take 5s. from him by way of Entertainments Duty. He has 5s. less in his pocket, and therefore he can only go to the cinema 10 times a year instead of 15 times a year which he would like to do, including afternoon matinees when the cinema is only half full. If Mr. Poorman had an extra 5s., he would have been extremely inflationary on paper; he would have spent an extra 5s. on helping to fill the cinemas which already have projectionists and films. But he would be getting 5s. more goods and services.
That is what happens when the money is taken by way of Entertainments Duty. But by taking it from Mr. Poorman and several millions like him, with no beneficial effect whatever on the ratio between goods and services on the one hand and money on the other, we leave in the hands of the merchant bankers and other investors large sums of money which would have been loaned to the Government and immobilised in that way. But they are left with the money, and they spend it financing all sorts of projects.
The truth of the matter is that it is an entirely unproved assumption that a great Budget surplus in all contexts, and especially in the present one, acts in a disinflationary manner. At any rate, the least that innocent laymen like myself are entitled to have is some well documented case to prove this assumption.
It is an extraordinary proposition that we should be taxed far more than we need be for the running of the country unless a cogent, detailed and convincing case is made out to prove that it is necessary and desirable in the general interests of the country. It is an unproven assumption, and on that unproven assumption we have been heavily taxed for some time.
I go even further and say that it is doubtful whether it does not even work in the opposite direction. I would ask the Minister to tell us why, when we have had an unexpected dose of disinflation by an unlooked-for surplus, we have not now got an unexpected dose of deflation. I am sorry if it causes the Economic Secretary some trouble. All I want him to tell us is why, when he did not reckon on the disinflationary surplus which was achieved this year—if it is disinflationary 268 —we have not had an unexpected deflation to match it instead of an unexpected inflation, which is what we have got. It is perfectly plain, although it appears to cause anxiety, doubt and misery to the Economic Secretary.
§ Sir E. Boyle
I shall not be replying to the debate, but I will do my best to answer the hon. Gentleman's question. I agree that to tax people more in order deliberately to create a surplus is a blunt and unsatisfactory instrument to cure inflation. My right hon. Friend the Chancellor of the Exchequer himself said that in his Budget speech in 1953. But to give away the whole of a large prospective surplus of £280 million in tax reliefs could well be too inflationary. That is altogether different.
§ Mr. Lever
I do not agree that a budgetary surplus is disinflationary at all. What I want the hon. Gentleman to explain is, if Budget surpluses are always disinflationary, when we have an unexpected budgetary surplus of a very large size as we have this year why do we not get an unexpected disinflation or deflation to match it? Why have we got instead an unexpected inflation?
The other point I want to make about the Budget surplus is this. There was a growing volume of congratulations from everybody as it became more and more apparent that the Chancellor, who had only budgeted for a Budget surplus of £10 million, or some negligible amount, was going to get a great Budget surplus. It is extraordinary for hon. Members to congratulate themselves on major errors on the part of the Treasury and the Chancellor. All that an unexpected Budget surplus means is that the Chancellor has made gross miscalculations. I am sorry to spell out this A.B.C., but all that a Budget surplus means is that we have got more money coming in than we spend.
The Chancellor did not expect to have more money coming in than he was spending below the line. Instead of coming to the House humble, penitent and apologetic for having taken £430 million more from us than was necessary for the good of the country, he has come here proudly, saying, "We have made a grotesque mistake. We have got £430 million more from you people last year than my economic advisers thought was good for the country."
269 It is extraordinary that the lofty, economic theory which prevails in most quarters of the House has brought us to the stage at which we can congratulate ourselves on our mistakes, and the bigger the mistakes the more grounds we seem to have for pleasure. All that this Budget surplus means to me is that the Chancellor has made a gross miscalculation, and the economic experts who advise him were wholly wrong, although it may not be their fault.
The theory behind the Budget surplus should be exploded once for all, because if the economic experts can be so wrong about the outcome, it does not lie in their mouths to say, "We cannot afford £20 million for this and £50 million for that or to make a concession to the poorest people by means of reliefs in Purchase Tax, Entertainments Duty and the tax on beer, tobacco and textiles. We cannot afford £3 million for textiles. It would ruin the economy." They have got it worked out to three decimal places in the Treasury. But see how inaccurately they have got it worked out. Their £430 million is wrong—not upon the general economic equation of the circumstances in this country, but on the simple balance between expenditure and income for one year of the Government.
How dare people who inevitably make mistakes of this size come forward in the House, or prop up the Chancellor when he comes forward in the House, to deny the textile trade a reasonable relief of Purchase Tax, which would cost another £3 million, on the ground that we cannot afford it? They do not know to the nearest £500 million or £1,000 million what we can afford in the current year.
I put this to anyone who is interested in the economic forecasters, in their predictions and the relevance of their predictions to reality: they are all extremely talented and brilliant men who write lucid prose—and that is very rare among economists, most of whom bespatter with unintelligible jargon every paragraph which they write on our economic situation. The Economic Survey, on the other hand, is lucid and reasonably free from the normal economist's patter.
But if we take these predictions over the last few years, as seen in the Economic Survey, we find that on every single major item in the equation they have always 270 been tens and hundreds of millions of pounds wrong. Ask them how much we shall spend on capital investment next year. Let us look at the Survey—I have not read it all this year, but I will get round to doing so in a few months' time. I have read the previous Economic Surveys, and they will serve equally well. I have read parts of this Survey and have found it very amusing so far, and I hope to continue my reading so that I can give the House the benefit of my reactions during the Committee stage—if the Budget is ever before the House in Committee in appropriate time.
In the past, every one of the predictions and estimates has been wrong in every single one of the major items required for the economic calculation. Look at the question of capital expenditure. If hon. Members look through the old Economic Surveys they will see that the percentage errors there were so vast that they make one tremble. Look at the figures for the export-import trade. There were vast inevitable errors about steel production and things of that kind—all hopelessly incorrectly estimated. The estimate for the percentage increase of production was inevitably and wildly wrong.
Hon. Members should not fall into the popular error of believing, when I attack these figures, that I am opposed to planning. I have said this over and over again in the House: I am against arrogance in planning, that is to say, dogmatic arrogance on the assumption that these estimates have some sacred validity rather like a bank account entry.
I have heard Chancellors of all complexions take up these figures, which are only very rough estimates, necessarily, about what is going to happen next year, and treat them as if they had Biblical sanctity. One deviation from the figures, one missing link in the carefully worked-out chain, and everything goes to pieces and we shall be bankrupt—that is the attitude which they have adopted. They have said, "We should like to do it but we cannot afford it." They have regarded these very rough estimates as the sacred balance sheet drawn up by the numerous talented, lucid young men, and I understand ladies, in the Treasury appointed for the purpose.
This will not do at all. It may not be the fault of the Treasury planners; it may be that the arrogance is solely on the part 271 of the politicians, and it may be that the politicians have been warned, "Do not try to bamboozle and bulldoze the House in this way. These are only tentative figures."
Do hon. Members know how the Economic Survey figures on which our taxation is based are arrived at? They are not arrived at, as a rule, on any estimates of what is probable at all. The Treasury is very cagey; it does not like this new-fangled nonsense of making predictions and estimates. I understand that the Treasury takes the present and projects it 12 months ahead. It knows very well that in the next 12 months conditions will be wholly different, but the Treasury says, "We are not here to make speculative estimates on next year's conditions. We can only work to cold statistical estimates, and that means projecting this year into next year." That always produces a false result, and anybody who challenges me in saying that should look at the examples provided by past Economic Surveys which, as I have said, are part of my reading during the course of the year.
My hon. Friend the Member for Gloucestershire, South (Mr. Crosland) made a witty and devastating speech which I thought demolished the Chancellor's pretentions. Nevertheless, I could not follow my hon. Friend when he rebuked the Chancellor for not carrying out the advice of all the economic pundits. My hon. Friend drew attention to the fact that all the experts, to whom we are expected to genuflect respectfully, have said that what is needed is a "No change Budget."
Why on earth should we need a "No change Budget" if we are in an inflationary situation? If these pundits had had the courage of their convictions they would have said that a £400 million surplus and a 9s. standard rate of Income Tax is not enough. They would have said that we ought to have a £800 million or £1,000 million surplus. But none of them has said it.
Not a single one of the leading economic theorists all of whom have expounded in favour of a Budget surplus to relieve inflation, have had the courage to come out and say that. I expected my hon. Friend to say that we ought to have higher taxation than we had last 272 year because obviously what we had last year has not prevented us from having inflation. I would respect the pundits more if they showed some signs of believing their own theories and of carrying them to their logical conclusions.
I want to make a comment on the unproved assumption about a Budget surplus. In so far as it leads to excessive taxation—unnecessarily—on a false assumption, it is in fact inflationary; and I will deal briefly with the main heads of my argument. Let me take wages, for example. Every piece of indirect taxation is a wage cut. Every time we take away a man's wages when he goes to the cinema or buys his tobacco or his beer, we are cutting his real wages. Naturally, if we do that, he wants more wages. By having unnecessary indirect taxation we are setting into play a dynamic pressure for wage increases.
In that way we have started to drive the cost of living up and to drive up the wage demands. What happens when the theorists say that we must have hundreds of millions of pounds extra in order to combat inflation is that we take a man's money by putting up the cost of his necessities and pleasures, and, not unnaturally, men get together and, having efficient trade unions these days, I am glad to say, they say, "We find it very difficult to manage and we want more money." They get more money. In other words, the man has replaced by increased wages the money which the Chancellor has taken from him in taxation, we are back where we were with inflation, and we have the so-called Budget surplus.
The Chancellor then says, "Tut, tut! Now that the man has more wages we must tax him even more." Then, not unnaturally, we find that we get higher taxation and the workmen balancing the situation all the time. Although we are back where we were in the sense that we have taken through taxation what has been obtained in wage increases, in fact we have set into motion something which was stationary. We have started a whole dynamic pressure upon the economy for more wages.
I am saying this in no hostile spirit to those who demand higher wages, but we all know that the biggest single item of inflationary pressure—although there are many other important items—must inevitably be the wage bill. Once the whole 273 position ceases to rest in balance, as it did under the Labour Government, and the dynamic movement forward is started, we have done a devastatingly harmful thing in terms of dealing with inflation.
I want to say something which may not always be palatable to hear but which ought to be said. We have heard a great deal about incentives through the reduction of direct taxation. I want to tell my hon. Friends, and the whole House for that matter, that if we expect, even temporarily or partially, the management of private industry, running as it runs under present conditions, to be efficient on a standard rate of Income Tax of anything like 10s. in the £, we are hoping for the impossible. If that is reactionary, then I can only say that, as far as I am concerned, it is an honest attempt to appreciate realities.
As long as those who manage industry know that they will have the Chancellor of the Exchequer as an involuntary partner in every wasteful and speculative folly in which they are engaged, they will spend; and they will spend far less cautiously and intelligently and with far less shrewdness of appraisal than they would if the money were coming out of their own pockets.
It may be morally desirable that the standard rate of Income Tax should be high. When we compare the situation of the payers with that of the poorest people in the land, it may even appear morally desirable that we should take 15s. in the £ as the standard rate on company profits, but, from the economic working point of view, if we do this we must not expect that we shall get economy or efficiency from the people who are managing industry.
I know thousands of people in this country today, oddly enough, middle-class folk, who have been genuinely hit in many ways in their standard of life—doctors, lawyers and architects—tens of thousands of them who are now living at below their pre-war standard of living. Nevertheless, we find the odd anomaly that they run two cars. Before the war, we never found that the average doctor, dentist or lawyer could run two cars; this was a luxury left for millionaires.
§ Mr. Lever
There may have been some doctors in that fortunate position.
274 I suggest that there is a great deal of unnecessary expense on a very wide scale which only takes place because people know that the Chancellor is paying half the cost, and that we have cheapened the price of motor cars and petrol and many entertainments and luxuries, because the Chancellor is sitting as a silent, uninvited and involuntary host, meeting half the bill.
I do not say that it necessarily follows that we must reduce taxation by means of the standard rate of Income Tax, but that is the only suggestion put forward so far which mitigates that fault. Unless we find some other means of checking the inflationary and wasteful spending, which must result when one is sharing 50–50 with the Chancellor of the Exchequer in any loss or extravagance that is undertaken, then I am afraid, however reluctantly, that I shall be compelled to support the reduction in the standard rate of Income Tax. I think that a high standard rate, as it at present operates, far from being disinflationary, whether it produces a Budget surplus or not, is highy inflationary and demoralising in effect.
While I find it necessary to address these remarks to the Committee on the question of the principles on which the Budget is based so far as the surplus is concerned, it makes me even more indignant that the Chancellor has the cool effrontery to come before the people of this country and say that he can spare only £100 million or a little more in tax reliefs, because all the things which have been said about the incentive value of reducing taxation apply with at least equal force to the effect of reducing indirect taxation. But then even more moral force attaches to the fact that the Chancellor has given away the whole of his Budget surplus without finding a single penny piece for the poorest persons in the land, who are very badly hit by the rising cost of living which has taken place in recent times. For a Chancellor to have the hard-heartedness to speak in such terms when he does not even adhere to his own theories about the necessity for a Budget surplus is most deplorable.
I think it is wrong to suppose that the Labour Party is interested either in high taxation or austerity. The Labour Party did not come into being to support reactionary or regressive taxation to the extent now levied on the poorest people 275 in the land—on their beer, their tobacco, their entertainments or necessities. In an earlier generation, it would have been regarded as highly reactionary to support indirect taxation of that degree. I do not support it. I know no justification for it. I think it is an offence, morally, against the principles of my party to support that level of taxation, especially on the basis of unproved assumptions as far as disinflation and the Budget surplus are concerned.
We know that it is almost impossible to combat the national belief that anything unpleasant will produce beneficial results, but I must ask the Committee, before we accept larger taxation than is necessary, to examine the arguments put forward to justify that. I condemn this Budget because it is an unfair Budget, because it is an unprincipled Budget, and because it is the most hard-hearted which has been offered by any Chancellor in the House of Commons since I have been a Member.
§ 7.55 p.m.
§ Mr. John Rodgers (Sevenoaks)
The Committee has just listened with relish to the speech of the hon. Member for Cheetham (Mr. H. Lever), but I found it a little difficult to reconcile the arguments which he advanced. He started by saying that the Chancellor's Budget was an unscrupulous Budget, a bribery of the electorate, and finished with a passionate plea for more disbursements this year, and a suggestion that the Budget surplus should be used to make greater concessions to the poor. I found these very antagonistic statements difficult to reconcile.
§ Mr. H. Lever
What I say is that relief has been given to the potential supporters of the hon. Gentleman, and that those who will vote against him—the poorest in the land—have been completely ignored. I merely wanted to correct the balance.
§ Mr. Rodgers
We have had some attractive speeches from hon. Members opposite, but they have all revealed the muddled thinking of the party opposite. The hon. Member for Gloucestershire, South (Mr. Crosland) wanted a much more austere Budget than we have had presented by the Chancellor. He thought it was quite wrong that there should be any dispersal whatever of the surplus to 276 the British public. On the other hand, the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) gave us a list of things he would have done and of rebates which he would have made had he been in the fortunate position of Chancellor.
The right hon. Gentleman mentioned beer and other things to do with Purchase Tax, the fuel tax and a whole lot of other taxes which he was willing to cut, rather than adhere to the line taken by his hon. Friend the Member for Gloucestershire, South. Hon. Members opposite must make up their minds whether this is an electioneering Budget, in which we are giving away too much, or one in which we are not giving away enough. They cannot have it both ways, which seems to be what they are trying to do tonight.
Listeners to the right hon. Gentleman the Member for Leeds, South will remember that he was glorifying in the austerity which this country suffered under a Socialist regime. His ideal seemed to be "Airstrip One" of George Orwell's fancy. I believe that the Chancellor was right in laying down the three aims which we must have before us: first, expansion; secondly, efficiency; and thirdly, freedom, These are the main economic aims which we ought to pursue. We must expand our economy if we are to maintain our standard of living, and even advance it, and to do that we must ensure continual fresh investment in industry. We must have short-term replacement, the building up of stocks, and, above all, we must embark on long-term creative projects.
Our population is growing, and the proportion of people above the working age is also growing, and we therefore need a measure of expansion to keep the present standard of living and a much greater measure of investment if we are to match the increased standard of living for the British people, which is what we all desire. To do this means not only replacing existing plants, but we must have new and improved plants. Moreover, many are more quickly obsolescent owing to technological advances here and abroad. The changes are at a faster rate than hitherto. This sets us a very great problem.
There was one remark of the hon. Member for Edmonton (Mr. Albu) with which I agreed. I do not think that we can rely any longer on the export of basic products of the older routines in order to earn 277 the necessary foreign currency to pay for imports into this country. We need to produce and to export new products, which are the result of creative effort—goods of quality and artistic goods, capital goods and the like—which we are not at present producing in anything like sufficient quantities.
Unfortunately, the new type of products we need to make and to export to pay our way in the world, so far as I can make out, require not the same, but much greater capital investment than the old type of export industries needed. They require much more foresight, more planning, much more imagination, much more enterprise and, above all, they require much more risk-taking over a long period.
I do not think that the terms of trade over the next few years are likely to move in our favour at all—
§ Mr. Rodgers
I mean in the long term.
Therefore, we are faced with the problem of how to raise the quantity of goods, not only for home consumption, but—more importantly—for export. We can do that only by getting more from existing plant, by replacing plant through depreciation and building new plants, by expanding foreign investments and by securing more visible exports. To do that, obviously, we have to stress the home investment programme. So far as I can work out the figures, we have available in any one year perhaps £800 million worth of new investments out of which to provide jobs in the private sector of industry and £700 million in the public sector which helps to keep jobs secure, to provide housing, communications, and amenities. Roads, rails, electricity, and housing must absorb a great deal of effort, and will strain taxation to the utmost limits.
Let us make no mistake, all investment is effort. We sometimes seem to forget what investment is and to think that it is a reward of effort, but it is itself an effort. For many years to come taxation will be strained to provide enough capital in the public sector to provide modernisation of road and rail communications in general and to look after other needs in the public sector. As I see it, therefore, 278 the main burden of maintaining our complex community and increasing efficiency, as usual, must rest on direct and indirect investment.
I believe that all hon. Members, no matter what their political views, would agree that the voluntary saver does deserve a fair return for the risks he takes and the help he gives to the economy. I am sure that all of us, on both sides of the Committee, are delighted with the increase in saving during last year. I think that the Budget will help that movement on; that is one of the reasons I applaud it. I believe that the cut in the standard rate of Income Tax will help people to save more and will make more available for the sector in which it is most needed. I should say that at the very least we need £100 million over and above what is ploughed back by existing firms to meet the growing needs of new industries and the constructive ideas now coming forward, and search for new markets. That search costs money.
The right hon. Member for Leeds, South quoted statistics from a recently published book of the London Stock Exchange about incomes which flow from quoted securities of public companies. But the right hon. Member did not quote one figure which, I think, is very relevant to an examination of our present economic position. That figure is that at most only an extra £40 million or so, after tax, flowed in in 1954 to private investors for reinvestment, or spending. I believe that from this, and not from Government investment, the greater part of new project investment really arises. It is of paramount importance to maintain and develop this channel because there is much more flexibility to be achieved by applying the money in the right way where it is wanted, rather than as we have done in the last few years—by forcing the ploughing back of more than is necessary into the reserves of established companies.
I agree with the hon. Member for Cheetham that a great deal of expenditure by companies which is said to be investment nowadays is not investment. There is the creation of gardens, buildings and the like which only add to the cost of the merchandise, raise the prices and make it more difficult to secure a firm place in the export market, but it is not half as bad as would appear from a 279 casual examination. Hon. Members opposite have an entire misconception that those who receive dividends squander them indiscriminately in riotous living. That is quite untrue and the idea could be scotched by looking at the figures. We may recall that £650 million more was spent by the public as a whole in 1954. The greater part of that, obviously, must have come from the £750 million increase in so-called earned incomes. The idea that riotous living is indulged in by those who depend on dividends for some of their income is immediately scotched when we consider that figure.
The Stock Exchange records show that the greatest return to investors from their savings in capital projects is at the most 6 per cent. before tax and, therefore, a little over 3 per cent. net after tax. I believe the Budget will encourage people to make new savings and to be willing to risk savings in new capital formation projects. I therefore believe that the path which the Chancellor is treading is in the right direction and that the country is being guided in the proper way by the wise and firm handling of our economic and financial affairs by the Chancellor.
Just as profits for reinvestment should be as flexible as possible, I wish to stress that I believe existing capital equipment should be used to the greatest possible degree of efficiency. I do not believe that we are using existing capital equipment in the country as efficiently and as continuously as we could. Long runs or continuous shift workings would bring great economies and minimise new plant needs. Incidentally, they would minimise the need for a great deal of building which we see today. Every device should be employed to bring about that end.
Hon. Members on both sides of the Committee know that any employer who tries to work his machinery to maximum efficiency faces many grave difficulties. A great many of those difficulties are based on our social structure. Our habits have become static and I believe that as a nation we are in danger of becoming slightly unrealistic in this matter. If we could work the majority of plants in this country two or three shifts, as is done in America to a great extent, that would involve changes in habits of shopping, catering and transport, but more progrts- 280 sive countries are working their plauts much more efficiently and much more intensively than we are.
This is most important, not only to get the maximum out of investment in industry, but also because the pace of obsolescence is increasing and we must use our plant to the greatest extent in order to compete in the markets of the world. Today, there are so many rules and regulations which would have to be relaxed that I think the country should seriously ask itself whether a real change is not required in our social thinking.
This is a challenge to leaders of industry, to leaders of the trade unions and to the workers. New social thinking is required to solve the problem facing us now, a problem which will increase in the future. In some countries, such as Scandinavia and Switzerland, the cooperation of labour seems easier to obtain by management than in some cases in this country. The workers must appreciate—I am not making a political speech on this point at all—that managements have problems and they must try to help to solve them because the successful solution of the problems which face management is identical with the long-term interest of the workers.
There is no antagonism of ideals between management and workers—both of us are in this together. Only by real cooperation shall we solve the problems exposed at various times ever since the end of the war. Under full employment today there is little to be gained by the continuation of restrictive practices whether by management—there are plenty of restrictive practices employed by management—or by the workers. It should now have become self-evident to us all that such practices from whatever source, whether from management or from workers, inevitably lead to inflation and to a lowering of the standard of living of all the people.
One of the greatest problems facing us today is the proper deployment of the existing labour force. No one wishes to see longer statutory working hours, but for the life of me I see no reason why those who wish to work longer or more efficiently should not be allowed to do so if they want to increase their wage packet or their status. No one wishes to see any reduction in the amenities that the British people enjoy, but here again is a challenge 281 to every one of us to consider whether a change in our social thinking is not necessary so that we can work more intensively the whole 24 hours round and thus get the maximum effectiveness out of the existing capital equipment and the new capital equipment that we will be putting into our factories.
There are other ways in which that desired result could be obtained. I have already said that management and workers must pull together, as they did so magnificently, as I saw when I was at the Ministry of Production, during the war. Management and men realised that they had a common aim to win the war and they pulled together and co-operated at all levels. We need that same spirit in industry today, and we need much more efficiency. I use the word "efficiency" purposely. There has been a lot of talk in the House and elsewhere about productivity, but "productivity" has come to be applied to factory output only. I want to use the word "efficiency." It is a good old English word and is much better understood. I do not like the American word "productivity." I prefer to ask managements and men to try to achieve a greater measure of "efficiency."
I believe that where we can get bigger returns if we can get more efficiency is in that section of the workers who are employed in providing services of one kind or another: in other words, the nonproductive side, which actually employs 60 per cent. of the gainfully employed people, a fact which is sometimes forgotten. We seem to concentrate far too much of our efforts, important though it might be, on output from the factories. I believe that people in the factories are very efficient and are working hard—that is my experience when going round the factories and watching them. The factory side is fairly efficient, but I am not so sure that there is the same efficiency or the same urge for efficiency in the other non-productive sector of employment: in other words, transport, distribution, office and commercial work generally.
It is on the non-productive side that an increase in efficiency could help. If the services provided by ten people, for example, could be provided by eight people without loss of quality or service, productive industry could absorb the extra one or two people or one of them 282 could be used to give that 10 per cent. extra production that we require to maintain the standard of living at its present level. I believe that a drive for efficiency in this sector would pay national dividends, and I urge my right hon. Friend the Chancellor of the Exchequer to give thought to whether the work of the Productivity Council could not be extended into the non-commercial side of industry. Obviously an efficiency drive, to be effective, demands, first, scrupulously fair management; secondly, the willing cooperation of all concerned, and, above all, wise leadership by management and by union officials. I believe that a drive for this efficiency in the non-productive sector would have a greater impact and would do something to help solve our problems.
Speedier transport, speedier correspondence and clerical work would pay national dividends. At present, millions of man-hours are wasted because of transport delays. Much business is lost through correspondence—for example, quoting wrong currencies or wrong measurements. We are too inflexible and we need a new emphasis on efficiency in this 60 per cent. of our industry. Speedier communications, speedier delivery of better quality goods, speedier turn-over of stocks and better servicing of retail should all lead to increased returns and lower final costs, thus placing us in a more favourable position in the export markets.
All this presupposes a better understanding of economic policy and economic matters by the whole country. It also presupposes and demands a more progressive and adventurous attitude on the part of management and of workers at all levels. On the clerical side, if a man can get rid of one in every four workers and do the same work as efficiently, the management ought to be paid more and so ought the three remaining workers for being efficient. I believe that the Chancellor's Budget will help a little in that way. We have done a lot to try to squeeze down the size of central and local government, but in my experience much more could be done to make the central and local civil servants efficient.
§ Mr. Rodgers
I was for six years a civil servant during the war and I have been in touch with the Civil Service and local government for many years.
Housing difficulties are easing and restrictions on building and the redesigning of shops are being removed. The population is increasing. Soon we should be able to look forward to a greater mobility of labour and other changes in our social habits which will produce quality goods of the right type and price to sell in the export markets of the world. But one final thing that the country needs in addition is that the business men and the entrepeneurs should be given a freer hand now that the community is adequately fed and clothed and in full employment. We are getting on the level. There are dangers ahead, but we would like to see the brakes taken off. We need a free economy and free exchanges, free in spirit, free from further pressure and, above all, free from timidity and over-cautiousness.
I believe that the Chancellor's Budget gives a push along that road and will help to bring a more progressive and adventurous outlook in industry on both sides, among managements and men. If we can have this new spirit—it is not a very big "if"—given time and good will and a lot of effort by all concerned, the country can look forward to a standard of living, not merely maintained at its present level, but very much greater. But to achieve that, we need to achieve the three economic objectives of expansion, efficiency and freedom.
Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again—[Col. J. H. Harrison]—put and agreed to.
Committee report Progress; to sit again Tomorrow.