§ 3.2 p.m.
§ Mr. S. N. Evans (Wednesbury)
I want to talk about the present financial stringency and its effect on small business. I was born in the Black Country, and I represent a Black Country constituency. We Black Country folk have been manipulating metals for centuries, and today we make everything from nuts and bolts to railway trains. The Black Country is the stronghold of the small family business. Within ten miles of Wednesbury Town Hall there are no fewer than 10,000 small manufacturing concerns, each employing fifty people or fewer.
The people running these small family concerns have always been taught to look to the banks for the money with which to modernise and expand their businesses. They know nothing of the money market. Throughout the decades they have been cajoled to look to the banks. If there 1414 is to be a sharp cut-back of overdrafts, it will be very serious for a number of reasons, quite apart from personal and humanitarian ones.
We tend to take things for granted. Few people driving a car bother to think what was involved in putting the car on the road. Their interest is in the car's performance. However, if we are properly to understand the problems of small manufacturing concerns it is necessary to understand that most of the big motor firms today are assemblers rather than manufacturers. One large motor organisation with which I am acquainted buys for production and service more than 14,000 separate items from 6,000 suppliers.
I am this afternoon pleading the case of the small organisations which provide the stampings, forgings, castings and pressings which go into the making of motor cars. This also applies to the agricultural tractor and implement industry which, today, plays an important part in our economy, producing £110 million worth of tractors and agricultural implements yearly, of which £50 million worth are exported. If obstacles are placed in the way of these people continuing to operate in reasonable circumstances, it will be reflected throughout British industry.
I am one of those who do not believe that our social system and national economy depend on nationalised industries, I.C.I. or even Mr. Woolfson. I believe that the mainspring of our national economy and society is the individual action of private citizens such as the ones to whom I refer. As I have said, they have always been encouraged to look to the banks, and they know of nowhere else to get money.
During the last week or two they have been told to go to hire-purchase companies for the means to buy machinery which they need if they are to reduce their costs and lower selling prices, which surely is of immense importance having regard to the growing competition we are experiencing from the Americans, Germans and Japanese.
Yet the only effect of their going to hire-purchase companies is that they will pay about 17 per cent. for the money which they borrow instead of the 1 per 1415 cent. over the Bank Rate. It does not, in any case, lessen the drain on scarce capital, because the capital has to be provided whether it is by the banks or by hire-purchase companies. In fact, hire-purchase companies obtain their funds from the banks. Consequently, such a direction brings no advantage to the national economy.
I am all in favour of making the £ an honest woman—the process is long overdue—but surely in the course of doing that we must be careful not to damage our small organisations. After all, these people are very important. I know of no better incentive than the desire to better oneself. It encourages homely virtues of thrift and frugality, determination, energy and tenancity, which I sometimes think have been slightly impaired by the Welfare State. No one should think from that observation that I am against the Welfare State; indeed, I am proud to have been one of its architects.
But, surely, in this period of financial stringency, there must be some order of priorities. Someone must decide whether the manufacturer of forgings, castings, stampings, pressings and small metal parts for export is more important than the manufacturer of ice-cream comets for sale on Clacton pier.
It is invidious that the bank manager, or, indeed, the banks, should be required to make that discrimination. The job of the bank manager is to decide who is credit-worthy and for how much; it is not his job to draw up a batting order of national priorities in a period of emergency and then allocate scarce capital on the basis of that batting order. That is not his job. Of course, the Chancellor, up to now, has not been prepared to say that there has to be discrimination about the kind of organisation that should be given first preference. He prefers to leave that to the banks. For the reasons I have given, that is quite wrong.
After all, we hope that this emergency will not last for ever and the bank manager is bound to have a high regard for his clientele after the emergency is over. It may well be that one of his clients who is making dolls' eyes for sale in a penny bazaar turns over £500,000 a year and has 100 per cent. collateral for any advance he wants. It may well be that one of these small manufacturers, one 1416 of these small family businesses making forgings, castings and pressings, may not have such a large turnover and may not have as substantial a collateral.
I am not asking that credit should be given to people who are not credit-worthy, but at a time like this it is surely right that the Chancellor should now say to the banks that it is vital that the small concerns which are of such immense significance in our national economy should be given preference over those whose activities are not so vital to the balance of payments position. That is what I am asking shall be done.
There is some reason to think that the banks are far from satisfied with the nebulous attitude which the Chancellor has shown up to now. He cannot continue to "dodge the column." If we are in a condition of crisis—and I know that that is denied by the Government; but if we are not, what is all the hubbub about? —then it is the duty of the Chancellor to give guidance in the manner I have requested.
I want to turn for a minute from that problem, which arises with monotonous frequency every three or four years, to the cause of the crisis. We are now confronted with an old and familiar package, balance of payments problem, dollar gap, the constant drain on our gold and dollar reserves, the weakening of the £ and the eventual threat of deflation. It is, of course, that situation which has caused the Chancellor to ask that there shall be a wiser and more restricted use of scarce capital resources.
Here we are again with the Four Horsemen of the Apocalypse. Every three or four years they return, and it does not matter whether there is a Conservative Government or a Labour Government. To meet them we apply the same old headache powders: credit restriction, higher Bank Rate, and, sooner or later, control of imports and, if the situation continues to get worse, the last shot in the arm, deflation, and then off we go again.
We keep curing the symptoms, but the disease continues and it keeps coming back. The trouble arises because this country persists in living above its means. We have been doing that for ten years. I wish that the Chancellor would do something about that, instead of causing my small Black Country manufacturers to be harassed and badgered. We shall not get 1417 out of the trouble, we shall always be in trouble, until we face that fact. We could not have kept going for the last ten years in the somewhat affluent manner in which we have lived had it not been for American generosity. It is important to recognise that. In the last ten years about £3,000 million has come from across the Atlantic in grants and loans in aid of one kind or another, that is, £300 million a year for ten years. People who say their prayers at night should always spare a sentence or two for our generous American friends.
What do the Government intend to do to cure the disease from which we are suffering, instead of tampering with the symptoms, which is all that is being done now? It may help my small Black Country manufacturers to escape the dilemma which confronts them if we begin looking at subsidies. I shall not ride my hobby horse, but these subsidies are the sacred cow of European social democracy. Nobody must do anything about them, so every year we pour out hundreds of millions of pounds in subsidies, pour them down the drain, to people who do not need them. Slumming in Mayfair—I shall need a lot of "kidding" before I believe that a man farming 3,000 fertile acres in Cambridge shire needs subsidies.
I should be interested to know how many people pay more rent for the garage in which they keep their car than for the house in which they live and bring up their family. This is egalitarianism gone mad. It is foolish, because, clearly, the more that goes to those who do not need it the less there is for those who do. I hope that the Economic Secretary to the Treasury will convey my views on this subject to the Chancellor of the Exchequer. I have been talking in these terms for some time and I fear that the campaign has suffered from the undertone of restraint in which it has been pursued.
I hope that the Chancellor will begin to look not only into the problem of small family businesses, which are of such vital importance, but that he will specifically say to the banks that the financial needs of these small concerns which manufacture for export should have first priority. We are entitled to expect that he will do that, and then he has two years before he need start electioneering again, so he might look into the fundamental 1418 causes of these constant financial crises. It really will not do for the Economic Secretary, or the Chancellor, to say, as the Economic Secretary said on Tuesday night, that our economy is fundamentally sound.
It is not fundamentally sound. We are on the dole and we have been on the dole for the last ten years. The Chancellor should not be frightened. We British are a virtuous race. We do not mind wearing a hair shirt as long as it is accompanied by a halo. I hope that we will get the lead for which I have been asking from the Chancellor of the Exchequer and the Government. Meanwhile, I specifically ask that there will be a direction or admonition to the banks to the end that these small people, who are not able to look after themselves as are these big £400 million capital concerns and the nationalised industries, shall have first priority in the allocation of scarce capital.
§ 3.20 p.m.
§ Mr. C. R. Hobson (Keighley)
I wish to reinforce the plea of my hon. Friend the Member for Wednesbury (Mr. S. N. Evans). Like my hon. Friend, I represent a constituency which is largely industrial, where there are large manufacturers of textile machinery and world-famous machine tools. There are also large textile works, but there are many small, ancillary and auxiliary works and factories as well, and the owners are concerned about this non-selective allocation of capital.
The trouble is that hon. Gentlemen opposite, in their anxiety to woo the Liberals, have accepted in toto the laissez faire of the Liberal economy. We cannot do that in the present state of affairs. As has been pointed out by my hon. Friend, there is something wrong in the Chancellor applying a policy of selective allocation of capital by giving to the banks power to allow certain industries to have priority.
My hon. Friend said that a crisis has existed for ten years. In point of fact, our exports and imports have never balanced since 1903. The deficit was met by the revenue which we obtained from the invisible exports. Indeed, since 1937 even receipts from our invisible exports were in a total deficit of, I think, £128 million. So it was only by the realisation of our assets abroad or by the 1419 sale of gold that, even up to 1938, just prior to the outbreak of war, this country was balancing its economy. It is no exaggeration to say that if there had been no war, there would have come a time when we would have had to have some form of retrenchment and control.
What we are asking for is, I think, perfectly reasonable. We cannot allow conditions regarding the allocation of capital to continue at the discretion of bank managers. To me that seems wrong. The Chancellor must step in and say that these firms whose activities are vital and essential to the economy, not only internally but externally, should be assisted. After all, if these firms are not able to modernise themselves and to expand, how on earth are we to produce more for export at competitive costs?
I hope that the Economic Secretary, when he replies, will mention that there must not be a doctrinaire approach. We must forget for a bit about setting the people free. We can have a capitalistic economy, but if it is to continue, and unless there is to be widespread unemployment, there must be some form of control. We should not reject the idea of controls because it is part of the Socialist economic philosophy. It has been proved beyond a peradvanture since the war, and we have had to have controls. Hon. Gentlemen opposite made fun of them, but right hon. and hon. Gentlemen sitting on the Front Bench opposite have, in their ultimate analysis, realised that it was absolutely essential that these controls should be imposed.
As one concerned with the welfare of this great land of ours, I wish to see it develop. I want us to arrive at the day when we shall be off the dole and indebted to no one; when we shall be able to do without American loans. I believe that we can pay our way. I do not wish to digress into discussing the type of exports upon which we ought to concentrate—perhaps I may be able to say something about that on another occasion—but I contend that serious consideration must be given to the plea advanced by my hon. Friend. The Treasury, which knows the industries vital to the country, should give a definite direction to the Bank of England and to the joint stock companies to see that capital is 1420 made available for those essential industries in order that they may modernise themselves and develop. If that is done, we shall have taken a step towards the expansion of our industry which is at all times essential.
§ 3.25 p.m.
§ The Economic Secretary to the Treasury (Sir Edward Boyle)
We have listened to two most interesting and very sincere speeches from the hon. Member for Wednesbury (Mr. S. N. Evans) and the hon. Member for Keighley (Mr. Hobson) and I shall endeavour to reply in the same spirit. Perhaps I shall not incur your wrath, Mr. Speaker, if I say in one sentence that I believe that one of the most important achievements of the last Parliament was Central African Federation, and I know very well the attitude taken by both the hon. Members on that subject.
I wish, first, to take up one point made by the hon. Member for Keighley about controls, because it has relevance to what I propose to say. As a candidate between 1945 and 1950—and I do not think that I was the only one—I always said that the great evil was inflation; and that if we wanted to get rid of controls, we had to get rid first of inflation, because physical controls were more or less inefficient means of getting over the difficulties created by inflation. It is precisely because we recognise—I wish to be absolutely honest about this—the degree of inflation which we have at home at the moment, that we have felt it necessary to step up the control of credit during the last few months. I entirely agree with what was said by both hon. Gentlemen about living within our means as a nation and, if there is time, I should like to say a few words about that.
The hon. Member for Wednesbury said that it should be the job of the Treasury to give positive direction to the banks about priorities and he referred to the position of small businesses. As regards the Treasury giving positive direction, I should like to point out first that my right hon. Friend said in his statement on Monday:Since our principal object is to improve our balance of payments it would be undesirable to check investment leading to increased production for export."—[OFFICIAL REPORT. 25th July 1955; Vol. 544, c. 827.]1421 My right hon. Friend said that explicitly in his statement, and I have no doubt that the banks will take due notice of it.
As hon. Members will realise, it is not at all easy to define precisely what constitutes investment leading to increased exports, because so many industries make indirect contributions to our export trade. I have no doubt, however, that, in operating my right hon. Friend's policy, the banks will take due note of that part of the statement. But I must add that the Chancellor's letter to the Governor of the Bank of England deliberately introduced the new policy of reducing the total demand on the country's resources by requiring the banks to reduce bank advances significantly below their present level, and it is quite deliberately being left to the banks to decide what steps they must take to make that policy effective.
We do not intend to pursue a policy of selective direction by the Treasury. I honestly think that such a policy would be impossible for us to operate. It is not simply a matter of considering what type of business the various companies engage in. There is the point, too—and I was at pains to emphasise this on Tuesday night —that what we want to do now is to encourage firms to postpone their marginal investment plans and, wherever possible, to postpone replacing their fixed assets.
The criterion which is really important at the moment is not what purpose these investment projects will ultimately serve, but whether in the existing state of the business they can at the present time be postponed. It would be impossible for the Treasury to give any precise directions in this matter, and that is why I am sure that my right hon. Friend has been right to leave it to the banks. I repeat what I said just now, that my right hon. Friend quite deliberately emphasised in his statement this point about increased production for exports, and I have no doubt that the banks will take due notice of it.
I now come to the point about small businesses. I can assure the hon. Member for Wednesbury that my right hon. Friend and the Government have the position of the small businesses very much in mind. I do not know whether the hon. Gentleman was present during the 1422 debates on the Budget and the Finance Bill just before the Election, but I remember the point being made by the right hon. Member for Battersea, North (Mr. Jay) that it was quite unnecessary to give companies tax relief by means of a reduction in Income Tax, because, as a whole, companies were in a quite satisfactory liquid condition. I know that when I spoke about liquidity the other night it caused a certain amount of laughter, but it is easier to discuss this subject at half-past three in the afternoon than at eight minutes to ten, when there is a three-line Whip, and a good time is being had by all.
I remember the right hon. Member for Battersea, North making the point I have mentioned, to which I replied that, even if companies as a whole were in a satisfactory liquid condition, that did not apply to a large number of individual small companies. I absolutely agree with the hon. Member for Wednesbury when he points out how vital are these small companies to our economy, and not least to our exports. As he says, in many cases the large companies are concerned with assembly, and the sub-contract which is put out is of the very highest importance. I am absolutely with him there, but I cannot agree with him when he says that the Government ought, therefore, to take certain special measures to protect the smaller businesses from the full rigours of the present policy.
I believe that the Government are right to attempt to reduce internal pressure by asking the banks themselves to take what steps they regard as necessary to reduce the volume of credit. That is why my right hon. Friend said quite deliberately in his statement that it is for the banks themselves to decide what steps they must take to make this policy effective. I wish to assure the hon. Gentleman that we have looked into this matter very carefully and that, so far as the credit restrictions imposed in February are concerned, there is no evidence of any widespread hardship to small businesses. If the hon. Gentleman or any of his hon. Friends have any special evidence which they would like to put before me, I will, of course, consider it and will draw it to the attention of my right hon. Friend the Chancellor.
§ Sir E. Boyle
Most certainly. If any hon. Gentleman has any evidence of widespread hardship to small businesses, I will of course read it with care, and I will certainly bring it to the attention of my right hon. Friend. That is a promise which I mean quite sincerely.
I have no doubt that small businesses have had their share in the general increase of credit which has taken place over the last few months, and it may well be right that some of that increase should now be reduced. As I said a few moments ago, it is the marginal credit, whether given to a small or a large trader, that must now be pruned. In the new situation the credit squeeze is likely to affect all recipients of credit but there is no reason to believe that the banks will, in fact, be harsher to small businesses than to larger businesses.
In conclusion, I wish to say a few words about the present position in view of what was said by the hon. Gentleman opposite. I quite agree with him that ever since the war there has been a tendency for us as a nation to live beyond our means. I think he will agree that some years have been better than others. For example, 1948 and 1950 were both better years. I am bound to say that in 1950 this was partly because of a rather severe running down of our stocks before the Korean war, but that is history and I do not propose to dwell on it now.
I think it fair to say that 1953 was a very much better year, but I wish to make it perfectly plain that we are not satisfied at the moment with the state of the United Kingdom balance as a whole and that we are determined to see that the gold and dollar reserves are built up. We are deeply concerned at the present time both about the United Kingdom balance as a whole and also about the size and the trend of the gold and dollar reserves.
I think it only fair to remember that since the war there has been a number of big humps over which the British economy has had to go. The first was after 1945, when we had the job of re-equipping our basic industries and regaining our export markets. Then, in 1950, there was the Korean War, and I should be the very last to deny the enormous extra burden that our economy had to carry as a result of rearmament following that war. I can remember a 1424 friend of mine—I think I can certainly call him that; Mr. Crosland, in the last Parliament—making a speech in which he pointed out how enormously more difficult things were going to be for the Chancellor of the day, to whichever party he might belong, as the result of the Korean War.
Again, after the General Election of 1951, the present Government decided, as, I think, quite rightly, that we must step up the number of houses built each year and the amount of our resources to be devoted to housing. That meant a considerable extra strain. Finally, during this last year, the economy has responded very well indeed to the incentives which my right hon. Friend has given in three consecutive Budgets to investment in productive industry. But there can be no doubt that the very sharp upturn in productive investment, on top of a sharply rising level of consumption for more than two years, has led us once again to live beyond our means as a nation.
As I tried to explain to the House the other night in winding-up the debate on the economic situation, we strongly believe, as a Government, that it is important for our competitive position in the world that we should have a high and rising level of investment in productive industry. But it is also clear that, as a trading nation, we cannot afford inflation, and it is no good our trying to do too much at once and trying to live beyond our means.
Several hon. Members on both sides of the House have pointed out to me that, when I said the other night that we were tending to try to do too much at once, I was in fact only echoing very similar words used by the right hon. Gentleman the Leader of the Opposition at the time of the economic crisis of 1947. Credit restriction is only one part of my right hon. Friend's economic policy, but it is an important part.
The right hon. Member for Leeds, South (Mr. Gaitskell) asked the other night exactly what was the theory of our credit policy and how it worked out. In the first place, by raising the Bank Rate, we increase the cost of carrying stocks of goods against borrowed money, and, therefore, a rise in the Bank Rate not only helps confidence but also helps to prune our import bill. Then, again, I 1425 am sure that by our policy of ceasing to peg the Treasury bill rates, we have been able to grasp the credit base more firmly. I believe that the rise in Treasury bill rates over the last few months, about which I spoke on Tuesday, has had something to do with the fall in deposits.
Finally, and I want to be absolutely frank about this, we have taken on the task of grappling with bank advances, because, quite definitely, the present figure is not satisfactory. We intend to continue the orthodox monetary controls, and, at the same time, my right hon. Friend has asked the banks to make a definite reduction in their advances. We believe that this credit policy will make an important contribution towards getting inflation out of our system.
§ Mr. S. N. Evans
Has the Chancellor given any consideration to the constant and very rapid increase in share values and the values of businesses on the Stock Exchange? Inflation is very largely the result of an attitude of mind. It is easy money, and this 25 per cent. appreciation in the last five months is inducing people to withdraw money from building societies and have a go on the Stock Exchange.
§ Sir E. Boyle
I think that my hon. Friend the Member for Farnham (Mr. Nicholson) had very much the same point in mind the other day, when he said that the rise in equity share values was not so much a cause of inflation as one of its many symptoms.
There are two more things I should like to mention in connection with the Stock Exchange, since this point has been raised. First, I think it will be agreed that the famous wage and dividend freeze introduced by Sir Stafford Cripps worked for a good deal longer in the sphere of dividends than in the sphere of wages, and I think that to some extent the recent rise in share prices is a long-term adjustment which was bound to come sooner or later. There is another point to be borne in mind, and I make it quite 1426 seriously. It may sound a funny thing to say, but I am perfectly serious. This year is the first year when people in many parts of Europe and other areas of the world as well have become quite convinced that we are not going to have another major world war. That has had a great effect upon business confidence as well as upon share prices.
§ Mr. Hobson
Where we get an increase in the rate of interest on Treasury bills and an increase in the Bank Rate, that in itself is an incubus upon taxation. Would it not be better to keep the interest rate on Treasury bills low, and offset it by controls? What is the argument against that?
§ Sir E. Boyle
This is a technical point, which has been discussed previously in the House. I agree that the higher Treasury bill rate involves an extra burden upon the Exchequer, and also upon our overseas balance of payments, but it is not always quite such a heavy burden as hon. Members opposite think. The gross burden is a great deal bigger than the net burden, because a good deal of extra revenue reverts to the Exchequer.
I am quite sure that our policy of ceasing to peg the Treasury bill rate has enabled us to grapple more firmly with the credit base. A very able speech upon this subject was made some years ago by a former Chairman of Lloyds Bank—Lord Balfour of Burleigh. I do not always agree with him, but upon this point I think that he put up a very convincing argument.
I am sorry that I have occupied perhaps more than my fair share of the time today, but as we were in a calm atmosphere this afternoon, I was concerned to try to meet the interesting points raised by hon. Members opposite. I only wish to reassert that the present Government are determined to get inflation out of our system, and to see that we, as a nation, not only live within our means but have a surplus in our balance of payments, so that we can make investments in other parts of the world.