ECONOMIC SITUATION

HC Deb 20 December 1956 vol 562 cc1521-95

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heath.]

6.24 p.m.

The Minister of Labour and National Service (Mr. Iain Macleod)

This speech has been a long time hatching, and it would be surprising if it were not somewhat addled by this time. I thought, however, that it would be convenient if I spoke first and gave as quickly as possible our up-to-date impressions of the impact of recent events on our economy, on our price levels, and especially on the employment position. There are also some references I should like to make to the Government's attitude towards representations which have been made to us by leaders in the motor car industry.

There are two prefatory remarks I would make. First, it is particularly difficult at the present time—it is always difficult in economic affairs, but particularly difficult now—to forecast, when so many of the factors, for example, the length of time required to open the Canal, are unknown, but if the House will bear with me I shall be glad to do what crystal-gazing I can. The second is this. I should say in fairness to the House that, during the discussions which have been going on here today, I have tried to compress as much as possible what I should like to say to the House because I know that there are a great number of constituency matters which hon. Members want to raise. I hope, therefore, that the House will be lenient with me if I go fairly quickly over some matters on which normally I should rather like to dwell.

Instead of a review of the economic position, I should like to make two points. As the House knows, we earned in the first half of this year a balance of payments surplus on current account of £144 million, compared with a surplus of only £18 million in the first half of last year. The main reason for that improvement was the very large improvement indeed in our exports. Although we have to make many allowances for the differences in the timing and the scope of the trade and balance of payments statistics, and although it is probable that there has been a deterioration in the invisible balance since hostilities broke out in the Middle East, the trade figures suggest the likelihood of a continuing surplus in the third quarter of the year.

The second point is this. The House will have seen that imports in October rose fairly sharply, when we had an all-time record level of exports, and we had then a very narrow trade gap. In November we had the dramatically low trade gap of £13 million. There is one thing which should be said for and one thing which should be said against the figures. The thing which can be said against them is that of course imports were lower because the arrival of ships from the East was delayed by the blocking of the Canal, while on the other hand exports were fairly high because the ships to carry them were at or near British ports. The thing one can say in favour of those figures is that the continuing strength of our export position is shown by the fact that, on a daily rate basis, the level for November was even higher than that of October, and it seems clear, therefore, that whatever allowances we have to make for the special circumstances which undoubtedly exist, our trading position has been and continues to be sound. That is a factor of first importance in our discussion today.

In a statement to the House on 4th December, the Chancellor of the Exchequer said: The most realistic forecast which I can at present give the House is that over the year 1st July, 1956, to 30th June, 1957, our external current trading account will be roughly in balance."—[OFFICIAL REPORT, 4th December, 1956; Vol. 561, c. 1052.] I have no reason today to alter that forecast, and I do not believe even that it was an unduly optimistic one, because it did make a substantial allowance for the extra cost of dollar oil and also for the disturbance to our exports, particularly to the Middle East.

However, everybody will agree that just to be roughly in balance on current account is nothing like good enough and that we must try to earn a continuing surplus year in year out to meet our commitments and the need for investment, particularly in the Commonwealth, and to rebuild the reserves.

I should like to say a few words about the strengthening of the position of sterling on which we have embarked. As the Chancellor of the Exchequer said, the immediate task was to repel an attack on the £ sterling. The House will agree that the measures taken have been both impressive and quite remarkably swift. We have been able to show that we can bring forward at immediate call reserves very nearly as large as the central gold and dollar reserves. We are not committing this second line of reserves. It is a better expression to say that we are "parading" them. As a Government, we do not think it right that the country should try to get out of our difficulties by borrowing alone. It is mainly for that reason that we have proposed the additional taxation about which the House knows. We have sought to demonstrate to foreign opinion that the maintenance of sterling is not in doubt. I am very grateful to the right hon. Member for Huyton (Mr. H. Wilson) for making it clear, as he did, that it is not a party issue either.

I should like to give some conclusions on the likely course of prices over the next few months. The stability of our economy has been reflected also in these past few months in the trends of prices and of wages. In mid-November the retail prices index stood at 103, which was exactly the same figure as it was in mid-April, and that steadiness over that period compared with an increase in prices of nearly 5 per cent. in the comparable period in 1955.

The index for December and for later months, of course, will begin to show the effects of the Suez crisis. As far as the direct effect is concerned, the increase in petrol and oil prices adds about one-quarter of one point to the December index on private motoring account. Although we have tried to do it, it is almost impossible to calculate the indirect effects, but the best available estimates that we have suggest that the price level of production as a whole should not rise by more than than 1 per cent. Taking direct and indirect effects together, that is a little more than one point.

There will, of course, be some price increases in December and January, quite apart from the effect of Suez. There is the increase in the charge for prescriptions. There is the rise in the price of milk, and there are other smaller matters of which the House knows; but these should have only a small effect on the index. My conclusion would be that, looking further ahead and leaving aside temporary seasonal fluctuations, I have no reason to think that the retail prices index over the next four or five months will show any very different trend from that of last year.

A good deal of publicity has been given in the Press to the effect that Suez has had upon employment and particularly upon short-time working. These are the figures. Even before the restrictions were introduced, the number of workers on short time was about 70,000. The figure fell a little at the end of November and rose sharply to about 90,000 in the first week in December, and that is where it is now. As far as I can calculate from the latest available figures, about 46,000 workers were on short time in the week ending 15th December because of these restrictions, and the vast majority of these were engaged in the manufacture of motor cars and accessories.

Mr. Frank Tomney (Hammersmith, North)

Is the right hon. Gentleman aware that there is a statement on the tape at this moment that Vauxhall Motors of Luton are dismissing another 1,000 employees in the New Year?

Mr. Macleod

I am quite aware of that. That is one of the reasons why I am going to make special announcements of the Government's policy in relation to the motor car industry. I am quite aware that there is serious danger of a break in employment early in the New Year in the motor car industry. I know that what the hon. Member says is true, and it is also true of other motor car centres in the country. I am keeping the very closest watch on this position, and I get regular reports from my regional officers.

As for the future, I do not doubt that there will be some temporary increases in unemployment, and more particularly probably in short-time, as a result of these difficulties. The position of the motor car industry gives very real cause for anxiety, but I am sure that the country's basic trading position, as shown by the figures which I gave quickly to the House a few moments ago, is sound. If that is so, it follows that the long-term prospects for full employment are as good as ever.

There has been some slackening in the demand for labour this year, but the figures for unemployment, at the moment standing at 1.2 per cent., are very near an all-time record, and the level of employment is only a few thousand below the highest figure that it has reached since the war. This slight slackening in the demands for labour has been of very considerable help to many of the industries that need labour most. I mention tonight only two with special manpower difficulties which have benefited from this situation. The railways have increased their labour force by 7,000 in the first ten months of this year, compared with a decline of 11,700 in the corresponding period last year. That is a very remarkable change indeed in the employment position on the railways. Coal mining has secured a modest increase of 1,500 in this period, and that compares with a decrease of no fewer than 6,400 the year before.

The resilience of the economy is very well shown by its ability to absorb even very large displacements, as we saw in the case of the B.M.C. dismissals early this year, because on 19th November no more than 75 of the 6,000 were still signing the unemployment register. In our last debate on this subject, the right hon. Member for Belper (Mr. G. Brown) asked why my special report on these matters had not appeared. I think that there is some little confusion here. I attach great importance to this matter, and therefore perhaps I may be allowed to explain it to the House.

I have given the House from time to time, particularly in response to questions by hon. Members representing Coventry and the hon. Member for Northfield (Mr. Chapman) and others, the details of what has happened, in so far as they are available at the employment exchanges, to the men who registered after the B.M.C. dismissals. I have given an analysis of the figures in HANSARD on several occasions showing what particular industries these people went to. But as the figure is now 75 and, I hope, will be considerably less, I do not think I need pursue that inquiry any further.

There is, however, another matter which has always concerned me very much. It is that it does not seem enough to write a line under a man's name when one has found him a job. There is a great gap here in our social knowledge which it is very important we should fill. When large-scale redundancy takes place, we do not know whether the jobs which are found for those concerned create housing problems for them and education problems for their children, and whether they are able to meet hire-purchase and other commitments on which they have embarked. It would be of great value to Governments in deciding social policy to know those facts. That is why, when I knew about this very large-scale redundancy, I set out to try to make special arrangements for such a study.

Those arrangements have been made. It is a study that will be undertaken by Professor Madge of Birmingham University, and I think it will be a document of considerable social importance. I want to make it clear that this will take a long time. It is intended to follow a large sample of these people for a period of eighteen months or so in order that we can be certain that their skills are, or perhaps are not, being utilised in the succession of jobs to which they go. So the House must realise that the second inquiry, which is a very important one, will take a long time.

That inquiry arose out of the troubles in the motor car industry. Here there are many factors at work, not least the actions of Governments both in this country and in other countries, in what they do about import restrictions. I have expressed my concern in this House that, while the general employment situation remains sound, the motor car and the accessories manufacturing industry gives cause for anxiety. There can be little doubt that the immediate difficulties of the motor industry have been caused by the necessity for petrol rationing. It is also true, and I say this frankly, that these difficulties have, in part at least, been accentuated by the general measures which the Government have had to take as part of their policy of counteracting the inflationary tendency in our country.

Mr. Tomney

Surely that is not correct, because in the American motor car market alone, which takes approximately 60,000 cars a year from all sources, we sold 10,000 last year.

Mr. Macleod

I did not intend to go into the details of export performance, because my hon. and learned Friend the Economic Secretary to the Treasury will take up the point when he winds up the debate; but I will make two points briefly to the hon. Gentleman. First, the percentage devoted to exports is now beginning to climb, although I agree that is within a reduced volume of production. Secondly, somewhere about 90 per cent. of the fall in exports has been due to the fall in the Australian and New Zealand markets because of the special restrictions put on there.

However that may be, these measures we believe, and always have thought, are vital for the steadiness of the price level, and we have no intention of modifying our policy in that respect. At the same time, the Government recognise that this industry has been hit harder than any other by the shortage of petrol. So we have considered very carefully whether, without prejudicing what we believe to be our essential anti-inflationary policy, we can do anything to assist this industry to overcome its present difficulties.

The industry has asked us, in the first place, for a temporary reduction in the present rate of Purchase Tax. My right hon. Friend the Financial Secretary stated in the House that the Government cannot accept this suggestion. Although it is difficult to calculate, there would certainly be a very large loss of revenue, and the Chancellor of the Exchequer is not satisfied that the results which might follow would justify him in accepting this loss.

We have also considered the hire-purchase restrictions. My right hon. Friend the President of the Board of Trade proposes to relax the hire-purchase restrictions on cars, light vans and motor cycles, both new and secondhand. An Order has been made and laid before Parliament, and it will come into force tomorrow, which will reduce the minimum down payment on these vehicles from 50 per cent. to 20 per cent. The maximum period of repayment will remain unchanged at two years. At the same time, the corresponding Order imposing restrictions on the terms for the hiring of vehicles has been revoked.

There is another matter that has been put to us by the motor car industry, which is a by-product of petrol rationing. That is that some of our tourist friends will be deterred by our petrol difficulties from visiting this country. So my right hon. Friend the Minister of Fuel and Power has decided that these visitors should receive a single comprehensive allowance which will be large enough to meet their reasonable motoring needs in full while they are in this country, and that this arrangement should also apply in the case of overseas visitors who bring, or have bought, their own vehicles with them under an international circulation permit.

Lastly—and this again has been put to us strongly by the industry—it is essential in the widest interests of the country that we should do everything we can to increase the sale of cars overseas, and we have considered whether the Export Credits Guarantee Department can do anything more to help. The Department has been evolving new techniques specially designed to support and encourage aggressive sales campaigns, and to help in such matters as financing the holding of fairly large stocks abroad. It is ready to place all its facilities at the disposal of the manufacturers. These new techniques are very flexible and adaptable to a great variety of circumstances. I hope very much that they will be widely used in the motor car industry, and I hope that manufacturers will get into touch with the Department direct.

The Minister of Fuel and Power has already told the House—and it is a matter of great interest—the restrictions which the Government have had to impose on deliveries of petrol and oils. I have only one comment to make on one aspect of them, namely, the arrangements which have been made to deal with cases where it is claimed that the 20 per cent. cut causes exceptional hardship. This will arise particularly after 1st January.

Clearly we must make this oil saving, and therefore it will be necessary to limit very strictly the cases in which exceptional treatment can be given. Claims for such treatment will be considered by committees consisting of regional representatives of the Production Departments and of my Department, with the Regional Director of the Ministry of Fuel and Power in the chair. The main criterion for any exception will be that the cut has a wholly disproportionate effect on production and employment, or on the production of a product vital to many industries, all of whose final output would suffer.

Now two or three quick points on some special manpower problems in my own sphere, first in the realm of National Service. The deployment of manpower is of the greatest importance to our country. I need not underline to the House—we are all very conscious of it—the desperate shortage that there is of scientific and engineering manpower.

The Federation of British Industries has made representations to me about increasing the number of science and engineering graduates who are granted deferment of National Service, so that more can take up employment in industry and thus alleviate, to some extent, the immediate shortage. On the advice of the Technical Personnel Committee, I have decided that university graduates who complete courses of study or training in 1957, and who have first-class honours degrees in one of the main branches of science or engineering, shall he granted indefinite deferment of National Service if they take employment in this country for which a science or engineering qualification of degree standard is required. I will review that position towards the end of next year.

Mr. Arthur Moyle (Oldbury and Halesowen)

In connection with what the Minister has just said, and stepping down a little lower in the scale of the problem of securing the necessary people for technical and scientific purposes, why not use the Youth Service in conjunction with the Ministry of Education to secure the cooperation of the local authorities in relation to the very large number of young people between the ages of 15 and 18 who are entirely lost to education of any kind?

Mr. Macleod

The hon. Gentleman is very astute. That is the point I am coming to next, and I entirely agree with what he has said.

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

I am sorry to interrupt my right hon. Friend, but he has made an extremely important announcement, which will be widely welcomed in industry. Could he give us some indication of the numbers which might be affected in a year? Could he also consider whether it might not be extended to the second-class honours men? Very often, the first-class honours man is engaged on research, whereas the second-class honours man carries out the development work and is particularly valuable in our industrial organisations.

Mr. Macleod

There is much truth in that. We have considered the point about the second-class honours man—it was part of the request from the F.B.I.—but we felt that at this stage in advance of a general settlement about the future of National Service, that was going too far. As to the numbers, I think it would be better if, instead of my hazarding a guess—although I know the brackets within which the figures lie—the Economic Secretary gave the information at the end of the debate. I believe that this measure will be of some help not only to industry but also to the universities and to employments which have not been included in the existing deferment scheme.

Secondly, I have been considering—I mentioned this to the House in the debate just before the Summer Recess—whether I could apply rather more generous standards in regard to the cases of severe personal hardship caused by the call-up for National Service. The principles governing the grant of certificates of postponement are laid down in Regulations under the 1948 Act. I have no power to grant exemption on grounds of personal hardship, but I believe as a result of my study that it will be possible to help the most difficult cases by amendment of these Regulations, and I hope to lay new regulations before the House shortly after the Christmas Recess

Mrs. Jean Mann (Coatbridge and Airdrie)

Will the right hon. Gentleman particularly remember the only son of a widowed mother?

Mr. Macleod

That is, indeed, one of the categories that I have very much in mind.

The House also knows from the announcement of the Minister of Transport and Civil Aviation recently that key railwaymen have had their call-up for National Service suspended for the duration of the present emergency.

As regards the future of National Service, I expressed my view in the debate to which I have referred that the right thing to do is to have consultations with our allies and then reach our decisions. As the House also knows, only last week at an important meeting of the N.A.T.O. Council some of these matters were discussed.

My last main manpower point concerns the subject which was raised just now. While we must do everything we can to mobilise our manpower, we should not forget what we might call our "girlpower" and "boypower" as well. I wonder whether the country realises what an enormous opportunity is coming to us now. In the next few years the number of those reaching school-leaving age, rising to a peak in 1962, will be no less than 50 per cent. higher than it is this year. This year there are 613,000 in that age group. In 1962 the number will be 930,000.

This has always been a problem for the House of Commons, and it has been a problem for successive Ministers of Education. Now is the time when it is becoming an opportunity for us all. No doubt there will still be problems, but we have this immense potential of young people whom we must try to recruit into, particularly, the various skills and professions of the country. It is an opportunity which will not come to us again. I am deeply concerned to emphasise whenever I possibly can to the country, to the trade unions and to the employers, who have been very understanding about it, what a chance there is for us now to make good to some extent the shortages of skilled and trained men which have hampered our recovery ever since the end of the war.

Mr. Cyril Osborne (Louth)

How big will the bulge be, how long will it last, and shall we come right back to where we are now?

Mr. Macleod

I have done a lot of crystal-gazing this afternoon, but I will not prophesy future birthrate trends in this country. However, the number of those of school-leaving age in 1962 will be 50 per cent. higher than it is today.

Might I conclude—I shall take the good wishes and the many happy returns of the Opposition for granted—by saying that I have been Minister of Labour for one year today. [HON. MEMBERS: "Hear, hear."] As I am sure hon. Members know, because they know the Ministry well, I have found it a very satisfying and, indeed, inspiring experience. One of the clearest impressions remaining with me is how solid and responsible is the leadership given by both sides of industry.

That does not apply to every speech and every resolution at every conference, nor to every single instance of petty tyranny which may happen, again on both sides of industry, but I do not think that we in this country make anything like enough of our successes in the industrial system. We have a very remarkable record which compares favourably, thanks to the trade unions and the employers, with almost any other industrial country in the world, and, although we have a long way to go, the advance goes forward.

I want to read to the House, because the subject has great relevance to what I have said and to the present position, some extracts from a joint statement agreed between the trade unions and the employers on the National Joint Industrial Council of the Hosiery Trade. After indicating the position in the light of the fuel restrictions, it says: In these circumstances the trade union has agreed that, wherever jointly consulted, they will do all in their power to make such arrangements as to prevent loss of production, whether within or outside the terms of the existing Agreement on Wages and Conditions of Employment. That is to say that, for example, where firms have to concentrate production into four days instead of five, every effort will be made to co-operate, although this will mean working outside the hours permitted in the Agreement. This offer, which has been made after consultation with us, is to be very much appreciated, but it is made on the understanding that the following provisos apply:—

1. 1) That any relaxation of agreements is for the period of emergency only.
2. 2) That no such relaxation shall be used to prejudice future negotiations or relationships between ourselves and the trade union.
3. 3) That work right through the night shall be avoided wherever possible.

These three provisos are reasonable safeguards, and do not detract from the statesmanlike attitude of the trade union with regard to present difficulties. In view of this joint statement any company that finds itself in difficulty due to fuel rationing should take steps to consult jointly with the appropriate trade union officials in order to seek the best solution. That is the quotation from an agreement reached between the two sides of industry in the hosiery trade. It is a splendid tribute to the way negotiations are carried on in this country. I do not think it needs any comment from me at all, except just to say this. There are, of course, and there are going to be, very substantial difficulties in this country, and I have not tried in any way to hide them, but if all of us—Government, trade unions and employers—are prepared to tackle the difficulties and to have consultations in the spirit of that agreement, we shall find our difficulties easier to surmount and perhaps even more temporary than we have thought.

6.58 p.m.

Mr. Douglas Jay (Battersea, North)

The Minister of Labour and National Service, although he attempted to finish on a cheerful note, has celebrated his birthday with a rather gloomy and, in some ways, rather disturbing statement. He told us that there was danger of a serious break in employment in the motor industry and that we were likely to see an increase in unemployment over the coming months. I cannot feel that his statement as a whole did justice to the magnitude of the difficulties now facing the country, and still less do I feel that the practical measures which he has announced will be very much comfort to those now threatened with unemployment and short-time working.

The right hon. Gentleman has decided on some measure of relaxation of the hire-purchase restrictions, after prolonged pressure from this side of the House upon the Government to do something. So far as it goes, we welcome it. But I should like to ask the right hon. Gentleman and the President of the Board of Trade straight away why what is being done for the motor industry is not also being done in, for instance, the furniture industry as well, because the President of the Board of Trade knows that it has also suffered great difficulties in recent months. I am sure that hon. Friends of mine will have other questions of that kind to put.

It seems to me that the present economic crisis may be about the last chance for this country to recover as an economic great power. We shall do no great service to the country by glossing over the grimness either of the facts or the tasks which face us. On the whole, the Minister of Labour did not attempt to gloss it over, at any rate to any great extent. One of the reasons why the country is in its present plight is that, in the past five years, the public has been so often misled into thinking that there is some easy way out of our difficulties.

Before coming to the immediate chaos caused by the oil shortage, there are two even more lamentable facts which the Government have to face if we are to take the strenuous action necessary. First, the gold reserve is now pitifully low—lower in relation to the sterling area's needs than at any time since the war. Second, production in this country—total production—for almost the first time since 1945 has been stagnating all this year, and was already actually falling before the oil crisis occurred.

Briefly, since we have been deprived of some time, let us look at the gold reserve. It seems to me that the gold and dollar reserve is still the heart of the economic problem, because we are still, unhappily, heavily dependent on essential dollar imports. It is a pity that the present Chancellor never makes that sufficiently clear to the country. Indeed, the right hon. Gentleman today, like the Chancellor on 4th December, merely spoke about the balance of trade and the balance of payments of the United Kingdom. He would have given the impression to many people that the future of our gold and dollar reserve depends only on the activities of this country and not, as of course is the fact, on the sterling area as a whole. It is a pity to allow that misconception to prevail.

Sir John Barlow (Middleton and Prestwich)

The right hon. Member said that the gold reserve at the moment was the lowest at any time since the war.

Mr. Jay

No. I said in relation to the sterling area's trade and needs. I intended to give the figures. Today, eleven and a half years after the war, we are left with a reserve of £120 million less than it was in October, 1955, and £350 million, or 30 per cent., less than it was in October, 1951, and that, of course, is after the Chancellor has counted into the reserve about £63 million worth of dollars on account of the Trinidad oil deal this autumn and a bit extra for some United States securities as well.

Mr. John Arbuthnot (Dover)

Would the right hon. Gentleman care to give the comparable figure for 1949?

Mr. Jay

It was very much the same as it is now, seven years longer after the war. I ant giving only facts which, I think the country should know, hon. Members cannot deny.

Throughout the last few years, while the sterling reserve has been going down, almost everybody else's has been going up. Germany's reserve since 1951 has actually increased five-fold, and even France's reserve has doubled. Germany's reserve was half ours in 1951 and is double ours today, and yet we are both living in the same economic world. In addition, the present reserve is ludicrously low in relation to either the present total of sterling balances owned by overseas holders, or the present volume of trade done by the sterling area with the outside world.

On 4th December, the Chancellor took some credit for the fact that the sterling balances—in plain English, our debts had fallen by £22 million in the first half of the year. But he did not mention that the total of these balances is £4,022 million, or more than five times the total of the reserve at the moment. If the reserve today were equal, even to the same proportion of the United Kingdom's imports, or the sterling area's imports from the outside world, as it was in 1938, it would have to be nearly six times the present figure.

That is the real measure of the plight we are in and the task which is now facing us. The truth is that we have used up a large part of our reserve since 1952 in lucky years, the years when it should have increased, and are now facing the bad years without it. What has the Chancellor done in this new extremity? The Minister said that he had brought forward swift and impressive reinforcements to the reserve. That is rather a queer way of describing it. What he has really done is to borrow 1,300 million dollars from the International Monetary Fund to bolster up the reserve, and is now apparently borrowing another 500 million dollars from the Export-Import Bank. Perhaps the Economic Secretary will give us some more information about the latter transaction tonight.

We should certainly be grateful to the United States for again baling us out on this scale, and it is rather surprising, since all this money comes indirectly from the United States Treasury, that on 4th December the Chancellor did not say a single word of thanks to the United States authorities about it. Of course, this transaction does not mean that the reserve has been increased. It simply means that a large part of it is now publicly mortgaged. As we earn a dollar surplus in future, if indeed we do, we shall have to pay off these loans, borrowings, lines of credit, whatever the Government prefer to call them, for a number of years ahead.

Why is it that the reserve has been falling ever since June, 1954—I give the exact date—and is now 30 per cent. less than it was in 1951? It is because our gold reserve began this phased withdrawal long before the Prime Minister's great diplomatic and military victory in Egypt a few weeks ago. The real reason for the fall over the last five years—

Mr. Osborne

We have passed that debate.

Mr. Jay

If the hon. Member thinks that we are through with the effects of recent events in Egypt economically, he is sadly mistaken.

Mr. Osborne

I did not say that.

Mr. Jay

The reason for the dwindling of the reserve is that it can be built up only with great national effort, with leadership and policy at the centre. There has not been that leadership and policy. Indeed, on the contrary the Government have been steadily relaxing their vigilance and their defences over all the last few years. I will give only a few examples of those relaxations. Firstly, in 1952, the Government entirely abandoned the joint programming of dollar imports among the various sterling countries, so that now each sterling country is left simply to import what dollar goods it pleases. Secondly, the Lord Privy Seal, as the House will remember, weakly agreed to payment of debts as to 75 per cent. in gold to the European Payments Union. Perhaps the Economic Secretary can tell us how much gold we have lost this year on account of payments to the E.P.U.

Thirdly, in 1955 the Lord Privy Seal, without plan or forethought, agreed to the Bank of England supporting the transferable sterling rate with gold from the reserve, thus making sterling virtually convertible at the worst possible moment. Has not that cost us a large part of the £100 million of gold which we lost during November?

Fourthly, the whole drive to substitute Commonwealth for dollar goods has been pathetically relaxed in the last few years. For the sake of brevity, I will take only one example, that of tobacco. During the Labour Government the percentage of dollar tobacco was steadily reduced from about 90 per cent. at the end of the war towards 60 per cent. According to my memory, we nearly reached the figure of 60 per cent. in 1951. Year by year we took a higher proportion from Rhodesia.

Now the Minister of State tells us that we cannot go below this figure of 61 per cent. because—to quote his words— … a further reduction would change the character and flavour of the cigarettes and that would almost certainly result in a reduction in the smoking of cigarettes.

The Minister of State, Board of Trade (Mr. A. R. W. Low)

The right hon. Gentleman is not quoting my exact words. I said: The dollar content still stands at 61 per cent. and the dollar allocations are given on that basis. There is nothing sacrosanct about the figure of 61 per cent., but there is a strong risk that … I then went on to use the words which the right hon. Gentleman quoted.

Mr. Jay

I do not want to read the whole of the right hon. Gentleman's speech. I have made a perfectly fair statement. He gave as his reason for not taking further measures that a further reduction would change the character and flavour of the cigarettes and that that would almost certainly result in a reduction in the smoking of cigarettes."—[OFFICIAL REPORT, 5th December, 1956; Vol. 561, c. 1419.] His objection to cutting down the percentage further, as had been recommended to him by his hon. Friend the Member for Reigate (Mr. Vaughan-Morgan) was that we should run into difficulties over the public's taste in smoking one type of tobacco as opposed to another. That was the substantial objection which he put forward.

Of course the tobacco firms said that to the Board of Trade in 1945 and 1946 when the figure was 90 per cent., and if we had accepted it quite as easily then as he is accepting it now, we should never have brought the figure down below 90 per cent. If I have encouraged the right hon. Gentleman to say that he will now do something about it, I shall be only too pleased, for that is my purpose in referring to tobacco.

I turn to the question of production. It is surely lamentable that total production in this country is falling. In Russia it is rising by 10 per cent. a year and in the United States it is rising by 3 to 4 per cent. a year. Here, after stagnating throughout the year, in August, September and October—before all these great triumphs of the Government in Egypt—production as a whole was down; and in October it was 2 per cent. below that for October, 1955, a month in which the Lord Privy Seal was not supposed to be doing very well.

Mr. Osborne

How are we to raise it?

Mr. Jay

I will come to that later if the hon. Member does not mind my continuing a little longer.

Worse still, industrial production has fallen by this amount at a time when it ought to be 4 to 5 per cent. higher than last year, if the economy were functioning properly. That means that our national output is nearly £1,000 million less than it should be. Think what we could do in terms of exports, investment, consumption or defence with an extra £1,000 million at this time. The Chancellor of the Exchequer pointed out what we could do with £700 million taken from defence, but we could do even more with £1,000 million extra production which we have not got.

Why is it that production had already fallen substantially this year before the oil shortage began to affect us at all? The Economic Secretary told me candidly, in answer to a Question on 5th December, that Some fall in production for the home market by certain industries was the necessary consequence of the measures taken to restrain home demand earlier this year."—[OFFICIAL REPORT, 5th December, 1956; Vol. 561, c. 144.] That is perfectly true. By deciding to check the balance of payments crisis by a general credit squeeze, by the blind man using a bludgeon, as the hon. Member for East Aberdeenshire (Sir R. Boothby) described it recently, and not by any selective controls, the Chancellor of the Exchequer made it inevitable that production would go down and that investment would flag.

The Economic Secretary to the Treasury (Mr. Derek Walker-Smith)

The right hon. Gentleman keeps saying that industrial production has gone down. In fact the figure shows an increase of 1 per cent. and under that there are material increases of the sort of production which assists the balance of payments and which I will give to the House a little later, if I may.

Mr. Jay

The Economic Secretary will not deny that in October, as far as we now know, production was lower by 2 per cent. than in October the year before. It is true that in the earlier months of the year it was stagnating, but we cannot dispute the distressing fact that in October, and incidentally also in August and September, it was lower than a year previously.

We warned the Chancellor of the Exchequer in the Budget debate that if he accepted this method of getting out of our balance of trade difficulties there would be a fall in production and employment. Let us at least learn the lesson now, which I suggest is this: if we will not use controls, then only a drop in production can check imports and get us out of a balance of payments difficulty. If the Government will not check some things rather than checking others, they will have to check everything in order to check anything. That has been the Government's policy in the last year.

Indeed, the Treasury Bulletin for October—and I am sure the Economic Secretary would not contradict that—said that it was partly because production has not been rising that imports have not risen. What has happened this year is that the Chancellor has had to forgo about £1,000 million of production in order even to stop a rise in the value of imports. He has not cut down the total value of imports materially. That is what it has cost in order to achieve an increase in exports which in volume is only a very few per cent.

The Minister of Labour spoke about the large rise in exports which has been taking place this year. But I think I am right in saying that even at this moment the volume of British exports is not more than about 10 to 12 per cent. above what it was in 1950. That is in a year when German exports are 150 per cent. higher in volume.

Mr. Osborne

That is not a fair comparison.

Mr. Jay

If the hon. Member does not think Germany is a fair comparison, I would point out to him that Holland's exports are 80 per cent. up and that the exports of both France and Italy are from 35 to 40 per cent. up.

This wretched defeatist policy of deliberately damping down production is not very likely to double the standard of living in 25 years, a target which I see Lord Chandos has described as political vapourings. In addition—and this should appeal to the Minister of Labour—it can very quickly undo all the work of the past 10 years in persuading workers in the name of full employment to abandon restrictive practices. What is the good of talking theoretical stuff about productivity to a worker in the Midlands today who, even if he can get to work at all, will reply, "But I have been on a four-day week for the past three months, and my pal is out of a job altogether"? I do not think such a man is likely to listen very much to lectures about productivity.

In fact, the Chancellor has brought back bit by bit this year the old restrictionist doctrine of overcoming our difficulties by producing less. I believe that that must be wrong. It was a good principle before the war that any financial policy which produced heavy unemployment must be wrong. And I believe that any economic policy which now results in a fall of production must also be wrong.

We are entitled to ask how far the Government intend to depress employment and production, is it true, as the Economist said a fortnight ago, that the Government are prepared to accept any level of unemployment to avoid devaluation? The Minister of Labour today made the very odd remark that the employment outlook was safe because the balance of trade was sound. He seemed to me to be looking at it the wrong way round. Of course it is easier to protect the balance of payments if we do not mind incurring a certain amount of unemployment. The difficulty is to achieve full employment and a surplus on the balance of payments at the same time; and therefore I was not in the least reassured by what the Minister said on that point.

The unhappy efforts of the Lord Privy Seal have proved that if we try to preserve full employment, and get rid of controls, we get inflation and lose gold. The present Chancellor has discovered this year that, if we try to stop inflation without controls or without any understanding with the trade unions, we get under-employment and under-production. Most people knew those things already. I can only hope that hon. Members opposite will now draw the obvious conclusion that we cannot have full employment, and stop inflation, and get a balance of payments surplus, without some controls and priorities of some kind. Apart from anything else, I hope that the Government will make all these facts clear to the public.

Mr. Osborne

Sir Stafford Cripps did not do it.

Mr. Jay

Since the hon. Member mentions Sir Stafford Cripps, I will say this, that I think this country has made the greatest efforts over recent years when it was told the unvarnished truth and given a fair distribution of sacrifices. The right hon. Member for Woodford (Sir W Churchill) did that, and so did Sir Stafford Cripps. Now, apparently, we are to have the Postmaster-General. I am not much encouraged about the sort of economic enlightenment we shall get from him by the sort of propaganda we have had in recent years from the party opposite. In its 1955 Election Manifesto—I do not know how many hon. Members opposite remember this, but it was called, "United for Peace and Progress"—I will quote only these two passages to show the sort of predictions which were made to the public. This was said in May, 1955, to be the sort of world which would be achieved under a Tory Government: We have broken away at long last from the regular cycle of crises. We have proved, by re-establishing confidence in our currency … that Conservative freedom works. Then, in the manifesto, it was stated what would happen under a Labour Government: … the perpetuation of shortage and queues, ration-books and black markets, snoopers and spivs. All these things will inevitably come back if the Socialists get their way.

Mr. Osborne

That is historically true.

Mr. Jay

Speaking, presumably, about the gold and dollar reserves, the manifesto stated: The future beckons to this generation with a golden finger. No doubt, in a sense, it did—downwards. The Chancellor himself—I recall only this one pronouncement—since we have not much time—among all the quotations from Dickens in his Budget speech this year, made one confident economic prophesy. He said: Oil earnings will go on increasing …"—[OFFICIAL REPORT, 17th April, 1956; Vol. 551,. c. 870.] What have we to do to restore our economy and achieve independence of the United States of America? First, we have to get out of the immediate chaos, due to the shortage of oil. I hope that the Government will give us a little more information about the oil to be available for commercial transport. All sorts of stories are reaching us about the vital transference of materials being held up even from the factories to the railway depots in industrial areas.

But for the longer term we still have a chance, even though it may be the last chance, with dollar earnings mortgaged for years ahead, to avoid becoming an economic satellite of North America—which is something that no one on either side of the House would wish us to become. So I will put these practical points to the Government.

First, we must make it a first priority to build up adequate gold reserves. We cannot leave that as a second aim to follow on from the Government's other cherished ideas about cutting, down direct taxation, and one thing and another. This is the only way in which we shall ever achieve real independence of the United States. Gold will give us independence, not childish Motions about America on the Order Paper, and still less babyish speeches by the First Lord of the Admiralty.

Secondly, we must have some real Commonwealth planning again. Incidentally, could not we link that with some sort of Colombo Plan for the Commonwealth area? Are we not to have some Commonwealth conference of Ministers to consider this present dollar crisis at any time in the coming months? Is there to be any Commonwealth planning to make dollar economies? Whatever it was that the Minister of State, Board of Trade, said the other night, may I appeal to him to stop talking like the mouthpiece of the tobacco firms, and make it his job to see that the tobacco industry now puts the national interest first? Why not have a long-term guaranteed contract for Rhodesian tobacco? Since the right hon. Gentleman spoke, the Rhodesian producers have made a public statement flatly contradicting him, and offering to produce more tobacco, if we are willing to take it.

Thirdly, this country must establish—the Minister paid lip-service to this tonight, but said nothing about how it was to be done—a regular balance of payments surplus and a higher rate of investment. Surely, we must have big-scale investment in atomic energy, in giant tankers and in the coal industry as well as a good many other things? Might not we consider building up a strategic reserve of oil in this country? Perhaps the Economic Secretary will tell us whether, in the course of his £100 million Budget economies—which mainly consisted of running down strategic reserves—the Chancellor has been running down strategic stocks of oil, among other commodities, in the early months of this year.

All that makes it necessary—this is my fourth point—for us to get back to full production, full employment and rising productivity. That, in turn, means some selective restraints on luxury and inessential activities. How can we get the necessary investment in atomic energy, tankers, etc., without any restraint on frivolous building, or spending by those with enough already and to spare, and on unnecessary dollar imports?

Ministers are utterly wrong—I say this in particular to the President of the Board of Trade—when they say—I think they honestly believe this, though they are wrong—that some deliberate import limitation—incidentally, they practise it all the time while denying it—in order to have full production at home, means less imports and less international trade than under their deflation policy. It does not necessarily. It probably means more. It means balancing trade at a higher level, the achieving of the level of imports we can afford by deliberate measures rather than by general deflation.

Next the Government must at least have some policy for the cost of living and some sort of understanding with the trade union movement. Tonight the Minister made some rather sketchy prophecies about how far prices would rise and paid a well-deserved tribute to the trade unions. Unfortunately, the Government have not been acting in that spirit in these recent months. They have been deliberately neglecting virtually all the advice they get on economic policy from the trade union movement. Will the Minister of Labour, or someone from the benches opposite, start to repent tonight and tell us, in response to the request of the T.U.C., that the Government will proceed no further with the Rent Bill which nobody wants? If the Minister will not do that, will he tell us what is the Government's policy about the cost of living?

Does their approval last week of a 6 per cent. rise in iron and steel prices, beyond what is necessary for higher costs, mean that they want prices to go up? Or does the fact that railway charges and coal prices are held down mean that they want prices to stay down? Have they really any economic policy at all about the cost of living? We have thought in recent weeks that Boyle's law had been repealed; but has it? Do Ministers realise that, in the absence of any cost-of-living policy, and any understanding on these matters with the trade unions, before very long the chaos and conflict in industry will be as great as the chaos and conflict in Downing Street?

I have mentioned a few of the things we ought to do if the country is to regain its economic independence. What we are doing is to borrow lavishly from the United States, mortgage our gold reserves, and virtually default on our old United States debt, in order to go on smoking just that blend of tobacco that the trade and the Minister of State for the Board of Trade say we should like, and in order to avoid licensing even the more frivolous types of building. Would it not have been better to cut out at least some of these frills before begging all these extra dollars from the United States?

In December, 1951, even the Lord Privy Seal preferred to limit dollar imports and to continue control of building rather than to default on the interest on the United States loan. Why do the Government take a different decision on this matter today in precisely the same dilemma? They are really sacrificing our economic independence as a nation in order to build a few more lavish shops and offices and more garages to sell less petrol and in order to smoke a little more Virginian tobacco.

That is what the Government are doing. In assuming that the public also puts these trivialities first, the Government are once again showing that they are, in the words of Lord Tedder, utterly out of touch with the feeling of the British people.

7.32 p.m.

Sir Herbert Butcher (Holland with Boston)

The right hon. Member for Battersea, North (Mr. Jay) put forward six lines of action which he thinks we must follow if we are to restore the economic health of our country. I took a note of them as he enunciated them and I hoped that I may be allowed, in the short time that I shall trespass upon the time of the House, to comment upon them.

To the first of those suggestions one can raise no possible exception. We all agree that we must do all that we can to establish a gold reserve. It is the same kind of platitude as saying that one must make sure of having a handkerchief in one's pocket before going out to work. One only has to say it to realise how obvious it is.

The right hon. Gentleman turned to the need for Commonwealth planning. There is a great deal of Commonwealth planning going on. The kind of planning which is done at conferences of Government officials in London is not the only kind of Commonwealth planning that goes on. There is an enormous amount of intercourse and increasing trade taking place between all parts of the Commonwealth. There is finance from the City of London. Perhaps it is not very obvious on the surface, but the activity is there. It is taking place underneath, though not always obvious to the people here.

The right hon. Gentleman's third point was that we must have much greater investment in nuclear energy, tankers and the other matters that he enumerated. Each of them is entirely desirable, but I am at a loss to know where he would suggest that the money is to come from. One of the reasons we are lagging behind on the points to which the right hon. Gentleman drew attention—and I agree with him as to the need for them—is that the Government are taking so much money from the people in taxation that no margin is left for replacing the ordinary equipment, let alone for moving into the fields of far more expensive and advanced equipment that we need if we are to hold our place in the commerce of the world.

High taxation not only prevents us from spending money on investment on these necessary things; it has an equally evil effect in slowly but steadily sapping the spirit and energy of our people. In the course of a television programme one evening recently, I heard it suggested that people were leaving this country in larger numbers than ever before. The facts bear out the argument. From what I have heard, one of the causes is the high rate of taxation. Because of taxation, children are not likely to get the same opportunities in this country as in countries overseas. The argument is that of all the spenders in this country the Government are the worst, and that it is on Government spending alone that the largest cuts should fall.

Mr. Charles Pannell (Leeds, West)

I saw the same programme and I took the question of Government spending and taxation as a secondary consideration. The first inference from that programme was that the increased emigration started as the result of the Government's antics on Suez.

Sir H. Butcher

Many other hon. Members wish to take part in the debate, so I will discuss television programmes with the hon. Gentleman elsewhere.

The fourth point stated by the right hon. Member for Battersea, North, related to full production and full employment. Everybody regards that as right; but what is full employment? What would the right hon. Gentleman regard as a desirable percentage of unemployment? Is it that which we have at present and which the Minister of Labour told us is the lowest figure we have ever had? Or would the right hon. Gentleman prefer the figure of Lord Beveridge, which some people think is more realistic as giving a margin for transferring from position to position and from job to job? What is the right hon. Gentleman's definition of full employment?

Mr. Jay

Does the hon. Gentleman realise that tens of thousands of workers in the engineering industry are on a four-day or three-day week? My definition of a full week is at least five days.

Sir H. Butcher

I entirely agree with the right hon. Gentleman. Both trade unions and employers are cowardly in preferring to waste a man's time and waste money as well. True full employment is not simply being on the books of the firm, but putting in a reasonable working week over the whole period of the year. It would be far better for us to accept a higher level of people registering at the employment exchanges and fewer people engaged on part-time work. It is called "part employment", but it was regarded as partial unemployment before the war. In 1956, we like to use a more agreeable phrase.

The right hon. Gentleman passed along to his desire to restrain luxury expenditure. Who is to define luxury expenditure? It is not wrong in this connection to remember—it would be wrong to allow the right hon. Gentleman to forget—that "the gentleman in Whitehall knows best". The right hon. Gentleman was the author of that phrase and he sincerely believed it and held that belief for a long time. Does he really believe that the amount of luxury building taking place at the moment can be defined? Can the right hon. Gentleman define luxury building at the moment?

Mr. Jay

I am more willing to forgo a lot of the office building now going on in London than to contract an enormous new dollar loan from the United States at this stage.

Sir H. Butcher

I happen to know something about office building now going on in London. I am connected with it. What is the right hon. Gentleman's alternative? He says that we must have new equipment, new tankers, and new nuclear power stations, but the draughtsmen, the clerks and the accountants who look after these things must work in derelict and ancient buildings in which there is not adequate accommodation.

Who is to decide whether or not an office building is essential? I did not know that the right hon. Gentleman took "luxury building" as far as that, and wishes to license that kind of construction. I thought that the only luxury building to which he was opposed was the odd petrol filling station—of which he and his right hon. Friend the Member for Huyton (Mr. H. Wilson) have made so much play in the past—or the odd cinema. But who is to define whether a petrol station fulfils a useful need, or whether a cinema is of service to the people on, say, a new housing estate? Rather than set up all the paraphernalia of controls and licensing, with pressure groups on Members of Parliament, the pressure of chambers of commerce and all the various trades brought to bear upon them, I say that it is better to let the market, by and large, find its own level.

Finally, the right hon. Gentleman mentioned the need for the stabilisation of the cost of living. We are all in entire agreement. Nothing is more pathetic at the present time than the way in which wages and pensions are always trying to keep up with the cost of living, and always failing. I very much doubt, however, whether the policies which the right hon. Gentleman put forward in his earlier proposals will meet the case.

I was surprised to hear him say that he was in agreement with the surprising announcement of my right hon. Friend the Minister of Labour that he was going to relax hire-purchase restrictions on the motor trade. I say to my right hon. Friends that I really cannot understand why, at a time when petrol is being brought here only with difficulty, and when the need is for economy, we should make it easier for people to buy new and second-hand cars, and so use more of that petrol. There may be an answer to that which, as a simple back bencher, I do not know, and I hope that my hon. and learned Friend the Economic Secretary will explain it later.

I fail to see why we should be eternally cossetting and pampering the motor trade, which is largely responsible for much of our present difficulties. It has drawn from more useful sections of industry—the railways and the coal mining industry, for instance—large numbers of workers to its great factories by the attraction of high wages and now finds itself in difficulties, some of which are under its own control, and I cannot understand why the Government have rushed to its rescue in this strange manner.

I know how late this debate started and that the sooner I sit down at least one person will be grateful, but I do say that the answer to the problem is not on the lines advanced by the Front Bench opposite. Those lines certainly did not work from 1945 to 1951, when we staggered from crisis to crisis. I am quite sure that we are now on the right lines. After all, the present difficulty is only an incident in our history. I believe that a return to the old principles of reducing Government expenditure and allowing free choice to the consumer—who has been so much neglected for so many years—will lead us more easily and more swiftly out of this situation.

7.44 p.m.

Mr. Maurice Edelman (Coventry, North)

It is not often nowadays that we in this House hear such a full-blooded laissez-faire Tory speech as that which we have just had from the hon. Member for Holland with Boston (Sir H. Butcher). I must say that I am obliged to him for his frankness. When he talks about the motor industry and asks why it has, as he puts it, been cossetted, the answer is shown in the history of the industry under the Labour Government. since 1948, because of the high con[...] factor of steel when applied to motor cars, the industry has been able to play a splendid part in our exports and, in fact, did a great deal towards our post-war rehabilitation, and its present difficulties are an added reason for that further examination which I am about to urge.

In the meantime, however, I am obliged to the hon. Gentleman for drawing the attention of the House to that most important fact that the figure of 1.2 per cent., which the Minister of Labour gave as representing the percentage of unemployed, masks the very harsh reality that there is a great deal of hidden unemployment in Great Britain. He was perfectly right when he spoke about partial unemployment; that partial unemployment which is now given the euphemism of short-time working. In a few moments I will develop that, to show that in the Midlands today there is a very serious crisis, which will get worse as the winter proceeds.

I was interested to hear the Minister of Labour recall that today is the first anniversary of his assumption of office. I must say that it has seemed much longer than one year. Whoever else is satisfied with his performance, I am certain that it is not the workers in the Midlands. The Minister of Labour, having already congratulated himself on his performance during the past year, will need no further congratulations from me. So far from offering him congratulations, I say that it is because of his advocacy of laissez-faire, and his rejection of planning, that the industry is facing some of its difficulties.

I hope that it will not be dreadful to hon. Gentlemen opposite if I quote Lord Tedder. His views on the motor industry will be as little acceptable to them as have been his views on Suez. I must quote Lord Tedder, because not only is he distinguished in his own right but he also has a close association with the Standard Motor Company, one of the biggest of its type in the country. He has already warned that a dangerous crisis is looming ahead for the industry, and that unless drastic action is now taken we might see a crumbling both of productivity and the total production, and of the industry's labour force. The results will be disaster, locally and regionally, and possibly nationally. I will briefly develop those points.

It is well known that, for a variety of reasons, the motor industry has suffered greatly during the past year or so. There were, of course, the wilful actions of the Chancellor—the restriction of credit, the imposition of a severe Purchase Tax, and then, on top, came Suez, and petrol restriction. All these accumulating blows have so weakened the industry that today it is running at approximately two-thirds of its 1955 output, although its productive capacity has increased.

There is one further circumstance which the right hon. Gentleman did not mention, but to which perhaps the Government spokesman will refer later. That circumstance is the defence review being undertaken by the Government. Great anxiety must be caused in the Midlands generally if it is a fact that we are to move the emphasis from conventional weapons and the logistical equipment that goes with them. If we are to cut down the transport which we now use for our Armed Forces it will hit the industry very severely. I have been surprised that in recent company reports, when company chairmen like Sir Leonard Lord and Lord Tedder have dwelt on the industry's difficulties, they have not, apparently, looked ahead to what might happen if Government contracts are restricted and that difficulty is added to the others.

These are very serious matters. If one includes those engaged in the ancillary industries and in the manufacture of spare parts, the employment figure is 400,000—that is the figure usually given, I think—of which approximately 100,000 men are not being used to their full capacity. As the Minister rightly said—and he is fully alive to the problem—this is a very serious matter, because it is easy to concede that within the next few months 100,000 men who today are partially unemployed may well, if the situation deteriorates, be fully unemployed.

Mr. Osborne

Before the hon. Gentleman leaves the defence aspect of the matter—and it is very important to his constituency—may I ask whether he is arguing that the Government ought to continue to buy military equipment which they do not really require in order to create employment?

Mr. Edelman

No, that is not part of my case. On the contrary, I think that it would be highly wasteful if the Government were to continue to undertake defence contracts merely to sustain employment. All I am saying is that instead of adopting a laissez faire attitude to the motor industry, we must revert to the principles of planning, which have constantly been urged from this side of the House.

My plea is that the motor industry should be treated as a national industry, like the agricultural industry, and that there should be a long-term programme for the motor industry just as there is for other national industries in this country.

It may be asked, what do I mean by a long-term programme? First, we have to decide what is approximately the absorptive capacity of our own domestic market and of our traditional markets. We know that almost overnight our West European markets, on which we have been concentrating to a great extent, have suddenly been obliged to shut down because they are suffering from the petrol shortage just as acutely as we are in this country. But because continental motor manufacturers have been able to adapt themselves more readily and more flexibly to the demands of consumers who, in the past, have been obliged to conform to petrol limitations, and because our continental competitors, who, in the past, have had a rise in their total exports, have been able to produce small cars, mini-cars, motor scooters and that sort of thing, they will do rather better in the European markets than can we, who have not hitherto successfully adapted ourselves to the demands of the Western European market.

That is something that we must consider. Because of the laissez faire attitude which has existed specifically under the Conservative Government, our manufacturers, accepting the easy benefits of the home market, have not gone out in an organised way to adapt themselves both to our continental markets and to other overseas markets in which our competitors have been more successful than they have.

The first step, therefore, is for the Government, in conjunction with the motor manufacturers, to look ahead, to come to a conclusion about the size of the industry and about what they can do to meet the competition from abroad, and produce products which will be acceptable be[...] in old and new markets. That is a slightly longer-term policy than the immediate prices required.

The hon. Member for Holland with Boston made a very proper point. He asked—and he was critical of the Government—what is the use of the Government providing extra facilities for the purchase of cars on the home market in Britain today when there is no petrol to run them? I can understand that point. From his point of view—and I am arguing against him—he is saying that we might as well dig holes and set men to fill them in order to maintain employment.

My reply is this. I agree with the Minister of Labour. I do not believe that the demand in Europe and in the Commonwealth—the world demand in general—for motor cars is saturated. I believe that when the petrol flows again, there will be a renewed demand for motor cars both at home and abroad which will be well justified. Therefore, I welcome the measures of relaxation which the Minister announced today, which will encourage people to buy cars in the meantime. But I feel that as a palliative to the crisis which is developing, those measures which he has announced are not enough. We must have a greater stimulus to the industry than he has offered to tide us over the present difficulties.

Sir H. Butcher

Does not the hon. Gentleman think that it might be better for the motor car industry to use this period of difficulty in terms of redesign and retooling, rather than continuing to make designs which are at least not particularly modern and selling them on the home market?

Mr. Edelman

The two actions are inconsistent with each other. It is possible to proceed with production and to develop new designs fitted for new markets, but my point is that the measures which the right hon. Gentleman has proposed will not be enough to maintain production at a level sufficient to avoid mass unemployment in the motor industry, in the Midlands, in the Dagenham area, and in Luton.

What is required now is a positive incentive to reluctant purchasers to go out and buy cars with the full knowledge that they will have difficulty in getting the petrol to run those cars. I want to advocate—and I do so in conjunction with my hon. Friend the Member for Coventry, East (Mr. Crossman)—that the Government should seriously consider temporarily removing Purchase Tax on motor cars until such time as petrol rationing is abolished. I urge that that should be done, and the prospective purchaser will know that, in compensation for the difficulties which he will undoubtedly have in running his car, he will have had the benefit of a reduction in the Purchase Tax which will make it worth his while to buy a motor car.

I believe that it is only by some positive action of that kind that the Government will be able to stimulate sales of motor cars in this country. As everyone knows from his own experience and that of friends, there is a great resistance to buying cars in present conditions. Yet if there were this element of compensation introduced into the purchase of motor cars, if prospective purchasers felt that they were getting this substantial relaxation of Purchase Tax as an encouragement to buy, even with the recognition that ultimately when ration- ing was abolished Purchase Tax would be reintroduced, or perhaps particularly—

Mr. Deputy-Speaker (Sir Gordon Touche)

I am sorry to interrupt the hon. Gentleman, but it is not in order for him to discuss Purchase Tax legislation on the Motion for the Adjournment.

Mr. Edelman

I will comply with your Ruling, Mr. Deputy-Speaker. I will not use the term "Purchase Tax," but I believe that there should be a concession of the kind that I have suggested, which might encourage prospective purchasers of motor cars during these difficult times.

Let me turn to the major question of the motor industry and of its size, because that matter concerns us all. It is quite clear that the British motor industry—this may sound platitudinous, but it is necessary to say it—is not likely again to be what it was. In other words, the easy markets have disappeared and there must be a readaptation to the new conditions of the new markets.

The motor manufacturers have already shown an interest in the development, for example, of tractors, and that is all to the good. But that, again, will not be enough to absorb the great accumulation of engineering skill in the motor industry which, if we are to allow the industry to run down, will be dispersed and diluted into semi-skilled occupations.

The right hon. Gentleman mentioned that he was making a social survey to find out what happened to men who had been made redundant at the British Motor Corporation. Without any knowledge of exactly what happened, I venture to forecast that a very large proportion of those men are today engaged in occupations in which their skill is not fully employed.

If we consider the future of British engineering and the future of British skill, which, after all, is the greatest asset our country has, it is plainly not in the national interest to allow the skill of engineers to be dispersed and diluted merely because the motor industry cannot find work for it. Accordingly, I have one specific suggestion which I wish to make to the Economic Secretary before I conclude.

There is throughout the world a rising demand for machine tools. As the hon. and learned Gentleman well knows, we ourselves are making machine tools. I am quite certain, however, that our own machine tool industry is not developed adequately to the potential capacity of overseas markets to absorb the product. I would ask the Economic Secretary to deal with this specific suggestion. In view of the known requirements, particularly in under-developed countries, Colombo Plan countries, and the new States of Africa and the Middle East, there will be a rising demand for machine tools.

Would it not be possible for us to plan the resources of the motor industry so that, taking a slightly longer view, some of its skill and some of its already existing technical capacity might be diverted to the development of a national machine tool industry, on a scale commensurate with the needs of our own country and our potential markets overseas?

Mr. Macleod

When I was talking about the important industries in this country which have managed to gain from a certain redeployment of labour this year, I mentioned only two, to save the time of the House. I entirely agree with the hon. Member about the importance of this particular industry. The machine tool industry has, I know, gained by about 2,700 men during the last few months, in part at least as a result of the redeployment to which I referred.

Mr. Edelman

I welcome that fact, and I congratulate the right hon. Gentleman on his success. I am very glad to hear it. I hope that hon. Members, who are rightly impatient to make their own contributions to the debate, will bear with me for a few moments more while I make my final observations.

It is natural that manufacturers in the motor industry, seeing their difficulties enlarged by countries such as Australia and New Zealand raising barriers against the import of motor cars, should feel anxious and should try to leap those barriers by setting up plant in the countries to which they formerly have exported. I do not blame them for doing it, but the fact is that when they do it they export employment to those countries. They cease to export motor cars and they export employment.

For example, we know that the British Motor Corporation will shortly be producing in Australia about 1,000 motor cars a week. These 1,000 motor cars will be produced by local plants; for instance, Fisher and Ludlow, the panel makers, have set up an establishment in Australia. Those organisations, under the present arrangements, will take work away from the Midlands, from Oxford, and, ultimately, from Dagenham, Luton and all the other centres in this country where cars are made. In other words, we have a situation in which employment is being exported.

I give this warning. The motor industry faces a very grave crisis. The measures announced by the right hon. Gentleman, valuable in themselves, are inadequate. He must do much more. Although I shall not again refer to taxation, I hope that the Government, during the Christmas Recess, will not be content merely to sit back and allow the employment exchanges to redistribute labour. They must work out a satisfactory scheme for the motor industry if massive unemployment is to be avoided.

8.5 p.m.

Mr. Cyril Osborne (Louth)

The hon. Gentleman the Member for Coventry, North (Mr. Edelman) has, in his charming way, made a wonderful plea that Coventry should be "feather-bedded". The motor industry, he says, is exporting employment to other countries where other people will start to produce their own motor cars.

In the textile industry we have faced this sort of thing for fifty years. Textile machinery has been sent abroad for years, and we have had to face the same problem. The Coventry motor industry must realise that its days of ultra-prosperity are over. The manufacturers, designers and workers have got to put their backs into their jobs as they have never done before.

I wish to turn to an aspect of the subject to which reference was made in The Times in its editorial this morning, under the heading "First things First". The article reads: Today's economic debate in the Commons is expected to concentrate less closely than the debate a fortnight ago on the gold reserves and the balance of payments and to range more widely over the home industrial scene. If so, it still should not be allowed to obscure the fact that the main issue is the defence of sterling. Putting first things first does not, in my opinion, mean putting the defence of sterling first. The defence of our country and the battle for our economic survival will be fought and won on the factory floor. What is involved in the expression "The defence of sterling" may be understood by Oxford dons, if I may be allowed to say that, and by the Treasury officials—though sometimes I doubt it—but it certainly is not understood by the ordinary workers.

The first thing the Government must do is this. Someone must be appointed to explain in the simplest of terms to industrial workers and managements what the jobs are which we have got to do, why we have got to do them, and what will happen to us all if we fail. It is almost a Minister of Propaganda for Economic Affairs who is needed, someone who will work closely with the T.U.C. economic committee and will put over to the people who have really to produce the wealth why it is we are in this position, what the problems are, and what each one must do.

I hope my right hon. Friend will forgive me if I say that I regard the situation as much darker than he painted it. This country faces the darkest winter since the days of Dunkirk, in 1940, when we stood alone. The tragedy, I feel, is that then we were a united nation but now we are divided. Then, the people of this country were willing to work, serve and sacrifice. Whereas today far too many in the country seem to be "hell-bent" on pleasure.

I do not believe that the nation as a whole really understands the gravity of the economic consequences of the Suez blockade. There are far heavier burdens ahead, and we ought to tell our people. I fear that the petrol shortage and all that goes with it may last a good deal longer than is at present realised.

Few hon. Members, I imagine, unless they have gone carefully into the figures, really appreciate how dependent on oil this country has become. Eighty per cent. of our requirements come from the Middle East, and of those about 80 per cent. came through the Canal and 20 per cent. came through the pipelines. With a bit of luck, we may have the Canal open by Easter, though I sometimes doubt it. The pipelines will take a year to repair. We must, therefore, face this situation industrially, that we shall be short of between one-quarter and one-third of our oil requirements for from anything from six to twelve months.

As I say, unless hon. Members have looked at these figures, they may well find it startling how our imports have increased over the last two years. In 1946 our imports of crude oil were just over 2 million tons. Last year, they were 28 million tons—14 times as great in nine years. Last year, of the general consumption of about 20 million tons, we burnt about 5 million tons in our industrial furnaces, we used about 2¼ million tons for industrial power and we used about 10 million tons for transport. Therefore, if, as I can gather from the oil companies and from the calculations I make myself, we are to be short of 5 or 6 million tons in the difficult months ahead, it seems to me obvious that agriculture and the export trades, the most vital of our industries, must have the first and biggest share of what is going and that the secondary industries—that means the one in which I am engaged—must be prepared to take much greater cuts than we have already had and that pleasure and sport must take drastic reductions, To me, the rather alarming and depressing side is that the people had not realised how perilous was our economic situation before these additional difficulties arose.

Here, in a country with 50 million people, producing food only for 30 million—or food for 50 million people for only four days a week—with no raw materials, living at a higher standard than anybody in the world except the North American Continent and living at a standard that we have not earned since 1945, we are faced now with a new problem from the peoples of the undeveloped countries, people from whom we get our oil, rubber, tin, lead and all the commodities with which we keep ourselves employed and earn our living. They are asking us the simple question why they should allow us to go into their countries and exploit their raw materials to give us a standard of living ten times higher than that which they themselves enjoy. If we are to face that, it means either that we must increase our productivity enormously or that there will be a colossal fall in our standard of living.

We often plead on both sides of the House, including the hon. Lady the Member for Coatbridge and Airdrie (Mrs. Mann), whom I see present, with great sincerity the case of the old-age pensioner. Old-age pensioners in this country do not realise that poor as they are they are many times better off than nine-tenths of the human race. And the rest of the human race is asking why the white man—the English people—should enjoy this much higher standard of life than they do from the raw materials which come from their country.

The rest of the human race will not put up with it any longer and we must tell our people that it is not a question of doubling our standard of living, but of maintaining our standard of living. We have got to say to our people that the standard we have enjoyed for so long is in grave danger and that if we are to maintain it, we have all got to take off our coats in a way we have never done before and earn it.

Mrs. Jean Mann (Coatbridge and Airdrie)

I was wondering whether these remarks, instead of being addressed to me, should not have been directed to the Lord Privy Seal. It was he who promised to double the standard of living. That was his Election promise. Where is it now?

Mr. Osborne

I am not playing party politics. We have had far too much party politics in this House in the last few weeks. I am trying to take a national point of view of the problem which faces us.

If the hon. Lady wants to play a little party politics, she has probably read "Towards Equality", a very good pamphlet and well written by the right hon. Member for Huyton (Mr. H. Wilson). Since the hon. Lady provokes me, I must give her this one hack. On page 5, the right hon. Gentleman wrote: Immense differences in living standards are as intolerable between nations as they are between the classes inside one nation. Let us face it. If the wages of the whole world were pooled and everybody had the same, the British worker would have less than £2 a week. If that is the equality that hon. Members opposite want, they should go and tell that to the supporters. That is the ultimate logic of their belief.

Mr. Harold Wilson (Huyton)

The hon. Member now, and in a letter which, I think, he wrote to the Daily Telegraph in the first week of October, credits me with the authorship of that document. I should like to assure him that although I stand by it all and have defended it at my party conference and have spoken to it, I was not myself the author of it. It was the work of a committee. We do not believe in the cult of the individual to quite the same extent as some other parties.

Mr. Osborne

It was so well reasoned and certain phrases came out so easily that I could almost hear the right hon. Gentleman saying it.

All I am trying to put to the House is that our problems are much graver than is generally realised in the country. In fairness to our people, the first thing we ought to do, on both sides of the House and on both sides of industry, is to set the facts before our people and say, "These are the difficulties. We have got to surmount them. If we do not, heaven help us."

There are two or three things that the Government should do. My right hon. Friend might well consider appointing a new Beveridge Committee to see how far the Welfare State has affected the willingness of our people to work and their willingness to serve. It is no good the hon. Member for Northfield (Mr. Chapman) shaking his head—

Mr. Donald Chapman (Birmingham, Northfield)

rose—

Mr. Osborne

I am sorry, my time is short. The problem before us is not only to get increased production, but it must be at lower prices and with better quality goods if we are to sell them abroad. Although it is unwise to generalise about industry, because some trades are doing much better than others—incidentally, I would say to the hon. Lady the Member for Coatbridge and Airdrie that in British industry women are on the whole doing a better job than men—it is fair to say that in industry generally the men and women who are working alongside machinery and have the pace set by machines are doing a very good day's work, but some industries could do a great deal more. And so an inquiry ought to be made. That is the first thing that the Government ought to do.

Secondly, there must be heavy cuts in our defence programme. Something like one-third of what we are spending must be cut. Before 1914 this country, which was then immensely richer than it is today, had only a two standard Navy, we had a contemptible little Army and we had no Air Force. Today, we are trying to keep three Fighting Services and we cannot afford it. We should make up our mind which we can afford, and we should scrap the rest and be drastic about it; and with that, we should say that within a very short time we will end conscription altogether. With that, however, both sides have to make up their minds that we must stop pretending that we are any longer a great world military Power.

I do not want the £500 million which I want saved in this way to be put back into social services. It has got to be real net saving so that taxation can be reduced to the same extent. Next, I want the Chancellor to take a calculated risk. I want him really to slash taxation for a period of two years. If he is to get greater production, which is our only hope and salvation, he must encourage the scientist, the technician and management to work harder. He will only encourage them to do so if they are allowed to keep what they earn. Therefore, I should like to see my right hon. Friend the Chancellor double the earned income allowance, reduce Income Tax—

Mr. Deputy-Speaker

The hon. Member is not in order in suggesting legislation.

Mr. Osborne

I beg pardon, Mr. Deputy-Speaker. The Chancellor must make a reduction in taxation and encourage those who make the production, both on the shop floor and in the management office, to do the extra work of which I think they are capable.

The Government ought to consider whether the time has not arrived to end the credit squeeze. I should like to see the Bank Rate down to 4 per cent. quickly. The Bank Rate is no longer effective for doing the job which, traditionally, it is supposed to do, because political fears have caused money to go from the sterling area, and a higher Bank Rate cannot bring it back. There is no doubt that the higher Bank Rate is causing increased costs at home. Instead of keeping the Bank Rate high, the Government should reduce the volume of money.

If, as a part of this policy, they are necessary, I should not myself be afraid of more physical controls. We already have many. We have the dollar control, we have controls in agriculture, we have them in the strategic list of goods. To have some more physical controls would be a price well worth paying if we could get rid of this dear money policy, which, I begin to think, is doing more harm than good.

If the Government will tell our people of the immense difficulties which are facing us, and explain to them in the simplest terms so that they can understand them, then I believe that we shall surmount the hurdles before us, high and many though they be. I believe the British character is just as good now as ever it was, and that the people of this country will respond today as they did in 1940.

8.27 p.m.

Mr. Frank Tomney (Hammersmith, North)

I have listened to the hon. Gentleman the Member for Louth (Mr. Osborne) with great care. He has stated his case with great clarity, but in his strictures of the Government I think that he only half stated it. I intend to state it, if I can, more fully.

In politics, in commerce and in economics, there is a price to be paid. In a country which exists on the basis of political democracy, with Government and Opposition parties, the Government of the day must be responsible for its successes and for its failures, and it is politically that the criminal folly which the Government have displayed in their Suez policy will be judged by the people of this country in the very near future.

The hon. Member for Louth fairly asked the Government to put the economic issue to the nation in the simplest possible terms so that the ordinary men and women in the factories and workshops can understand it. The Government's Suez policy has not yet been put in that way to the people. There have been evasions, double-talk, understatement and over-statement, as the occasion seemed to warrant, by the Government, backed by a powerful Press which has deliberately hidden from the people the real state of affairs which gave rise to Suez.

There is a price to be paid for it, and that is the economic price which is now beginning to be paid. When the people, through their own simple, home economics, begin to feel the pinch, they will decide who were to blame for this state of affairs, and they will pass judgment through the ballot box. That is when it will come home to those responsible.

The Minister of Labour, in his speech today, dealt in the usual way with percentages and the figures of the cost of living, the balance of payments, and employment. Personally, I was very glad that he quickly left that and said, in effect, "What we are concerned with now are the homes, the mortgages, the hire purchase, the comforts and the happiness of the people." That is perfectly true. We have enjoyed for seventeen years a sellers' market. The Government should have known, any Government should have known, as we on this side of the House knew, that gradually, as in all countries a higher standard of mechanical production was developed, Great Britain's position would be endangered.

In 1945, the Labour Party put to the country a policy of social benefits, which the people voted for, but for social benefits there is an economic price to be paid in the export price of every single exported item. Having voted for that policy, the people have a right to expect that policy to be carried out and to be effective for all time, and that policy includes the policy of full employment. The Labour Government received very little consideration, indeed no sympathy at all, in the difficulties in which we found ourselves when we went from crisis to crisis in very difficult circumstances. We were referred to by the right hon. Gentleman the Member for Woodford (Sir W. Churchill) as "Weary Willies" and "Tired Tims," when men like the late Sir Stafford Cripps and his colleagues were struggling against tremendous odds for a country which came out of the war devastated and bankrupt. They struggled to restore the economy, but they received no sympathy from the Tories for the efforts they made.

However, we struggled on in face of the difficulties. It was difficult, and it always will be difficult for Britain from now on—let us understand that—because other nations, as the hon. Gentleman the Member for Louth said, are now themselves becoming producing and consuming nations. We have to decide what we as a nation are to do about it. What can we do about it? We have heard discussed today the engineering industry, the motor car industry, the export trade, the changing face of British commerce and industry, the investment programme, and taxation. All these impinge with tremendous force upon our economic system. That is why the arguments on this side of the House, and on the other side, too, have been so bitter in condemnation of the Government's embarking on their Suez adventure, and why we have said that that was so terribly wrong.

We have been living from year to year and week to week on the productive capacity of the nation. I know that the Labour Government had dollar aid from America, but since 1945 we have had to build up the sterling area where our main markets lie, and we have been exporting as much as we could into the valuable dollar markets, and we have been changing and rechanging our industry and devoting more capital to industry through special tax concessions. I can understand our doing that for specialised industries such as the aircraft industry and some of the newer industries. I can understand making tax allowances for recapitalisation and ploughing back. Only by that method will we succeed in our vast engineering industry, and that problem will be with us forever.

We are now faced with great German competition. Germany is now on her feet. The events of the past few weeks have brought in their train a political sequence which has to be followed through to its logical end. I do not think that the Prime Minister or the Cabinet envisaged, when the Suez adventure was embarked upon, what it really involved—the shortage of oil, the running down of British industry, the unemployment, which is gradually growing, the position of British exports in face of Germany outselling us in almost every market, and the competition of Japan in the Far East. And if the China market is not opened to us, there is no relief to the British textile industry. The sooner we get there the better, whether the United States likes it or not. There must be real talks on that subject before long.

Mr. C. Pannell

Will my hon. Friend please mind adding to his chronicle that, except in rubber and tin. Russia is forging ahead and will soon be completely self-supporting? She is forging ahead as fast as any N.A.T.O. country.

Mr. Tomney

Russia, too, will be competitive in the world market before long, especially if she gets rid of her great arms burden.

Mr. Raymond Gower (Barry)

Is the hon. Member suggesting that Germany is not affected by the shortage of oil?

Mr. Tomney

She is not affected to the extent that we are, because German wages are lower than ours, German factories were devastated in the war and now she has new factories with new machinery and recapitalisation. She is exporting a tremendous amount to America and other countries where she is taking credit, although she would prefer to have the cash. She as spending in South America which, in turn, deals on a dollar basis and, therefore, in a roundabout way the benefits go back to her. That is why we could not and should not, by all the advice available have gone on this Suez adventure at any time, but especially at this juncture.

I know the trouble that Nasser has given to this country and I know our dependence on oil. About 80 per cent. of our industrial force turns on oil. We are not on the gold standard. We, like the rest of the world, are on an oil standard. The Americans have the bulk and we have some. Nasser, with his poor peasant population, has no oil but he has the waterway and he tries to "muscle in" on the net profits of the oil industry.

However, the adventure has been embarked upon and now we are paying the price in terms of unemployment. Our economy is so finely balanced on a knife-edge and our consumer standard, in common with many other parts of the world, is so great that there is an insatiable demand for goods. What is the way cut? It is difficult to say in this situation.

Some of us on this side of the House have been very conscious of the position of Great Britain in world politics. I still take the view that Great Britain is a considerable power in the world. I shall not, by any means, denigrate my country and its position in the world. It is a considerable power in moral leadership and in other things. We must decide how we shall get out of this morass into which we are sinking deeper week by week.

The Government can appeal to the country and put the position to the workers but, as I have said, a political price must be paid if they do that. The trade unions are responsible bodies in their own right. They are just as responsible for the country's economy and the future of their membership and the employment of their members as anybody in the country. They have a great stake in all this and they have acted with remarkable fortitude and reticence in the past few years. They have the right to demand a place in the higher councils of the Government when any measures are taken for the realignment and redeployment of British trade throughout the world.

It is striking that while we are arguing about defence programmes, about N.A.T.O. and about foreign policy—and we have had some bitter quarrels about our defence commitments and the policies that are to be carried out—world events in the economic sphere have caught up with us. Now, whether we like it or not, we shall be forced to prune and cut our defence programme considerably if we are to remain alive economically. That is the first thing to which the Government have to look, and to look at closely.

Mention has been made tonight of the specialised industries, and there has been a certain amount of criticism of the motor industry, some of it justified and some unjustified. I was recently in the United States, where there is a vast commercial market which has not yet been touched by Great Britain. Most British salesmen never seem to get farther than New York and Chicago. The great Middle West basin, with its teeming millions, hardly sees British goods. I hardly saw British cars in America. I began to make a survey and to estimate the reason for that because, when all is said and done, the question of cars in relation to our dollar earnings has been very important these last few years. Cars have produced us quite a lot of dollars.

What did I find after making that survey? This is something at which the motor car industry must look. In an interjection I made in the Minister's speech I said that Germany is fast creeping up on us in the American car market. How fast is not appreciated until the figures are seen, so I will give comparative figures for 1952 and 1955.

The total number of British cars sold in the United States in 1952 was 27,800. In 1955, that figure had dropped to 18,800. The number of German cars sold in the United States in 1952 was 790. In 1955, the figure was 32,050. Those are remarkable figures and they prove conclusively that there is in the United States a market for cars of the small type manufactured by Great Britain and by Germany.

The difference in price, type, make and styling is something which the experts can go into, but I have one or two suggestions to offer to the Minister of Labour for consideration by the motor car industry, because that is the one which has taken the first knock in the economic debacle now facing the country.

The United States market can absorb at least 60,000 foreign cars a year. That seems a lot of cars until we bear in mind that the productive capacity of the United States is 8 million American motor cars a year. So the total production of foreign cars is only three-quarters of 1 per cent. The Americans like to have cars serviced They want spare parts, quick repairs, quick delivery, ready access to markets where they can find these facilities provided. That is one of the reasons why the German Volkswagen has been outselling all British motor cars in the United States during 1955 and 1956.

British shortcomings have helped the Volkswagen considerably and I will list one or two of them. There are far too many British makes competing for the American market. There are 28 British makes competing for it as against six big American motor car organisations and five from Germany, including the popular and sturdy German Volkswagen. B.M.C. and Rootes insist upon exclusive dealerships and, as a result, their spare parts and service depots are too far apart and too few in number. In many cases, parts have to be shipped from New York to California, a distance of 3,000 miles. This means a wait of several days, or a week, before repairs can be done.

"Lame ducks." such as A.C., Alvis or Jowitt, which threw their cars on the American market without any provisions for repairs or for spare parts, have spoiled Britain's name for reliability. Singers established a depôt in Montreal, over 3,000 miles from the Californian coast, to which money has to be remitted first, and 42½ per cent. additional customs dues paid, before replacements can be sent at heavy cost by air.

Distributors and dealers are finding it hard to make a good living on a single make. B.M.C., Rootes, British Ford and Triumph have lost their initial sales. As a result British cars of late have lost to Volkswagen a number of their best British salesmen. That is something to contemplate, that our best British salesmen in America are being forced to sell German cars in competition with our own. These things must be looked at by the Minister of Labour with the motor car industry. I still have great faith in our motor car industry to earn for Britain the dollars she so solely needs and to lift us over the initial difficulties due to Suez.

What is the way out? One remedy is the formation of a British export corporation to which the "Big Four" of the British motor car industry—B.M.C., Rootes, Ford and Standard—would guarantee to sell whatever the corporation found it could sell in the American market, supplying vehicles as and when the need arose and not months later as in the case of the M.G. and other redesigned cars. The vehicles would have to be supplied in the quantities ordered within a reasonable period of time.

Spare parts and stocks could be organised on the same system as that for the Volkswagen. The arrangements in this respect would have to be completed before the scheme was announced to the American public. This would provide an indication of Britain's ability and determination to compete with Germany on an equal basis in the small car market.

The Minister of Labour, or the Chancellor of the Exchequer, should appoint a committee to assemble the facts relating to the British motor industry and its future, and should weigh the consequences of the situation in the light of our gold and dollar export needs. Then the Government should summon Her Majesty's representatives abroad to give expert evidence at home without delay. Once the results of the investigation have been accepted, they should be laid before the B.M.C., Rootes, Ford and Standard, and also Jaguars, and perhaps also Hennessey, and any other interested persons, calling upon them privately and in the interests of the industry and of the country as a whole to implement the findings of that co-operative action without delay.

If these people should refuse to be co-operative, what should the Minister do? He should lay the matter before Parliament as being one of urgency and the allocations of steel and other materials to the individual firms should be based entirely on their export drive and their readiness to co-operate in the national interest and to help to stabilise the British motor car industry.

I appreciate that it is not easy to shift directly from production lines as such to the finer branches of engineering, such as tool making, for a different kind of labour is required, but we ought also to look very seriously at that sphere. Germany is now exporting 60 per cent. of her machine tool production all over the world, and we are exporting 20 per cent. of ours. In any event, for decades to come, whatever the conditions are and whatever political parties may be in power, Germany will be Britain's biggest competitor in engineering industry exports.

If the Minister w ill bear in mind some of the points which I have raised and make a real effort to lead the people of Great Britain, on a basis of equity and equal sacrifice, out of the morass into which the Government's Suez policy has forced them, he can be assured that the Trades Union Congress will be prepared to play its part.

8.44 p.m.

Mr. John Arbuthnot (Dover)

We have all listened with great interest to the speech—

Mrs. Mann

On a point of order, Mr. Deputy-Speaker. It looks as if Scotland will not have a chance to take part in the debate. I wish to register a protest. Unemployment in Scotland is double that in England.

Mr. Deputy-Speaker

I am sorry to interrupt the hon. Lady, but that is not a point of order.

Mrs. Mann

We have been listening to English hon. Members airing the deplorable conditions in their country when the conditions in Scotland are twice as bad I really must protest.

Mr. Deputy-Speaker

I am sorry to interrupt the hon. Lady, but she is not in order.

Mrs. Mann

It is not worth while attending this House as a Scottish Member of Parliament.

Mr. Arbuthnot

The hon. Lady the Member for Coatbridge and Airdrie (Mrs. Mann), who is now leaving the Chamber, will hae to watch hersel', because at the moment a Scot is speaking.

We were all very much interested in the speech of the hon. Member for Hammersmith, North (Mr. Tomney). He will not expect me to follow him into the controversial political part of it, but, as to its constructive side, it was a contribution to which we all listened with the greatest attention. The important thing in circumstances as we find them today is that we should all realise that we are in the same boat together, that we should all pull together to try to get out of the difficulties. The economic position presents both a challenge and an opportunity.

Recent events in the Middle East have brought home to us as a nation that we could be rendered ineffective through one of two reasons. Either through insufficient military strength, or through spending so much on military strength that the moment we try to exert it the flight from the £ threatens the country with bankruptcy. The latter position applies as I read the position. I therefore find myself in substantial agreement with the hon. Member for Hammersmith, North who said that one of the urgent tasks facing the Government was a drastic review of our defence expenditure. I know full well that the Government have that very much in mind and that that review is taking place at the moment.

It may not be generally realised that the amount we spend on defence at present represents 6s. 3d. in every £ of Government expenditure. It is therefore essential and urgent that we should have a drastic reduction as the first lesson of the recent events in the Middle East. A corollary to a drastic reduction in defence expenditure is to see to it that we make mum more efficient use of the remaining resources. We are today spending £1500 million on defence. I want to see that reduced straight away to £1,000 million.

My right hon. Friend the Minister of Labour gave a welcome assurance that we are consulting our allies and that consideration will then be given to the whole problem of the abolition of National Service. Not only would the reduction and abolition of National Service reduce the amount we are spending on defence, but it would also mean that the nation would gain in productivity. The expenditure per man on keeping him fed, paid, equipped and so on is about £ 1,000 a year. If after these discussions we find it possible to abolish National Service, that will be a material factor in helping us in our economic problems.

We should curtail our expenditure in Germany, where we are spending enormous sums of money. More of the burden should be shouldered by Germany herself. It is also important that we should shift from conventional or obsolete weapons to those which are more in keeping with this day and age so that a relatively smaller number of people will be able to keep the country adequately defended.

My last suggestion about the defence programme is that we should expand N.A.T.O. so that it will cover the area of the Bagdad Pact, because N.A.T.O. will be ineffective if it can be turned on the southern flank. It is therefore just as important to all the countries which are members of N.A.T.O. to see that the southern flank is adequately protected and to take their part in doing the job of work in which we have so far taken so large a share. We have, in short, to trim our military coat to conform with our economic cloth. I am sure that the Government will be the first to realise that this is an occasion of great opportunity and an occasion on which there should be no half-measures.

I want to turn to another aspect of our economic problem, the sums which we are borrowing from the United States. I feel gravely disturbed that we should find it necesary further to borrow from the United States. This may be necessary as a temporary measure, but we must bear in mind that, when we borrow, the money has always to be repaid. The fact of further indebtedness as such is a millstone round our necks, and it cannot be a source of additional confidence in the £ that we have to resort to the moneylender once again, using that term in no derogatory sense. Borrowing is no source of strength. In fact, it is the reverse unless it is accompanied by stringent pruning of our dollar expenditure.

In this respect, I found myself in a considerable measure of agreement with the right hon. Member for Battersea, North (Mr. Jay) when he spoke about tobacco. Of the £86 million which we as a nation are spending on importing tobacco, £46 million is spent on tobacco from the United States. In my opinion, we can go a great deal further to reduce this particular dollar expenditure. I am not impressed by the argument that the Chancellor of the Exchequer must have Virginian tobacco in order to maintain the yield of the Tobacco Duty at the £668 million, which is the sum received at the moment.

It might well be that there would be a reduction in the yield of the Tobacco Duty, but I do not think it would be great if good Rhodesian tobacco were blended satisfactorily. It used to be the case that no tobacco other than Turkish or Egyptian was allowed to be smoked—

Mr. Gordon Walker

In good society.

Mr. Arbuthnot

—as the right hon. Gentleman says, in good society.

Mr. William Ross (Kilmarnock)

Society is not so good now.

Mr. Arbuthnot

I am convinced that the taste in tobacco could be re-educated, and could probably be re-educated to the public advantage, if we gave an opportunity to our good friends in Turkey and to the members of the Commonwealth family in Rhodesia to send more tobacco to this country rather than our importing it from America. Even if the Chancellor were to lose revenue from tobacco, it would, in my view, do no great harm, if we smoked less. Particularly if we made a substantial saving on defence, the Chancellor should be able to afford a slight loss in revenue from tobacco.

I now turn to American films, where the sum involved is nothing like as great. The total amount spent on American films is about £9 million a year, which excludes the profits which, under the Anglo-American Film Agreement, cannot be remitted to the United States.

Another source of possible dollar saving is to cut out the import of Canadian apples. The sum involved here is £1 million. As Member for a constituency in East Kent, I can say that it would be very welcome to apple growers there if fewer Canadian apples were brought to this country and if local fruit growers were given a greater opportunity of selling their British apples. They are perfectly prepared to put them into appropriate storage for the purpose.

The last facet of our position which I should like to consider is the action which we must take in order to restore an expansionist outlook to our economy. In the long run the value of the £ depends upon production—producing things which are wanted in the world and producing them at the right price. We have therefore to concentrate on encouraging industry to modernise. We must also give further encouragement to those sections of the community whose brainwork is the mainspring of our industrial effort. Particularly if we are to go into the European Common Market, we must be competitive. Even if, eventually, we do not go into the European Common Market, we cannot survive economically as a nation if our industry is not fully competitive.

This is not the place to talk about budgetary proposals, and I do not propose to do so. That can be done another time. But we may be able to assist in cutting down Government expenditure, and public expenditure of all kinds—it is essential that we do so—if, instead of spending quite so much time in this House going into the details of how money is to be spent by this Department or that, we take the line that business would take if faced with similar difficulties. We must decide basically what proportion of our national income should go into increasing industrial efficiency and increasing its competitive power. We should decide what proportion should go to the Government in taxation to create those conditions in which private enterprise and nationalised industries can increase the national wealth. That is the job and the only job of the Government—to create those conditions in which industry, whether private or nationalised, can add to the wealth of the nation.

We should decide basically what proportion of our money we can afford to spend on defence, and what proportion we can afford to spend on the social services. Having so decided, we should as a subsequent and subsidiary stage make sure that Government Departments make the best use of the money available. In a business each department would be told what money was available for spending and that it must do its best on the budget provided. But somehow in our public expenditure it seems to work the other way on. Government Departments say what they require and the miserable taxpayer is squeezed to provide that money until the pips squeak.

If anyone is in doubt about that, let him look at what happens to a company which tries to distribute all it can. I do not wish to go into the question of whether that is a good thing to do, but if a company tries to distribute up to the hilt, the shareholders get 30 per cent, only and the Chancellor 70 per cent. If, in order to avoid the full rigours of taxation, a company ploughs back its profits, it may well in due course become the subject of a take-over bid. In my opinion, it is a fallacy—that exists in the minds of many people at the Treasury—to suggest that to distribute is wrong and to plough back is right. I believe that fresh savings—the proceeds of dividends—which come from private individuals into industry are often more fruitful than savings ploughed back, because they often give more satisfactory and imaginative employment.

I therefore find myself in disagreement with my hon. Friend the Member for Louth (Mr. Osborne), who said that the credit squeeze should cease and that the Bank Rate and interest rates generally should be reduced. I believe that, in present circumstances, it is essential that added impetus be given to saving. The events of recent weeks have shown how badly out of balance some of our expenditure has been. We have now the opportunity to recast the whole of our economic approach. Instead of clapping on fresh taxes as a panacea for all our economic ills, we must recognise that Governments and local authorities are spending far too much.

There is only one way out for this country, and that is to limit public spending to a ceiling to give industry the opportunity and incentive to make itself competitive and to produce the goods on which our very survival depends.

9.0 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

I am sorry that throughout the whole of this debate we have not caught even a glimpse of the Chancellor of the Exchequer. We on this side of the House know that it may well be that he would not wish to speak in this debate, but we should have liked to have seen something of him here. I think one must place on record the fact that throughout this fresh burst of economic difficulty recently we have received remarkably little from the right hon. Gentleman in the way of general economic guidance. We have on general economic subjects had one statement and one very short speech from the right hon. Gentleman.

The statement occasioned a certain amount of favourable comment because it was remarkable that among recent Government statements it contained no obvious misstatements of fact and comparatively little tendentious matter. The speech was extremely short. It began at twenty minutes to ten and finished at five minutes to ten on one day during the debate on the Address. It was much more of a fragment of autobiography than an exposé of the economic situation. We should like to see a little more of the Chancellor and hear a little more from him of these very difficult economic circumstances in which the policy of himself, or perhaps to a greater extent of his right hon. Friend the Prime Minister, has placed us at the present time.

I will begin by saying a few words bout the subject of our gold reserves on which my right hon. Friend the Member for Battersea, North (Mr. Jay) spoke earlier in the debate. I think there are four points about the present position of the reserves with which one must deal. The first is, of course, that what we are suffering from at the present time is not merely the fact that we had a very rapid drain on our reserves during November, but also the fact that that drain began with the reserves extremely low—quite unjustifiably low—because we had previously been through a period of eighteen months—from June, 1954—in which our reserves fell by 900 million dollars while the reserves of the other O.E.E.C. countries went up in aggregate by 2,400 million dollars, a very sharp contrast between the position elsewhere and the position in this country. Of course, it was in the middle of this period of eighteen months when our reserves were falling so disturbingly in sharp contrast to what they should have been doing, that is, moving in accordance with the general pattern of Western Europe, that we had the Lord Privy Seal's famous Budget of 1955.

The second point which I think must be made is that, without question, the drain on our reserves during November and, indeed, recent drains generally have been greatly increased by the Government's decision taken about eighteen months ago, I think, to maintain the rate for transferable sterling at only a small discount compared with the official rate. In other words, to introduce very quietly convertibility of sterling for everybody except the residents of the United Kingdom.

There is no doubt at all that we have recently been paying a very heavy price indeed for that decision and that a very large part of the drain during November is to be attributed to our attempt to maintain that transferable rate. A few days ago, on 15th December, there was a very remarkable leading article in the Financial Times from which I should like to give the House a short quotation. The Financial Times said: There are two questions"— about the future of sterling— which have to be settled The first is whether the extent of Britain's banking commitments through sterling is not excessive in comparison to the country's real economic power and resources. The second is whether British economic policy is not now too much influenced by attempts to calculate the reactions of foreign exchange dealers to British policy. For instance, the increase in the petrol tax was defended by some by the need to impress those who are referred to collectively as 'the bankers of Zurich.' That is a very remarkable quotation from a leading article in the leading financial paper of this country. Whose fault is it that this is so? It is the fault very largely of Her Majesty's Government for paying excessive attention to the demands of the City of London.

Without question, part of our difficulty at the present time is the policy which has been pursued for many years, to a greater extent under the Lord Privy Seal than under the present Chancellor, of progressively dismantling exchange control and making it far mere vulnerable to the shifts of opinion taking place in Zurich and other financial centres about the future of sterling. We undoubtedly last month paid a very heavy price for this position. The Financial Times went on quite rightly to say that what was much more important for the future of this country than the opinions of the bankers of Zurich was the rate of investment. I will come back to that point a little later on.

The third point about the reserves is that, in so far as the strength of sterling has imporved since the Chancellor's statement of a fortnight ago, it is because he has been able to borrow on a massive scale. Let there be no doubt about that at all. I would hazard the guess that the Government "lave been able to borrow, largely through the good offices of the United States Secretary to the Treasury, from the Monetary Fund on a larger scale than the Chancellor believed possible when he made the statement. From that point of view, the position is temporarily satisfactory. But whether the solution is compatible with the dignity of Conservative Members, in view of the attitude which large sections of them have recently taken up towards the United States, is another matter.

I would ask Government supporters—I wish there were more of them here to ask, but I will ask this of those who are here to be asked—what they think would be the state of sterling on world markets today, and the prospect of avoiding devaluation, if the United States had persisted in being as unfriendly as some Government supporters try to pretend it was being, towards this country? I know there are some hon. Members who take the view that we would have been much better off economically and in very way if, on 6th November, we had gone on to occupy the whole Canal. Where do they think sterling would be today if we had gone on and not subsequently withdrawn? There is no doubt that what has improved sterling has been the changed attitude of the United States in giving us massive aid and enabling us to borrow on a massive scale. That was dependent upon certain political decisions that the Government took very reluctantly.

What is the future? We have to remember that the recent crisis in our reserves, as the Government has quite rightly reminded us, was accompanied by a moderately healthy underlying balance of payments position. That balance of payments position, even on the Chancellor's own estimate, will get worse. It will be rather worse in the first six months of 1957 than in either the first or the second six months of the current. Therefore, we are in the position that, having had a reserves crisis with comparatively healthy underlying trade figures, we are now moving into a half-year in which we are certainly to have rather worse trade figures. We should not therefore be too complacent about the prospects.

The Minister of Labour, in opening the debate, had some things to say about the motor industry, which is not alone among British industries in being very hard hit by recent economic developments, but which certainly stands out as one of those in the greatest difficulty. He announced a small concession, in itself welcome, but certainly not adequate to solve all the problems. I thought that in general he was rather complacent about this industry.

The Minister of Labour combines a, rather gloomy manner with an occasional ability to make extraordinarily complacent statements. At one stage I understood him to say that one of the bright spots in the industry's present position is that the export proportion was rising, although within a falling total of production. I take it that this, in fact, means that we have now reached a position in which home sales are falling even faster than export sales. It is not a position from which one can draw a great deal of comfort, or, indeed, any comfort at all, about the future of the industry.

While I certainly would not, for ore moment, take the view that our motor industry itself has not committed many faults and is not to blame for some of its own difficulties, I think that it has really been treated pretty badly in the last few years by Her Majesty's Government. It has been allowed, indeed encouraged, to engage in a vast programme of expansion. Of course, one must have investment in this industry as in others, but what it needs is intensive rather than extensive investment.

The motor industry needed and still needs investment to make it able more efficiently to produce a limited number of cars, not a vast programme of general expansion of productive capacity. However, as I say, this industry was allowed—encouraged—to go ahead with a very large programme of expansion, and has since been badly hit by a series of measures under Government control, and has not, as far as I know, at any stage been given any guidance whatever as to what the Government consider to be its future reasonable size.

During one of the Chancellor's appearances in the House, not on a general economic question but on a more specific question, he made a speech about the European common market and our proposed attachment to it. That is a proposal with which, in general, I agree, but it is clear that if this proposal goes through the motor industry will then be one of those most affected by these changes.

I do not think that the Government have set a very good example of how they will help and guide industries which will be adversely affected by this general change in trading conditions over the next twelve years in the European common market by the way in which they have treated this industry. They have not made it any easier for that or any of the other industries to accept the sort of changes which it is desirable that they should accept.

I turn next to what, I think, is, and has been for some time, the crux of our economic problem; that is, the rate of investment. Last week we had a very frank statement on this from the Chancellor of the Exchequer at the N.A.T.O. meeting in Paris. He said that we have the lowest rate of internal investment of all the N.A.T.O. countries. He might have added that, in comparison with most of the non-N.A.T.O. countries in Europe, it would be lower still.

Undoubtedly, the position is, as the Chancellor there recognises, that our rate of investment is low and unsatisfactory. That point of view which the Chancellor put forward in Paris contrasts with that sometimes put forward by Government spokesmen in this House. It contrasts somewhat with that of the Economic Secretary who, at Question Time the other day, was not able to tell us whether he wanted the rate to go up or whether he wanted it to go down at the present time. There is a certain amount of conflict between what the Chancellor and his predecessor have been saying in this House about the rate of investment, and what the Chancellor said in Paris last week.

Indeed, I think that one of the most engaging things about the Chancellor is that, even more than most people, he regards facts not so much as statements of objective reality but as weapons to be used in the particular dialectical battle in which he is currently engaged. When we were urging upon him the undesirability of abolishing the investment allowance, we had painted for us by the Government Front Bench a picture of an investment boom in this country which was bearly controllable, but when in Paris it is a question—and a worthy question—of frying to get the Germans to pay some more defence costs, we are told that we are down at the bottom of the investment table.

Unfortunately, the truth lies with the latter statement and not with the former, or even between the two. The rate of investment is appallingly and disturbingly low in this country, and indeed even the much publicised—by the Government—1955 investment boom was really of very modest proportions. Fixed investment went up in 1955 by £150 million over the figure at which it was in the previous year. But that was a smaller increase than the rate of increase in stock building, and of course a very much smaller rate of increase than the increase in consumption during that period. Yet it was investment which received the major portion of the blame for the inflationary situation which had developed by last winter, and it was investment which had the main punitive measures taken against it.

What is the outlook in this investment field? I do not doubt that the Government, by a combination of the credit squeeze, by the abolition of investment allowances, by the general atmosphere of gloom and uncertainty in industry which their Suez policy produced, have knocked the investment boom of 1955 pretty thoroughly on the head. I do not say that the rate of investment is suddenly going to collapse in the next month or so, but I think that without doubt the fatal blow has been delivered, even though it may be some time before it is fully effective. We can already see in the figures for new factory building approvals that there is a prospect of a pretty sharp decline in the future.

Of course, the damaging thing about doing anything to limit the rate of investment—because we are in a particularly difficult situation—is that in the first place measures only become fully effective a year or two later, so that they are not effective from the point of view of dealing with the crisis but they are effective and dangerous from the point of view of damaging our prospects of a better rate of investment several years in the future.

The danger at the present time is that we are damaging not merely the rate of investment for 1957 but that for 1958 and 1959 by the measures which we have taken and by the policy which is being pursued at the present time. We are certainly losing all prospect for some time to come under present Government policy of effecting that transition from a low to a high investment economy which is absolutely essential for this country's economic future.

What ought to be done about this? What ought to be done on the investment front? There is, first of all, the sector of the economy which from an investment and other points of view is under Government control. I am very glad that that sector exists. I am glad that it covers, for instance, the field of nuclear energy at the present time. I am bound to say that, in view of recent announcements, I wish that it still covered the steel industry, because in view of the Government's alleged anti-inflationary policy, we have had a most extraordinary announcement about steel prices during the last week.

What is the position? The position is that the steel industry has announced an increase in prices over and above that which would be justified by any increase in costs, in order deliberately to increase the profitability of the industry in the hope of attracting more funds into the industry and thus possibly getting the expansion in investment which is obviously and clearly necessary.

Is this a very sensible way of running an investment programme in an industry like the steel industry, particularly if one is trying at the same time to introduce a little stability into British costs and prices? The steel industry was not a notably unprofitable industry even before this increase. The average yield on steel ordinary shares was about 6½ per cent., and the dividend in most cases was covered four or five times.

It really is an extraordinary example of the sort of bribes which the Government consider have to be given to private industry in order to get it to invest if profitability has to be increased over and above those figures, even though, by so doing, we gravely damage our export and competitive position in the hope of getting a little additional investment in the future. That is the position in the part of industry which, at any rate, ought to be under Government control.

As regards the private sector of industry, I have no doubt that, paradoxically as it may seem to certain hon. Members opposite, we can effectively move to a much higher rate of investment in private industry only by means of some controls, by means of building licencing accompanied by the re-introduction of an investment allowance on a discriminatory basis. These measures would be, and would be intended to be, discriminatory. Why are they needed?

I do not myself take the view that investment in what are generally regarded as frivolous activities—coffee bars, petrol stations or cinemas, for instance—is in itself necessarily undesirable. It is very desirable to make coffee bars and the distribution of petrol, when there is petrol, and the showing of films more efficient. I am not against investment of that sort. On the other hand, one must have discriminatory measures, for this reason. There is no doubt at all that one can effectively change the rate of investment only if, at a certain stage when one has the rate of investment going forward in an upsurge, as we hope may be possible in a year or two, and when one has the beginnings of an inflationary situation, one is then prepared to let consumption take the brunt of the burden and not investment.

One can do that and present it to people in a tolerable form only if the investment for which they are being asked to make sacrifices is obviously essential. It is impossible for any Government effectively to ask people to restrict their consumption for frivolous investment. That is the argument in favour of a discriminatory approach to the investment problem.

Mr. Osborne

It depends who wields the power and how wise they are in wielding it.

Mr. Jenkins

The transition from a low to a high investment economy is, I think, a difficult transition for any Government to effect. It is a transition which cannot be carried through entirely painlessly, because one gets the burst of investment only when one is using one's resources very fully anyhow. It is not really possible, even if hon. Members wished such a solution, to make room for investment, for instance, by having a situation in which wage demands were not coming along because there was a pool of unemployment and the trade unions were in a weak position. In that situation, one does not get a strong investment demand coming along either.

Mr. Osborne

Nobody wants that.

Mr. Jenkins

The hon. Gentleman then need take no time in saying so.

Mr. Osborne

Assume it.

Mr. James Griffiths (Llanelly)

The hon. Member need not be so fierce.

Mr. Jenkins

One would get one's investment burst only at a time when there is a strain on resources and when the trade unions are in a strong position. In order to effect this transition, it is, therefore, absolutely essential for any Government to have a working arrangement on economic policy with the trade unions based on something much more real than the little expression of mutual good will which the Minister of Labour gave us this afternoon. One really cannot hope to achieve such a result if the Government consistently, as they have done for several years now, ignore and flout every piece of economic advice given to them by the Trades Union Congress. A change here is something further which must be done to effect this all-important transition from a low investment economy to a high investment economy.

We had only three back bench speakers from the Government side during the debate. One of them—perhaps not the hon. Member for Dover (Mr. Arbuthnot) and perhaps not the hon. Member for Louth (Mr. Osborne), although he is always such a prophet of gloom that one never takes his gloom too seriously, even when it is well justified, as on the present occasion, but certainly the hon. Member for Holland with Boston (Sir H. Butcher)—showed very little realisation of the seriousness of the position with which we are at present confronted. The hon. Member might really have been making his speech saying that it was best to go on with the well-tried methods of the heyday of the Lord Privy Seal, and not at a time when not merely has the Lord Privy Seal's policy collapsed, but when, under the difficulties arising from Suez, the policy of the present Chancellor of the Exchequer is also in a state of collapse.

What have been the economic results so far of the Prime Minister's adventure? The first is that the gold reserve, which was previously far lower than it ought to have been for the healthy economic future of the country, has plunged downwards. Production, which was already a little worse than stagnant—I hope that the Economic Secretary will not deny that, as he was inclined to do during my right hon. Friend's speech, because there is no doubt that production has been falling somewhat since the beginning of August—has been dealt a heavy blow. The balance of payments position, which was previously just all right, although certainly nowhere near the target which the Lord Privy Seal set many years ago and which has never been attained, is certainly worse. The fourth feature is that the jobs of many people are threatened.

What is the prospect? The worst immediate prospect is that sterling will have to be devalued, and at a time when this would be even more than usually disastrous, because there would be no possible advantage to be gained from such a course. I hope and believe that that may have been avoided, but by a comparatively narrow margin. At the best, we shall have borrowed an enormous number of dollars and we shall have missed yet another chance—there will not be many more chances—of making the vitally important step for our economy of getting on to a higher rate of investment. We shall have missed yet another chance and the prospect is that we shall go on, as the Chancellor of the Exchequer put the position in Paris, with the worst rate of investment of any N.A.T.O. country. If that is not the prospect, I should like the Economic Secretary to say how he is going to change the prospect and what he sees for the future of the rate of investment of this country.

Therefore, it is no good, as the hon. Member for Holland with Boston suggested, saying that existing methods and existing economic policies are satisfactory. They were proving themselves hopelessly inadequate even before Suez. They are now liable to be disastrous. I hope that the Economic Secretary, in the absence of the Chancellor, will not merely defend the actions which have been taken, but will put forward positive proposals to tell us how, in the view of the Government, we can face a better prospect than we have any right to do on present assumptions.

9.28 p.m.

The Economic Secretary to the Treasury (Mr. Derek Walker-Smith)

During the last Session, I heard many speeches from the hon. Member for Stechford (Mr. Roy Jenkins) on the subject of the Restrictive Trade Practices Bill and the Copyright Bill, but in those days he was speaking from the back benches. I am not sure whether this is the first time that he has graced the Opposition Front Bench, but whether it is or not I am sure that all my hon. Friends will join me in wishing him a very long and uninterrupted tenure of that Bench.

The hon. Member has been more temperate in his approach than his right hon. Friend the Member for Battersea, North (Mr. Jay), who seemed to be rather infected by the vigour of the previous exchanges which, unfortunately, delayed the start of this economic debate. The right hon. Gentleman attacked on a very wide front and expended a very great deal of ammunition, but it is fair to say that he registered very few hits.

The debate has ranged over a diversity of topics. Both the right hon. Gentleman the Member for Battersea, North and the hon. Member for Stechford dealt at some length with the external position, the state of the gold and dollar reserves, and I think it would be wrong of me to leave unanswered any criticisms which go to this root question, because, as my hon. Friend the Member for Louth (Mr. Osborne), in his characteristically thoughtful and interesting speech, reminded us, The Times leader of this morning said that the basic thing in this debate was the question of the defence of sterling.

Having regard to what the hon. Member for Stechford said in the concluding sentence of his speech, I would recall his attention to what the Chancellor of the Exchequer said on 4th December in categorical terms: First, we will maintain the rate for the £ sterling at its present parity."—[OFFICIAL REPORT, 4th December, 1956; Vol. 561, c. 1053.] It is right that I should reiterate that straight away, in view of some of the observations made.

I do not want in any way to minimise the seriousness of the economic problems with which the country is faced. I think that my hon. Friend the Member for Louth painted the picture in rather too sombre colours; and I shall in a minute or two cite the evidence of an objective witness, whom, I am sure, he will respect, in support of that contention.

The problems with which we are faced are really two. We have a prospective adverse swing in our current balance of payments and an actual adverse swing in our position as a banker. On the second of these matters, at the end of July our gold and dollar reserves stood at 2,405 million dollars. At the end of November they had been reduced to 1,965 million dollars, the adverse trend having set in at the end of July after the seizure of the Canal by Colonel Nasser, and following, I would remind the House, a period of increase in our gold and dollar reserves during the early months of the year.

Faced with that position, we took prompt action to bring into play massive support for the reserves in the shape of the three-pronged approach with which the House is familiar: the drawing on the International Monetary Fund; the application for the waiver of the interest on the United States and Canadian loans, arising out of our feeling that we had satisfied the contractual conditions entitling us to it; and the initiation of a loan in the United States of America.

Those were criticised rather freely by the right hon. Gentleman the Member for Battersea, North. I am coming to the speech of my hon. Friend the Member for Dover (Mr. Arbuthnot) in a moment. If the House views objectively the effects of the policy so far, it will, I think, find it reassuring. So far, only the arrangements with the International Monetary Fund are an accomplished fact: but I am glad to say that since the announcement of the decision of the Fund to grant to the United Kingdom drawings and stand-by facilities totalling 1,300 million dollars there has been a substantial easing of the speculative pressure on sterling.

The success of this policy to date is recorded in the columns of the Economist. The Economist was quoted in another context by the right hon. Gentleman, and it is a fact that members of the Opposition Front Bench draw the more respectable parts of their arguments from its columns. That is perhaps why these quotations are relatively scarce in the content of their speeches. The Economist had this to say about the action which Her Majesty's Government have taken: An article in Business World"— that is one of the column features of the Economist— draws attention to the remarkable speed with which the Treasury has mobilised additional backing for the gold reserves; the departmental expedition that has been displayed both in London and Washington in these last ten days has been one of the great administrative achievements of financial history. I put that evidence against the ill-founded strictures of the right hon. Gentleman the Member for Battersea, North about the measures we have taken.

Mr. Jay

In view of that, could the hon. and learned Member do what the Chancellor of the Exchequer did not—say a word of gratitude to the American authorities?

Mr. Walker-Smith

Certainly, part of the passage that I have read out said … displayed both in London and in Washington …". I am citing evidence which is praising Washington, and, of course, it has been a very quick, effective and helpful exercise. I am very happy to say so, but the right hon. Gentleman did misconceive the position about these actions.

The right hon. Gentleman followed his right hon. Friend the Member for Huyton (Mr. H. Wilson) in error in describing it as a borrowing of 1,300 million dollars. He did that with the less excuse, because I drew the attention of the right hon. Member for Huyton to his mistake a week or so ago and I think that he accepted the correction. A large part of the 1,300 million dollars is simply a stand-by, and not a drawing or borrowing at the present time. The drawing has to be repaid in three years and has the advantage of carrying a very moderate overall interest.

The right hon. Gentleman asked whether I could give a further report on the negotiations for a loan. I can only say that the negotiations are in progress and are continuing as speedily as possible. He will understand that I cannot give a more precise report at this stage, in these circumstances. As my right hon. Friend the Minister of Labour pointed out in opening the debate, what we have done by these measures is to mobilise the reserves, if I may again quote the phraseology of the Economist, and not commit them. It is not in any way a throwing in of the old guard in a desperate effort to avoid defeat. On the contrary, it is a prudent deployment of reserves to consolidate the position and to prepare the way for a renewed and sustained advance.

If the right hon. Gentleman, who seems to seek to disparage the position, does not accept my evidence, I am sure that he will accept the evidence of Mr. Jacobsson, the Chairman and Managing Director of the International Monetary Fund, who is a great deal more objective, more accurate, and more sympathetic to the position than the right hon. Gentleman has shown himself to be. Mr. Jacobsson says this: For this reason, and in view of the special importance of sterling as a worldwide reserve and trading currency, the Fund has approved a transaction of this magnitude. It has done so in the firm belief that the action taken will permit the policies and measures of the United Kingdom to continue to operate and thus effectively contribute to the restoration of the strong balance-of-payments position which had been emerging in the first half of 1956. I will leave the subject of the gold and dollar reserves with the following final comment. The right hon. Gentleman the Member for Battersea, North made criticisms which have been echoed by the hon. Gentleman the Member for Stechford about the gold and dollar reserve position. The right hon. Gentleman was at the Treasury in 1949 when the gold and dollar reserves sank to 1,340 million dollars compared with the 1,965 million dollars which he is now so vigorous in criticising. Right hon. and hon. Gentlemen opposite come into this contest, if they wish to make it a contest, with very dubious battle honours on their standard—the convertibility crisis in 1947, devaluation in 1949, and a balance of payments crisis in 1951. That is the record with which they advanced to the Dispatch Box today to make the criticisms that we have heard.

Mr. Jay

If the hon. and learned Gentleman is trying to take this argument seriously, does it not show that eleven and a half years after the war we ought to be rather better off than we were four, five or six years after it?

Mr. Walker-Smith

I do not know about taking the argument seriously. I came to this debate in the hope that we would have a temperate and objective exchange of views and was sadly disappointed, as no doubt were others of my hon. Friends, at the intemperate note with which the right hon. Gentleman chose to initiate the debate. So far as the relative position is concerned, he cannot have been attending when one of his hon. Friends very fairly pointed to the greater present-day difficulties owing to the resurgence of competition in Germany and Japan.

Mr. Gordon Walker

rose—

Mr. Walker-Smith

I cannot, in the course of an hour, seek to teach the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker) the elements of economics.

Mr. Gordon Walker

I taught the hon. and learned Gentleman at Oxford.

Mr. Walker-Smith

I now come to the question of the dollar imports, which was referred to not only by right hon. and hon. Gentlemen opposite but by my hon. Friend the Member for Dover, to whom I must apologise for missing the pleasure of listening to his speech which I will, as always, study with great interest.

To start with the oil position, it is obvious to the House that the only alternative sources of oil to make up for the shortfall from the Middle East must come from dollar sources, because supplies can only come from the United States and Venezuela. That being so, the House will agree, I think, that we must seek to have more dollars at the present time and in the future in order to get our supplementary quantities of oil.

We are then faced with the question whether we should do what is recommended by some right hon. and hon. Gentlemen, and cut our dollar imports There are strong arguments in general trading principle against seeking action of this kind, because, clearly, it is in our interests, as a country, to foster a high and expanding level of world trade, since that is the only context in which the United Kingdom is likely to be able to prosper.

Exchange and import restrictions lead to a descending spiral of trade. Resort to restrictions on our side would not only be a bad example, but would provoke retaliation, and would also, in our present position, be apt to add to pressures on the £ through confidence factors.

The right hon. Member for Battersea, North rather begged the question by talking about the cutting out of frills, though he must be aware that an objective analysis of these imports does not lead to the conclusion that there is much, if anything, deserving of that description.

Mr. Jay

How about tobacco?

Mr. Walker-Smith

I was about to come to that subject, because it was also raised by my hon. Friend the Member for Dover. I would say that that has no relevance in the context of the immediate temporary, though urgent, situation in which we now find ourselves, because the greater part of the allocation for the current year has already been used. Consequently no revision of policy in this context could, in any case, affect the position until the late summer.

We are told that the 61 per cent. content of American tobacco could properly and beneficially be reduced. It is, I think, a fact that each 1 per cent. is equal to about 1,700,000 dollars. On that, I do not think I can add to what was said the other night by my right hon. Friend the Minister of State, Board of Trade, who pointed out that there was nothing sacrosanct about that proportion. We shall, of course, consider the general situation, but I would repeat to the House that there is no short-term remedy here which is relevant in the immediate context of our present difficulties.

Mr. H. Wilson

Think of the future.

Mr. Walker-Smith

The right hon. Member for Huyton urges me to think of the future. He has apparently abandoned the effort to face the future to which he was so unequal on a previous occasion.

Mr. Wilson

The hon. and learned Gentleman may recall that in every one of the economic crises of the last 18 months, every suggestion that has been made has been rejected on the grounds that it could not operate for more than six or seven months. Had hon. Gentlemen opposite listened to the arguments which we advanced two years ago about import licences, building licences, and so on, we should be in a much stronger position than we are today. Having regard to this fact, might I ask the hon. and learned Gentleman to study what we did in the matter of the long-term contract for Rhodesian tobacco? We did not accept everything that the tobacco companies told us about the impossibility of substituting Rhodesian tobacco for tobacco of the American type.

Mr. Osborne

But right hon. Gentlemen opposite still had crises.

Mr. Walker-Smith

In the ordinary way, when I give way to the right hon. Gentleman I expect a very interesting and valuable contribution. I have been a little disappointed on this occasion. It is, of course, common knowledge that there has been a substantial reduction in the non-dollar percentage of tobacco. That is the situation in that respect in its short-term and longer-term context.

Before I go on to the very interesting part of the speech of the right hon. Member for Battersea, North about investment and production—I certainly want to deal with that—I should like to say a few words about the motor industry. That has, of course, loomed fairly large in the debate. I intended to make some comments on the speech of the hon. Member for Coventry, North (Mr. Edelman), who made some suggestions, but as he has not returned to the House I think that I can do that on some other occasion.

With regard to the generality of the position of the motor industry, my right hon. Friend announced the relaxation of the hire-purchase restriction from 50 per cent. to 20 per cent. The right hon. Member for Battersea, North asked why we did not do the same for furniture. The very simple answer to that is that furniture already has a 20 per cent. deposit on hire purchase.

Mr. Jay

The Economic Secretary knows quite well that that is not what we meant. What we meant was that he should relax the special restrictions on hire purchase, which is what counts in the furniture industry.

Mr. Walker-Smith

I will be careful in future about paying the right hon. Gentleman the compliment of assuming that he means what he says.

My right hon. Friend the Minister of Labour quite correctly said that the position of the motor car industry in recent months was that a higher percentage of overall production had gone to export, although that was an actual drop in figures. He made it quite clear that he did not say that in any spirit of complacency or self-congratulation. However, it is right to recall a figure which I gave to the House on 12th March, 1956, to get the matter into perspective.

In the years 1953 to 1955 production of passenger cars expanded by 303,000 and 80 per cent, of that expansion went on the home market. So though it is right that we should take this measure to assist the motor car industry, it is in the hope that it is in the export markets that it will be ready to make its greatest effort.

The right hon. Member for Battersea, North made some observations about exports as a whole. I remind the House that this year, to date, our exports have increased by 10½ per cent. in value and our imports only by less than 1 per cent. Our visible monthly average trade deficit is only £48 million against a corresponding figure of £72 million last year.

Production and investment loomed large in the speeches of various hon. Members, especially the hon. Member for Stechford. It is really not right, on the evidence of isolated months or weeks, to say that industrial production is stagnating. Taking the position of the year as a whole, the trend has shown an increase of 1 per cent., compared with last year, in industrial production. Of course, that is not a lot, looked at like that, but it is a gross over-simplification to look at the matter simply as if all production were to be equated in similar terms in the interests of the national economy. In fact, that figure conceals an appreciable movement of production in the desired direction.

Capital goods production has gone up and production of consumer goods has gone down, which is precisely what I understand the hon. Member for Stechford was contending for. Passenger cars are down by 18 per cent.—consumer goods; T.V. sets are down by 20 per cent.—consumer goods; radio sets are down by 17 per cent—consumer goods; but steel is up by 4½ per cent. and plant and machinery are up. The capital goods are up and the consumer goods down.

Now to the question of investment—

Mr. Jay

rose—

Mr. Walker-Smith

I have frequently given way. I want to deal with the issues which the right hon. Member and his hon. Friend so interestingly made and I think the House would wish me to deal with what they said about investment.

The right hon. Member rightly said that we want to increase our investment and become a high investment country and I am sure that he has in mind the difficulties which a heavy defence burden expenditure has imposed on the country in this context. The fact is that fixed investment at home, in 1955, equalled £2,865 million, 17 per cent. of our gross national product. If right hon. and hon. Members opposite want comparisons, that is 31 per cent. over 1950, when right hon. Gentlemen opposite were in office.

Following on the 1950 position, capital investment remained fairly static in 1951 and 1952. Why? Because of two legacies inherited from the Labour Administration—the rearmament legacy, on which the right hon. Member for Huyton split from his right hon. and hon. Friends, and the balance of payments crisis, which united them all in an attitude of retreat. Those two things kept capital investment static over those two years, but afterwards it resumed its forward advance. Initial allowances, suspended by the Finance Act, 1951, of a Labour Chancellor of the Exchequer, were restored in 1953. Investment allowances, never introduced by a Labour Government, were introduced, albeit only temporarily, for most industries in 1954.

Right hon. and hon. Members opposite sought to chide me on a previous occasion, and again tonight, for not answering their question with a monosyllable, "up" or "down". It seems a little unreasonable to expect somebody with nearly a quarter-of-a-century's experience in the courts to be so readily impaled on the horns of this elementary dilemma. It is precisely like asking, "Have you stopped beating your wife?" I answered the question and I will answer it again in terms of which the hon. Member for Stechford, from the tenor of his speech, should approve: we wish to advance capital investment in industry, but we wish to advance it in a discriminating way and in those sectors which favour the country's balance of payments position.

Investment in the manufacturing sector is of prime importance for the expansion of exports and also for the future maintenance of a high level of investment. That is the type of investment which we wish primarily to see, and that was the point of my answer in the House.

I can tell the House that capital investment in the manufacturing sector is, in fact, rising. As to 1956, the Board of Trade inquiry shows that capital expenditure by the manufacturing industry in the first half of this year as against the first half of last year shows an increase of 26 per cent. It is certain that the manufacturers' share of total investment will again increase.

Our debate started late, but a great number of very interesting questions have arisen and I have done my best, within the limits of time, to deal faithfully and fairly with them. The debate has necessarily been focussed on the immediate situation on which so much of our present effort and attention is necessarily directed, but, though the difficulties which have been brought forward are real enough, they are not insurmountable and they should be seen in the context of past achievement and future potential.

I agree with the hon. Member for Stechford that complacency would obviously be very wrong in this context, but I believe that a solid and sober confidence is both seemly and appropriate. I believe that the traditional skill and ingenuity of the British people will get us over the hill of our present difficulties and that, on the far side, the pace of our forward movement will be soon and successfully resumed.

I beg to ask leave to withdraw the Motion.

Motion, by leave, withdrawn.