BUDGET PROPOSALS AND ECONOMIC SITUATION

HC Deb 17 April 1958 vol 586 cc360-493

3.39 p.m.

The Paymaster-General (Mr. Reginald Maudling)

The speech which the right hon. Member for Huyton (Mr. H. Wilson) made yesterday was more than usually interesting, because it did not quite follow its normal pattern. It included the usual quips—which we all enjoy in one degree or another—about the Government and various other people and, as usual, he paraded all the more highly-coloured demons of Socialist mythology before us; but at the end of his speech there was one passage of a quality which is normally described as statesmanlike. I do not quite know the reason for this. It may be that a rather too optimistic view of political prospects meant, in his mind, that coming events cast their shadows before. Certainly, the "shadow" Chancellor was a little more shadowy than usual on this occasion.

The statement that the right hon. Gentleman made, which is of very great importance, was that The strength of our currency must be our first and primary consideration. Whatever Government are in power, the strength of sterling and all that depends on it must take priority over all other considerations."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 187.] That, I think, is a most important declaration which I am sure that this Committee and the country will welcome. We accept fully that that is the policy of the right hon. Gentleman and his hon. Friends and colleagues. But I think it only fair to point out that the policies which he himself advocates, and which the party opposite advocate, are at times very difficult to reconcile with a policy of putting the strength of sterling first. I will return to that at a later stage in what I have to say.

The right hon. Gentleman produced the usual European "League table" with which we are very familiar; and, certainly, he can establish quite an argument on that about the performance of the United Kingdom. But if the right hon. Gentleman analyses these figures, he will find that they do not support his argument in the slightest degree. Two of the foremost countries in the development of industrial production have been Germany and France. Germany is not noted for having a Socialist economy. In fact, the normal criticism made by right hon. Gentlemen opposite is not that the Germans are too inflationary, but that they are too restrictive.

As for the development of production in France, I think it would be difficult to reconcile the performance of the French franc with the very important remarks of the right hon. Gentleman about the necessity to maintain sterling. Therefore, I do not think that either Germany or France, who are the main examples of expanding production in Western Europe, assist the case either for industrial controls or for the importance of putting the strength of sterling first.

Then the right hon. Gentleman made his usual remarks about Lord Cohen and his Council. I have come to the conclusion that the only tribunal which would command the respect of the right hon. Gentleman would be one consisting of the right hon. Member for Huyton, the "shadow" Chancellor and himself. That alone, I think, would carry any weight with the right hon. Gentleman. For the rest of us, as I have said before, the fact that right hon. Gentlemen opposite may not accept some of the findings of the Council is not evidence of any partiality in its conclusions.

The right hon. Gentleman made his usual play with the importance of tax avoidance. I think that he is really overdoing this a bit too much. It is true that there is a good deal of tax avoidance in this country, but to pretend that it is a major factor in our revenue is nonsense. It is also nonsense to pretend that tax avoidance is confined to a certain class of the community. It certainly is not. A good deal of casual week-end work gets done and not much Income Tax is paid on it. But if the right hon. Gentleman had his way and brought that particular form of activity under charge to tax I think that he would be reducing the productivity of the people concerned quite a bit; and I hope that he will bear that in mind when he tries to pretend, as he sometimes does, that the element of tax avoidance to which he refers makes a major difference to the budgetary situation.

I thought that the right hon. Gentleman dismissed the Budget proposals rather airily. He claimed that they were of small character. The real reason why he dismissed them was because he could not find any reason for which to criticise them, except one in the case of the Profits Tax, to which I will come in a moment. It is clear that the Opposition have no criticism to offer whatever of the Budget proposals of my right hon. Friend, save on the single point about the unification of Profits Tax.

On the question of Profits Tax, the reform that my right hon. Friend has introduced was recommended by the Royal Commission on Taxation and has the general support of industry as a whole. We are convinced that it will be of considerable benefit to industry because it will remove many distortions in company finance—[HON. MEMBERS: "Industry likes it."] Hon. Members opposite say that industry likes it. Why is this condemnation of a tax reform? Hon. Members opposite should not carry their prejudices against capitalists to quite that extent. I should have thought the fact that industry as a whole welcomed a particular tax reform indicated that it was a help to industry. That, surely, is something which we all desire.

This reform will remove many distortions in company finance which have arisen. There has been a tendency to excessive raising of loan rather than equity capital coupled with the problem of a contingent liability on the distribution charge which gives rise to some problems with companies, and the administration problems that arise from differential tax rates are considerable. For all those reasons my right hon. Friend thought that the time had come to accept the recommendation of the majority of the Royal Commission and abolish the differential in the Profits Tax rates. We believe that in the light of recent experience the effect on the distribution of dividends will be quite different from what right hon. and hon. Gentlemen opposite try to argue.

That was the only criticism which the right hon. Member for Huyton had to make about the Budget proposals. But he did, quite properly, himself produce some alternative suggestions which I find exceedingly interesting and which I should like to analyse, because I think them important. The right hon. Gentleman said that the party opposite would introduce investment allowances to assist industry. That is very laudable if it can be done, but it would cost a great deal of revenue. Then the right hon. Gentleman said that his party would suggest a further reduction in Purchase Tax. That would cost a good deal more.

But I think that the most interesting statement he made was when he said, in effect, that the party opposite intended to have an overall Budget surplus. He observed: … we shall need to maintain an effective Budget surplus of public saving to finance essential investment. Before 1951 we had such a surplus, big enough to finance the massive development of the public sector and to spill over into the private sector."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 185.] If that means anything—and, of course, it must mean something, coming from the right hon. Gentleman—it means, in addition to having an overall Budget surplus, covering below the line expenditure out of above the line surplus. It can mean nothing else.

If we look at the details of the below the line expenditure, there are two big items, loans to local authorities and the provision of finance for the nationalised industries. In both cases hon. Members opposite have made clear that they think we have reduced those figures to too low a level and that when they come to power—I should say if and when they come to power—it will clearly be the policy of hon. Members opposite—I am pointing out the consequences of that deplorable event—to increase the amount of the payments below the line; and, therefore, the below the line deficit will be greater. In fact, there can be no doubt, from what the right hon. Gentleman said, that the above the line surplus will have to be several hundreds of millions of pounds greater than at present. That, as I understand it, is the official statement of the Opposition policy.

This is very important. I think the country should know that that would be the policy of hon. Members opposite, to have an above the line surplus hundreds of millions of pounds greater than what my right hon. Friend is now budgeting for; because that must mean—it cannot mean anything else—a substantial increase in taxation—[HON. MEMBERS: "No."] It must, We ought to know the sort of things on which taxation would be increased. We had a very interesting personal suggestion from the "elder statesman", as he called himself—he is not present today; the right hon. Member for Bishop Auckland (Mr. Dalton)—that the tax on tobacco should be substantially increased. Perhaps the right hon. Member for Huyton shares that view.

Mr. Harold Wilson (Huyton)

I smoke rather more than my right hon. Friend and I am bound to say, therefore, that I do not share his view. Before the Paymaster-General goes further into this flight of fancy, will he not recognise that the means of financing a Budget surplus of the kind that I have indicated will be necessary is, of course, a direct function of the fact that we shall go in for a policy of full employment and full production, with the much higher revenue which will result from it?

Mr. Maudling

We have had plenty of experience of the effect on the Budget of inflationary finance. I did not think that the right hon. Gentleman was going to advocate a return to a system whereby we had inflationary increases in tax revenues financing increases in Government expenditure.

If we look at the real position, we can only get a large increase in savings through the Budget if we take more out of the pockets of the people to represent those savings. I hope that the right hon. Gentleman will not pretend that this money can all be obtained from the idle rich and from the tax dodgers to whom he often refers. It is a consistent Socialist argument that we should finance public investment out of surplus current account, but there is no escaping the logic that if that policy is adopted it means a higher revenue surplus, which means higher taxation.

Mr. Wilson

I do not agree.

Maudling

The right hon. Gentleman may not agree, but I think that he will find it difficult to deny.

Mr. Douglas Jay (Battersea, North)

Does not the right hon. Gentleman agree that this larger expenditure will be covered, if there is not a stagnant economy, by the revenue, which will be at least £500 million at the existing rate of tax?

Mr. Maudling

I am coming to the question of stagnation now, because that was the most important criticism of the right hon. Member for Huyton. I want to analyse the argument and try to answer it. Let us look at what has been happening in the last two years, both to the internal economy and to our external position.

Although the right hon. Gentleman may talk of stagnation, a very great deal of strength to the economy has resulted from what has taken place both internally and externally in the last two years. It is true that the gross domestic product was up by only 1½ per cent. last year, and that we should all like to see that figure increased; but within that increase of production the major share went to investment, both fixed investment and investment of stocks, while the amount taken by public authorities generally in current expenditure fell substantially.

Surely that is exactly what we want to see, a higher proportion of our output going to investment and a lower proportion being taken up by the Government and other public authorities. The right hon. Gentleman and his hon. Friends often talk about investment as if it were stagnating. That is utter rubbish, when investment is running at record level. It was, in 1957, in real terms, 41 per cent. above what it was in 1951, and there has been a special expansion recently in investment in plant and machinery. That adds very greatly to the strength of our economy.

I turn to the external position. The right hon. Gentleman talks a great deal about reserves, but he well knows that the important element externally is our capital position as a whole. Our great problem, as he recognises, has been short-term debts left over from the war which, of course, we have to honour. They are described as sterling balances and are often regarded as short-term liabilities. I think sometimes that their short-term nature is exaggerated: they include a large proportion of pension funds, currency reserves and development funds which would not, of course, be withdrawn at short notice. But they remain a big problem. The ratio of our short-term liabilities to our reserves is much too high for complacency.

There are only two ways to improve that position. One is by earning a current surplus and applying it to the reduction of liabilities, and the other is by funding. Both those processes have been going on over the last few years. The figures for the last two years are not fully reliable because, as the White Paper pointed out, there are very large errors and omissions in the 1957 figures. Therefore, the figures are very much on the pessimistic side.

The fact is that in the last two years we have earned substantial surpluses on our current trading account and they have covered all our long-term investments and have added something to meet our short-term liabilities. There has been a substantial funding of our short-term liabilities, a reduction of our short-term liabilities set against rather longer or medium-term liabilities. Also, those sterling balances which are held outside the rest of the sterling area have shown a very substantial reduction. In all these ways there has been a very substantial but real strengthening of our economic position at home and overseas.

The question is why, in this case, can we not encourage more economic expansion? That question the Opposition fairly, squarely and rightly put to the Government. I will try to answer it. My right hon. Friend the President of the Board of Trade put the case in his speech yesterday afternoon, but I hope I may be allowed to put it again, because it is such an important matter.

It must be the wish of the Government to see a resumption of economic expansion. That is so clear that it hardly needs restating. The purpose of economic policy must be to expand production, so long as production is efficient and at proper cost. No one would reasonably support expansion regardless of cost. Both the Leader of the Opposition and the right hon. Member for Huyton, in more than one speech, have made it clear that they regard the strength of our currency and the importance of avoiding a return to inflation as of paramount importance. Therefore, they would agree that we cannot have a return to a more rapidly expanding economy if it is to be at the cost of inflation and of our balance of payments.

Several hon. Members who spoke yesterday, including my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) and the hon. Member for Orkney and Shetland (Mr. Grimond), Leader of the Liberal Party, asked why it was not possible to have stability and expansion. That is the great question, of course, facing all the free economies in the Western world. There have been periods when we have had it. Between 1952 and 1955 there was a substantial improvement in our balance of payments position coincident with a substantial increase in industrial production, but that followed a period of restriction which the Chancellor of the Exchequer had to introduce to deal with a balance of payments problem left to us by the Opposition when they went out of office in 1951. [Laughter.] The right hon. Member for Ebbw Vale (Mr. Bevan) may laugh, but it is not entirely a laughing matter. The party opposite did bequeath to us the most acute balance of payments problem since the war.

Mr. Roy Jenkins (Birmingham, Stechford)

Can the right hon. Gentleman tell us why, if the 1951 position was the most severe post-war balance of payments crisis, the Lord Privy Seal needed only a year of restraint to escape from it, whereas we have now had three years of stagnation and we show no sign of escaping?

Mr. Maudling

It is perfectly simple to explain that. The position of Europe and of the world was at that time expanding, and a sharp restriction of credit in this country very rapidly put right the very serious position facing us in 1951. The world situation in 1957–58 has been very different from that of 1951–52.

Experience has shown that it is impossible to run any economy flat out all the time without running into inflation and balance of payments difficulties. That is our experience in this country and, broadly speaking, it is the experience since the war in all the Western economies. It is a particularly acute problem for this country, by reason of our position as international traders and bankers. A comparatively small increase in prices is a more serious thing for us than for other countries. Our position depends upon confidence at home and abroad in the maintenance of our currency. Therefore, maintaining confidence in the continuing value of our currency is of supreme importance.

In 1955, for example, the excess pull of the home market affected the balance of payments. In 1957, though we had a useful surplus on current account, once again we had a crisis of reserves because our position as bankers was affected by the feeling of other countries that we were not fully determined to maintain the internal value of our currency. The fact is that through all these balance of payments crises that we have had since the war the one continuing fact has been inflation and rising prices in this country and the continuing lack of confidence, or tendency to lack of confidence, by overseas countries in the purchasing power of our money.

I will not enter into the question of whether it was a cost-push or a demand-pull inflation. That seems a slightly academic argument, because it is not always possible to disentangle the one from the other. They are undoubtedly interlinked. The one remaining source of inflation in the country is that which arises from the growth of personal incomes. In 1957, incomes rose faster than output and contributed about two-thirds of the general increase in the level of prices.

We know now that import prices have been falling. We know now that the Government expenditure as a percentage of the national product has been falling and, as is generally argued, a great deal, if not all, of the credit inflation has been squeezed out of the economy. Therefore, the only remaining pressure or influence working in the direction of inflation is the influence exerted by personal incomes, wages, salaries and dividends, rising faster than output. The Government still hold to the argument that so long as the pressure of rising incomes is greater than the increase of production there is a continuing danger of inflation, which would grow very rapidly if we were to relax prematurely in our monetary and fiscal policies.

The argument made by the right hon. Member is that if the trouble is the relation between production and incomes, instead of trying to hold down incomes we should increase production. I should like to deal with that, because it is an attractive argument and one which all of us would, I think, in principle accept. I am sure that my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) would accept that view, and all of us would. If we could treat the problem by increasing production rather than by restraining incomes, that would be to the general benefit.

But it is not so easy as that. As the Leader of the Opposition said, in July, 1957: I do not think that increased production is necessarily a cure for inflation. If it is due to increased productivity, it helps enormously, of course. But, if it is simply due to the re-expansion of industry after a period of stagnation, it is then certainly not a cure for inflation, unless, first, we have no trouble about our balance of payments, and we do not got what the Chancellor has warned us about, namely, a situation where, as production expands, imports increase and exports do not rise correspondingly, so that we are back again with a balance of payments crisis."—[OFFICIAL REPORT, 25th July, 1957; Vol. 574, c. 713–4.] That statement seemed to me a classic statement of the argument for the policy we are pursuing at present. If we have more production, as my right hon. Friend pointed out yesterday, that inevitably means a substantial increase in imports. In present conditions of world markets, where exporting is getting increasingly difficult, to increase imports substantially without increasing exports must throw a new strain on balance of payments.

We consider as a condition of combining expansion with stability, as my hon. Friend the Member for Wolverhampton, South-West mentioned yesterday, we must ensure a national attitude to the problem of income from all sources which recognises that increases in income must be earned first by increased production and increased productivity. If the increase of incomes precedes increase of production the effect can only be inflationary and can only lead to a return to the problem of inflation and balance of payments. That is one of the conditions which must reflect any attempt to re-expand the economy at present.

The other problem is the problem of world trade as a whole. I think that the right hon. Member for Huyton, in an article in the Manchester Guardian some months ago, referred to the dangers of us becoming an island of inflation in a world of deflation.

Mr. H. Wilson

This has been quoted a number of times by the Prime Minister and others, so I had better correct it. The phrase was "an island of rising prices in a world of deflation." There is a slight difference between the two. When the right hon. Gentleman refers to incomes, does he mean all incomes, including dividends and rents?

Mr. Maudling

I used the phrase specifically, "incomes from all sources". The same principles must be applied to all incomes when we are talking about restraint in incomes, dividends, salaries and wages.

Mr. John Diamond (Gloucester)

I did not follow that. Will the right hon. Gentleman say what he meant when he said that the income must be earned before an increase takes place? How can one earn unearned income?

Mr. Maudling

This is a statement of the general position. If the production of the country does not increase and incomes increase, we get inflation. In other words, if incomes as a whole are increased, there must be an increase in production. That is a simple statement, perhaps too simple in some ways.

I accept the correction made by the right hon. Member for Huyton, who said that the phrase was "an island of rising prices in a world of deflation," because that is making exactly the point I was trying to make. It is all very well to say, as some hon. Members opposite say, that we should stand nobly, like Horatius on the bridge, against the danger of world deflation, but, if this country tries to solve world problems by putting up its prices when world prices are going down we shall end in a position in which the concern of the right hon. Member for sterling will be a very serious matter indeed.

I turn to the possibility of deflation in the world and what we can do about it, a matter to which the right hon. Member rightly referred. I think that it is generally recognised that shortage of liquid reserves available in the world is a considerable problem and may give rise to acute difficulties for certain countries and for the whole level of world trade, particularly if the recession in the United States should continue and deepen. In these matters the countries which have most influence are the United States, Germany and the United Kingdom.

I have no doubt at all that the United States is very well aware of the importance for the whole of the rest of the world of maintaining the level of its own economy. It is very interesting to see how the level of United States trade with the rest of the world has been maintained, despite its own recession. In fact, I think it is now once again putting out dollars to the rest of the world instead of drawing in dollars, as it was doing last year. I have no doubt it is well aware of the importance of avoiding a deflationary move spreading across the world as a result of its own internal difficulties.

Then there is the question of Germany. In recent years the accumulation of reserves to Germany has been very much greater than the total world output of monetary gold and that has exercised a very considerable deflationary effect on the world position. Germany has been making very considerable efforts recently to meet the situation by putting up funds in one way or another. Her Majesty's Government consider it is of great importance that this process should be continued and, if possible, accelerated. I can assure the right hon. Member and the Committee that we take every conceivable opportunity of representing to the German Government the great importance of their ensuring that by their policy and their accumulation of reserves and maintenance of a surplus they do not contribute to a general spread of deflation throughout the world.

One of the great sources of liquidity at present is the sterling system itself. In the course of this year undoubtedly the sterling balances of our overseas territories, the Commonwealth and Colonies, will be run down very considerably. That will help them very much indeed to maintain, in the face of falling commodity prices, a level of trade and imports, particularly from us, which otherwise would have to be severely curtailed. By maintaining the sterling area system we make a major contribution to the problem of world liquidity.

It is, however, important to stress that there is some limitation to this. Although, by accepting the factor of running down sterling balances, we are providing our friends in the Commonwealth with an opportunity to buy more imports, we cannot assume that all those imports will come from this country. By enabling them to maintain a level of liquidity, we throw a strain on the sterling area as a whole. It is important that it should be possible in current circumstances for the United Kingdom to have, as we shall have this year, a substantial current surplus to assist the Commonwealth as a whole by the running down of sterling balances.

In addition, as the Committee will be well aware, we are resuming expansion, or promoting expansion, in certain areas where that might be possible without damaging the reserves position and without danger of a return to inflation. That particularly refers to the suggestions made for an increase in export credits and the provision of funds from the Treasury for sound projects in areas where there is a substantial under-use of resources at present. To resume a general expansion, which is what the right hon. Members opposite say we should do, cannot, in our opinion, be a sound policy until we are sure—as we cannot yet be sure—that a resumption of general expansion would not be followed by a return to inflation and by further balance of payments difficulties.

I suggest to the right hon. Member that if he really bases his policy on his statement of yesterday that the strength of sterling must take priority over all other considerations, he will be driven inevitably to the conclusion that a general resumption of industrial expansion and a general slackening of Government restrictions on our monetary system at present would be unwise, and indeed, might even be fatal.

There is one argument which the Opposition tend to make with which I should like to deal in conclusion. It is that we can solve the problem by a system of controls. This is the only suggestion from them; I have seen no other suggestion from the Opposition as to how one can avoid this difficulty of expanding so fast as to cause inflation and balance of payments difficulties. They say that it can be dealt with by a system of controls, and I want to examine what controls they mean and what effect they could possibly have. I think that the answer is that they could have no possible effect whatever.

Do the Opposition mean import controls? That is not a remedy for inflation, as they themselves have recognised. The Leader of the Opposition has said that more than once. It is no remedy for the balance of payments situation because it will lead to retaliation.

Moreover, as we are importers mainly of foodstuffs and raw materials, any substantial import cuts must lead to the rationing and allocation of foodstuffs and raw materials.

When taxed yesterday by my right hon. Friend the President of the Board of Trade, the right hon. Member for Huyton made an extraordinary statement. He said: The right hon. Gentleman is misrepresenting what I said. That is a very usual gambit, although it is one which we all recognise as involved. He continued: All we have said about controls is about differential import controls of American imports, which, in any case, is the policy of the present Government. I said nothing this afternoon about prices."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 190.] That is what the right hon. Gentleman said in an intervention. It would be their policy to increase discrimination against American imports. That is clearly the right hon. Gentleman's policy. Let us see what that means.

The American imports which are now freely admitted into this country are by and large basic foodstuffs and raw materials, and people will buy them from America rather than from Australia or elsewhere because they are cheaper. If we return to a discrimination against American imports of foods and raw materials, we shall be forcing our people to pay higher prices for food and raw materials, which is a strange way of dealing with inflation.

Mr. H. Wilson

I can give two examples of what we did. Instead of importing American carbon black, we had it manufactured in this country, which saved American imports. Instead of buying large quantities of American sulphur, we set up the most modern plant in the world to produce sulphuric acid from native anhydride, which was saving American dollars by building up investment in this country.

Mr. Maudling

The right hon. Gentle man knows that that has nothing whatever to do with the differential controls on American imports—nothing whatever. That is stimulation of home production, for which his main policy, as far as I can see, is to impose many more controls on home investment. If we discriminate more against imports of American food, stuffs and raw materials we should clearly and without doubt be driving people to buy things in a market where prices are higher. Let us face it.

It would also be entirely contrary to all our international obligations, which the Opposition have accepted. We are bound to maintain discrimination in these matters only when justified by balance of payments reasons, and we have been dismantling progressively discrimination against dollar goods as the balance of payments situation has improved. It must be borne in mind by right hon. Gentlemen opposite that America has become one of our most important markets, and at present we have a current surplus with America and not a current deficit.

Mr. Jay

What about Canada?

Mr. Maudling

We have a deficit with Canada. Does the right hon. Gentleman wish to discriminate against Canadian imports? That is the only case he can make in the International Fund at present.

Sir Robert Boothby (Aberdeenshire, East)

If my right hon. Friend carries this policy to its logical conclusion, it means the complete abandonment of Imperial Preference of any kind and of any concessions to our Commonwealth or Dominions.

Mr. Maudling

I am glad that my hon. Friend asked that. In fact, it means nothing of the sort. I am talking entirely about quantitative restrictions and import controls, which is quite a different matter from the preferential tariff system which, as my right hon. Friend made clear yesterday, the Government have every intention of retaining. I am talking about quantitative import controls and I am saying that what the right hon. Member for Huyton suggests would be completely contrary to our international obligations. Moreover, it would be of no economic value. There persists a strange idea on the benches opposite that if we do not have to pay dollars for something, we do not have to pay for it at all.

Here I come to the point raised yesterday by the hon. Member for Stechford (Mr. Roy Jenkins), who made a rather strange statement about the merchanting of commodities and the support of the transferable market costing us £150 million to £200 million a year. This was a very strange statement. Dealing, first, with operations in the transferable market, the operations of the exchange authorities are never made public and the hon. Member has no reason to assume that operations in the transferable market are costing us gold and dollars. As for merchanting, what happens is that we buy goods from America, a dollar area, and sell them to Europe at a profit, and we get payment from Europe as to 75 per cent. at least, and probably more, immediately in gold and the rest in gold at short intervals afterwards.

To talk about a loss is ridiculous. If we stopped this transaction, we should not gain any gold or dollars and we should certainly lose a lot of profitable transactions. Once again, this is an example of Socialist mythology in matters of exchange control where they are singularly out of date for present-day conditions.

Mr. Roy Jenkins

How large a share of the items I mentioned is accounted for by commodity purchases and how large a share by the support of the transferable sterling rate?

Mr. Maudling

What I said was that we never disclose the operations of the Exchange Equalisation Account. I am saying this deliberately and with some care: the hon. Member should not assume that support of the transferable market is costing us, or has cost us, large sums in gold and dollars. I cannot go beyond that, because he knows well that these operations cannot be made public.

On the merchanting side, I want to make it clear that to talk about losing gold and dollars is nonsense. In fact, in any transaction in which the gold and dollar balance in the long run, or relatively short term, is not different and where large profits accrue to our exporters and re-exporters, to talk about losing £150 million or £200 million is absolute nonsense.

I will come to the question of exchange controls. It is important to know where the Opposition stand in this matter, particularly in the light of what the right hon. Gentleman said. The fact is that we cannot force foreigners to hold sterling. That seems to me to be a fundamental fact. People will hold sterling because it is an immensely useable and valuable currency. They will go on holding it as long as they think it will maintain its value. But we cannot force them to keep it.

It has been and remains the policy of the Government to work towards the convertibility of sterling. That was the policy accepted in the International Fund Agreement, which was accepted by the Commonwealth Conference in 1952 and which has been explicitly accepted, I understand, by right hon. Gentlemen opposite. They have said, as we have said, that, of course, we must time our advance towards convertibility in the light of the difficulties and problems arising, but I think that it is most important that we should be sure, in the light of what the right hon. Gentleman said, that it is still the Opposition's view that we should aim at the convertibility of sterling as an objective of policy.

In these matters one cannot stand still; either one must advance towards convertibility or one finds oneself being driven backwards to the sort of bilateral currency system which we had in the years immediately after the war—and nothing could do more harm to our international commercial activities or to international trade as a whole than to return to that bilateral restrictive system.

It is not merely a question of the earnings of the City of London, although they are extremely important. It is a matter of the usability of sterling in world trade. I think the right hon. Gentleman himself yesterday, if I remember correctly, pointed to the great importance of sterling as an international medium of exchange. If we restrict the usability of sterling we definitely restrict the facilities of world trade, and for this country more than any other great country restriction on the facilities of world trade is a restriction of our ability to earn our way in the world. It is, therefore, important that the right hon. Gentleman, who spoke so wisely and clearly about sterling yesterday, should make it clear, and that his party should make it clear, that we all intend to pursue a policy which will strengthen sterling to the degree necessary for its convertibility as the most important international currency.

I come now to one other form of control, investment control, which is the only other form of control to which the right hon. Gentleman referred. How can investment controls possibly help to contain or restrain inflation? In so far as they are controls on the raising of capital, we still have them through the Capital Issues Committee. Although I think that the hon. Member for Orkney and Shetland, the Leader of the Liberal Party, thinks that we are a little illogical in that, I am not sure that we are.

Mr. J. Grimond (Orkney and Shetland)

The right hon. Gentleman will, of course, agree that it is a physical control. It can be nothing else. It may be good or bad, but it is a physical control of the Socialist sort.

Mr. Maudling

What is a physical control and what is not is sometimes a metaphysical question. The fact is that we are operating a control on the raising of money. We have always maintained that there is a distinction between controls which operate on the borrowing of money and controls which say what people shall do with their own money when they have it. I would think that a physical control is one which says what I shall or shall not do with £5 in my pocket, whereas a monetary control says that I may not borrow £5 from my banker.

Of course, my right hon. Friend has introduced an extension of the initial allowances designed to encourage more fixed investment in 1959, but that is not really a conclusive argument for the abandonment of any control over the raising of money for all purposes at the present moment. With respect, I do not think that the argument of the hon. Member for Orkney and Shetland is conclusive. The only other investment controls which could be introduced would be those over plant and machinery and buildings. I do not think that the party opposite would seriously think of putting controls on the installation of plant and machinery.

Turning to buildings, an old favourite of the right hon. Member for Huyton, the greater part of building expenditure is on maintenance. The next large item is factory building, and it is very difficult for a Government, even a Socialist Government, to tell industrialists what factories are wasteful and what are not. The best we can do is to make it expensive and difficult for them to raise the money to earn the profits to finance the factories.

Does the right hon. Gentleman the Member for Huyton really arrogate to himself the right to declare, among the many branches of our export trade, what is essential and what is not? Really, I think that, even for the right hon. Gentleman, that is an extraordinary view to hold. It is, indeed, absolute nonsense. Our export trade is made up of a very large number of big items and an immense number of small items, some of them of a highly luxurious character. To think that one can decide in detail what factory is essential and what is not essential is to depart somewhat from what is practically possible in our sort of Western economy.

Mr. Hugh Gaitskell (Leeds, South)

Will the right hon. Gentleman then explain the Government's new policy for the Development Areas, under which, apparently, certain developments are to be allowed and encouraged there but others are not to be encouraged?

Mr. Maudling

If I may say so, I think that the right hon. Gentleman is, for once, slightly off the beam. It is perfectly clear that our policy is that, where there are unused resources, that is, where there is substantial local unemployment, the Government will give assistance to sound projects. [HON. MEMBERS: "Sound?"] A sound project is one which will produce a useful economic return. [HON. MEMBERS: "There we are."] But we may well find that some of the projects we shall be supporting will certainly be sound, because they will earn a profit but will not be essential within the Opposition's definition and, therefore, could not be supported on those grounds. If it is the view of the Opposition that one can in detail decide what factories are essential and what are inessential, our prospects for encouraging investment in this country in the next few years, if they should ever be the Government, are very small indeed.

Mr. Gaitskell

Does the right hon. Gentleman not appreciate that the essential point about the Government's new policy is that the decision shall be made not by the person who is to build the factory but by the gentleman in Whitehall or the bank manager?

Mr. Maudling

The position is that the Government will help sound projects if they are in certain particular areas, which is quite a different thing. If the right hon. Gentleman cannot appreciate the distinction, then he is below his usual form.

I have been dealing with various forms of control. The only other form of control which could be introduced, I think, is price control, and the right hon. Member for Huyton himself specifically excluded that in his speech yesterday. It appears, therefore, from the analysis I have made, that there can be no way whatever in which the system of physical controls could restrain inflation or could solve our balance of payments problems if we were foolish enough to resume economic expansion at a pace which could not be supported without a return to inflation and a return to a balance of payments problem.

We wish to speed up and resume expansion, but the conditions for doing so are that it should not lead to a return to inflation and it should not lead to another balance of payments crisis. I have endeavoured to show that a system of controls would be no answer whatever to the problem that the country now faces. The only answer, I suggest, is the one upon which the Government rest, that we confine expansion at the moment to particular sectors, such as export credits and the particularly difficult areas, where expansion can be encouraged without danger of inflation or danger to our balance of payments.

As soon as it is possible to resume a greater rate of general expansion, it will be the desire of the Government to do so. But it is quite insupportable for the Opposition to pretend that it is possible now to resume rapidly a rate of economic expansion, a general reduction of taxation and a general removal of restrictions without entirely going against the principle of the right hon. Member for Huyton himself, that we must put the strength of sterling first and foremost. I again welcome what the right hon. Gentleman said about the importance of sterling and giving its strength priority over all other considerations. I will conclude by repeating that however sincere he is in that, it is a fact that the policies advocated by him and his colleagues would have precisely the opposite effect.

4.26 p.m.

Mr. Gordon Walker (Smethwick)

I want to take up straight away the rather extraordinary contradiction at the end of the Paymaster-General's speech where he said that it was impossible for any Government to tell anyone how he should invest or what he should do in general. I take it from that that he advocates the ending of the Capital Issues Committee straight away, because that is exactly what the Capital Issues Committee sets out to do. It stops people doing things which otherwise they would want to do, because the Government decide that they should not do them and so instructs the Capital Issues Committee.

Mr. Maudling

I thought I explained clearly why what we are doing is exactly the opposite. We intend to maintain the Capital Issues Committee.

Mr. Gordon Walker

Yes, but the right hon. Gentleman based a large part of his argument on the statement that it was impossible for the Government or any organisation under the control of the Government to tell people what they should do with their own money. That is exactly what the Capital Issues Committee does. Of course, as my right hon. Friend the Leader of the Opposition pointed out, this view also completely undermines what we understood to be the Chancellor's new policy for the areas or pockets of unemployment.

Mr. Maudling

The Capital issues Committee, of course, does not tell people what to do with their own money. That is precisely what it does not do. It stops people borrowing other people's money.

Mr. Gordon Walker

It stops them doing things with money they could easily raise if the Capital Issues Committee was not there. Therefore, it is money which would be under their control in a free system of capitalism, but the Capital Issues Committee stops it.

What meaning we are now to attach to the word "sound" in the statement about sound projects which are to go to the pockets of unemployment, we have no idea whatever. "Sound" must mean that somebody decides what is sound and what is unsound, and that somebody can be only the Government or some organisation which they set up. Otherwise, the word "sound" becomes nonsensical.

In general, I thought that the right hon. Gentleman made a completely laissez-faire speech worthy of a Liberal. It must have seared the soul of the hon. Member for Aberdeenshire, East (Sir R. Boothby). I was somewhat disturbed, if I understood the right hon. Gentleman aright, at the prospect that we are to make another dash for convertibility. This seemed to be the conclusion from what he said. He said that we cannot stand still; we must go forward or go back. I take it that the closing of the Kuwait gap was going back. However, the right hon. Gentleman clearly intends to go forward. We cannot, he said, stand where we are. Does he really think that our reserves are now in any state to justify another dash to convertibility?

Mr. Maudling

This is very important. What I said was that we continued to regard convertibility as our objective to be approached in accordance with circumstances at any given time. It is most important to say that.

Mr. Gordon Walker

What the right lion. Gentleman is now saying is that what he said was meaningless.

In general, the right hon. Gentleman made a rather better, abler and more attractive version of the speech we heard last night from the President of the Board of Trade, though the President of the Board of Trade was rather franker. Both of them proved too much. They got near to arguing for permanent stagnation, saying that there are no circumstances in which we can expand again, because directly we expand we increase imports, and it is impossible to increase imports, and so we cannot expand. The fallacy is that both of them were talking as if our economy is now going flat out. But the economy has a great deal of slack and unused capacity.

I was glad that the right hon. Gentleman welcomed the statement of my right hon. Friend the Member for Huyton (Mr. H. Wilson) towards the end of his speech yesterday about the importance of the strength of sterling and that he said that he fully accepted the policy. That emboldens me to attack with all the more vigour what the President of the Board of Trade said last night in a very shocking part of his speech. He seemed to me, in column 190 of HANSARD, to be deliberately setting about an attempt to weaken the £ after a Labour victory. He used the phrase about "a flight from a Socialist £." That is an appalling thing for a responsible Minister of the Crown to say. What would he have said if last autumn when there was a run on the £ we had talked about "the Tory £"? In fact, my right hon. Friend the Leader of the Opposition made a strong and powerful speech in defence of sterling, not of the Tory £ or the Socialist f, but of the British £. I hope that the Chancellor——

Mr. William Shepherd (Cheadle)

Despite that—as it may be—is it not a fact, nevertheless, that when there is a Socialist victory in a by-election the £ sags in the international market?

Mr. Gordon Walker

I think that is because speeches are made like the one yesterday by the President of the Board of Trade. It is an attempt to encourage any such developments. I hope that in the interests of the national currency and its strength the Chancellor will take the first opportunity, which will come at the end of this debate, to repudiate the vicious and reckless attack made on our national currency by the President of the Board of Trade.

The more one thinks about the Budget the less adequate it appears to the national needs. It is a bits and pieces Budget. Some changes, if taken in isolation and regardless of the needs of the economy, can be supported or treated with indifference. There is, for instance, the removal of tax from a commodity on the rather odd ground that it is a poison. In general, we welcome, again taken in isolation, a number of proposals such as the reduction in the tax on cinemas and the beginnings of steps to help areas of heavy unemployment. In general, we support the Purchase Tax changes, although we have reservations about some of them, particularly about the tax on miners' protective boots and helmets. Whatever fiscal logic has led to that conclusion it is an indefensible thing to do, and to do it in a year when the Chancellor is reducing the tax on fur coats makes an extraordinary combination of acts.

We strongly oppose the ending of the differential Profits Tax, and nothing that the right hon. Gentleman said this afternoon shakes us in that. He gave a number of very minor reasons for the change, but it is wrong in principle. The arguments of the Royal Commission on Taxation were extremely unconvincing. It is proper to encourage the ploughing back of profits and to deter the distribution of profits. There is another reason why it is an unwise act by the Chancellor. It means hitting firms which have loyally observed the appeals made to them by one Chancellor after another over a decade, and it will advantage firms which have ignored the appeals. It is the sort of thing that brings government into contempt and makes it impossible for a Government to give guidance by exhortation to industry if those who obey are to be hurt and the ones who ignore are to profit. It must breed cynicism and self-seeking in the economy. I hope that when the Chancellor thinks of all the consequences of what he has done he will have second thoughts about it.

I want to say a word about the way in which the Chancellor is financing these concessions. He has been Chancellor for only a short time, but he has already contracted the Conservative Chancellors' disease of producing little pre-Budgets before his main Budget. The purpose is to make the main Budget look a little more presentable and to conceal the real transfer of wealth which he is bringing about. In February, he introduced his private pre-Budget in which he raised the contributions for National Health to bring in £32 million in a full year. That is an addition to his revenue. It means that he can make concessions which he could not otherwise make. In his Budget speech he said that he was making concessions which were the maximum which would be safe in the circumstances. If he had not raised those charges, the revenue would have been £32 million less and it would not have been safe for him to make the concessions.

I want to state this fairly. Some of the additional charges fall on the employers, but I think that £24 million in a full year is a direct charge upon the workers. That £24 million which the Chancellor got in his little pre-Budget by taxing the workers will more than pay for the new Profits Tax concession which costs £16 million in a full year, the reduction in Estate Duty which costs £3 million, and the reduction in the duty on port and heavy wines which also amounts to £3 million. That totals £22 million, and the Chancellor would not have been able to make those concessions if he had not imposed a poll tax upon the workers. Had he made all those changes together openly in the Budget, we should have seen what he was doing. He would not have dared to do it. He has done it by a trick of concealment. It does not alter the fact that he has imposed a poll tax on the workers to make these concessions.

I said that nobody could object to most of the Budget proposals if they were taken in isolation; but we cannot take them in isolation. We must relate them to the needs or the economy, and they are, so considered, woefully inadequate. The economy is facing a new, alarming change at home and abroad. It is disturbed about the prospects of spreading world recession. What does the Chancellor do to stimulate and reassure the nation? He singles out for special objects of fiscal favour port, poison and profits.

The main feature of the Budget is not the little bits and pieces of changes that the Chancellor has made. It is that it is an expression of the same arid and sterile economic policy which has been pursued by his predecessors. There was a lot of brave, fine talk in the Budget about expansion and strategic aims, but the deeds show that there is to be no expansion whatever. The Chancellor's policy is "expansion yesterday, expansion tomorrow, but never expansion today". The Chancellor is liked and respected in the House, and we know him to be a generous man with humane views, but the country will soon get tired of this complete divorce between his sentiments and his deeds. Our people want more than the diet of homely platitudes which they have been given in the Budget speech.

The Chancellor has determined on this policy of continuing depression of the economy in the full knowledge of its effects, because the results are clear. There have been two and a half years of stagnation. Now another year is to be added. The Paymaster-General tried to show that some things had gone up. Of course, in an average some go up and some go down. However, the increase in investment, which the right hon. Gentleman praised, makes stagnation even worse. If investment is going up and we are still stagnating, that is even worse.

Some hon. Gentlemen yesterday gave us figures in an attempt to show that the country is expanding with great rapidity. We have not invented our own figures; they are stark figures from the Economic Survey, and they show that industrial production has not risen since 1955. That is the central fact. None of the pleasant intricate arguments of the right hon. Gentleman can get away from the simple fact that industrial production has not risen since 1955.

Indeed, there are indications now that we are in for worse; that we are in for an actual decline. Production in the last quarter of 1957 was lower than it was a year before. The Financial Times, looking at all these facts and trends and summing them up, wrote, on 1st April: Unless there are early changes in the economic climate or in Government policy, the real national product may well fall in 1958. That is the judgment of the Financial Times—an impartial paper, which is certainly not very friendly to the Opposition—upon all the facts and trends that are now available.

This policy of economic stagnation has failed in one of its main aims, which is to keep prices down, because another key figure in the Economic Survey is that prices went up by 3½ per cent. in 1957, and would have gone up more, of course, had not import prices fallen so heavily in the last half year. This has been part of a very long process. Since the war, the cost of living has risen faster and further under Conservative Governments than under Labour Governments. From 1951 to 1957 it went up by 33 per cent. and from 1946 to 1951 it went up by 31.5 per cent. As I say, prices have now gone up further and faster under Conservative Governments. Of course, the contrast is even more startling when we take into account the fact that under the Labour Governments import prices rose by 103.6 per cent. whilst, under Conservative Governments, they have fallen by 12.4 per cent. Therefore, under Conservative Administrations, prices have gone up faster when import prices were falling than they did under Labour Governments, when import prices rose so phenomenally.

It is not surprising, of course, that prices go up in a time of economic stagnation, because reduced economic activity can of itself—indeed, must of itself—lead to higher prices, because it produces shorter runs and higher unit costs of production. This is especially true if investment is increasing. The right hon. Gentleman told us that it has been increasing, and did increase last year by 5 per cent., but if investment is increasing and production is stable it is bound to put up prices, because more expensive overheads have to be spread over the same output as before. Unless output goes up as investment goes up we are bound to get higher unit costs, and this is bound to force up prices, quite apart from any movement of wages.

Right hon. Gentlemen on the other side attribute so much importance to wages in this that they quite forget that they themselves are partly responsible, through their policy of stagnation, for the rising prices. There is a clear relation between the rate of increase of production and the rate of increase of productivity. This is made perfectly clear in Table 7 of the Economic Survey, which shows that since 1955 both production and output per man have moved in exactly the same way; in other words, they have not moved at all. Both have remained stable and stagnant during the whole period since 1955.

Therefore, by holding down production the Government are holding down productivity, too. It is this policy that is largely responsible for the very grave industrial relations existing in the country today. The Chancellor, in his speech, re-echoed the old slogan, the old programme, that wages must not rise faster than productivity, but he forgets that his own policy has made it impossible for productivity to increase and that he is also helping to push up prices. This combination of holding down wages whilst prices go up is really a direct attack on the standards of the working class and the trade unions.

The result of these three, long, wasted years through which we have lived is that we have had stagnant production, rising prices, stationary exports and the worst industrial relations for decades. These three years are the years that the Conservatives have eaten——

Mr. Shepherd

Why does the right hon. Gentleman keep using the expression "three years"? Surely he knows that in 1955 we had a 5 per cent. increase in production.

Mr. Gordon Walker

I quite agree, and none since—and two and a half years have gone by. We should, of course, have an increase every year, but for two and a half years we have not had any. That is why attention should be drawn to it, and the hon. Gentleman himself, who is very intelligent about these things, ought to concentrate his mind on the fact that for two and a half years production has not gone up as it should have gone up, and it is this that is really at the root of many of our present difficulties.

All this is happening against the background of a world situation that threatens to turn very much against us. I thought that the position was very well put in a leading article in The Times, on 2nd April, which said: Increasingly during the second half of the year— that was 1957— the United Kingdom appeared to be riding high and comfortable on the back of the earlier stages of international recession. The reason why we did not do still worse in 1957 was that the United Kingdom tends to benefit from the beginning of a recession because, of course, the first effect of a recession is that the prices of the primary producing countries fall, and they have fallen extraordinarily. In January, 1958, our import prices were 15 per cent. lower than they were in the first half of 1957. On the other hand, the price of our exports tends to fall much more slowly. This is partly because the primary producing countries in the Commonwealth run down their sterling reserves, and so keep up their purchasing power. There was a very great run down of reserves in the second half of 1957 by countries in the sterling area. It amounted to £225 million. This helped a lot in maintaining our balance of payments surplus which, in the second half of 1957, amounted to £125 million.

However, the secondary effects of world recession are bound to be adverse, and cannot, I think, be very long delayed. They will come, and they will persist for quite a while, even if the United States begins slowly to pull out of its present recession. There are economists who are now arguing that there may be longer lasting factors at work which will depress the price of primary products over a very long period ahead. If this happens then, as the export earnings of the primary producers fall, so also must fall their capacity to buy from us. This is the problem that faces us in 1958, and it is a very great problem.

Mr. Skinner, the Deputy Prime Minister of New Zealand, says that New Zealand's export earnings have dropped by £58 million. In the second half of 1957, Australia's export earnings dropped by £100 million. These are pounds that would largely be used to buy our exports to them. Our exports have not yet fallen because the Commonwealth countries have kept up their purchasing power by running down their sterling holdings, but they cannot go on running down their sterling holdings for ever. This difficulty may well be made worse, because it will be increasingly hard to maintain our exports to the United States market if the recession goes on. For both economic and political reasons the protectionists lobbies there will become stronger. Although the Paymaster-General was very optimistic about this, there may be a reopening of the dollar gap which may face us with a serious problem.

All this may be made worse still if the Common Market comes into being before arrangements have been made for us to be given access to it. I must say that the prospects of such arrangements seem to me to be reduced by the fall of the French Government. The time between now and July is getting very short. The French can spend a long time in getting a Government together again; indeed, it may be nearly July before we have a Government there with which to negotiate. In 1958, therefore, Britain faces a new and different challenge, and not the same old challenge, that the Chancellor seemed to assume all the way through his Budget speech. In many ways, the challenge in 1958 will be the gravest since the war. The nature of the problem facing us has changed; the Government's policy has not budged an inch.

We must adapt ourselves to the new and great problems ahead, and it seems to me that the top priority must be to push up exports. I would say that that was as important as the maintenance of prices—even more important than the maintenance of prices because, although it is vitally important to keep prices stable, improvements in the terms of trade will make a considerable contribution to the stabilization of prices, whereas, if we do not push up exports it may have catastrophic effects. So, pushing up exports is now the top priority of all. It is the key to the maintenance of production, investment and employment at home, the key to the building up of the reserves and the increasing of balance of payments surpluses.

This has been a good year for our balance of payments, but it has been helped by some adventitious things, like the improvement in the terms of trade, which may not continue. Our imports will not increase if the Government do nothing or very little about them. This is the disturbing part of the approach of right hon. Gentlemen opposite to the problems ahead of us. They are doing tiny things when we are facing very grave problems. Exports have been stationary in real terms in 1957.We are falling behind our competitors. The Financial Times says that no other great manufacturing country is falling behind with such monotonous consistency—and this is during the period of a Conservative Government.

What I find most disturbing of all is that in the second part of 1957 Germany displaced Britain as the second largest exporter of manufactured goods in the world. That is a shameful comment on this Government's stewardship of the nation. It could be a turning point of importance in the world and will be one of the few things that will be remembered in the record of this ill-starred Government, together with the Suez fiasco.

How to face these difficulties is the problem. I think that the first need still remains to reinvigorate our economy. I do not see how we can face the extremely grave problems that will arise next year unless we reinvigorate our economy and make use of our wasted capacity. It seems to me that the Government are absolutely paralysed by the memory of the unregulated boom launched by the Lord Privy Seal in 1954. The Government see no alternative to this unregulated boom, with all the disasters that came from it, but to depress the economy. That is the argument of the President of the Board of Trade and the Paymaster-General. The Chancellor himself said almost exactly the same. I thought of the Lord Privy Seal's boom of 1954 as the Chancellor said this at column 55: There is no salvation to be won through increasing production indiscriminately at any cost." [OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 55.] That was what the Lord Privy Seal did, and it was wrong. It is true that we do not want to let everything go again as happened in 1954. But the alternative is not stagnation. The alternative is a selective and regulated expansion of the economy.

We have these choices before us now. We either have depression, like the Government want, or an unregulated boom, like the Lord Privy Seal wanted, or if we are to get out of our difficulties, we must have—and there is no other alternative as far as I can see—a regulated expansion in our economy. We must go forward with high priority things and hold back things of lower priority. This is possible when there is a slack in the economy. It may not be possible when we have a full boom and full employment. We are not in that position today. We have a great deal of slack in the economy. We need things like discriminatory investment allowances and industrial building licensing, which, incidentally, would give us the lever which will alone enable us to direct industries into the pockets of employment.

We must give high priority to the restoration and maintenance of full employment. The maintenance of full employment may become very difficult this year. The answer to that problem is to resume our home investment and, above all, a revival of investment in the nationalised industries. The Economic Survey shows that a great deal of our economic activity in 1957 was due to investment by the public industries. This will be cut and held back in 1958.

One of the great things about the nationalised industries is that they have detailed, worked out plans ready for expansion. Therefore, investment in the nationalised industries can more rapidly result in an increase in employment than any other sort of investment in the country. This is one of the things which is lacking in the United States. The United States is finding it difficult to find ways rapidly to increase employment, but, of course, if we have nationalised industries with clear, properly detailed plans worked out we can achieve this relatively fast. If unemployment increases heavily this year or in the future, our people will have a further reason to bless the nationalised industries.

Mr. R. Gresham Cooke (Twickenham)

Before the right hon. Gentleman leaves that point, would not he agree that the Chancellor is proposing a large improvement in investment in the nationalised industries? As the below-the-line figures show, the loans to nationalised industries last year were £295 million and the projected loans this year are £370 million.

Mr. Gordon Walker

If the hon. Gentleman will read paragraph 81 of the Economic Survey he will see that the rise in public investment, which was raised in the second half of 1957, is to be lowered in 1958. These are the figures upon which I base myself The matter seems to me to be as clear as crystal. The Chancellor said practically the same thing in his own statement. The top priority in encouraging investment in the nationalised industries should be railway modernisation. Apart from anything else, this will help to make this an industry in which the workers can earn a fair and comparable wage. The Chancellor's failure to do this was his main sin of omission on the home front.

An expanding economy will help our exports because a buoyant market keeps up the purchasing power of the Commonwealth countries who buy our goods. If we have a decline in production this will affect our exports. We need much more if we are to reverse the levelling off of exports that has occurred in 1957. One of the things that we may have to use is import controls. There may be a dollar gap this year, and it is no good the President of the Board of Trade trying to make our flesh creep by talking about retaliation. The right hon. Gentleman operates a large number of dollar import controls himself. If he believed what he told us last night he would have abolished them all this morning. He does not believe it, but simply uses it as an argument when he tries to defend his Government.

We have to use export incentives on a bigger scale than we are doing. I am in favour of, and support, an extension of the operation of the Export Credit Guarantees Department, but it will not be very useful because the credit squeeze makes it difficult for exporters to get credit, even if they are backed by guarantee.

Above all, we must take special steps to help the Commonwealth. I was glad that the President of the Board of Trade said that he was to see Mr. Skinner. I think that he has already had some talks with him. I was sorry to hear the President of the Board of Trade stress and underline all the difficulties in a large part of his speech, but when it came to what he could do to help he was vague beyond belief. If I had been Mr. Skinner listening to that speech, I should have been very depressed. There are other Commonwealth countries that will need help as well as New Zealand. The only solution is that we must find ways of keeping up the purchasing power of the Commonwealth primary producer countries. I do not see how he can do that except by returning to the long-term agreements which the Government wantonly tore up, in spite of their talk about wanting to develop the Commonwealth. In return, we can ask other Commonwealth countries to arrange their purchases to fit in with the needs and capacity of our capital goods industries. I hope that the Government will make constructive proposals along these lines when we come to the Commonwealth Economic Conference.

We must recognise that in the year ahead we are facing very great difficulties. We have a new and testing challenge before us. I do not think that we need despair. The fundamental need is to get a forward thrust into our economy again, which is what the Government refuse to do. We should have the courage to pursue policies which would make the world talk no longer of a German miracle, but of a British miracle. This can he worked in this country just as it has been worked in Germany. But for that we need a Government which is not afraid to plan for expansion.

5.11 p.m.

Sir Robert Boothby (Aberdeenshire, East)

My right hon. Friend the Paymaster-General will not be stunned to hear that I do not think this Budget is sufficiently expansionist in character. I am one of those who believe that by judicious and timely action on the part of Governments inflation can be brought under control without stopping economic growth; and I think that the timing has not been good over the last ten years on either side of the Atlantic.

Mr. Arthur Burns, who was a brilliant chairman of the Economic Advisory Council of the President of the United States, and who has now, unfortunately, retired from that position, recently wrote: Even mild measures on the part of government can be effective in the early stages of inflation or of an economic decline. On the other hand, if action is withheld until inflation or a recession gathers momentum, strong and costly measures may prove insufficient. I think that that is what we are finding out to a considerable extent in this country, and what they are finding out to an even greater extent in the United States.

The word "stagnation" has been bandied about a good deal on both sides of the Committee in this debate, and it makes everybody flinch a bit. I will not use the word "stagnation". I will merely say that our economic growth has not been sustained at an adequate rate during the past two years. That is a more delicate way of putting it; it is longer, but it is quieter, and it does not upset people.

Apart from the motor car industry, production in this country has been sagging during the past two years; and if right hon. or hon. Members have any illusions about the dangers of the present situation, I recommend a trip to the Clyde, where the spectacle of Holy Loch is something to make one think. There have not been so many ships laid up in that loch since the depression of 1929–31. That is an indicator, and a dangerous indicator, of what is going on, because shipping nearly always leads the way. It is not a pleasant sight.

Mr. R. T. Paget (Northampton) rose——

Sir R. Boothby

I am resolved not to be interrupted. I have a good speech, and I shall make it as rapidly as possible. If the hon. and learned Member starts interrupting me we shall be off into an argument which will take us until 5.20 before I get back to my speech again.

I seems to me that our problem in this country is twofold, and I believe that there is a good deal of agreement in the Committee about it. First, we have to increase productivity and, secondly, we have to build up our reserves, which at present are exiguous, while keeping the wage-cost inflation in check. I do not quite agree with my right hon. Friend that there is no distinction to be drawn between the two types of inflation. I believe that the demand inflation, except in certain categories of consumer goods, is now over; and that the main danger is now what they call a cost-push inflation, to use a technical term.

I cannot see how we can solve our problem by excessive and costly interest rates, accompanied by an indiscriminate credit squeeze, which hits the weaker and smaller firms and individuals hardest. As has been said from both sides of the Committee in the debate, restrictive policies do not prevent prices from rising. They may even contribute to a rise in prices. We have seen this both here and in the United States during recent years.

I ask my right hon. Friend to ask the Chancellor whether he will not have another look at the instructions which he has given to the joint stock banks about the credit squeeze. I think he has given them an impossible task, under which they are now writhing in misery. Apart from anything else, they lose a lot of money. Other people are lending money all over the place; but it is the job of the banks to lend money and to give overdrafts to everybody, as far as possible. They like doing this; but they are not allowed to do it, and at present they do not quite know where on earth they are. As somebody said the other day, "If you go into a bank and ask for an overdraft of £100,000 you are asked to lunch, but if you ask for an overdraft of £50 you are kicked downstairs". There is a good deal of truth in that. The banks do not know where they are, what they are trying to do, or what the Government want them to do; and the instructions to the joint stock banks should at least be clarified.

We have, also, the Capital Issues Committee. This Committee gives no reasons for anything it ever does, and what it normally does is absolutely idiotic. I say without fear of contradiction that the Capital Issues Committee has completely lost the confidence of the City, and of industry, in this country. It does the most crazy things without giving any reasons. Indeed, it is not required to give any reasons. I think that the Chancellor should now give much more precise instructions to the Committee, and compel it to give reasons for what it does.

Consider what happened last year. The Committee allowed a share distribution to Woolworth's and Marks and Spencer and refused it for Great Universal Stores, but gave no reasons for any of those things. Suddenly, today, five months after the refusal, it says, "All right, Gus. Go ahead. You can have your one-for-one." No reason is given of any kind. This goes for the whole of industry. The Committee's actions are incalculable and to some extent, I think, irresponsible; and, if we are to continue with the Capital Issues Committee at all it should be required by the Government to give reasons for its actions.

I cannot help agreeing with the right hon. Member for Smethwick (Mr. Gordon Walker) that there is a good deal to be said for the restoration of the original investment programme for British Railways. I am not saying this simply to facilitate a settlement of the present wage dispute. The fact is that our railways today are an absolute disgrace. They are the worst in the whole of Western civilisation. This is almost entirely due to the fact that we have not spent any substantial amount of capital on modernising them since the war.

Last week, impelled by an urge to take part in a television programme, I had to take a long circular tour by rail. I decided to commit myself to the railways. It was a complicated tour in Lancashire; I had to get to Manchester, and then to go a long way back from Manchester. I looked up the timetable, and the train timings seemed to fit, so I decided to do the journey by rail, although I knew that I should have to travel in unlit, cold and very dirty carriages. I expected that; but what I did not realise was that the arrival and departure of the trains bore no relation whatever to the timetable.

I spoke to an inspector at Preston, whose name I shall not give, and it was rather like talking to Humpty Dumpty in "Alice Through the Looking-Glass". I said, "None of these trains seems to arrive at any time remotely approaching that given in the timetable." He replied, "But you do not read the timetable, do you?"; and added, rather reflectively, "Time no longer has any meaning on British Railways." I think it is a great pity that this programme of investment, which was the minimum, should have been cut back.

Let me return for a moment to Mr. Arthur Burns and his Economic Advisory Committee, which said, three years ago: The best service that a Government can render the national economy, besides helping to maintain stability and ensuring a floor of protection for the population, is to create an environment in which men are eager to make new jobs, to acquire new tools of production, to improve or scrap old ones, to design new products and develop new markets, to increase efficiency all round, and thus be able and willing to pay higher wages and provide better working conditions. That is a very good description of what a Government ought to do, whether they call themselves Socialist, Conservative, or anything else; and it is just what we are not doing at the moment in this country. That being so, not for the first time in my life I have had to strike a somewhat critical note; but I should like here to give a warm welcome to the Chancellor's courageous effort to simplify and clear up some of the anomalies of Purchase Tax. It was long overdue, but at least he has made the effort.

Although I understand perfectly well the argument of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) against it, I also welcome the rationalisation of the Profits Tax. This was recommended very strongly by the Royal Commission on the Taxation of Profits and Income. There was a memorandum of dissent by Mr. Woodcock, Mr. Bullock and Mr. Kaldor; and I think that, for the record, I ought to quote one paragraph from it on the Profits Tax: We do not disagree with the majority's view that the artificial encouragement of the retention of profits by companies is not necessarily an economic advantage. Beyond a certain point it does not in itself stimulate the rate of capital formation—as is shown by the fact that in the last few years the net amounts retained by companies have greatly exceeded their financial requirements, both on account of capital expenditure and of investment in working capital. It can be argued also that the system of financing capital expenditure so largely out of the undistributed profits of companies, does not ensure the best use of the community's savings. It makes it more difficult for fast-expanding firms to raise funds in the capital market; it strengthens the monopolistic tendencies in the economy, and it encourages wasteful expenditure on behalf of those firms who have more money than they can use and who are yet prevented (by custom and tradition as well as by the instruments of public control) from channelling these funds to their most profitable potential use. That is a formidable argument in favour of what the Government have done.

Mr. Gordon Walker

They went on to argue for a capital gains tax as well.

Sir R. Boothby

I quite agree that they subsequently recommended a capital gains tax; but, nevertheless, they made a formidable argument in favour of what the Government have done about the Profits Tax; and I think that it is as well to put it on the record.

The increase in the initial allowances is a valuable first step in the right direction; and I am warmly in favour of the reduction of the duty on heavy wines. That will do good to our relationship with Spain and Portugal; and to all of us. Port and sherry are very valuable drinks, even though they have been costing too much.

But I must ask my right hon. Friend: why has nothing been done about whisky? The duty on whisky is penal. It is a punitive tax; and, in the final analysis, whisky is the greatest consolation of them all. I have the authority of my right hon. Friend the Member for Woodford (Sir W. Churchill) for making that remark. He once told me that it was the most sustained and reliable consolation in life.

I have been arguing for a reduction of the duty on whisky, a duty which is outrageous, for years and years. I remember going on a delegation to the late Sir Stafford Cripps, when he was Chancellor of the Exchequer, to ask for a reduction of the duty on whisky; and Sir Henry Ross, Chairman of the Distillers Company, a splendid figure, though not, perhaps, always absolutely tactful, said to Sir Stafford Cripps, "Chancellor, I have left my most formidable argument to the last. I have to make this statement: that a terrible thing is happening in this country as a result of the tax imposed on whisky." And then, in a hoarse voice, he said, "The younger generation are losing their taste for whisky." I shall never forget the inscrutable expression that came over the face of Sir Stafford Cripps. He did not say anything, but I felt that he did not find this argument absolutely convincing.

I now have a very serious complaint to make. I cannot conceive why this Government, of all Governments, have gone in for this retrospective provision relating to dividend stripping. It is outrageous and intolerable. Of course, we have to stop dividend stripping. I quite see that; but I cannot see why, merely because a Financial Secretary issued a warning which nobody read, three years ago, this retrospective legislation can be justified. It is not justified. Retrospective legislation is, on balance, open to grave suspicion, because it is bad and vicious in principle.

I think that the Government, unless they revise their views, will have a very rough tune in Committee on this matter. Hon. Members opposite may back the Government up, but I shall be against them in this matter. It will be very rough indeed. I do not think that the Government will want to do it with the support of right hon. and hon. Members opposite. I do not think so. Anyway, they will have a job. We might well get the whole of the 1922 Committee to go against them, and then they would be beaten, whatever the Labour Party did.

On the home front a major requirement—I will not say "the" major requirement—seems to me to be an increase in productive investment, because it is the lack of productive investment in the past from which we are suffering to a considerable extent in this country today. This applies to the 'thirties as well as to the 'forties, when we might have put both the rail and road systems of this country right, with the aid of 2 million unemployed.

But, of course, investment means saving. [An HON. MEMBER: "The Conservatives were in power before the war."] There was a National Government before the war. I am prepared to say it was the worst Government that we have ever had—although I supported it intermittently.

But I repeat that if we are to have adequate productive investment we must have savings. I do not think that I shall carry the whole of the Opposition with me if I quote one sentence of Professor Lionel Robbins, with whom I seldom agree about anything. However, he wrote the other day: Our present system of progressive taxation on earned incomes constitutes a discrimination against enterprise and ability such as has never before existed in any large-scale civilised community. There is a lot of truth in that. Today it is virtually impossible for anybody to save and invest out of earnings, and that cannot, in the long run, be a good thing.

The Chancellor of the Exchequer has reduced the Stamp Duty on conveyances. I want to make a suggestion to my right hon. Friend which I hope he will pass on to the Chancellor. Why does he not make a reduction in the Stamp Duty on the purchase and sale of shares on the Stock Exchange? It would cost very little, and it would definitely encourage productive investment. I will tell him that my constituents, at any rate, who are very good and shrewd Scotsmen in Aberdeenshire, like investing in good shares. Even if they are Socialists, they still like investing on the Stock Exchange, and their great complaint to me now is, "Whereas, under the Socialist Government, our shares steadily rose, under the Conservative Government equity shares have steadily fallen."

Of course, they never went in for gilt-edged securities under a Socialist Government—and how right they were. They kept well clear of "Daltons". But they did buy fairly substantially, as much as they could, equity shares, despite the heavy Stamp Duty; and under the Chancellorship of the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) those shares showed very appreciable and enjoyable profits. Now they come to me and say, "What has happened? We bought shares when you got in, and they have gone down and down—15 per cent., 20 per cent., 30 per cent." And that is one of the things which puts them in a rage. They do not dare say so because they do not want to admit that they bought the shares; but I believe myself that one of the main reasons for the unpopularity of this Government is the continuous and sustained fall in the stock market. People do not like to admit that they got equity shares; but they have got them and they resent the depreciation.

Mr. Jay

Was this not called "investing in success" under this Government?

Sir R. Boothby

Naturally. That is what they thought, and did. That is why they bought them. As I said in this House two years ago, anybody who invested in success must have lost about 20 per cent. of his money. It is nearly 50 per cent. now.

On the subject of restriction, I should like to say how much I agreed with my hon. Friend the Member for Ealing, South (Mr. Maude) yesterday. I thought, on reading his speech, how much we in this House will Miss him. What a loss he will be to all of us. His going away will be a gain to Australia, but such a loss to us. I agreed when he said that over the next five years We shall thus have an almost overt political conspiracy to prevent expansion, to preserve restrictions and to encourage a conspiracy between labour on the one hand and employers on the other to exploit the consumer, for whom nobody will stand up and speak."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 261.] My hon. Friend went on to make the point that there was far too much restriction on both sides of industry in this country. He had something there. I believe myself that on both sides of the Committee it was felt that there was more than a germ of truth in what he said. I should like to see the Tory Party setting up the "Opportunity State", in the context of sustained economic expansion. We have taken one tiny step forward in that direction now, but we are not going nearly fast enough.

I should like now to refer to the basic problem, a far more severe and a far graver problem than anything connected with the Budget, or our immediate domestic needs. On 6th November, 1957, Mr. Khrushchev gave an interview to one of the leading publishers in the United States of America in which he said: We declare war upon you. Excuse me for using such an expression in the peaceful field of trade. We declare a war we will win over the United States. The threat to the United States is not the I.C.B.M., but in the field of peaceful production. We are relentless in this and it will prove the superiority of our system. This argument was borne out in a subsequent letter to The Times on 7th December last year from the Vice-President of the Academy of Sciences of the U.S.S.R., who gave precise facts and figures relating to Soviet production at that time; and when the Soviet Governmen give precise facts and figures they are usually right. They certainly give food for thought.

I believe that the economic war is by far the most serious war which we have to face at the present time. The Russians have always said that they would beat us with economic weapons, and the awful thing is that they believe it. They are doing very well; and they are not deterred from production in the Soviet Union by the exchange value of the rouble in Zörich or New York. That does not worry them in the slightest degree.

I hope that I can carry the Paymaster-General and the President of the Board of Trade with me in this proposition. The lack of liquid reserves in the free world today is really terrifying, and I will give the Committee some rather startling figures, because we ought all to bear them in mind. The physical volume of international trade has increased by about 120 per cent. since 1938, which can be compared with only a 20 per cent. increase between 1913 and 1929, a comparable period; but the gold reserves of the free world, as a percentage of world trade, are now only about 19 per cent., as against 49 per cent. in 1937. We do about 40 per cent. of world trade, in so far as it is financed by sterling; but in June of last year, the United Kingdom gold and dollar reserves were equal to only one-fifth of our sterling liabilities, and only 4 per cent. of the total world currency reserve. This simply will not do.

We all agree, and the right hon. Member for Smethwick stressed this very strongly, that an expansion of international trade is absolutely essential, above all to this country, because we depend upon it more than any other country in the world. My hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) also pointed this out on the first day of the debate. We cannot hope for an expansion of international trade if the underdeveloped countries are starved of capital, if we have no liquid reserves, which are the oil of trade, and if commodity prices continue to fall, as they have been falling over the last two years. Obviously, the purchasing power of all the primary producing countries has been greatly diminished.

My right hon. Friend the President of the Board of Trade—and I am very glad to see him here—made a remarkable speech at San Francisco some little time ago. He said: The West is fragmented into sovereign States and as often as not is pursuing rival economic policies. I think that that is profoundly true, and it is absolutely terrifying.

Yesterday, again, speaking of the forthcoming Commonwealth Conference, the President of the Board of Trade said: … most of our thinking should be on how demand for all forms of goods and services can be sustained at all times. Clearly, at this moment, the most important element in the situation is the American recession."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 197.] My right hon. Friend gave it as his opinion that the American recession would be over fairly soon. I am not at all sure about that. I read a disturbing article by Mr. Niarchos, in the Financial Times the day before yesterday, which did not seem very optimistic to me. Meanwhile, as the right hon. Gentleman the Member for Smethwick said, the dollar gap has reappeared, and the growth of a United States trade surplus, with a consequent absorption of the remaining dollar reserves by the United States, constitutes a grave threat.

The simplest solution to the problem would be to raise the dollar price of gold, the only commodity the price of which has remained artificially fixed at the 1938 level; and to give the increased reserves, instead of allowing them to exercise an inflationary effect on the United States, to the International Monetary Fund. I believe that we should ourselves make a strenuous effort to persuade the United States to come round to this point of view. I believe that the argument that we should use is the one that that is the only possibility of getting convertibility of the £. As my right hon. Friend is well aware, the Americans are passionately keen to get convertibility of the £. We have been through all this once before; and I am on record about it. I said then that it would last five weeks, and it lasted four weeks and three days; and it was the Government of the party opposite that did it.

The only chance of getting convertibility today is for the United States to do something drastic to increase the liquid reserves of the free world; and I think we have formidable arguments to use in that connection. The truth is that our co-operation on the economic front is nothing like that which existed in the days of Governor Norman, Governor Strong and Governor Schacht. Mr. Norman used to go to the United States twice a year for consultations with Governor Strong. The resulting policies were nearly always fatal; but at least they agreed about them, and the fact that Mr. Norman sometimes called himself Professor Skinner did not greatly detract from the value of his visits. I do not think that Mr. Cobbold has gone to the United States either as Mr. Cobbold, Mr. Skinner, or anybody else, often enough. Anyway, there is nothing like that close collaboration which there used to be.

We want a Summit Economic Conference with the United States, bringing in both Germany and France. I know that France is in a bit of a fix at the moment; but we could at least bring in Germany, with Canada and the United States, and see what we can do about the exchange reserves. If the United States will not help, and it is conceivable that it will not, we shall be driven back, as the President of the Board of Trade told us yesterday, upon the sterling area.

I want to say this about the sterling area. I was delighted with what the Chancellor and the right hon. Member for Huyton said about it. It is of vital importance to the free world. While we do not need physical controls, or any violent impositions on the sterling area, there must, if it is to survive, be much more strategic direction than we have at present, and more effective machinery to carry out the decisions of the Commonwealth Economic Conferences that take place from time to time. In this respect, I beg my right hon. Friend the Paymaster-General, who is conducting these arduous, difficult and almost impossible negotiations about the European Free Trade Area, to be under no delusion that our economic problems can now be solved by a purely negative reduction of tariffs, without anything else. I feel some sympathy with the French point of view, when they ask for investment plans and a central bank because the French feel that the mere reduction of tariffs, from which they will certainly suffer, is not the long-term answer to the problem.

The problem confronting us today is not one of trade so much as one of investment and of the means of payment. I think that my right hon. Friend the President of the Board of Trade mentioned something in the nature of a Clearing Union, to be built up within the sterling area and Western Europe; and, if the United States refuses to come in on this matter, for heaven's sake let us bring the Commonwealth in. The Strasbourg Plan was really much better than the projected Free Trade Area, and not only because I helped to draft it. It was just a better idea; and it is still better. I do not think that we are going to be of much use to Europe on our own. But with the Commonwealth we could be, even if it holds up the negotiations for a Free Trade Area for a time, it would be worth it if we managed to bring the Commonwealth in, and take them with us in a comprehensive plan for the economic recovery of the sterling area and the countries of Western Europe.

As a party, I feel that we should oppose unnecessary controls and restrictions; but I was a little disturbed to hear what my right hon. Friend said about discrimination. I suspect him sometimes of being a real old Free Trader. There is a bit of something in my right hon. Friend of which the Manchester Guardian accused him a few years ago—an advocate of undiluted laissez-faire. He fights against it, but the old dogmas of the Cobden school are deep down in his subconscious.

I joined the Tory Party because I believed in discrimination. We called it Imperial Preference in those days, and thought it a good idea—"Three cheers for the Empire." We used to have the Union Jack on the table at our meetings, and that irritated hon. Gentlemen opposite, who said that we were getting a monopoly of patriotism. I say quite frankly that I still believe in discrimination.

We have had quite a gay debate. I accept with pleasure the fact that nobody, with the possible exception of my right hon. Friend, has seriously espoused the obsolete doctrines of laissez-faire; but I want to end on a somewhat sombre note. We in the Western world have the gravest challenge from the Communist world that Western civilisation has ever had to face. I propose to conclude with a rather startling and surprising quotation from a leading article in the Daily Mail this morning, which said: Let us be under no illusion.… Since neither side wishes to destroy itself as well as the enemy, an H-bomb war is highly unlikely. But the other war is going on all the time… This is the war which will decide our destiny. And the West is losing it.

5.33 p.m.

Mrs. Mary McAlister (Glasgow, Kelvingrove)

I hope I may look for the kindly indulgence which I am told is traditional when Members address the House for the first time. I trust that that indulgence will not be withheld, because I may find it a little difficult to adhere to what I am told is the traditional practice for new Members, which is to keep their remarks entirely outside the realm of controversy.

Having just emerged from a by-election in a constituency where housing is a problem of such magnitude that even the H-bomb had to take second place during the election campaign, I was glad to find a reduction in Stamp Duty for those who might be endeavouring to buy their own house. Nevertheless, I am afraid that the Government's financial policy in relation to housing will so cramp the efforts of local authorities that it will be completely detrimental and cancel out any good results which might accrue from what the Chancellor has given the home buyer. I must be honest about The Government's financial policy will simply cripple house building in Scotland, certainly by local authorities, and that is a very serious matter. It is particularly serious in an industrial centre such as Glasgow where, as a direct result—at least, I say that it is the direct result—of bad housing, we have infant mortality figures and T.B. figures which are a disgrace to civilisation.

I was glad to find some relief being given to a section of old-age pensioners. That is very good; but I would remind the Chancellor that the incomes of a large number of old-age pensioners do not come anywhere near the amounts in his tables and that they live only on the old-age pension. I had hoped that we might have been given some hope that at least their tobacco coupons might be restored. That is a small, almost niggling thing, but some people might say that it is a niggling Budget altogether. The basic increase for pensioners will be found in most cases to be about 2s. 8d. per week. I would remind hon. Members opposite that at that rate it will take three weeks to buy a bag of coal.

I feel extremely disappointed about this. Most pensioners came up the hard way, having to find work when unemployment was common and it was very difficult to save. Even where some savings were made, inflation has eaten seriously into them. An old fellow said to me, "I saved good money, Missus, but I'm getting back bad." Most pensioners were unable to save anything and have to depend on the pension, and I think something more ought to have been done for them.

As a result of the operations of the block grant, the position of these people will be worse than ever. There are many services which could be given to old-age pensioners which would ultimately save the Government money, but, instead of being extended, many of these services will now have to be restricted. It may seem far-fetched to talk about chiropody, but an efficient chiropody service could keep old people mobile for many years and thereby save money on other services which must be provided if they become bedridden or housebound. That is not propaganda; it is a plain fact which has been proved over and over again. Due to the operation of the block grant, the condition of these people will be worse than ever. They are the people who helped in their generation to build up the economic prosperity and security of this country. I feel that they have been treated in a very niggling way indeed.

In relation to the economic situation in general, the Chancellor said that he would endeavour to keep up productive work as far as possible. He said that it would be the Government's continuous aim to see just how near they could get to the objective without sending up prices and endangering the £. There is a section of people to whom the Chancellor's words may not sound very ominous, for the simple reason that they never knew what it was to look for a job, much less to be one of 100 men looking for the same job. However, there is an older section of people—not too old—whose experience has been very different, and I can frankly say that they are absolutely terrified by the growing menace of unemployment. Can we blame them, particularly in Scotland, where the unemployment figures are twice the average for Great Britain? We could not blame them if unemployment were growing slowly, but it is growing steadily. There is no doubt that that is an absolute fact. Many honest people who are not at all revolutionary in outlook are most apprehensive about the way in which the Government are dealing with the unemployment menace.

I was glad to find a concession in respect of woollen goods, but I notice that the tax on hairpins has risen. However, it will still be cheaper for me to buy hairpins than to get my hair cut.

I want also to refer to the Rent Act. This, too, has greatly worsened the position of old-age pensioners. We have been told over and over again that this perfidious Act has not caused widespread hardship, but I can tell a very different tale. The hardship is very widespread, and I am afraid that it is in no way alleviated by reassurances from Government quarters, or even by grandfatherly admonitions by the Ministers concerned, to bold, bad landlords. Bad landlords will do what they have always done, namely, whatever the law permits them to do. Good landlords will not, but the bad ones will take full advantage of the law. Grandfatherly admonitions from Ministers or anybody else have not the slightest effect upon them.

A very cynical misquotation is current in my constituency in regard to these admonitions to landlords. It is said, "You may take a horse to the water, but what are you going to have yourself?" I did not say that; my constituents did. The blunt fact is that we may take a horse to the water, but the landlords will have their pound of flesh.

I am pleased with one or two things in the Budget. I am glad to see that some articles of children's clothing have been reduced in price.

I am sorry that I was unable to be completely non-controversial.

5.42 p.m.

Captain L. P. S. Orr (Down, South)

I am very glad that I have been called immediately after the hon. Member for Kelvingrove (Mrs. McAlister). Making a maiden speech in this House is one of the greatest ordeals one can undertake, and the hon. Lady has come through it with flying colours. Our congratulations to her are very sincere. And why would she not come through with flying colours, when I understand that she came originally from County Donegal and had the good sense to marry a man from Ballycastle?

Mr. Sydney Silverman (Nelson and Colne)

And then they came to Scotland.

Captain Orr

And then they came to Scotland. That is a fall from grace. The name of Kelvingrove has been very well known in the House in recent times. It has been made famous and illustrious by the hon. Member's great predecessor and, from the undertones of controversy detectable in her speech, I think we may take it for granted that the name of Kelvingrove is not likely to be forgotten in the future. We sincerely look forward to hearing the hon. Lady in the cut and thrust of debate, when we ourselves need not necessarily be so quiet under the lash that she may wield.

Before coming to my main point, I want to draw attention once more to something which has often been mentioned in the House. It may appear to be a small point, because it concerns only a few people, but it is none the less important. I refer to the question of the pensions given to those members of the Royal Ulster Constabulary who formerly served in the Royal Irish Constabulary. That Constabulary was disbanded in very dark and troublous times, and a proportion of those who were so disbanded joined the Royal Ulster Constabulary, at a time when it was dangerous and in parts unpopular to do so.

They suffer from a sense of grievance of which the Home Office is well aware. Certainly my right hon. Friend the Home Secretary is well aware of it. These men consider that when the Constabulary (Ireland) Act was passed Parliament did not seriously consider its application to those members of the Royal Irish Constabulary who were joining the R.U.C. They contend that the terms of disbandment which were seen by them indicated that their compensation allowance would not be payable if they joined any form of Government service or any office of profit under the Crown. They joined the R.U.C. and, subsequent to their doing so, the relevant Bill was amended on reaching the House of Lords, and the provision concerning the loss of compensation was made to apply only if they joined the police forces.

They feel, therefore, that they are the victims of a long-standing misunderstanding, and that something should be done about it. Details of the case have been deployed repeatedly before Members of the Government and in the House. I am aware that there is a potential area of disagreement between the United Kingdom Government and the Ulster Government as to who should find the money to put the matter right, but for heaven's sake let the two Governments get together to see whether something cannot be done for these very few but very splendid men.

I now come to my main subject, and I start by saying that it will commend itself to the hon. Member for Kelvingrove. She talked about unemployment in Scotland, and I want to talk about a problem of unemployment which is even graver in extent, namely, that of unemployment in Northern Ireland. First, however, I would tell my right hon. Friend that I am one of those who believes that the broad policy of the Budget is the right one at the moment. It will not be the right one for very long. I have some sympathy with the view expressed by my hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby). Risks are certainly involved in maintaining a policy of stringency at a time when there is a possibility of a slump in the United States. But I do not share his view that there is likely to be a slump of any great dimensions in the United States.

From such contacts as I have in the field of trade and industry, I am inclined to the view that we are seeing a period of readjustment and pause, and I believe that demand will shortly be resumed, if not upon exactly the same pattern, at least roughly to the same extent. I do not believe that we are on the edge of a world slump, and my view is that trade will once again move forward in the United States and Canada.

It is therefore very important that we should appreciate the risk of the opposite policy. It is bad to be left as an island of inflation in a world of deflation, but equally bad to be left as a pool of stagnation in a general garden of exuberance.

Mr. Frederick Lee (Newton)

Does not the hon. and gallant Member agree that Northern Ireland has nothing to look for in the future? At the moment it has 10.7 per cent. unemployment, and it is against that background that the hon. and gallant Member suggests that the present policies are right.

Captain Orr

I shall come to the question of Northern Ireland shortly. We in the House must consider not only our purely sectional positions, but the position of the United Kingdom as a whole and the fate of sterling. If the policy is right for the United Kingdom, however unfairly it may operate against Northern Ireland, Northern Ireland ultimately depends upon the fate of sterling, and there would be a sight more than 10 per cent. unemployment in Northern Ireland if sterling collapsed.

I hope that the Government really are aware of the fact that it is one thing to put the brake on consumer demand but a very different thing to stimulate it again. In that respect, at least, I agree with the remarks of the right hon. Member for Huyton (Mr. H. Wilson). His analogy of the piece of string was well taken in that context. I hope, therefore, that when the Chancellor says that he is not intending to keep on the brake one day longer than is necessary, he realises that, even if he has to produce another Budget next week, we will gladly undertake the burden of listening to it, because the sooner we resume expansion in this country the better for us all.

Having said that in my view the broad policy is the right one, let me come to some of its effects—and this will deal more or less with the point raised by the hon. Member for Newton (Mr. Lee). The trouble is that when we apply a policy of financial stringency, we are bound to produce some unemployment. Looked at nation-wide it may not be anything to be seriously alarmed about. A rise of 1 per cent. over the United Kingdom may not be alarming, but it falls unevenly, and some portions of the country feel the effect in a way which is not experienced by other parts. There are parts of the country where the unemployment figure does not rise at all, and there are other parts, like the constituency of the hon. Member for Kelvingrove, where the unemployment figure rises very seriously indeed. There is one part of the country where it falls heaviest of all, and that is in Northern Ireland.

I am one who agrees with what the Chancellor said about unemployment. There are a few people whom one may sometimes hear arguing that it would be a good thing for business and for our economy if the unemployment figures were allowed to rise considerably and if the demands on labour were not so excessive. I do not believe in that policy. I think it a very bad one economically and politically. It is even a bad policy party politically. It is a policy which cannot be defended on any grounds whatever, and from the point of view of humanity it is the worst possible policy of all. An instance of it being a bad policy politically has occurred recently. I think that some of the resurgence of violence in Ireland has as one of its factors the existence of unemployment on both sides of the border. There is nothing like unemployment and a sense of frustration to lead people into wild and dangerous paths. It is a bad doctrine, as I think every hon. Member would agree.

A month or so ago, the Prime Minister said, I am determined as far as lies in human power never to allow the shadow of mass unemployment to fall upon this country", but not only has the shadow of unemployment fallen upon a part of this country, but the very repulsive body and substance of unemployment has been squatting upon part of this country for a very considerable time. When the Prime Minister talks about "this country", I hope he remembers that he is Prime Minister of the United Kingdom which is not only of Great Britain but of Great Britain and of Northern Ireland. The House of Commons, by virtue of keeping within its own power control over the financial affairs of the United Kingdom, is directly responsible in a major way for the question of employment in Northern Ireland. We hope that that will be remembered.

That we are members of the United Kingdom is highlighted by the fact that my right hon. Friend's Budget applies to Northern Ireland. During the recent debate on Malta, someone arguing against integration and the presence of Maltese representatives in this Chamber, said that it would produce the effect of Maltese representatives interfering and voting upon purely British affairs. Another hon. Member advancing an opposite argument said, "Yes, but the representatives of Northern Ireland do that already." There was an implied criticism, as if we had no right to do so. Of course we have. Not only does the old slogan "No taxation without representation" apply, but it applies also the other way round—"No representation without taxation". We are represented and we are taxed. The really valid argument which I can see against the Maltese situation is the fact that the Maltese at this stage are not prepared to accept the same burdens as we have within the United Kingdom.

We in Northern Ireland have the same Income Tax, Super Tax and Purchase Tax, and we pay the same duties on beer and cigarettes. Burdens placed on the United Kingdom taxpayers by successive Chancellors of the Exchequer are placed upon the people of Northern Ireland in exactly the same way except for very small alteration. Therefore, we have every right to criticise any aspect of taxation and any question affecting the United Kingdom from Orkney and Shetland to the Scilly Isles. We have the right to an equal voice and we claim our fair share of the national expenditure.

In some quarters in Northern Ireland, it has been suggested that we do not get our fair share of the national expenditure. I do not hold that view. Broadly speaking, I think that the annual conversations between the Treasury and the Northern Ireland Ministry of Finance have enabled us to get our fair share. Voices are raised in Ulster suggesting that what is left in the Treasury—the Ulster Imperial Contribution—is too high. I do not share that view except that I think the Ulster Government should be allowed to spend more on public works and buildings and on roads. Quite a lot could be done in that way, and in that respect I think we may claim a little more.

One claim is made in Ulster about which there is no difference of opinion between members of one creed and another or one party and another. We are all united in the claim, the still outstanding claim, that our unique position regarding unemployment is not sufficiently recognised and that nothing really effective is being done about it. We are part of the United Kingdom, as I have said, and we have unemployment running at a uniquely high rate. Something dramatic must be done. The case has been stated time and again in this Chamber, and the Committee may well be bored by the story of unemployment in Northern Ireland. We make no excuse for boring the Committee. It may be a tedious subject, and one may have to repeat it over and over again, as many of my colleagues from Northern Ireland and other hon. Members have done. But we do not apologise for doing so, and we shall not apologise or desist until something is done about it.

Let me restate the position as shortly as I can. In the debate on 24th February, my hon. Friend the Member for Londonderry (Mr. Chichester-Clark) said that unemployment in Northern Ireland was at the rate of 9.3 per cent. of the insured population. Now, as has been pointed out rightly, it has reached 10.7 per cent. We may set that figure against 3.6 per cent, for Scotland as a whole and 3.7 per cent. for Wales. Even if we set it against the 9 per cent. for North-East Scotland and the 8.5 per cent. for North-West Wales, it is still staggering, because, as the Financial Times said yesterday, in some parts of Northern Ireland about 20 per cent. of the insured population are now unemployed.

If we translate it into a comparable figure for the United Kingdom, it will be clear to anybody who has a conscience at all that the patience of Ulster representatives must by now be exhausted. We must not now simply beg the Government and the House of Commons to consider the unemployment position in Northern Ireland as a matter of extreme urgency, but we must and do demand action as an urgent right.

The reasons for the present position have been stated over and over again. I will summarise them. The first is that we have a birthrate which exceeds that of any other part of the United Kingdom.

In 1956, it was 21.1 per thousand as against 15.7 for England and Wales. Other factors are absence of National Service and absence of basic raw materials. We also have difficulties about communications and transport, and we have to make up the leeway of centuries of misgovernment in Ireland.

All these reasons are well known. What hardly anybody seems to have appreciated fully is how bad the situation is. When we translate that statistic of 10.7 per cent. of the insured population unemployed into numbers, it means in terms of England and Wales 2½ million unemployed. If that situation existed in the whole country it would not be treated with equanimity; it would not be a boring topic; it would be something which demanded immediate and drastic action. If this is not the "shadow of unemployment," I do not know what is.

Hon. Members have often heard about the measures taken by the Government of Northern Ireland, with the assistance of the Treasury—which we acknowledge—to deal with the problem. Those measures include diversification of our industry and a new industries policy under which 130 new firms have been established with Government assistance and employing more than 30,000 people. It has been announced that new industries are coming which will employ another 2,000. Assistance which has been given to existing industry through the Development of Industries Acts will employ about 5,200 workers, of whom 3,000 are men. Various other things have been done in Ulster to improve the situation and prevent it from becoming worse. They have been admirable in their way, so far as they have gone. The Ulster Government could not have done more.

In my right hon. Friend's Budget and throughout the Budget debate, we have heard a good deal about measures which the Government propose to take and about the "patches" of unemployment which may be developing in certain parts of the country. We have heard about the Bill to amend the Development Areas legislation, about directions to the Capital Issues Committee and about instructions to the banks about advances. I would direct the attention of hon. Members who may not be aware of it to the fact that these measures have all been applied in Northern Ireland for some years, certainly since the credit squeeze began, and yet they have not solved the problem. No one, including the Government, imagines that they will solve the problem. They will help very greatly, and we are grateful for them. We are particularly grateful for the direction to the Capital Issues Committee two or three years ago to look favourably upon applications for capital to be spent with us.

The problem is not really one of capital, although it is desirable to have it. What troubles us is the question of demand. The troubles of our textile industry are not due to lack of capital but to lack of demand. Even if the credit squeeze ceased to apply to Northern Ireland, that would do nothing about demand or improve the position of our textile industry. Therefore, in our view the Budget does nothing for Northern Ireland, except for what the Chancellor said about financing dry docks. We hope that his statement applies to Northern Ireland.

The building of a dry dock here and there is a matter for private enterprise. I hope that Messrs. Harland and Wolff of Belfast and other authorities concerned with this matter in Ulster will look favourably upon the prospect of building a dry dock in Belfast. There is the possibility of doing something in the constituency of my hon. Friend the Member for Londonderry. He tells me that there is an admirable dry dock there which is not being used. I trust there is the possibility of hearing from the Admiralty whether it can be derequisitioned or not, and if so, I hope the local authorities will consider this matter.

There are ways in which the Government can assist us. I hope they will proceed with the extension of Nutts Corner Airport. Projects of this kind may be small and only palliatives. If we are asking that something be done, it is only fair that the Government should ask us, "What do you want done?" It is not up to us as private Members always to have to suggest what the Government should do, because the Government have at their beck and call all the necessary resources to determine what is possible. When facing a problem the Government are responsible for solving it. We hope that they will look at this matter in that way.

I would make one suggestion which may sound fantastic and might not be administratively possible, but at least it is original. I hope that the Treasury will look at it without too broad a grin. I said not long ago that our problem was one of demand; I would like the Treasury to look at the possibility of exempting from Purchase Tax goods bearing a Northern Ireland certificate of origin. I know that it sounds odd and difficult.

Mr. T. L. Iremonger (Ilford, North)

Is that not representation without taxation?

Captain Orr

My hon. Friend says that that would be representation without taxation. It is true that this is special pleading for special treatment, but I make my suggestion in order to deal with very special circumstances.

Mr. Arthur Moyle (Oldbury and Halesowen)

I am very much interested in the speech of the hon. and gallant Member. If there is exemption from Purchase Tax for textiles, there is no reason to secure the same tax yield in other ways.

Captain Orr

The hon. Member is suggesting that we might provide some quid pro quo by providing a higher tax on the whiskey we consume. I invite my hon. and learned Friend the Financial Secretary, who I know looks at our problems with a sympathetic eye, to look upon my suggestion and give some answer about its ridiculousness or feasibility, whatever it turns out to be.

I hope I have the sympathy of the Committee in this whole subject. I know I have the sympathy of the Government, but our position in Ulster is such that sympathy is not enough; we really need something to be done. I think Harry Truman once said, when asked what in his view was the difference between a depression and a recession, that it is a recession when the fellow next door is out of work and a depression when oneself is out of work. We do not need reminding of the 1930's to understand what unemployment is. In Ulster we know.

6.12 p.m.

Mr. John Cronin (Loughborough)

It is very agreeable from this side of the Committee to join with the hon. and gallant Member for Down, South (Captain Orr) in congratulating my hon. Friend the Member for Kelvingrove (Mrs. McAlister) on her excellent maiden speech. I think that hon. Members on both sides who heard her felt the utmost pleasure and gratification. Scotland is quite well represented here today and must indeed be proud of the hon. Lady. The temperate and moderate way in which she referred to the iniquities of the Rent Act and the treatment of old-age pensioners was in the highest traditions of a maiden speech. We shall look forward very much to hearing future contributions from my hon. Friend.

Turning to the speech of the hon. and gallant Member for Down, South, which did not err on the side of brevity, I should say that he lent rather half-hearted support to the Budget. He made some very sensible contributions on the matter of unemployment in Northern Ireland. I think most of us here fear that unemployment may well spread in a massive manner towards this country in future, although we hope that will not be so.

Perhaps one of the most disappointing events this afternoon was the speech of the Paymaster-General. It seemed as disappointing as the Budget itself. No doubt the Financial Secretary will pass on these few minor comments to the Paymaster-General. Certain things he said, I thought, require further elucidation. He suggested that a great deal of weekend work occurred and that the earnings from it were not declared to the Inland Revenue. He suggested to my right hon. Friend the Member for Huyton (Mr. H. Wilson) that it would be undesirable to probe into that matter because it would lower productivity. For the Paymaster-General to adopt even a mildly approving attitude towards tax evasion seems a quite extraordinary eccentricity, to say the least.

The right hon. Gentleman also suggested that there was no strict need to control dollar expenditure because in the trade accounts we are in some degree of surplus with the United States, but he was completely overlooking the fact that we are the bankers and trustees of the gold and dollar reserves of the whole of the sterling area, Lind that the rest of the sterling area is having considerable difficulties with the dollar area. The Paymaster-General also took considerable pride in saying that investment was at a record level. In saying that, he was merely echoing the remarks of the Chancellor on Tuesday. He said that investment was at a record level and appeared to take considerable pride in that; but one thing which stands out is that ever since the days of the Industrial Revolution investment has increased on an average year by year. There has been a steady progress in investment. Therefore, one expects investment to be at a record level every year, unless the economy is going backwards. Why that should be a source of pride on the Treasury Bench is not quite clear.

It would be churlish indeed if we on this side of the Committee did not express some approval of some part of the Budget. There certainly are easements for miscellaneous categories of unfortunate people and we must applaud the help that is being given to them. We are very glad about the relief in Entertainments Duty. We pressed for that for some time, but it does not go so far as we would wish. We are also glad to see that there has been some simplification of Purchase Tax, although it still has not got back to the standard at which we left it in 1951.

While on the subject of Purchase Tax, I must, as representative of a large mining community, express some disapproval of the vicious attack on miners' helmets, footwear and garments. This illustrates the extraordinary lack of knowledge of industrial relations on the part of the Government. Why choose this moment, when the mining industry is going through considerable difficulties and when there is a natural feeling of irritability in mining circles, to introduce this extraordinarily tactless tax? It is quite inconceivable. I am quite sure that miners will feel in no way consoled by the fact that a £2,500 mink coat can now be bought for £2,300. This is the measure of the tact of the Government in this matter.

I think there is undoubtedly a case for merging the two forms of Profits Tax—tax on undistributed and on distributed profits. One must accept many of the comments made by the Royal Commission, both in its majority and minority Reports. We all know that Profits Tax as it is at present is causing a certain amount of unfairness to companies which have a high proportion of preference shares in their capital structure. We on this side of the Committee also appreciate that companies carry a continuing potential burden of having to pay back non-distribution relief; but whatever arguments there are in favour of the change, it obviously is a very contentious and difficult subject, and it seems extraordinary that such a change should have been made now, of all possible times. The inevitable effect of this merging of the two types of tax will be a big increase in dividends.

At the same time, the Government are exerting every possible pressure to keep down wages and we have the position that the Chancellor is in favour of a wage freeze and yet that dividends should boil over completely. This is a remarkable inconsistency in economic policy which I cannot follow. It also seems rather odd that the merging of the two forms of Profits Tax should affect the particular companies it does affect. A little elementary calculation, or, easier still, a reference to the front page of the Financial Times on Wednesday, points out that the merging of the two forms will be profitable chiefly to those companies whose dividend cover is less than about three and a half times.

If one looks at those groups of companies which will benefit most, one finds that they are drawn largely from the entertainment companies, stores, brewers, shoes and leather, and finance and land companies. What is the fiscal purpose in giving encouragement to these groups at this moment? Why the brewers? Why the stores? What is their immediate and important contribution to the national economy?

We find certain inconsistencies also in the Government's attitude to initial allowances. Why are they choosing this rather odd way to encourage investment? Would not it have been simpler to reduce the credit squeeze? Why are we having a situation in which the banks and the Capital Issues Committee are doing all they can to discourage investment and yet in the Budget we have this minor encouragement of investment? None of this is clear. One notices a considerable inconsistency of purpose. It would seem that the banks and the Capital Issues Committee are going full speed astern, whereas the Board of Inland Revenue is launching the dinghy to pull the ship ahead. It simply does not make sense.

A disappointing circumstance of the Chancellor's speech was his obvious determination to persist in a deflationary policy. That is something which is not clearly comprehensible. When the right hon. Member for Monmouth (Mr. P. Thorneycroft) plunged into deflation, he really was in difficulties—we were up against a serious balance of payments crisis. Surely, conditions are rather calmer now and the Chancellor could to some extent mitigate the credit squeeze. The right hon. Member for Monmouth plunged into the waters of deflation when his trousers were on fire, but there is certainly no excuse for the present Chancellor's belly dive into them.

An unfortunate feature of the Budget is that, as many of my hon. Friends have pointed out, the Government have no plans whatever for dealing with the imminent recession in this country. There can be no doubt that there is a recession ahead and we are moving straight into it. On every previous occasion when there has been a recession in the United States, this country has been affected, with one exception, in 1954, when world conditions were much more buoyant. It has been said with justice that when the United States sneezes, Europe catches pneumonia. What will happen to us when the United States has pneumonia, as it has now? It must be inevitable that we are moving into a recession. What are the Government's plans for it?

In the present recession, the United States has its highest unemployment for twenty years. The Chancellor's move is to take 2s. off a bottle of port.

Mr. Diamond

Forget your troubles.

Mr. Cronin

Exactly. The countries which produce primary products, who are our customers and who buy our exports to the largest extent, are going through the severest difficulties they have had since the war. The Chancellor thinks in terms of reducing the tax on cinema seats as the riposte to that. It seems that the Government have no plans whatever for dealing with the recession. They are simply moving ahead sans peur et sans avis.

Are the Government waiting for the recession to appear? If so, they are unlikely to do anything very effective. The Americans made the unwise mistake of waiting for the recession and now that they have it, nothing they do seems to be able to control it. It is not saucering out in spite of all kinds of efforts being made to achieve that result. We know that when the great recession occurred in the 1930s, in spite of the most vigorous action on the part of the Roosevelt Government and the New Deal policy, there was still no effective way of coping with it. It must be accepted that the only effective way of dealing with a recession is to deal with it before it comes. The Government apparently have no plans at all for that.

Another unhappy aspect of the Budget is its psychological outlook. We have been told that the country is going through severe economic difficulties, and they are obvious. We have been told that there is no room for increases in wages. We have to have a 6 per cent. Bank Rate. We carry every kind of heavy economic burden. Surely, this is the one time when the country is entitled to expect economic leadership of the highest order, and yet we have this timorous and mediocre Budget.

The effect on the trade unions is of the most tactless nature. Nothing has been done to give the railways help towards paying an equitable wage to railway workers. Nothing has been done for the transport undertakings, such as London Transport Executive, in the form of hydrocarbon oil duty reductions. There is nothing at all to give any indication to the trade unions that the Government are adopting a helpful attitude. It seems that members of the Government are quite incapable of learning the most elementary lessons of social psychology.

I turn now to what seems to me to be a more constructive approach to the country's economic problems. We have had considerable discussion this afternoon about investment. The Paymaster-General became a little confused as to the distinction between an increase in investment and an increase in production. All of us, on both sides, must realise that an increase in production by itself will not necessarily cure inflation. That is obvious, because an increase in production alone usually necessitates a large increase in imports and there is real danger of balance of payments difficulties and increasing inflation.

That does not apply to increased production when it is brought about by increased productivity. Increased productivity is a direct result of increased investment. It would be desirable for hon. Members, on both sides, to reflect why we in the United Kingdom have a much higher standard of living than countries like Spain and Finland. The reason, very simply, is that we have had a tremendous accumulation of capital equipment over the last hundred years or so. That is the only reason.

Again, one can look at what is happening in the United States. Why is the Americans' standard of living so high? Why can they always out-produce us? The reason is simply their massive accumulation of capital equipment. The United States worker is in no way more intelligent or industrious than the British worker. In fact, the average intelligence quotient of the United States worker is rather lower than that of the English worker. The American worker, however, has behind him on an average between four and five horsepower, whereas the average English worker has about one and a half horsepower of machine power. Capital equipment must be the final determinant of a country's standard of living and its competitive ability.

I think it will be agreed on both sides of the Committee that our capital investment over the last few years has been the lowest of all the countries of Europe. If any hon. Member opposite cares to disagree, I shall be happy to produce the figures; but the situation is self-evident. What does that augur for our competitive power for the future? How can we compete with other countries if we are steadily dropping behind in capital equipment? How shall we cope with the European Free Trade Area and, possibly worst of all as a menace of the future, how are we to cope with the Soviet Union?

The Soviet Union is increasing its output by from 6 to 8 per cent. every year. So far, it has not seriously attempted to compete with us economically. It has not declared any form of economic war on us, but one day that policy may change, and how do we cope with it? With this low investment policy, the prospect is gloomy indeed. Therefore, it is most urgent that investment should be increased as soon as possible, and the restrictive monetary policy dropped as soon as possible.

There are, of course, certain priorities to be given. One appreciates that if investment increases, something else in our economy must decrease to avoid inflation and balance of payments difficulties. Plenty of leeway can be made good by reducing expenditure on other things. First of all, it appears a comparatively simple matter to decrease inessential investment. The Paymaster-General referred in a rather scathing manner to building controls, and to their disadvantages with regard to factories, but he made no reference to these office buildings that we see going up all over the place in London, or to the petrol stations. There is inessential investment to the tune of millions and millions of pounds that could be easily brought into order by the institution of building controls.

The Government should pursue further the policy of differential investment allowances. We already have them for shipping and for research and heating economies—why cannot that principle be carried further? There seem to be very wide possibilities there.

Consumption can certainly be curtailed considerably. We had a reference today to having a Budget surplus, and that, of course, would certainly curtail consumption. One knows that, politically, it is undesirable to talk in terms of increased taxation, but no case at all could be made for the massive "give away" to Surtax payers by the right hon. Gentleman the Member for Monmouth last year. That is the kind of unnecessary consumption we could easily do without.

There should be a certain amount of temporary restraint in incomes, and here I refer to wages as well as to profits and dividends. Wage restraint, however, could be brought about only by some agreement between the Government of the day and the trade unions, and this Government, adopting their rather vicious anti-social policies, cannot really expect to come to a satisfactory agreement with the trade unions. The trade unions will insist upon social justice before they lend their very powerful aid to the Government of the day.

The Government, and particularly the Chancellor, now carry a very heavy responsibility. There is no doubt that, economically, the times are bad, and that there are worse approaching. We on this side feel very uneasy as to what the future augurs. All of us have a considerable respect for the Chancellor. He is probably one of the few members of the Cabinet who does not show the authentic cloven hoof. He is the white sheep of the Cabinet, but the road to a recession may well be paved with good intentions, and our only chance of getting out of this very serious difficulty is by careful and detailed economic planning.

I fear that it is of no use talking to right hon. and hon. Gentlemen opposite about detailed economic planning. It is something that is an absolute anathema to Conservative ideology, and one does not get any further. It is incomprehensible to them. It is rather like discussing nuclear physics with Hottentots. Planning of that kind is something that cannot be accepted by hon. Members opposite, but there is no hope or future for this country unless there is some careful and detailed economic planning. We cannot expect that from this Government, so we can only hope that time will pass and that an early General Election will result in a salutary and urgent change.

6.34 p.m.

Mr. William Shepherd (Cheadle)

I shall not follow the hon. Member for Loughborough (Mr. Cronin) on his nautical cruise which befitted his position as rear-commodore of a certain organisation, but I must point out that he made quite a lot of mistakes in his not too brief discourse. First of all, it is quite wrong to talk about the inadequacy of British investment. If one takes the critical investment, which is the manufacturers' durables as O.E.E.C. calls them, we are not only on a par with most people, but ahead of a great number. In terms of the percentage of our national wealth we are ahead of the United States of America, and we run very close even to Germany when it comes to manufacturers' equipment. It is quite wrong to say that we are behind, and the hon. Gentleman does no service to this country in pretending that we are.

Secondly, it is very wrong, especially in the House of Commons, to talk about our heading for a recession. Recessions are, in a large part, psychological, and great damage is done to the economy when individuals, without any authority for making the statement, say that we are heading for a recession. With 2 per cent. of the workers unemployed—which, I should think, is the lowest practical level at which any economy can possibly operate—and with a fairly high level of activity, there is no reason to talk about a recession.

Even if there were some dangers, the proper way to tackle them is for the Government of the day responsibly to take what action they can in advance of the situation, and for the rest of us to keep up a spirit of reasonable optimism which will not discourage people from proceeding with new projects, and certainly not encourage them to reduce stocks and curtail activity. I therefore hope that the hon. Gentleman will realise that, whatever his motives, he is not serving the interests of the people, and particularly the workers, when he pursues that pessimistic line.

Before coming to my main theme, which is our economic position, perhaps I may be allowed to run over one or two points in the Budget. It was not a very exciting one. I do not think that anyone imagined that it could be, because this is a period when we have to watch carefully and to be wary. My right hon. Friend struck the only possible note in the economic circumstances, but he did one or two things for which I am grateful.

I am grateful for what he did for the cinema industry. I know that some hon. Members think that more ought to have been done, and that may possibly be right as an assessment, but if it was not all that everyone expected it was more than quite a lot of responsible members of the industry thought that they would get. In my experience, it is seldom that people get more than they expect, but I think that they have done so in this case.

I welcome the slight assistance that my right hon. Friend has given to exporters. There is no doubt that we must improve our exports in the next year or so, and I am very glad that he has done something, even though it is only small, to assist our exporters with credit facilities. There is no doubt that in the export markets we are meeting an increasing tendency by our competitors to offer improved credit terms, and our exporters are finding it increasingly difficult to finance production for export. The changes that my right hon. Friend has made will, I think, be helpful, and I am relieved and reassured by his statement that if other countries continue to grant exceptional credit terms to secure business against us, we shall retaliate. One of the biggest offenders is the United States. It is very good at holding up the book to others and putting it down when it comes to its own turn.

I think we are not doing enough in the export field today. Some of the criticisms against our exporters are valid. I will quote one short criticism from The Director, a journal which would not be assumed to be entirely without a favourable slant towards British industry. It is a comment on the export race: Strangely enough, the shortcomings"— that is, of British goods— are not major ones. As they would be, for instance, if the cost level were significantly higher than that of our major competitors. They appear to be rather a lot of little things such as unsatisfactory finish on certain products, consumer as well as industrial, lack of suitable colour, lack of adequate promotion and unenterprising publicity. The article goes on to discuss refrigerators, and shows that German refrigerators are in many respects, although dearer than ours, superior in design and finish. We surely need to do something about this. It is the same with washing machines. German designs and finish are often superior to ours. With typewriters, the British have not begun to get anywhere near the Germans. There is no reason for this. We ought to be able to do a lot better. I hope that exporters in various fields will be encouraged to do better than they are doing at present.

None of us has any sympathy with tax loss operators and dividend strippers, but I cannot feel that our lack of sympathy towards these individuals should compel us to approve retroactive provisions. I hope my right hon. Friend will reconsider the matter. A very small amount of money is involved. For a small gain in terms of cash we are sacrificing a very important principle.

Mr. Paget

A warning was given.

Mr. Shepherd

It does not matter about warnings. If a man believes something that he is doing is legal when he does it, the Executive ought not at a later date to make it illegal.

I hope that we have not abandoned the hope of doing something to reduce the general level of Surtax. Surtax at the level of £2,000 is hopelessly low. I look forward without any concealment to the time when the Government will raise the Surtax level to £5,000. It ought to be done, and I hope my right hon. Friend will be able to do it in his next Budget.

Mr. Diamond

Does the hon. Gentleman anticipate that the next Budget will be next autumn or next spring? In either case, will it be before the General Election?

Mr. Shepherd

I do not have the hon. Gentleman's gift of prophecy. Knowing my limitations, I will not attempt to prophesy.

I approve of the Profits Tax alterations, although I realise that there are certain disadvantages. If one wants to change a system which has admittedly been wrong in principle, one cannot do it without certain disadvantages. On the whole, I feel that the advantages materially outweigh the disadvantages, and I congratulate my right hon. Friend upon being courageous enough to make the change.

I do not think, as did the hon. Member for Loughborough, that we shall see any tremendous change in policy as a consequence. Companies are like human beings. They have certain policies, out looks and characteristics, and will not change them overnight because of an alteration in fiscal policy. Firms which are by the nature of things conservative and industries which require large sums for development—the growth industries—will stick to their profits and plough them back. Those in industries like brewing and entertainments, where the growth is not so large, will stick to their policy of paying out rather more. I do not think we shall get such a dramatic change as hon. Gentlemen opposite imagine. I was surprised the other day to find that the retention of savings by companies today is a lower percentage of total saving than it was before the war. That is surprising, but it is a fact.

May I turn to the general economic situation? Since the war we have fought three successive battles—first, the battle to secure redeployment after the upset of the war; secondly, the battle for production and exports; and, thirdly, the battle against inflation. Looking at our post-war records, it must be admitted that we fought the first two battles rather well. We redeployed fairly successfully, and we certainly did extraordinarily well in the battle for production and exports.

However, in the third battle we have failed in a very grievous way. Judging by what I hear from hon. Members opposite, they are almost prepared to fail in this battle. They are prepared to sacrifice the soundness of the currency to some gain in production. That is very misconceived, and I hope that if hon. Members opposite return to power they will never pursue that objective.

Why have we failed in the battle against inflation? I am here talking about the Conservative Party's part in the battle. I think we have failed because of lack of decisiveness. It is terribly hard to fight inflation in a modern democratic society. One has to use with absolute decision all the limited resources at one's disposal; and we have not done that. Often we have done something to help and something to harm. Some little time ago we were restricting credit and at the same time reducing taxes; these things were clearly in conflict. It is like the Socialist policy of applying physical controls and then steaming up the economy with cheap money. The lesson to be learnt by the country and all of us is that we cannot afford to allow the economy to get out of control.

What we have failed to do in the past six years is to find the mechanics with which to keep a given level of demand We have not got our mechanics right. This applies not only to the Conservative Party, but to hon. Gentlemen opposite. We have to find a means by which, without pettifogging restrictive controls, we can keep reasonable control over the level, pace and growth of the economy.

I do not pretend that we have done that in the last years. I do not think that putting up the Bank Rate last year, although the measure succeeded in its particular purpose, was in any way a weapon of any discretion or refinement. Indeed, I hope that my right hon. Friend is not too impressed by the Bank Rate method. In present conditions it is exceedingly difficult to get any results from the Bank Rate, for reasons into which I will not now go.

One of the main difficulties in controlling the economy in present-day conditions is the extraordinary strength and financial soundness of our public companies and corporations. It is very hard to restrict the total volume of money when public corporations have so much in the kitty. It is awfully difficult, as we have seen in the last eighteen months or two years, to get results from restrictive policies when these corporations have so much money and so many resources behind them. Unconsciously, in the last eighteen months, public corporations and companies have almost sabotaged the Government's policy to fight inflation.

Why do I say that? If we look at the broad figures we find that, after putting roughly £4,000 million gross into British industry in the past two years, we have had little or no increase in production. This means, in effect, that the companies concerned have spent the money and improved their technical equipment but have not increased their production. It means that they have continued to employ people whom they did not strictly require. This is a very dangerous process and we have seen it happen in the United States. When it became clear that it could not go on, there was a very dramatic pushing out of all surplus workers. A dangerous situation then arises.

Mr. Frederick Mulley (Sheffield, Park)

How does the hon. Gentleman reconcile his present argument with his earlier remark that anyone who suggested that there might be a recession in this country was doing a great disservice? It is along the lines of the argument that he is now deploying that we come to that sort of conclusion.

Mr. Shepherd

I am not saying that we are now in this danger, but companies retaining staff that they did not need over a long period could bring about this result.

We are now seeing some of the consequences of the Government's policy. The results have been delayed by the policy of retention based upon the big resources behind these companies and by the expectation that at a later date they may require these employees. I feel that the Government ought to make this most serious state of affairs known to public companies and corporations. If there is to be this resistance to, and—although unintentional—almost sabotage of, the Government's policy, we have to push ourselves on to a more deflationary line than is strictly necessary. If we could have an immediate correction we should be able to deal with the situation without having to go to such lengths. I hope that the Minister will try to make this known to industry.

Mr. John McKay (Wallsend)

Will the hon. Gentleman tell us to which industries he is referring and what kind of goods they are producing? Are the goods for home consumption or for export?

Mr. Shepherd

I think that it applies to almost the whole of industry and to goods produced for export and for home trade.

Obviously our objective is to secure expansion without inflation. Obviously that must be the prime purpose of our policy; but we have not succeeded as yet in this purpose.

I deplore the talk about stagnation which has come from hon. Gentlemen opposite. It is not true. It is not right to talk—as the right hon. Member for Smethwick (Mr. Gordon Walker) did in an otherwise excellent speech—about there being three years' stagnation. We must try to get the picture in perspective. If we take the years from 1954–57, we find that during that period we have had a total rise of 10 in the index of production. If we take 1953–57, we have had a 19 per cent. increase—an increase of a little less than 4 per cent. per annum over five years. This cannot be represented as stagnation, and it is wrong of the right hon. Gentleman to represent it as such.

Mr. Gordon Walker

What we say is that there has been stagnation for two and a half years. That is undoubtedly the fact. The tables in the Economic Survey make that perfectly clear. We do not say that there has been stagnation over four years, but two and a half years.

Mr. Shepherd

The tables do not make that clear at all.

Mr. Gordon Walker

If the hon. Gentleman will look in page 38, he will see that that is so.

Mr. Shepherd

I will read to the right hon. Gentleman the tables that are given in the Cambridge Economic Survey. I will give the index for the various years. In 1953 the figure was 136; in 1954 it was 146; in 1955 it was 154; in 1956 it was 153; and in 1957 it was 156. Those figures do not show stagnation in the year 1956. According to the Cambridge Economic Survey, these figures show an increase of three over 1956.

Mr. Gordon Walker

This is a table of production at stable prices?

Mr. Shepherd

These are obviously stable prices.

Mr. Gordon Walker

No; they cannot be.

Mr. Shepherd

If they were not stable prices, they might be very much larger. It is wrong of the right hon. Gentleman to talk about stagnation when last year, according to his own statement, the volume of production went up by 1½ per cent. We cannot talk about stagnation and at the same time have an increase of 1½ per cent.

In the past years our expansion has been too fast. I do not believe that it is possible for us to increase production by 5 and 6 per cent. per year, to finance defence and Welfare State programmes and at the same time keep stable prices. If we cannot reduce defence expenditure, if social security expenditure cannot be materially lowered, in order to maintain even prices, we have to reduce the pace at which we expand. That may be very objectionable. Indeed, I think that it is. I should like to see a fast rate of expansion, but not expansion encouraged at the cost of increased prices. It is clear that we on this side would prefer to have a reduction in the pace of growth rather than have growth at any price. I hope that when the country makes a choice between those two views, it will accept ours.

In conclusion, I hope that my right hon. Friend the Chancellor will try to develop the mechanics that we need to keep the economy in proper control and, in particular, to keep the volume of money under control. No one can pretend that the existing mechanics for controlling the volume of money are in any way adequate. We must try to produce a new method for controlling the volume of money. Secondly, we have to try to make sterling more secure. I do not intend to go into the means by which that might be done, but I am satisfied that we must try to make sterling more secure so that we can proceed towards industrial expansion without undue risk.

I approve in general the Government's policy as expressed in the Budget. I am not prepared to acquiesce in a policy of increasing production at any cost. I believe that a period of consolidation and utilisation of existing capital investment is the right policy at present. If we can have a period of stability we shall then have a foundation upon which we can build and proceed which will be much sounder than we have had in the past.

7.0 p.m.

Mr. John Diamond (Gloucester)

I am more than glad to be able to follow the hon. Member for Cheadle (Mr. Shepherd) and to congratulate him, if I may without embarrassing him, on putting his finger on something which worries us a great deal on both sides of the Committee. It is one of the reasons for the lack of increase in industrial production—namely, the fear which is in the minds of many employers that if they lose labour which at present they employ, but not fully, they will not be able to recover that labour when the time arrives of increased orders and increased production.

This is based on past experience of a number of years since the war when, as every employer knows, the trouble of reorganising as a result of a temporary reduction in labour and reorganising again with a full flow of labour has played havoc with the production lines, with a good deal of unnecessary expense and causing quite unnecessary unhappiness and upset to the employees. It is therefore very understandable that this unnecessary retention of labour should go on, but the hon. Member is right in stressing it as one of the obvious causes.

We have been told, and we accept, that investment has risen satisfactorily for some years. It should have gone up more, but in any case it has gone up. That means that there should have been more production per man. On the numbers employed, there should have been greater total production. Why has this not happened? Hon. Members opposite, with the Chancellor heading them, say that this is the direct fault of the workers, who have apparently not played their part. That is the thought underlying everything which has been said from the Government Front Bench since I returned to the House in November. Everything which has been said has implied that problems arise from excessive wages in relation to lack of production, the implication being that it is up to the wage earner to do something about increasing production, ignoring all the time the essential fallacy in the argument that the last person who can control production, and particularly productivity, is the wage earner.

He does the job he is told to do, and if he is given the tools and the time and, if necessary, an extended time to do it, he will use the tools and produce the goods. If he is not given the work to do, which is clearly what is happening at the moment, and if he is retained by an employer without being fully engaged, knowing full well that when the present job is finished then, as a result of Government policies, there are no further jobs to follow and there is not that pressure of demand which is essential to keep firms working at top rate and efficiency, it is inevitable that there will be a falling off in production. This is caused essentially by Government policy working through the employer, and there is nothing whatever that the employee can do about it.

It is high time that the Government ceased this silly argument, which does nothing except cause disservice to labour relations. The Chancellor repeated the same sentiment in his Budget speech when he said that we must take care to see that wage earners increase their production so that they can have increased wages, even though this will only keep them at a stable standard of living.

Having congratulated the hon. Member for Cheadle on making that important point, may I say how profoundly I disagree with him in practically everything else he said? In particular, he started by criticising my hon. Friend the Member for Loughborough (Mr. Cronin) for drawing attention to the fact that we are certainly heading for a recession if we do not do something about it. I wish every hon. Member would continually din that into the Government Front Bench. I have never seen such a lackadaisical Front Bench in the face of such economic difficulties. They have carried laissez faire to the extent that the accent is on the laissez, except that it is spelt "lazy".

We had a languid speech from the President of the Board of Trade; the tones could not have been more languid if we had been at the height of a business boom instead of facing unemployment in various areas. We had a great deal of volubility, which convinced nobody, from the Paymaster-General, and from the Chancellor we had a Budget which is as lacking in the economic leadership which the nation needs so urgently at the moment as any Budget I have ever heard. I was bitterly disappointed because, like all other hon. Members, I bear the right hon. Gentleman the greatest good will and respect his personal qualities. I have been told that it is to be regarded as a housewife's Budget, and no doubt the right hon. Gentleman must have drawn on the rich experience of his married friends in order to achieve that admirable result.

I have been looking through it to see the points on which I could comment. One way of assessing the economic effect of the Budget is that of turning up the statement which shows the proposed changes. If one looks at the proposed changes, one gets a good idea of the weight of this Budget. In the Inland Revenue figures, there are ten changes totalling £4¾ million out of a total Inland Revenue collection of £3,000 million. The Budget's effect on the Inland Revenue duties is the grand sum of one-sixth of 1 per cent. That is the measure of the imaginativeness which the Chancellor brought to bear in his Budget proposals. I do not want to exaggerate it; there are ten proposals which together make up one-sixth of 1 per cent., so that on average each proposal has had an effect equivalent to one-sixth of one-tenth of 1 per cent. of the revenue collected.

To call it a mouse of a Budget, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) did, is an exaggeration which my right hon. Friend rarely permits himself. It is not a mouse; it is barely the flea in the mouse's ear.

Dr. J. Dickson Mabon (Greenock)

It is the microbe on the flea.

Mr. Diamond

Among the figures, one word—negligible—is repeated seven times. Against Income Tax and Profits Tax for 1958–59, it says "negligible"; Profits Tax, negligible; enlargement of life interests, negligible; Customs, spirits, negligible; Excise, spirits, negligible; motor vehicles duties, negligible. After all that, is it surprising that one is driven to conclude that the Budget as a whole is negligible?

Out of the personal good will which I bear the Chancellor, and to continue my disagreement with the hon. Member for Cheadle, may I offer the right hon. Gentleman all the support I can—and it is clear that he will need it—in retaining the wise principle which he has incorporated, not for the first time, in these Budget proposals of retrospective legislation against tax avoidance? I refer to the dividend stripping proposals, the legislation against which include a very clear warning that if that legislation did not have the necessary effect further statutory provisions would be introduced to give effect back to the date of that warning.

As long as there is a warning of that kind issued at the time, referring to the date to which the retrospective action will be effective, and provided that the date is not earlier than the date on which the warning is given, and provided that the principle involved is easily understood and quite obviously related to the matter against which legislation is framed, I say that to deprive the Revenue of that weapon would be a great disservice to the country and would be extremely costly.

The hon. Member for Cheadle has spoken in terms suggesting that this is a small amount. It is £4 million this year, but that is negligible compared with the amount involved if the Chancellor will only stick to his guns, because by doing so he will announce clearly to all those who at the moment are engaged on getting round tax provisions of this kind that this sort of activity will not pay in the long run.

I can speak with some knowledge and experience of this, and I would say how much one regrets that the kinds of able people, which ought to be directed to constructive action, to production, are directed to increasing their net wealth by getting through loopholes in tax provisions. It is perfectly clear what the dividend stripping arrangements were intended to achieve; it is perfectly clear what the legislation was intended to catch. The fact that a new partner has been introduced to the company with rich reserves makes not the slightest difference. The essential object was to strip. It is quite easily recognisable by all those concerned.

I therefore congratulate the right hon. Gentleman most heartily on firmly bringing into his Budget this proposal, following precedents which are not young, which were established in the 'thirties, respectable precedents created by both sides of the Committee. I hope he will not be induced, either by The Times or by his own back benchers, into taking away from the Revenue an absolutely essential weapon whose use will save an enormous amount of trouble and cost to the Revenue in future years.

This is, of course, not going anything like far enough. If the right hon. Gentleman wants to get rid of tax avoidance problems for all time, he will not achieve it by approaching the matter in this limited way. He will never achieve it until he sets his mind to the task of eliminating the difference between capital and revenue and the difference, for death duty purposes, between life and death.

As between capital and revenue, everybody knows that the way fortunes are made is by accumulating income, converting it into capital and selling it at a rich, tax-free profit. As long as the barrier which is erected by the Revenue is a barrier between the stony ground inside the barrier, where every one of us has to earn a difficult living and pay tax on it, and the lush green fields on the other side of the barrier where capital gains, capital profits of this kind, are to be made and are so very attractive in terms of money, so long as the barrier is a barrier between those two, it is not surprising that the barrier is not regarded as a barrier but as a challenge, and there will be some of the best minds in the country devoted to finding methods by which to scramble under it or over it or through it.

Once the territory on either side is more or less the same, although I do not say the rates of capital profits or revenue profits should be exactly the same; once it makes no difference whether a man dies leaving a great fortune or distributes his money legally to his family; once he is quite sure, whether because of capital profits tax, capital gains tax or gifts tax, in the way they manage their affairs so sensibly in the United States—once we have achieved that sensible state of affairs—people will, of course, find their minds are not preoccupied with tax avoidance but getting on with a sensible job.

There is this great difference between people in the City of London and New York. Every second thought of every person who is responsible for any transaction in the City is, what will the tax effect be, and what will the net result be? That is a thought which hardly enters into the mind of his American opposite number. It makes no difference to him which way the thing is organised, so he gets on with his job.

I do not expect the Chancellor to go quite that far on this occasion, but I hope that at all events he will hold his ground very firmly in the limited retroaction which he has provided for in his Budget.

There is another matter on which I should like to welcome what the Chancellor said, although he did not carry the logic of his argument to its final conclusion. He said that when he was in industry he was impressed by the wisdom of writing off plant reasonably fast so that one could change it for better plant whenever the opportunity arose. He was, therefore, proposing to increase the initial allowances by—I think it was—onequarter, from 20 per cent. to 25 per cent.

I share that view. It is a wise thing. I dare say that the Chancellor would agree with me that it is part of our failing as a nation that we are too conservative-minded, especially in relation to writing off depreciation of plant. However, he did not take the matter to its logical conclusion, and I invite him to consider adding to the freedoms of which Conservatives so often talk, the freedom to write off, the freedom to depreciate.

There is no earthly reason why there should be any difference between the amount which a company decides to write off and the amount which the Inland Revenue allows over the total life of plant. There is no cost to the Revenue of any amount at all. In the early stages there might, perhaps, be some safeguard necessary to protect the Revenue, but when a man decides in drawing up his balace-sheet that he will replace the plant in ten years, which is normal, or in less because he wants to make a change-over more quickly, why should he not have that liberty and the Revenue allow it?

The whole attitude of the Revenue vis-à-vis the taxpayer is that it shall be for the taxpayer to decide how to run his business, without interference by the Revenue, and for the Revenue to collect the tax on any profits. The Revenue never attempts to say, "You are unwise to do this and, therefore, we shall not allow it as expenditure." It always accepts the wisdom or the lack of it of a person who runs his own business—except in this one case of the depreciation of plant. In this case it goes against its normal approach, against the normal approach of the Conservatives, against the argument which the Chancellor himself deployed. I can see no reason, therefore, why he should not at all events consider going this further stage and adding to the freedoms one which would be welcome in industry generally.

Mr. Geoffrey Stevens (Portsmouth, Langston)

I entirely agree with what the hon. Gentleman has just been saying, but is it not in conflict with what his right hon. Friend the Member for Huyton (Mr. H. Wilson) said yesterday? His right hon. Friend was talking about restoring investment allowances and the difference between that and increasing the depreciation allowance, the capital allowance, but whatever the company chooses to write off, in one case it may get only 100 per cent. of the cost of the asset, in another case it may get more than 100 per cent. Is the hon. Gentleman in conflict with his right hon. Friend?

Mr. Diamond

I am never in conflict with my right hon. Friend. I am always grateful for interruptions by the hon. Member for Langstone (Mr. Stevens), and he has reminded me of something I omitted to say, namely, that what I am suggesting would not in any event limit the freedom of action of the Chancellor at any time to encourage or discourage investment in plant, because, in addition to what I am saying, he could have investment allowances which would give a total of more than 100 per cent. at any time. I am grateful to the hon. Member, and I think I have indicated that what my right hon. Friend was saying was just as apposite as it always is.

One further thing I should like to thank the Chancellor for, though again it is regrettable he has not gone far enough, is his proposals for the Entertainments Duty on the cinemas, Although during the six years during which I was resting from this place I had considerable responsibilities in the cinema exhibition industry, I have no longer such responsibilities or interests and have, thereore, only slight knowledge of the facts and have no personal interest to declare.

I disagree wholeheartedly with the Chancellor's approach to this matter of Entertainments Duty on cinemas, and there are three things which I should like to draw to his attention. He has received a document, as I am sure we all have, showing that if there were no Entertainments Duty on cinemas for the year we are discussing, that is, to May, 1959, there would still be barely sufficient income to cover the necessary outgoings of the cinemas of the country. If there were no Entertainments Duty, they would not be able for this year to make any profit, provided that these figures are accurate, and all one can say about the figures is that in the past they have been conservative and have been shown to be optimistic as regards the future.

The second thing I want the Chancellor to realise is that the industry would be in this unsatisfactory position notwithstanding the fact that the wages paid to the employees are ludicrously low, so low, in fact, that the safety of the public is affected. May I explain that one of the essential safeguards for the public is that there should be a sufficient number of operators in that box behind the audience which reproduces the film on the screen? Notwithstanding the fact that they have been negotiated with such ability by one of my hon. Friends, the wage rates are so low that they are not sufficient, no matter how hard one tries, to attract young men to this industry, having regard to the unsatisfactory hours.

As everybody knows, we expect our entertainment in the evening, and when we have gone to the cinema and gone home again, the operators have to finish off their job and catch the last bus or train, or walk it. These are unsatisfactory terms of employment, and the result is that we cannot get sufficient men or boys, so that a cinema is often inadequately staffed. This is against the rules, and the local authority responsible for maintaining the rules can do nothing about it. The responsible officials find out, and they say "I was not here today; I will come again tomorrow. Try and find somebody else."

The third thing I want to point out to the Chancellor is that the exhibition side of the cinema industry is already penalised as far as taxation is concerned, and I am now talking about Income Tax. One of the major items of expenditure concerns the amortisation of the lease. Companies generally have to pay a premium to get hold of a furnished cinema, and this premium they write off in amortisation over the period of the lease and it is a very heavy item of expenditure. For tax purposes, they get no allowance whatever. The average cinema exhibitor would be penalised by taxation, as against another trade, would be unable to pay satisfactory wages and would still make no profit if there were no Entertainments Duty whatever for the year 1958–59.

In these circumstances, I say that it is nonsense to talk about giving part of this duty away. There is no justification for raising any duty whatever. I make this statement myself. I do not represent the trade, and I have not been asked to make this speech. The arguments which the trade put forward were weak arguments, and perhaps I may put this point forward the better because I see the position from the outside. The trade asks for abolition, but it should not have to come asking. It is the Chancellor who has to stand up at that Box and justify taxing an industry having no taxable capacity. The Chancellor can tax an industry's taxable capacity, but he cannot tax it out of existence, and that is what the Chancellor is doing at present.

I know that the Chancellor understands the problem, and that, otherwise, he would not have made this reduction. I know that he understands the problem of the small cinema, but these are the facts. I will not go into them in any more detail. That is the information which I wish to put before the Chancellor, and I am sure that he is receptive to ideas of that kind.

May I finally make two comments on Profits Tax and one or two about expansion? So far as the Profits Tax is concerned, it is without doubt true that the differential rate in the tax which has hitherto prevailed encourages saving, encourages the productive use of these savings, and prevents the fragmentation of these savings by their distribution to a large number of individual shareholders, each of whom, individually, cannot make use of them. It is no use saying that they will put that money in the bank, that the bank will lend the money, and that as a result the money will be collected together so that a new industry will be able to be created. We could say exactly the same about a company which retains its profits, does not use them, but invests them in gilt-edged or what we like, so that they are available for loan or use by some other industry.

We have had the Report of the Royal Commission quoted before time and time again, and an hon. Gentleman quoted it last night. We are all equally adept at quoting the bits that suit us. One hon. Member opposite today quoted the Minority Report of the Royal Commission on the Taxation of Profits and Income. I am going to quote the Majority Report in favour of what I am saying. The majority looked at the arguments and weighed them, and I admit weighed them with different scales from those I would use, but the arguments are still there, so let us have a look at them. This is what the Majority Report says in paragraph 5391, referring to the existing scheme of the Profits Tax: It had and probably still has some influence in encouraging the retention of profits for use in business at the expense of distribution. Further, the differential structure … is likely to give a limited encouragement to the application of profits in some new venture or expansion of activity; The majority do not regard this argument as being more weighty than the argument the other way. I do. There are further arguments which apply.

Mr. Stevens

Before the hon. Gentleman leaves the Report of the Royal Commission, would he quote the conclusions of the Majority Report, which he has, for some reason, failed to do?

Mr. Diamond

I have already said that the majority weighed the arguments differently from the way I weighed them, and came to a different conclusion. I have already said that: but I am a Member of Parliament, and I am supposed to do some thinking for myself. I weigh the evidence, and I draw my own conclusions. I put them forward in this Chamber, and the Committee can either accept or reject them. I refuse to deny myself the right to think.

If I may, I will now go on to tell the Committee of the effect of this additional distribution which is likely to take place as a result of the equalisation of the rates. Here I quote from The Times of yesterday, because it is a reliable paper to quote from, and because if one refers to it sufficiently frequently at least one respectable newspaper will comment on one's speech.

I find figures set out for a number of companies showing what the last dividend was and what it would be under the new Profits Tax rate, without affecting their reserves one farthing. Here are some examples: Charrington's Brewery, was 15 per cent., would be 25 per cent.; Whitbread's, was 24 per cent., would be 30 per cent.; City of London Real Property Company, was 9 per cent., would be 12½ per cent.; another property company, the London County, was 15 per cent., would be 19½ per cent.; Decca, an Electrical Company, was 43¾ per cent., would be 54 per cent., without affecting reserves.

As the Committee knows, when directors get together to decide on a dividend, they are moved by one of two considerations, either the dividend or the reserve that is to be left. Those who are moved solely by the amount of dividend want to keep it at a maximum figure irrespective of what reserve is left. What happens to those companies? Obviously, they will be able to increase their dividend.

Let us consider the other approach, where a company decides on the size of its dividend not because of the dividend, but for reasons of its reserves. If they put the maximum amount to reserve, there will be more to distribute in that case. Whichever way one looks at it, therefore, there will be more to distribute, and, indeed, more will be distributed.

Just in case it is thought that some horrible Socialist is saying these things, let me read tonight's Evening Standard and hold it open in case hon. Members opposite cannot see the headline, which states: Socialists head for 80 majority"— not in this House, but merely in the London County Council. The Evening Standard asks: How careful are our companies in dividend paying? It states that, by any measurement, many of them are much too careful and that with the change in Profits Tax, their policies should be reviewed. Last year, nearly 3,000 companies announced dividends. On the average, they were covered just over two and a half times by profits. The Evening Standard adds: Those firms that exceed this average should now take a more liberal dividend line. Today's message from the county council elections is that a 'freeze' on dividends is a possibility to be reckoned with. If the Socialists get back to power, they will surely clamp down on them. That is an invitation to all companies who can afford it to increase their dividends as a result of the variation in the Profits Tax rate.

I do not know what the Financial Secretary will tell us about the Chancellor's attitude to this. The right hon. Gentleman did not say one word in his Budget speech about restraint in payment of dividends. The Evening Standard refers to the possibility of the Labour Party restraining dividends. Is the Conservative Party doing anything to restrain them? Can we be told at the end of this debate whether it is the view of the Conservative Party that dividends should be restrained? Further, what method does the Conservative Party now propose to adopt? The Chancellor having rejected fiscal encouragement to dividend limitation, what weapon is left in his Amory? It is certainly not the weapon of exhortation.

No responsible company will again listen to a Chancellor saying, "Do not pay too large a dividend", after the lesson which is being given in the Budget, under which the responsible directors will be penalised and the irresponsible get the advantage. No company director will in future listen to a Chancellor on his pure request to reduce dividends. In short, we are in for a dividend spree.

Mr. Stevens

I apologise for intervening again, and I am grateful to the hon. Member for giving way, but the statements that he is making are so remarkable that they need a little correction. Is he aware that if he turns to Table 2 of the National Income Blue Book for 1957 and compares 1938 with 1956, he will see that wages and salaries have increased by 291 per cent. and dividends have increased by 94 per cent. in the same period? If he has the Blue Book available, he will see that those figures are correct. How he can then talk about a dividend spree is beyond my comprehension.

Mr. Diamond

I do not have the Blue Book available, but I know that the hon. Member refers to it regularly. I know that he reads it with care and I accept his figures. He quoted from it in his speech last night, to which I listened with great interest and without making a single interruption.

The short answer to the point behind the hon. Member's intervention is that it is interesting that he, like many others, regard 1938 as the year when morality was so widespread that everything in the world was right. I regard it as a year when most things in the world were wrong. I have spoken of a dividend spree because I stand for an increasing share of total production for the worker and a reduced share for the non-worker. I shall go on standing for that as long as I can stand up.

I was asking the Financial Secretary what method the Chancellor will use, if he uses one at all, to encourage dividend restraint. Or will he adopt the line of his hon. Friend and say that dividends are proportionately miles behind what they used to be and, therefore, they should be allowed to go up? If he does this, he will be merely adding a slap on the other side of the face of the worker which the Chancellor already slapped during his Budget speech by introducing an enactment of this kind at a time when wage earners are being told by the Chancellor that they must not expect any benefit from arbitration awards and when the Chancellor adds in his Budget speech that private employers should also take note of what he has said and that he regrets very much that private employers have by agreement given increases in wages.

At the same time as he does all that the Chancellor wants to introduce an enactment which tells us that dividend receivers shall be encouraged to have greater dividends. If that is the attitude of hon. Members opposite, we shall he glad to know it precisely and to know that it is true, as we have been saying for a long time, that the Conservatives are concerned solely with keeping the wage earner down. They are satisfied that he has had too rapid an advance in relation to others and that we should get back to 1938, in the words of the hon. Member for Langstone, as fast as possible.

My final word concerns production. Much could be said, and has been said, by my hon. and right hon. Friends better than I could say it. What emerged today as a result of the speech of the Paymaster-General was that whereas the Conservative Government were previously exhorting an increase in production and recommending the nation to take every possible step towards increasing production, their knowledge of the lack of any increase in production over the last two and a half years, of stagnation, is driving them to concentrate all their arguments on justifying the new principle that they do not want an increase in production. They suggest that it is the last thing we want, because it would endanger our whole economy.

It is true, as the Chancellor said, that we will not continue to have production unless we have a stable £. That is one aspect of the truth. Another and more important aspect, however, is that we will not have a stable £ unless we have a strong economy founded on full and increasing production. It is because the Government are running away from their responsibilities in that direction that the Budget is to be criticised.

7.38 p.m.

Mr. R. Gresham Cooke (Twickenham)

During most of the afternoon hon. Members opposite have been painting horrific pictures of a forthcoming slump. If the hon. Member for Gloucester (Mr. Diamond), as I take it he does, believes what his hon. Friends have said, he need have no fear about increased dividends, because profits will be reduced; and whatever the merging of the Profits Tax may bring, the dividends would most certainly be reduced if there was a slump. If the hon. Member has any fears on that score, his hon. Friends ought to be able to satisfy him.

I was sorry that the hon. Member took such a gloomy view of the Budget as to be bitterly disappointed with it. As an accountant, he will realise only too well that a large number of people are pleased with the Budget. Apart from the Purchase Tax changes, I refer to a number of small adjustments which have removed annoyances and frustrations. There is the removal of Stamp Duty in connection with the purchase of houses; Income Tax reliefs for elderly people and—a small matter, but one which has caused annoyance—the allowance of subscriptions to institutions to rank for relief from Income Tax under Schedule E.

I should like to give an example in this respect. A dentist in my constituency tells me that when he was in civilian life he was able to charge his fees to the British Dental Association against his income, but when he joined the Army he was not allowed to do so, under Schedule E. That was a matter of considerable frustration to him, but it is now going to be put right.

During the past two days the main attack on the Budget has been that it is restrictive, and will hold down production. The right hon. Member for Huyton (Mr. H. Wilson) produced the fantastic idea that our industrial production last year should have been £3,700 million higher than it was. He cannot have thought this matter out very far. He certainly cannot have thought out the consequences of his grandiose assertion, because one-fifth of the value of our finished manufactured product is represented by imported materials, which means that to achieve an extra £3,700 million worth of production we should have had to increase our imports by no less than £700 million, which almost equals the total of our reserves. I can imagine that the Chancellor of the Exchequer would have a fit if any such thing happened in practice.

To pay for these additional £700 million worth of imports we could have tried to increase our exports, but to do that to the extent necessary, which would mean raising our exports by 20 per cent., would be a prodigious task, and quite outside the possibility of achievement. If we had adopted the right hon. Gentleman's ideas we should by this time have run into a gold and dollar crisis of colossal magnitude.

When I entered the House, three years ago, the motor car industry had boosted its production to record heights, and the right hon. Gentleman was a vociferous critic of our importation of American steel sheet for the purpose of carrying out that production. I am sure that if the Government had increased our national industrial production by this colossal figure the right hon. Gentleman would have been one of the foremost critics in the light of the consequences that would have ensued.

I want to consider the criticism which has been freely made that this is a holding Budget, designed to keep inflation in check. We can quote all kinds of figures, either way, to prove a case, but this is a case where we have to exercise our own judgment—and my judgment is that even now it would be suicidal to let up on the inflationary pressures. There are still enough of them around, ready to raise their ugly heads at any moment. I believe that we killed the demand inflation by putting up the Bank Rate to 7 per cent. in September, but the fear of cost inflation is still a very live one.

The other night I had the interesting experience of listening to Mr. Frank Cousins in a discussion on the radio in the north of England. Other hon. Members may have heard it. Mr. Cousins took the view that anything which was good for the trade unions must be good for the country. He argued that since there were nine million trade unionists in this country, and since they represented, with their families, between 20 million and 25 million people, thereby comprising almost a majority of the population, what benefited trade unionists must benefit the nation. That proposition cannot be true by itself. Trade unions are a sectional interest, and I would ask Mr. Cousins and others to remember that.

Let me give an example. If the wages of trade unionists rose tomorrow by 10 per cent., since the labour content of manufactured goods is between 40 per cent. and 50 per cent. prices would have to rise by 5 per cent. straight away. That might or might not be good for the manufacturing industry, but it would be bad for old-age pensioners and others living on fixed incomes, besides salaried persons and many others. We cannot fairly argue that any increase for trade unionists must benefit the rest of the community.

We have a system of industrial courts and arbitration tribunals who make their awards on the best evidence available. If trade unionists were to flout those decisions generally—which, thank heaven, they do not—we should run into economic and industrial anarchy. The Government must, therefore, continue to give a lead against cost inflation. One of the complaints which hon. Members opposite raise against the Budget is that it gives just that lead. It is a lead that I encourage.

Having been in or connected with industry for twenty years, I can say that I never remember a time when, in the industry with which I was connected, somebody or other was not asking for higher wages or salaries.

Mr. Charles Pannell (Leeds, West)

Including yourself.

Mr. Gresham Cooke

Including myself. Fortunately, there was somebody above me who could control me.

There were times for employers to yield, and times for them to resist. We should not take fright at the claims which are now being put forward. If the men in London Transport wish to withdraw their labour they can do so, but the public, the employers and the Government know that the decision of the Industrial Court to give London busmen an extra 8s. 6d. a week is not made wrong by the fact of a strike.

Returning to the Budget, I should like to make a constructive suggestion which the Financial Secretary might be good enough to pass on to his right hon. Friend to ponder during the coming year. People generally do not realise how much capital expenditure is provided out of revenue by each of our Budgets. For instance, schools and colleges, roads and research establishments are provided through the Departmental Votes. In addition to all the capital provided out of revenue, tremendous sums are set aside each year below the line, by way of loans for capital expenditure.

The Chancellor finished the last financial year with a surplus of £423 million. In commercial terms, he made a profit of nearly 10 per cent., which is a quite satisfactory result. But he could not distribute that surplus to the taxpayers because he had to devote a large amount of it to pay for capital requirements below the line.

Let us examine some of these requirements in our national commercial concerns. In the current year the Post Office requires £38 million; the National Coal Board, £76 million; and the other nationalised industries—gas, electricity, and so on—£370 million. Railway finance requires £66 million. This adds up to a grand total of £550 million below the line for the forthcoming year, and that is in addition to housing, local authority requirements, and other matters.

If the Chancellor could hive off these commercial concerns and allow them to look after their own affairs, and provide their own capital from their own surpluses, or by way of debentures or in some other manner, he would find himself greatly relieved, and would be able to say in the future that he could safely distribute much more of his £400 million surplus than was possible in the past—to the great content of the taxpayers.

I suggest that the hiving off of these commercial concerns—and some of them, like the Post Office, have been doing very well lately and making substantial profits—would have many beneficial effects. It would make competition fairer. For instance, British Road Services and the road hauliers would compete on level terms in the raising of industrial capital instead, as is at present the case. British Road Services having the benefit of the Government guarantee and thereby enjoying a substantial advantage in being able to raise capital at a considerably lower rate than the ordinary road haulier. It would bring about more healthy financial discipline within these undertakings.

I realise the difficulty of telling these nationalised concerns that they must find their own money from their own surpluses. For instance, it might mean that they would have to be allowed to charge more freely to the public the prices they thought that they ought to get. But I put the idea forward to my hon. and learned Friend so that it may be considered further in the coming year as a line of progress.

Mr. C. Pannell

Who would gain from this idea? Only the moneylender apparently, because if the public pay increased prices they would lose. How is the hon. Gentleman considering the consumer?

Mr. Gresham Cooke

I am sorry that the hon. Member thinks so badly of the idea. I am considering the interests of the taxpayer.

It is obvious, as every Chancellor has said in the last few years, that he cannot distribute a large sum above the line to the taxpayer, because he has to think of the capital requirements of the nationalised industries and others below the line. The surplus this year was £423 million, but my right hon. Friend could distribute only a small proportion of that. I am indicating a way by which he could distribute a greater part of that sum in the future, if he could be relieved of the necessity of finding capital for these nationalised concerns.

I should like to advance that idea for consideration by the Chancellor, because I believe that he would find himself in a greatly improved position next year in proposing substantial reductions of taxation to the great content of the taxpayer.

7.54 p.m.

Dr. J. Dickson Mabon (Greenock)

I have struggled hard to find some point in his speech on which I might agree with the hon. Member for Twickenham (Mr. Gresham Cooke), but I cannot see any item he mentioned with which I can honestly say that I concur. The hon. Gentleman started by saying that if a slump did come, it would adversely affect dividends and that shareholders would suffer as much as the working people. I suppose that would seem a fair point except that, since we have been talking about 1938, one remembers that dividends were not unreasonable then—at least that is the impression that I am given by the hon. Member for Langstone (Mr. Stevens)—while we know that in that period the army of the unemployed was a formidable one. It is possible, therefore, that we may enter upon a recession in which the businessman would not be too unhappy with his dividends but in which the working man would suffer greatly through unemployment.

Mr. Gresham Cooke

I should not like the hon. Member to think that I said that there would be a slump. I was commenting on what hon. Members opposite were saying.

Dr. Mabon

I did not quite follow that, but I am willing to agree with what the hon. Member said, just for the sake, of agreeing with him.

This seems to me to be a good time now that the terms of trade are in our favour—although that has nothing to do with Government action—to cash in on lower import prices and to expand our production. That is the fundamental thing which divides the two sides of the Committee. The Government do not believe that this is the time to expand. They are not against expansion, I understand, but they say that this is not the time to expand. We want to know, when is the time? Is it when we have cured inflation, or will deflation have overtaken us by then?

Before I left for America about three weeks ago, as a member of a Parliamentary delegation, we had a meeting with the Chancellor of the Exchequer and other Ministers who briefed us about the position of this country vis-à-vis America. We were told that if the American recession continued into June, it was possible that in the third quarter of our trading year—which is the worst quarter—we might have even more severely adverse balance of payments problems. In America the recession is still continuing and although President Eisenhower has said that they have reached the bottom and that they are "saucering out", in the week following his statement the unemployment figure went up by another 200,000. In those circumstances, I do not think it unreasonable that we should return to this House and feel that the Government might have anticipated the possible result of the recession and taken action in advance.

The hon. Member for Cheadle (Mr. Shepherd) lectured my hon. Friend the Member for Loughborough (Mr. Cronin) about being pessimistic, and claimed that it was unpatriotic. The hon. Gentleman qualified that by saying that if the Government had taken some anticipatory action then it was rather unpatriotic to be pessimistic. But the Government have not done anything so far. I believe this Budget is an "Asquithian Budget"—it is a wait-and-see Budget. The Government want to know what will happen in America. There unemployment is something like 7.2 per cent. of the insured workers, and that is a false figure because not all the workers are covered. My constituency represents a microcosm of the picture, because we have an unemployment figure of 8 per cent. and so I am entitled to be pessimistic, and not even the hon. Member for Cheadle can call me unpatriotic. That is why I was interested in the argument between the Paymaster-General and some of my right hon. Friends about discrimination in favour of extending investment in certain export industries.

The Paymaster-General claimed that this was impossible, and it was argued by hon. Members on this side of the Committee that discrimination in trying to build up industries was an integral part of the Budget proposals. In his speech, as reported in column 58 of the OFFICIAL REPORT for last Tuesday, the Chancellor referred to an amending Bill to be brought in by the President of the Board of Trade to deal with pockets of unemployment not covered by the Distribution of Industry Act under which certain Development Areas are laid down. Since my own constituency is in a Development Area and suffering from a high degree of unemployment, I think it comes best from an hon. Member such as myself to say that people in pockets of unemployment like those in the constituency of my hon. Friend the Member for Anglesey (Mr. C. Hughes) will welcome this Bill. But it makes no difference to the situation in my constituency.

I make no apology for speaking in a narrow constituency manner. In fact, the provisions of the Act are operative in my constituency where we have had 8 per cent. of unemployment for a long time. I wonder how long it must be before the Government are willing to do something specific. It took the whole of 1957 for me to get the Government to agree to an extension to a local factory. That was agreed last December, but it will not be effective for another 18 months. I wonder whether the recommendations of the Chancellor will take as long to take effect in my own constituency.

The second paragraph in column 58 of the OFFICIAL REPORT makes it clear that the Government presently have powers, and how they propose to operate them. It is that in which I am interested. I would much appreciate it if the Minister who is to wind up the debate either tonight or on Monday would answer some of the points which I wish to raise.

The second proposal of the Chancellor is that the Government are ready … to make finance available under Section 4 of the Distribution of Industry Act to assist in the provision of dry docks in Development Areas, if appropriate arrangements can be made for proper contributions from the enterprises themselves and from non-Government sources."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 58.] That is the promise. My constituency is absolutely cock-a-hoop about this, because for about 14 years we have been struggling against all sorts of difficulties to build a graving dock in Greenock for the service of the Clyde. It would be one of the largest in the country and of great service to the nation, and would provide a lot of employment for our people.

In the 1955 by-election in which I was returned to this House, the then Minister of Defence, who is now the Foreign Secretary, made a speech promising aid of some kind in the building of this dock. That is why I will not apologise for looking the present gift horse more circumspectly in the mouth than I might otherwise have done. I want to know what it means. Is this just another hoax, an election stunt? It took me 18 months, despite the promise of the Foreign Secretary, to get the Government to answer. They said, frankly and fully, "No"; they would not render financial assistance in the building of this dock.

Now this hare—I hope it is more than a hare—has been started again, just when we had a committee of industrialists working on the matter for months and just when it was on the brink of finding the capital. It had investigated and settled the site. The people concerned know the market possibilities, and were about to raise capital when the Government make this statement. These people were keen, but now they are in confusion. Industrialists want to know what the Government will be doing in this area. Are they proposing to give money for capital investment; are they going to make a loan; are they proposing to be responsible for the running of the enterprise?

The hon. and gallant Member for Down, South (Captain Orr) mentioned the problems of Belfast, and the difficulty confronting the constituency of Londonderry in relation to its dry dock. I do not think that anybody in Scotland, reading the report of what the Chancellor of the Exchequer said, would think that it meant anything but Greenock. We have one of the largest unemployment problems, and our dock scheme was just about to be promulgated by a private consortium of shipbuilders and ship repairers. Would someone tell us in precise terms what the Government propose to do?

We believe that, under Section 4 of the Distribution of Industry Act, 1945, the Treasury may, in accordance with recommendations of an advisory committee appointed by them, agree with any person carrying on, or proposing to carry on, in a development area an industrial undertaking to which this section applies … to give financial assistance in the carrying on of the undertaking … either by making annual grants … either towards the cost of paying interest on moneys borrowed or to be borrowed for the purposes of the undertaking or generally for those purposes or by … making loans. All these things are very relevant and we are most anxious to know whether the committee is being formed, when it will call for evidence and when it will be prepared to negotiate so that the dock proposal will become valid this year. We are anxious that the dock should be constructed this year. Tankers are now beginning to come in, and we see trade slipping south to the Mersey or to Tyneside where an unemployment problem does not exist.

We subsist on this particular form of trade. The Clyde is a very great river and has a noble tradition of service and workmanship all over the world. We are entitled to insist upon getting the treatment we deserve in this difficulty. That is why I hope that the news will go out from this Committee that the Government are setting up a body willing to negotiate quickly with the local people to find out whether the dock can be built this year. If it cannot, then, far from the Chancellor's announcement being of help, it will actually have hindered the construction of the dock. It will have delayed it by coming just when we were within a very short distance of having the dock constructed by private capital.

Nevertheless, I welcome the Government's intention to participate in this venture. If the Government had a stake in a dock of this kind instead of its being left to a private consortium, we should have some kind of public control over the use of the dock and its selfless integration with shipbuilding and ship repairing on the Clyde. It would not be used solely for private purposes, but would serve the national interest as well.

8.6 p.m.

Mr. T. L. Iremonger (Ilford, North)

I know that the hon. Member for Greenock (Dr. Dickson Mabon) will not want me to go into great detail on what he said. He was acting in the interests of his constituency. Hon. Members are always very sympathetic towards those who are pursuing questions which concern the interests of their constituents. But one thing I would say to him: he really must get out of that habit of bending forward slightly before he has finished speaking as though he were about to sit down and bringing us all to our feet in anticipation. If he is going to sit down, let him sit down, and if he is proposing to go on standing up, let him stand up.

Dr. Mabon

I would refer the hon. Gentleman to Holy Writ, which says: What man by taking thought to himself, can add one cubit to his stature?

Mr. Iremonger

Scottish hon. Members are usually very well read in the Bible. It is a particularly moving experience for one who has spent as much time in the Navy as I have, to follow the hon. Member for Greenock.

As a matter of general interest, I would take up one point with him. He asked an extremely important question which he was entitled to ask. He said that the Government maintained that expansion was a good thing but this was not the time to expand, and he asked, "When is the time to expand?" It is a proper question to ask, but I suggest that the right question is not when but how much to expand at any particular moment. To ask when we expand implies that there is no expansion at the moment, whereas there is a positive but limited expansion.

The right answer is determined by two things, the state of the reserves and strength of the £, and the inflationary or deflationary situation at home. It is on analysis of these two questions that we are able to give the answer. My right hon. Friend the Chancellor may have given the wrong answer. This is a matter of judgment and opinion, and my right hon. Friend has given his judgment. I feel very much happier supporting him than I would be in taking the other view.

I want to make a preliminary point, before I proceed to my principal point, in regard to the proposal to introduce retrospective legislation. This is not the time to go into the argument; there will be plenty of opportunity to do that. But it is only fair to say now that I shall most certainly not be able to support it and I hope that there will be a large number of hon. Members on this side who will organise an effective protest in the Lobbies.

I want also to say a word or two about taxation, because I welcome the remark of my right hon. Friend when he said: … we must continue to reduce, as opportunity offers, the heavy burdens of taxation. If we are to get the full force of his observation, we should read it in conjunction with two other quotations. One was when, referring to last year, my right hon. Friend said: The rate of personal saving reached the record level of 10 per cent. of income after tax."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 38 and 59.] We should also read the speech of the right hon. Member for Huyton (Mr. H. Wilson) where he said: "We"—that is, he and his right hon. Friends—"shall"—and I think it would probably have been better if he had said "should"— … need to maintain an effective Budget surplus of public saving to finance essential investment."—[OFFICIAL REPORT, 10th April. 1958; Vol. 586, c. 185.] That is about taxation, although the right hon. Member did not say so. It means that "we" shall put 1s. 6d. on the standard rate, and I think it would have been batter to have said so. I hope the significance of the attitude adopted by my right hon. Friend and by the right hon. Member on the same subject will not be lost upon the country. We can finance investment either by compulsory saving or by voluntary saving. I prefer voluntary saving. It has been one of the most notable changes in the atmosphere of public life since this Government have been in office that the volume of savings has gone up immensely. I should be very sorry to see a return to the policies of the party opposite. This policy is to promote compulsory saving, which is done, and done only, by taxation.

Generally, in considering my right hon. Friend's Budget statement, I think the Committee must always ask itself the question, what is the objective? What should the Budget be trying to do? I ask myself those questions every year. The question which naturally comes to one's mind is, "What is there in it for me?" I think that is the question at which most people in the country stop. It is understandable and reasonable that that should be so, but I do not think in this Committee we should be satisfied with such a narrow view. I submit that the two questions which should always be asked about the Budget are, does it strengthen the £ abroad? and, what effect does it have on the inflationary or deflationary situation at home? I still think those are the two questions to ask, and today I want to confine my remarks to the effect of this Budget on inflation at home.

I am not one who thinks inflation does not matter. That is a view sincerely held in some quarters. I am also not one who thinks we have finished with it. I wish to deal with one particular aspect of inflation which was brought to public attention very forcibly by the hon. Member for Ogmore (Mr. Padley) the other day, whose speech I will not quote, but which was given prominence in the Press. It was also brought to the notice of the Committee by my right hon. Friend on Tuesday. This is what my right hon. Friend said: We certainly cannot be sure that we have yet fully attained price stability; and whether we do or not will depend a very great deal on the moderation shown by all concerned in fixing the level of wages and salaries on which our costs so largely depend."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 54.] For a Tory Member of Parliament to address himself to the subject of wages is, of course, asking for trouble. If the Committee will be patient with me, however, I will try to put forward a point of view which I hope will not be entirely unacceptable. I think we have to consider much more seriously than we have been prepared to do in the House the relationship between wages and production and productivity.

In trying to enlarge on that, I should like to correct what I think was a mistaken view expressed by the right hon. Member for Huyton. He said that the "dominant view of the Government was that all our problems were due to wages." I think that was probably a hyperbolical interpretation of his idea of the Government's view. It would be more fair to say that the Government's view is that wages in relation to production and productivity do undoubtedly have an important effect on an important part of our problem—not all of it—and wages is an element we cannot ignore. It is an element in the very important problem of inflation. The problem is important to many people whom I represent and, therefore, one of which I am acutely sensitive.

I base my general submission to the Committee on two quotations. One is from the Cohen Committee Report, and again I say that for a Tory Member of Parliament to submit anything from the Cohen Committee Report is asking for trouble. I often try to work out exactly what it is that hon. Members opposite object to in that Report. I used to think it was what they said that they objected to, the policy, but I have come to the conclusion it is the facts—[An HON. MEMBER: "Nonsense."]—which are presented in an attractive way if one wants to find the truth, but in a most unattractive way if one wants to disguise it. The Cohen Committee Report said: the difference made by rising prices"— and that, for our terms of reference, is cost of living or inflation—consisted of as to roughly half in wages and salaries.

Hon. Members opposite would be perfectly entitled to say, "Why pick on wages and salaries? What about income from profits, such as dividends, the income of self-employed persons and so on?" That is a perfectly reasonable question to ask, but I am confining my attention to wages because wages are such a very important element in inflation. I do not think it is disputed, wages affect inflation to the tune of half, whereas the whole area of profits make up only a fifth. Also the rise in wages has been much less than the comparative rise in profit incomes during the recent past, from 1938 onwards.

Maybe I ought to be considering only dividends distributed to the idle rich, or to trade unions or insurance companies, or whoever it may be, but I am actually considering wages. I do not think there is any reason to feel that any other form of income is exempt from scrutiny and whatever legislative attention we might seek to give it. If it would help economy to curb dividends, I would not hesitate to welcome such action, but I do not happen to think that would help. I am concerned at the moment with the problem of wages and inflation.

I wish to submit to the Committee a further quotation, which I think comes very near the mark: Low productivity coupled with ambitious ideas about wages and social services is one cause of inflation; but the unbridled individualism of great trade unions in their wage demands is another cause.… Should the vested interests of the officials of the greater trade unions (for the rank and file get only illusory gains out of the present system) condemn us to progressive inflation, erosion of the social services, and ultimate disaster in the field of foreign trade? Those are two sentences taken from a paper which I very rarely find myself able to commend to anyone, the "Socialist Digest" of December, 1957. It is a remarkable article to find anywhere and an extraordinary one to find there.

Dr. Dickson Mabon

I hope the hon. Member will read the whole article, because what he has quoted is taken completely out of context.

Mr. Iremonger

I should be unfair to the writer of the article if I agreed with the hon. Member. I think the article most imaginative and constructive, and I thought that the writer was in all sincerity asking those questions which ought to be asked. I do not welcome the rift between the two sides of the Committee on the question of the functioning of trade unions and trade union policy or the effect of the trade unions on the national economy. I welcome that attempt from a traditionally trade union and Socialist quarter to make a statement which I found constructive and courageous.

In addressing oneself to this problem, the first question one has to ask is whether we should have a national wages policy. This question has been asked for at least the last ten years. For my part, I can answer it only with an unequivocal "No," not only because I believe that it would just not work. It did not work in the United States and it did not work in the Netherlands, but even if it did work, as, no doubt, it does in the Soviet Union, it would be undesirable. All the same, I feel that it is important that we should achieve some agreed flexible framework for wages, some criteria and some yardstick to stop the damaging wrangles which are an unhappy part of our traditional economy. I do not see why there should not be some kind of voluntary national wages policy without in any way impairing the rights of organised labour to negotiate and the rights of employers to consider their wages policy.

To achieve such a policy, we require three things, good will, good faith, and a good example. If some sacrificial gesture in the sphere of profits would help to bring about a voluntary wages policy, I should welcome it, but it would be absolutely wrong for the Government to try to control wages. I have very little patience, although I cannot help having some sympathy, with those who say that the Government ought to stop these constant rises in wages which are not matched by increased productivity. One can understand that those who have suffered from inflation have increasingly less sympathy with those who are unable to protect themselves against it, and we should be wrong not to recognise their plight. However, I am absolutely against the rather dangerous and bogus attitude of organisations like the People's League for Freedom, who are supposed to be promoting the interests of trade unions, but who are really motivated by unpleasant and deep-rooted resentments which should not be encouraged in any section of the community.

These are the things which we should do to try to bring about a voluntary national wages policy. First, I should like the ordinary people to get rather more idea of what economics are about. It is futile in the House to talk as we do in terms of, for example, investment. To the ordinary constituent whom we represent, this highly technical term means shares which a rich man has bought and from which he gets a dividend. The ordinary public, I am certain, has no conception that when hon. and right hon. Members in this Committee talk about investment we are talking about the building of factories, and such like.

I am sure that the fundamental alphabet of economics is Greek to the ordinary citizen, and that is a bad thing. It is dangerous when the legislature debates in a language which is not understood by those whom it represents. I should like to try to get economics explained to the ordinary man, and I do not think it would be nearly as difficult as some people imagine. It cannot, and must not, be done at an academic level.

It should be possible to arrange a representation, which would not be too fantastically distorted, of the economic system which could be operated electronically. There could he a frame in which there was a series of electrically connected lights and wires. I am not designing the thing here and now, but the conception is a sound one. One could say to the ordinary man, "Press that button and you will see your wages going up. The next button represents an extra motor car off the production lines each month"—or whatever the case may be, in easily understood conceptions. In that way, one could trace exactly what happens through the whole economic system. I am not sure that we could not go to the extent of saying, "Press that button. That is devaluation in 1949 and you see it coming out in the postage increases last year". People ought to understand these things and be able to discuss them in terms of reality instead of in terms of outdated and unseemly passions, which is what happens now.

Secondly, I should like to see the establishment of a statutory body like the Council on Prices, Productivity and Incomes which should be able to issue pronouncements of which notice, in the legal sense, should be taken at the right time and in the right places. Hon. Members opposite have created a situation in which it would be futile to recommend that the present Council on Prices, Productivity and Incomes should perform that function, because the party opposite has killed it as far as public esteem goes. I am sorry. I think it was a dirty deed. Nevertheless, it is not a had concept that there should be some kind of independent criterion to which everyone of good will, whether in politics, in organised labour or on the management side, could go to find out the readings of the dials.

I should then like to see the arbitration legislation amended so that the silent witness who is never called—the consumer—could appear at the deliberations of arbitration tribunals—thorough notice being taken of the pronouncements of my suggested statutory body—in order that that the award made should not merely be reached, as so many of us suspect it is now, by adding two and two together and splitting the difference, but should be an award that would have some regard to the effect on the national economy generally, upon those who are part of the national economy and who are at present unable to influence that kind of arbitration deliberation, and unable to protect themselves from inflation.

As to the example that should be set by Government, I think that my right hon. Friend the Minister of Health did the right thing, whatever the Whitley complications, in turning down the award to the National Health Service employees. He said. "In my judgment this would be a bad thing, economically, at this time," It was right of him to do so, because, although the Government cannot and should not control the economy as a whole, and, in particular, should not control wage negotiations, they can and should control that part for which they are responsible and thereby set an example and, to some extent, regulate the economic climate.

I should like to see it made a statutory duty for nationalised boards—and I pick on them because they are the only industrial concerns that are subject to legislation in such a way—when making wage awards to have regard to the effect upon the economy as a whole. In having such regard, they would be guided by my statutory council, tribunal or whatever one likes to call it, to which they would have recourse in deciding what would be economically sound or unsound in the general national interest.

That is my submission for a voluntary wages policy. I advocate it now because I believe that inflation is still the danger. The danger at the moment is not the slump that some hon. Members foresee. My right hon. Friend was right when he said on Tuesday: If we tried to halt a world recession by undiscriminating expansion of economic activity at home we should fail; we could not hope to buy ourselves out of it and we might well come near to ruining ourselves if we tried."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586. c. 50.] I do not think that we should try that, but I do think we should do what we can about the highly unsatisfactory and continuing menace of inflation at home.

8.33 p.m.

Mr. Frederick Mulley (Sheffield, Park)

When the hon. Member for Ilford, North (Mr. Iremonger) began his speech I wondered why he was so alarmed at the prospect of getting himself into trouble. Having listened to him, I can well understand that after making public speeches he often finds himself in some difficulty. If I might give him a little charitable advice, it is that if I were he I do not think that I would go round complaining about people not knowing the basic alphabet of economic science because, without wishing to be at all offensive, I do not think that he showed a very advanced knowledge of the subject himself.

The hon. Member's remark about the machine was interesting, but there happens to be such a machine in the London School of Economics and, if he wished to do so, I am sure that the authorities there would let him play with it. If one represents an injection of so much investment, or so much extra wages, the machine shows the economic consequences according to the traditional economic pattern. I am sure that the hon. Gentleman would enjoy himself playing with it——

Mr. Iremonger

To do myself justice, I may say that I know all about that machine—it was that one to which I was referring—but it is not yet finished.

Mr. Mulley

I saw it operating some two or three years ago but, perhaps, like so many other machines, it has broken down.

However, the whole point of this is that economics is not a sufficiently exact science, because it deals with human behaviour. In one of his many illuminating observations, Lord Keynes said about liquidity preference that one really could not tell without asking everybody with a bank balance whether they were holding it in the bank for a deliberate purpose, or for speculation or just why they were holding it. Unless we know the personal and human reasons for various economic activities one cannot make any machine work. Life would, perhaps, be easier, and it would certainly be much duller if economics was a science similar to the physical sciences.

Another point that I think ought to be made quite plain to the hon. Member is this. I was not sure whether he was in favour of or against a wages policy. He talked about statutory boards, tribunals and the like, but the position in relation to wages and trade unions obviously depends on the kind of economic situation of the times. I do not think the trade unions would object to a reasonable amount of planning in the wages sector of the economy if they were assured, and saw, that the rest of the economy was planned, too, but if we have a Government who prattle about free enterprise and the virtue of a free economy it is hardly likely that the trade unionists will offer themselves as the one exception to the rule. The trade unions would prefer a planned economy, and I am satisfied that when the Labour Party takes office we shall get the necessary co-operation from the trade union movement.

If I were the hon. Member for Ilford, North, I would not place such great reliance on councils and tribunals. The Cohen Committee would be a very different body and would have produced a very different Report if the economist and the accountant on it had been changed. That is bound to be the case with any outside body which is asked to give high-level decisions on these vital matters. I am surprised to hear a Conservative Member of Parliament suggest that the responsibility for these vital decisions affecting the whole community should be taken from the Government, which is responsible to hon. Members, and given to an outside tribunal or council.

When the Paymaster-General opened the debate today, in his usual amiable way, I was rather surprised when he said, perhaps with his tongue in his cheek, that the Opposition had seen no reason to criticise the Budget except in respect of the Profits Tax. As I understood the speech by my right hon. Friend the Member for Huyton (Mr. H. Wilson) and speeches by other hon. Members, our criticism is simply, but fundamentally, that the Budget is totally inadequate to deal with the country's economic situation. It is true that we have little complaint about the individual, negligible proposals. Indeed, many of us are extremely pleased that it has been possible to make various adjustments, reductions and simplifications in respect of Purchase Tax.

Perhaps I might, in passing, make a constituency point, one which I have rather laboured over the years. I am still very disappointed that the Purchase Tax on cutlery has not been further reduced. The only essential articles in daily use which, in the history of Purchase Tax, have never been exempt are knives, forks and spoons. It has never been possible to buy a knife, a fork and a spoon without paying Purchase Tax, but I still hope for the day when it will be. No doubt we shall have further opportunities to debate these detailed matters.

I was rather alarmed during the Budget speech. I thought that, except for its length, it could well have been made in the days of Mr. Gladstone. Indeed, with the emphasis on port, sherry, and madeira, it might well have been made a century earlier. It seemed to follow the Gladstonian principle of tidying up here and there. I am sure that an assiduous Chancellor in the future will find several other Treasury Chests which can be suitably brought to an end. I do not for a moment wish to criticise this very satisfactory tidying-up of the Treasury accounts.

It is generally recognised today that the Chancellor is more than a mere national book-keeper. As has been said, the Chancellor always speaks about driving a car, about the brake and the accelerator, but never realises that his real job is to handle the steering wheel. That represents our complaint, that the Government and the Chancellor do not appear to he concerned about their responsibility for the future development of the economy, their responsibility not only for the financial statement given to the House of Commons, but for the economy as a whole.

The Chancellor in his speech, like the Economic Survey issued earlier, skated over what seem to us to be the crucial factors—production, exports and increasing unemployment. The Chancellor said at column 55 of the OFFICIAL REPORT: But the moment has not yet come for any general relaxation of credit policy. It is still necessary for the banks to hold down the level of advances and for the hire-purchase restrictions to be kept on. The Capital Issues Committee will continue for the present to maintain its critical scrutiny."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c 55.] In passing, it is worth mentioning that all these controls seem formidable for a Government which, in other contexts, say that they do not have any and do not believe in them. I believe that the Chancellor is wrong in his assessment of the present situation and in his consideration of the future.

Putting the matter shortly, I believe that it would have been wiser to give tax reliefs or preferably, perhaps, increase expenditure on social services, particularly old-age pensions, or not impose the additional insurance contribution, or in some way like that release at least £100 million more in purchasing power. Quite apart from that, in a sphere which will not have any immediate budgetary reaction, the time has come for some relaxation in what is commonly called the credit squeeze. There should be some relaxation now in the attitude of the banks to advances, because we all know, as has been frequently pointed out in these debates, that if one has the chance of a quick profit from a speculation one is able to raise the money, even if it means having to pay 15 per cent. or even 20 per cent. interest. Many worthwhile enterprises are being held up today because they cannot get money in the orthodox way.

Of course, I admit that this is a difficult question. We cannot forecast the extent of the slump before us and it is difficult to time the appropriate measures to reverse a recession should it accelerate. We on this side have no great faith in the Government's timing. We have no great faith in them when they say that they are ready to deal with the situation, because we all remember the fiasco that they made of the preparations for Suez.

Frankly, I feel, like my hon. Friend the Member for Greenock (Dr. Dickson Mabon), knowing the time it takes before a decision by the Government is translated into factory building and people employed in them, some steps in that direction should now be taken. I evidently take a much more serious view of the future than the Chancellor. I sincerely hope that I may be proved wrong.

The other difficulty that the Chancellor is in is that he fully accepts the philosophy which has been so clearly expressed by the Cohen Committee. It is clear, as I have said myself in the House before, and as has been brilliantly brought out by the Cohen Committee, that it is impossible to have a stable £ in an unplanned economy and also to have full employment at the same time. No one doubts the sincerity of the Chancellor and many hon. Members opposite when they say that they do not want to have unemployment, and certainly do not want serious unemployment. This is not a matter of sentiment, but of hard, economic fact. If the Government pursue the policies that they are at present pursuing, I do not see how serious unemployment can be avoided. Apparently, that is also the view of the Cohen Committee.

I stress the fact that unemployment is extremely cumulative in its impact. To put the matter in a phrase, as soon as a man gets the sack he immediately starts to get one of his pals the sack as well. His spending power is reduced and inevitably he cannot command the resources and goods that he formerly had with a full wage packet and, consequently, plays his part in the rundown in the demand for labour.

Apart from the accumulative effect of unemployment, I ask hon. Members, when they bandy statistics about the Committee—this percentage and that percentage of unemployment—to remember that for the unemployed man and his family, although they may be only a very small decimal point in the monthly Digest of Statistics, it is an enormous tragedy to be unemployed at any time and especially when, in my view, the country needs every ounce of productive capacity that it can give.

The question is tied up with that of production. It is here that our major criticism of Government policy rests. If I may, I will quote the remarkable view of Professor Lionel Robbins in Lloyds Bank Review of April, which was quoted yesterday by the hon. Member for Wolverhampton, South-West (Mr. Powell). Professor Robbins said: Between 1950 and 1957, while our real output per head has increased by about 15 per cent., the German has risen by nearly 60 per cent. Is it not the bankruptcy of statesmanship and national morale to argue that this sort of thing is impossible for us? I do not favour the whole of the arguments which Professor Robbins put forward as a way of obtaining increased production, but the force of that quotation should strike everyone. I ask hon. Members opposite: who are the people at whom he is getting when he talks about the bankruptcy of statesmanship?

Who were responsible for the finances and economy of this country between 1950 and 1957?

The Committee will recall that in his speech yesterday my right hon. Friend the Member for Huyton said that if the Government had been able to maintain the rate of expansion which the Labour Government achieved, the total gross domestic product, which I think is the technical phrase, would be £3,700 million higher than it is today. It is worth reflecting that at the present rates of tax the Chancellor would have another £1,200 million on the revenue side, which makes complete nonsense of the point made by the hon. Member for Ilford, North when he said that in talking about increased output we are talking about putting 1s. 6d. on the standard rate of Income Tax. We should have had £1,200 million to spend on behalf of the nation or for tax reductions.

Mr. Iremonger

That was said by my hon. Friend the Member for Twickenham (Mr. Gresham Cooke). I am sure that he was quite right, but I should not like to be given credit for it.

Mr. Mulley

If the hon. Member looks at HANSARD tomorrow, I think he will find that he made some reference to the standard rate of tax. I will deal later with some of the observations made by the hon. Member for Twickenham (Mr. Gresham Cooke).

I need not go over figures to try to convince hon. Members opposite that there has been no increase in productivity worth speaking about since the autumn of 1955. The hon. Member for Ilford, North said that we did not like the facts of the Cohen Committee's Report. I suggest that he should read it a little more closely and look at Appendix V, where he will find abundant statistical evidence for the view which has been put by hon. Members on this side of the Committee that there has been no appreciable increase in production since the autumn of 1955. The increase of 1½ per cent. in the gross domestic product for 1957, as compared with 1956, is confusing because there had been a drop in industrial production between 1955 and 1956. At least 1 per cent. of last year's increase was necessary to get back to where we were in 1955.

The fundamental error of hon. Members opposite is their belief that their objective of a stable £ is an alternative to expansion or, as the hon. Member for Wolverhampton, South-West said, that it is first necessary to get a stable £ before we can move towards expansion. I submit that this is putting the cart before the horse. If we have a planned economy, the only and obvious way to keep prices steady or to reduce them is as a result of increased production. If we do not take the necessary central planning steps in the economy we shall never get increased production and steady prices.

Sir Keith Joseph (Leeds, North-East)

Will the hon. Member enlarge upon what he means about planning the economy—shortly, perhaps?

Mr. Mulley

In view of the short time left for the debate, and of the fact that other hon. Members would like to speak, I think that it would be a little unreasonable of me to do so, but I will send the hon. Member an article I have written on the subject.

Any achievement the Government may have obtained in reducing prices is due not to their economic policy but to the fortuitous circumstance of the 11 per cent. drop in import prices and the enormous swing in our favour in the terms of trade. I thought that the President of the Board of Trade yesterday was extremely naughty in his dealing with this point, and I would try to put him right, because the hon. Member for Twickenham—among others, no doubt, but most certainly the hon. Member for Twickenham himself—swallowed this argument by the Minister.

Import prices have dropped by 11 per cent. It is true that that represents about 2 per cent. in the retail price of an article, and the figures for the whole year show that costs all round have gone up by about 4 per cent. The whole point is that the beginning of the improvement in the terms of trade was in May, and between May and now there has been less than a 2 per cent. increase in wages and other costs.

The attitude of businessmen is simply that they will not reduce their prices unless they absolutely have to. This was illustrated by a journalist in one of the papers today. He went out yesterday to buy a glass of sherry and asked if the price was coming down, and the barman told him, "It has not come down, and it will not come down."

Mr. Hugh Fraser (Stafford and Stone)

It has not come down here, either.

Mr. Mulley

That is the attitude of many people, if they can get away with it.

We all know, surely, that it is elementary common sense that if we want to reduce the price of something we do so by increasing the number of the articles we produce. We also know that when businessmen in the retail and other trades, who all need to make a living on their turnover, find their turnover reduced, they seek to get a higher margin of profit on each article with which they deal. Any restriction in production will surely add, to the cost of each individual item. Lord Keynes said that the workers were "sticky" about the reduction of money wages. I am quite sure that many sections of industry are "sticky" about reductions in money profits, and will indeed so organise themselves that if their turnover is reduced they will yet obtain roughly the same amount of return.

An interesting phenomenon of the last twelve months is that the Conservative Government have discovered the virtues of a stable cost of living. One might almost have thought they had in 1951, when they plastered the country's hoardings with posters to this effect. What happened to this ideal of a stable cost of living between 1951 and now? If the Government put up the bogy of the cost of living only to knock it down, they are only criticising themselves, because they have been in charge of the economy for a very considerable time. The taunt about the misrule of the Socialists has surely worn rather thin by now.

I should like, but have not time now, to develop this, but in considering the reasons for inflation and particularly the reasons for the crisis of last autumn, I believe, although no one would he dogmatic about this, that it is absolutely unproven to say that wages or costs have been the major factor in inflation. Again, on this particular point, I am very happy to quote Professor Lionel Robbins in support. It is a technical and difficult argument to deploy, and I will not attempt to do it. But I think that the majority of economists would agree that there is no basis at all for the popular public meeting argument of Conservative Members of Parliament that the whole blame for inflation rests on wages. Wages generally have tended to follow increases in prices, and have not tended to be a factor in producing increases in prices.

The other interesting features of last autumn's crisis were that it took place when we were running a very reasonable balance of payments surplus of over £200 million, and that it took place at a time when the terms of trade were running very strongly in our favour. If we cannot avoid an exchange crisis in these favourable circumstances, what will be the position if these trends, as they very well may be, are reversed?

I should like to make some observations about our responsibilities to the sterling area, where we have liabilities of almost £4,000 million. I would make a guess that we could not raise more than £1,200 million even if we took all the dollar securities of private citizens and every bit of foreign exchange that we could raise. I was rather shocked by the Paymaster-General when he made play of the very clear statement by my right hon. Friend yesterday about supporting sterling. We have consistently done, and we shall consistently do, our utmost to maintain the purchasing power and the international reputation of sterling. Any other view would be quite suicidal, and it is because we see the present Government's policy undermining the future of the sterling area that we are so extremely concerned.

I should like to hear from the Government, either now or next week, what they are going to do about trying to get some agreement on the sterling area position, because, as we all know, the greater part of the sterling area liabilities are on demand. Frankly, I think it was a miracle that, during the Suez crisis, newly independent countries in Africa did not demand the full payment of their sterling balances.

In view of the late hour, I will not do more than make one comment on the other most unsatisfactory aspect of the Government's economic policy, namely, their failure to deal with the export position. We all know that our exports are extremely vulnerable, and I was very impressed by a table of figures which I saw recently showing the shares of world trade in manufactures. If we compare the position in 1950, when the share of the United Kingdom of total world trade was 25.6 per cent., with the latest figures, which are for January to June of last year, we find that the figure has dropped to 18.3 per cent. I will not take up the time of the Committee by reading out the rest of the figures; obviously, the shares of West Germany and Japan have increased, but every country except Switzerland held its proportionate world trade position except ourselves.

Yesterday, the President of the Board of Trade asked: if production is expanded, where do imports come from, and what about a balance of payments crisis? I would put to him—and he ought to be concerned himself about it, because he is the President of the Board of Trade—that if a Conservative Government had only been able to hold, let alone increase, the United Kingdom share of world trade in 1950, there would have been another £1,200 million in exports, not only enough to pay for the extra imports but to give us a balance of payments surplus big enough to deal with the whole of our economic problems.

If I may sum up the position, in our view, the Government's economic policy, either by design or incompetence, is directed towards unemployment and does nothing to assist exports or raise production. If the Chancellor and the Government are either unwilling or unable to take effective action to deal with our serious economic problems, they should get out now, as is the wish of the whole country, and let in a Government who will.

9.0 p.m.

Mr. William Yates (The Wrekin)

We may have admired some of the remarks of the hon. Member for Sheffield, Park (Mr. Mulley), but we were sorry that he ended with that tone. I have gone around the country since returning from the United States and the conclusion has been that the Chancellor's Budget is the only thing which he could possibly have done. As I have spent six weeks in the United States, I should, in the ten minutes left to me, like to refer to the present situation there and how it is likely to affect us.

I would not go around the country saying that the United States has pneumonia, 'flu, economic measles, is a misery, and is run down, merely because the motor industry is having a slightly difficult time. The position is perfectly clear—although I admit that I am not an economist; the Korean trade boom has ended and the tempo of world trade has slowed down. There is nothing more to it than that at the moment.

In the Budget debates of 1956 I tried to point out one or two matters which seemed to me likely to affect the country's economic position. One of them which I noted was the change in Soviet economic tactics, especially in the Middle East and in other world markets. I was not surprised that my hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby) drew the attention of the Committee to that today.

Perhaps I should declare an interest when referring to the United States, because when I was over there, being tough by nature, I was made an honorary Texan citizen, and I am very glad to say that the hon. Member for Orkney and Shetland (Mr. Grimond), the Leader of the Liberal Party, was also honoured.

The reason for one of the changes in the United States economy has been the switch from the aircraft industry and other armaments into a vast missile programme. That has not been stressed, but it is one of the major economic problems in the United States. The second factor has been the consumer resistance in certain markets, especially the motor car market.

However, United States Treasury officials are in a position at any moment to take action to help the economy. There has been a much unfortunate Press comment which has made the situation even more difficult, but if the United States Administration had any anxieties about the general world trade position, they have the methods and powers to ensure that production is taken up again. At present, they would be making a grave mistake if they attempted to take any large-scale, crash, panic action. We should not pretend that we are about to have an enormous slump.

The only other problem which is causing a certain amount of anxiety in international markets has been the Russian release on the European and London markets of large quantities of ferrosilicon and aluminium. When those commodities were released on the London market, Soviet officials in Moscow said that they would continue to release those minerals and to undercut Canada. They said exactly the same thing about ferrosilicon. Many people believe that it was a deliberate act of Soviet economic policy, to make our present situation more difficult.

This opinion was expressed by some of the more responsible people in Canada, but when I returned to London I made more careful inquiries, and I believe that it is safe to say that the Soviet Union is not deliberately trying to break our economy. The worst possible thing that could happen at this time would be for Mr. Foster Dulles to make another of his crashing speeches. He really is a monument to tactlessness. We should not too readily believe that the Soviet Union is trying, at this juncture, to damage international trade.

I agree with what my hon. Friend the Member for Aberdeenshire, East said about the speech made by Mr. Khrushchev. I only hope that since the United States and this country are trying to solve the present world problems, especially in regard to nuclear weapons, they will also pay a great deal of attention to international trade. If acts like this are done deliberately it will certainly cause unemployment in this country, and may have devastating effects all over the world. The proposition made by my hon. Friend the Member for Aberdeenshire, East, that the statesmen of the Western world should immediately consider a finance summit conference, is a wise one.

It is quite obvious that the Members of the House of Representatives, who will be concerned in an autumn election in the United States, are all talking about protecting their own areas. They want a tariff here and a tariff there. This is gradually building up walls against trade. If this happens, together with another slight reversal of the trend in the United States economy, what will happen to all the aid which sustains the entire Afro-Asian world in its fight against Communism?

I am very grateful for the hospitality which the people of the United States showed me during the six weeks that I was there. They are the greatest and most cordial cousins that we possess. I must also point out that I now possess a small American citizen, which gives me an additional interest in the United States. But unless we are prepared to think and work together, and introduce psychological plans to deal with the penetration of Communist intrigue in the Middle and Far East, we shall not have a very happy future.

During my visit to the North American Continent I discovered that the one thing which upsets the average citizen of the United States or Canada is the thought of the return of a Socialist Government. I am sorry to mention this, but they have some reason to feel as they do. They believe that the philosophy of the Socialist Party is about fifty years out of date. All the students in European universities will also frankly admit that classical Socialism no longer fills present world needs. They consider that Socialist philosophy involves a looking back, and that the philosophy of a party which obtains its motive force from envy and jealousy is wrong.

I regret to say that Americans and Canadians are very nervous of one of the most uncontrolled missiles in British politics—the right hon. Member for Ebbw Vale (Mr. Bevan). I am quite convinced that the kind of Budget and financial policy produced by a sound and sensible Conservative Government is the best thing for our country and for the world.

9.10 p.m.

Mr. Frederick Lee (Newton)

Hon. Members on this side of the Committee are in no position to know what type of sane and sound financial policy is produced by a constructive Tory Government. It is something of a contradiction in terms. We have never yet had the pleasure of finding out what kind of Tory policy is sane and sensible.

Mr. W. Yates

It was mentioned the day before yesterday.

Mr. Lee

Well, there it is. It is, no doubt, a fine thing when we see 2s. slashed off the duty on a bottle of port wine at one fell swoop. We observe the relevance of that upon the increasing amount of unemployment.

During the speech of the hon. Member for The Wrekin (Mr. W. Yates) I was worried whether, at its conclusion, he would still retain his qualifications to remain a Member of this House. I thought he was telling us that he was a citizen of the United States and I wondered whether he had forfeited his citizenship of this country.

Mr. Yates

I must explain that I am a British citizen, but that a child born in the United States of British parents remains an American citizen until reaching the age of 21. I apologise to the hon. Gentleman. It was not my fault.

Mr. Lee

I will not pursue that too far, or the hon. Gentleman may find it even more complicated.

May I, first, congratulate my hon. Friend the Member for Kelvingrove (Mrs. McAlister) on an extremely able maiden speech? We hear so many learned discussions on all sorts of economic formulae that it is a splendid thing to hear a really good, sound address by a housewife. My hon. Friend made us understand the problems of her constituency and we are convinced of the rightness of the decision made by the electors of Kelvingrove to send her here to represent them.

The problems, economic and financial, of the nation are now crystallised in the Budget. We recall the great change-over which took place during the period when the late Sir Stafford Cripps was Chancellor of the Exchequer. The thing which puzzles hon. Members on this side of the Committee is that while we have heard statements tending to show that the Government are to some degree worried about the economic situation, they can come forward with a Budget which is without relevance to the economic problems facing the country. I find it difficult to discuss at great length issues which, of themselves, are trivial when we know so well that millions of people are concerned about their future security.

I was pleased that in the final stages of today's debate several hon. Members drew attention to the industrial situation, and I wish to say something about that. The hon. Member for Aberdeenshire, East (Sir R. Boothby) referred to the shipping industry. I recall that the Manchester Guardian reported some weeks ago that almost 1 million tons of merchant shipping was tied up round our coasts. This is a barometer of trade and when we see that kind of indication of a slowing down of our trade it is almost unbelievable that the Government should choose this moment to say, "We still intend to fight the battle of inflation. We do not believe there are any signs of depression at all."

My right hon. Friend the Member for Huyton (Mr. H. Wilson) said that we believe that the time has come for a repriming of the pump, when the Government should let up on many of the restrictive policies which they have carried out for the last two or three years, and that a fillip should be given to industry so that it could achieve greater production.

We have seen one remarkable thing in the debate. Three right hon. Gentlemen who addressed us from the Government Front Bench agreed that Tory freedom does not pay. They argued that if we now increased production and let the wheels go round faster the result would be a crisis for sterling. That is fantastic. Can it really be that the Government have now got us into the position where the one thing upon which we depend for our livelihood, an increase in production and in exports, is the very thing which could destroy sterling? That is a fantastic situation for any nation to face and is an indication that the basis of the Government's economic policy must be wrong.

I do not wish to go too deeply into the measures proposed in the Budget, but I welcome the statement of the Chancellor that changes will be made in the distribution of industry policy. I remember that in the unemployment debate on 24th February I suggested changes of this sort. We welcome the new approach to the distribution of industry policy, but I wish that the President of the Board of Trade were present. I would tell him that to do that kind of thing, while playing party politics on the other hand and saying, on television, that industries can be frightened away from Development Areas because of certain Opposition policies, will not help the Government to get firms to go to areas where they are badly needed. The President of the Board of Trade should confine his activities to doing the job for which he is paid rather than acting as a party hack on television.

The Chancellor pointed out that many pockets of unemployment are appearing in areas which are not now Development Areas. We see the need for special assistance in areas where there is heavy unemployment and which are not Development Areas. I hope that the Chancellor will not run away with the idea that we are satisfied with what is being done in certain Development Areas. In North-East Lancashire the textile industry is in very great trouble, but practically nothing has been done in that Development Area since it was scheduled. We are very conscious of the need for expansion, but we must carry out the policy laid down in the Distribution of Industry Act within the Development Areas. Between 17th February and 17th March there has been an addition of about 7,000 people to the unemployed in the Lancashire textile industry. What proposals have the Government for meeting the tragic situation in that industry?

The Chancellor said: If wage increases in general go beyond the national increase of productivity this is bound to damage the national interest. Therefore, the Chancellor wants to restrict wage advances to the levels of productivity while the President of the Board of Trade thinks that increased productivity will bring a sterling crisis. We are entitled to ask the Government what their real policy is. They go on restraining production.

We have had three speeches from the Government Front Bench in which each right hon. Gentleman has agreed that they are doing that. They have argued different reasons for it, but all agreed on it. They have curtailed the power of the workman to increase production and then say, "You can only have increased earnings if and when you increase production". It is a fantastic policy and we must ask the Government to clarify the position.

I should have thought that when we heard the Chancellor go on to say what I shall quote in a moment, hon. Members would have been extremely perturbed as to where the policies of the Government are sending them. The Chancellor said: It looks very much as though this fact has been ignored in a number of voluntary agreements within the past few months. He was speaking about wage advances being given when not related to productivity, and continued: It is no use those concerned in industry pressing the Government to follow a firm and consistent line in these matters if they themselves ignore, in practice, the precepts which they urge on others so strongly."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 54.] There is a clear intervention by the Chancellor of the Exchequer in agreements entered into between trade unions and employers, agreements arrived at by the negotiating machinery in the industries concerned. Now the Government, even after those wage increases have been paid, go to the extent of charging the employers concerned with having failed to act in a proper and responsible way by agreeing to wage increases at all. I must say that right hon. Gentlemen opposite are fast reaching a point at which it will be completely futile for trade unions to go into negotiation at all. If they are to deploy their arguments and convince the employers of the justice of their case, only to see Government intervention, even after such wage advances have been paid, it will make for a most dangerous situation for British industry.

We now see 2 per cent. unemployment in Britain and there is no sign of any easing of the situation in areas where the amount is far and away greater than 2 per cent. The number in the North-West increased by more than 7,000 to 71,142 in the last month. In the debate on unemployment the Minister of Labour pointed out that the January returns are generally the worst and went on to say that February should be a little better than January, after which we got out of the bad season and people got back to work. Let us see what has happened. The February returns were more than 20,000 worse than the January returns, following which the returns of 17th March again increased.

There is no question now of it being purely seasonal unemployment. Taking the indications in the speech of the Minister on 24th February, we have now passed the period when unemployment should be at its worst, yet we see the position getting worse. I do not want to go through all the details, but it is running at 433,000. We know that in some of the worst areas, such as Northern Ireland, it again shows an increase to 10.7 per cent. and in many other areas referred to during the debate on unemployment as being particularly bad there have been no signs of improvement. It is against this background that the Government have presented a Budget by which they have shown that they are still more concerned about quelling inflation than facing the issues which so obviously require their attention.

To return for a moment to my point concerning the shipping which is now tied up, the Manchester Guardian, in showing that almost 1 million tons was tied up in March, reported that these were the worst figures for twenty-five years and that one had to go back to the great depression of the early 'thirties to find anything like a parallel.

Hon. Members opposite have been telling us that we must not say anything which may seem to indicate that a depression is coming. Goodness knows, we are in no way desirous of seeing depressions. Nevertheless, it is not good enough merely to ask that, when we see clear indications of this type, we should refrain from saying anything about them. If the recession in the United States continues, it may not be a question merely of our position becoming gradually worse. I believe that we could go suddenly into a very serious position.

The hon. Member for The Wrekin referred to our exports to the United States. We know that the motor industry is doing very well, and we congratulate it upon its achievements, but the dangers of the position in the motor industry are fairly obvious. Before long, we shall see the power lobbies in America demanding increased tariffs against British cars because America's own industry is in fairly bad depression. We shall see a lobby spring up not merely because British cars are getting in, but because America's own motor car industry is in such a bad situation.

Whilst we are happy to see the important contribution which the motor industry is making to our exports into the dollar areas, it is obvious that the American industry is now shaping up to the production of the small car. Once that happens, he would be a very brave man who would believe that he would keep the great levels of our exports which we now see in the dollar areas.

Serious differences exist within industry because of the policies of the Government. In this respect, I start with something which is almost a declaration of the policies of this movement, past, present and future. To us, the concept of discussion between the parties to a dispute and, in the event of failure to agree, consideration of the merits of the arguments of the contending parties by an impartial authority, is a central principle. We believe the machinery for avoiding disputes which now exists in most industries, although, in some cases, it is in need of modernisation, is the product of our dedication to the principle to which I have referred.

No knowledgeable person would underestimate the part which the creation of this machinery has played in ensuring a high level of industrial peace. Indeed, the Bulletin for Industry for March states: The time lost in strikes is about a tenth of that lost through industrial accidents and about a hundredth of that lost through sickness. Between 1951 and 1954, the time lost per person through strikes in the U.S.A. was eight times as much as in the United Kingdom; in Australia and Canada it was four and a half times as much; and in France, three and a half times. Only in the Netherlands, Sweden and West Germany were there better records And this, of course, during a period when a Tory Government have been in power. We have every right to be proud of our part in making this kind of record possible.

Surely, against a background like that, we are quite justified in asserting that only irresponsible fools or political knaves would attempt to suggest that in both the political and the industrial wing of the movement we would welcome strike action in any section of industry as a political weapon. Some of us have grim reasons for knowing that, in any strike, the principal victims are the strikers and their families, and no one has yet produced any evidence that strikers give up the right to draw wages out of a fiendish desire to exist in the worst circumstances imaginable.

It has been bruited about in some quarters that we have now moved into a situation in which a strike in a certain type of nationalised industry could be interpreted by a new and far less distinguished Sir John Simon as a strike for political motives. Any such accusation would be a most monstrous perversion of the truth, and should be treated with complete contempt.

I want to look back at the origin of the policies about which we now complain. I remember that on 20th February, 1956, I protested at this Box against a statement made by the British Employers' Confederation on negotiations in nationalised industries. The Confederation argued that the nationalised industries were conceding wage increases far greater than responsible negotiators in private industry could give because, they said, they were simply passing on the price rises to the public.

I drew attention to that statement then, and suggested that it might be as well, at that early stage, if the Government caused the Confederation to be informed that it would be much better if it minded its own business, and kept out of negotiations between the nationalised industries and the trade unions.

I returned to that theme on 12th November, 1956, and pointed out that instead of heeding that advice the Government had, in fact, taken note of what the Confederation had said, had sent for the chairmen of certain nationalised industries and had told them that they must not increase the prices of their goods. I called it a … maladroit manner of ensuring that they would not have the wherewithal to increase wages."—[OFFICIAL REPORT, 12th November, 1956; Vol 560, c. 653.] That was the next step in the Government's determination to stop all advance in the nationalised industries. I was so disturbed that, on 9th July, 1956, I wrote a letter to The Times, and in view of what has happened since, I think that that letter is worth quoting. I said: The Government's maladroit handling of our industrial problems has landed the nation in a critical situation. By permitting the British Employers' Confederation and the Federation of British Industries to bully them into their price standstill in the nationalised industries they have, in fact, broken down the whole machinery of collective bargaining in those industries. A less charitable mind would find it hard to believe that this result had been achieved by nothing worse than ignorance. Collective bargaining has been built up on the premise that each side has the power to respond to a convincing and adequate argument presented by the other party to the exitsing agreements within a given industry. To take the sort of action which is deliberately designed to preclude managements from paying increases is to ensure that there is no point in negotiating. Even a recourse to arbitration is a waste of time, as the arbitrators are bound to have regard to the fact that the employers are unable to meet the increased costs which an award favourable to the trade unions would entail; and that such an award would be contrary to Government policy. It is quite clear that the Government has imposed its will upon the boards of the nationalised industries without first obtaining any type of agreement with the unions whose members are employed in such industries. As several of these unions have now given notice of their intention to submit claims for increased pay, may I pose the following questions:

1. (1) In the event of a wage claim being turned down because of the ban on price rises, against which body does the trade union concerned proceed?
2. (2) In the event of an official strike taking place in one of these industries, will it be construed as political action against the Government?"

I think that we have practically reached that position now. It was cemented when the former Chancellor, the right hon. Member for Monmouth (Mr. P. Thorneycroft) made his statement on 29th October in which he involved not only the Government and private employers but independent arbitrators in his phrase "those who adjudicate about wages".

Our concern arises for this reason. Some of us do not believe that the Government's present attitude as portrayed in the Budget arises from an analysis of the economic situation. It arises far more from the danger of what may happen to them if they are seen to rescind anything which the right hon. Member for Monmouth laid down as policy. Therefore, it is not an objective analysis of the economic situation. It is, rather, one of those issues which are internal to the Tory party itself.

We are not saying—we never have said—that the Government have not the right to take an active interest in wage questions. In debates in the House I have argued that such an interest may well be a condition of any Government's ability to govern. However, we believe that there is a need for a constructive approach to such difficulties as wage rates in those nationalised industries which cannot pay average wages because of their inability to make profits, and so on. Our complaint is that the Government are forcing the workers in those industries to subsidise those undertakings.

We have previously asked that the Government should bring together with themselves the trade unions and the boards of the nationalised industries in order to think again and to analyse the problem—I confess at once that it is a very important problem—constructively in the hope of getting a new approach to collective bargaining and to arbitration itself in these very difficult types of industry.

The Government argue that their policy is designed to prevent further inflation. The fact is that it is not merely to prevent inflation. Experience has shown that the purchasing power of the workers is not being held; it is now actually decreasing. The British Transport Commission agrees that railwaymen require an increase of about 3½ per cent. to restore them to the level of last March.

Thus, we see that by political action the Government are able to attack the living standards of these workers and then claim that any resistance will be interpreted as an attempt to usurp the power of the Government. I recall that at the 1952 Labour Party Conference the National Council of Labour rightly went on record as saying that we will never in any conditions use industrial action for political ends. I believe it was argued that one day the Tories would use political action for industrial ends. We have now seen that take place.

Both the British Transport Commission and the Forster Tribunal agree that the pay of railwaymen is very low, and both refuse advances because there is no money in the "kitty". In other words, we have reached an absurd position in which the Government apply the same principles to employment as they do to their Premium Savings Bonds—if one is lucky in picking the right industry in which to work one gets a decent return, but if one picks the wrong one, then that is just too bad. We cannot run great industries in that way. I ask the Government, at this period when things are so tense, to take our advice and bring the parties together to obtain a new look on the whole matter.

The claim that the trade unions are seeking to challenge the power of the Government, and resisting their policy with regard to wages, is grotesque. The Government are invading territory to which no other Government in modern times has ever claimed access in peace time. In other words, the Government are the aggressors while the unions are charged with trying to usurp the power of the Government if they resist the encroachments. The effect of the Report of the Railway Staff National Tribunal is to show that now the basis of discussions and even arbitration is not justice but inability to pay. So we have reached a position where trade unions functioning in such industries know that going to arbitration is equivalent to giving up and accepting defeat.

In trade union circles, it is far better to be turned down by an interested party—in other words, by the employer—than by one which possesses at least the outward appearance of impartiality. If we press the position where obvious stress is being laid upon so-called independent tribunals we must not believe that this will encourage trade unions to tolerate the conception of arbitration which we have seen for so long. I know the answer. The Government always say that the nationalised industries are in a different position because we are the employers. That makes the matter worse, because it means that as employers the Government claim the right to nobble the arbitrators while as a Government they condemn the trade unions for the results achieved, which is giving the worst of both worlds to the trade unions concerned.

One may wonder what will happen to independent members of, for instance, wages councils. They are the people who, having to take notice of what the Government are doing, may refuse to agree to advances to lowly paid workers when those advances are obviously necessary. Voluntary arbitration is enshrined in the conciliation Acts of 1896 and the Industrial Courts Act, 1919. The conception of voluntary arbitration has played a great part in creating our great record in strikes about which I was speaking.

One is compelled to ask: if we see voluntary arbitration discredited, where do we go from there? Could it be that we should see a more rigorous use by the Government of the Industrial Disputes Order, 1951? I hope that the Government realise that it is a most dangerous thing to continue, as they have done, to lessen the confidence of organised labour in arbitration of a voluntary type, because it cuts off, as it were, any possibility of getting fresh thinking on a dispute once the two parties have broken it.

I think that the Government have become obsessed about wages being the villain of the inflationary piece. Professor Robbins has been quoted in other contexts, and I have been reading what he says in his Lloyds Bank Review. He says: For the greater part of the time, profit prospects were good, earnings were rising faster than wage-rates, and the volume of vacancies remained higher than the volume of applications. As I see the picture, the rise of wage-rates was, for the most part, the consequence rather than the cause of the situation. In other words, he does not believe that the inflation from which we have been suffering has been caused in any marked degree by wage demands by the trade unions.

One of the objectives that the Government have had in mind—and one can almost see it in the first few words of the Economic Survey—is to blame the economic effects of Suez and the inflation in the economy upon the trade union demands for wages. They say, in the introduction to the Economic Survey: There were several promising developments in the United Kingdom economy during 1957 but the year as a whole was dominated by the crisis of confidence in sterling which came to a head in August and September. In the earlier part of the year the economy appeared to be generally in balance; the economic results of the closing of the Suez Canal were less serious than had been expected. But by the middle of the year it was clear that the wage increases granted in the earlier months were greater than the economy could absorb without a further rise in prices. I do not want to pursue the economic argument, but the Government's argument is at least suspect when people like Professor Robbins show that in the first part of the year we had a good surplus in our export position. It is not good enough for the Government to vent their spleen upon the trade unions when so much of our trouble comes about as a result of the Government's industrial and economic policies. I believe that the time has come when we on this side of the Committee must tell the Government that we are so utterly and sincerely desirous of seeing production increase and seeing us get back to I position where there is no longer the gradual loss of our share of the world markets which has gone on every year that this Government has been in office that we believe that the only answer to the problem is to allow the British economy to get into a healthy condition in which we can vastly increase our production, and in which the men and women in industry know that they can increase their earnings as a result of that increased production. We believe that only by that method will it be possible to sustain a high standard of life for the 50 million people in the islands.

We believe that with the Government's inability to see this, they demonstrate the rightness of Socialist Middlesex and Socialist London. The people are giving them the true answer, which is that only by getting rid of Toryism can we hope to sustain a proper standard of life in Britain.

9.46 p.m.

Sir Keith Joseph (Leeds, North-East)

The hon. Member for Newton (Mr. Lee), in a characteristically pleasant speech, has carried out the duty which, presumably, his colleagues laid upon him to rebut a charge which has never been thrown at him by any responsible Tory—the charge that the Socialists desire to foment strikes. This has, of course, saved him and I am sure he is grateful for it—from having to explain exactly what the Socialists would do if they set about expanding production and if they were no longer to treat sterling, as we understand is their point of view, as the sacred charge both to our own inhabitants and to our creditors and to the trading world that we as Tories believe it to be.

The hon. Member seems to think that it does not matter at all what job a man does; he is still entitled to the same ever-growing wages, whether he works in a modernising, expanding industry or in an industry threatened—through no fault of the men, I fully agree—with obsolescence. By that argument we should still be paying handsome wages to coach drivers and wheelwrights making wooden wheels. I will deal with various parts of this aspect of his speech later in my remarks, but I should like to congratulate him on at least being able to claim credit, justifiably, for seeing in the Budget something which he himself has urged. I remember that in the debate on unemployment he urged that the Government should take some action about those areas where unemployment was above the national average. He was gracious enough in his speech to acknowledge the Chancellor's prompt action and the Government's plea to the House to pass quickly into legislation a law to make this intervention in areas of higher than average unemployment as quickly as possible.

I do not want to appear in the least smug about the trading arrangements of the free world. We have much room for improvement in our own arrangements, but let us not forget that in the last 20 or 30 years great improvements have been made in our knowledge of economics. Thirty years ago very few hon. Members on either side of the House realised that to combat an internal slump one had to go in for large deficit finance. The Socialist Government at that time were nonplussed. We all remember that the Minister for Employment did not reduce unemployment, although we all know that he tried hard to do so. We have learned more and, if one admits at once that we have more to learn, surely we can take hope from the past.

I speak as a passionate expansionist—no more of an expansionist than most of my hon. Friends, but perhaps a little more enthusiastic about it. It is my comfort to feel that there is one person even more expansionist in the long-term in the Tory Party, and that is my right hon. Friend the Prime Minister, whose views are shared by all of his colleagues in the Government. This is a party dedicated to expansion. I do not deny that right hon. and hon. Members opposite share the same view. All sensible people in this country must share this view, and it becomes sheer politics to accuse anyone in the House of wishing deliberately to be restrictionist. Only the most romantic mediaevalist thinks that happiness necessarily consorts with poverty. It is equal folly to suggest that happiness necessarily consorts with wealth. Nevertheless, everybody has the right to that chance to work to make his own sort of happiness or unhappiness.

We are a highly industrialised international trading concern on a virtuous spiral which forces us to become ever more and more productive and efficient if we are to survive, and it is nonsense to accuse anyone on this side of the Committee of doing anything to limit the long-term expansion. Peace itself and the tranquillity of the under-developed parts of the world depend upon the fraternal help which can come from countries like ours. I would pay my tribute to my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) for putting to this country, against massive unpopularity, the theme that all parts of the Committee should applaud, the theme of fraternal co-operation for more benefits for all from the Free Trade Area in Europe. I only hope that the Paymaster-General can succeed in his negotiations in that great endeavour.

I have, as some may know, a particular interest in the social services, and I have recently been trying to carry out some inquiries by my own research into what the social services will cost us in twenty-five years. It is a very enlightening inquiry. We are an ageing population with an ever lower fertility and also a lower mortality, and we are going to have an ageing population to support We have very properly higher standards and provisions for health and education. Unless we have an expanding economy the burden of the cost of the social services in twenty-five years will be utterly intolerable. My comfort is in knowing that there is no greater expansionist in this Committee than the Prime Minister.

I welcome the Budget, though each one of us doubtless would like to see some things which are not in it; but the debate has not been about the Budget but about whether expansion should come before a stable £ or a stable £ before expansion. Hon. Gentlemen opposite talk about stagnation, but they seem to forget that we are stagnant, if that is the word, at the highest gross national product this country has ever known. We could all regret, it is easy enough to regret, that we did not level it at that plateau at a time when world trade was booming, but that was not the problem the Chancellor faced when drawing up his Budget.

Expansionists take grave risks with the reserves, and they all pray in aid an American loan or they all talk of calling international conferences, but they would not be in time to save the reserves if there were any increase in production without any protection for the reserves. The hon. Member for Newton confuses production with productivity. He thought higher productivity would ruin sterling. That is not so. It will save sterling. What the Government are frightened of is a higher production of everything haphazardly without any question of productivity or costs, which would jeopardise sterling, and we have to remember that we are looking after not only our trade but international and Commonwealth trade as well.

However, I think the Socialists have the right to ask, what will permit us to expand? We have lower import prices, wages are coming on to a plateau, perhaps. When shall we be permitted to expand? It is a very legitimate question. I ask it myself. I feel that the time for expansion will come when wages are stable; not static, but when they can be seen to be rising only in proportion with productivity in the industries in which are employed the individuals having the increases.

I, for one, stand, as I am sure every Tory in this Committee stands, for higher wages. Quite apart from moral or humane considerations, it is only a sensible business view, for unless there are high wages there is no consumption at a high level. However, for the Socialists to pretend that higher production must mean lower prices is to forget the experience of the Last few years. The fact is that the Socialists have to explain to themselves that there is in this world high unemployment, as in Italy, and rising prices, and that there can also be high unemployment and rising production and productivity, as in this country in the 'thirties. The fact is there is need for a little more humility on both sides of the Committee.

The Chancellor has to predict and equate a year hence, with utter accuracy, supply and demand in the international theatre with characters political, economic and psychological intruding from every part of the world. He may make no mistake of even 1 per cent., because if he miscalculates by 1 per cent. in one way there may be inflation, or by 1 per cent. the other way there may be massive unemployment. When we remember that the gross national product runs at £650 per second day and night, it seems to me to be a formidable task.

I should like to agree that too often stress is put upon wages. The fact is that management has the leverage in any industrial country, and I wish there were a bit more exhortation to management to absorb wage increases, though exhortation, as we know, is not the answer. Tories must depend, it seems to me, on competition. It is the only thing that forces management to watch costs, and if we are to have competition, we must always have demand a fraction below supply. It is easy enough to say that, but it is a very different thing to achieve it, but that it seems to me is the legitimate job and task we can ask of the Chancellor; for the key to expansion, it seems to me, is confidence, and businessmen and public enterprises will have confidence, even if demand is dammed up by some sort of artificial restriction like hire-purchase control. What makes for healthy expansion is confidence and a stable currency.

I do not believe that the Socialists have begun to have the answer. We have heard the hon. Member for the Park Division of Sheffield (Mr. Mulley) talking about planning, and we all remember the right hon. Member for Easington (Mr. Shinwell) too late confessing that the Socialists did not think enough before introducing their nationalisation Measures. Are they now sure that they have thought enough about planning? We give them credit for eschewing any planning of labour, but do they think they can succeed just by the planning of imports? They blame the Americans bitterly for the restrictionism of tariffs and quotas.

I declare an interest here. I am a builder. Do they think that the control of building is the answer? It is only a fraction of building which they regard as frivolous, and that will not solve the national problem. I do not believe that they have begun to have the answer. Their doctrinaire phrases are nothing but cant, and I hope to heaven that they are not deceiving themselves, as well as trying to deceive the rest of us.

I should not like to blame the trade unions. I think they are desperately keen on productivity because they see that their future interests lie there, but I wish they would pay more attention to an imaginative redeployment of redundant labour so that those men could take up jobs in the expanding industries. That is where the trade unions can help their own members and the country, and management should encourage them. If only there were more contracts like those of the boot and shoe operatives requiring work study and methods study, the country would be better off.

As Tories, we want more competition, more production and, to be quite brutal, more bankruptcies. We want more production at a high level of efficiency and not just more production at any cost. I stress that it is not only the private employer who has a duty to use the modern managerial methods of methods study, work study and cost analysis, incentive schemes and so on.

The Government are the largest employers of us all, but there are differences between one Department and another. Some Departments are using these techniques to the full, and I particularly commend the Services for their imaginative use of methods study. There are Government Departments which have not yet used to the full these methods. I only wish that when I asked my right hon. Friend the Minister of Health how many methods study experts he had in his Health Service of 400,000 he had answered with a figure larger than the derisory one of nine. The Government should give an example to private enterprise which is itself patchy in this respect, some brilliant and some laggard in the proper and full use of skilled and unskilled labour.

I have tried to cover far too much in far too short a time. That is the privilege of a back bencher. I hope that I have at least treated seriously the theme which many of us feel basic to the debate, that the Socialists are kidding themselves and the country if they think that this simple eight-letter word "planning" contains a single answer to the problem to which we all want a solution—expansion combined with a stable £.

The Government are, by temperament and by conviction, expansionist. That is the only solution that any sensible person can wish for, and although I am a passionate expansionist I rely on them to go ahead just as soon as our reserves and the stability of our currency permit.

I wish that I had more time to deal with the detailed suggestion made by the hon. Member for Newton in connection with arbitration. These are very delicate matters and he was very properly cautious in handling them in view of the national situation today.

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress: to sit again upon Monday next.