BUDGET PROPOSALS AND ECONOMIC SITUATION

HC Deb 21 April 1958 vol 586 cc620-736

3.32 p.m.

Mr. Alfred Robens (Blyth)

One of the advantages of speaking on the last day of the general debate on the Budget is that one has had time to read again the many speeches that have been made during the three days' debate on the economic situation. One of the disadvantages is that, having read the speeches once again, one recognises—on a very thin Budget like this—that there is very little that one can say that could be termed at all new. It is quite likely that even in today's debate we shall have to rehash some of the speeches that have already been made.

One thing that stands out from the speeches made by hon. Members on this side of the Committee is that our objection to the Budget is not to what it contains, but to what it fails to do. There are some proposals which we are glad to see, and there are others which will be subjected to much closer scrutiny when we move to the various stages of the Finance Bill. My right hon. Friend the Member for Huyton (Mr. H. Wilson) has indicated broadly our views about the various proposals. Our great disappointment—and it is also the disappointment of the nation—is that the Budget has failed to meet the existing economic situation.

I am somewhat surprised at this, because the Chancellor is well aware of the rather sombre background to the Budget. It stares one in the face whatever part of the country one is in. It is a background of millions of tons of coal lying stacked on the ground, unsold and unwanted; over 1 million tons of shipping lying in the Tyne, the Clyde, and the reaches and estuaries of the River Fal; a slowly mounting tide of unemployment; increasing short-time working; a diminution of overtime work; a substantial decline in the working population; and a steel industry working under capacity.

With that sort of background one would have expected a rather different sort of Budget. One would have thought that these circumstances called for a Budget which would have stimulated production and maintained full employment. Instead of that, the Chancellor of the Exchequer said, in presenting his Budget, that the slackening of demand was likely to result in a further decline in production and a moderate increase in unemployment during the coming months.

Do the Government believe that they will secure an increased effort and the higher productivity from industry which is demanded on all sides, with that sort of background? Ministers may say that a 2 per cent. overall unemployment figure is not a disastrous one, but they must not overlook the fact that there are patches of unemployment which are very dangerous. They arise in those very places which experienced that terrible unemployment, which has taken many years to dispel, which reared its head in the 1920s and 1930s.

At Question Time today my hon. Friend the Member for Cardiff, West (Mr. G. Thomas) asked what would be the position of the Royal Ordnance Factory, Cardiff, where a great many people will be made redundant and as a result of the factory being closed. In that and similar areas there will certainly be no incentive for those who remain in employment to do what is commonly known as work themselves out of jobs. We will not get higher productivity in areas of rising unemployment.

In Northern Ireland, for example, the latest figures show that unemployment is now 10.7 per cent. Nobody in the Committee would be complacent, if the Northern Ireland position was the overall position of the United Kingdom, because it would represent over 2 million unemployed. It is not the overall position, and we can be grateful for that, but to the people of Northern Ireland it is just as bad if we had 2 million people unemployed, and they know that to their cost. In Wales, there is the equivalent of a 750,000 overall unemployment figure, and in Scotland about the same.

When, on 24th February, a debate took place on this matter, I suggested that there was some understanding that the Government had prepared plans to deal with unemployment as it arose in any other part of the country on a like scale. Before that, on 18th February, in another place, the Minister without Portfolio was asked a question about unemployment by the leader of the Labour Opposition in that House. There was an exchange across the Table, and the Minister finally said that detailed plans had been prepared by the Government to deal with this problem. He went on to say that these detailed plans were too complex to be given across the Table by way of question and answer. Subsequently, in this House, the Minister of Labour, answering a supplementary question by me, said that there would be some discussion of those plans.

What do they amount to? As far as we can judge from reading the speech, I the President of the Board of Trade they amount merely to trying to increase, by some financial inducement, the amounts available for industry outside the Scheduled Areas. There are no complex plans. The offer of financial assistance has been made for many years, by way of the Distribution of Industry Act.

The Minister said something about descheduling areas and starting all over again. But, upon examination, that idea was thrown on one side, and although we were led to expect some very complex plans—if we are to take notice of ministerial statements—all we have had is the statement that in some places, in areas which are not scheduled, some financial assistance will be given. There is no question of building advance factories, of stimulating industry, or trying to bring new industries into those areas.

There is no indication of any way in which industry will be persuaded not to engage in a wholesale expansion of present factories, but to build new factories elsewhere. Nothing that the President of the Board of Trade has said during our debates on the Budget will bring much hope to the people in those areas. When, to that, is added the fact of the closing of a large factory in Cardiff I cannot see that workers in such areas will put themselves in a position where they are likely to work themselves out of a job.

From time to time Ministers have talked in our debates about the necessity for lowering costs. Their idea for lowering costs is merely to depress wages. They should know that no enlightened industrialist in this country believes that costs can be kept down by bringing down wages. In fact, it is quite the contrary. High production and high wages, with efficient management, are the factors which bring down costs. It is not by deliberately restricting production that costs are brought down. When that is done both sides of industry are encouraged to intensify restrictive practices.

Members of the Government Front Bench have said that it is necessary to continue deflationary measures for some time yet to strengthen sterling. That is not our view. My right hon. Friend the Member for Huyton made it clear that we recognise the need to defend and strengthen sterling. He drew attention to the speech of my right hon. Friend the Leader of the Opposition to the American Chamber of Commerce, last September. At what was a most critical time in the affairs of the nation, my right hon. Friend came out firmly against devaluation, which was a tremendous help to the Government at that time.

That speech had a profound effect throughout the world. It showed that Britain was not divided on the issues of defending sterling and keeping it strong. I am bound to add that while we will at all times respond to any action that will strengthen sterling, we emphatically say that concomitant with the strengthening of sterling must be the maintenance of full employment. I do not believe that we can have again a situation such as we had twenty years ago, when sterling was strong but unemployment was very high.

I recognise that it is a very difficult and delicate problem which faces modern society. But to hon. Members on this side of the Committee the term "full employment" is not just a cliche, a happy phrase to give vent to on a political platform. We regard full employment as the rock upon which personal happiness, social justice and a prosperous nation can be built. We say emphatically that it is the fundamental right of every person who is able and willing to work to have a job. In an industrial society, where the means of employment lie in the hands of others, it is the responsibility of the Government so to organise and plan the economic affairs of the nation that jobs are available for all those who want them.

The greatest problem confronting modern society is: how can we secure full employment without inflation and with the maintenance of stable prices? Unfortunately, the Government, in my view, have run away from that problem. They prefer the old laissez-faire policies of making a pool of unemployment, slowing down production and cutting investment; and then, from a new low, starting again and climbing to another plateau of inflation for the same weary business to go on all over again, with deflation back again and low levels. Are we, in the post-war years, to face all that we had to face in the pre-war years, with cycles of booms followed by depression?

Those of us who have tried to study the economic affairs of the nation and the industrial situation as a whole do not want to see cycles of boom and depression occur again in these post-war years. We want some stability in our economy so that we may have unemployment at very low levels and full employment as our major policy.

We have unemployment with us now. I agree that the figure is not very high. But one cannot help looking at that shadow across the Atlantic and seeing America, with an unemployment figure higher than for the past twenty years and with production down by 12 per cent., without wondering when that will affect us. Tremendous pressure must be being exerted in Congress and in the Senate, by politicians and others, for the Administration to begin to put up the barriers against imports.

If that happens, industrial countries like our own will suffer severely. It is to the credit to the American Administration that they have not done so yet. A few years ago the barriers would have been up long before now. I believe that this Budget should have been one to stimulate production, productivity and employment. Instead, we have had a Budget which seems to me to be calculated to continue the slump.

The President of the Board of Trade said last week that we needed to earn more by increasing exports. Surely we have been saying that for years. It is not new. The Government need not say that we should earn more by increasing our exports. That is part of their function and duty. The truth is that the Government have failed to do this. They have not increased exports. In the Appendix to the Economic Survey there is an indication that exports were down by 2 per cent. in the last quarter of 1957 compared with the figure for the previous year. Our exports are down, but for what reason? Is it because markets are not there? The markets are there. Other industrial countries have increased their exports.

While other countries are crying out for consumer and capital goods it seems odd that an industrial country cannot find markets for its exports. It is not as though the world is saturated with consumer and capital goods, or that there are no other lands needing to be developed. The opportunity to secure markets lies on our doorstep, but we are failing to develop that opportunity.

Not only do we need high productivity to maintain full employment, but we have to earn surpluses which we can use to develop underdeveloped countries. Unless we have an expanding world economy there cannot be much hope for industrial countries like our own. How are we to secure increased production and increased productivity, because increased production without increased productivity is no help regarding prices?

It seems to me that increased productivity and increased production cannot he obtained by management alone. It is not only the function of management to produce it. The highest degree of industrial efficiency can be obtained only when industrial relations are right, and management and workers are progressing together towards a common goal, and there is no fear of unemployment. Only in those circumstances will we get the necessary co-ordination between men and management to produce more, obtain higher productivity, earn good wages and keep prices down.

This has been said many times before, not only in the House of Commons but by many others outside who take an interest in these matters. Strangely enough, the Government do not seem to have interested themselves in it or to have applied the right kind of economic remedies to deal with the matter in this way. Succeeding Budgets, since the present Government came to power, and other administrative acts, have seemed to me deliberately to provoke the workers. Instead of trying fiscal and social policies that would make the great mass of workers feel they were dealt with fairly, succeeding Budgets have done just the opposite.

From time to time when we have spoken of social justice from these benches our words have been met with a sort of sneer. When one thinks back at the Budgets we have had we realise that each succeeding one has been a simple tool of class privilege for easing taxation upon the rich. When those Budgets have relieved the ordinary, small taxpayer, this advantage has been immediately followed by cuts in food subsidies, increases in National Insurance contributions, increased prescription charges, higher rents and other increases in the cost of living created by doses of Tory freedom. To make good the damage that has been done by the increase in the cost of living and by the lowering of the real standards of value for the workers, the Government have deliberately introduced a deflationary policy, and they are bound to admit that it has created unemployment.

No doubt the Government thought that their policy would ease the wage pressure, but they have also done something that Governments have not done since collective bargaining has been recognised as the way in which wage rates should be fixed. They have interfered in the free collective bargaining machinery. They have done something else, too: they have produced "three wise men", who have presented a ludicrous Report—the Cohen Report—which does not look at facts objectively. The Report does not seek to attack the main problem, which is how to have full employment with price stability and no inflation. The Report merely whitewashes Government policy. It advocated a measure of employment while advocating letting rents, prices and profits rip. Unless the Government reject the whole of the Cohen Report we shall continue to slide from crisis to crisis.

The first condition of success in discovering an economic policy technique which will permit a democratic country to combine monetary stability and full economic expansion, and to evolve a coherent wage and income distribution policy, must be the confidence of the trade union movement. It is the only organisation which represents and can speak for the bulk of the workers. The Cohen Report will bedevil any attempt at a solution. It vindicates the extreme distrust which was felt by trade union movement and all sorts of professional people, and it has set back a rational approach to a coherent wage policy for many years. The fears of many of us that this body was far from impartial seem to have been completely justified. It is unfortunate that Lord Cohen and his colleagues have wasted their time again and I suggest that the Government would be wise to wind this council up.

Sir Alexander Spearman (Scarborough and Whitby)

Can the right hon. Gentleman tell the House where the Cohen Report advocated unemployment?

Mr. Robens

Certainly I could, if I had a copy of the Report here. I could easily point to the paragraph. [HON. MEMBERS: "Oh."] The Report made it quite clear that unemployment was inevitable in the circumstances. I will be very happy to give the quotation. It might be possible to provide it during the course of the debate. I had determined deliberately that I would neither give a lot of figures nor quotations to show what The Times or any other newspapers were saying.

Mr. Norman Pentland (Chester-le-Street)

Is it not a fact that the Cohen Report states that unemployment, as a total number of employees, was 1.8 per cent. and that no one should be surprised or shocked if it proves necessary that it should go somewhat further?

Mr. Robens

I thank my hon. Friend, who has come better equipped to this debate than I. I imagined that most hon. Members had read the Report and that it had had sufficiently wide publicity.

I was a little surprised to hear my statement challenged. The Cohen Report has done nothing to improve the atmosphere of industrial relations. The Government's own interference with collective bargaining, which began with the attack by the Minister of Health on the clerks in the National Health Service, has reached the very serious position that there is, in a way, an interference in the present railway wages negotiation. I do not propose, as I think it would be wrong, to enter into the merits or demerits of the railway wages claim, but the Government's extraordinary behaviour must be pinpointed.

Whatever else was subject to disagreement at the hearing of the case before the Railway Tribunal, on one thing there was complete agreement, that since the last settlement there had been an increase in the cost of living of a little more than 3 per cent. Nearly half a million railway workers had suffered a reduction of 3 per cent. in their standard-of living, so I suppose they could be forgiven for thinking that that was wrong and for expecting something different, especially as the Lord privy Seal promised us a long time ago that we should double the standard of living of our people in twenty-five years. That was a simple arithmetical analysis, based upon an increase in real standards of 3 per cent. per annum. If the railwaymen felt that they were entitled to 3 per cent. per annum and, instead, found themselves 3 per cent, worse off, I can well understand that they might feel aggrieved.

This is a matter for those who are involved in the wage negotiations to discuss still further. I am concerned about the Government's position. Everybody has agreed that there is only one way to have efficient railways and, at the same time, pay proper rewards to the people who run them, and that is by the modernisation programme. There is no difference of opinion about that. The modernisation programme can only be achieved by very substantial investment. The original investment that was decided upon would have brought the railways to a position of breaking even by 1962, or, if they had a bit of luck, by 1961.

That meant, as agreed at the time, that there would be £151 million this year on capital expenditure, which would drop to £148 million in 1959. Last autumn the right hon. Member for Monmouth (Mr. P. Thorneycroft), who was then Chancellor, took the doctrinaire decision to cut heavily the investment programmes of the nationalised industries as a whole. Within that cut the railway modernisation programme was cut to about £135 million.

The Government have said that they will not provide the investment necessary for British Railways to carry out their modernisation programme, upon which alone they can provide proper wages and railway services. If there is trouble on the railways—and, goodness knows, none of us wants to see that; we will do all we can to prevent it—the fault will lie with the Government They cannot say that a nationalised industry like the railways cannot be permitted to put its house in order, to make itself efficient and to pay adequate wages for services rendered.

This is a classic case of interference by the Government with negotiating machinery. It is not by intruding on negotiations—that was done in the case of the National Health Service clerks—but by another method, the fiscal policy designed to prevent the railways doing their task, which they must do if they are to do the right thing by the people they employ. Therefore, the Government must accept great responsibility for the industrial difficulties through which we are going now.

I cannot understand why a Government which, according to all the statements of their Ministers and to the survey in the White Paper, says that we must have increased production, increased exports and stable prices, have come to the conclusion that the best way to do that is to depress the economy. This is not our view. This is where there is a great, fundamental difference between us. That is why this Budget is a poor Budget, not for what it contains, but for what it fails to do.

Recently, the Prime Minister said we should not be an island of inflation in a sea of deflation. Neither do we want this island to be submerged. To keep our island above water we need a delicate economic balance. That cannot be achieved without economic planning. The failure of the Government is that they do not believe in economic planning and are not prepared to do anything about it. Instead of this Budget, what was needed was for the brakes to be taken off production to ensure that sufficient investment was provided in the right places and that investment was held back on the inessentials and an attempt made to establish a new confidence with the trade unions, which can only be achieved if there is seen to be social justice in Government policies.

This Budget should have been a shot in the arm. Instead of that, the medicine that the Chancellor has administered will leave the patient more depressed than ever before.

4.4 p.m.

The Financial Secretary to the Treasury (Mr. J. E. S. Simon)

My right hon. Friend the Chancellor will be replying at the end of the debate and I have no doubt that he will wish to deal with the major points made by the right hon. Member for Blyth (Mr. Robens) and the right hon. Member for Smethwick (Mr. Gordon Walker) in their speeches. I proposed to deal mainly with the topics which fall particularly within my sphere, supply and fiscal reform. It would be discourteous, however, if I made no reference to the speeches of the two right hon. Gentlemen, and I propose to say a word or two on their general approach in due course.

Before I do so, a particularly pleasant task falls to me, namely, to congratulate the hon. Member for Kelvingrove (Mrs. McAlister) on the achievement of her maiden speech. She surmounted what inevitably is an ordeal not only early, but successfully. I am certain that the Committee was very much taken with the sincerity, simplicity and modesty of her manner, qualities which always appeal to hon. Members.

The hon. Lady made one point which enables me to make a correction and to apologise to the Committee. She said: I was glad to find a concession in respect of woollen goods, … I imagine that that was because the Scottish climate is rather exacting. She went on: but I notice that the tax on hairpins has risen. However, it will still he cheaper for me to buy hairpins than to get my hair cut."—[OFFICIAL REPORT, 17th April, 1958; Vol. 586, c. 407.] I am afraid there was a mistake in in page 20 of the Financial Statement which led to that comment. "Hairpins" should read "hatpins". The tax on hairpins is not changed and the hon. Lady will be able not only to get her hair cut, but to pin it up afterwards without misgiving. The changes are correctly described in the Budget Resolutions and in the Customs Notices, which are what affect traders. I apologise to the Committee for the mistake in the Financial Statement and I am grateful to the hon. Lady for drawing attention to it. We look forward to her future contributions to our debates and I am sure they will be equally attractive and fruitful.

Mr. Harold Wilson (Huyton)

While dealing with mistakes—we are grateful to the hon. and learned Gentleman for frankly admitting this one—will he confirm what many of us feel is a mistake in respect of shopping baskets? In view of the fact that the last Chancellor but two or three, the Lord Privy Seal, agreed to withdraw the proposal to tax shopping baskets on 30th November, 1955, if they are back in the list that can only be by mistake. Would the hon. and learned Gentleman correct that as well?

Mr. Simon

I am anxious not to give way too much, because four speeches are to be made from the Front Benches today. This was not a mistake. I shall be dealing later in my speech with the question of shopping baskets.

The main theme of the speech of the right hon. Member for Blyth and of that of the right hon. Member for Smethwick was that the Government were deliberately and misguidedly holding back the expansion of the economy; that on the contrary, and in priority to other aims, they ought by every means to take positive steps to secure an expansion in demand which—so the argument runs—would result in an increase in production, and a general improvement in the economy and in the well-being of the people. What is the reality? This is not a choice between one objective and another. It is not a difference between absolutes: in government it so rarely is. It is rather a question of deciding in which direction we should lean. The right hon. Member for Blyth and his hon. Friends have no monopoly of belief in expansion.

My right hon. Friend the Chancellor re-emphasised on Tuesday that: as a Government, we are convinced that the long-term welfare of this country demands a steady expansion of our national economy. That is the objective of all our policies."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 55.] On the other hand, we on this side of the Committee do not claim any monopoly of belief in the importance of maintaining the strength of sterling and the value of our currency. On the contrary, we welcome the assurances which Opposition spokesmen have given in that regard.

The dispute, in so far as it is a genuine dispute, is whether the object of the Government's other economic measures lean too far in the direction of safeguarding the currency at the expense of some production forgone. Production last year continued to rise—by less than one would like if combined with stable prices—but still by 1½ per cent., and this was at a time when production in the United States was falling.

Secondly, as to the dangers on the currency side. Our external financial state, although it is stronger, still inspires caution. That is the view of the right hon. Member for Huyton (Mr. H. Wilson) himself. He said: Our reserves are still too low. If that is the correct starting point, and I entirely agree that it is, and if, as he went on to say, we must expect a falling off in our sterling area dollar earnings and, … growing difficulties in our export trade and if, as he also said, we must make sterling the first priority in all our calculations and actions."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 176–87.] surely it is not merely inconsistency, but irresponsibility to advocate a massive expansion now in home demand, for that is the only expansion over which the Government have any control.

The right hon. Member for Smethwick said: … the top priority must be to push up exports."—[OFFICIAL REPORT, 17th April, 1958; Vol. 586. c. 389.] Does anybody doubt that a massive expansion in home demand would draw goods away again from the export markets which are already getting increasingly difficult? Yet that is the inevitable consequence of the policy advocated by right hon. Gentlemen opposite, and we would get right away a fresh balance of payments crisis.

Let us remember that we are not only concerned with our own money here. We are concerned with that of others as well. We hold in this country the sterling balances of the rest of the sterling area, and many of those countries enjoy a standard of living far lower than ours. Many of them are primary producing countries whose economies have been hard pressed by the fall in commodity prices. Their development plans, on which they rely so very greatly, as the Committee knows, are running into difficulties. They count absolutely, and later in the year will increasingly depend, on drawing on the balances which we hold here. We owe them a very considerable duty not to prejudice their position.

It is not only a question of our external position, but a question of prices at home. The issue of price stability is still in the balance. It is heavily dependent on the moderation of all concerned in fixing the level of wages and salaries. Again, does anybody doubt for a moment that a massive expansion of demand at home would be bound to raise the general level of prices. Have we really forgotten so soon the miseries and injustices of the inflation? The right hon. Gentleman mentioned social justice. Have we forgotten so soon the hardships of those who were not organised to compete in the scramble? Have we forgotten the pensioners, the sick, the disabled, the widows, and those living on small fixed investment incomes?

Nor, in fact, would the working population necessarily remain immune. Have we really so soon forgotten that between June, 1947, and October, 1951, prices were rising faster than wage rates, so that the working man found his standards eroded by inflation. Is that social justice?

Sir Robert Boothby (Aberdeenshire, East)

I do not know that anybody has advocated a massive expansion of demand at home. What some of us were advocating was a massive increase in investment, with the object of increasing productivity and production.

Mr. Simon

Of course, investment makes calls on the home market. What we would then be doing would be expanding credit and making fresh demands at home, and although that is precisely what we are looking forward to, now is not the time to do it. We are not strong enough.

Again, I ask: have right hon. and hon. Gentlemen opposite already forgotten the devaluation? The right hon. Member for Huyton called the Budget of my right hon. Friend the Member for Monmouth (Mr. Thorneycroft) "an assignment with inflation". If that was the case, his present policy is a blind date with disaster. The fact is that we are not yet strong enough, having just come through this crisis, to resume a policy of general expansion.

Then, the right hon. Gentleman suggested, as did my hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby), that we were discouraging investment at home. I would remind the Committee that it was precisely to maintain and secure investment at home at its present high level that my right hon. Friend made his proposals in precisely this field. Investment is still running at a very high level, and it is odd to hear criticisms from right hon. Gentlemen opposite, because the net investment in 1956, after allowing for capital consumption, was 63 per cent. higher in real terms than in 1951, and in 1957 it was higher still.

My right hon. Friend is anxious to maintain that, and it was precisely for that reason that he made his proposals for increased initial allowances, and for relaxation of credit restrictions in the areas to which the right hon. Member for Blyth quite rightly referred in moving terms, together with his proposal for increased dry dock building.

Mr. Douglas Jay (Battersea, North)

What is the purpose of creating capacity if it is not to be used?

Mr. Simon

We want to create new capacity, and, of course, we shall use it, and this is precisely the way we shall get production in 1959, 1960 and 1961. We shall then, with our reserves rebuilt, be strong enough to move into a position where we can employ that new capacity.

I should now like to make one general observation within my own particular sphere. Investment depends on savings. In 1956 alone, personal savings totalled more than in the whole six years of the Socialist Government—the whole six years. In 1957, they rose again. At over 10 per cent. they are a higher proportion of personal disposable incomes than in the United States itself.

Nor is it fortuitous that savings and investment have increased so dramatically under a Conservative Government. If we want investment to expand, we must encourage those who undertake it. We must foster them; we must reward them. It is no use villifying them, smearing them, harrying them, threatening them and, finally, expropriating them.

Do not let us make any mistake. To tax capital appreciation without making allowances for any inflationary element, amounts to capital confiscation. To depress market prices of shares by threatening nationalisation—[Interruption.] I beg hon. Members opposite to treat this seriously—and then to take over at market prices and not on a valued assets basis, is confiscation and nothing else. To municipalise house property at 1939 prices is expropriation and nothing else. This is not the way to get investment to develop. What a wonderful battle cry the Socialist Party has to promote expansion in the private sector, "Investors of the world, unite; you have nothing to lose but your bonds!"

I now turn to the fiscal matters with which I intended more directly to concern myself. Within the limited scope available to my right hon. Friend, if he was to discharge his over-riding duty of putting first the stability of prices, the strength of sterling and the rebuilding of our reserves, he has managed to propose some major and a host of small, though by no means negligible, reforms of the fiscal system. I think that they fall into four categories.

First, an improvement in the administration of the revenue law; secondly, stopping one taxpayer from obtaining an unjustifiable and anomalous advantage against, and, therefore, ultimately at the expense of, other taxpayers; thirdly, the relief of special hardship; and fourthly, the reform of those taxes which were causing major distortions in the economy.

As to the administrative reforms, there are the new vehicle licensing system; the abolition of the Treasury Chest; the reform of tithe redemption; and the rationalisation in favour of the taxpayer of the time limits for appeals and claims to relief. There are also the important matters of the removal of anomalies in the Purchase and Profits Taxes, with which I shall be dealing later. Under the second head—preventing one taxpayer from getting an uncovenanted benefit which has ultimately to be met by the general body of taxpayers—come my right hon. Friend's proposals to deal with dividend stripping, revocable settlements and enlargements of life interests.

As for my right hon. Friend's third main class of reforms—those designed to relieve hardship—I am sure that the Committee and the country will particularly welcome the extended benefits to the older members of the community. They have not generally shared in the economic advances from which the working population has benefited. The increase in the age exemption limits exempts altogether from tax 200,000 people, and another 200,000 people will have their liability reduced by marginal relief. Tax remissions of about £10 in the case of a single person and nearly £17 in the case of a married couple are not to be despised, as I am sure the Committee will agree, when total incomes of £275 and £440 respectively are in question. One effect of the increase will be to ensure that the recent increases in the standard retirement pension will not in themselves result in old-age pensioners losing an exemption which they enjoyed last year. As for the age relief, that, as my right hon. Friend said, will reduce the tax payable by those with investment incomes of £800 by nearly £27 in the case of a single person and nearly £32 in the case of a married couple.

Under this head of relieving hardship we can take, too, the reforms designed to make home ownership easier, since, on the whole, they operate to give relief at a time when the citizen, moving into a new house, is inevitably feeling financial strain. To us on these benches home ownership is one of the foundations of a democracy of citizens——

Mr. William Hamilton (Fife, West)

At 7 per cent.

Mr. Simon

—practising a healthy thrift and enjoying an independence which in no way detracts from their sense of responsibility to the community. In future, the conveyance of houses costing less than £3,500 will require no Stamp Duty payment, while the incidence of the duty will be lightened for all houses costing between £3,500 and £6,000. In connection with the promotion of home ownership, I ought to mention the effect of the reform of the Profits Tax on building societies, because this will just about halve the taxation which will be payable by them. It will release nearly £1 million for the building societies, which will be available for increased lending.

Next, there is the change in the Schedule E expenses rule—a relief to professional people—and I have no doubt that the cinema industry regards the substantial concession made to it by my right hon. Friend as coming within the class of relief of unbearable hardship.

Mr. H. Wilson

I am sorry to interrupt the hon. and learned Member, but it would be useful to have some elucidation on this point. There seems to be considerable confusion in the country among those who are not lawyers, and some confusion in the Committee, whether the new Stamp Duty on house purchase has already taken effect as a result of the Budget Resolutions or whether legislation and the Royal Assent are required. Could the hon. and learned Gentleman tell us what is the position about the Stamp Duty on house purchase?

Mr. Simon

I cannot answer that without notice, but perhaps it can be dealt with in the course of the debate. My right hon. Friend will be replying to the debate.

May I come to what is the most important class of reform which my right hon. Friend has undertaken, designed to effect major improvements in the fiscal system and, in particular, to remove distortions from the economy. There is one minor reform in this class—the wine duty—which I shall not deal with further, but the two important reforms are those relating to the Profits Tax and the Purchase Tax.

My right hon. Friend's proposal to unify the Profits Tax rate has been approved by every organ of serious opinion. It was recommended, after a careful examination of the arguments, by the Royal Commission on Taxation, and although the minority of the Royal Commission linked its proposal with a recommendation for a capital gains tax, the minority, too, advocated the unification of the rates. As the leading article of this week's Economist said: This was a step that every initiate in the capital market (including, at heart, Mr. Gaitskell) has long known ought to be taken"— it adds: —but against which the Opposition was bound to mount a demonstration. The differential brings about a distortion in company finance, it encourages undue reliance on loan capital as against risk capital, and thus it discourages risk investment. Where there is a substantial proportion of preference shares it may have very serious consequences to the equity shareholders. The Royal Commission said: It is very badly designed to do equity as between one taxpayer and another. The minority said: It makes it difficult for fast expanding firms to raise funds in the capital market … it strengthens monopolistic tendencies. The accumulation of retained profits on which tax liability is uncertain makes it sometimes very difficult to issue accurate accounts. As the Royal Commission said: We can hardly exaggerate the importance of this. The retention of profits leads to wasteful spending on both capital and current accounts and, finally, it is to the differential rates that is due—again, this is the Royal Commission— the complexities and sometimes the capriciousness of the incidence of the tax". There is no question but that the unification will lead to an immense simplification of the tax structure and will save considerable time both of inspectors and of accountants. It is in the face of such formidable criticism, even backed by the minority of the Royal Commission, that the Opposition vote for the retention of the differential.

Nor does the argument that the tax, by discouraging the distribution of company profits, is disinflationary, stand up to examination. The Royal Commission dealt with that. The Commission said: … given that profits are in fact, retained or are ploughed back, there is no safe inference that this is less inflationary in its effect than the distribution of a corresponding amount by way of dividend. There is something even more striking from the minority of the Royal Commission: … in the long run a private enterprise economy is likely to function more efficiently if neither higher dividend distributions nor the emergence of capital gains is prevented by discriminatory measures. In any case, the history of the tax has shown that other factors are much more powerful on dividend policy. We believe that the present squeeze on profit margins is likely to be a much more potent factor in dividend policy than any alteration in the tax.

I should, however, like to say a word about the claim of the minority, faintly echoed by the Opposition, that the rate should be unified, but only accompanied by a capital gains tax. I suppose that there is a case for a capital gains tax provided that it taxes real and not merely inflationary rises and provided that they can be properly set off against past losses, which I do not believe is part of the Opposition's scheme. Of course, there are very powerful arguments against such a tax, not only economic arguments but also administrative, based on its extreme complication and the vast cost to produce a comparatively small revenue. In any event, the case for a capital gains tax must be made on its own merits; it has nothing to do with the unification of the Profits Tax rates in logic or in any other way.

As the Royal Commission pointed out, … the market value of shares in industrial and commercial enterprises is artificially depressed by the differential … against distributed profits, which both the majority and the minority of the Commission agreed should be abolished. "But," say the Opposition, "you must not remove the differential. You must not allow the shares to recover from their artificially depressed value to their true market value, except at the cost of yielding up part of that rise to the Revenue." What sort of logic is this? What sort of justice is this? It is really as if the right hon. Gentleman got his head stuck in some railings, and asked us to release him. "But," we would say, "wait. We agree that your present position is distressing, unjustifiable, and even faintly ridiculous. We agree that it is producing a distortion in you that is likely to get worse in time—but wait. If we release your head, we will be conferring a capital benefit on you. We cannot possibly do that unless you—and, indeed, everybody else—consent to be scalped."

The differential Profits Tax, as both the majority and the minority of the Royal Commission agreed, has grave economic and administrative disadvantages. The time for its reform is overdue. This year, when the squeeze on profit margins will exert a contrary influence on dividend policy and when shares are depressed, is essentially the time to do it, and we will carry this through.

Finally, there is the Purchase Tax. My right hon. Friend's simplification of the tax structure has been generally welcomed, both inside and outside the Committee. Such criticism as there has been has turned essentially on two issues. First, the Opposition, as is the way of Oppositions, have tended to minimise both the reforms and the concessions. For example, the right hon. Gentlemen the Members for Huyton and for Bishop Auckland (Mr. Dalton) have both said that although my right hon. Friend is reducing the number of rates from seven to four, there were, in 1951, only three. They omitted, for some reason, to point out that whereas my right hon. Friend's four rates vary from 5 per cent. to 60 per cent., their three rates were 33⅓ per cent., 66⅔ per cent. and 100 per cent.

Secondly, there has been criticism of those parts of the reforms that have involved the imposition of tax on goods that were exempt before the Budget, and I want to deal quite briefly with these. Babies' headgear is an example. My right hon. Friend has not withdrawn the exemption for babies' bonnets or hats of textile or other material, even though fur-trimmed. The immediate reaction of the Daily Mirror was quite inaccurate in that respect. He has not withdrawn the exemption, even on the fur-trimmed hats, when the fur is sheep skin or rabbit skin, as it is in most cases. He has withdrawn it simply in the case of the expensive furs and, so far as I know, the only substantial number of babies wearing mink headgear are baby minks.

Now I turn to the question of miners' protective clothing. What my right hon. Friend has done here is not to introduce, as seems to be suggested, a discrimination against the miner but to withdraw a discrimination in favour of him. Let us keep this in proportion. First, the tax on both helmets and boots is to be only at the rate of 5 per cent. of the wholesale value, that is about 8d. in the £ on the retail price. Secondly, do not let us forget that in his Budget, my right hon. Friend proposes to reduce the tax on miners' skull caps from 10 per cent. to 5 per cent.; on miners' cloth caps from 10 per cent. to 5 per cent.; on miners' cartridge belts from 30 per cent. to 5 per cent.; on miners' battery belts from 30 per cent. to 5 per cent., and on miners' cap lamp belts from 30 per cent. to 5 per cent. Let us, therefore, look at the matter reasonably. It is something that we can discuss in Committee, but, at any rate, let us look at it in its context.

I come to the housewife and her baskets and bags. Those goods belong to a group of goods in whch my right hon. Friend has, in general, substantially lowered the tax. He has halved the tax on the chargeable goods in that group. We are here concerned only with open bags and baskets. Surely it is ridiculous to discriminate in favour of open bags and baskets and so encourage the housewife to use an article that makes her a prey to the sneak thief——

Mr. Victor Collins (Shoreditch and Finsbury) rose——

Mr. Simon

I am sorry, but I am taking longer than I had intended.

Mr. Patricia McLaughlin (Belfast, West)

I am obliged to my hon. and learned Friend for giving way. Is he not aware that most of these shopping bags and baskets to which he is referring are made by disabled people" It is because of that that we have such strong objections to these goods being included in a tax régime now from which they have formerly been excluded. Surely it is essential that these people should continue to work at those things that they can do.

Mr. Collins

When the Chancellor of the Exchequer accepted an Amendment that I moved in 1955, he did so solely because retention of these goods in the chargeable group would put blind workers out of employment. That is exactly the position now. It is no use saying that it is a compensating factor that the baskets that these people do not make are being sold at reduced tax, when those that they do make have now to pay a tax heavier than they had to pay before.

Mr. Simon

I thought that the hon. Gentleman would echo the point made by my hon. Friend the Member for Belfast, West (Mrs. McLaughlin). In point of fact, the cane and wicker baskets —which, I think, particularly attract the attention of the Committee, because they are made by blind and handicapped workers—have not been overlooked by my right hon. Friend. They have, throughout, been chargeable at only half the rate of tax on the other chargeable bags, and this preferential treatment is extended to the goods that have now come back into tax. As I see it, so far from worsening the competitive position of the blind worker, we have improved it; but this is essentially the sort of point that we can discuss in Committee——

Mr. Jay

May we have the facts clear? Does the hon. and learned Gentleman deny that he is raising the tax on some of the products of the blind workers?

Mr. Simon

The whole body of goods now comes into tax at 30 per cent. but, again, there is discrimination of 15 per cent. in favour of the blind worker,

I am anxious not to get tied down on what are essentially points that we can discuss during the Committee stage of the Finance Bill, but I would respectfully make this one further point. The main anomalies of which complaint has quite justly been made have been due to tax exemptions that have been pressed by particular interests. My right hon. Friend will certainly listen with sympathy to whatever is said when we debate this matter, but I would warn hon. Members that if we start reintroducing exemptions to meet particular worthy causes we will reintroduce the anomalies, and my hon. Friend the Member for Kidderminster (Mr. Nabarro) will be able to knock up another dashing century.

The members of the public, and particularly the female members of the public, have not been slow to recognise the value of the reductions contained in the Budget proposals, particularly those on the goods that can do so much to make the life of women at home less exacting. I am quoting the words which the right hon. Member the Leader of the Opposition used when he increased the tax on those goods. These reductions are really another aspect of our policy of encouraging home ownership, because a home is much more than the mere four walls.

I think that the hon. Lady the Member for Stoke-on-Trent, North (Mrs. Slater) really spoke for her sex when she said: As a housewife I welcome the very generous reduction of Purchase Tax on electrical goods. I have always argued that the person who needs the electric cleaner, the electric washer and refrigerator is the woman who has a family to look after, the working class woman particularly, who has to do all the jobs herself and, in many cases, go out to work as well. … The housewife will welcome the reduction in tax on all such household goods and equipment."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586. c. 133.] When we consider, too, that the tax on millinery, jewellery, and imitation jewellery is halved, while that on cosmetics is reduced by one-third, I think the Committee will sympathise with the woman journalist who, in her enthusiasm, wrote in last Wednesday's Evening Standard of my right hon. Friend: He certainly knows the way to a woman's heart. That is the view of a member of the public, but what does the right hon. Member for Huyton say? He describes it as a pathetic little mouse of a Budget."—[OFFICIAL REPORT, 16th April, 1958 Vol. 586, c. 166.] As I winced under that lash, I thought with envy of the sort of Budget which the right hon. Gentleman could approve and support, a great rip-roaring lion of a Budget, the Budget of his right hon. Friend the Leader of the Opposition, the ripe fruit of five years of Socialist planning and control and economic theory. A mouse can only nibble away £14½ million from the Entertainments Duty on the cinema industry. It takes a raging lion to claw back an extra £10 million from the industry. The mouse Budget reduces the Purchase Tax on electrical and gas appliances that we have been talking about from 60 per cent. to 30 per cent. The lion Budget raised it from 33⅓ per cent. to 66⅔ per cent.

Dr. J. Dickson Mahon (Greenock)

That was during the war. Why is not the hon. and learned Gentleman fair?

Mr. Simon

There is more to come.

It is curious how these Budgets go on parallel lines, but in opposite directions. The mouse Budget cuts Purchase Tax generally by £40 million in a full year. The lion Budget raised it by £29 million, and petrol tax by £2½ million into the bargain. The mouse Budget lowers the Distributed Profits Tax from 30 per cent. to 10 per cent. It gives Income Tax relief to the aged and extends the initial allowances. The lion Budget raised the Distributed Profits Tax to 50 per cent., put up Income Tax 6d. on all three rates and suspended initial allowances altogether. I am not going to prolong the agony.

Mr. Gerald Nabarro (Kidderminster)

Please go on.

Mr. Simon

I can sum up. The miserable mouse Budget has reduced taxation by £108 million in a full year. The splendid lion Budget increased taxation by £388 million in a full year. Faced with that choice of fauna, the country might well say, "Thank heaven for small rodents."

Mr. H. Wilson

Will the hon. and learned Gentleman say by how many hundreds or thousands of millions this Budget exceeds the other in the total volume of taxation which it is taking? Will he confirm that under the present Budget he is taking about £1,500 million more in taxation than my right hon. Friend did?

Mr. Simon

The national income, the gross national product, has gone up under the Tories. But what is important is that the Government are now taking a considerably smaller proportion in taxation. It is that proportion that matters.

But one must be fair. One must study the lion Budget against its economic background. After five years of the application of Socialist theories of economic growth, 1951, if I am not mistaken, was the year when the citizen dragged himself away from the housing queue, hurried past the vacant factory site and sat down to guzzle an 8d. weekly meat ration. When hon. Members opposite remind us fondly and proudly of the economic growth during their six years of Government, and how much the country benefited from it, I cannot help thinking of Mr. Squeers giving breakfast to his pupils at the "Saracen's Head." The Committee will remember that he ordered half a glass of milk, filled it up with luke-warm water and, before passing it to them, he sniffed it and said, "Here's richness." That is really the approach of the party opposite.

We shall be reflecting on these things when we settle down shortly to profit by the economic lecture, very severe in terms, which the right hon. Gentleman the Member for Battersea, North (Mr. Jay) is shortly to give us on how to run an economy and frame a Budget.

This Budget does not only stand by itself. It must be judged as part of a series of Tory Budgets. We are more than content that that should be so. They and the concomitant economic measures first rescued the country from the bankruptcy into which it was plunging—in the autumn of 1951.

Mr. R. T. Paget (Northampton)

What?

Mr. Simon

All the reserves, at the rate they were going, would have gone by the following May.

Mr. H. Wilson

Will the hon. and learned Gentleman point out to the Committee by how much the reserves ran down in the last three years of the Labour Government and under this Government? If he does not know, may I tell him that they have gone down £1,650 million in the last three years of this Government and that in the last three years of the Labour Government they went up by £260 million?

Mr. Simon

I do not think that is a matter in which the Opposition can take any pride or satisfaction when we consider that by the following May our reserves, at the rate they were running out, would have gone altogether. If one takes into account the fact that the party opposite went to the country without warning and fought us from their ignoble "war-mongering" platform, I do not think that that is a factor in which the right hon. Gentleman can take any pride. The fact remains that if the 1951 tax rates had remained in force, taxation would take £900 million more when my right hon. Friend's proposals are fully operative. It is on their own substantial merits and against that background that I ask the Committee to approve these proposals.

4.50 p.m.

Mr. E. Shinwell (Easington)

I feel sure that hon. Members in all quarters of the Committee will wish to congratulate the hon. and learned Gentleman the Financial Secretary to the Treasury on his maiden effort in a Budget debate. His delivery was undoubtedly excellent and his language, no doubt fortified by a useful brief, was impeccable. Indeed, his was one of a lengthy series of remarkable speeches on both sides.

Particularly, we welcome the hon. and learned Gentleman's most gracious reference to the homely and practical speech we heard from my hon. Friend the Member for Glasgow, Kelvingrove (Mrs. McAlister). We had an excellent speech from my right hon. Friend the Member for Huyton (Mr. H. Wilson), followed by one not less excellent in character and in substance from my right hon. Friend the Member for Smethwick (Mr. Gordon Walker)—[Interruption.]—and, of course, as the hon. Member for Aberdeenshire, East (Sir R. Boothby) has just indicated, a remarkable speech from him. if we should fail to recognise the excellence of his oration, he will take the usual steps to notify us, as he has already done.

I am bound to say, however, that the hon. and learned Gentleman the Financial Secretary let his hair down in regard to one or two particulars, for example, when he uttered that dire threat that markets would be depressed as a result of the imminence of further nationalisation under a Labour Government. It occurred to me that there are some countries in the world not labouring under the threat of nationalisation where the recession is even more harsh in its character and potentialities than is the situation in the United Kingdom. For example, the United States is not threatened by a Labour Government or by nationalisation. I am bound to say that those were false arguments to use in a debate of this kind.

The hon. and learned Gentleman tried to make the best of a very bad job. The fact of the matter is that it is impossible to arouse any excitement over this Budget. I think that the right hon. Gentleman the Chancellor would be the first to approve of what I have just said——

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory) indicated assent.

Mr. Shinwell

—as, indeed, he is doing now, nodding his head vigorously. There is nothing exciting about it. One cannot arouse much enthusiasm or excitement by reducing or adjusting the tax on babies' bonnets, hatpins or the like. I could have advised the right hon. Gentleman how to produce a much more exciting Budget, one which would have made an immediate and, indeed, harsh and necessary impact upon the public of this country. He might have come to us and said, "The position is very serious indeed and potentially much more serious than some people imagine. We may be faced in the next few years with a very grave recession. Who can tell? Our markets may be lost to us or, at any rate, be seriously contracted". In these circumstances, looking at the future, the right hon. Gentleman could have said, "It is my duty not to offer any concessions at this time". That would have been an exciting Budget. The public would have been alarmed, immediately shocked, but immediately aroused to the grave circumstances which confront the United Kingdom today, which may become even more serious in the future.

The sort of Budget I have just indicated would have been the right kind of Budget, not the kind which makes an impact on the community by reducing, for example, the Entertainments Duty. A reduction in that tax will not rescue the cinema industry from the predicament in which it finds itself. There is no rescue for the cinema industry in that. As for reductions and adjustments in the Purchase Tax, they are very small beer indeed. The same applies to all the concessions which the right hon. Gentleman has offered the community at this time. He would have done much better to say, "You are going to have nothing this time. I shall conserve the country's resources". I leave aside all question of advantage in doing so from the point of view of a General Election. Leaving aside political issues entirely, as I have no doubt the right hon. Gentleman, honest man that he is, as we recognise, would wish to do, but recognising the dire effects of the situation and the harsh potentialities which confront us, he could have said, "I shall conserve our resources". The public would have understood. But he has not done so, and so we have had these minor concessions, this "chicken feed".

I intervene today for the first time in a Budget debate for many years, and I ask the indulgence of hon. Members because I do not pretend to a profound, or even an elementary, knowledge of economics. I know that 2 and 2 make 4, but why they make 4 I am unable to say. Perhaps the economists present could enlighten me. There is a great deal of jargon used in these debates. There is talk of "international liquidity". There is talk of the "balance of payments", and by now, we are familiar with all that. We have heard about the reduction in the price of gold—or is it the increase in the price of gold? I am not quite sure which is the right panacea. We hear about "the trade position", and a variety of other slogans or platitudes are used over and over again, as I have heard them used ever since I became a Member of the House of Commons thirty-five years ago. I have heard them in almost every Budget debate, sometimes even from my own side. We familiarise ourselves with these issues and we use very much the same kind of language from time to time.

I beg hon. Members, if it is possible for them, to escape from the jargon and from this "chicken feed" situation and address themselves to the situation which really faces us. What was the principal theme raised in the course of our debates during the last few days? Hon. Members will recall that it has been the subject of production and productivity. We on this side have declared ourselves for expansion in production and, in particular, for increased productivity, by which I understand—if I am wrong, I hope that someone will correct me—increased production with efficiency and at lower cost. That is our case against the Government, leaving aside all these little tin-pot pettifogging, fiddling little issues about adjustments of taxation and the like which, as I say, make no impact upon the economy or the country and do not help us towards a solution of our economic problems.

Hon. Members opposite have said that, of course, they agree about production, increased productivity and efficiency in industry and so on, but they have reservations. They say that we cannot do it now. We must wait for stable prices to ensure that our increased production and more efficient productivity are of some value to the country. But when stable prices are to be forthcoming, when we are to reach a situation when it is possible not only to increase our production but, what is even more important, as I understand it, to sell our surplus production overseas, is quite another matter. I want to address myself to that subject. It is a subject which, has concerned me for many years. I have spoken about it before. It is a subject, of course, which concerns every hon. and right hon. Gentleman in this Committee.

We can produce more at any time. We can expand also. We have the resources, as everybody knows—including the Government—to enable us to produce more for home consumption. That is easy enough. But to produce more with efficiency, at lower cost, to enable us to compete in the markets of the world, is a quite different proposition. How is it to be done? The fact of the matter is that markets are contracting everywhere. Why are they contracting? It is not for lack of demand. In many parts of the world, among the peoples of the under-developed countries, the backward industrial countries suffering from a depressed economy, there is a demand for more goods. People want them in China, in India, in Africa, in the West Indies and so on. How are they to obtain them?

I beg hon. Members to understand—at any rate I understand it and venture to offer the opinion—that increased production alone will not solve the problem. We have to find some means of producing more, but of enabling us to sell more in the markets of the world. To do that we have to provide either by credits or international agreements or by some other device the wherewithal to enable the people in those countries to buy the goods which we are ready to sell them. Unless we can solve that problem we shall be faced in the corning years with a serious contraction in our export position which may reduce this country to a fourth or fifth-rate economic Power.

Let us take a look at the world at large and see what is happening. We are faced not only with a contraction of our markets, caused by the inability to buy, but also with intensive competition from Japan. I understand that Japan is producing goods, some incomplete, which enter the Hong Kong market and are then exported to this country and the United States and elsewhere as Empire goods. We all know from an examination of world shipbuilding returns that Japan is rapidly becoming a most formidable competitor in shipbuilding. She is, perhaps, producing more ships now than the United Kingdom. That competition may become even more intense in future. We know that Germany has become one of our most formidable competitors. There is no means of avoiding it. We also know that we face extreme competition from the United States which may become even worse if the recession there continues.

We can expect either a raising of tariff barriers or some other device to be employed by the United States Administration to protect its markets. In particular, we are faced—let us not ignore the fact with what may become intensive competition from Soviet Russia. The Russians do not bother about pettifogging Budgets of this kind. They have an objective. I am not speaking of their military objective, but of their economic objective. It may be that Russia will dominate this and other countries not because of its military prowess, but because it is able to produce goods at lower prices and able to enter our markets to our detriment. That is a possibility.

What are we to do about this? Some suggestions have been made which I welcome. Some have been incomplete and vague, but no doubt the gaps can he filled in. Here I am merely asking some questions. Take, for example, the matter of international co-operation. I would say to my hon. and right hon. Friends that this matter of international co-operation has been advocated by the Labour Party for as long as I can remember. In the old days we used to say that it was no use trying to increase our exports to the disadvantage of some other country because if we impoverished some other country anxious to buy our goods, what would happen? It would not be able to do so. We should all suffer. Therefore, we believe in international co-operation.

I understand that the Government are in favour of that, of some kind of agreement with Germany, the United States and, in the long run, with Soviet Russia and China perhaps for the purpose of surmounting tariff walls. That is not enough. It may be that something could he done by the creation of zones of influence, industrial and economic, in various parts of the world. That is not an easy proposition, but at any rate the effort should be made.

There is one thing which can be done, and that is to propose to the United States and Germany and to some of the other countries of the West, the so-called free world, that we ought to raise an international loan to enable the people in the backward and under-developed countries to buy the goods that we and the United States and Germany can produce and are ready to sell out of our surplus. I admit that that will not be easy either, but, nevertheless, it seems to me to be the only means of escape from the dilemma which now confronts us and which will become worse in the future.

I now come to another proposal made in what I thought, although the speech seemed dull and prosaic, was a valuable effort by the President of the Board of Trade and which related to Commonwealth co-operation. I welcome the proposed Commonwealth Economic Conference. I hope that it will be fruitful and that, in the long run, it will enable the Commonwealth countries to improve their terms of trade. But that will not be easy either.

Some time ago I had the advantage of visiting Australia and New Zealand. When I came back I thought that something had to be done about it. I gathered a number of people together, from the House and outside, to discuss Commonwealth problems. When we got down to brass tacks and got rid of the platitudes, slogans, and all the rest of it—and they are easy enough to indulge in—the question that faced us was how we were to find the capital investment to enable the Commonwealth countries to produce more and to sell more to each other. We could not find the answer anywhere.

We even approached members of the Government on the matter. We saw the Secretary of State for Commonwealth Relations, but we could not get a satisfactory answer from him. He said, "The money is not there." That is the usual answer. We then approached the High Commissioners for some of the Commonwealth countries and asked them to meet us. None of them had a solution.

If we are to enable the Commonwealth countries to improve their terms of trade and foster better industrial and economic relations, we have got to find a solution. That must be tackled by the Government. It seems to me that unless we are prepared to adopt policies of that kind, all these proposals for adjustments in taxation, whether they are high or low or satisfactory or unsatisfactory to hon. Members opposite or to hon. Members on this side of the Committee, will be of little consequence.

In conclusion, I wish to put a question to hon. Members everywhere. It is this. Does anyone really believe that a system of society—if one can call it a system—a system of booms and slumps, which we have had ever since I can remember, is going to solve the problem? There were booms and slumps and excessive unemployment in the days when there was no trouble about balance of payments. I remember in 1908 taking part in a demonstration of unemployed in the West of Scotland when we had hundreds of thousands out of work and when the same conditions applied to the rest of the country. That was fifty years ago. I never heard of any trouble about balance of payments in those days. Indeed, we were exporting quite a lot at the time. We had not the same competition to face from some of the other countries. Nevertheless, we had booms and slumps.

How long is this system of society, with its booms and slumps, its periods of prosperity and of recession, going on? Perhaps it does not affect me very much, but it is very serious from the point of view of younger people. How do the right hon. Gentleman the Chancellor of the Exchequer and the hon. and learned Gentleman the Financial Secretary to the Treasury, who are younger than I and who have ten or fifteen years of life in front of them, envisage the future of society? Is it to remain as at present?

I beg hon. Members opposite to address themselves to this very serious question. Do they believe that the competitive system which we know as the capitalist system is going to continue? Even Tory policy has been substantially modified in the years that I have been in the House. It has been modified and adjusted almost every year. Hon. Members opposite must adapt themselves to an ever-changing situation.

I venture to say that we should be prepared to adapt ourselves and to envisage a much more satisfactory form of society than the present one, to enable us to iron out the booms and slumps and give some assurance to our people that they have security in regular employment, with good wages and stable prices, with no ups and downs about it—in short, an economic position which is satisfactory to everybody along with a more equitable distribution of the wealth produced by the people. Unless we can achieve that result, it is a poor outlook for the United Kingdom. That is what we ought to be discussing. We should dispense with the tuppenny-ha'penny and penny-farthing proposals and all the bits and pieces of reduced taxation.

I repeat that this Budget has made no impact at all on the economy of the country. I do not doubt the good will of the right hon. Gentleman. I know that he wants to do his best, and we ought to give him credit for trying to do that; but something more is required. I suppose that he is not the best Chancellor that we have ever had. We have quite a lot of them floating about the place, cluttering up the back benches and even the Front Benches. Some of them move from one part of the Committee to another, changing their geographical position as it happens to suit them. I mention no names, of course.

However, the right hon. Gentleman is new to this task. He is a man of remarkable amiability and character. What we want is courage, character and integrity in facing up to the facts and looking to the future. If we look to the future, as I hope the right hon. Gentleman and other hon. and right hon. Members will do, we can build up a sound economy and promote social justice, which I believe are the desires of every citizen.

5.12 p.m.

Mr. Nigel Birch (Flint, West)

The right hon. Member for Easington (Mr. Shinwell) said at the opening of his speech that it would be a maiden effort as far as this Budget was concerned. Perhaps he will allow me to congratulate him upon his maiden effort. I am sure that after another ten years' practice he will be able to address the Committee with great confidence on subjects like international liquidity. I shall be dealing with some of the points that he made, but perhaps he will forgive me for not entering into all the intricacies and convolutions of his discourse. Were Ito do so I should take up an undue amount of the Committee's time, which I am anxious to avoid.

In my few remarks to the Committee, I will dwell particularly on our economic situation. I approve entirely what my right hon. Friend has done in his Budget. I should like to congratulate him most heartily, in particular, on unifying the two rates of Profits Tax. It required courage to do it, and it was bound to be misrepresented, as has happened. However, it was the right thing to do, and the Chancellor showed courage in doing it.

As far as tax remissions are concerned, the Chancellor has selected them well, but his room for manoeuvre was very small. After all, we are budgeting this year for expenditure £120 million higher than we spent last year and £262 million higher than last year's Estimates above and below the line.

Turning to my main theme, in considering the present economic position it is essential to be clear about what was happening last summer and autumn. To my mind, by far the most important feature then was not the external flight from the £, but the internal lack of confidence in the £. That perhaps was not unnatural. In the last 19 years, under both political parties, prices have risen fast. Between 1950 and the autumn of 1957 prices rose in this country, on average, 6½ per cent. compared with 2.2 per cent, in Western Germany and 2.7 per cent. in the United States. That led people increasingly to distrust the gilt-edged market and to distrust fixed interest bearing securities. After all, if money depreciates at the rate of 6½ per cent. per annum, even if one gets 6 per cent. on a gilt-edged security, one's return is still negatived.

Therefore, many distinguished men, particularly trustees of the interests of others, decided that it was their duty either not to buy any more gilt-edged securities or to reduce their holdings. The Archbishop, and the Church Commissioners, the learned societies and the colleges of Oxford and Cambridge, and those responsible for the reserves of Lloyds, all felt it was their duty to reduce their holdings. But it was not only such people who felt it necessary to act in that way. The whole of our economic policy was becoming affected by this loss of confidence.

There is a story, for which I cannot vouch, but which at any rate has the philosophic truth of legend. Two waitresses in the dining room of the House of Commons were talking to each other. One said to the other. "Put your money in diamonds, dearie; they always keep their value". Therefore, we had this build up of lack of confidence, led by the Archbishop and the great magnates of the City and followed by the waitresses.

Two special events last year very much increased this lack of confidence. The first was the settlement of the railway wage dispute. As the Committee will remember, the arbitration tribunal made an award of 3 per cent. and, on the threat of a strike, 5 per cent. was conceded. Many people asked then, "If no stand is to be made in such a case, will there be any stop to the continually rising spiral of wages and prices?" If weakness is shown this year again, however it is dressed up or presented, the results will be equally damaging.

The other rather more subtle, although considerable, event was the publication of the Socialist Party's pensions plan and the discussions upon it. If one looks at that plan, one can see that it means that the Socialists believe that prices will go on rising indefinitely. It meant, "As far as we are concerned, we intend to tolerate that and we intend to tolerate the spoliation which continual rising prices means. What we Socialists intend to do is to take a cut of the spoils for ourselves." That is what the plan comes to. [HON. MEMBERS: "No."]

As a result, the situation was becoming untenable. Our finance system cannot work if people have no confidence in fixed interest bearing securities and the gilt-edged market. Our difficulties are immensely multiplied by the millstone hanging round our necks—the need to finance the nationalised industries. Every year several hundreds of millions of £s have to be found for the capital needs of the nationalised industries. Either the money has to be raised by the sale of gilt-edged securities to genuine buyers or financed by taxation.

Perhaps the greatest evil of the Socialist programme for the next Election is a proposal not only to renationalise steel and road transport, but to municipalise rented property. That is apart from the proposal to buy control of the 500 largest companies in this country. If this were done it would add at least £3,000 million to the national debt. Not only that, but we would incur the heaviest annual liabilities for the capital needs of the industries and the houses that were taken over. We should not only produce a situation that was entirely unworkable, but we would increase this wretched inflation, which is so desperately unjust, so immoral and so unfair between man and man.

Why have we had this persistent inflation, under both parties, since the war? I believe that it is because we have been working on too narrow a margin. We have always had our economy under such high pressure that the demand was bound to be inflationary. There was a great deal of discussion last summer, particularly in July, as to whether we were suffering from a demand inflation or a cost-push inflation.

In July, there were 274,000 people unemployed, but there were 333,000 unfilled vacancies and employers were bidding against each other, often much above union rates, for labour. Capital expenditure was running at a vastly higher level than under the Socialist Government. How a situation like that could be described, as it so often has been described, as absolute stagnation, I have great difficulty in understanding. We were told that there was no demand inflation but only a cost-push inflation. In fact, of course, there was both. There was both a demand inflation and a cost-push inflation as well.

In all these matters, I think that both parties have treated trade union officials very badly. What are trade union officials elected and paid by their members to do? Surely, they are elected and paid by their members to get the best conditions they can for their men—in fact, to get what the traffic will bear. What both parties have done is to deal union leaders a hand containing nothing but trumps and then to say that it was unpatriotic to lead trumps. That is an intolerable situation for anybody.

In the debate following the resignation of my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), the Leader of the Opposition produced his usual solution. He said that it was necessary to sit round a table. When he was Chancellor of the Exchequer, no doubt he did sit round a table with the union leaders and he offered them tea and sympathy and controls. The result was a rise in wages of 9.9 per cent. and in prices of 12½ per cent., the quickest rise in history.

Under the rule of my right hon. Friends, trade union leaders have frequently come to Downing Street to discuss matters and have been offered the more powerful emollient of hard liquor. Prices have gone up more slowly than they did under the régime of the Leader of the Opposition, but saving the opinion of my hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby), I do not think that whisky has had anything to do with it. The fact is that if the pressure is too great, the wages will rise.

Many people say that the answer to all this is a wages policy and they ask why we cannot have one. Some hon. Members opposite say that though they were very nervous about it when they were in power. Some countries, notably Holland and Sweden, have a highly-developed wages policy. I remember an interesting article a year ago by a Mr. Roberts, of the London School of Economics, about how the system actually worked in those countries with their highly-developed and long-standing arrangements.

The interesting thing was that between 1948 and 1955, wages and prices in those two countries rose by exactly the same amount as they did here. The wages policy occasionally delayed the movement, but as soon as the pressure of demand rose beyond a certain point, there was an explosive rise in wages and the result at the end of the period was exactly what it would have been without the wages policy.

That led the Swedish T.U.C. to say, in round terms, that it was the duty of the Government to keep demand within non-inflationary limits and that if that policy, as it well might, resulted not in heavy unemployment, but in pockets of unemployment, it was the duty of the Government to take the sort of measures suggested by my right hon. Friend in his Budget speech.

I believe that if we were to avoid a disaster, there was no alternative whatever last September but to take steps to reduce the level of demand. Those steps have not been altogether unsuccessful. There has been a quite remarkable revival of confidence in the gilt-edged market. Many investors, both public and private, who have been absent from that market for many years are returning to it. Prices have been steady, and steel prices have come down for the first time since before the war. If we are sensible, and with a little luck, there is no reason why they should not come down a lot more. The reserves mounted quite as rapidly as anyone could expect and—this is unique in our history—for the first time the £ is strong, in spite of the American recession and in spite of the drawing-down of the sterling balances. Though there are certain pockets of unemployment, as a whole the level of employment is still very high. Something, therefore, has been accomplished.

The return of confidence is, however, a plant of tender growth. Everything could be very quickly undone. Therefore, I am glad that my right hon. Friend the Chancellor of the Exchequer has been cautious. There are some mistakes which cannot be put right and some which can be put right. If we are over-cautious, the mistakes can be corrected. If we are over-bold and break the £, that mistakes cannot be put right. I think, therefore, that my right hon. Friend was right.

To turn to the foreign field, I am glad, too, that he spoke with such robust confidence of the sterling area. We derive great direct benefit from the sterling area and even larger indirect benefits, but, of course, there are inconveniences. It is always inconvenient to owe a great deal of money and it is still more inconvenient if those to whom we owe the money doubt our will and ability to repay them.

I was glad that the right hon. Member for Huyton (Mr. H. Wilson) also spoke strongly in favour of the sterling area. I detected a considerable alteration of emphasis in what he said and I very much trust that he will be able to persuade some of his hon. and right hon. Friends to agree with him, because they sometimes make remarks about the sterling area which are dangerous. After all, a banker must fulfil the obligations of a banker. If there were one monkey trick too many, we could easily turn Middle East oil from sterling oil into dollar oil. I am glad, too, that my right hon. Friend was confident that we could maintain this position and build up the necessary reserves to do so. I have always believed that we could, but what is needed is the practice of virtue.

Virtue brings me to the subject of the right hon. Member for Huyton. There was a remarkable passage towards the close of his speech on the Budget. The right hon. Gentleman clamped his little tin halo on the back of his head and announced in terms quivering with emotion that he put the strength of sterling above every other consideration, including, presumably, employment. That was quite a change, because when my right hon. Friend the Member for Monmouth said on 19th September that he was putting the £ first, what he said did not incur universal approval among hon. and right hon. Members opposite. He was absolutely right, but he did not incur their approval. Now the right hon. Member for Huyton has stated that doctrine in terms more uncompromising than those used by my right hon. Friend. He has declared himself on the side of the angels. He is prepared to preach virtue. The question which arises is whether he is prepared to practise virtue.

Let us look for a moment where the Socialists have got with their election platform. First we have the business of adding £3,000 million to the national debt—£5,500 million if they take a controlling interest in the 500 largest companies in this country. Is that putting the strength of sterling above every other consideration? We are constantly told that the economy must run flat out, that we must have far more investment at home, far more investment abroad, and all that combined with lower Purchase Tax, and far cheaper money. Is that putting the strength of sterling above every other consideration?

As far as current expenditure goes, they have never been able to say what their proposals would cost, but we have every day some new suggestion—the abolition of the Health Service charges, with far more to be spent on the Health Services, with far more to be spent on schools and a hundred other things. Good judges have estimated this at £1,000 million at the minimum. Many estimate it at more, but, for good reason, I am sure, right hon. Gentlemen opposite never give an estimate. But are proposals which would add at least £1,000 million to current expenditure consistent with the policy of putting the strength of sterling above everything else? Of course they are not. That policy would be absolutely certain to break sterling.

Do not let right hon. Gentlemen opposite try to hide behind this frail figleaf of control. Sir Stafford Cripps had every control in the world when he devalued in 1949, and the Leader of the Opposition had every control in the world when the great run on sterling took place in 1951. They had not only all the controls they wanted but they had many controls which the right hon. Gentleman the Member for Huyton has promised not to reintroduce. Really, in a run on sterling these controls have very little effect.

The only course consistent with the right hon. Gentleman's honesty is to change Socialist policy. I do not trust him when he says that he puts the strength of sterling above every other consideration. It would mean that right hon. Gentlemen opposite would now have to modify their policies. If it does not mean that it is a transparent piece of dishonesty. It means they are going into the next Election with a programme including bribes to the electors which they know they cannot pay without breaking the £, and I believe that all this business of patting themselves on the back and pretending that they love the £ more than we do is perhaps getting ready for a situation which they fear and may foresee.

I conclude, then, by saying to my right hon. Friend that I believe that he is a man of great ability; I believe his Budget is, on the whole, right; I believe that if he stands firm he can succeed and that he will succeed; but what I beg him to do is not to listen to the foolish or the fainthearted, because if he does so he is sunk.

5.34 p.m.

Mr. H. Rhodes (Ashton-under-Lyne)

I congratulate the right hon. Member for Flint, West (Mr. Birch) on a straightforward speech on a subject which he knows, but I want to cross swords with him over his statement about the Archbishop of Canterbury and other magnates when it came to selling sterling before——

Mr. Birch

Not selling sterling. What they were doing was selling gilt-edged securities and putting the money into other securities in this country.

Mr. Rhodes

All right, what they were doing was selling gilt-edged.

I will tell the right hon. Gentleman a story, not about waitresses and diamonds, but of a meeting which took place in my constituency. I have just looked up the date. It was 28th February this year. I made a speech giving a pep talk on the desirability of personal savings—as I have done religiously now for the last ten years. After I had made my speech one of the collectors came to me and said, "That is all very well, but, you know, it is difficult going round selling Savings Certificates from door to door when you read in the paper that those with large sums invested in savings bonds, etc., are selling them because they do not trust the £."

The Financial Secretary to the Treasury said that this was part of a pattern of Tory Budgets. We have had Budgets which have raised prices to mop up purchasing power; we have had subsidies to keep a kind of plateau of stable prices; and we have had policies and Budgets aimed at increasing production. Now, at the end of six years, we have a Budget which is deliberately aimed at decreasing production. The Financial Secretary reminded us of the so-called terrible days of the inflation. He would remind us, he kept saying, about high wages and full employment and the injustices which accompanied them; but many of us will never forget the times when—as I did—we had to walk with our fathers looking for work after we had been declared redundant, and we prefer the risk of inflation if unemployment is the alternative.

I say to the Chancellor that he is on the wrong mark with this Budget. He is still chasing this bogy of inflation where none exists. He is the Don Quixote of Chancellors. He is tilting his lance at targets which do not exist, and his lieutenant, the Financial Secretary, mounted on his old Treasury nag—[An HON. MEMBER: "Ass."]—or ass, is it?—is helping to fight his battles, and is no better than he is.

The Chancellor in his speech kept using the phrase "stable prices". I would like the right hon. Gentleman to tell us what he means by "stable prices". Does he expect prices to go up or prices to go down? My opinion is that prices are going down, and that they will go down a long way. Time and time again he has referred to the battle against inflation. I wish he could come with me and see what is happening in Lancashire and Yorkshire. Perhaps he knows; if he does, so much the better. It may be that men are doing only three days a week in Tiverton, and, if so, I sympathise with him in view of the job he has been given, which means that he cannot go back to help his firm. In Lancashire and Yorkshire, short-time is the rule.

When I went back last week-end I heard of another case in the Colne Valley. A firm which has run for more than thirty years day and night without any short time has now stopped the night shift and is working only from 9 a.m. to 4 p.m. This is the first time for thirty years. That is a firm in the wool trade—not the cotton trade. I believe that sort of thing will continue, because confidence is desperately undermined. People do not buy, even for normal requirements, if there is a likelihood of a fall in the market. If the market is gradually sliding customers will not buy except on a hand-to-mouth basis. That is common sense; one cannot expect them to do any different.

Some stimulation in this Budget would have been better. I regard this as an ominous Budget. I regard it as acceptance of defeat. It is a Budget of folk who do not know what they are doing, do not know where they are going and do not know with whom they are going. I predict that an autumn Budget will be necessary and that it will be a Budget of stimulation, similar to other autumn Budgets in years gone by. I believe that such a Budget will be very necessary at that time, but perhaps too late to be effective.

The Chancellor complained about the default of organisations which had agreed to voluntary wage increases during the last two weeks. Employers' organisations in many trades base their negotiations and agreements principally on the cost of living. The employers in my own industry have granted an advance of 3 per cent., which came into operation last week. I suppose that the wool industry is one of the industries which the Chancellor had in mind when he said that they should not have done it.

The Chancellor said: If wage increases in general go beyond the national increase of productivity this is bound to damage the national interest. It looks very much as though this fact has been ignored in a number of voluntary agreements within the past few months. He went on to say: 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, 1957; Vol. 586, c. 54.] I am not in the inner councils of the wool employers. I do not know what prompted them to grant the 3 per cent. increase or whether there were arguments in favour of denying it. What I do know is that generally throughout employers' organisations it is significant that they believe this will be the last increase in wages on the basis of the cost of living for a long time to come, so the Chancellor cannot expect the employers on this last occasion to turn the employees down. The employers will not say to the employees, "You are not going to have a rise in wages," when in perhaps twelve months' time, after the present agreements run out, they want to approach the unions for a reduction. If the employers' federations had agreed with the Chancellor and had not increased wages, it would have taken away their bargaining power when they come to ask for a reduction.

I want to say a word about production. I should like to know when it has been more profitable to run one's machinery fewer hours. Who can say that it pays to run one's machinery fewer hours when one has the space, the capital outlay in terms of machines and the people to work the machines? Yet the President of the Board of Trade the other day told us it was a mistake and that we were producing too much. He made a remarkable statement. Talking about the Opposition, he said: It has been saying that production could safely have been increased, since there is unused capacity in this country, and that the larger volume of output would not have raised the unit cost of production. In a few particular cases this now may be true in April, 1958. … It is April, 1958, about which we are talking. … but it could not have been true when the economy was so fully employed that the inflation was recognised by everybody. In those circumstances, we can get higher production only if we do not mind increasing costs. Let us bear this in mind the next time the President of the Board of Trade or the Chancellor tells us to produce more.

The President went on: In other words, more old plant has to be pressed into service, there has to be more overtime, there has to be bidding for labour between firms and industries."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 191.] That is a lot of nonsense, and it is time that we got out of this silly groove of talking one way one year and another way the next. We thought that some advantage might come out of the setting up of a committee to investigate some of the basic principles of the economy, but that has not happened and politicians and Ministers are left talking the same old stuff which they had been talking for the last four or five years, in spite of the changing situation, a change which is not generally recognised.

Commodities having taken a hard knock during the last six months, it is high time that we again considered the practicability of arrangements for commodity prices. The New Zealanders and Australians themselves put forward a proposition for the stabilisation of wool prices some years ago. Since the idea was first mooted, the situation has changed enormously. The free world, as we like to call it, is no longer master of the commodity markets. It is no longer master in its own house in terms of commodities, because of the impact of bulk purchases on world markets.

Those purchases can greatly inflate or deflate the market. A case in point is that of Japan. Just before the war, Japan used 47 million pounds weight of wool a year—as everybody knows, Japan concentrated on cotton in those years and bought an enormous amount of cotton. However, in this year Japan will have bought more than 290 million pounds weight of wool, a tremendous increase. Every pound of wool bought by Japan is licensed by bankers. The wool buyers are told when to buy. The result is that although individual Japanese wool firms buy in modest quantities, they are organised in their purchasing so that the impact of their purchases on the market is terrific. Prices are down when they are out of the market and up when they are in.

This is having an impact on our wool industry, an industry which since the war has had the best record in dollar exports of any manufacturing industry in this country—including motor cars or anything else, except whisky, which I do not consider to be a manufacturing industry. Our exports to the dollar area are being jeopardised because of the lack of confidence and because of the way the country is now being run.

Our wool industry consists of many small units each with a modest number of employees, in most cases. It is our duty as manufacturers to make our products as competitively and as efficiently as possible and not to be subject to the impost of other countries playing the market.

The Iron Curtain countries established their manufacturing industries, using as capital the labour put into them, and with very strict control they have increased their output over the years. Their impact on commodities, especially in the sterling area, is important. We are between the two giants. The United States can look after itself and has the largest system of controls for agricultural produce that has ever been known.

So the sterling area is subject to the impact of very highly organised purchasing. So we, too, must organise. Here I quote what the President of the Board of Trade said on 16th April. He said: It is attractive to consider whether the Commonwealth, by itself, could devise means which would bring greater stability into commodity markets. We have had a good look at this question. Each commodity shows very distinct differences in the conditions of demand and supply.

There is one conclusion that comes out of all these separate studies, and that is that commodity stabilisation schemes are generally impracticable—I think it would be almost true to say, always—without the participation of the United States. They are usually impracticable without the participation of Western Europe and, perhaps, sometimes without the participation of Soviet Russia."—[OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 196.] Since when has the Board of Trade taken cognisance of the impact of the Soviet Union on world commodity markets? If what the President of the Board of Trade said was correct, why has Russia not been taken into account in discussions about the European Free Trade Area? Russia could not be brought into a consideration of the European Free Trade Area because discussions are dominated by O.E.E.C. There is only one organisation in Europe, E.C.E., which we could use to talk to Russia on coal, iron, steel, or anything else. It seems rather strange that the President of the Board of Trade should go out of his way to mention Soviet Russia when Soviet Russia has been deliberately omitted from any consideration of the European Free Trade Area policy.

I want to make one or two remarks about the talk of nationalisation by one or two hon. Members opposite. When Lord Chandos was a Member of this House some years ago, he said that if money could be borrowed and a profit made manufacturers would themselves decide what they would make. That was a fundamental principle, and we can understand it. When the money was taken out of railways—or, at least, no more money was put in—the country was faced for the first time with the fact that a public utility had got itself into a position in which it could not make a profit.

I warned the Committee last year that there is another industry which will soon be in the same position. When the right hon. Member for Monmouth (Mr. P. Thorneycroft) introduced his Budget last year he gave a concession of 40 per cent. investment allowances to freight shippers. At the time I said that that would not be enough, and it has not been enough; it cannot be enough. On the present showing the freight shipping industry will face ruin in the next two or three years, and a future Government will have to help it; it may be hon. Members opposite or hon. Members on this side of the Committee. I am pointing out that in the case of a public utility which cannot possibly make a profit special steps will have to be taken.

Under present circumstances this industry has not the slightest chance of making a profit, with countries running their ships under flags of convenience and American owners receiving a 50 per cent. subsidy upon every ship built in an American yard. Nationalisation means different things to different people. In this case action will not be taken because of doctrinaire principles; action will be taken because it will be necessary to do something for an industry which cannot make its own way. I hope that in the time the Chancellor has at his disposal he will be able to tell us something about the Government's attitude to such a case.

6.3 p.m.

Sir Toby Low (Blackpool, North)

The hon. Member for Ashton-under-Lyne (Mr. Rhodes) is very experienced in the woollen industry, about which he told us a good deal today, but I do not think that he ought to be so gloomy about its prospects. When talking of the need to stimulate the purchase of wool he might have reminded the Committee that the Chancellor has lifted altogether the Purchase Tax from wool cloth, which is now chargeable at 10 per cent., and has provided that clothing made from such cloth will, like other clothing, bear tax at 5 per cent. I may have been a little negligent in listening to him, but I did not hear him remind the Committee of that rather important point to this very important industry.

I want to pay my tribute to that industry for its magnificent export record for many years past, and especially in regard to its exports to the United States. Some of the industry's difficulties are without the control of Her Majesty's Government. The hon. Member will be aware that even two years ago, when I was at the Board of Trade, we used to have talks about various proposals, unfortunately, since translated into action in the United States to put restrictive quotas upon our woollen exports. The hon. Member knows the steps that have been taken by successive Presidents of the Board of Trade to try to prevent these ultra-protective steps being taken against our exports.

At the close of his speech the hon. Member talked about shipbuilding. It would be wrong for me to add to the points he made, because I have an interest in shipbuilding, but again, I beseech him not to be such a Jeremiah, not to be so gloomy. He may like to look for new reasons for nationalising further industries, but I do not think that it is necessary, because his right hon. Friends, over the years, have put forward every known reason for nationalising every known activity in this country.

Before the hon. Member spoke the Committee listened to a remarkable speech by my right hon. Friend the Member for Flint, West (Mr. Birch). He said so much of what I wanted to say that the Committee will be spared a substantial number of minutes of my speech. I shall not repeat the points that he made. I agree with what he had to say, I also agree very much with the theme of my right hon. Friend's Budget speech and the theme which pervades the whole Budget, but there is one point in respect of which I have a small disagreement with him, and that is a point of major principle, going right outside the Budget. It concerns retrospective legislation.

No one wants to quarrel with the Chancellor when he says that the practice of dividend stripping is quite unacceptable, and that he must put a stop to it. It is unacceptable because it deprives him of revenue, and in reminding us of the fact he said that the device of dividend stripping has somewhat altered in recent days. He wants to put a stop to the new device as well as to the old.

The old device, dealt with in the Finance (No. 2) Act of 1955, introduced by the Lord Privy Seal, was practised by finance companies and exempt companies—sometimes called charities. We are now told that dividend stripping is largely practised by companies with trading losses. These are not finance or exempt companies, but ordinary trading companies. The 1955 legislation did not deal with them. Nevertheless, the Chancellor has proposed that his new provision will apply to these companies, and will apply right back to 26th October, 1955, which was the governing date of the 1955 legislation. By making the matter retrospective the Exchequer gains—and to that extent the taxpayer gains—£2 million extra.

Many people have very strong objections to the principle of retrospective legislation. I hope that no right hon. Member opposite who is now listening will think that because someone has strong objections to retrospective legislation he has strong predilections to dividend stripping, or to those who dividend strip. That is quite a separate point and I will come to it in a moment. One can quite easily condemn a practice but not like a man who wishes to introduce retrospective legislation applying to it.

This is not the first time that objections have been voiced to retrospective legislation. Last year there was a considerable discussion on the retrospective effect of certain proposals relating to Estate Duty and gifts of inter vivos. Then the answer from the Government was that the proposals were not retrospective. Ministers did not defend the policy decision of making the proposals retrospective, because they said that that was not their real effect. In any event, as a result of the arguments of my right hon. and hon. Friends, the proposals were altered.

This year there is no attempt to suggest that the proposals are not retrospective, they are blatantly retrospective. That is justified by the argument that a warning was given. I ask the Committee to examine the argument that a warning was given. It is certainly true that in the debates of October, 1955, both the then Financial Secretary and the then Economic Secretary gave warnings that if abuses were found to develop later, the question of tightening the law might have to be considered, and any such future tightening would be retrospective.

I imagine that right hon. Gentlemen opposite considered those warnings were quite properly given. But whether they were properly or improperly given—I humbly say that Ministers ought not to give loose warnings like that in their statements and I say that having considered the results—we must realise that both the present Minister of Housing and Local Government and the present Parliamentary Secretary to the Ministry of Education were then thinking of abuses relating to the kind of dividend stripping under discussion at that time.

I see that the right hon. Member for Smethwick (Mr. Gordon Walker) shakes his head, but the right hon. Gentleman must have overlooked the fact that it was his right hon. Friend the Leader of the Opposition who, on that occasion, did the Committee the great service of lucidly and precisely defining what dividend stripping meant. The kind of dividend stripping to which he was referring, and which was covered in the Act, was dividend stripping carried on by finance companies and exempt companies. It is true to say that the warnings given were not very precise, and I suppose it is fair to say that a general warning about dividend stripping might be said to cover any kind of activity which somebody later might call dividend stripping. But can we carry on the government of the country in that very loose and vague way?

Mr. J. T. Price (Westhoughton)

Hon. Members are trying to follow the argument of the right hon. Gentleman and it would assist if he would define what he understands by dividend stripping. I understand it to be when a company which is not in financial difficulties buys up another company, and takes arty liquid assets of that company, and sells it at a loss in order to produce an artificial loss for fiscal purposes to load against its own profit. I do not think that the right hon. Gentleman is putting this thing in its right perspective.

Sir T. Low

I have not gone into this matter in great detail, because I hope that hon. Members have read the debates on the former legislation. What the hon. Member for Westhoughton (Mr. J. T. Price) has said is a reasonable summary definition of dividend stripping under the 1955 Act——

Mr. Gordon Walker (Smethwick)

And now.

Sir T. Low

No, with respect to the right hon. Member, not now. What we are now asked to deal with is set out in the Resolution about Income Tax.

I do not wish to take the Committee into too much detail about this matter. I am trying to make a rather difficult point as quickly and shortly as I can. In this Resolution there are set out two kinds of dividend stripping. Kind (a) is dealt with in the 1955 legislation. Kind (b) was referred to by my right hon. Friend the Chancellor in his Budget statement and described by him. He told us of the new form which this device has taken, a device practised by companies with trading losses who, I understand, having got those trading losses, use them and the tax relief due on them to reduce their liability to taxation on profits, or to recover taxes already paid on profits accumulated in other companies subject to their control.

There is a difference, and if it cannot be seen after what I have said, surely it can be seen when we realise that the former legislation covered finance companies and exempt companies, such as charities, whereas this proposed legislation covers trading companies as well. That is the point, and it is for that reason I say that even though we attach importance to the warning argument, the warning coming from the Government Front Bench in 1955 was not one which applies strictly to this practice covered under heading (b) of the Budget Resolution.

I go further than that, because in my view the question of whether or not a warning was issued is not relevant. We pride ourselves on being governed under the rule of law. I say with great humility, that that does not mean the rule of statements from the Government Front Bench. If it did mean that, we should have to see that some statements were more carefully and strictly drafted—this is not a party point—and we should have to see that they were published, indeed that in some way they were indexed, so that ordinary people could obtain them and see what had been said. But we are not living under that kind of constitution at all; we are subject to the rule of law and until something is made illegal, it is legal.

Mr. J. T. Price

Even though it is a "wangle"?

Sir T. Low

Yes, even though it is a "wangle".

That brings me to the general point I wish to make. Right through the whole history of our law, legislators have constantly been trying to improve our criminal law and our tax law and get rid of "wangles" and frauds, and so on. There has been no history of retrospective legislation.

I would ask my right hon. Friend to apply his mind to one other question. I agree with him that the practices he is proposing to bring within the law should be covered for tax purposes. They are clearly not covered by the 1955 legislation. Suppose there had been some doubt about the interpretation of part of the 1955 legislation, that a case had been brought in a court of law and that—which is not impossible—the Revenue had lost the whole way up.

Suppose, after that, that my right hon. Friend wished to close that loophole. Is my right hon. Friend really saying that retrospective legislation would have been applied to that alteration of the law to cover the period before the case had been brought? Would it not frustrate the judgment of the court and the rights of the individual? That seems to me a good test. Then there might have been some doubt whether the matter was governed by the law or not, but in the present case there appears to be no doubt whatever, and that is an added reason why there should be no retrospection here.

Mr. Sydney Silverman (Nelson and Colne)

Does the right hon. Member for Blackpool, North (Sir T. Low) really mean that? The Chancellor is proposing to correct what was an injustice under the law in cases where double death duty has been paid where two parents have died together probably in a common accident. There was litigation about it by which the taxpayer sought to save himself from obvious injustice and oppression. The Chancellor proposes to put that right, but not retrospectively, as I understand it. Supposing he were to propose to put it right retrospectively and so remedy past injustices, would the right hon. Member for Blackpool, North say that the Chancellor was wrong?

Sir T. Low

That is rather a different case. I was just coming to that point in my argument. If we have retrospection against the taxpayer we must have retrospection in his favour. The hon. Member gave me an example in which there is no proposal for retrospection in the taxpayers' favour, but, certainly, if there is to be retrospection against the taxpayer we should have it in his favour, too, even though the Brahmins of the Revenue would not like it.

I hope very much that my right hon. Friend the Chancellor will reconsider this matter. I hope that he and the Committee will forgive me for going into this matter so fully, but I regard it as most important. It is extremely important, in putting this argument, as I do with great sincerity to him, that neither I nor my hon. Friends who support me should be thought to be supporting this form or any other form of tax dodging. If I could find any way of overcoming tax dodging, I would like to help the Chancellor by suggesting it.

We are all human. I gather that, in 1955, the Revenue was not so skilful as to anticipate this loophole, but as it failed, I do not think that the Revenue should be allowed to jeopardise one of the main principles of our Constitution, which is that we will not have retrospective legislation against the taxpayer.

I would in conclusion ask my right hon. Friend to accept some words from me of further approval of the contents of the rest of the Budget. I would reinforce what was said by my right hon. Friend the Member for Flint, West about my right hon. Friend's resisting any temptation to give tax reliefs which cannot be justified by the general budgetary and economic situation that he finds. This is not the time to take the risk of inflation coming hack again. The talk which we had in the House last week about the importance of expansion sometimes neglected the essential prerequisite of expansion, that we must have no inflation and must have stable prices and an economic climate which encourages efficiency and competitiveness.

Because I believe that the Budget will lead to that result, I strongly support it. I support it also because I am sure, as my right hon. Friend the Member for Flint, West, sitting next to me, said, that even if there is a slight mistake on the side of depressing demand, or, at any rate, of keeping demand down a little too much, that mistake can be corrected quickly. I am sure that the Chancellor will take early and immediate action to correct it, if that becomes necesary.

6.26 p.m.

Mr. R. T. Paget (Northampton)

The right hon. Member for Blackpool, North (Sir T. Low) said that he would be delighted to find a method of stopping ingenious ideas for tax evasion. Surely the best method of stopping it is precisely retrospective legislation, and I hope that we have lots more of it. Once we make it clear to these ingenious gentlemen that their bright ideas will be caught up with, taxation evasion will be stopped. We cannot stop it in any other way.

I turn from that to the remarks made by the right hon. Member for Flint, West (Mr. Birch). He made a speech of an absurdity which was surprising from a man who has held high office, even in this Government. First he said that the principal cause of the crisis which we ran into last autumn was weakness in the gilt-edged market, but there is no authority or any school of thought who ascribes anything but the most subsidiary influence to movements in the gilt-edged markets. I would judge that the position of the gilt-edged market had only the remotest influence upon what happened.

But it was when the right hon. Gentleman came to the cause of loss of confidence in the gilt-edged market that his speech was most remarkable. He ascribed that loss of confidence to a strike settlement, which, as far as I can recollect, cost about £3 million and a Socialist Party pamphlet on insurance. This from one who, throughout, has held high office in the Government that has driven gilt-edged prices down to half! What wrecked the gilt-edged market was his high interest rates policy that we have always opposed. It drove Consols down to half the price at which they had stood when the present Government came into office.

When people find that under any Government they have lost half their money in three years they are not likely to have much confidence in gilts. But the right hon. Gentleman ascribes the trouble to a Socialist pamphlet, and then proceeds to give his unqualified approval to the policy of Her Majesty's Government thereby establishing the frivolity of his own resignation.

I want to turn to the argument of the serious member of the retired Treasury trio, the hon. Member for Wolverhampton, South-West (Mr. Powell). I do not think that it would be regarded as unduly offensive if I said that he is in a rather different intellectual class from his senior colleagues and, as such, more worthy of my metal.

I want to go really to the roots of this Budget. Its main object is to maintain the internal purchasing power of sterling. I want to consider whether that objective is a desirable objective. First, I would ask, are stable prices consistent with an expanding economy? Lord Keynes observed that in only one century of our history had we avoided inflation. That was the fourteenth century. He further observed that it was the only disastrous century in our economic history. Ever since then Governments have aspired to maintain the purchasing power of sterling. Had they done so a sheep would still cost a halfpenny. We would be practically without an economy and without industry.

I have examined the figures carefully so far as I can, our own figures for a century and the figures of comparable industrial countries such as Germany, France, America, Japan, Italy and Denmark. We have a consistent picture; wherever we get stable prices, within a maximum of two or three years we get industrial depression. Wherever we have stable prices they are coincident, not with the good times, but the bad times. When prices have remained stable, or have even gone down and the purchasing power of sterling has gone up, there have been the miserable times of our history, the Hungry 'Forties, the depression of the 'seventies and the bad times of the 'thirties.

In the whole of this picture, with three exceptions to which I shall come in a moment, there seems to be a consistent link. Once we stabilise prices, within a year or two depression certainly follows. The first of the three exceptions was one which the hon. Member for Wolverhampton, South-West did not mention and it certainly is the most striking. That is the American post-war figures. The prewar American figures precisely fit in with what I have been saying, but the post-war figures, at any rate up to a year ago, showed an expanding economy with stable prices. By its aid programme America was parting with large unrequited sums which were not necessarily and to a very large extent were not, in fact, spent in America. If the sums which America had parted with in aid had been put on to her own market her prices must have risen a great deal more.

The hon. Member for Wolverhampton, South-West relied on one of the other two examples. Germany. Twice Germany has written off her currency and as a result started free from internal debt with a large reservoir of unemployed labour. Twice she has succeeded in persuading foreign countries to deal with her foreign debt for her and twice she has brought about a very considerable development over a period with stable prices. From 1924 to 1929 she put up her industrial production 33 per cent. at a cost of a mere 8 per cent. increase in prices, but during that time she never achieved full employment. She never got better than a 7 per cent. unemployment figure.

This time, in the same circumstances, Germany has done even better. She has put up production 60 per cent. since 1951 with a 9 per cent. increase in prices, but, again, it has been the quite exceptional case of bringing in a vast reservoir of new labour. The refugees flowing into Germany have meant that within that period she has increased her labour force by 32 per cent. but it was only towards the summer of 1957 that she began to acquire full employment. Having reached full employment, things promptly started to go wrong. On the latest figures she has brought up her employed from 1½ per cent. last summer to 9 per cent. with 1½ million unemployed. I do not think that the one example which the hon. Member for Wolverhampton. South-West could quote is very valuable for his argument.

I believe that the whole effect of these figures is that where we have a stabilised cost of living inevitably we find that industrial production begins to fall. I believe that we should be considering not how to prevent prices rising, but how to manage those rising prices that are a condition of economic buoyancy. All the evidence shows that they are such a condition. Whether the Committee agree with me so far or not, I believe that that is what we are going to have to do. Unlike my hon. Friends, I do not believe that we are going to see falling prices. For reasons given by my right hon. Friend the Member for Dundee, West (Mr. Strachey), in the very remarkable book he wrote dealing with the Marxian principle of increasing misery, I think that the power of democracy has proved sufficient to defeat the intentions of the economists. Before we get to stabilised prices the cost of those stabilised prices in terms of unemployment will be such that a reflation will be forced on the Government. Whether we like it or not, I believe that we have to learn to live with rising prices.

How does one do that? I should like to look at it first as an internal and later as an external problem. As an internal problem, if we have an inflationary situation that brings us full production, any loss that any member of the community suffers is gained by someone else. For every loser in that situation of the increasing cake, there has to be a gainer. Social justice is simply transferring from those who profit from inflation to those who lose. I do not believe that that is beyond the wit of economic management. As far as taking away from those who gain is concerned, there is a variety of taxes which could work in that way. A capital gains tax is one, and another tax which I think worth considering is a tax on advertising. The sort of marginal requirement that sells on mass advertising is precisely the sort of commodity which sells best in an inflationary situation. There is a whole variety of ways. I do not propose to go into them in detail.

On the other side there is the question of linking pensions to the cost of living. There is no particular difficulty in that, but, internally, I do not think that it is enough merely to deal with the problem in terms of social justice. I believe that if we are to work a policy of this sort, we have to exercise a measure of control to keep price increases within bounds and direct our expansion in the right way. As to the balance, I would probably agree with the figures which I heard ascribed to a former right hon. Member for Aldershot, now Viscount Chandos, as being an optimum of between 3 and 5 per cent. per annum.

As for directing expansion, I believe that there are a lot of instruments by which we can do that. First, the Budget is an instrument for controlling both the quantum of the spending power which we release, and also to a considerable degree directing the measure of investments and the measure of consumption. Within the Budget one can do a good deal in that way. I certainly would not exclude direct price controls. I would not use them, of course, as one has to do in situations of war and scarcity, but with large, uniform commodities such as petrol I believe that price control could be very effective. I should like to see price control on petrol to force the petrol companies to abandon their absurd and costly competition in distribution and to rationalise their competitive oil stations.

Flour is another example, so is sugar, and there is a whole series of standardised commodities which could be price-controlled very easily and at very little bureaucratic cost. There are also building controls, and a number of controls such as that which in considerable measure can direct the size of investment.

We turn now to the external questions here involved. What is the external objection to allowing prices to rise in a moderate and controlled expansion here? We are always told that we shall be pricing ourselves out of the market if we do so. I believe that there is much less connection between the pressure on sterling and internal price levels than we think.

I have a number of figures here showing what various commodities cost in various countries. Flour costs per kilo 15d. in England; 23d. in France; 16d. in Germany; 22d. in Italy; and 20d. in America. Beef costs 112d. in England: 202d. in France; 104d. in Germany—the only one that is lower than our own figure—156d. in Italy; and 200d. in America. For butter, there is the same sort of picture. Coal costs per 100 kilos 152d. in this country; 382d. in France; 372d. in Italy; and 253d. in the United States. Transport shows much the same sort of thing.

We could increase our prices here by at least 20 per cent. and still have lower prices than our competitors. The extent to which the internal purchasing power of the £ is undervalued is not adequately realised. That being so, we must recognise the trouble we run into has nothing to do with our balance of payments. They were in very good trim. It was pressure resulting from our banking activities within the sterling area, and on that I would say that the sterling area banking business is one in which we are involved and which we cannot get out of, even if we want to, though I do not think we need be as extravagant about it as we have been.

The extent to which we have been financing trade between non-sterling area countries is not something which I believe is directly necessary, because we finance nearly half the trade of the world, and that is a vast convenience to the rest of the world. If our reserve proved insufficient, if we were running towards devaluation, the Americans and the rest of the world would have to chose whether our services, with the £ at a given value, were worth supporting sterling or not, and if they came to that conclusion that they were not, we might devalue. I do not exclude any of these things. The only thing I do say is that I do not believe that our banking activities are worth the sacrifice of the productivity of this country.

I ask the Committee to consider what has happened in the last twelve years. The right hon. Member for Monmouth (Mr. Thorneycroft), in his resignation speech, said that we had attempted to do too much in these last twelve years, but look at what we have achieved. In atomic power, militarily we have the deterrent. Militarily, if we chose, in terms of the deterrent, we could kill 20 million Russians before tomorrow morning. That is a measure of our power in military terms. In industrial terms, we probably lead the world.

The right hon. Gentleman also said that we tried to maintain conventional forces. Heaven knows, I have been a sufficient critic of our performance, but in measuring our economic achievements we should remember that we have produced for our conventional forces a higher proportion by far of our national income than at any period of our history in peacetime.

The right hon. Gentleman says that we have attempted the Welfare State and put it on a higher level than have the Americans. So we have. He says that during that time we have financed about half the world's trade. So we have. These are prodigious achievements. Then he wrote it off by saying, "During that period, the £ has dropped in value to only 12s.". Good heavens; has any nation ever had better value for eight "bob"?

Let us look at the next twelve years. The Russians have been expanding their economy at about 8 per cent. per annum. If they do that for twelve years they will have doubled their productivity. Will they be judged by that or by how the rouble stands on the Berne Exchange? We have become mesmerised with the £. The £ is only a symbol. It is a bad sign when we allow the £ to be our master instead of our servant, and that is what I feel has been happening.

Under this Government there has been no constancy. When the Lord Privy Seal was Chancellor the policy was to expand consumption at the cost of investment. A fortuitous £1,500 million which came to us through a turn in the terms of trade in our favour was frivolled away in three of the easiest years we have had, and a consumption election was held. Then the present Prime Minister threw the helm over and said, "We must now invest". Then the late Chancellor said, "Back to inflation". Next, he lost his nerve in the autumn because of a gamblers' run against sterling, and now we are back again moving towards deflation.

It has been like a helmsman going down a strange channel nervously, hitting a sandbank on one side, over-correcting his steering, bumping on the other side, swinging back again—and before long he has lost steerage way and he is drifting with the receding tide, waggling his rudder for all he likes but with nothing happening.

That is roughly the position of the Government. They have had the high Bank Rate and the credit squeeze and they have had lots of exhortations. They can waggle the rudder as much as they like, but it will have no effect. They are losing control and the tide is receding. Nor do we feel that they are capable of doing anything about it. That is what causes our anxiety.

6.53 p.m.

Mr. Hugh Fraser (Stafford and Stone)

The speech with which the hon. and learned Member for Northampton (Mr. Paget) has just entertained the Committee will be a cause of great fear to his right hon. Friends and will be of use to the Conservative Central Office. Large sections of it, containing his perpetuum mobile of permanent inflation, forms a sentiment which I am sure will excite massive applause throughout the ranks of the pensioners and poorer paid workers in this country.

He was obviously better on his fourteenth century finance, on which he gave us a brilliant exposition, but he should have gone back to the Antonines and perhaps he could have told us whether inflation or deflation caused the collapse of the Roman Empire. When he came to more modern times he was a little unjust when he spoke about the failure of the Government to assist a large volume of investment, both in the private and public sector.

I want to turn to a more useful field than delving into the historism which the hon. and learned Member committed for thirty-five minutes. We are not faced with the problems of the Antonines or of the fourteenth century. We are faced with the problems of today. I must confess that, after having listened to the speeches of right hon. and hon. Members opposite, I am in some difficulty to understand their attitude in this matter.

Listening to the speech of the right hon. Member for Blyth (Mr. Robens), I reached the conclusion that he and his colleagues had two equal priorities, for both of which they were prepared to die at the last ditch. One is the defence of sterling and the other is the defence of full employment. I can only anticipate that at some not far-distant future they will perish from self-inflicted wounds.

We are faced with a difficult situation—a situation with which, except in one instance, I believe my right hon. Friend has dealt satisfactorily in the Budget. The unsatisfactory element, apart from that mentioned by my right hon. Friend the Member for Blackpool, North (Sir T. Low), is that of Government expenditure, which continues to increase. I regard that as a major matter of disillusionment. The theory put forward by right hon. and hon. Members opposite that the only way to get out of our present or impending troubles is by re-inflation is one which we cannot support. I believe it is clear that it is useless to expand capacity at any price expecting to find an automatic and easy market. Some hon. Members opposite have stressed the fact that we are now finding difficulty, and will find greater difficulty, in selling some of our goods overseas.

If I may give an example of the expansion of the market, we have seen the American motor car industry expand to a capacity of about 12 million vehicles a year, and we see the difficulties which they are having in disposing of these vehicles. It is idle to believe that the mere expansion of capacity or production at unlimited cost will get us out of the troubles which probably lie ahead. The Americans have the richest clients in the world. We, on the other hand, must recognise that 50 per cent. of our trade goes to the Commonwealth and to raw material producing countries, whose economies have declined.

There is no need to weary the Committee, with the skill which all hon. Members have in a knowledge of statistics, with the extent of these falls in the prices of raw materials, but they can be averaged roughly, assuming that there has been no immediate expansion or contraction in our volume of trade, by the fact that the terms of trade have turned roughly 12 per cent. in our favour. That is a very rough indication of what has happened.

I believe that we have to face the problem over the next ten years of considerably lower prices for raw materials in general because of synthetics, because of the investment which has been made, because of the production now possible and because of raw materials from Eastern Europe, Russia and China coming on to the market. As Sir George Bolton of the Bank of London and South America and others experienced in such matters have said, I believe that we are now moving into a time where raw material prices will probably be permanently at more realistic levels.

We are faced with the problem of what we can do, and the question that we have to ask ourselves is: how long can we hope that this 12 per cent. advantage in the terms of trade will continue? To put it in the simplest form, it is quite clear that if a country has been buying a hundred units with the terms of trade at level, pegging the change will mean a drop from 100 to 88 units. I agree that that is obviously too simple an analysis, but it is quite clear that we face possible difficulties.

We must be thankful, I think, that as a result of the Government's policy of maintaining sterling over the years we have been in office and of keeping sterling strong now, a cushion exists, through the sterling balances, for the poorer countries. That cushion does exist, but the sterling balances were run down last year to the tune of £200 million or more. That has been extremely valuable in helping our exports, but we have to look ahead to the time when the limit of drawing on sterling balances has been reached.

We have to look carefully at what my right hon. Friend the Chancellor said in his speech, that not merely must there be a time of stable prices but a time when our prices can actually be brought down. I believe that we should start to bring them down now consciously in a regulated, prepared and planned fashion, rather than have them suddenly rush down by a collapse of markets. That would be the best thing we could do for stability, employment and all those things in which both sides of this Committee believe. A sudden panic through a crash of prices would be the greatest disaster.

I really believe that there is now a chance to start getting prices down. This is not a question of inflation or of deflation, but of common sense. Let us look at what has happened. I know that the hon. and learned Gentleman is an expert on statistics ranging over fields vastly greater than faced Keynes, but let us look at what is happening to steel prices. I think it was one of my hon. Friends who said that there has been a reduction in steel prices of 1 per cent. this year, but steel prices last year went up by 7 per cent., so let us not deceive ourselves about how serious is our position, or how competitive we are.

Since January, 1957, our steel prices have gone up more than they have in Belgium or in West Germany. The price of our steel exports is going down far more slowly than is the price of West German and Continental steel. The maximum decrease we have had is 7 per cent. for heavy sections—for which there is not a great demand at present—but Continental prices are down by 20 per cent.. 30 per cent.—and down by 33 per cent. for plates since January of last year.

Mr. Paget

We are lower.

Mr. Fraser

We may he in certain items, but the rate of descent is such that in certain items we are no longer competitive. We may be the best, but quite apart from whether it is Bessemer or open-hearth steel or anything like that, we are no longer absolutely the cheapest. So do not let us deceive ourselves into thinking that our price structure is completely superior.

In such circumstances, my right hon. Friend is right to turn to helping exports by E.C.G.D., and so forth. That is important, but I would go further and say that something more is necessary—something like an export-import bank on the American pattern. Although my right hon. Friend said that he did not want to take part in the credit export race, that race is on. The Americans are competing in it, even if not openly. The Germans have competed in it, and may well return to it. So might the French. My right hon. Friends must realise that in this race they are under starter's orders against other horses that have started already. Therefore, the sooner we start doing something the better.

But the main thing is to bring down prices now in an orderly fashion, and not in the panic fashion that could so easily be forced upon us if we go on believing that we are entirely competitive and will have permanently this 12 per cent. advantage to which reference has been made. It is possible to bring down prices for three very simple reasons: first, because the terms of trade are vastly in our favour; and secondly, because of the very large investment made, not only in public but in private enterprise, by this Government, and, indeed, by the previous Government, but notably since we have been in office. More money has been pumped into investment. It has been pumped in at a very high rate. The rate of savings in this country is actually higher than it is in America. The third reason is the know-how of management and the mounting skills of the technical workers which have been built up over the last few years.

The time has come for a reduction in prices, not just in the distributive trades, but in some elements of manufacture. Some of my hon. Friends and some hon. Gentlemen opposite have said that there are restrictive practices on both sides. That, surely, is the last refuge, and if that refuge is taken it will be found that restrictive practices are fatal, not only to the industries concerned but to the country as a whole.

Now for criticism. My one criticism of the Budget is based simply on the fact that Government expenditure is still going up. I believe that the House of Commons has failed—and this applies to both parties over the last 12 years, at least, since I have been in the House, so I am equally guilty—in any way to control Government expenditure. We have Committees of Estimates, we occasionally have debates in the House, but still there is an increase in Government and local government expenditure, and taxation, including the contribution to insurance, still takes 33 per cent. of the gross national product. That is far too high, and I believe that our economy can be unbalanced not merely by inflation but because Government expenditure tends to be too high.

Ministers have been grossly guilty in saying that there can be no major reduction in spending without a major change in policy. I just do not believe that that is true. When a business wants to make itself more efficient it does not necessarily have to embark on a major change of policy. I wish that some of my hon. and right hon. Friends would visit Marks and Spencer up Baker Street. I know that any firm is a mere collection of tradesmen compared with these brilliant civil servants with double firsts and the like, but on a turnover of £100 million it has managed to get its overheads down by £2 million. It has saved 15 million forms used by its own employees, and it has saved 80 tons of paper. If one transfers those figures to national and local government spending departments, one gets a saving of over half a thousand million forms and 4,000 tons of paper—I know that the hon. Member for Sowerby (Mr. Houghton), having had experience of Government service, is listening avidly—and about £100 million, or nearly 9d. off the Income Tax——

Mr. Douglas Houghton (Sowerby)

Does the hon. Gentleman really think that those savings, important as they could be, would really make any substantial difference to the level of Government expenditure?

Mr. Fraser

I was coming to that as my next point. Marks and Spencer is extremely efficient. I am told by various members in my family that, costs having gone down, the goods are constantly better. The Government have the advantage then that they do not begin by being an efficient group, whereas, presumably, Marks and Spencer was efficient before it began this economy drive.

I am amazed that "Parkinson's Law" has not been referred to in this Committee. It is an excellent law, and I am sure that the hon. Gentleman who has had so much experience of Government service knows all about it. Parkinson's Law is very simple. It says: Work expands so as to fill the time available for its completion. I should like to turn for a few moments, on the question of Parkinson's Law, to the number of civil servants still employed in this country. I know that there has been some reduction. Since we have been in office I am proud to say that 50.000 civil servants have been put to more suitable and doubtless more remunerative activity. If one looks carefully at the figures one finds that one Department, the Ministry of Food, has been abolished; and the Minister of Works deserves a good pat on the back and a compliment on the number of civil servants for whom he has found better places.

It however, we look to the Armed Forces we find a most extraordinary state of affairs over the last five years. I regret that these Ministers, in their places of Olympian calm, where, no doubt, they are considering matters of importance far beyond these question of economics, are not with us today. During the period 1952–57 the Armed Forces declined by 130,000 citizens called up or enrolled. During the same period the number of civil servants employed by the Navy, Army and Air Force increased from 88,000 to 88,400. It is really remarkable.

The reaction of the hon. Member for Sowerby is typical of many who are employed in the Civil Service. They say that these tiny, hardly noticeable reforms are just a question of saving £100 million. But when I look at the hon. Member for Sowerby and consider how far he has got in life and how he has risen to great heights, I feel that the best thing would be to suspend recruitment to the Civil Service for two years. A great many young people employed in the Civil Service would be far better employed in industry. Many people higher up would delight in the absence of pressure. Many would feel "Promotion is mine". These considerations should be borne in mind by the Government.

In this Budget we have done the right things in general because, with the other steps taken by the Government, it creates the right atmosphere in which prices will not only remain stable but indeed will have a real chance of falling. It will mean for our people higher real wages, more service to the Colonies and the Commonwealth whose standards also have fallen, and more stability for our commerce. I have only one regret, and that is that neither this Government nor the House nor any other part of our Parliamentary democracy has yet finally found a way of controlling the rising tide of spending and extravagance which seems natural in our society and which must, in the interests of our own people, be curbed.

7.14 p.m.

Miss Elaine Burton (Coventry, South)

Unlike the hon. Member for Stafford and Stone (Mr. H. Fraser), I believe that this Budget has failed in great measure. I am disappointed primarily because of the prospects in industry which are likely to be created not only by this Budget, but by the atmosphere of thought behind it.

It is the opinion of most people in the industrial City of Coventry, part of which I represent, that the general economic policy of the Government is holding back production, is creating unemployment and is failing to produce the necessary increase in investment. I think that hon. Members opposite will probably not be surprised to hear that among the workers in that city this Budget has strengthened the realisation that they have nothing to hope for from this Government. I am sorry that the Chancellor of the Exchequer is not with us at the moment, because it is important that the Government should realise the effect that their policies have had not only on the workers and the trade unions in Coventry, but on the progressive managements in the different factories there.

Over the last two and a half years I have visited most of the factories in my constituency—in fact, most of the factories where the managements would not share my political opinions. I think it would do the Government a lot of good if they could hear the comments which have been made by those managements about the methods of the Government in industry and finance over that period.

On Budget Day last week, in common with most other Members, I looked at the newspapers and I was struck particularly by the accounts in a good many of them representing differing political views. These accounts were expressed in a headline which ran, "Workless highest for five years." I have brought with me quite a few of those Press cuttings, with which I do not propose to weary the Committee, but I was impressed by the number of times I came across the statement, "Workless highest for five years."

That statement followed fairly quickly on a pamphlet called "Fighting Inflation", produced by the Federation of British Industries. I should like to quote two short paragraphs. The pamphlet says: Employment at 98 or 99 per cent. of the employable population has been over full … It went on to say: A slackening in activity could, therefore, mean no more than a reduction in the overstrain. There is fairly general agreement that 97 per cent. employment is close to 'full employment'". That pamphlet followed the Cohen Report, and I should have thought that the Cohen Report was out of touch not only with the world of today, with workers and with progressive management, but, what is infinitely worse, with the world of tomorrow. I am saying that because the Chancellor last week, speaking of the Cohen Report, seemed to give it his apparent approval. He said: This Report gives us an exposition of the facts about movements in wages and salaries, prices, profits and dividends over recent years—hard facts which exist quite independently of the political or economic views of the reader."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 53.] Apart from its views, which the Paymaster-General will admit seem strangely in line with Government policy, it can hardly be described as independent, or, if it wished to be considered independent, it made a grave mistake in expressing opinions before it had completed an examination of the facts. I was going to suggest to the hon. Member for Scarborough and Whitby (Sir A. Spearman) that if he looked at paragraphs 135 and 136 of the Cohen Report he would see very well what I meant. That Report and the pamphlet published by the Federation of British Industries, from the point of view of my party, offered a counsel of despair.

It is not very often that my hon. Friends and I agree with the Daily Express, but that newspaper, in its leader column, speaking of the Cohen Report, carried a heading "Not so wise." It went on to say: So the Three Wise Men say that no one should be surprised or shocked at the prospect of more unemployment. Well, they are wrong. The people are most surprised and profoundly shocked at the very idea. It went on to say, speaking of unemployment: That is a conclusion that the public will never accept. I often wonder whether hon. Members opposite realise that this sort of attitude exemplified by the F.B.I. pamphlet and the Cohen Report, that a little more unemployment really would not be a bad thing, not only damages co-operation from the unions and breeds antagonism on the shop floor, but breeds a "don't care" spirit among our young people. The young workers to whom I have talked recently have wondered what the future holds for them, as they now are leaving school in ever increasing numbers, if the background of all present policy is to be "Just a little more unemployment".

I have wondered whether the Government and the remote people who write reports will ever understand that, while we on this side agree that inflation is a social problem of the greatest magnitude, we insist that unemployment is, also. It would be a very good thing if the F.B.I. had produced a pamphlet called "Fighting Unemployment".

I saw a good deal of unemployment in South Wales in the 'thirties. Later, I myself suffered from it. About two years ago, in the City of Coventry, which was supposed to be paved with gold, we had a serious recession lasting about twelve months. That sort of thing makes us on this side very suspicious of any suggestion that unemployment should increase, from whatever quarter they come. It is very significant that the same suggestion keeps on creeping in as a background to these statements we hear from time to time.

I should have accepted that there is one great difference in this matter of unemployment between conditions today and things as they were in the 'thirties. Modern ideas, modern machinery, modern education and modern industry, if developed properly, mean that we must accept the idea of changing jobs. Going back to the 'thirties, I believe that the opinion of most of us—it was certainly my own—was that, while everybody was entitled to a job, it was usually thought to be the same job all the time. There was the greatest difficulty in getting people to move from where they lived.

I should say that, today, everyone who wants to work is entitled to work, but I do not think that we are entitled any longer to believe that the job should always be the same job in the same place for the rest of a worker's life. But, if we are to have this principle accepted, it will mean planning on a vast scale by both sides of industry and by the Government. What I want to make the Government see is that reports like the Federation of British Industries pamphlet and the Cohen Report, which has not been turned down by the Government, are bankrupt for the future. They will not breed in anyone the acceptance of the need to move elsewhere to look for a job, because no one will have faith in the people who are doing the planning.

I do not want to deal in detail with the Cohen Report today I am glad that the Paymaster-General is in his place, because I wish to quote from what the Chancellor said in his Budget speech, when referring to local pockets of unemployment: Local pockets of above the average unemployment must be tackled with all possible energy."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 38.] I have three points I wish to put to the Government, and I should be glad if the Paymaster-General will at least convey to the Chancellor the first one as it is something which he could himself alter at once, because it rests with the Treasury.

When we had the recession in Coventry, about two years ago, we were very concerned about the men who became redundant. It was no fault of theirs; there were not sufficient jobs in Coventry for them. But there were jobs elsewhere. In May, 1957, the Minister of Labour announced in the House that men who could not obtain jobs locally could have help in transport costs and lodgings if they could get work elsewhere. First, the amount to help in lodging expenses was 35s., and the waiting period before that could be paid was eight weeks. As to the amount, the unions in Coventry felt that it was quite inadequate. In the 'forties, when a lodging allowance was made, the figure was 24s. 6d. Even going to May, 1957, taking the value of the £ then, the figure should have been nearer £3 than 35s.

On 19th February, this year, I asked the Minister of Labour to increase the amount and reduce the waiting period. The Minister refused, saying that the amount of lodging allowance was not intended to cover the whole cost of lodgings. Of course, it was not intended to cover the whole cost; it never has been. The question I put to the Paymaster-General is this. Is it really sensible that, if we are to be faced, as we are faced now, with local pockets of unemployment, people should receive a much smaller grant towards the cost of lodging elsewhere than they received in the 'forties?

As for the waiting period, we in Coventry felt that not only would it be fairer to cut it out altogether, but the Treasury would actually save money thereby. As the Paymaster-General will know, it was the express wish of the Minister of Labour that, if men became redundant and there was work elsewhere, men should go to it as soon as possible. If a man found a job elsewhere and had the opportunity of going, he forfeited the help in transport and lodging costs if he went at once. He had to wait for eight weeks before that assistance could be made available to him. The Minister has now reduced the waiting period to four weeks.

Since that concession, in February of this year, I have talked not only to the trade unions and the workers who are members of the unions, but to the people who have to administer these arrangements. They are very firmly of the opinion that no waiting period should be imposed at all. Apart from the rights of it, I need only add that the Coventry District Committee of the Confederation of Shipbuilding and Engineering Unions pointed out that, if a man was offered a job and he did not take it immediately because he wanted to wait to qualify for these benefits, he would, if a family man, receive about £4 a week in unemployment benefit, which the Treasury would pay. We reckoned, therefore, that there was a fairly good case. I hope that the Paymaster-General will persuade the Chancellor that it is, so that we shall have the waiting period removed altogether and the allowance will be increased so that the value is no lower than in the 'forties.

The second matter I wish to put to the Government is of great concern to all who have had dealings with the problems created by redundancy or may do so in the future, namely, redundancy payments. These, too, were mentioned in the Cohen Report. On 24th February, the Minister of Labour told us that long and loyal service should be recognised as far as it can be in the terms of service and the contract of service of the individual."—[OFFICIAL REPORT, 24th February, 1958; Vol. 583, c. 63.] At the time of the B.M.C. dispute and the redundancies which followed, there was in the motor car industry a demand from the workers for four things, and they are being demanded in the pockets of local unemployment today. They are: first, adequate notice of impending redundancy; secondly, the adoption of all possible measures to avoid redundancy; thirdly, the fullest consultation between management and the unions; fourthly, the payment of compensation to work-people when redundancy is unavoidable. We have been told by the Government what is being done for redundant workers from the Royal Ordnance factories, etc., but I should like to have further details about any arrangements entered into by private firms and public bodies for the payment of what we in Coventry have called "severance money" for the displaced workers.

The third point I wish to put arises really from the Cohen Report, to which the hon. Member for Scarborough and Whitby referred. Speaking about the level of unemployment, the Cohen Report, in paragraph 27, said that the figure had "risen only from" such-and-such a figure to such-and-such a figure a year later. What I want to stress to the Committee, and what anybody who has any knowledge of unemployment would agree, irrespective of which side he sits, is that there is a very great fallacy which arises from anybody's sitting at a desk and writing a report on unemployment and telling us that it has risen from such-and-such a figure only to such-and-such another figure. All of us know that the point of issue is what is thus concealed.

Certainly, the great problem we have had to face in Coventry is that such figures in local pockets of unemployment concealed, first, the fact that the older people are remaining out of work and just cannot get a job. Secondly, they concealed what in Coventry was a very alarming trend, the number of people out of work for six months or more who could not get a job. Thirdly, as all of us know, they concealed the real figure of those on short-time working.

These human problems certainly need attention, but, in addition to redundancy, transport problems and lodging costs, if we are to ask the workers to recognise that job changes are necessary, that they are part of industrial and social progress, the Government, must recognise that they must play their part constructively. I believe that we can ask the workers to do that only if the Government will admit that we need full employment. I believe that we need four men looking for five jobs. Unless the Government are prepared to agree to that I do not see how they can expect the workers to be prepared to accept the changes which are necessary to get the productivity which we want. Management and trade unions and the Government all have something to contribute here, but the only offer in the Report[...] I am talking of, and the F.B.I. pamphlet, is some increase in unemployment.

What do the Government offer instead? I do not know whether the hon. Member for Stafford and Stone has in his constituency factories where there are new automatic machines. He probably has. We have them in Coventry. The emphasis is shifting from direct production work to machine supervision. A new type of skill is now coming into being. We are moving from manual dexterity and craft skill to skill based on technical knowledge of plant and equipment. That is bringing us face to face with the question of what we are to do about retraining, which is, of course, a problem for both sides of industry backed by the Government.

What I am worried about is what the Government have to offer by way of encouragement for this sort of thing. I do not believe that it is only a skill conversion we are talking about today. There is need for education, and, of course, we feel that the Government have fallen down on that, because we think that the accent is really on youth. Young people growing up today will inherit these new technologies, and they need to be trained for them. Everywhere there is a need for longer and better schooling. It seems to me that the new elite in our schools will be the young scientists and young technicians. I believe that the days of the classical scholar as being the most important person in the school have gone. That may be because I was not a classical scholar, but I am sure that the emphasis is changing.

Mr. Arthur Moyle (Oldbury and Halesowen)

We shall still want lawyers.

Miss Burton

I do not know about that, but I do know that in Russia today they have one science teacher for every 800 of the population. We have fewer than one for every 2,500.

These skills of tomorrow are already the key to our productivity and the rate of development in industry, and the rate of development in industry depends on various factors. Certainly, automation and the new machinery have come in my city, and considering the problem of capital and equipment we do not feel that the Government's Budget of last week is likely to help us much. We feel that the availability of qualified workers will be far from adequate, and that because of this acute shortage we are not likely to get very far.

As to markets overseas and at home, if we are to have this increased production we must be able to sell it. I know that that is a very obvious statement, but I do not think that the Government realise it. It means that we have to keep up purchasing power at home, which brings me, again, to the question of full employment.

The developments in industry which we need, and automation itself can come about only if we have full employment. On 24th February we had a debate in the House on pockets of local unemployment. My right hon. Friend the Member for Llanelly (Mr. J. Griffiths), speaking of two new plants in South-West Wales, said that they have a potential output of 10,000 tons of tinplate per week and employ 3,800 men. This output is the equivalent of 400 of the old hand mills employing 28,000 men."—[OFFICIAL REPORT, 24th February, 1958; 583, c. 49.] In the same debate the Minister of Labour told us: It is true, and this should be recorded, that three-quarters of those who have permanently left the steel and tinplate works have already found other employment."—[OFFICIAL REPORT, 24th February, 1958; Vol. 583, c. 57.] I ask the Financial Secretary: what would have been the position if there had been other unemployment in that area at a time when the new mills employed so many fewer?

I feel that this essential, this necessity, of full employment is denied by the Government. I am not saying that the Government are looking for unemployment, but we in the industrial cities get the feeling that the Government are under the impression that just a little "reasonable industrial flexibility" will not greatly hurt. I say to right hon. and hon. Gentlemen opposite that this attitude is no starting place for the future. The productivity necessary to this country can come only from a policy which looks to the future and which recognises the many social problems involved, and I honestly do not think that right hon. and hon. Gentlemen opposite do.

We shall now see a reduction of skilled and semi-skilled jobs in industry. We shall now see the getting rid of heavy physical work and the improvement of working conditions. With this new automatic machinery we shall see a demand for more shift-work, because expensive machines have to be continuously employed. All this will affect home life and recreation and, also, transport hours, and transport and other workers.

I believe that it will mean fewer hours of work, lower prices, and longer holidays. If anybody wants to deny that I say quite simply that machines always have made possible a gradual reduction of working hours. I cannot understand why it is today that when trade union leaders are continually pressing for shorter hours not only do employers disagree, but public opinion in general disagrees. Everyone in the Committee must know that longer hours do not mean that people produce more. Certainly, in the time of war, over a limited period, they did, but by and large they do not and I believe that the great need of most employed workers today is for still more leisure rather than less—and I am not referring to unemployment.

On this, all conventional thinking must go. I believe that this transition from the old productivity to the new is with us, and that unless it is hopelessly bungled millions of workers who are now at work will have a good deal more paid time on their hands in future. We ought to look to those most positive aspects.

I know that these are long-term problems, but they have to be faced now. About two years ago we in Coventry did not face things until the new automatic machinery had arrived, and that was too late. This responsibility is on all of us, in the Government, in Parliament and in industry. The first step is the informing of public opinion. It is our job to put these points forward. I want to remove the fear in people's minds that development in industry, that automation, must bring unemployment.

The real point of departure is the discrediting of the idea that a little more unemployment does not matter. I assure hon. Members opposite in all sincerity that that is the feeling of the people I represent, that the employers and the Government believe that just a little more does not matter and that the slack will get taken up later. I also believe—here hon. Members opposite will not agree—that the real point of departure must be the departure of the present Government.

7.42 p.m.

Mr. Rupert Speir (Hexham)

I wish I could convince the hon. Lady the Member for Coventry, South (Miss Burton) that we on this side of the Committee are just as anxious to avoid unemployment as she and her colleagues are. I would remind the hon. Lady that her party has not got a particularly good record over unemployment. When I first started taking an interest in politics it was during the General Election, of 1929. I remember another hon. Lady who was a member of the hon. Lady's party, and during that campaign she made the fantastic statement that if the Socialist Party were returned to office it would cure unemployment within a fortnight. It was returned to office—on a minority vote, it is true—but, far from curing unemployment, it more than doubled the number of unemployed within two years. The Socialist Party is in no position to preach to the Conservative Party about unemployment. The fact is that all sides of the Committee are very much opposed to unemployment.

I believe the Government are right to put inflation as public enemy No. 1 at present. I also believe that the Prime Minister was equally right when he said that it would be fatal for a trading nation like Britain to become an island of inflation in a world of deflation and that if we were to do that, far from having pockets of unemployment as we unfortunately have at present, we should once again have mass unemployment as we did in the 'twenties and 'thirties. For my part, I am indeed glad that the Chancellor in his Budget proposals has made it perfectly clear that Britain is determined to win the battle against inflation and to do so now.

I should like to say in passing that, by and large, I think the Chancellor is to be congratulated on achieving so much at so little cost. For the most part, his limited concessions have been fairly and wisely distributed. So much for the major issues, in which I give the Government my wholehearted support.

It is when we come to two, by comparison, somewhat smaller issues that I join issue with the Government and there is a danger of our parting company. One is an act of omission and the other an act of commission. Like many other back benchers, I must make it clear that I should find it extremely difficult to support the Government in taking any form of retrospective legislation. Everyone in the Committee agrees that dividend stripping must be stopped, and one asks oneself why the Treasury has allowed the loophole to exist for so long; but it has missed the bus in previous years and must pay the penalty. I am sure that the majority of our people are not prepared to accept legislation by threats.

Another complaint that I have against those on the Treasury Bench is that they are, either by neglect or by failure to take action, wantonly destroying and killing rural transport, and with it, of course, they are damaging very severely the economy and social life of the countryside. The dangers and difficulties facing the countryside owing to the collapse of rural transport have been raised often enough in debate in the House. Ministers have expressed their sympathy, have acknowledged the problem and have taken limited action by way of palliatives to ease the situation, but they have never got down to grips with the problem.

In the meantime, branch lines are being closed, bus services are being withdrawn, villages are finding themselves isolated, and people are left without any form of public transport. Therefore, life in the countryside for those without private means of transport is becoming impossible. There is no need for me to weary the Committee by continuing to paint this gloomy picture. The facts are known; they are certainly known to the Minister of Transport and I think they are generally known. However, so far no action has been taken on a proper scale. The facts are all too clear. What is not clear is the Government's intentions in the matter.

We know that the Government are not prepared to countenance the introduction of a subsidy for rural transport. Obviously, there are powerful arguments against the introduction of any new subsidy, although it does not make sense to me to subsidise, directly or indirectly, nearly all the public utility services in the countryside from the Post Office to water supplies, from electricity to sewerage schemes, and, of course, agriculture itself, and then leave transport to flounder and fade out. That is an idiotic policy. It is idiotic because it is a penny-wise policy, for it will mean a greater migration from the countryside.

There will be a scramble into the towns. We shall have a flight from the land, with the young and the old, who cannot have their own means of transport, leaving the countryside. This further depopulation of the countryside, which is undoubtedly taking place, will mean that the services in rural areas which are already subsidised will have to have a still larger subsidy. Therefore, the Treasury Bench ought to face up to the issue. The present lack of action is wrecking the countryside, and in the end the nation will have to pay a very heavy price for this wilful refusal to face the facts.

The situation has now reached a critical stage. There is ample evidence to show that unless prompt action is taken there will be a complete collapse of public transport facilities in rural areas. The railways have more or less gone, or are going. Small bus operators are dying out; they cannot make a living, nor can they possibly hope to replace their existing vehicles. It is not too much to say that the situation is rapidly becoming desperate.

Unfortunately, the countryside, unlike the cinema industry, does not have a powerful pressure group. It has only a small minority voice. The people there are prepared to be realists. They appreciate the difficulties of introducing a direct subsidy for unremunerative services in their areas, but it is one thing to refuse to subsidise unremunerative rural services and another to penalise and deliberately to kill them off. To force those unremunerative but vitally necessary services to pay the heavy fuel tax is nothing less than criminal in existing circumstances.

Admittedly, even if the whole of the tax were removed, the problem would still not be solved, but removal of that tax would be a help, and would make the whole difference between some services remaining and all of them being abolished. Removal of the whole of the tax on these services would cost the Treasury very little. I believe that throughout the entire country the cost would be less than £1 million a year gross, and I say gross because if these public services collapsed and were withdrawn, a very much heavier financial burden would fall on local education authorities and others who would he forced to provide their own means of transport.

Therefore, on grounds of loss of revenue, there cannot be any objection to the proposal that unremunerative services should be exempted from fuel tax. What is the objection? We are told that there are insurmountable administrative difficulties in such a scheme. That is nonsense. Farmers have the benefit of being able to buy duty-free fuel for their farming operations. If a scheme can be operated satisfactorily for individual farmers, it can be operated for small bus companies and individual bus proprietors, and it is only for those that we seek this concession.

Bus operators are already tightly controlled by the Minister of Transport through regional licensing authorities which already know which routes can hope to pay and which cannot. Any exemption of fuel duty on the lines I have suggested would be conditional on the routes being operated at a reasonable figure, while audited accounts would have to be sent to the regional licensing authorities to support any claim for exemption. I cannot see any great difficulty in operating such a scheme. Is it unreasonable to suggest such a proposal, helpful as it would be to those living in the countryside?

The people of the rural areas have been patient for a long time and for some ten years the situation has been deteriorating. The Government have had ample warning and cannot expect support from the countryside if they in turn will not give the countryside minimum consideration. I therefore ask the Government urgently to reconsider the matter and I hope that they act, and do so before it is too late.

7.54 p.m.

Mr. John McKay (Wallsend)

I have listened to the entire debate and I was especially interested in the contribution of my right hon. Friend the Member for Easington (Mr. Shinwell). He said that he did not know much about economics, although he had had a good deal of world-wide experience of other matters. He described what he thought was the best way of meeting these economic problems which face not just one but all the nations. His conclusion was that the only way to deal with the problems was by international co-operation and common understanding, with the nations working together with the object of promoting common well-being.

Such elaborate proposals are interesting. It is true that we shall probably get the best results by co-operating to use our common intelligence and experience. I have no doubt that such a system would be preferable to constant competition and dispute. However, the economic situation seems to affect the House of Commons in the same way that the weather situation affects a meteorological office. One has to deal with things as they arise. There may be a good deal of background knowledge and theoretical appreciation, but in neither case is it an exact science.

We must apply the best brains we have to deal with problems as they arise. Difficulties will arise in finance and in international trade whichever party, Socialist or otherwise, is in office. There is no definite line which can be laid down to indicate how these difficulties must be met.

One of the troubles is that there seems to be an attitude among hon. Members opposite and others that the blame must be put on the constant demands of wage earners. From that point of view, one would expect that an examination of the economic situation would show an outstanding indication that wage increases were the primary cause of economic difficulties. I want to examine that proposition, but first I draw attention to the fact that there is a wide variety of opinion about the situation among financial and economic writers.

That confirms my impression that economics is not an exact science and that there is no constant approach which will cover all cases and lead to a scientific solution. I draw attention to a statement made in a leading article in the Spectator last week. The writer says that it is not true that production, investment and profits are declining. He says that the trouble is that the Chancellor is moving against a background of high prosperity and not against a general decline. That is one view in a well-known Conservative publication.

Another national figure in economic matters, Mr. Roy Harrod, referred to the three prophets, the Three Wise Men. He indicated that they have not examined the problem sufficiently, because the emphasis they lay upon the question of the effect of wages upon the economic position. He propounded the idea that the rise in import prices has been a very great factor since 1949 in creating increased costs. It has not been the wages position. I take his figures as correct because he is a man of national repute, and I do not think that he would mislead the public on this issue. He tells us that from 1949 to 1951 import prices rose by 51 per cent. and that the cost of living rose, largely as a result, by 12.6 per cent. During that period wages rose by only 10 per cent.

He goes on to take us up to 1953. He says that in that year import prices were about 29 per cent. above the 1949 figure; the cost of living increased by 26 per cent., and wage rates increased by only 24 per cent. During the period from 1949 to 1953 he emphasises—particularly for the benefit of the Three Wise Men—that rising wages have been only one factor, and that the rise in import prices from 1949 still affects us. It has not yet been wiped out and has been a big factor up to the present moment.

The question then arises as to how wages, dividends, interest and profits were related to each other, and how they rose and fell in this period. I have taken the figures from the White Paper on Income and Expenditure issued last week. I have not selected the years to suit myself but have taken those from 1952 to 1957 as given in that White Paper. There is a tendency to think that wages have risen at a higher rate than dividends and interest, but the truth is just the opposite. Interest and dividends rise at a higher rate and more quickly than wages.

The White Paper shows that the gross trading profits in 1952 amounted to £2,467 million, compared with £3,517 million in 1957—a rise of 42 per cent., and that in 1952 the payment of dividends and interest amounted to £811 million and in 1957 to £1,309 million, which is a rise of 60 per cent. If the dividends are combined with the reserves that 60 per cent. is brought down to 55 per cent.

How have wages risen in this period? I am speaking of the total amount of wages, including overtime, weekend work, and piece work. In 1952 they amounted to £5,455 million, as against £7,740 million in 1957, a rise of 42 per cent. On those figures gross trading profits and gross wages have risen to the same extent—42 per cent. In respect of that period, therefore, how can it be argued that it is the attitude of trade union leaders and the demand of the workers for higher wages which has caused all this economic trouble? The figures do not suggest that.

If we go into the question of Income Tax and compare Income Tax before the war and now, as it relates to wages, we find that those who formerly paid no tax now pay £1 or £2, and to that should be added the 10s. that they pay in National Insurance.

We now come to the question of output per man-year. I have taken the figures from the Economic Survey for the same years-1952 to 1957. During that period the output has risen from 109 to 124—a rise of 14 per cent. There has been much talk of paying wages according to output. If we take the rise in output at 14 per cent. and the rise in the cost of living at about 20 per cent. the wage earner should have received an increase of 37 per cent. According to Government figures he actually received an increase of 42 per cent. which is only 5 per cent. extra in five years. In those circumstances it is bad psychology continuously to attack the working people as they have been attacked in the last few weeks. It does not do any good. The wrong impression is created by doing so.

I have no doubt that the leaders of both parties are trying to present their policies with confidence, so that the people can support them. Both parties have a different approach to this problem. I consider that the Labour Party leaders are the better statesmen, although politicians are not elected just to be statesmen. They are elected to help certain classes of the community. The Labour Party receives the support of the mass of industrial workers; of that there is no question. The party opposite receives the support of the financiers and the well-to-do people. Those in the party opposite are so anxious to be statesmen that they are prepared to go a long way to "pull in" the other side. I am thinking of the help given to the industrial section of the community. There is not much help given to the unemployed man, who is lucky if he is able to live on what is granted to him.

Even during this present Budget debate Conservative leaders have suggested implementing proposals for an increase in initial allowances. The Labour Party does not believe in initial allowances but in investment allowances, to help the productive power of the community. The Labour Party is not prepared to give a loan and it is admitted that initial allowances are a loan, an interest-free loan. Investment allowances on the other hand are not loans. They are gifts to certain industries where new machinery is incorporated.

We have given 40 per cent. investment allowance to the shipbuilding industry. We do not call that a subsidy but in reality it is a subsidy and works in the same way. We are told that in any case investment allowances are selective. But what do we mean by "selective"? In my opinion they are not selective, but collective and vary according to the kind of grant which is implemented. Is that the kind of policy which any Government should support? If 50 per cent. of the units in an industry are doing well and 50 per cent. are doing badly is it sensible to argue that, because this industry is producing something vital for the national good and half of the units in it are doing badly, the industry as a whole must be given investment allowances? To me selective help would not mean wholesale gifts but gifts to those units which required it.

If we continuously provide these millions of pounds, is it wise that they should be in the nature of a gift? Why should not a company receiving such allowances share the benefit of them with the nation? Why should the company get the full benefit and the nation get nothing, except possibly through the company's production? Why should millions be given to private enterprise by the nation in this way? The amount has increased by 100 per cent. during the last five years and the chances are that in a few more years there will be another 100 per cent. increase in investment allowances. I say that if these companies need help, it should not be given in the form of a free gift. I should prefer that it be given by way of loans which would not relieve the companies of the liability to pay back the financial assistance afforded to them. That would be a much more sensible way to deal with the problem.

There is the problem created by the present situation on the railways. Do we want to return to the state of affairs which occurred in 1926 at the time of the coal strike? Then £23 million was given to the mining industry, an amount which would probably be worth £60 million today. That was done after 26 weeks of strike and when the country was on the verge of chaos. Surely it is better that the money be provided today to avert a railway strike. It is admitted that about £10 million is required and that is a mere "flea-bite." Should a railway strike develop, how much more would that cost the nation? It may well be ten times £10 million or even twenty times. Can we risk such an event when the provision of such a comparatively small sum of money would meet the difficulty and when it is acknowledged that within two or three years British Railways will be in a position to meet its own wages bill? I cannot see the consistency of it. It is typical of the psychology developed during the last six months.

What is the situation today? Trade union leaders are doing what they are expected to do by continuing to demand adjustments as time goes on, but that is not the only thing. It is admitted that railwaymen's wages are on the low side. The position can be met and the country be put into a safe position by the Government, who have already given very much away to private enterprise to help the economic situation. If they did that to the railwaymen they would be doing exactly what they did for shipping.

How have profits, dividends and wages moved in the last twelve months? The Economist has given the results of the vast trading profits of 240 companies compared with a year ago, when the profits total was £475,008,000 and now is £528,214,000, a rise of nearly 11 per cent. That is the latest possible information about the profits of the financial and industrial world. The dividends show a rise of 15 per cent. over the previous year. In the last 12 months the wages of the ordinary workman have risen by only 5.7 per cent. In October, 1956, the figure for workmen's wages, according to official blue books, reckoning overtime and everything else, was an average of 237s. 11d. The latest figure for October, 1957, is 251s. 7d. which is an increase of only 5.7 per cent. compared with increases of 11.7 per cent. for trading profits and 15 per cent. for dividends and interest.

All these things are a fair indication that unless something new develops the position is not bad at all. We can only guess what is likely to take place in the next 12 months. What is happening in America seems to be a long process which may affect the economic position of this country, but no prophecy can be proved correct in this matter. It is questionable whether we should depend upon too pessimistic a point of view.

The big thing I would like to see is a change of attitude on the part of the Government in regard to the proposed railway strike. If a strike takes place, the Conservative Party will be responsible for it. The nation is the judge, and the behaviour of the Government, having regard to many other things they have done, will tell very much against them when the next General Election arrives.

8.25 p.m.

Mrs. Patricia McLaughlin (Belfast, West)

We have had a varied and interesting discussion on the Budget proposals. I do not intend to add to the statistics which have already been quoted, both in support of and against those proposals. I was very interested to hear the reply given by my right hon. and learned Friend the Financial Secretary to the Treasury, particularly to the description that this is a "mouse" of a Budget.

That is a very bad name to apply to a Budget which helps the British housewife very much. If we were to introduce a mouse into the kitchen of any British housewife it would cause more consternation than a much larger animal. The effect of the Budget upon the British kitchen is that many gadgets which have been regarded as luxuries in the past are accepted by the Government today as necessities. I am sure that the women of Britain will appreciate that very much indeed, and will look for further reductions in Purchase Tax upon electrical equipment which will help to make their lives more easy.

Having been exhorted last year to be patient in regard to luxuries, I have now made up my mind about them. I intend to buy my new washing machine next week with a 30 per cent. Purchase Tax upon it instead of 60 per cent. The same is true of toilet preparations and cosmetics, although I do not suppose many hon. Members will feel that they are necessary in their lives. Women have found that it will be possible, because of the Budget, to buy ties for husbands and relatives at much more reasonable prices than before. All this purchasing activity is very good for production. A factory in my constituency which makes ties has been hard put to it to sell them on the home market and to try out various patterns suitable for selling abroad. This reduction in the tax on ties, and the recognition that a tie is an article of apparel, is very welcome. The Stamp Duty reduction and its abolition on lower priced houses is also very welcome.

One point on which I do not feel at all in agreement is the proposal to make the dividend stripping legislation retrospective. This is an insidious thing, and if the Treasury has been seeing this happening, then, in my view and the view of many others, it should under no circumstances make the legislation retrospective, but should take its medicine for having overlooked it in the past.

On the wider aspect of things we should like to have seen done and things we feel must be done, there are some which affect one area more than another. We recognise very clearly that the policy of the Government is to maintain stability of sterling and maintain a steady level in this country to provide a satisfactory background for trading. That is one of the most important things which will keep our employment on the level we wish to maintain. In Northern Ireland we realise particularly that, although we have very serious local difficulties, it is essential that the maintenance of the £ should be kept up to an absolutely top level, for otherwise there will be no industry. To maintain confidence in any part of the United Kingdom, the economy of the United Kingdom as a whole must be very solid.

Recently, this was brought very clearly to ray mind when I was on a short visit to the United States of America. Wherever we spoke to people we found nervousness that their policy was not necessarily giving the satisfactory results they expected. People said, "We respect your country very much. We respect the way in which you control and restrain yourselves; the way in which your people take unpleasant measures when they know them to be right." Having listened to so many people with so many different points of view on the Budget proposals, one begins to wonder how many really follow up what is done in the House of Commons. I feel that the difference between America, where they are getting nervous, and the United Kingdom, where people are getting bored, is very great.

Going round this country today as an ordinary woman and going in and out of ordinary homes, speaking to the people doing their jobs, or looking for jobs, taking responsibility, or doing work which is not so responsible, I find that all have one thing in common. Quite frankly, they are getting tired of what happens in this House and at having it shoved at them from a political angle. The average man and woman in Britain wants to get on with what he or she is doing in an atmosphere of security without having a crisis from time to time.

That is why I particularly welcome the Budget. As everyone has said, it is not an exciting Budget. It is a Budget which could be brought forward only at a time when things are going steadily. Perhaps there is not much in it for many people, but a great many have had more than they might have expected. Looking at the problems in the area I represent, we are well aware that our difficulties are particularly acute. The textile trade, in particular, is having a very bad time indeed. To try to lay all the problems of this trade on to Her Majesty's Government is quite wrong. In the vast continent of America there are heavy restrictions on the import of textiles, and they are particularly effective against textiles of good quality such as wool and linen from Great Britain and Northern Ireland. The very steep tariffs and strict quotas and the high prices after they have been met cause our industries here much concern. That is something which as yet the United States is not prepared to alter.

In Britain we accept a national problem as something to be dealt with nationally. In that vast continent one area seems able to prevent the rest of the areas enjoying the imports which would be of benefit to them in case in some way they hurt a particular trade. In that great country, where we wish to earn more dollars and make our exports available, we are facing very heavy competition because Japan, Italy, Belgium and other countries are selling their wares and are included in an imports group. To say that our exports are going down the drain is quite wrong. They are going through a period of trial, but to lay the blame on Her Majesty's Government in entirety is completely wrong. Certainly unlimited exports from various parts of the Commonwealth, particularly Hong Kong, have caused the cotton and linen trades to suffer very greatly, but we have to look at the general world trading situation when considering textiles. From month to month, countries are beginning to support themselves more in textiles and actually to go into competition with us in other countries. When we consider that we shall realise that this problem cannot easily be solved.

On the other hand, there are many measures which can be and must be taken. In particular, our old natural fibre industries of cotton, wool and linen are the main ones which have had value in the past as exports and which must be helped in the years to come. When the Chancellor sees fit to remove this particular tax from wool and bring it into line with other textiles which have already had this benefit, I am quite certain that those concerned in the industry will be particularly thankful.

To turn back to Northern Ireland in particular, rather than in general, I should like to say that we are suffering extremely heavy unemployment. This is not something which is sudden or has come about in the last few months, and it does not look as if it will be solved in the next few months. For instance, Messrs, Short Brothers & Harland are now faced with a difficult position, and more people are being made redundant because the Government have had to rescind part of the Canberra contract. I know that Government policy must be in line with the times and be up to date with what is going on in regard to aircraft requirements for the military defence of the country and so on, but, nevertheless, it is quite obvious that the cancellation of contracts with a firm in an area where there is no obvious outlet for the displaced skilled workers is bound to have very serious results indeed.

Incidentally, it may be of interest to the Minister to know that Short Brothers employed about 15,000 men towards the end of the war, and that later the number fell to approximately 4,000. Due to the efforts of the Government, the figure has now risen to about 8,000, but, in the meantime, redundancy is again becoming obvious. This up and down curve in the graph is not a good thing, and I feel that somehow or other Her Majesty's Government here and the Northern Ireland Government at Stormont must find some solution to the problem of keeping a stable level of employment in factories on which firms have spent so much and which have so much to give to the rest of the country.

One of the first things which Short Brothers & Harland did was to set up an extensive training scheme which has been most successful and has been worked in conjunction with Queen's University, Belfast, and the Belfast College of Technology. It has done great things in training young men to become skilled and make them fit for first-class work.

At times, I feel that some of the speeches we hear give the impression of Northern Ireland being a poor relation. Ulster is not a poor relation. It is a strong, healthy and vigorous part of the United Kingdom, but, unfortunately, in this game of musical chairs that goes on in industry today, it seems that Ulster's chair is a little to one side because of the strip of water that divides it from the mainland. That often means that industries do not come across to Northern Ireland because of that little bit of extra effort required.

Somehow or other, the general unemployment problem in Great Britain will be tackled. Overall, it is not a big one and I have great sympathy with all those hon. Members who have spoken quite sincerely and earnestly about their own problems in areas where there is acute unemployment. Speaking for my own area and particularly for my own constituency, which at present is suffering very greatly, I ask the Government to remember that whatever measures are taken to keep the economy of this country stable will be heartily supported by the people of Northern Ireland, but, at the same time, they have a right to expect, and, indeed, I believe the right to demand, that the Government shall not say that it is impossible to provide employment in places where there are good workers, the space, the machinery and the skill. One of the saddest things today is that there are men who are willing to work, not only unskilled men but also skilled men, who have spent many years learning their trades, who today are idle. It is useless to say that these men could come here and that there are places for them. These men have families and homes, and the distance involved sometimes makes it impossible. This has already been mentioned today, and I agree with it, in a speech by the hon. Lady the Member for Coventry, South (Miss Burton). Although we need this mobility of labour, in view of the separation problem and the time lag in the payment of lodging allowances, there are many things which a man must consider before deciding to leave his home and family responsibilities.

In Northern Ireland, we not only have tremendous diversity of industry, and have had many things done for us by the Government here, by the Government of Northern Ireland, the Development Council and industry in general, for all of which we are very grateful, but, at the same time, we have had a considerable amount done by the stable part of our own population. They are the people who, year by year, have supported and kept going the basic economy of our Province, and who, during the years of war, provided much of the milk, butter and eggs that came here, but who today are disturbed by what has happened and what may be the effect of this year's Price Review. We are told that many things are to be done for the small farmer, and it is with respect that tonight I ask that those farmers should be remembered.

Looking at the world problem and the competition that Britain faces, we must all be conscious of the fact that it is no longer enough just to say that a thing is British made to sell it easily. It must not only be British made but must be on the spot when it is wanted, and it must be exactly what the people want. I still believe that the goods we buy from our own factories, made by our own people, are the best in the world.

If one looks round any of the other big countries, as I had the opportunity to do in Europe last autumn, and again, during a short visit in the United States this spring, any practical person who intends to use the various articles in the home will realise that British goods are still best and much more likely to last the longest. The snag is that if an article lasts longer because it is made here a resale is held up. The question is whether it is good to have a policy of making things that will not last so long and so selling more, or of making them last longer and charging more. To anyone buying consumer goods in other countries, it is obvious that our policy is still to make the best

Another difficulty facing British goods is that delivery dates are not always what they should be. The time was when a man was prepared to look ahead for his stocks—he ordered them some months ahead. Then things got telescoped and he wanted them in a few weeks. It has now got to the stage where he wants them almost tomorrow, and, in many cases if a manufacturer cannot give a delivery date earlier than that of his competitor he is likely to lose the order to that competitor.

Therefore, as we come to the very end of this debate, I hope that the Chancellor will be able to give some word of good cheer to the people of Northern Ireland, to assure them that the Government do not feel it beyond their capabilities to look at the position there, and to take tremendous action, if that is necessary—or a number of small actions if that seems more suitable—to ensure that our unemployment problem does not continue to be a running sore in the nation's economy. I hope, also, that he will be able to give all those people who have put forward a lot of different schemes the feeling that, even though many of them are not practicable, he has at least considered them thoroughly.

This is an occasion for moderate rejoicing, because to go from crisis to crisis is very bad for any country. On the other hand, to go along in a steady and stable manner, producing a Budget that gives a little each year, is a much better means of maintaining that national economy and national stability of which this country is so justly proud.

8.44 p.m.

Mr. Arthur Moyle (Oldbury and Halesowen)

Much reference has been made in the debate to the American recession. If that recession means anything to us, it is that if it gets worse, or retains its present momentum over the next few weeks, the situation will obviously become very serious for us. How will it express itself? The effect on this country of the American recession, if it continues, will be that the American people will not be prepared to pay for our exports at the prices now prevailing. As a result, we shall be forced to review our export prices, and we shall immediately be caught up in a circle of falling prices.

The hon. Member for Stafford and Stone (Mr. H. Fraser) urged the need for falling prices, but I say to him that if we are caught up in such a situation it will be catastrophic for the Government and worse for the country. Let us make no mistake about that. Indeed, it is realised by the Government. That is why the Government keep talking parrot-like about stabilisation of prices. They dare not say, as they did in 1951 at the time of the General Election, "If you return a Conservative Government we will reduce the cost of living," because they know what would follow.

We would be in favour of a situation of falling prices provided that the result was beneficial to the country as a whole, but during the whole industrial history of this country, ever since the Capitalist system has been representative of our economy, I cannot recall a single instance in which falling prices were not accompanied by increasing unemployment. That is really the situation with which we are faced.

The Government are exceedingly complacent. They are adding a kind of little recession to the bigger recession in America. The Chancellor spoke somewhat casually last Tuesday in what otherwise was an excellent speech, free from economic jargon. It was pleasant to hear the Chancellor make a Budget speech free from such jargon, and I hope that his example will be followed throughout the House whenever economic matters are discussed. Speaking of the American recession, the Chancellor said, "We are watching the position." He also said that the Government would at once take action to counter and neutralise the effects of the American recession upon our own economy. But immediately prices begin to fall in this country people will at once begin to withhold their contracts. They will hold off both at home and abroad, waiting with increasing expectation for falling prices, and then, before we know where we are, the whole nation will be caught up in a general depression.

As a result the Chancellor, in spite of all his good intentions, will stand helpless in a situation which he is utterly unable to control because he will not be in command of the whole economy, neither will he be able to command the forces emanating from the economies of other countries which affect us. No one can view the present Government's attitude with anything but serious misgiving. They have really educated the British public to look for falling prices from the Tory Government. One of the Government's difficulties is that the promises they made in 1951 are returning like ghosts to meet them. They cannot rid themselves of that obsession.

In the course of a knock-about speech this afternoon, which I thoroughly enjoyed, the Financial Secretary quite earnestly said to the House, in effect, that the Chancellor's Budget must be taken in the context of the Budgets of his predecessors. I have here a diary of economic events, and I have not the slightest doubt that the Chancellor has one too. When the right hon. Gentleman sat in his room and began to consider what kind of Budget he would produce, he looked at this economic diary, I have no doubt, exactly as I am doing now.

He looked at the famous "spending spree" let loose upon the nation by the Lord Privy Seal in 1955, which ended with that great declaration that we were in sight of doubling our standard of living in 25 years. Then he finished with knocking 6d. off Income Tax. Then, no doubt, the Chancellor looked at the austerities of the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft) which darkened the September skies. He said to himself, "I think the best thing I can do is to follow the middle of the road and avoid unnecessary spending, on the one hand, and austerity, or virtual austerity, on the other." That is the reason that the Chancellor has produced this Budget. He has turned down the right hon. Gentleman the Member for Monmouth and his right hon. Friend the Lord Privy Seal. He has pursued his own line.

The Chancellor has been more severe on the trade union movement than any previous Chancellor. He said on Tuesday that some of the recent increases which had been given, by agreement between both sides—he did not specify them—were against the economic interests of the country and would not help in the battle against inflation. He did not specify them, but he told us that wage increases which are based purely on an effort to meet the rising cost of living are ruled out, because they are inflationary. But he told us also, as did his predecessor, that wage increases would be agreed to if they came from increased production. What it comes to is that no increase will be countenanced by the Government unless it is provided for by increased production.

Has the right hon. Gentleman really thought out the political implications of this approach? It is the traditional custom of the trade unions to look at wages, usually annually, and to look at the cost of living and, if rising, to make claims to meet living costs. Every one here knows that we must maintain the physical standard of subsistence of work-people; otherwise, they cannot work. This procedure is now ruled out because it is said to be inflationary in its consequences upon the economy generally.

I put it to the Chancellor that the Government's attitude in narrowing the basis on which wage adjustments can be made is creating a situation which is causing the trade unions furiously to think. I hope, speaking as a product of the trade union movement, that they will pursue an imaginative leadership in this situation and that they will not be content merely with submitting wage claims based upon the increased cost of living.

I hope they will make it perfectly clear to the employers in the engineering and shipbuilding industries, indeed in all the major manufacturing industries, and to the Government, too, that they are, after all, the basic factors in the production of wealth, far more important than the financiers—far more important. I hope they will make it clear to employers and the Government by saying, "If you are going to narrow us down to a basis of that kind we shall make claims upon every major manufacturing industry, demanding the right, as partners in industry, and in the interests of good industrial relations, and, indeed, in the interests of the national economy, to say that if you inflict this policy upon us we shall demand the right as trade unions, to decide along with management what the percentage of capital investment shall be in a given industry." If the Government are to determine the basis of the kind of rates which are to be paid the trade unions are entitled to have a voice in deciding the level of investment which would influence the basis upon which those wages are to be paid. That is what is now causing great thought amongst our people. Why should the Government of the day deny to the people engaged in industry the kind of tools which are necessary to increase the output of wealth more efficiently? That is the corollary of the new situation.

I hope that when the trade unions face that issue and come to the Government about it the Government will see that the right answer is given. After all, if we are to promote good industrial relations we cannot deny the right of the trade unions to have some say in deciding what the capacity for producing wealth shall be.

8.58 p.m.

Mr. Douglas Jay (Battersea, North)

This debate has made one thing as clear as daylight, and that is that we on this side of the Committee believe in expansion and the Tory Party believes in stagnation. It is not surprising that in the two best-informed speeches from the other side of the Committee, the speech of the hon. Member for Eastleigh (Mr. D. Price) and the speech of the hon. Member for Aberdeenshire, East (Sir R. Boothby), they both unrepentantly agreed with us.

Much the most memorable pronouncement in the whole debate has been this stirring sentence from the Chancellor in his Budget speech: The level of industrial production has tended to decline slightly in the last few months and unemployment has been rising. These trends may well go rather further during the rest of the year …".—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 50.] Such is the glorious flag which the Chancellor has nailed to his scoutmaster's pole.

It really is no good the right hon. Gentleman the Member for Flint, West (Mr. Birch) denying that there is stagnation. The plain, hard fact is that the industrial production index in this country is now rather lower than two and a half years ago. The Chancellor told us that it will fall further, that unemployment will rise further, and that he intends to do nothing about it. That really is the most gloomy, reactionary and defeatist statement which we have had from any Chancellor in any Budget debate since the war.

Contrast it, incidentally, with the General Election manifesto of the Conservative Party, in 1955. I hope that hon. Gentlemen opposite do not think it is in bad taste to remind them that this Election manifesto was called "United for Peace and Progress", and, that, among other things, it said this: As long as we conduct our affairs wisely and get on with the job of raising the national product year by year, the country can be twice as well off in twenty-five years' time as it is now. What, incidentally, did the right hon. Member for Monmouth (Mr. P. Thorneycroft) say a year ago in his April Budget speech? He said that "expansion must be our theme." Since then production has fallen, the cost of living has risen, and a great deal of the gold and dollar reserve, and the right hon. Gentleman himself, have gone the way of all flesh.

This year the Chancellor does not even promise us expansion. Indeed, the present Chancellor treats this lamentable state of stagnation, in the words that I quoted, as a misfortune over which he has no control whatever. But the President of the Board of Trade goes one worse. He regards stagnation not as a misfortune, but as a policy. He says that since expansion would require more imports, and since we could not afford the imports, we therefore cannot have the expansion. But if that is true for 1958, when the price of imports is lower than at almost any time since the war, it will be true under the right hon. Gentleman's system in 1959, 1960, or any year that we are likely to have. The President of the Board of Trade, last week, really laid down stagnation as the permanent policy of the Tory Party.

Both the President and the PaymasterGeneral—the latter trying very hard to prove that he really is a Tory, after all—told us that expansion was impossible because we could not pay for the imports. But why has this become impossible only since 1955, when the dash for stagnation began? If it is impossible for any reason other than the present Tory policy, how was it achieved in every year up to 1955 except for 1952? And why indeed, is it impossible only in the United Kingdom when every other country and Europe and most outside are going ahead?

The Committee ought seriously to ponder the latest United Nations figures for changes in industrial production in various countries since 1953. It is not only Germany, as hon. Members seem to think, which is now doing better than we are. All the following countries have been moving ahead since 1953 in production faster than the United Kingdom: France, Germany, Italy, Holland, Belgium, Sweden, Norway and Denmark. France, Italy and Germany, over these four years, have actually been increasing production about three times as fast as we have. The hon. Member for Aberdeenshire, East was perfectly right in pointing to Russia where, whatever else we may think about the system, industrial production has been rising three times as fast as it has in this country. I do not think there is much serious doubt about this.

Since industrial production is the main source of economic, political and military strength nowadays, this is the way, if we go on long enough, to be a second-class Power. Do hon. Members opposite realise that if production in this country and production in the Soviet Union continues at the rate at which they have run in the past two and a half years, the real standard of living of industrial workers in Russia could easily exceed our own within fifteen years? Do we really want that to happen? That is where the Government's stagnation policy is leading us. Some hon. Members opposite do not seem to be nearly as interested in that as they are in dividend stripping.

We are told by the President of the Board of Trade, the Chancellor and the Paymaster-General that full production and full employment have to be abandoned—and I think this is what the right hon. Member for Flint. West said today—for the sake of the strength of sterling. We on this side believe that full employment and full production are not obstacles to the strength of sterling, but the means to it.

I always remember the late Mr. Oliver Stanley saying that the reason why the dollar was a hard currency was that America produced a great deal of the goods which everybody wanted. How true that is! The German mark is hard today because the Germans produce so much, not because they produce so little. Do the Government believe that if the United States. Germany and Russia doubled their production over the next twenty-five years, and we stood still, the £ would become a harder and not a softer currency? This new Tory doctrine of strength through stagnation is, as I remember Lord Keynes once saying of an argument of Lord Baldwin's, just as silly as it sounds.

Not merely has our national output stood still ever since the Lord Privy Seal's promise to double the standard of living in twenty-five years, but the volume of our exports—I wonder whether hon. Members realise this—has risen by less than 15 per cent. since 1950. The volume of exports, in fact, has risen less over the whole seven years since 1950, when world trade was rising fast, than the average rise in every year under the Labour Government.

Of course, during the last three years, as the Government constantly boast, as the Financial Secretary did today, we have had large-scale new investment. So production should have risen faster and not slower. Even if we had gone forward at a modest rate since 1955, there is no doubt that the national output today would have been at least £1,500 million a year higher than it is, and Budget revenue, at existing rates of taxation, would have been certainly £500 million higher. What a comment it is on all this tragic waste of capacity that last January the Government, who, as a result of these follies were throwing away £500 million of revenue a year, tore themselves to pieces publicly in a wrangle over £50 million.

As we enter the third or fourth year of the stagnation State, the Committee ought to ask itself two questions: what are the consequences of this national stagnation, and why have the Government imposed it upon us? The first consequence is that year by year we are losing several hundreds of millions of pounds worth of output which we might have had. It is easily within our power, if we abandon all this restrictionism. to have more investment, more exports, more social services and, indeed, more defence, if we think that necessary. The right hon. Member for Monmouth keeps saying that we have been trying to do too much. That is now profoundly untrue. The truth now is that we are trying to do too little.

Secondly, this stagnation means a huge waste of capacity and, incidentally, dislocation of the investment programmes of a number of our great industries. The steel, coal, oil, and shipping industries, which the hon. Member for Aberdeenshire. East also mentioned, are today finding themselves suddenly with new capacity which they cannot use. This is due not to any miscalculation by those industries, but to the Government suddenly cutting off the expansion of demand which would have enabled them to use that capacity.

Thirdly, as my right hon. Friend the Member for Blyth (Mr. Robens) said today, the longer stagnation is continued the more it encourages restrictive practices on both sides of industry. With all this talk of redundancy, short-time and falling orders, men's minds turn to sharing the work, protecting themselves and resisting change, just as they did in the 1930s.

Fourthly, as total production fails to rise, production per man, strangely enough, also fails to rise. That must be so, unless hon. Members opposite want to promote mass unemployment. If any hon. Member denies my contention that the stagnation policy has stopped the rise in productivity, let him study the tables in pages 18 and 38 of the Economic Survey. These show that in 1953 and 1954, when total output was rising, output per man went up steeply and labour costs per unit of output did not rise at all, whereas in 1956–57, when total output was stagnating, output per man hardly went up at all, and labour costs rose steeply.

In the words of the Government's own Survey: The average output per man fell in 1956 because in many industries the fall in demand and output was not matched by a proportionate reduction in the labour force. That means, not surprisingly, that stagnation lowers productivity and raises costs.

On top of this, it begins to look as though the stagnation policy, by raising costs in this way, may actually also raise prices. After two years of stagnation the cost of living has risen by 6 per cent. The right hon. Member for Flint, West ignored the fact that, despite all these deflationary attacks on the economy, and the heavy fall in import prices the cost of living has risen by nearly 4 per cent. in the past year. The stagnation policy has not merely stopped the expansion of the economy and left 10 per cent. of our productivity capacity unused but, in a year of falling import prices, has not stopped the cost of living from rising. The whole operation reminds me of Suez, when we alienated everybody and failed to attain our objective.

Economically, something very similar seems to have happened in the United States in the past year. Mr. Martin, of the Federal Reserves Board, who apparently believes, like Lord Cohen, that the sole object of economic policy should be a stable level of retail prices, set out to stop them rising. He has succeeded in cutting industrial production by 10 per cent. and throwing 5 million people out of work—which represents 6 per cent. of the labour force—but he has not stopped the rise in retail prices. It begins to look as though, in an uncontrolled economy, we cannot stop retail prices from rising simply by a general cut in demand, unless we force up employment to 5 per cent., 6 per cent. or even more.

On the evidence of the last two years the reason for that may very well be that the stagnation of output is itself forcing up costs. At any rate, there can be no doubt that in this country in the last eighteen months it has been costs and not demand which have been pushing up prices. Even Professor Robbins agrees with that, and when he agrees with the hon. Member for Aberdeenshire. East they cannot both be wrong.

It is no good the Paymaster-General, in his mock lowbrow fashion, saying that he does not understand the difference between a cost inflation and a demand inflation. If we are to cure the rise in prices by a cut in demand, it is rather important to know, first, whether excessive demand is or is not the cause of the rise in prices. It is clear from the right hon. Gentleman's own Survey that the two main causes of the rise of prices in the last year have been, first, the rise in costs due to stagnant production and, secondly, the rise in rents due to the Government's Rent Act. That, incidentally, is why the whole basic assumption of the ridiculous Cohen Report is completely false.

This stagnation policy has not merely failed to check the rise in prices; it has itself become a cause of cost inflation, and the Government, having themselves stopped the rise in productivity, now tell the workers whom they have forced on to short-time that they cannot have a rise in wages unless they increase their productivity.

There is also no doubt that the other main factor in pushing up labour costs in the past year has been the Rent Act. Let us look at the position from the point of view of an individual worker—for instance, a railwayman. His rent may have been doubled because of the Government's policy. Will he accept a cut in his family's living standards? I was talking to a railwayman in my constituency last Wednesday night. He has a wife and two children, and his wages are £8 7s. a week. His insurance contribution has just been raised to 9s. 11d. At the same time, the rents of many railwaymen are rising. This rise in rent is wholly due to Government policy and the inability of the Transport Commission to grant a rise in money wages is wholly due to Government policy.

I therefore ask the Chancellor: is it really the Government's policy, or is it not, that a railwayman earning £8 or £10 a week, with a wife and children to support, whose rent is going up perhaps by 25s. a week, should get no rise in his wages at all? If that is the Government's policy—and this in a year when the last vestige of dividend restraint has gone, because of the Government's exceedingly foolish and wrong-headed decision to reduce the Profits Tax on dividends—it is such a monstrous injustice that it will just not be tolerated.

Already, before this tax relief on dividends, according to the Government's other White Paper on National Income and Expenditure, total dividend and interest payments, after tax, had risen by £498 million, or 61 per cent., between 1952 and 1957. Yet, by this Profits Tax change, the Chancellor is apparently increasing the tax paid by many Co-operative societies. I hope that the right hon. Gentleman will look into that. I hope that he did not really mean to do so. But, according to my information, that is the effect of the change. For all these reasons there is in my constituency as much bitterness about the treatment of the railwaymen as about the Rent Act, and that is saying a great deal.

When the Chancellor is at last making some cuts in Purchase Tax which might have some effect on the cost of living, why is it that he goes out of his way to raise it on miners' and quarrymen's helmets, and on shopping baskets, including baskets made by the blind? My hon. Friend the Member for Kelvingrove (Mrs. McAlister), in an admirable maiden speech, succeeded in discovering that the Financial Secretary made a mistake in the Financial Statement and that when he said "hairpins" he meant "hat pins," I wish to ask: is the whole operation of these increases in Purchase Tax a mistake? I see that the Lord Privy Seal is present. We know that he made a mistake in 1955, because he did not look at the tax tables, in raising the tax on pots and pans and the rest of it.

I wonder whether this is all a mistake as well. The Financial Secretary was totally unconvincing when trying to defend these increases. Whatever words he may take refuge in, the plain fact is that at present the Government are increasing the tax from nothing to 15 per cent. on many products of blind persons. As they have twice already been exempted since the war, I do not think it can be the Chancellor's intention to do that.

Why have Ministers inflicted this stagnation policy on the country? There is no secret about it. They did it deliberately because as we have frequently warned them would be the case, they found that in an uncontrolled economy there is no other way to stop the outflow of gold. Last Tuesday, in another inspiring passage, which roused us all to new heights of enterprise, initiative and opportunity, the Chancellor said: Although the economy is capable of meeting a higher level of demand this year than is likely to be made on it, we are not in a strong enough position yet to resume a policy of general expansion."—[OFFICIAL REPORT, 15th April, 1955; Vol. 586, c. 54.] That is an admission that it is by the Chancellor's own decision that this stagnation is to go on.

Why is it—and this policy is simply produced to stop the outflow of gold—that we have been chronically losing gold in the last three years, when most of the world has been gaining it? Even after a back-flow of gold with the help of a 7 per cent. Bank Rate in the last six months, if we allow for the loans contracted, the reserve today is still little more than half what it was in October, 1951.

I do not think that anybody could argue that the losses in the last two years have had anything to do with United Kingdom balance of payments at all. The right hon. Member for Monmouth believed that if the United Kingdom kept a surplus in the balance of payments there was no danger to the gold reserve, but that is a fatal delusion. Since we have had a surplus on our balance of payments during the last two years, it cannot have been the reason for the gold losses. That shows that neither the level of wages nor the level of Government expenditure, about which so many Government supporters have an obsession, can have been the cause of these gold losses.

The real cause has been the attempt to decontrol the exchanges, make the £ convertible, and to operate as bankers for the sterling area, with quite inadequate reserves. If we analyse how the gold has actually been lost, we find two main channels through which it has flowed, first, the Kuwait Gap and, secondly, the support given to the transferable sterling market.

Mr. Birch

The right hon. Gentleman has said that we should not have tried to act as banker for the sterling area with an inadequate reserve. Does that mean that he does not agree with his right hon. Friend the Member for Huyton (Mr. H. Wilson) that we ought to carry on as bankers?

Mr. Jay

I agree with my right hon. Friend that we should not try to do it with inadequate exchange control. The Government have never admitted how much gold has been lost through the Kuwait Gap, or through the market in convertible sterling. The Economist said that of the £168 million "long-term investment overseas" in the Balance of Payments White Paper, a major slice must have found its way through the Kuwait Gap. If we take that with the other figures, I cannot see how the figures of gold and dollars lost in the two and a half years to July, 1957, can have been much less than £150 million. Would the Chancellor tell us, because if he does not he creates a worse mystery? I should like to know whether that is the correct figure. If it is not, will he tell us what is the correct figure?

Even more catastrophic has been the result of the Lord Privy Seal's decision in February, 1955, to use the dollars in the reserve to support transferable sterling to Zurich. That has been the main cause of gold losses, draining the lifeblood out of our economy since the Kuwait Gap was closed nine months ago. The Committee should understand what this means. The Government have granted complete convertibility of sterling to a very large part of the world outside the sterling area but not, of course, in it. A Dutchman, a Frenchman or an Italian can get dollars from the sterling area reserve in Zurich, but not people resident in the sterling area.

I do not see how this fantastic piece of unilateral disarmament can have any other effect than a chronic outflow of dollars and a crisis every August and September. There are remarkable figures, into which I will not go in detail now, in the Balance of Payments White Paper, about what are mysteriously called, Gold and dollars transferred to O.E.E.C countries other than through the E.P.U. The total gold lost under this heading in 1955, 1956 and 1957 amounts to the staggering figure of £500 million.

The Paymaster-General (Mr. Reginald Maudling)

The right hon. Gentleman is surely neglecting the fact that the debts owed to this country by O.E.E.C. countries are settled in gold at least 75 per cent. immediately and up to 100 per cent. thereafter.

Mr. Jay

If the right hon. Gentleman will look at his own White Paper, he will see that the figure is described as other than those that have been settled through E.P.U. in gold. The Paymaster-General, replying to my hon. Friend the Member for Stechford (Mr. Roy Jenkins), said that no considerable amount of gold had been lost through the commodity markets. If that is so, has the whole of this sum been lost through the transferable sterling market alone? If not, how did £500 million worth of dollars disappear? On the most charitable explanation and on the Government's own figures, about £500 million worth of gold and dollars has disappeared through these two leaks in the last three years. Whatever the figures, this laxity in exchange control has been the real cause of these losses and of the crises in the last two years.

What are the Government and the Chancellor going to do now? If the Chancellor leaves all these loopholes open throughout the summer, he will only have himself to blame if he plunges us into a new dollar crisis in August and September. I wonder whether hon. Members opposite really think that freedom for the bankers in Zurich to change pounds into dollars at a particular parity is more important than full employment and expansion in this country? Apparently, the Paymaster-General does.

The right hon. Gentleman told us on Thursday that nothing whatever could be done about this leak and others, because it would mean introducing more controls. All controls, in his view, were either wicked, or impossible, or both. The Paymaster-General is not really such a fool as to believe that. The right hon. Gentleman himself is running a whole apparatus of controls at present—exchange control over a wide field, the Capital Issues Committee, control over location of industry, which the Government have rightly strengthened, and quotas on about half our imports from the dollar area.

The right hon. Gentleman knows perfectly well that this is an issue not of controls or no controls; it is a question of a little more or a little less. The difference between the two sides of the Committee is this: we are prepared to have a little more for the sake of expansion, of greater social justice, of full employment and the strength of sterling. Does the Paymaster-General think that sterling and the sterling area were strengthened, or weakened, by his own Government's decision to close the Kuwait Gap nine months ago? Of course he knows that they were strengthened. That one fact destroys the whole of the right hon. Gentleman's argument.

Surely now, after three years, the country has had enough of this new restrictionism. Industrial output has stood still, ever since the Lord Privy Seal promised to double the standard of living in twenty-five years. The cost of living has risen 6 per cent. since the Prime Minister announced his prices plateau. And the price of securities has fallen 30 per cent. since the Lord Privy Seal invited us all to "Invest in Success." We therefore say that the time for expansion is now. Let us now get rid of this whole complex of restrictionism, deflation and stupidity which hon. Members opposite call by the name of Toryism.

9.27 p.m.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

The right hon. Member for Battersea, North (Mr. Jay) has discharged some heavy broadsides in the general direction of the Government. Some of his shots have fallen in the target area, some seemed to me to fall distinctly short and some ricocheted off harmlessly in a number of different directions. It seemed to me that he was directing his fire less against the specific taxation proposals in the Budget than against the general economic policies of the Government.

That is fair enough, because the Budget speech and the debate should deal broadly with the national economic situation. I thought it a novel idea that the right hon. Member for Huyton (Mr. H. Wilson) put forward the other day that we needed two debates, one on the Budget and one on the economic situation in general. I thought that suggestion had little merit or precedent behind it. The general theme of the right hon. Member and hon. Members opposite has been that this Budget is a cautious, timid affair, not bold and imaginative and, in the words of the right hon. Member for Huyton, "a pathetic little mouse". It is possible, I suppose, that the tax changes conceivably, by themselves, to some degree could justify those epithets. But one has to remember that in the aggregate I have proposed tax reductions of £108 million in a full year. Even in this modern age that is quite a lot of money.

I explained on Tuesday last why larger remissions, I felt, were not justified this year. My impression is that the country as a whole, and certainly the bulk of the Press, has thought the reasons I gave valid. I certainly do not feel disconcerted by the kind of description that hon. Gentlemen opposite have applied to this Budget. The quality of the Budget, I think, surely cannot be judged solely by the tax changes proposed. The hon. Member for Gloucester (Mr. Diamond), when he spoke the other day, seemed rather to think that it could be. But surely the action which a Chancellor takes in his Budget should be the action which he judges necessary to keep the whole national economy in balance and in a condition in which it can give the best account of itself. It may well be that at particular moments little immediate adjustment is required. In such circumstances, the best Budget, I suppose, would be the Budget making no changes at all.

It is always easy to be bold and imaginative, in the common interpretation of those words, with other people's money. Sometimes I think that a scrutiny of the charts, even a scrutiny with the utmost vision and imagination, might well lead to the conclusion that the course the ship is on is about right. If that is the conclusion, it would not be a prudent navigator who would make changes merely for the sake of making them. To change the metaphor, if one is suffering from high blood pressure, a treatment which is designed to lower the pressure a little may be more appropriate than a major operation.

The gravamen of the criticisms which the right hon. Gentleman has launched centred on what is, I agree, a very substantial difference at the present moment between the economic policies we are following and those which right hon. Gentlemen opposite recommend. The right hon. Gentleman and his hon. Friends recommend maximum production as top priority. Our top priority in present circumstances is the maintenance of the strength of sterling and a stable price level. The right hon. Member for Huyton said that he and his colleagues also place the maintenance of sterling first, and I accept that that is sincerely their whole aim.

I was very glad to hear what he said about this at the end of his speech on Wednesday, but I hope he will discourage his hon. Friend the Member for Stechford (Mr. Roy Jenkins) from criticising, as he did in the House of Commons the other day, what he called the myth of sterling as a world currency. What we do take leave to doubt is whether the policies that hon. and right hon. Gentlemen opposite are recommending could conceivably attain that end. We think they would have precisely the opposite effect, to a point that would bring on ale most serious inflation and a balance of payments crisis again.

The kind of controls that right hon. Gentlemen opposite are proposing, after all, would be in themselves inflationary, and I cannot see any reason to think that they would be any more effective than they were when they tried them before. Hon. Gentlemen opposite must not forget that they had all the controls they needed in 1951 and that they used them, and that wages and prices rushed ahead and that gold and dollars poured away at a rate which would have exhausted the reserves in eight months. After all, the declared policy of the Socialist Party is greatly increased public expenditure, high taxation and low interest rates, and I simply cannot imagine a better recipe for wild inflation and a balance of payments crisis.

As to the reserves, I am sure that we must remember that if people overseas have confidence in our economic management and feel that they will be free to take their money away if and when they want to they will send it here, but not otherwise.

I apologise to the Committee if I am sermonising, because I am aware that I have been in my present post only for about three months and have no right to do that. It may be that I have become a little over-confident since, a fortnight ago, I had my measurements taken for my effigy for Madame Tussaud's. That sort of thing, perhaps, goes to one's head slightly. I hasten to add that I was assured that none of my predecessors is to be removed to make place for me.

I am sure that the whole Committee is sad to have heard the last speech that we shall hear, at any rate for some time, from—as I think I must refer to him, Sir Charles—Mr. Angus Maude. We all have a great respect for his mental qualities. I do not know how many persons I shall be called upon to appoint to the Chiltern Hundreds, but I shall never appoint anyone with greater regret than I did him.

A great deal has been said about production, and about what the right hon. Gentleman the Member for Huyton called the policy of stagnation. I have made my views about this pretty clear in my Budget speech, but as the matter is of very great interest and importance I shall try to say what I believe we on this side have in common with the right hon. Gentleman and his friends, and where we differ, as we clearly do, both in our judgment of the situation, and in the action we would take if our judgments were the same.

I have said that strategic expansion is our aim, and we mean to encourage resumption at a steady rate as soon as we safely can. There is no difference between us about expansion as the fundamental aim. We are also in full agreement about the importance of defending and strengthening sterling, and I freely acknowledge that the right hon. Gentleman the Leader of the Opposition has constantly made that point.

I think that we are agreed also that stable prices are necessary. not only to maintain the strength of sterling but also because of the disruptive social and economic effects that follow internally when prices go on rising, particularly when it is believed that the Government are not out to check the process. The hon. and learned Gentleman the Member for Northampton (Mr. Paget) came out today as a convinced inflationist. He was clearly not in agreement with me there.

My hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) quoted the Leader of the Opposition as having said: If incomes go up more than production goes up, then prices will rise. The truth is as simple as that. I could not have put it more succinctly myself, but I find it difficult to reconcile those words with the policies that the right hon. Gentleman now recommends.

We are also agreed, I think, as I said in my speech, that the economy is at present capable of meeting a higher level of demand than is likely to be made on it at the moment. In fact, it would be strange were that not so, considering that, under the present Government, capital investment has been growing steadily, and is now running at an all-time record level.

I also said, and this is a point of disagreement in our judgment of the situation, that I did not think we were yet strong enough deliberately to encourage further expansion at the moment. As I understood him, the right hon. Gentleman thought, not only that we were strong enough but strong enough to increase it to the order of £3,700 million a year. He became rather imaginative at that point, and referred to this as the equivalent of 100 groundnut schemes. I agree that that was a graphic, if irrelevant, comparison. It conjures up the startling and, I thought, rather terrifying composite—almost nightmare—picture of the concerted efforts of the right hon. Gentleman the Member for Dundee, West (Mr. Strachey) and the hon. Member for Deptford (Sir L. Plummer) expanded 100 times.

To return to the figure of £3,700 million a year, that sum is 20 per cent. more than our current output. I think that the right hon. Gentleman later lowered his sights to £2,000 million, and the right hon. Gentleman the Member for Battersea, North has lowered them again to £1,500 million. I really do not know what that additional output that he visualised would consist of, or what effect it would have on our balance of payments. My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) rightly referred to that. But even at £2,000 million extra, such an expansion would add about £400 million at present to our import bill, and how much would it take off our exports? Whatever the Government are doing, we are not discouraging exports, and it is impossible to believe that such an enormous stimulus to home demand as that would not also give a sharp stimulus to the pull against exports.

At present unemployment is 2 per cent. of the working force. At the end of March the operatives on short-time in manufacturing establishments were about 1.7 per cent. and for overtime the figure was about the same as this time last year. All this talk about stagnation and the impression of an enormous increase in output that could be secured by a kind of wave of an unspecified wand in possession of right hon. Gentlemen opposite is very misleading indeed. It is true that output has risen only slightly during the last two years, but I have often thought how odd it is that right hon. Gentlemen opposite are so apt to concentrate their whole attention on one point to the exclusion of everything else and to the detriment of their ultimate judgment.

Investment, which I think we all agree is the key to our future economic strength, has continued to grow to record levels. It is now running at over 40 per cent. higher than in the last year of the Labour Government. Let us not forget, too, that the object of industrial investment—and there are many objectives—is not only increased volume, but also an increase in economic production as well. Today we have an absolute record level of personal saving and investment. Employment continues high. Our balance of payments is strong. The reserves are rising. Our liabilities have decreased considerably and are still decreasing, and consumer expenditure has also risen. I feel that it is a serious misuse of words to call that stagnation.

The other point of difference between us is about the relative dangers, on the one hand, of the period of consolidation and, on the other, the peril to sterling and the price level from running the economy absolutely flat out at present. If the right hon. Member for Huyton ever stands at the place that I now occupy he will have to weigh these considerations himself. He made great play about controls, but, as was pointed out by my right hon. Friends the President of the Board of Trade and the Paymaster-General, import controls are really not likely to increase confidence in sterling. In addition, for a country which imports its food and raw materials and exports manufactures I do not think it is likely that we would gain by encouraging a movement towards import controls.

The prescriptions of the right hon. Gentleman are really an invitation to roaring inflation and the collapse of our economy. I believe my right hon. Friend the President of the Board of Trade was entirely justified in pointing this out the other day. Hon. Members opposite, when they consider causes and consequences, seem to me so often to make entirely the wrong deductions from their examinations. They remind me of the three research workers who set out to discover the cause of drunkenness. They met together on the first evening and drank gin and water and became intoxicated. The next evening they drank whisky and water with the same deplorable results. On the third occasion they drank rum and water, and the same thing happened. Their unanimous report was that water must be the cause of drunkenness. We are as convinced as hon. Gentlemen opposite that expansion must be our permanent aim, but we differ profoundly about the foundations needed for that expansion. If that is caution, then I am content to be labelled a cautious man.

In the event of an incipient recession, our priorities in stimulating demand will be, first, action to assist exports; second, action to stimulate private and public investment; third, if necessary, direct encouragement to bigger consumer expenditure. As regards the first, I indicated last Tuesday certain action which we felt could be justified in finance and credit for exports. As regards the second, I emphasised that arrangements for holding bank credit, hire-purchase and the raising of capital are extremely flexible and can be modified or removed at any time. The same applies, of course, to interest rates. Looking ahead, I judged that some modest encouragement would be appropriate for industrial investment, and from that arose the proposal for an increase in the initial allowance, amounting to £23 million in a full year. Public investment control is also completely flexible. Half our investment, directly or indirectly, is under Government control. Our programmes, which were fixed last year, are being continued and should help to maintain the level of investment generally at its present level which, as I said, is an all-time record. If justified, we could certainly allow these programmes to expand.

I regard investment generally and the problem connected therewith as one of securing steady progress within our long-term resources rather than turning taps on and off frequently. But one must remember, in this context, that these programmes consist of two different kinds of investment, being partly long-term, large-scale projects which are slow to begin and do not come to maturity for two or three years, by which time economic conditions may be different, and partly—these are much more relevant to the present situation—short-term schemes which can be started quickly and completed within a year or eighteen months. I am glad to say that, within the investment programmes in the public sector, there is a substantial volume of such short-term work.

If it comes to the direct stimulation of consumer expenditure, though any prudent Chancellor will be very chary of admitting that there is any room for such manœuvres, there are things which may be done. If I were to attempt to go into detail now about what could be done in many ways, I should certainly risk creating more uncertainty than I should do good. Much of what could be said would sound more like a cookery book listing possibilities rather than the actual menu to be served on a given occasion. I can assure right hon. and hon. Gentlemen that a great deal of consideration has been given to possible situations which might arise, and we do not think that we shall be caught napping.

I was glad that many hon. Members referred to the problem of long-term financial liquidity. I was interested to hear the hon. Member for Orkney and Shetland (Mr. Grimond) recognise the importance of this and put forward a number of suggestions. My hon. Friend the Member for Eastleigh (Mr. D. Price) agreed and referred to Sir Oliver Franks' recent speech, to which, I am sure, many hon. Members will have given thought. My hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby) explained the world's liquidity problems in his usual forthright, lucid, and agreeable fashion.

We have had some discussion at official level with the American Government about this and other problems. In a few weeks, there will be an important meeting with Commonwealth officials which, we hope, will carry the matter somewhat further. There are a number of possible solutions and they all involve some expansion in the scale of existing international co-operation. The discussions which we shall continue with the Commonwealth and with the United States Government will, I hope, point the way to solutions which will give a greater degree of confidence to the world in the future of international trade and in the soundness of international currency arrangements. I am strongly of opinion that the time is now approaching, if it has not already arrived, for another forward move in international economic co-operation.

I agreed with much of the wide-looking speech made by the right hon. Gentleman the Member for Easington (Mr. Shinwell). He said he was venturing into this field for the first time, and he was not quite sure whether the price of gold ought to go down or go up. He is not here. I had a word from him explaining that he would not be here at this moment. I should like to ask the right hon. Gentleman, if he is going to come into this arena to help us, to use all his powerful influence to see that, between those alternatives, the price of gold should go up. The right hon. Gentleman seemed to be in very vigorous form this evening.

I listened with great attention as I always do to the speech made by the right hon. Gentleman the Member for Blyth (Mr. Robens). He mentioned one very important aspect and aim of our policies, which must be to maintain a high level of employment, but he said little or nothing at all about stable prices. I must say that listening to him it was very difficult to realise that this country, as it is today, is enjoying the highest standard of living it has ever had in its history.

The right hon. Gentleman the Member for Huyton asked, I think in an interruption, from what date the Stamp Duty concession would apply. It is 1st August.

I should like to say a brief word about dividend stripping, in particular the matter of retrospection. I would say straight away that I have as strong a dislike of retrospective legislation as I believe anyone here has. I have always felt it needs very unusual circumstances indeed to justify it. The question is whether such circumstances exist in this case or not.

There are special considerations here. First, the practice of dividend stripping is tax avoidance pure and simple. It is just not a case of carrying on a business in a way which avoids unnecessary payment of tax. In this case business is carried on for the sole purpose of getting back the tax and no other purpose at all. The second consideration is the clear warning which was given. I do not suggest that warning of this sort has any constitutional validity; but, in view of the suggestions which have been made in the past week that there was something improper in this warning, perhaps it is worth saying that so far as I am aware no complaint at all was then heard.

For these reasons it seemed to me drastic action was justified. Many hon. Gentlemen not only on this side of the Committee have taken a different view. I have naturally listened with care to what they have said. I am glad to see that no one has contested the view that dividend stripping as such must be stopped. The only question arises in the matter of retrospection.

I must say that I do not find this is at all an easy question. It has never been the accepted view that in no circumstances whatever can retrospection of tax legislation be justified. It is not a question here of legality but of whether the income in question should be subject to tax. That is rather a different thing. On several occasions, I understand, retrospection has been applied in this kind of circumstance for the benefit of the taxpayer.

As I have said, there are strong arguments for retrospection in this case, but I agree that one would have to be quite sure that the warning given in 1955 was specific enough to cover all the devices, the new ones as well as the ones that were particularly before us at that time. These points must be considered against the background of the very sound and important principle that retrospection is in general highly undesirable. I propose to give further thought to this difficult but important question before the Finance Bill.

The right hon. Member for Bishop Auckland (Mr. Dalton) made a bold proposal to raise another £150 or £200 million from tobacco and cigarettes. I should be interested to know whether the Shadow Cabinet set the seal of its approval on that.

Mr. Hugh Dalton (Bishop Auckland)

I said most specifically that I was committing no one, whether on the Opposition Front Bench or anywhere else.

Mr. Amory

I remember the right hon. Gentleman saying that, but I am still curious to know whether the Shadow Cabinet would set the seal of its approval on that.

I would ask the right hon. Gentleman to excuse me from commenting on his description of the practice of smoking. I have two interests to declare here. I am a non-smoker, and I have noticed that those who smoke are not infrequently allergic to criticism by those who do not. The practice, whatever inherent merits or demerits it may have, makes a contribution to Revenue that I cherish exceedingly. So I do not wish to offend unnecessarily my valued patrons. I prefer to leave it to them to decide whether it is good or bad for them. Therefore, if I am pressed to say whether I will consider the proposal, I will take refuge in saying that I must not anticipate my next year's Budget statement.

I should like to refer for a moment to some points made by two of my hon. Friends from Northern Ireland. First, my hon. and gallant Friend the Member for Down, South (Captain Orr) asked what the Imperial Government were doing about unemployment in Ulster. In addition to the measures to which my hon. and gallant Friend referred. the Government agreed a few months ago to stimulate building in Ulster by increasing by £10 the average subsidy paid on houses and last month agreed on a further increase of £15. We also agreed lately that the maximum rate of capital grant payable for new industries going to Ulster should be raised from 25 per cent. to 33⅓ per cent. We have every sympathy with Northern Ireland over its high rate of unemployment, and we shall continue to do our level best to help the Government there to deal with that difficult question.

There are a great many other points that I should have liked to raise, but I am afraid that my time is up. I should like to finish on this note, that I believe it is seldom a good plan to attempt too many things at once, or one may fail to accomplish any of them. I always like the words used by one who is a particular hero in the eyes of my colleagues and I who represent Devon constituencies, Sir Francis Drake, who said: In any great undertaking it is not the beginning but the continuing thereof until it be utterly finished that yieldeth the true glory. Having set our hand to this business of safeguarding the value of our currency and stabilising the cost of living, we must see it through to a firm and successful conclusion before we embark on other tasks. This Budget. I am confident, is in keeping with those aims.

Question put and agreed to.

Resolution to be reported Tomorrow.

Report to be received Tomorrow; Committee to sit again Tomorrow.