HC Deb 12 March 1958 vol 584 cc441-75

Order for Second Reading read.

4.7 p.m.

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

I beg to move, That the Bill be now read a Second time.

This short Bill does no more than extend the limit of time within which the powers given by Section 42 of the Finance Act, 1956, may be exercised. That Section provided for the making of advances from the Exchequer, through the Ministers concerned, to seven nationalised industries, that is, the public electricity, gas and transport undertakings and the two airways corporations. The Section provided that the total of such advances should not exceed£700 million, and that no advances should be made after 31st March, 1958.

The House will remember that, before 1956, the nationalised boards had raised the finance that they needed for their capital requirements by issuing stock on the market, with Treasury guarantee. In so far as those stocks were not taken up by private subscribers, they were supported by the Exchequer, and this support often had to be substantial. Before the issues could be made, most of the boards had run up considerable overdrafts with their banks.

The Act of 1956 made a change in that respect. It enabled the seven boards to receive money direct from the Exchequer, which meant that the Government no longer had the fortuitous responsibility for financing these industries but could control the whole operation. The Government could meet the needs of the boards as they arose, and, so far as the Government themselves had to borrow, could also decide the right moment at which the market could be approached for the finance required.

The House will remember that there was a very interesting debate on those proposals in the early hours of one morning. As I re-read the debate, I found that no hon. Member questioned that the new procedure laid down in the 1956 Act was preferable to the one which it replaced. The differences which arose in that debate were on the desirability and possibility of the nationalised industries raising their capital in the market on their own credit.

Mr. Gerald Nabarro (Kidderminster)

Without Treasury guarantee.

Mr. Simon

Yes, on their own credit. The House will remember that the provisions of the 1956 Act were expressed to be temporary, and were to be reviewed after a reasonable interval. The system of financing the nationalised industries was, therefore, designed to last for two years and to expire at the end of this financial year.

The purpose of this Bill is only to extend the limit of time within which the existing powers can be exercised so that the future of this method of financing the nationalised industries—indeed, generally speaking, all methods and any possible method of financing the nationalised industries—might be considered in what I think the House will agree is its proper context; in other words, the context of the general review of the Government's economic policy in the Budget. It would follow that any necessary provision should be included in the Finance Bill, so that the House will then have a full opportunity to discuss the Government's proposal.

I do not propose, therefore, to embark this afternoon on any discussion on what is the right method of financing the nationalised industries. The House will probably prefer that that should be left for another day, although, of course, I will try to answer any questions that may be asked of me.

Mr. Nabarro

May I ask my hon. and learned Friend a question now? In the event of no proposals being embodied in the Finance Bill this year, is it not a fact that the method of financing these industries, to which the Bill refers, would then relapse to the pre-1956 method of doing so?

Mr. Simon

I should like to have a look at the terms of the original Act before I answered that question "off the cuff". I think that is so, but I am not quite sure whether the pre-1956 provisions were repealed, though I think not. I think I ought to say that it is my right hon. Friend's intention to deal with this matter in the Finance Bill.

Mr. Nabarro

I am much obliged to my hon. and learned Friend.

Mr. Simon

In the meantime, it is necessary to make provision for these industries to receive the capital finance that they need, and I therefore commend this Bill to the House as an interim Measure, which is only to extend until the 31st August the time within which the powers already granted by the House may be exercised. It does not extend the limit of money which the House has already authorised to be advanced; that remains at£700 million.

As it happens, the balance of the money which is expected to remain unexpended on 31st March, which is about£120 million, is very little more than that which we expect these seven boards will need to draw before the end of August. The effect of this Bill will, therefore, be to give a natural life to the powers which the House has already granted.

4.13 p.m.

Mr. Gordon Walker (Smethwick)

As the Financial Secretary to the Treasury has said, this is a minor interim Measure, and we do not therefore oppose it. Indeed, it prolongs a system of which we approve, and I suppose that five months is better than nothing at all. Therefore, we are in favour of the Bill positively, as it stands.

Section 42 of the Finance Act, 1956, which is, in effect, extended for a short time by this Bill, was really no more than a technical change, though a valuable one. Its effect was to help the timing of Government borrowing on the market. It did not affect either the Government's control of or responsibility for investment by the public industries, and because it did not affect these basic things—the Government's responsibility for and control over investment by public industries—it was a technical improvement. We supported it in that late night, or, rather, early morning, debate, to which the hon. and learned Gentleman has referred, I think on 12th June, 1956, in which, despite a rather long verbal revolt by the hon. Member for Kidderminster (Mr. Nabarro) and some others, the proposal was eventually carried without a Division.

I must say that, none the less, we are rather suspicious and apprehensive, and I should like to direct my remarks particularly to the word "August", in line 10 of the Bill. We are worried that this is so short an extension, and we suspect that it is intended that this should be looked at again in the Budget, and the hon. and learned Gentleman has gone so far as to say that his right hon. Friend the Chancellor will actually deal with this in his Budget. The hon. and learned Gentleman used the word review", which I find an alarming word, which fills me with suspicion. [An HON. MEMBER: "Why?"] It is because the hon. Member for Kidderminster is pleased that I am filled with suspicion.

We are frightened that the intention is to force these public industries on to the market for their capital, as suggested by the Herbert Committee. The Prime Minister, when he was Chancellor of the Exchequer, made some rather ominous remarks in his Budget speech. Talking about Section 42, he said that it would ultimately mean that the Government would force them on to the market, and he added: The time may come when this can happen."—[OFFICIAL REPORT. 17th April. 1956: Vol 551, c. 865.] He even said, on 12th June, 1956: Of course, we should like to move in the direction of the Herbert Committee's Report."—[OFFICIAL REPORT. 12th June, 1956; Vol. 554, c. 529.] All these things, coupled with what the hon. and learned Gentleman has said about a review of this whole system in the coming Budget, fills us with alarm. If that is the intention of this Bill we are very much against that intention.

We do not accept in this matter the underlying principle of the Herbert Committee that there is an automatic and natural identity between the judgment of the money market and the national interest. That is the assumption underlying what the hon. Member for Kidderminster and the Herbert Committee have said. They assume, as a metaphysical proposition, that the judgment of the money market and the national interest must always and completely coincide. They very frequently diverge; not always, but frequently. If these public industries were forced on the money market in this way, it would bring an unpredictable hazard into the planned development, the chosen pattern in these basic industries.

It would also be impracticable, as even the then Chancellor, now the Prime Minister, himself said. He used the word impracticable in his Budget speech, in which he said that these industries would not have a cat in hell's chance of raising the money in the market. The right hon. Gentleman gave two reasons, and these two reasons would still apply. He said that the very size of their requirements would be beyond the capacity of the market, and that is still true today. The enormous demands of these concerns would be beyond the capacity of the market and, for that reason, would force up costs to these basic industries.

At the present time, they can borrow, quite rightly, on terms—I think the phrase is—" appropriate to Government credit for a considerable number of years." If forced on to the market, they would be forced to borrow at the rates prevailing, which would be quite artificial and inflated, due to the unprecedented size of their requirements. Of course, if they are forced on to the market, they must be free to fix their prices, and I do not think that it is right that a monopoly, private or public, should have sole discretion in fixing prices. These are statutory monopolies—

Mr. Nabarro

The right hon. Gentleman's party legislated for complete freedom on the part of the area electricity boards to fix their own tariffs and prices. That was the intention and that is the system in force today. Does the right hon. Gentleman suggest that the central Government should control gas and electricity prices, for example?

Mr. Gordon Walker

No, but all these Acts contain a provision for general directions by the Government of the day, and if these monopoly powers are used improperly there is all the more reason for saying there must be control, as in the case of private monopolies. I do not think that monopolies, whether public or private, should have the absolute right to fix prices regardless of the opinions of Parliament and public of the day.

In any case, if they have to be forced on the market, I think that the hon. Gentleman will recognise that they would have to be free of all Government control on their rate of investment. If they want to invest a great deal more, and have the opportunity to do more than the Government wanted them to do, they must have that freedom. They cannot be given freedom and be restricted simultaneously. It would be a very bad thing because, of course, the control over the investment of the public industries, this very large section of investment, is a very important device for stabilising and balancing the economy——

Mr. Nabarro

Surely the right hon. Gentleman has neglected to observe that private industry resorting to the money market for new capital is subject to all the restrictions imposed by the Capital Issues Committee, and that if these nationalised industries resorted to the money market for new capital the same restrictions would apply.

Mr. Gordon Walker

That is a very different thing from the present direct control imposed by the Government and. as we think, imposed wrongly, in this case, in the form of direct and drastic cuts. We would have to rely on the impersonal Capital Issues Committee controls as they apply to private industry. As I say, if the intention behind the Bill is to drive the public industries on to the money market for their capital, we will resist that intention strenuously and uncompromisingly.

4.21 p.m.

Sir Peter Roberts (Heeley)

The right hon. Member for Smethwick (Mr. Gordon Walker) has attacked only one aspect of this Bill, but there is another to which I should like to draw the attention of my hon. and learned Friend. I would point out to the right hon. Gentleman that one of the assets of going to the money market is that one has to prove efficiency. He talked about "national interest," and queried it, but I do not think that he can query the fact that the money market does insist on efficiency. If the nationalised industries had to go there for their money that would be one advantage——

Mr. Gordon Walker

And the test of efficiency is the profits resulting from prices charged.

Sir P. Roberts

And that is one of the best criteria of efficiency that there are.

I want to ask my hon. and learned Friend a question concerned more with the actual form in which the financing will take place. I believe that it is a mistake for the Government to have come forward with this Bill without giving some idea of their thoughts on the subject. It will, possibly, raise a certain amount of unnecessary doubt on the other side of the House, and may engender attacks which are not, in themselves, properly founded. It is a pity that the Government should seek virtually to spend another£120 million before August without saying how the money is to be found.

In view of the speech of the Financial Secretary, however, all that I can do at this stage is to ask a question. I hope that he will not hide behind the old saying that it all arises out of the Budget statement of his right hon. Friend the Chancellor because, after all, he has brought the Bill before the House. One of the things that the Prime Minister said when he introduced his Budget statement, two years ago—referring to the figure of£350 million, which was the estimated figure for 1956–57—was: So disappears, by my own murderous act, my beautiful overall balance!"—[OFFICIAL REPORT, 17th April. 1956; Vol. 551, c. 867.] He was talking about under-the-line expenditure.

This method has applied to the coal industry for some time. However, the finance of these further industries which were brought in by the Amendment to Section 42 of the 1956 Act, have been met in part, at least, out of the Budget surplus allocated to this form of capital expenditure. I want to say, and I hope that the Treasury will take note of it, that at present it is not tenable to use Revenue income taken from direct taxation to finance long-term capital expenditure of this nature. That, in itself, is inflationary, because it tends to keep up the over-high rate of taxation that we have at the present time.

What we should seek to do now is to see that against whatever Budget surplus there may be—and from what information I can glean from the figures already published that surplus may be about£450 million—we should make certain that this£120 million that we are carrying over to August next is not set against that Budget surplus. To do that would be inflationary in itself. I am rather sorry that we have had this debate in vacuum, so to speak, but at least it gives me the opportunity of making this statement.

Whether or not the Government should go to the open money market, as suggested by some hon. Gentlemen—though that may possibly, even at present, be rather impracticable—or whether or not there is some form of Government guarantee, so long as it is funded, then, quite frankly, I do not mind. But if we are to start using this extra£120 million, which we are asked to spend, so far as I can see, out of this year's Budget surplus, without some indication from the Government of what their intention is, it will make it rather difficult for me to support the Bill.

I shall do so, with hope and faith, because when we come to the Budget, I sincerely hope to find that the words I have spoken now will have had some effect upon my hon. and learned Friend and upon my right hon. Friend the Chancellor. This is a matter of the greatest importance. It is something that affects the whole section of nationalised industries at present. Indeed, it goes far wider, and affects the private sector as well——

Mr. William Shepherd (Cheadle)

I cannot follow my hon. Friend's argument. If we took from past savings the money to finance these industries, that would surely be much more inflationary than taking the money out of current revenue, which would draw off that amount of purchasing power and make the whole thing less inflationary.

Sir P. Roberts

That, if I may say so, is the old, out-of-date, economic theory of scooping off surplus spending power. I really should have thought that, by now, what I would call modern, up-to-date economic thinkers had abandoned that sort of argument, and I hope that we shall not hear very much more about it. We have been hearing it for nearly twelve years now, and the inflationary spiral has been going up and up. It is about time that we got down to the economic fact of life that high taxation is inflationary, and that we have to bring taxation down by using some of the Budget surplus, which will drive private, rather than public, savings into our investment campaign.

It is far better for the private investor to invest his own money in this way rather than for the State to do it for him. I would agree, however, that if the private sector did not respond, I would not mind, afterwards, a certain amount of bolstering from the State itself. This matter is very important to me, and I believe that if this debate is properly reported to the Chancellor it will have the effect of persuading him to do what I wish in his Budget. There-fore, I am prepared to support the Government.

4.29 p.m.

Mr. Ernest Davies (Enfield, East)

I trust that the hope and faith of the hon. Member for Heeley (Sir P. Roberts) in the Government's intentions are not fulfilled, but I fear that we have every reason to believe that there is a great likelihood that they will be. For that reason, I have very grave doubts as to the purpose behind the introduction of the Bill, and the short length of time that it covers, as has been pointed out by my right hon. Friend the Member for Smethwick (Mr. Gordon Walker).

There are a considerable number of reasons why the normal commercial standards cannot be applied to the nationalised industries when they seek to raise capital. There are two main considerations. The first is that the nationalised industries have certain public service obligations which were laid upon them by the House. In each of the nationalising Measures certain statutory requirements are laid upon the boards concerned which go far beyond the normal requirements of a commercial concern. The National Coal Board does not operate along normal commercial lines, because the duty is laid upon it to produce all the coal which it is necessary to produce.

As a consequence, it has to put the production of coal far above normal commercial operations. It has made great economic sacrifices to produce coal and it has kept many uneconomic pits open. If it were operating as a commercial concern, would it be called upon to meet the losses which result from the imports of coal? Of course not, Up to a point it is compelled to operate on a non-commercial basis, and, therefore, it cannot be judged in the same context as a normal commercial concern when seeking to raise capital.

Mr. Nabarro

The hon. Member should be aware that the Bill does not include the National Coal Board, nor did Section 42 of the 1956 Act include the Coal Board. Neither myself nor any of my hon. Friends has ever suggested sending the Coal Board to the open market.

Mr. Davies

The hon. Member is illogical. Moreover, what reason have we to believe that if a change is made in the Budget it will not cover all the nationalised industries? If the Government decide to change the manner in which the nationalised industries raise their capital, there is no reason why they should not make it equally applicable to the Coal Board.

In any case, I gave the Coal Board only as an example. I could cite the electricity boards, in which the hon. Member for Kidderminster (Mr. Nabarro) is so interested. Those boards have to pay particular attention to rural electrification. They must give more attention to rural electrification than would be given by a commercial concern which put its profits first and foremost.

The second reason why we cannot judge such bodies in the same way as a commercial concern is that they are not free to fix their prices. In spite of what the hon. Member for Kidderminster said in his interjection, we know that there is a gentleman's agreement with the Coal Board. For the railways, there is the Transport Tribunal. Although, theoretically, gas and electricity boards do not have to apply to the Government for permission to raise their charges, it is well known that there is very close consultation between the boards and the Ministries. No nationalised industry is free to fix its prices, because it is in consultation with the Government and the Government's intentions are known. Indeed, the Government have been known on many occasions to intervene in the fixing of prices by the nationalised industries.

If there were to be a change and the nationalised boards were to be compelled to go to the market to raise their capital without a Government guarantee, it would be necessary to remove the public service obligations from the boards and to give them freedom to fix their prices so that they could compete in the market on equal terms with normal commercial firms. No one in his senses would wish that to be done. No one wishes to end the statutory obligations by which the boards partly have to be a public service and no one wishes to allow monopolies to be completely free to fix their own prices.

That is one set of arguments to show why I do not favour the change which hon. Members opposite prefer. It is a fallacy to think that the market would have better evidence of the economic "justifiability" of the expenditure concerned. My right hon. Friend pointed out that it does not necessarily depend upon the merits of the case. It depends upon the conditions of the market at the time, upon the number of other concerns seeking to raise capital and upon the place which the organisation in question has in the queue.

When it seeks to engage in capital development, each one of these nationalised boards has to put its plans before the Minister concerned. By law the capital development programme of the public corporations must be presented to the Minister and it has to be agreed by him in consultation with the Treasury. When the nationalised boards require to raise capital, therefore, the purposes to which that capital is to be put have already been agreed by the Minister, who has had consultations with the boards, and by the Treasury, which has also been consulted.

Why should the market itself, the issuing houses and the investors be in a better position to judge whether the board requires that capital and whether that capital should be invested? Already, the boards, the Minister and the Treasury would have agreed that the raising of this capital was necessary, and once it had been agreed by them that it was necessary, the provision for raising it would have to be made.

I will refer to the British Transport Commission as a case where it would be most undesirable to compel the Commission to go to the market to raise the capital which it requires. British Railways have a modernisation plan which was originally to have cost£1,200 million and will now cost£1,500 million because of the increase in prices. About 60 per cent. of it is to be financed by the Commission, but the balance will have to be raised in one way or another. That plan was approved by the Minister, presented to the House as a White Paper and approved in principle by the House, after a debate. It was made clear during the debate that the future solvency of British Railways depended entirely on the successful fulfilment of the modernisation plan. The plan was made on the assumption that the capital would be available.

Unfortunately, the Transport Commission is not in a very satisfactory financial position to seek money on the market at the present time. It had a deficit of over£50 million in 1956 and it is known to have a deficit of well over that amount in 1957. The Government are now meeting the deficit through loans. They are limiting the loans which they will make to the B.T.C. to£250 million up to 1961–62, by which time the Commission is supposed to be able to balance its accounts. If one looks at the position it is clear that that will not be adequate. The accumulated deficit with the accumulated interest will amount to probably double that sum by 1961–62.

The reason I raise the question of the Transport Commission is that its credit would rank very low in the market today. If it had to go to the market with its known deficits exceeding£50 million. with freight traffics declining severely, and with the somewhat gloomy outlook for the railways, do hon. Members opposite think that the Commission would be able to raise that money on the market today on satisfactory terms? Yet the House has agreed that it must have the money and the Minister has time and again said in the House that the Commission's future depends on the success of the modernisation plan.

We cannot judge the public corporations by the same standards as commercial concerns. To depart from Government finance for the Transport Commission in particular would gravely endanger its financial position and would cause further deterioration in its finances. It is for that reason, among others, that I very much regret that in introducing the Bill the Government have decided to put a five months' limit on it. It would have been far better to extend the Bill indefinitely, because it could be brought to an end at any time without legislation; it merely gives power to the Government and does not say that the financing of these public corporations must be done in this way.

If the Bill were extended indefinitely, the power would exist for the Government to provide the finance for the public corporations as and when necessary. But by imposing a limit, as is done in the Bill, the Government are prejudging the situation and they are prejudicing the position. It is clear that definite changes will be made and that this method of financing will be dropped even before the House has been given the opportunity of debating the proposals which are to be put forward when the Budget is presented.

4.41 p.m.

Mr. J. Grimond (Orkney and Shetland)

I regret that the Financial Secretary did not see fit to tell us more about how the present system is working. I have no doubt that his luminous mind would have cast considerable light upon what has been happening over the last eighteen months or so. I am not at all reassured by the statement that we can have a debate about this matter during the Budget or the Finance Bill, because there is no guarantee, once again, that this matter will not come tip at six o'clock in the morning and, therefore, receive inadequate consideration. Nor can it be entirely confined to the narrow question of how one raises the capital for these industries.

As the hon. Member for Enfield, East (Mr. Ernest Davies) has said, this in turn brings up the question of a pricing policy and the restrictions which we shall put upon them as public monopolies. The House spends too little time in debating the general question as to how we should run the nationalised industries. This would have been a good opportunity to consider the matter in its broader aspects. We should have been told what has been happening. Has it proved easier to manage the National Debt over the last two years? What has been the position of these industries in their relations with the banks?

The hon. Member for Enfield, East mentioned the large deficit which has been run up by the Transport Commission. What will the Government do about it? Is not this an inflationary event in itself? Furthermore, I think that the outstanding advances to the nationalised industries affected by the Bill have varied between£40 million and£78 million, and this too seems to be a substantial figure and does not seem to have been substantially reduced during the life of this Measure, although this was one of the reasons why it was introduced in the 1956 Finance Act.

On the general subject of the control of nationalised industries, the argument for the market is that the market is not one man or one Committee on whose judgment we stand or fall, but is supposed to reflect the judgments of a variety of people with different skills and experience and therefore people whose errors may cancel each other out. Whether we think the market is a good instrument or not, what many people would not deny at present is that the instruments for examining the capital programmes of the nationalised industries are unsuitable for the job. I do not believe that the Treasury was intended to do this job. I am certain that the House of Commons was not.

Mr. Nabarro

Does the hon. Gentleman realise what he is saying? Nobody on this side of the House has ever suggested that this problem is either all black or all white. Nobody has ever suggested that all the nationalised industries should go to the market. But there are certain suitable sectors of the nationalised industries which ought to be driven on to the market.

Mr. Grimond

Patience is not one of the hon. Member's greatest virtues. He is in danger of finding that he has made his speech before he has been called, but I appreciate the point, and am coming to it.

As regards those industries which we have agreed cannot be put on to the market, the present method of control through the House is very unsatisfactory. There are several points at issue in this Bill upon which we should spend a little time in consideration.

One is the question whether the present methods of financing these industries equate general savings with general investment. The Prime Minister, when he introduced this matter two years ago, made a strong point about that, and said that under the old system, by which the Government had to support the market when issues by the nationalised industries could not be absorbed, investment got out of step with savings. Has it been proved that the Government have found it easier to manage the National Debt under the present system? Then there is the question as to whether we are using our savings to the best advantage? There is reason to suppose that we are not. The return on capital from the mines is extremely low. There is at least a case for investigation as to whether we should spend about£235 million, or nearly half the amount mentioned in the financial memorandum, on the electricity industry. There is at least a case for saying that we are spending too much on the railways and too little on the roads. I am not at all satisfied that within the various industries we are getting the best value for our money.

One suggestion for curing this is to throw some of the nationalised industries into the market. This was specifically suggested in the Herbert Report. We have broken down the electricity industry into generation and distribution. Is it not also possible to break down the amounts which might be demanded by the market at any time? I am bound to say that when the right hon. Member for Smethwick (Mr. Gordon Walker) says that the interest rates would be forced up by large demands in the markets, that is true. But this is also the purpose of the market. It means that if very large demands for capital are made upon the market, then interest rates will go up and those who can pay the highest rates will get the money. We cannot have the market and also expect to act as though it were itself a nationalised industry.

The question of the railways is different, though there must be some level at which the railways are profitable. But we have to face the argument—it is a powerful one—that if we are to expect industries to raise money without a guarantee in the market, they must be free of many of the restrictions which hamper them and they must have real control over their prices. I should be prepared to face that as far as the electricity and gas industries are concerned.

Mr. Arthur Palmer (Cleveland)

In that case, would the hon. Gentleman relieve the electricity boards of their present obligations to carry on rural electrification, even at a loss?

Mr. Grimond

Not necessarily. There may be certain aspects in which these industries require special subsidy or help. I am not convinced that it would not be possible to let them go to the market. But there is another possible improvement. I still feel that there is a very strong case for having something in the nature of an investment board which would relate the demands of these industries one to another and to the demands of private industry. It could then advise the Treasury and the House upon whether we were spending too much on the railways as against the roads or too much on the coal industry as against the electricity industry. If we are to run these nationalised industries, an investment board would be a very useful instrument for comparing one industry with another and advising it.

Mr. Nigel Birch (Flint, West)

Who would sit on the board?

Mr. Gordon Walker

Lord Cohen.

Mr. Grimond

Industrialists, financiers, economists and people connected with the nationalised industries. If there is a Capital Issues Committee, I do not follow why it should be difficult to find an investment board.

There is the further question, quite apart from who should provide the money, as to whether some of it should not be in the form of equity stock held, perhaps by the Exchequer. There seems to be a case for saying, "You should not saddle these industries with the obligation to pay a fixed rate of interest, whether they are profitable or not, for an indefinite time. It would at least be considered a heavy burden by private industry." Since the Labour Party propose to buy up ordinary shares in private industries. I should be interested to know whether they are proposing to finance the nationalised industries by the issue of ordinary shares?

Mr. Gordon Walker

To do that, one would have to denationalise the industries, and I am not in favour of that.

Mr. Grimond

Not at all, if the Treasury held the shares.

Mr. Gordon Walker

Does the hon. Gentleman mean that the Government could fix dividend rates arbitrarily—because they would be the one shareholder—and pay, say,¼per cent. to itself?

Mr. Grimond

If the industry made a profit and it accrued to the benefit of the taxpayer, it would certainly, be better than the present position.

But in any case, under its new policy, the Labour Party may well reach the position where it controls 60 per cent. or more of some private industry, if it sets out to buy its shares, and then the same situation will arise—it could control the dividend.

Mr. Ernest Davies

Is not the hon. Gentleman simply suggesting that if the State holds equity shares in nationalised industries, then the industries are used in order to raise revenue—almost for taxation purposes?

Mr. Grimond

I have already explained my reasoning. The structure of financing nationalised industries, on which money those industries pay heavy interest whether they make a profit or not, and, at the same time, are supposed to be semi-commercial concerns, is illogical. There is a case for examining these questions concerned with their present financing.

I hope that when the Budget proposals are brought forward they will be reasonably comprehensive because we have now tried various methods of financing nationalised industries. Even now, of course, the Bill applies only to certain nationalised industries. It does not apply to the coal industry, nor to the Atomic Energy Authority which is this year getting£100 million direct from the Treasury.

I hope that we shall have some really comprehensive proposals about the general running of the nationalised industries and that the Government will consider whether, in some form or other, at least the gas and electricity industries cannot be put into the market and made to raise their money, through the ordinary money market. If then we want to subsidise certain special aspects of their work it can be done clearly and directly and with the approval of Parliament.

4.52 p.m.

Mr. Gerald Nabarro (Kidderminster)

The debate which we had on this topic on 12th June, 1956, was characterised by the fact that most speakers from this side of the House were highly critical of what the then Chancellor, the present Prime Minister, proposed. It is true that the debate started at 4 o'clock in morning, ran till 6.30 that morning, and that the Government Whips exercised the most rigorous pressure to restrict speeches with the result that only three or four hon. Members had the opportunity to speak. The debate was inadequate and unsatisfactory, but it was important from the point of view that every speech made from this side of the House sternly criticised the method proposed in the Finance Bill of that year.

In the course of the present Prime Minister's reply to that debate, I raised the point whether we were not moving away from Conservative philosophy towards a system for all time whereby there would be Government financing at the centre of these State corporations, all of which has such a profound bearing upon the nation's economy, and notably, I think, upon trends to inflation in conditions of full employment. We were then told that the proposal was specifically for two years. In my opinion, this extension today is trifling.

I am told that out of the£700 million covered by Section 42 of the Finance Act, 1956, about£580 million—I hope that my hon. Friend will correct me if I am wrong—has actually been taken up so far. There is an amount of about£120 million remaining to be expended. As the whole of it will not be expended by 31st March, 1958, which is the statutory completion date, we are merely suggesting today a holding operation to defer the matter till August. I have no objection——

Mr. Ernest Davies

Those figures are given in the Financial and Explanatory Memorandum.

Mr. Nabarro

The hon. Gentleman blathered for about 40 minutes when he was making his speech, and he might allow me to make my modest contribution without interruption. I assure you. Mr. Deputy-Speaker, that my speech will be a great deal shorter than that of the hon. Gentleman, and a good deal more sensible.

Mr. Ernest Davies

On a point of order. Is "blather" a Parliamentary term. Mr. Deputy-Speaker.

Mr. Deputy-Speaker (Sir Charles Mac-Andrew)

I think it is a word that we had better not use, but it is all right.

Mr. Nabarro

I did not hear your Ruling. Mr. Deputy-Speaker.

Mr. Deputy-Speaker

I said that I think it is a word that we should not use, but that it is all right—it is in order.

Mr. Nabarro

The right hon. Member for Easington (Mr. Shinwell) introduced a doubtful word into our debate on one occasion. He referred to a "blatherskite". The two words are related to one another. However, if I have been un-parliamentary in my reference to what was a tedious speech by the hon. Gentleman, I apologise.

The plain fact is that we on this side of the House are, as I interpret the position, highly critical of any long-term continuation of centralised Governmental financing of these State corporations. I have never said that all of them should be driven on to the open money market. What I have said is that those sectors of the nationalised industries which are commercial and highly competitive in character should be given the opportunity to resort to the money market without Treasury guarantee, for such funds as they require. I think that that is what the hon. Member for Orkney and Shetland (Mr. Grimond) tended to infer. We have a very good——

Mr. Gordon Walker

On a point of order. I have just consulted page 474 of Erskine May, Mr. Deputy-Speaker, where it says that the word "blether" is out of order and is an un-parliamentary expression. Is there a distinction between "blather" and "blether"?

Mr. Deputy-Speaker

There certainly is in Scotland.

Mr. Nabarro

I am grateful, as always, Mr. Deputy-Speaker, for your continued support in the matter.

What I am saying is that certain sectors of the nationalised industries which are highly competitive and commercial in character should be induced to go to the money market without Treasury guarantee, for their capital requirements.

I will reduce the matter to the simplest possible example. What case is there for money being provided by the central Government to an area electricity board shop to put into its stock a television set for retail sale? Why should that television set be provided out of central Government money on a Treasury guarantee, at special preferential interest rates whereas the private enterprise trader down the street who is competing with the State shop, has to pay the full market rate for such capital as he requires in order to buy the identical television set? It is grossly unfair, and though reducing the matter to a very simple case it is the fact that large sums of money are tied up by the area boards in electrical appliances and equipment of that kind with the sale of which they should not be concerned.

I say to my hon. Friend that I am prepared—I think that many of my hon. Friends on this side of the House are prepared—to give the Bill a Second Reading as it is only a holding operation, but that I should be sternly opposed to a continuance of these methods of financing the nationalised boards. I want progress to be made in the direction suggested in the Herbert Report. The Herbert Committee was quite unequivocal about the matter. It said that the area electricity boards should go to the open money market for such capital as they require. Further, the Herbert Committee drew very careful attention to the fact that there was a considerable wastage of money by the electricity boards. The term used by the Committee was that their approach to the matter of costs was languid. That can only mean that money was being wasted.

The best means within a statutory monopoly of preventing that kind of waste is to induce the most highly commercial and competitive conditions the discipline for which only the money market can provide. I say, therefore, that such long-term proposals as my hon. Friend may propose in the forthcoming Finance Bill in April or May, or in an alternative Measure, should certainly apply to such nationalised industries as the Coal Board or the Transport Commission because I agree with the hon. Member for Enfield, East (Mr. Ernest Davies) that there is no question of the Transport Commission being sent to the money market for its capital requirements.

It should apply to the Coal Board, the Transport Commission and, possibly, some other nationalised boards, but, in my view, it should not apply to the area electricity or gas boards, the North of Scotland Hydro-Electric Board or to several other of the smaller nationalised industries which are highly commercial and competitive in character. We require them to operate on a reasonably prudent and economic basis and it is only possible to provide the necessary disciplinary sinews by driving them on to the money market and making them pay the normal market rate for such residual capital requirements as they may have from year to year, after provision of moneys from their own resources. That is exactly the recommendation made by the Herbert Committee and I believe that it should commend itself to the majority of Members of this House.

I support the Second Reading of the Bill only with the sternest warning to my hon. and learned Friend. I ask him to convey to his right hon. Friend the Chancellor of the Exchequer that if he comes forward in the Finance Bill with proposals for continuing massive investment in all the nationalised industries on a centralised Governmental basis as was contained in Section 42 of the Finance Act. 1956, I shall be forced strenuously to oppose those proposals.

5.1 p.m.

Mr. Arthur Palmer (Cleveland)

The Financial Secretary to the Treasury always makes a pleasant speech—I say this with respect to him, because he is a constituency neighbour of mine on Tees-side—but he did not tell us a great deal about the background to this matter. He did not tell us, for instance, whether there had been any consultations with the nationalised industries concerned about the future raising of their capital, how they would go about it and whether they felt that the suggested limited arrangement gives them the kind of certainty about the future which these important industries deserve.

I wish to take up shortly the point made by the hon. Member for Kidderminster (Mr. Nabarro). He has talked a great deal over a considerable period about the need to force the nationalised industries on to the money market. When we boil it all down, however, and look at the qualifications and exemptions that the hon. Member makes, it seems to come back simply to the gas and electricity industries, because the Coal Board always had the procedure of the Bill and the hon. Member knows that it is not possible to make a change there, at any rate.

Mr. Nabarro

There is a very good reason——

Mr. Palmer

The hon. Member is always in a hurry. I will give way presently. He also agreed with my hon. Friend the Member for Enfield, East (Mr. Ernest Davies) that we could not include the railways. Nuclear energy does not receive revenue anyhow, because it is not a commercial undertaking. It comes then, therefore, simply to gas and electricity and, if the hon. Member had to make a choice between gas and electricity, I am sure he would prefer that electricity should take the risk. To limit it further, does he have very much in mind beyond putting the area electricity boards on to the market? I would like him to say whether he is in favour of the Generating Board raising its capital in the market.

Mr. Nabarro

The answer is to be found in this simple fact. Only one independent committee of inquiry has been appointed to consider and has reported upon a nationalised industry other than coal. That was the Herbert Committee, in the case of electricity. The Herbert Committee recommended exactly what I said today—not that the Generating Board's capital requirements should be met from the open money market, but that those of the area boards should be, because they are highly commercial and competitive in character the one with another and with the gas industry.

Mr. Palmer

Just as I said, when we examine all this agitation we find that there is not much in it. It all adds up to the area electricity boards. Also I should have thought that the hon. Member for Kidderminster, more than anyone else in the House, was quite capable of making up his mind. It is true that he usually makes it up in the wrong way, but I am certain he is capable of making it up. That he now turns to the Herbert Committee and says that it must be right because that Committee says so, does not do any justice to the hon. Member's considerable intelligence.

I am interested to discover that the hon. Member leaves out the Generating Board, which is an enormous user of national capital. There is experience in this matter with the electricity supply industry in the past, because the old Central Electricity Board, created under the 1926 Act, had a Treasury guarantee for its capital. That board, however, which constructed the electricity grid and was an early publicly-owned undertaking, made no use of its Treasury guarantee and raised its money without it. But there has never been evidence to those who have studied electricity finance and costs to show that the old Central Electricity Board was any more efficient or outstandingly economical in the use of capital as compared with its successors simply because it happened to raise its money without a Treasury guarantee.

Some of my hon. and right hon. Friends may disagree with this observation: I speak not as a financial expert but merely as an engineer and productive worker. Electricity seems to be the main culprit in all this, but it is doubtful whether in practice raising independent capital would make any real difference. It is, after all a publicly-owned undertaking, a statutory monopoly. It is a fairly safe and certain investment and I should have thought that the interest rates would have been very little different with or without public support. Some of my hon. Friends may disagree with my conclusion, but if that be the case there is no point in hon. Members opposite making such a song and dance about the business generally.

Conservative Members of Parliament who interest themselves in this question and who try to follow, as do some of us on this side, the affairs of the publicly-owned industries must try to make up their minds exactly where they stand. They must try to decide whether they regard these undertakings as publicly-owned commercial undertakings or as public services. I unhesitatingly say that I personally regard them as public services in principle. However, too many hon. Members opposite try to ride two horses at the same time. They want, up to a point, in theory at least, the nationalised industries to go on to the money market so that they can be subject to so-called financial discipline; they want the true commercial costs of these industries always to be known. But at the same time, they demand that there should be a Select Committee and greater Parliamentary control generally. I do not disagree with that view because I regard a nationalised industry as a public service and there is a strong case for making a public service responsible in part at least to this House. Hon. Members opposite want price checks when it suits their political convenience; they usually demand that there should be greater opportunities for Parliamentary questioning. The two approaches do not go together, I am afraid.

Before we discuss this matter again and, perhaps, decide it for a long time ahead, hon. Members opposite should make up their minds whether these industries should be true commercial undertakings away from this House altogether or whether they should be subject to Parliamentary control and Parliamentary checks of one kind or another. Certainly, in logic, they should not try to have it both ways.

5.8 p.m.

Mr. Nigel Birch (Flint, West)

The Bill does not directly raise the question of whether it is right for nationalised industries to borrow on their own credit. If the Bill is not passed, all that would happen would be that we should go back to the old system under which nationalised industries borrowed under their own names but with a Government guarantee. In effect, the money comes out of Government pockets anyway, but the object of the change by my right hon. Friend the Prime Minister two years ago was simply to take the money out of a rather more convenient pocket.

It is really a small matter at issue in the Bill. I do not want to discuss the larger question. I wish only to draw the attention of the House to one point which is of importance. That is, the tremendous burden which the financing of nationalised industries puts upon the country, a burden in taxation and a burden in the greater difficulty of controlling our economy. This point was largely missed in all the long debates we had on nationalisation in the Parliament of 1945 to 1950. We on this side of the House raised many objections to nationalisation and every one proved valid. We did not, however, put forward the following criticism, which is an important one.

By and large private industry is self-financing. It saves money, it makes profits in competition, and if it goes to the market, it does so on its own credit and it does not get the money unless that credit is sufficient. I do not believe anybody knows how efficient or inefficient the nationalised industries are. I believe we are in the grip of a number of irresponsible monopolies and, owing to the way this has come about, every year some hundreds of millions of pounds of fixed interest-bearing securities have to be raised, and are issued, on behalf of the nationalised industries.

It is difficult to get anybody to buy them because nobody wants to buy long-dated Government securities in these vast quantities. Therefore, the Treasury is driven to having a very large above-the-line surplus in order to raise this capital out of revenue. In order not to cause inflation, and in so far as these amounts are not covered by revenue, they are bound to try to sell the stock, and if they cannot sell it, as has often been impossible in the past, the money must be raised by Treasury bills, and the selling of Treasury bills makes the control of the monetary system twice as difficult.

Therefore I hope that when the next General Election conies along, and hon. Gentlemen opposite are pledged to a vast new quantity of nationalisation and the raising of many thousands of millions of pounds for rented houses, steel, transport and a thousand other things, the country will realise that if by some supreme misfortune they got into power, and if they carried out those plans, we should be in for a very large increase in taxation and a monetary system which would be totally impossible to operate.

5.14 p.m.

Mr. John Diamond (Gloucester)

I doubt, Sir, whether you would permit me to answer in full the speech of the right hon. Gentleman the Member for Flint, West (Mr. Birch) by explaining in detail the manner in which the Labour Party proposes to finance its proposals after the next Election. The speech of the right hon. Gentleman was undoubtedly a valuable contribution, inasmuch as it centred attention on the main point of this Bill, and especially on the approach of right hon. and hon. Gentlemen opposite to the nationalised industries.

The debate is concerned with a small point, but his approach is the general one, that of hostility to nationalised industries, as great today as it ever was. The right hon. Gentleman said that during the course of the 1945 to 1950 Parliament, during which I had the honour to be a Member of this House, hundreds of criticisms were raised and all had proved to be valid. This drew cheers from the hon. Member for Kidderminster (Mr. Nabarro) and others sitting on the benches opposite. These are not reasons relating to the short point in this Bill; these are rationalisations for the opposition to the nationalised industries.

I take an entirely different point of view from hon. Gentlemen opposite. I envisage those nationalised industries mentioned in Section 42 of the Finance Act, 1956, as industries which have responsibilities that it would be pointless to try to catalogue. They have many responsibilities, however, which are outside the normal commercial field, and with responsibilities go rights. Because they have certain responsibilities, they should have certain rights to balance, and this is a perfectly feasible financial proposition. I cannot see why there should be the assumption, which is the one behind this Bill, that what is right for General Motors is right for the nation, and what is right for the money market is right for the nationalised industries. What is right for the money market may be, and is, indeed, today, a wholly artificial concept.

The fact that we want to attract dollars or Swiss currency to this country has nothing whatever to do with the deployment of resources in the nationalised industries, for which purpose funds are required. It is wholly artificial, because of the raising of the Bank Rate and the automatic raising of the money market rates, that for these foreign purposes there should be put a special burden on the nationalised industries which, as I say, have specified responsibilities which we on this side of the House would want to support.

I was sorry to hear my right hon. Friend start his speech by saying we were not proposing to divide on the Second Reading of this Bill, because it was limited to a short period. Inasmuch as this Bill only extends the period to August, and inasmuch as we have had a leakage from the Front Bench that the Budget speech will contain different proposals, it is clear that from August onwards the nationalised industries will not necessarily be able to look to the Treasury for their finance.

If I am wrong, no doubt the hon. and learned Gentleman will tell us when he replies to the debate. I suppose, however, that my right hon. Friend was justified, because the Opposition have shown themselves, as always, true democrats in this matter. They are only proposing to extend this Bill until the date of the next General Election, and they do not wish to implicate a subsequent Government in what they are doing. In those circumstances I, too, would not wish to divide the House.

5.18 p.m.

Mr. William Shepherd (Cheadle)

I do not want to detain the House more than a few minutes and I would not have intervened but for some aspects of the speeches made by my hon. Friends, particularly the hon. Members for Sheffield. Heeley (Sir P. Roberts) and Kidderminster (Mr. Nabarro). They displayed a faith which is touching, but which my cynicism cannot possibly accept. If I really believed that the discipline of the money market could stimulate the State-run enterprises to function in a manner like that of a private enterprise. I would be with them, but my faith is not as great as that.

I believe that private enterprise has certain characteristics which cannot be artificially stimulated, and that this attempt by our party and by the party opposite to get the best of both worlds has failed abysmally. I agree that we shall have to make up our minds in the next five years or so on what we are going to do with the nationalised industries. I do not now want to go into the broad issues, although I agree with the hon. Member for Orkney and Shetland (Mr. Grimond) that they are not sufficiently dealt with in debate in this House.

I do not imagine for a moment that if one subjected these organisations to the discipline of the money market", as it is called, they would be in any way more efficient or less efficient than they are now. All that would happen would be that they would have increases in their costs, and that would in a sense be more inflationary than the present system. Unless one were absolutely certain that the exercise of the discipline of the money market was sufficient to cause them to be more efficient, to take away the Treasury guarantee would merely mean an addition to their potential costs. Because of the structure and nature of nationalised industries, I do not believe that one can cause them to act like private enterprise organisations. Yet my hon. Friends take the view that they can. My hon. Friends have much more faith in nationalisation that I have.

The second point is to determine what is the least inflationary way of supplying the required capital. That is a most important matter to all of us. My hon. Friend the Member for Heeley said that we ought not to supply it out of revenue, but should obtain it on the open market. I am not sure that that is right. If there were an easy supply of capital funds, I would agree with him, but if one raises the money through the market it means that it has to come, in the main, out of past savings in some form or another. If one says, "We will reduce taxation", that in itself is agreeable, but if one reduced taxation it would be unlikely that more than 25 per cent. of it would be available for investment. I imagine that 75 per cent. would go into consumption.

Consequently, the method proposed by my hon. Friend, instead of being less inflationary, is much more violently inflationary than the present system. As my right hon. Friend the Member for Flint, West pointed out, the present system imposes an enormous burden on the Exchequer, a burden that we have all looked at with some distaste, but, disagreeable as it is, it is in essence, in so far as it is covered by revenue, less inflationary than the method proposed by my hon. Friend the Member for Heeley.

Sir P. Roberts

It seems to me that my hon Friend the Member for Cheadle (Mr. Shepherd) thinks that savings, either private or public, can be controlled by the Government of the day. I do not believe that that is so. There is an enormous amount of private saving going on all the time. All I am saying is that if one tries to use taxation as a method of public saving, whatever that may be, that in itself is inflationary. I would much rather reduce taxation and allow the savings to come out of the private sector. It should not come out of current revenue.

Mr. Shepherd

If an adequate supply of savings and capital were available, what my hon. Friend said would without doubt be the proper course to take; but that is not the situation. Even with savings at their present high level there is a shortage of capital. In those circumstances—it is no good our talking about the ideal circumstances that we should like to see existing—the method suggested by my hon. Friend would be more inflationary than the present system.

The present financing of the nationalised industries is a terrible burden upon the whole community. It must be wrong. It is wrong because both parties have tried in one direction and another to make party politics out of these industries. In consequence, the industries are not recovering the amount of their capital which they could. There is no reason why they should not be allowed to recover half or two-thirds of their capital requirements. Yet for purely political reasons they have not been allowed to do so. I cannot go into the matter, but this has had a harmful effect on other aspects of our economy.

My hon. Friend should tell the Chancellor that we must turn away from the hopeless task of finding£500 million a year out of taxation to a policy of allowing and encouraging the nationalised industries to recover half or two-thirds of their capital requirements from their own earnings.

Mr. Douglas Jay (Battersea, North)

Surely the hon. Member means that the nationalised industries have been compelled to charge for their products lower prices than they should have done.

Mr. Shepherd

I have no doubt whatever that the price policy which has been forced upon the nationalised industries has had the effect of damaging the economy. I am satisfied that had a more genuine economic policy been applied to their prices there would not be some of the disadvantages that we see today. I have no hesitation in saying that I am prepared to see increases in the prices of nationalised products to enable the nationalised industries to recover a much larger share of their capital requirements from their own earnings. I hope that that is the line which my hon. Friend will take with the Chancellor.

5.27 p.m.

Viscount Hinchingbrooke (Dorset, South)

I support my hon. Friend the Member for Sheffield, Heeley (Sir P. Roberts) in his plea that long-term State assets should not be created out of taxation. Whether it is an inflationary or a deflationary process, this is a matter turning on a very complex series of different circumstances, including whether it is funded debt or unfunded debt, whether it comes out of Treasury bills, what the public would do with the money which would be remitted to it if the Budget were balanced instead of being unbalanced, and so on.

I do not care to take issue on the matter with my hon. Friend the Member for Cheadle (Mr. Shepherd), but it seems to me to be an unwise policy for the simple reason that it is forcing people to take a different view of what the State does compared with what private enterprise does. In the normal way, everyone expects long-term assets to be borrowed by private enterprise out of loans or share issues on the market, and they do not expect to see, except to a small extent—it varies, of course, from company to company, the oil companies being the extreme—long-term assets financed out of current profits. Therefore, I think we should have a very much better recognition on the part of the public of the fairness and efficiency with which the nationalised industries were being conducted if we ceased to finance them out of budgetary savings, and I hope that in the end the Government will turn to that view and follow that policy.

I support the hon. Member for Orkney and Shetland (Mr. Grimond) in what he said about the capital expenditure programme and our consistent failure to debate it in the House. Year after year since the war there has undoubtedly been a capital expenditure programme. It was at first denied by Treasury Ministers; I think they were members of the Labour Government. Then my hon. Friend the Parliamentary Secretary to the Ministry of Education, who was at that time the Economic Secretary, admitted that there was a capital investment programme; but we never had it debated.

We cannot debate it on the Budget; on the Budget we can talk about taxation only and not Supply, and we can never talk about it on Supply because Supply is directed on a party basis into one channel or another according to the subject put down by the Opposition. Unless the Opposition ask for a debate on the capital investment programme and the financing of the nationalised industries, and what proportion the Treasury decides to put into one industry and another, we shall never get the subject debated in the House. I hope that that action will soon be taken.

I agreed very much with what my hon. Friend the Member for Kidderminster (Mr. Nabarro) said. He and I did battle together at 5.30 in the morning a year and a half ago. I am in broad sympathy with his views, but he has to face the ultimate position with all nationalised industries. Today, he seemed rather to qualify his position and to say that it was appropriate to send some nationalised industries to the money market while others should retain below the line balances.

To do that would impose a frightful discrimination and partiality between one nationalised industry and another, because what remains below the line can obviously attract a Treasury guarantee and is altogether a cheaper enterprise to finance, whereas an industry which goes to the market has to fight against the rough winds of current weather for the money which it wants. Ultimately, we must develop a policy which will send all the nationalised industries to the market at the same time.

The difficulty about the railways was mentioned. In present circumstances, where the railways are losing millions of pounds a year and are quite unprofitable, it is very difficult to see how they could be sent to the market and put into a credit-worthy position. I have held the view for some time that a drastic reorganisation of the railways—with which I cannot now deal in great detail—ought to take place. Broadly speaking, it would be that the transport stock would be taken over by the Treasury and brought into the Consolidated Fund, with the name changed, while at the same time the physical asset of the permanent way would be taken over. After that, it would immediately become interesting to send the regional boards to the market for sufficient finance for capital improvement schemes, as they would immediately become credit-worthy on their current earnings and would probably be able to get very large sums on the market at a premium.

I support the Bill not so much because of its intrinsic merit or demerit, but because of the signs and portents which surround it. We should support it because of the apparent success of the Government's deflationary policy, signs of which the Bill contains. If the Government had said today that the money and not the time had run out, one would have concluded that they had had no success in curtailing the activities of the nationalised industries as they must be curtailed if those industries are to make their contribution to the deflationary policy. However, the Government have said that it is the time that has run out and not the money and that is evidence of success.

What my hon. and learned Friend said just now makes it fairly clear that we must expect a fairly tremendous piece of news in the Budget. Obviously, the Government are not trying to arrange things so that they arrive at next autumn without a policy and only allow the thing to dribble away until we are in the position in which we were before. They must have something in mind, something which will be announced in the Budget, which will be tantamount to a new savings policy which will enable the nationalised industries to go to the market and be supplied with savings when the time comes at the end of August.

I wonder whether today's news in the Daily Express and the Daily Telegraph about the new savings policy for the nation is not part and parcel of what will be revealed in the Budget. My hon. Friends and I have for long been asking for the mobilisation of the savings of the prosperous working class—and, thank goodness, it is prosperous—directly into the market, or in some way into the provision of capital for industry, both nationalised and private enterprise.

I rejoice to think that we may be on the verge of an announcement of that kind. It did not at all surprise me that the right hon. Member for Smethwick (Mr. Gordon Walker) was so acid this afternoon. Of course, the Socialist Party is absolutely terrified of seeing finance being provided direct from the working classes into private industry, because that will make the realisation of a nationalisation policy very much more difficult.

The working man will say, Why should I vote for Mr. Gaitskell and his friends"—[HON. MEMBERS: Order."] I am quoting what the working man will say—"—who wish to take away my shareholding in iron and steel and in various other commodities and services, which are a very happy source of income to me? We are grateful to the Tory Government for having introduced a savings policy which puts me into the position of being a capitalist and an investor in my country's future."

.5.37 p.m.

Mr. Simon

By leave of the House, I hope that I may be permitted briefly to reply to the debate. It has been an interesting debate which has ranged widely, as is quite permissible, from the very short point contained in the Bill. The main issue has been whether the nationalised industries should be financed by going to the market and raising their capital on their own credit, without Treasury guarantee.

My hon. Friend the Member for Sheffield, Heeley (Sir P. Roberts) raised the question of financing expenditure above and below the line in the Budget. In spite of all his blandishments, I regret that I cannot reply to that part of the debate. To do so would obviously prejudge what my right hon. Friend will have to say in due course. If the hon. Member for Orkney and Shetland (Mr. Grimond) will forgive me, I do not propose either to deal with that archetypal image, the investment board, which arises in the Liberal Yellow Book. This is not a suitable opportunity to discuss that.

Mr. Grimond

I suggest that the hon. and learned Gentleman will read it with profit, nevertheless.

Mr. Simon

I read it long ago, in my youth, and it is barely remembered now.

As my right hon. Friend the Member for Flint, West (Mr. Birch) pointed out, in a most remarkable and interesting speech, this is a very narrow issue. When I moved the Second Reading, I was asked whether, if the system of Exchequer financing which is continued by the Bill were to lapse the former system would still be available. I said that I thought it would be and that is quite right. If the system which was introduced in Section 42 of the Finance Act, 1956, and which by this Bill is continued until the end of August, were to lapse, the powers that were formerly used—in other words, those under which the nationalised industries borrowed from the banks for their day-to-day needs, piling up quite big bank overdrafts and then coming to the market at inconvenient times with Treasury guarantees—would he revived.

Mr. Palmer

They would presumably derive those powers through their own Acts of Parliament.

Mr. Simon

That is so.

That was an inconvenient system. I am asked whether the present system has worked better, and the answer is that it has. The hon. Member also asked about the effect upon bank overdrafts. They have been substantially reduced under the new system, and that has made an important contribution to the general disinflationary policy of the Government. To go back to the former system, whereby the banks are called upon to snake large new advances to the nationalised industries, would in no way fit in with the policy announced by my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) on 19th September last.

I must make it quite clear that when I used the word "review" I was not implying in any sense that the system which my right hon. Friend was going to introduce in the Budget and Finance Bill was the present system, the former system, or a third system. It was a completely neutral term. What I said was, "It should be considered in its proper context; in other words, the context of the general review of the Government's economic policy in the Budget." The right hon. Member for Smethwick (Mr. Gordon Walker) seemed to find something sinister in that remark some of my hon. Friends seemed to find something exhilarating in it, and my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) found some signs and portents surrounding it. I must disclaim all that; it was a completely neutral term. As my hon. Friend the Member for Kidderminster (Mr. Nabarro) said, it is simply a holding operation, so that my right hon. Friend the Chancellor can unfold his plans in the proper context.

The right hon. Member for Smethwick even found something sinister in the word "August" appearing in the Bill. The word "blather" had been pronounced upon by you, Mr. Deputy-Speaker, in the debate, but to find anything sinister in the word August "seems to be carrying the Othello complex, which animates hon. Members opposite, to quite inordinate lengths. The reason why August was chosen is that it is a convenient time, when the Finance Bill will have been passed; and the funds remaining available, totalling about£120 million, are expected to last to that date.

This is a narrow point. We seek to continue the present system until after the House is able to deal with the matter on a long-term basis in the Finance Bill.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Willis.]

Committee Tomorrow.