§ 3.41 p.m.
§ Mr. John H. Osborn (Sheffield, Hallam)
I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:this House, aware of the need to encourage well directed capital investment in industry, particularly investment in new plant and machinery to improve productivity, and thus industry's power to compete in foreign markets and raise the material standards of our people, welcomes the Government's support for scientific and technological research and development, and their practical application in industry, as an essential prerequisite for effective capital investment.Annually, at this time of year, the House goes into Committee to discuss Supply and, in particular, Civil Estimates. We have to bear in mind that national expenditure has risen. There is a demand, in the House and from outside, that this expenditure should be examined.
In moving this Amendment today, it is my wish that the House should consider the quality of capital expenditure —science, technology and its application, both as regards capital investment and investment in the real wealth of this country—investment in our productive processes. This is the challenge of this decade, the 1960s.
In introducing the Amendment, my remarks are to pose and highlight the current technological problems which face us. I hope that my Amendment will lead to a constructive debate and that party differences will not be exaggerated. I hope that it will provide an opportunity for the Government to gain the views of the House and of the country.
38 It is opportune to raise this issue at this time, because it is our aim to increase prosperity and to implement the Conservative pledge of 1955 to doubt the country's standard of living in twenty-five years. Real wealth is achieved by the application of science and technology, resulting in greater productivity and efficiency in manufacture and distribution throughout the country. Our exports must continue to be competitive. This is essential if our standard of living in Great Britain is to rise and if we are to enjoy more leisure.
I wish to draw the attention of the House this afternoon to six major points. First, I wish to emphasise the extent to which the challenge of the 1960s is technological and scientific. The phrase, "The winds of change" has been used by my right hon. Friend the Prime Minister in South Africa to describe the spread of nationalism. The same phrase was used recently near my constituency, in Sheffield, by my noble Friend the Minister for Science when he described the wind of nationalism asno more than a minor eddy in a great draught of technical and technological progress".It is a great mistake to imagine that science and technology will not affect us. In recent years there has been talk of the under-developed countries. Technologically, this country is underdeveloped; in fact, technologically there is no over-developed country in the world.
I am particularly grateful to my right hon. Friend the Member for Birmingham, Hall Green (Mr. Aubrey Jones) for some articles which have appeared in the Sunday Times. He emphasised that this country's notion of scientific achievement is essentially linked with a breakthrough of knowledge, perhaps the addition to understanding, and that it is the product of intuition and perhaps of painstaking research in our laboratories.
The Soviet successes are due mainly to the speed of transition from laboratory to production. The photo-emulsion technique used in photographing the moon, for instance, was developed quickly for that purpose. The other advantage of the Soviet Union is the lavish scale of its research. I wish to refer to its attitude to automation and control engineering. If Russia wants a pilot plant to carry out research, a whole factory is 39 put down for this investigation and knowledge and practical experience of automation and the automatic factory, are thereby gained. At the same time, I would acknowledge the enthusiasm of the United States of America and the technological progress which has been going on there during the last few decades.
However, we must accept certain factors. Many technological advances are essentially as the results of defence and war. The Schneider Trophy may have accelerated the birth of the jet engine, but it was war which completed its development. This country faces, on the one hand, the problem of the practical application of science and technology. We must bear in mind that Russia directs its researches to a useful end through its Academy of Sciences. On the other hand, we are faced with the problem of preserving the freedom in our research associations and universities to pursue knowledge for its own sake.
In this country we have no wish to muzzel scientists. Scientific development in a democracy is essentially spread over a wide field. It can be extravagant. It can be lavish. Frequently, when research is initiated, the results cannot be visualised. Who would have thought, in the days of Rutherford and Bohr, that we would ever harness the atom? Atomic physics began many years ago. During the early developments of radar the cost was considered to be out of this world for normal commercial use. Now, every aircraft has radar equipment and most airports are equipped with radar. There has been much discussion about the possibility of space research. The full advantages and results of space research are known, and already we have learned their possibilities of observing weather and providing a better means of communication from one side of the earth to the other.
My second major point is to compare the standard of living and its relationship to capital investment in this country with that for the rest of the world. It is difficult to get exact comparisons of standards of living—there are many indices involving growth of national products—but it is reasonable to say that the present standard in the United States of America is from two or two and a half 40 times that of ours, and Canada, Australia and Sweden all enjoy a higher standard than we do.
Assessment of productivity has been difficulty. We had productivity reports many years ago, but it is reasonable to say that output per worker in the United States is now double that of the British worker. One obtains interesting figures when one compares the horse-power per worker in, say, the United States with that in this country. Some years ago, the American worker had at his elbow three times the horse-power that the worker here could command. Electrical generating capacity also provides some interesting comparisons. In the United States of America, the capacity is 700,000 million kVA; in the U.S.S.R. it is 233,000 million; and in this country it is 113,000 million. That means that, per head of population, the power available in the United States is double that in Great Britain, and ours is double that in Russia.
Another factor that should be considered is the proportion of fixed investment to the gross national product. In recent years, Germany, Holland and Italy have invested approximately 25 per cent. in capital investment, but that has been essential to repair war damage and other effects of war Recently, the United Kingdom and the U.S.A. have invested 17 per cent. of their gross national product in capital, but there has been a drop here in the last year.
It is, perhaps, also opportune to compare the scale of capital formation in Britain. In the public sector, this amounts to about £750 million, and we have been told in a White Paper that £500 million has been recently invested in the coal, electricity and gas industries. By comparison, investment in the private sector has been £1,711 million. The real all-in total is approximately £3,600 million.
Some of my hon. Friends feel strongly that expenditure in the public sector may be too large, and that more should be transferred to the private sector of industry, but it is useful at this stage to examine the pattern of capital formation in the private sector. My right hon. Friend the Chancellor of the Exchequer, in his Budget statement, predicted, in spite of the overall downturn of 1959, but with a slight increase in the last quarter, an increase in capital investment of 14 per cent. this year.
41 Many people have asked me to find out which industries are spending that money. From a recent survey it would seem that the metal and steel industries are spending that money, and that the car industry is also spending it. It also so happens that it is the large industries that are spending money on capital investment, and not the smaller firms. Many associations representing the smaller industries have written to me because they are concerned at the lack of encouragement given to them by the Government and, particularly, by the Finance Bill—though that is outside the scope of this debate today.
Plant and engineering firms, those engaged in heavy engineering construction, are still concerned because they are working below capacity and facing diminishing order books, and some of the firms supplying the material basic to those industries are also worried because their order books have diminished over four years—
§ Mr. Roy Jenkins (Birmingham, Stechford)
When the hon. Member speaks of small industries, does he really mean small industries, or does he mean industries dominated by small firms?
§ Mr. Osborn
Small firms, yes.
I should like particularly to bring these matters to the notice of my right hon. Friend the President of the Board of Trade, although he is probably already aware that that is the case.
A third factor that I wish to examine is the rôle of Government in relation, first, to capital formation and, secondly, to research and development: how much is the responsibility of the nation and Government, and how much should be left to private enterprise? This is the dilemma facing any nation, whether it is the United Kingdom, the United States of America or any modern democracy. I think that the answer to the problem is to improve the quality of investment and to eliminate waste. In the private sector, the forces of competition—the price mechanism—tend to look after this point but, unfortunately, the criterion of profitability is missing in the public sector, and an alternative must be found. 42 This afternoon, therefore, I want to concentrate on quality of investment.
We have recently had White Papers on research and development, from which we learn that about £300 million has been spent in a year by private industry on research and development, but two-thirds of that has been as a result of defence contracts, and I submit that this is far too high a figure for any nation.
Government expenditure on research on the civil side amounted to about £38 million, of which £12 million has been spent by the D.S.I.R. On the defence side, there has been an expenditure of about £204 million, making a total of £242 million. Of the nationalised industries, the electricity industry has spent £1.3 million; gas, £1.5 million; and coal £2.5 million. In a recent debate I suggested to my right hon. Friend the Minister of Power that, bearing in mind the problems involved in the complete gasification of coal, the sum of £2.5 million might not be enough.
Here I should like to refer to the 1958 Report of the Department of Scientific and Industrial Research, which states:The need for increased research and for the application of its results is never more clearly apparent than in times like the present, when industrial development must proceed apace if this country is to maintain its competitive position in world markets.The Report goes on to say:We consider that the present expenditure of the Department is small in relation to the importance of its work …We must appreciate that those firms in the private sector that have embarked on extensive research and development programmes have progressed; they are, in fact, the "blue chips"—the successful companies. On the other hand, many of us have been asked by research directors and scientists in some industries whether the leaders in industry are conscious of the need for technological development, and whether those industries themselves contribute enough to research. In some instances, the contributions may amount to less than 1 per cent. of turnover, but, on the other hand, they ask whether the State is providing enough encouragement.
In the latter case, one should stress the importance of the work of the D.S.I.R. It has done much work in the formation of research associations, in 43 the hope that, in the course of time, the industries concerned will appreciate their value. In my own area, I can quote the example of the research association of the cutlery Manufacturers. The D.S.I.R. has for ten years made a grant amounting to 10s. in the £. After a time, it is the Department's custom to reduce the grant, but that association is now well developed and vigorous, and expects to make up the balance from its own resources.
It is not inopportune, perhaps, to refer at this stage to the machine tool industry. The scope for technological development in that industry is huge, and those in charge realise that. The potentialities of automation, electronics and hydraulics have already been recognised. The industry has noted the Melmen Report and the D.S.I.R. Report. Many individual firms are aware of the challenge, and of the opportunities that lie ahead, and are taking steps to develop their design and research resources. The D.S.I.R. has stated its readiness to consider proposals to support research and development on whatever scale is likely to lead to results of value to the nation as a whole, and that statement would apply to the machine tool industry.
In this section, I believe that the rôle of the Government is widespread. Hon. Members are aware that it was through the National Research and Development Corporation that the Hovercraft was sponsored—and the House will welcome the news that that machine will now travel at 60 miles an hour. Other developments are on a scale so vast that they will have to be sponsored by the Government, as both sides of the House will probably agree. Atomic energy is one example, supersonic flight may well be another, and space research—about which a Question was asked this afternoon—may be a third.
A fourth factor that I wish to bring to the attention of the House is the risk of capital development, particularly for the smaller private firms; but they have to take a risk at some stage in their development if they are to survive. I have had the opportunity of meeting the managements of many of them—managements that have had to take difficult decisions as a matter of their own judgment. If they are operating an 44 old process, producing a product of which the quality is known, and producing it, perhaps, with old equipment and low overheads, they may be reluctant to take a risk. It must be appreciated that risks have to be taken in private industry, and that failure may result in bankruptcy.
Many small firms have limited capital resources. My own experience has been with a small company, but with a larger group behind it. I have had the responsibility of assessing markets. Some projects in the private sector may take five or six years to develop, and one does not know whether the product has a market or not. It means laying down a factory, and having to estimate the break-even point. When the factory is up, one has months of operating below full volume, and incurring operating losses which, unless a firm has adequate capital resources, mean that it will face a very difficult time. It is that risk that makes the industrial associations supporting the smaller firms call for more Government encouragement.
A fifth and very important point is the quality of investment, because it is quality that counts. Quality of investment is more important than the expenditure of the money itself. We should consider the relationship between technology capital investment and productivity. Today, there are exciting developments relating to new techniques going on throughout industry. One instance is the heavy forge and press industry, in which many firms in my area are engaged. A good example of development in that industry is the production of boiler drums for the new and larger power stations. Hitherto, the drums have been made in forges and presses, but the new power stations demand such vast boiler drums that it would be almost impossible to erect a forge capable of making them. The solution has come from another industry; the welding industry has stepped in.
In the steel industry a new process, of which we have heard particularly in the last few days, is that of continuous casting. That process has been operated on the non-ferrous side for many years, but the challenge has been in the continuous casting of steel. Many firms have tried this principle. For the information of hon. Members, I would mention that the 45 basic principle of steel making is to melt steel in a furnace, cast it into an ingot, put the ingot into a soaking pit and reduce it to a reasonable size for finish-rolling in a cogging mill, which is an expensive piece of capital equipment.
The alternative is the continuous casting plant, which involves pouring steel through a water-cooled jacket and extracting that steel in the appropriate size for finish-rolling; it may be 4 in. square or some other convenient shape. The main point, so far as we are concerned, is that the capital cost of a continuous casting plant could well be one-third to one-fifth of the cost of an equivalent cogging mill.
This illustrates the lessons which are learned in many other industries. First, we should acknowledge the work of research associations which have been assisted financially by D.S.I.R. We should acknowledge another factor, that the only country which is operating this process more effectively than we are is the Soviet Union, and her main advantage has been the scale of the operations in that country. Russian scientists have been in this country and have said that it is easier continuously to cast large sections of steel than the smaller sections, which we have been trying to handle in our own continuous casting plants on a pilot scale. The consequence of this is most interesting. Continuous casting could be the method most suitable for the smaller works. To make a product, the large works as we know it now may not be as necessary in ten years' time as is the case now.
I should also like to refer to other developments sponsored and added by the research organisations. For instance, there is oxygen injection for steel melting. In a furnace it is possible to raise capacity by from 30 to 50 per cent. by the injection of oxygen. That has faced some steel firms with surplus melting capacity and not enough rolling mill capacity with which to process that steel. It so happens that continuous casting provides a reasonable alternative, and this is already happening in this country, in the United States of America and in Russia.
Another process which is of interest is extrusion, which has been developed by our research associations and companies. It is another means by which 46 one gets a finished product for less capital expenditure, provided that this process is properly developed for the use by the firms which might wish to apply it.
The House should also be aware of some of the advances in automation, particularly as regards forges and rolling mills. In Sheffield, in the research department there, there is now an automatic electronically-controlled manipulator for forging which could revolutionise forging as an industry. Already, techniques are being applied to the automatic programming and manipulation of our rolling mills, thereby eliminating much of the essential labour.
One other point that I would mention in this field is the whole revolution which is taking place in engineering itself. An engineering assembly, whether it be a car engine or a pump, is essentially an assembly of small components which can be made by a variety of methods. The old basic method was to machine that component out of the solid or perhaps from a rough casting or forging. This involved costly machining operations. The use of a machine in a machine shop involves vast capital equipment. The new technological approach is to remove and reduce those machining operations if possible, and to use more accurate casting, sintering, forging and fabricating processes. The result is that to make an end-product there is no need to invest in a complete machine shop, with the result that it is possible to make the end-product with less capital outlay. New techniques therefore lead to great advances in productivity and greater efficiency for less capital investment.
From my own experience, I would say that British industry has been more ingenious in applying these new techniques than have many of our competitors. We should be proud of the ingenuity of many of our technicians. I would say, therefore, that in the light of these new developments, the comparison of statistics as applied to ourselves and to other countries can be most misleading, because it is the nature and the quality of capital investment which is so vital in the future.
I should like hon. Members also to consider the impact of the application of these modern techniques on industry and people. In industry, there are two contrary trends. One is that of mechanisation and automation, which, of necessity, 47 would increase capital investment. The other is of new processes, techniques and designs which will reduce the capital investment necessary to make a given end product. But, whatever the outcome, it is the view of many people that it will make it possible to manufacture our own products in smaller factories; it will make works management easier; it will make ordinary industrial problems of communication easier, and there is more than a possibility that it will enable smaller units to return to their own.
At the same time, new technologies have their effect on people, such as workers in our factories, because they enable them to carry out simpler and cleaner operations and to work in cleaner factories. My own experience has been in the foundry industry, and I would say that new processes have made it possible for the foundry industry to become much cleaner.
In moving this Amendment, I have tried to cover various points. I have tried to outline the nature of the scientific and technological challenge in the next decade. I have tried to relate that to the standard of living, to capital formation, and to compare the figures of this country with those of other countries. I have tried to outline and define the rôle of the Government and private industry with regard both to capital investment and to research and development in a modern capitalist economy. I have emphasised some of the risks of capital investment, particularly so far as they affect smaller firms. I have tried to illustrate the technological change particularly in its relationship to the quality of capital investment. Finally, I have indicated its effect on the people in our industries and cities.
The purpose of this Amendment is to draw attention to the problem of capital investment and the quality of capital investment in the hope that this will lead to a constructive debate. I accept that in debating Supply it is the aim, and rightly so, to control and examine expenditure particularly in the public sector, but I feel—and I hope that other hon. Members will feel—that capital investment is essential for our future prosperity. Its need is accepted in the public sector. I would ask for greater encouragement for capital investment in the private 48 sector in years to come. I would emphasise the need for examining the quality of capital investment and for encouraging technological research in industry so that we can develop those processes to bring about future prosperity, for it is in developing the application of these processes that our future lies.
I would draw attention to the need, through taxation policy, which, I realise, is outside the scope of this debate—such as increased investment allowances, or a guarantee of continuity over a number of years of those investment allowances, or by means of grants or other remissions of taxation—to encourage capital investment, to encourage the training of technologists within industry to operate these new processes and techniques and to encourage research and development so that those new processes and techniques which will bring about our prosperity in the future can be practically applied in our industries.
The main responsibility of the Government is to provide the right climate for investment and to leave the opportunities for private industry and public sector industry to exploit.
§ 4.16 p.m.
§ Mr. H. Rhodes (Ashton-under-Lyne)
I should like to congratulate the hon. Member for Sheffield, Hallam (Mr. J. H. Osborn) on having moved this Amendment. This is a subject on which the House could well spend a great deal of time. I am reminded of the day on which we were discussing the Second Reading of the Coal Nationalisation Act, when I received a letter from a correspondent who, after explaining that the sample of coal that he had obtained was so bad, concluded by saying that he did not think that what he had to say would have a great deal of influence but that, at any rate, it had given him an opportunity to let off steam, which was more than his boiler would do on his "adjectival" coal.
The hon. Member for Hallam, while being highly technical in many respects, stated the need which is recognised by industry at large. However, before dealing with one or two specific points, I should like to go over the ground of the last eighteen months and to refer to the action of the Government and its 49 impact in this connection. The technique of encouraging consumer goods expenditure is well known and understood by the Government. To mention but a few aspects of this technique, there are the reduction of Purchase Tax and Income Tax, the lifting of restrictions on hire purchase, the reduction of the Bank Rate and a policy which encourages banks to grant personal loans. Any one or all of these encouragements gives the green light to people to spend money. Sentiment is created. The Stock Exchange becomes "bullish" and the phenomenon of rising share values is familiar to all of us.
The last round of this sort of thing began in November, 1958, and the result has been a consumer goods boom until now. The Government hoped, rightly—this is not a political speech as such—that capital investment would keep pace with the relaxations affecting consumer goods. Until April, 1959, there was no appreciable increase in investment in capital equipment. It will be remembered by those who have studied the matter that the slow response was caused by a large amount of unused capacity in manufacturing industry and it was only when this unused capacity seemed likely to be taken up that manufacturers began to think about ordering more equipment.
When business, is good, the machines in the factories, although they have done their time, can bring extra profits for a few more years. Therefore, investment tends to go into the enlargement of the unit and not into replacement. If business is bad, the machinery is kept because there is very often no money to change it. If the pattern of the economy is to be set by stimulation of consumer goods production because of unused capacity in manufacturing industry, then there will be a time lag, while manufacturing capacity is being taken up, before the placing of orders for new machines; but at that time the economy is stretched, everyone is employed, there is difficulty in obtaining machinery, anyhow, because of long delivery dates, and when the machines are introduced there is often difficulty in planning them so that they can be properly employed.
As the picture has unfolded over the years, we have seen this happen at the 50 psychological moment when the Government have decided to cut back. Credit is squeezed. There is apprehension in business circles, as there is today. A slowing down of investment takes place, and we are back again where we were when the boom began. But we have more capacity, more potentially unused capacity, to be taken up when the next round of stimulation begins.
Investment in capital equipment is a long-term business. It is a full-time job for those responsible in industry. The hon. Member for Hallam spoke about the small firm. I have been engaged in business for nearly forty years, and throughout all that time there has never been a year, including the years between the wars, when I have not put something into the factory in terms of new machines. There has never been a time when I have not mortgaged my future profits in order to install new machines.
I do not myself object to this up-and-down process, because I understand it. I do not come into the market to buy machines when delivery dates are long. I come into the market when delivery dates are short. I am now considering where I should place my orders, when this boom is spent, whether I am justified in placing them here or whether I am forced by circumstances to place them abroad. I regret to say that for next year and 1962 I am forced to place 60 per cent. of my orders abroad. Clumsily, perhaps, but, nevertheless, out of my own experience of something I am doing from day to day, I will do my best to explain what I mean.
It stands to common sense that one should be able to invest one's money when it can be laid out to the best advantage, whether it be in raw materials or in machines. I recall some remarks of a man who buys the wool in my business. When prices were down, nearly twelve months ago, he said to me, "It is a singular thing that a man cannot borrow money when wool is at 48d. per lb. but he can borrow as much as he likes when it is at 80d. per lb." This is pertinent for capital investment, too.
Productivity must be constant. It is a job not only for the industrialists, but for the Government, too. To illustrate my point, I will refer to the situation in the cotton industry, the neighbouring industry to mine. I opposed the Cotton 51 Industry Act on many grounds. I opposed the suggestion that re-equipment grants should be given. The Government put up enough money to persuade about half the industry to go out of business. During the Recess, I went round some of the areas to see what things were like.
Many mills are closed. The windows are going out as a result of boys throwing stones, and grass has already started to grow in the yards. The "spivs" have departed with their 100 per cent. profit in nine months. The ambitious among the executives who have retired have now gone to St. Annes-on-Sea, Rhos-on-Sea, and places like that, fulfilling their ambitions. The ones who had the courage to stop in are doing very well. They are making pots of money and, incidentally, no longer do the union leaders come to lobby us in this building. Prices have shot up. Goods have been in short supply. Indeed, ugly and dark suggestions have been made that we should allow a few more cotton piece goods to come from Hong Kong because everything is in short supply. That is the picture presented by that wonderful intervention in terms of capital assistance for an industry.
Foreign observers coming to this country are surprised at the attitude of many astute managers and firms who are remaining in the industry. In the main, management is saying, "How shall we equip?" Foreign observers say, "What you ought to be doing is thinking in terms of what you are going to equip for".
The Government have a big part to play, before it is too late, in creating the necessary conditions and stimulating the right policies. The question of what the Government are going to do about long-term Asiatic competition comes to mind.
Many intelligent men in industry say that it is impossible to find machines in this country if run on a two-shift basis which will enable them to break even in term of cost of the end-product with the machines which they have already written down to nothing. This is a sad commentary on the times. They say, "How are we to equip? Where are we to look for the machines?" If the Government give the money to re-equip, 52 the first thing that should be decided is what the industry is to re-equip for; otherwise, in a few years' time, we shall find a repetition of the problem which we face at the moment. It may be that the Government would do very well to go to certain industries, not merely the cotton industry, and consider with them the desirability of hammering out a policy to ensure that investment is well planned on a long-term basis.
Let us consider another industry. We have heard in the House, and we receive in our post week by week, very powerful propaganda on behalf of the shipping industry. There is not a Member here who does not look at such propaganda. We have been told that flags of convenience have been the real reason for the decline of British shipping. No adequate reason has been given as to why the British merchant fleet, which in 1939 amounted to 26 per cent. of the world total of 68 million tons, fell proportionately by 1959 to 16 per cent. of the world total of 125 million tons. This is a matter of capital investment of the first order. This is our lifeblood. It may be that flags of convenience have played a part, but no adequate explanation has been given as to why our total tonnage is 16 per cent. against a world increase of 51 per cent.
Norway disproves most of the argument about flags of convenience. Most of the growth in shipping during the last five years has taken place proportionately in Norway. Norway's tonnage was 5 million in 1949, 7 million in 1955 and is now 11 million. Norway is taxed quite heavily in proportion to the rest of Europe, but it has increased its percentage by 120 per cent. in two years, two-and-a-half times the rate of the world increase and eight times our own rate. Eighty per cent. of Norway's fleet is under ten years old, and the reason is that Norway had a policy. It recognised the changing needs in shipping. It recognised the need for new types of ships and ship-owners.
Industrialists all over the world were tired of the wild fluctuations in voyage rates. So the Norwegians anticipated events and invested in the type of ship to suit the times, giving long-term charter rates. Their policy was right. Policy here should be hammered out between Government and industry. Introducing investment allowances in one Budget and knocking them off in another is no substitute for a policy.
53 I now want to comment on one or two things that we should do. The hon. Member for Hallam spoke in general terms about the encouragement that should be given to scientific research. In many of our industries there is far too much scientific research which is badly applied. Often they are outside the field of practical affairs. Often they are hidebound. Often they become detached from the people engaged in industry and they do not make a serious contribution to the breaking through of new techniques. I say that quite deliberately in criticism of some research associations I know.
It is time that the Government took particular notice of what contribution research associations and machine makers are making to the productivity of the machine. Unless we increase the productivity of the machine by 2½ to 3 per cent. per annum we will not be able to keep pace with the increases in wages and costs that are put on the cost of the product as years go by. An increase in productivity should be one of the prime responsibilities of research associations and the Board of Trade.
I suggest that when the Treasury sends out its questionnaires to industrialists, instead of requesting them to say what they have done or what they intend to do, which can be altered by how the managing director, or whoever fills in the form, is feeling that particular morning, whether he has a complaint on his table and is down in the dumps and thinks that it is not worth stopping in the industry, or whether he has been congratulated or has just received an order —there is a tremendous element of sentiment here—the accent should be on the productivity of the machines also, in which an industrialist is investing to replace other machines, or, if the machines are purchased for increased capacity, what is gained in productivity compared with the rest of the plant.
I have been doing some investigation recently to try to ascertain the relative productivity in many countries of the world of machines I use. Do hon. Members realise that there are only two organisations in Europe, one in the Outer Seven, in Switzerland, and one in France, that are able to state the productivity of any range of machines in my industry in any part of the world? 54 One cannot get this information in this country, although the industries are crying out for such information.
I might be told that it is up to the private investor himself to get this information, but this is something that should be done by the combined efforts of all industries supported by the Government.
In that way, the Board of Trade would have an automatic check on every request submitted by applicants for the entry of foreign machines. We know what a pantomime goes on in the Board of Trade when somebody asks for permission to import a foreign machine and the arguments that are put up to block first-class machines coming in from abroad simply because they might look to be the same, or a manufacturer here states that he can make one just as good. I could tell the House of some of the experiences that I have had during the last few years in terms of the inefficiency of some machinery makers here in comparison with the way the makers of machines in Switzerland, Germany, France, and Belgium are setting about the job of productivity of the machine. I ask the Government to take this matter to heart and give our machinery makers a chance by enabling capital investment to be a constant thing.
My last suggestion is for a recasting of the system or basis of depreciation. We have arguments from year to year about initial allowances, investment allowances and the rest, because the Government reserve the right to be able to knock the allowances off or to put them on in the hope that they will encourage investment. But such action rarely encourages investment at the time when it is wanted most. To be effective it should be constant. I ask the Government to think over the basis of depreciation allowances, too.
I agree with the hon. Member for Preston, South (Mr. Green) and one or two of his colleagues on the benches opposite who put up some of these points following the 1959 Budget. If industrialists could write off their machines as and when they wish, it would be a great step forward.
The Government should be planning long-term capital investment for productivity. They should be looking at the conditions which now militate 55 against machinery makers. There needs to be continuous and constructive thought in the development of the machine to give increased productivity. If the Government will do that, good will have come out of this debate.
§ 4.45 p.m.
§ Mr. T. H. H. Skeet (Willesden, East)
The hon. Member for Ashton-under-Lyne (Mr. Rhodes) has made several references to the shipping industry. I do not think that the unique position in which that industry stands is generally appreciated. It is not simply a question of flags of convenience. There is flag discrimination, as well. To give one illustration concerning flags of discrimination, if agricultural produce is to be taken from the United States under Public Law 480 to India, for example, it must be carried in American shipping. This is very restrictive to British shipping.
§ Mr. Rhodes
That does not make any difference to my argument. The Norwegians have done it. Flags of convenience do not apply in their case.
§ Mr. Skeet
One has to realise that not merely Norway but the United Kingdom itself is a flag of convenience. For American tankers, the United Kingdom is a flag of convenience for the purpose of the relative taxation. It is not, however, that point alone which needs to be considered. One has to consider the overall effect of the three points to which I have referred, which put the shipping industry in its rather unique position, as a result of which it can be argued—not today, but on other occasions—that it should be singled out for special treatment. That, however, is a deviation from the main point introduced today by my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn) concerning capital investment in industry.
My hon. Friend raised the extremely good point about the quality of investment. One is not concerned primarily about overall investment use for which the funds are employed. What one must endeavour to do in 1960 is to try to spot the winners for the 1970s and to ensure that the money which is available is canalised into those industries which can turn it to the greatest use, either in improving our standard of living or in 56 increasing our exports to overseas countries.
One or two of the winners have been the motor cars and aircraft for the United States. A great deal of money has gone into these industries. One looks with considerable anxiety at the amount of money which has been poured into the nationalised industries. To mention one of them, in the case of coal this has meant the redeployment of labour and less coal for more money invested.
In the private sector, there has been expansion year after year. It is instructive to find that in the post-war years, capital investment has gone primarily into iron and steel, refining capacity, petrochemical development and certain branches of engineering.
§ Mr. Roy Jenkins
Where, in the hon. Member's view, is this country suffering from an excessive level of investment in the basic industries, in coal, steel, transport and the fuel industries generally, as compared with countries like Western Germany, France or the Soviet Union, which are going ahead much faster?
§ Mr. Skeet
To deal with the nationalised industries, only a small part of the steel industry is nationalised. If we deal with the other basic industries such as coal, electricity and gas, I would have said that in the United Kingdom a little too much money was being devoted to those sectors. In the Soviet Union, there is already a capital movement away from investment in coal to investment in oil and natural gas. Taking a long-term projection up to 1951 to 1965, and, as encompassed by the recent Soviet seven-year programme, Russia plans to expand coal production two-fold, oil by five and a half times and natural gas by the much vaster figure of twenty-five times.
What the Soviet Union is doing is to redeploy its investment resources in what it considers will be the available and most productive resources in future years. What we in the United Kingdom appear to be doing is to spend a vast sum in the coal industry and it is doubtful whether we are getting value for our money.
I do not, however, want to be led too far away from my main theme of the quality of investment. In 1938, the United Kingdom's refining capacity was 57 2½ million tons. Now, it is 42.7 million tons and Milford Haven will add another 4½ million tons. That has been extremely advantageous not merely because refining lends itself to automation, but also because it substantially improves the balance of payments of the United Kingdom. No longer do we have to import all the refined products. They are produced here, and, of course, are sold even in the Common Market itself.
It is also very important that there should be chemical developments associated with refining capacity. I do not think that many figures about this are available, but I think we can say that investment has been quite colossal, by the several firms concerned in it: I.C.I.. Shell Chemicals, the International Synthetic Rubber Company, the British Hydrocarbon Chemicals (Associating B.P. & Distillers), Courtaulds and others. We are finding that costs are being reduced over the course of time by substituting the newer products for the old. Plastics production is going ahead rapidly.
It is rather interesting to note this, that if we take the current seven-year plan in the Soviet Union, that is, from 1959 to 1965, the sector of industry which they have set aside for particular attention is that relating to plastics, synthetic fibres and synthetic rubber. It is interesting that of the whole of the investment that is going into chemicals, 50 per cent. is being spent on synthetic materials. It is a sum which is equivalent to all the investment in chemicals in the previous seven-year programme. This is an indication of the measure of the importance the Soviet Union attaches to synthetic materials. Some of the extremely valuable fibres come from wood pulp, such as rayon and Tricel, or from coal or oil, such as Courtelle, nylon and terylene.
I happened to read the other day something which I think throws a new light on appreciating the situation with which we shall be faced of the teeming millions who will be living on the globe towards the end of the century. Manufacturers have to face the situation of what they are going to invest today in order to cope with that problem. What I read was this:There will be further marked increases in the production and uses of man-made fibres, whereas the production and demand for the 58 natural fibres is not likely to increase significantly, and may even fall somewhat as the demand for food by the increasing population becomes more insistent. The natural fibres, cotton and wool, compete with food for arable land, whereas the cellulosic man-made fibres are produced from trees, bamboo, and the like, growing on land and in climates unsuitable for food production. Moreover, the tall trees make use of the third dimension to a much greater extent than do cotton plants and sheep. The synthetic polymer fibres are derived from oil or coal which also makes considerable use of the third dimension, mainly under the earth.I am saying that it is the responsibility of industry to look well ahead. I do not think that it is any unnecessary congratulation of British industry that it is at present, so far, for instance, as petrochemicals are concerned, the leader in Europe. The Soviet Union is beginning to appreciate this. That is why the Soviet Union is devoting such vast resources to petrochemicals under the present plan. What industry is looking ahead to is to discover to what new uses can be put the world's resources of raw materials. Are we to cover the land to secure either food or ingredients for industry? Or are we going to convert to valuable use the coal which lies beneath in the "third dimension"? What can be secured from outside to add to the "synthetic" resources of the United Kingdom is, of course, oil.
I would also mention another very important factor, because we are going further and further into the nuclear age: there has been extremely extensive development here. It is only right to say that we must experiment to get ahead. Calder Hall and the high temperature nuclear reactors are very valuable experiments. We must look at them most carefully. We should also consider the amount which is being spent in the Soviet Union on research into new processes, new methods and new materials, such as vanadium, boron, tantalum, niobium—these metals are now becoming available in increasing quantities and have special properties of particular value in modern industry.
If we do fall behind in our fundamental research we can be certain of one thing, that the United States and the Soviet Union will move well ahead of us. I feel that dynamic management, efficiency in administration, and continued profits, are essential to the continued progress in the development of our resources. Progress must be made. It would be a great disservice to British 59 industry if we were placed in the position where the skill of the few were not appreciated by many people who do not understand the contribution which research is making to our general welfare.
I would say that as we do move ahead we have to be perfectly certain that the funds which are available are turned to the best processes. I think that it is perfectly right that from time to time in this House we should examine Government expenditure, and that certain Government aid should be granted to industry. I think that aid should be given on this basis, that capital is not available or that it will be used to give increased employment in a given area. If there is redeployment of resources in private industry, industry should look after itself, even though money may be voted by this House. There are captains of industry of great skill and judgment who can be aided and guided, but they should be left to develop their own resources provided such a course is consistent with public welfare. That, I think, is the view generally taken on this side of the House, and it is, indeed, the policy which made this country great long before the Labour Party was ever heard of.
One further thing that we must bear in mind and that is the joint approach to development. How gratified I was to find that A. Reyroll and C. A. Parsons have agreed to working in joint consultation on generator development. Thus they can share their capital resources in research. How glad I was to find a Minister travelling over to France and Western Germany to see how we can link the United Kingdom in with them in the development of supersonic airliners and possibly of aircraft which will take off with a vertical lift. We cannot encompass all these things ourselves. Arrangements can be made between companies, or perhaps increasing aid following negotiations at higher levels. I think that this is possibly the best way forward.
One additional point. When it comes to the question of increasing the Bank Rate, I do not consider that very large companies are affected by it particularly, as their scheduled programmes must be carried through. I do not think that it would interfere with the board room of 60 I.C.I., British Petroleum, or the Royal Dutch Shell group, but I do think that possibly it would have a very distinctive bearing on a small company which might be short of funds. As industry is at present made up primarily of small companies, that means that, in our development, we should give them the resources which are essential for their development and the country's in future years. The Radcliffe Report has had a look at this. There would appear to be a gap. I hope that my right hon. Friend will consider it most seriously, because in this country we depend—now that we are on the threshold of the Common Market and the E.F.T.A.—on the continued success and ability of our small companies.
§ 5.0 p.m.
§ Mr. John Diamond (Gloucester)
I have very much enjoyed listening to the hon. Member for Willesden, East (Mr. Skeet) with the exception of one remark which he made. I am sure that, on reconsideration, he would not want to try to repeat his remark that this country was great before the Labour Party was ever heard of, because it was not great before those whom the Labour Party represent were ever heard of. They took part in making it great and we are all here to represent others.
I am sure, therefore, that the hon. Member did not mean to cast an unnecessary political slant on that part of his speech. The last thing I want to do is to controvert anything that he said, because I was delighted to hear, especially coming from an hon. Member on the benches opposite, a speech which made it perfectly clear that the only way to increase productivity is to plan the whole of our investment on the Russian style.
§ Mr. Diamond
I am a great planner myself and I accept entirely the implication of what the hon. Member said—that if we want to divert resources from one kind of investment to another we need power. We need a Government wishing to do it and having the power to do it.
The present Government realise that and when they wanted to increase productivity in the public sector they took the immdiate measures open to them to do so. Last year's Budget was an example 61 of this. Money was poured into that sector of industry because the Government have power there to control the rate of investment and of new development, but the Government are virtually powerless in the private sector. The problem which the hon. Member for Willesden, East and I share is how to get the private sector to make more investment and investment of the right kind.
I shall assume that nobody here will argue that at present new investment is adequate, or that it is continuously adequate. The plain fact remains that we are lagging miles behind those with whom we would naturally compare our achievements, that is, similarly placed West European countries, both in terms of new investment in industry, and in terms of productivity. We are lagging miles behind and unless something is done we shall be left so far behind that we shall never catch up.
This is a problem which does not worry me on the ground that we are totally unable to look after ourselves at the moment, or unable to provide an adequate standard of living, but it should worry us when we think of the future. We shall be unable to continue to make and export at a rate sufficient to maintain the necessary increase in our standard of living unless we put much more continuous and much more serious effort into our investment of funds, both in quality and in quantity.
We have failed to do this year after year. I have not the figures with me, because I was not fully aware that the number of hon. Members wishing to catch Mr. Speaker's eye would be as slight as it has turned out to be. But in the last four years industrial productivity has hardly gone up at all. [HON. MEMBERS: "Yes."] This stems from inadequate investment. The hon. Member for Willesden, East recognises this. The Motion recognises it and I am assuming that the common ground from which we all start is how to increase investment, and that means in the private sector, because there is no problem about increasing it in the public sector.
The hon. Member for Willesden, East wants to divert investment from certain aspects of the public sector to the private sector, but he does not say how he would do it. One can cut down investment in the public sector, of course, but how 62 can it be increased in the private sector? The Government try to do this by fiscal methods. This was debated on last year's Finance Bill and will be debated again on the Finance Bill this year and, therefore, I will not elaborate on it now. What was done last year was stated at the time to be inadequate, and it has proved inadequate because industrial investment showed no signs of increase until very recent times. That increase has been due to the pressure of demand from increased consumption and not to the fiscal inducement in last year's Finance Bill, otherwise the results would have been far greater.
§ The President of the Board of Trade (Mr. Reginald Maudling)
There was a rather dramatic change after last October.
§ Mr. Diamond
That is a political remark which no doubt has its appeal to those who do not stop to think about it, but to anybody who does stop to think the suggestion that that single event in October could effect immediately vast investment plans is utter nonsense.
Anybody who works in this field knows that investment plans take months and frequently years to mature. Investment can easily be put off, as the Government have succeeded in doing through the Chancellor's remarks. Investment can be put off without doing anything except making just a vague threat. It is much more difficult to keep people on than to put them off, and one cannot suddenly turn from a policy of no investment to one of large investment. It takes time to plan, to procure space, to obtain all the machines required, to get everything co-ordinated, so that there is a steadily increasing production.
§ Sir John Barlow (Middleton and Prestwich)
What the hon. Member says may be quite true about investment on a large scale, but after a certain event last October, to which my right hon. Friend the President of the Board of Trade has referred, many small people decided to do bits of improvements and to install small machines and do this, that and the other which, cumulatively, resulted in the employment of an enormous number of people.
§ Mr. Diamond
I cannot accept that. We have northing like sufficient information. The information we have is collected not by the Government, but by 63 private industry. Requests are sent to manufacturers to state their investment programmes and these are published once a quarter. It is clear from that information that this was a slowly developing process. It was not something which happened suddenly, and the hon. Member will be aware that even an accumulation of small men must be a very large accumulation before it makes an impact.
This is especially true when it is realised that about half of the total investment in the country is represented by about 500 firms, the other half being covered by the industry of the entire country. It is a very small number of firms indeed that affect the picture. To say that a great many small men have been thinking about it and saying, "The Conservatives have been returned to power and now we shall be able to plan the economy on the Russian style" as the hon. Member for Willesden, East suggested, is not realistic.
§ Mr. R. Gresham Cooke (Twickenham)
Output per man went up 6 per cent. last year compared with the previous year, as the Economic Survey shows, and that is a real increase in productivity, which is what we all want.
§ Mr. Diamond
I thought that we were all agreed that there has not been sufficient increase in productivity, and this stems from inadequate investment. If the hon. Member thinks that the increase has been enough, we leave it to him. The House, the Government, the hon. Member for Willesden, East and the Motion are all concerned to increase investment in the private sector. The Government already have the power to do it in the public sector. The question is how to do it in the private sector and, as I have said, what the Government have attempted to do by fiscal means has been quite inadequate.
The Government should follow commonsense Conservative business principles and allow every business man for Income Tax purposes to run his own business in his own way in all respects. The one respect in which they now prevent that happening is in connection with depreciation allowances. That is the only way in which the Inland Revenue interferes. It says, "Your profit is as you declare it, but in this respect we 64 shall decide in our wisdom what is the proper rate of depreciation you will allow", and we then have all this juggling with initial and investment allowances.
The Government could without any great expense—especially at the present time, when the allowance already amounts to so much in the first year—give that Conservative freedom to businessmen to run their businesses in their own way so that those anxious to develop could develop. We cannot make a businessman want to invest, but those businessmen who do want to invest should be given freedom to do so. I should have thought that this was advice which would be very welcome on the benches opposite. It is supported, as the President of the Board of Trade knows, by twenty years' experience in one of the Scandinavian countries—Sweden, I think it is—where it has proved very successful during that time.
I hope that the Government will, in due course, give further consideration to this very sensible and encouraging Conservative suggestion which surely should be followed up by hon. Members opposite. If they are not prepared to do that, they might think of planning investment in the private sector in the way that I shall suggest.
All the instruments which the Government use are far too vague. The fiscal method suggested is far too vague and works on far too wide a field. Increasing investment at the end of the process of increasing consumption is far too vague and too long delayed. The Government, knowing that they must increase investment and knowing that we are falling behind all the time, should do what private industry has, to a small extent, set itself out to do by finding out what are the investment plans of various manufacturers. The Government should concentrate on those big firms—about 500 of them—who have half the investments of the private sector of the country in their hands and discuss with them individually their investment plans.
That is not administratively impossible when dealing with such a small number as 500. They would then be free from this need either to push investment by every possible inducement so hard that everyone is attracted and there is immediately a great shortage because too 65 many people are asking for the same thing at the same time, or, alternatively, not to push it, in which case the reason which resulted in hon. Gentlemen opposite staying on the benches opposite will continue to apply, namely, that being a conservative-minded nation and a conservative-minded business community they will continue to be conservative-minded in terms of replacing plant. This, I am satisfied, stems from our national attitude.
We are by nature a conservative country. [HON. MEMBERS: "Oh."] The election proved it. I have looked at the figures and I conclude that this has been so for some time. We are by nature a conservative-minded country and we look much too conservatively on a number of things, including investment. This is bad for the country, bad for the manufacturers and bad for the businessmen concerned. They should, therefore, be encouraged in an appropriate way to invest more and more and by a detailed mechanism, not this wide, vague encouragement and then discouragement, one year saying we will have more initial allowances and twelve months later saying, "I do not know what I am going to do, but I give you warning that I shall do something." That is much worse than saying a particular thing.
A threat is much worse than saying, "We are going to put up the Bank Rate, or ask for special deposits. We are going to do one thing or another." To give a warning, "We do not know what we are going to do, but we may do something at any minute" is very discouraging. To give encouragement one year by increasing allowances in the Finance Bill and the next year to discourage by threats of something undefined is not a satisfactory method.
I am sure that the only satisfactory way of planning investment in the private sector is by what the hon. Member for Willesden, East and I both want—the planning of the investment programme of the private sector so as to have individual discussions with boards, financial directors and others concerned of the 500 companies which have the control of half of the industrial investment of the country in their hands, and to discuss with them how to accelerate it—they cannot impose a pattern of investment upon it. That is not the hon. Gentle- 66 man's idea. He sits on the benches opposite. He is a Conservative and has, therefore, not worked out the implications of his argument. The hon. Gentleman says "Look at Russia; look how they devote their resources to the things that pay best."
§ Mr. Skeet
I was saying that we lead in the plastic manufacture in Europe and in many other lines. The Soviet Union is in fact, copying us in its current seven-year programme. I have pointed out that that is what we must be extremely careful of tonight. The hon. Gentleman must not impute ideas to me which I have not expressed.
§ Mr. Diamond
The last thing that I want to do is to impute ideas which the hon. Member has not expressed. I doubt whether he has thought thorn out. I was only trying to carry his argument to the logical conclusion and to show how to achieve what he and I both want, that is, an increase of investment in the private sector.
The only satisfactory way of doing this is by a detailed method—not a wide and broad one—of discussing with each one of these large 500 firms their investment programmes over the next two, three and four years. They know the figures. They work them out well in advance. Let them inform the Board of Trade what their investment plans are. Let the Board of Trade study them and say, "This is too much; this is too little; this should be expanded; this should be delayed." That is all that is required. Then we should have a detailed investment programme within the capacity of the nation, which is greater than we have now and which would avoid the ups and downs which are so destructive to the mentality of all boards of directors and to the free flow of machines which bring down prices. In that way, we shall avoid all that and have a reliable, continuing increasing flow of investment which is surely what the nation requires.
§ Mr. A. P. Costain (Folkestone and Hythe)
Is the hon. Gentleman anticipating that the Government should discuss this with the boards of directors and that over the next five years it should be the laws of the Medes and Persians? Is the hon. Gentleman proposing that we should have further controls brought in by the backdoor?
§ Mr. Diamond
No. I am not advocating bringing in further controls. I was suggesting that the boards of directors of companies of this size, being intelligent, constructive-minded and anxious to increase the prosperity of their companies and, therefore, the prosperity of the country—men who know a great deal—are always denied the one important thing on which their major investment decisions depend: "What are the other chaps doing? What are the total investment demands of our colleagues on the boards of other companies?"
That is the one thing which they do not know and about which they have to make a guess. Let them be told what is the total investment programme of these companies so that each one may accelerate or decelerate as the need arises. In that way there will be a continuing flow of investment and the demands of both the hon. Member for Willesden. East and I can be satisfied.
§ 5.20 p.m.
§ Mr. Geoffrey Hirst (Shipley)
I do not know whether I have been able to follow the hon. Gentleman the Member for Gloucester (Mr. Diamond) as well as I normally can, because he appears to have walked all round the wicket without ever finding the pitch. Certainly, he was far too gloomy. I shall have some points of criticism to make but, after all, the Amendment is critical in a sense, so I give the hon. Gentleman that part of his argument. At the same time, he did not pay sufficient tribute to what Conservative Governments have done towards bringing about the very same, sensible form of private enterprise on which he had the nerve to lecture us as being desirable.
My hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) referred in an intervention to small firms. My evidence, which is fairly good because of the source from which I get it, is that small firms have contributed materially to the upsurge in investment in capital equipment during recent months. There is a considerable amount of information available to us all, and it is available to me in more detail because of my connection with the Federation of British Industries. As the hon. Member for Gloucester said, about half the investment in this country is in small firms, 68 but, although they represent small units of investment and employment, they add up materially.
The speech which impressed me most, apart from that of my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn) in introducing his Amendment, was that of the hon. Gentleman the Member for Ashton-under-Lyne (Mr. Rhodes); indeed, it was one of the best private enterprise speeches I have heard for a long time. What on earth the hon. Gentleman does with Clause 4 and all that, I cannot think. If he had been here at the moment I would have asked him to examine his conscience, but no doubt he will be with us again in a short time.
However, I think that the hon. Member was not fair to the research associations when he said that so little had been done to ensure that they contributed to increased productivity. There is plenty of evidence to show that they have contributed materially to it. They are well worth backing and it is particularly good to see the development that has taken place where industries have co-operated in their research efforts. This applies particularly to the wool textile industry, about which I speak often in this House.
I agree with the hon. Gentleman on his point about depreciation, and I will return to that in a moment. There is danger of complacency over our increased industrial production because, when compared with that of certain other countries, our position is by no means as rosy as we like to think. Indeed, we are inclined to talk about our own figures without relating them to the world pattern. At the same time it should be realised that much of the great development overseas is due in some part to recovery after the war.
The hon. Gentleman the Member for Grimsby (Mr. Crosland) said in the Budget debate that the rate of increase in the United Kingdom during the last six years has been only 27 per cent., whereas in certain other countries of the Common Market it has been about 63 per cent. The major overall reason for this is that our investment has been too low. It is true that the gross fixed capital formation, excluding housing, in the United Kingdom is around 14 per cent. of the gross national product, whereas it is 20 per cent. in Germany. In passing, 69 I should point out that when my hon. Friend the Member for Hallam made his comparison he included housing, but it should be excluded.
Both my hon. Friend the Member for Hallam and the hon. Member for Ashton-under-Lyne drew attention to depreciation in its relation to capital investment, and they were right so to do. I have felt for some time that we must face this difficult problem financially, relating depreciation allowances to replacement rather than to historic values for taxation purposes.
Although I can see the attraction to the Government from the financial angle, it is a little dangerous to make frequent changes in investment and initial allowances. Industry finds these changes confusing and tiresome. This point has been discussed in the Budget debate and also in various recent financial articles and it has been suggested that it would be much better to abolish all these allowances and, at the same time, eliminate the Profits Tax. This would leave industry in a position which would be attractive for this kind of development, being taxed at about 40 per cent. or 41 per cent. instead of the 52 per cent. at which it is now taxed.
I have been somewhat critical of Profits Tax because I feel that it is in many ways a deterrent. I know very well that research and investment are a first charge. Moreover, a contributor to Lloyds Bank Review, last April, wrote:But the lower level of expansion with which we have to content ourselves as a result of the present level of taxation is a reflection on our decision as a nation that we want the Government to spend a quarter of our income on defence, education and the social services. We cannot take such a decision and hope to escape the consequences.I feel, therefore, that even in this debate we must be true unto ourselves. If we are to ask, as some people have been asking, for increased Government support and expenditure, which is not my own line, we must realise the consequences involved. I would like to see the structure of our taxation so altered as to encourage private industry to do these things for itself, which it could do so much better if given that form of encouragement. However, I do not want to be lectured by the hon. Gentleman the Member for Gloucester on these matters, in view of the record of his party in this connection, and the policy 70 which he and his hon. Friends are trying to support with such great difficulty.
I support the Amendment. I think that it is too modestly worded, but that it is in the right sense. I think that the Government are going in the right direction and have been doing so all along, in spite of the difficulties that have cropped up from time to time. The only difficulty I see is in taking that extra jump—
§ Mr. Maudling indicated dissent.
§ Mr. Hirst
Yes, it is a jump. I can assure my right hon. Friend that the Chancellor of the Exchequer would think it a jump.
I repeat that the only difficulty I see is in taking that extra jump to change the structure of taxation in the way I have asked. If it could be done, I believe that the atmosphere of private industry would be so uplifted that it would encourage research and development far more than would aid in any other direction.
§ 5.28 p.m.
§ Mr. Cyril Bence (Dunbartonshire, East)
I have heard some most extraordinary statements, particularly from the hon. Gentleman the Member for Willesden, East (Mr. Skeet). I am surprised that any intelligent person should take at face value certain statistics emanating either from Pravda, or from the Government of the U.S.S.R., and say, "This is the picture of success", as if there were no failures. After all is said and done, we in this country, with our principle of freedom and with our Parliamentary democracy, advertise our failures, perhaps sometimes a little too much.
§ Mr. Skeet
Of course, Pravda is not the only source of information. There is also the 1959 Economic Survey of Europe. If the hon. Gentleman has not had an oportunity of referring to that document, I would tell him it will give him much information on the matter. I am only bound to supply my argument, not an understanding of it.
§ Mr. Bence
As I was saying, we all read various statistics and many inter-national documents. We read about successes in the Soviet Union and about economic attainments in various fields, but we do not read of the mistakes and failures in that country. The Russians 71 get them and we know that they pay a price for them. Make no mistake about that. We have our failures and everyone knows about them. I admit that Government succeed for a few years in concealing serious failures in Government policy, but, sooner or later, by a stroke of fortune, they come to light because of the activities of Members of Parliament and of the Press.
I have never been one to use the Soviet Union as an example of what I want to see happen in my own country. I am not a supporter of a monolithic society, whether controlled by a group of financiers in the City of London or by a group of politicians. I am surprised that any hon. Member, in a debate in the House, should cite the Soviet Union as a glorious example of the way in which to redeploy investment. If industry in Soviet Russia disobeys it is in serious trouble. I am sure that the average Briton would prefer our concepts—
§ Mr. Skeet rose—
§ Mr. Bence
The hon. Gentleman must let other hon. Members make their own speeches. He made an awful speech himself, full of terrible blunders and of frightful implications. We cannot allow him to try to correct himself every few minutes.
I stick to my point that in this country we shall make mistakes but that we shall get over them. We do not need to be told in the House of Commons that the monolithic Russian society is a wonderful example of how things ought to be done. We believe that we can do them by the voluntary principle and by democratic methods.
The hon. Gentleman also made some most extraordinary statements about private investment in the steel industry. Everyone knows that the major investment in the British steel industry was made between 1939 and 1951, and in those years the industry was under public control. The British steel industry came under State control at the outbreak of war and the major capital investment which raised the productive capacity of the industry was done under State sponsorship and control. Everyone knows that. I worked in the British steel industry years before the war and right through the war. We all know that we 72 could not have produced our steel during the war if millions of pounds had not been spent in expanding and improving the techniques of the industry. It was not done by private investment, but by public investment.
What happened when the British steel industry was denationalised in 1954, after years of expansion of the industry by public money? We now have another period of State expansion of the industry. Whose money is expanding the industry today? What private companies are expanding it? In Scotland, the big steel undertaking is that of Colvilles. Is private enterprise providing the capital there? Not at all. We were told before the election that Colvilles could not raise the money on the open market because of the fear of a Labour Government coming to power.
Why did not the Government, immediately after the election, say to Colvilles, "We want to cut down Government expansion. You said before the election that you could not raise the money on the market because of the fear that a Labour Government would be returned. We have been returned, and you should now raise the money on the market." About £50 million of public money free of interest is needed for investment in the new strip mill in Scotland. We have the same sort of thing on the Clyde. The private enterprise shipbuilders there will not expand unless the Government provide them with £2 million of public investment.
Then, again, there is the British Motor Corporation. It wants to create some new capital with which to build a factory. The corporation is to build a factory in Scotland, but only on the condition that the Government take the initiative and provide the initial capital sum with which to get on with the job.
This is public investment. It is no use people continually saying that the private investor is prepared to find all the money in these great investment enterprises when it is evident that he is not. The great Cunard Company wants £30 million to £50 million to replace the old "Queen" liners with two new Cunarders. Do not let anyone call that private investment. It will not be Cunard investment, but Government investment, because it is public money. Do not let anyone put that on the credit side of the private investor.
73 The average private investor is not interested in the slightest in investing in new productivity capacity or in new enterprises. If he has some liquid money to invest he looks at those shares that are likely to rise most, pay the highest dividend, or which will give a one for one issue next year. He is not interested in looking for technologists and scientists who have new processes to offer. He is not looking in that direction at all. Let us be quite honest about this.
I wonder how many hon. Members opposite are running round with £½ million looking for clever young scientists and engineering geniuses who are ready with new processes? None at all. They are watching the tape to see which shares are likely to rise and which are likely to fall. We cannot get near the tape when the Stock Exchange reports come through. Therefore, do not let us have this boasting about the private investor. All our major industries are looking to the Government for money.
I welcome the Amendment which has been moved by the hon. Member for Sheffield, Hallam (Mr. J. H. Osborn). It is a very good Amendment, and we are very grateful to him for it. I am an engineer myself and I am rather shocked that one of the major problems of the country is that of investment. Here we are, after eighteen months or two years of boom, being told that we are liable to be in balance of payment difficulties. We get prosperity, we import a great deal so that we can manufacture and then reexport, and yet, when we examine the figures, we find that we are paying more for what we import than what we get for our exports.
The sane explanation is that we must pay less for what we import or import less, or we must get a great deal more for what we export or export a great deal more than we do at present. As an engineer, I do not want to export a great deal more goods. I want to produce and manufacture things which, on the world market, will fetch the highest value owing to the material used and the applied skill and labour involved.
I have said this for years in the House. I have in mind two machine tools which I know very well. I have no wish to deprecate a famous firm of machine tool manufacturers. The product which it 74 makes is a first-class product. It is a machine tool which must weigh two and a half tons. I do not know what its price is today, but in my day it sold for about £6,000. The Swiss made a machine tool which weighed about three tons. My hon. Friend the Member for Glasgow, Scotstoun (Mr. Small) knows the two machine tools to which I am referring.
The Swiss machine tool, weighing three tons at the most, was being sold at between £18,000 and £25,000 when the British machine tool was selling at £6,000. These are two machine tools used in every factory in Britain. The Swiss have put into the same quantity of raw material, by the application of technical skill and science, something that will bring more in foreign currency and, therefore, more raw material, than a product which we were making in this country and which consumed just as much imported raw material.
That sort of thing has been a factor in our machine tool industry which has done a great deal of damage and has frustrated the expansion and the whole technique of production in many British industries. I do not wish to mention the names of companies, but I could give the names of many companies that have been frustrated for twenty-five years because of the failure of the machine tool industry to match up to the new technologies being devised in Germany and the United States.
I give the industry in which I worked as an example—the motor car industry. We had reached the stage, by 1930, when we had to manufacture nearly every machine tool of a production character that we were using. One will find machine tool manufacturers' machines in nearly every motor plant in Britain, but one will also find great progress in mass production, such as in telecommuter systems, where time and again the machine tool processes have been manufactured and devised by the production unit itself.
What has been the result? I recall seeing a plant with more than 1,000 toolmakers and tool fitters. Twenty per cent. of those men were held purely for the laborious process, in their fashion, of tooling up some basic machine tools that were stripped down from their original manufacturers' concept and built up again by them in the factory. Their applied skill, put into the manufacture of 75 machine tools in a machine tool production firm, could have produced a far higher rate of production of specialised machine tools than in that plant. I helped to build those machines myself. That sort of thing has certainly checked the motor car industry a little.
I have not seen the Renault plant, but I know of it and have read in technical journals something about its technological processes. Renault is far ahead of anything in this country, both scientifically and technically, although I admit that we are well advanced within the conditions in which we have to work. But we can match up to anybody.
One of the factors which has hit British industry as much as anything has been the failure of the machine tool industry to feed Che industrial processes. I remember that in 1946 two companies came to the Midlands motor company for which I worked. One produced tyres and the other nylon stockings. They came to my firm in the Midlands, as they had probably scoured the machine tool industry, for the manufacture of their necessary tools and die system. We agreed to do it—although we were a motor car plant. We made the dies and tools for moulding nylon stockings. We did it because the machine tool manufacturers had undoubtedly not been prepared themselves to take the risk in that field.
That has been going on in British industry for years. The hon. Member for Willesden, East talked about Russian redeployment of investment from a dying industry, from one that was out of date, into industries coming into prosperity which would meet the demands of the market. But no one believes that if we cut down investment in the railways or in the coal mines by £250 million private enterprise would immediately take it up and start investing in new processes. No Government could guarantee that. Indeed, I suggest—if the future is anything like the past—that if the Government started to cut down public capital expenditure we should soon have tile phenomenon of deflation; money would become tight, trade would get worse and everybody would say, "There is no money. We are unable to do anything." The private investor would get "windy". Instead of there being more investment 76 in the private sector, there would probably be much less.
If many friends of mine thought that an inflationary process was going on, and that there was to be a cut-back in public investment, they would draw their horses in. In the 1920s we could not do things because we had not the resources. When resources were available in 1930 we could not do these things because we had not the money. The same thing would happen again unless the Government had power to redeploy a cut-back investment from one direction to another. It would be quite reasonable if a cut-back in certain public investments were redirected into investment in the machine tool industry.
It is a pity that in the last four years we spent £100 million on Blue Streak. If the Government had had the will to do so, and had put that money into the machine tool industry and had encouraged more research and scientific development and the employment of the best technicians and scientists, we would have been able to get a higher conversion value out of our labour and raw materials and skill. That is what we all want to do. We do not want to sell goods abroad as cheaply as we possibly can; we want to get the highest in foreign currency that we can for the best product that we can produce. I was never told to produce something that would sell as cheaply as possible, but to produce something that would sell for the highest price. That is what my employers told me.
§ Mr. F. J. P. Lilley (Glasgow, Kelvingrove)
You are talking a lot of nonsense. Any ordinary business runs itself on an economic basis. What are you talking about?
§ Mr. Lilley
I am sorry, Mr. Deputy-Speaker. The hon. Member for Dunbartonshire, East (Mr. Bence) must surely know that business is run on an economic basis. It is not run on the basis that it is run for one particular side. For example, in Scotland there is now an apprentices' strike. For what purpose? [An HON. MEMBER: "TO get more wages."] To get more wages—for what? For something which they are 77 not prepared to do and which they are not fit to do. I suggest that the hon. Member for Dunbartonshire, East should consider the fact that industry—
§ Mr. Deputy-Speaker
Order. I did not call the hon. Member for Glasgow, Kelvingrove (Mr. Lilley) to make a speech. I thought that he intended to make a short intervention.
§ Mr. Bence
I thought that the hon. Member was seeking information. He said that I was talking a lot of nonsense when I said that my employers had always taught me, when I was a student apprentice, that the objective of engineering practice was not to provide an article which could be sold as cheaply as possible, but to provide an article which, because of its utilitarian function and design, would attract the highest possible price.
The hon. Member may think that that is nonsense, but that is how I was trained. I remember that in 1920 we produced an article which sold at £47 10s. and which, with improvements in design and quality, by 1936 we were selling at £67. That was good engineering pratice, for we had sold an article at £20 more in a period of slump than we did in a period of boom. It was an article which we sold all over the Commonwealth.
Hon. Members opposite are constantly talking about the great achievements of the Conservative Government. We have heard again today about how the Conservative Government have done this, that and the other, and how they have given us prosperity. Of course, we have prosperity, but I wish that hon. Members opposite would say that, irrespective of the party in power, our prosperity, at rock-bottom, depends on the people who work the industrial and commercial processes of the country. Governments do not create prosperity. It is not their function. Prosperity is created by the people who work and invest in industry, the workers by hand and brain. Those are the people who create the pool of wealth.
The function of Government is not to create wealth, but to see that it is reasonably distributed. In a modern society, it is the function of Government to see that no group neglects our physical and material resources and that there is no 78 abuse of the technological skills which we have evolved through our educational system and through research at universities and public institutions of all kinds. That is necessary if we are to preserve our society and maintain and enhance our standards of living, both cultural and material.
It is the Government's duty to see that all our resources are deployed to the best advantage of the nation. If they do not do that, not only the Government but the people who misuse our scientific resources are to be condemned. I welcome the Amendment and I am sure that we all support it, because it calls upon the Government to take a greater lead in the redeployment of our investment resources.
§ 5.54 p.m.
§ Mr. R. Gresham Cooke (Twickenham)
I cannot accept the picture drawn by the hon. Member for Dunbartonshire, East (Mr. Bence), who spoke of company directors and industrialists drooling over the tape machine waiting for a one-for-one bonus.
§ Mr. Gresham Cooke
If that is the picture of industrialists which the hon. Member draws for his followers in Dunbartonshire, then it is a sad day for Scotland.
§ Mr. Bence
I never said that. I said that hon. Members opposite who had liquid resources to invest were more interested in investing in shares likely to pay a bonus. I was not suggesting that the directors of industrial plants spent their time doing that. They are running their industries. It was not fair to put that implication on what I said.
§ Mr. Gresham Cooke
I am delighted to hear that the hon. Member's strictures applied only to entrepreneurs.
I thought the hon. Member was a little unfair to British industry, and especially to the machine tool industry. I hold no brief for the machine tool industry, but going about the world one still sees a number of British machine tools in foreign factories. We must not denigrate British industry, because there are still foreign motor cars using a large proportion of British components.
79 I am delighted to have the opportunity of saying a few words on this Motion of my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn). I knew the hon. Member's father, who was a well-known Sheffield industrialist, very well. He was a respected man in Sheffield, and I am sure that, had he been alive, he would have been proud to hear his son speaking here today. I congratulate the hon. Member on bringing forward this Amendment. The whole world is short of industrial capital. Every industry in this country is short of it, and every company with which I have ever been connected has always been looking for more capital with which to expand its processes.
Even if no expansion is contemplated, more capital is required merely to keep abreast of the times. A good example is that if one has a piece of machinery in one's workshops which cost £20,000 twenty years ago, the cost of replacing it today would be £40,000 to £50,000, although in the meantime it will have grown more complicated and become more sophisticated, so that replacement of the same kind of machinery which one had in 1940 would now cost about £60,000. That is why the need for more capital is ever present in every industrialist's mind.
I always give the simple and homely example of a stair carpet which is bought for £20 and which one hopes will last for ten years. If one were an accountant, one would put a money box at the top of the stairs and ask one's children to put a halfpenny in the box every time they ran up and down the stairs. After about ten years, one would have the £20 to buy a new carpet. However, when one comes to buy a new carpet, it is found that £20 is not enough and that one needs £30. One's wife then decides that she wants something more elaborate and beautiful, so that one finishes by requiring £40 for the carpet.
That brings me to the need for profit in industry, because it is only out of profits that one can provide for future developments. The other day I was looking at the balance sheet and the profit and loss account of I.C.I., which had a turnover last year of about £500 million and made a profit of £80 million. That was reduced by tax to £41 million and 80 no less than £21 million was retained in the business for future development.
That is an example of private enterprise. On the other side, there is the sad picture of the British Transport Commission, which is about the same size as I.C.I., having a turnover of £500 million.
§ Mr. Gresham Cooke
The Commission lost £80 to £90 million and as a nation we have to finance the Commission's capital expenditure by allocating £80 million a year below the line in the Budget. That is why private industry looks on nationalised industries rather askance and with a jealous eye, for every year some £620 million is provided out of national savings and the Budget for development of the nationalised industries.
That is why the private industrialist has to sell his more popular lines at rather above cost price, because out of that profit he has to provide for future development and future capital. In spite of profits retained in the business, last year I.C.I, spent £27 million from the depreciation reserves, giving some £47 million to be spent on new plant and additions. Of that money, only £4 million came from outside resources, that is to say, LCI. went to the market for only £4 million as opposed to the other £43 million which it financed itself. That is an illustration of the necessity of the self-financing of industry.
I now turn for a moment to the need for research as a prerequisite of effective capital investment in industry. I should like to give an example of effective cooperation between the Government and industry on research and development which has raised the standard of an industry and greatly assisted in improving its products and ability to compete in foreign markets. If I may bore the House, as I had a hand in forming it and raising money for it, I should like to sketch briefly the history of the Motor Industry Research Association.
Before the war, the motor industry had only a small co-operative research organisation. That was the research organisation of the Institution of Automobile Engineers. It received a small grant from the Government and a few thousand 81 pounds per year were supplied by industry. After the war, it was reformed and greatly expanded and set up in 1946 as a co-operative body with increased support from the Government. I give considerable credit to the Labour Government for the way in which they got this research association going. It was an administrative and not a Parliamentary action, and the Labour Government saw to it that a great deal more money was available to this research organisation.
In the case of the motor industry, the Government said that if the industry could raise £40,000 the Government would give £20,000, and after that they would give £ for £ for any sum over £60,000. The industry managed to raise that through the members of the Society of Motor Manufacturers and Traders. In 1955, the target was raised. The industry had to raise £80,000, and the Government gave £30,000, and also £75 against every £100 raised by the industry.
This week, I had an opportunity of looking at the total sums raised in the last ten years. They are formidable. Industry raised nearly £800,000. The Government raised £433,000. In addition, the industry has twice had two special appeals for funds for capital development, and on each occasion it raised about £250,000. A sum of £1¾ million has been spent on co-operative research in the last ten years.
How has that been expended? It has been spent on a number of projects. On a disused airfield near Nuneaton there is a high-speed proving track and the imitation Continental pavé road on which motor vehicles can be tested. It is such a good imitation that once when I was at the Brussels Motor Show going round with the Belgian Minister of Transport he pointed to a picture of a British motor cycle going over a pavé road and said, "Look how terrible our roads are". I pointed out that it was an imitation pavé road that in fact came from the Midlands of England. There is also an African corrugated track, a dust tunnel, a water splash, a cross-country track, a test hill, a wind tunnel, noise rooms and a freezing-up chamber, all of which have greatly assisted in improving the breed of the products.
I remember ten years ago when members of the Society of the Motor Manu- 82 facturers and Traders and myself first tried to sell motor cars and motor vehicles in America. Although the basic design of the product was accepted as good, the reliability of the small components and parts was not so acceptable, and there was much criticism of them. It is because of the work done on this proving ground that the vehicles have been made more reliable, economically safer and quieter over the years, and the sale of vehicles in the U.S.A. has gone up from 20,000 a year to 250,000 at the present time.
I remember a bus and coach manufacturer telling me that he had obtained a large order from South America for 200 buses but that before completing the order he was going to put one of his buses on the track at Nuneaton to see how it ran. He ran it for a week and found twenty things wrong with it. As a result, he was able to put in further research and development, get the bus right, and give satisfaction to his customer.
That is an example of what can be done by co-operation between the Government and private industry. It is agreeable to note that this co-operative effort, which is typical of many other industries, has been copied in Germany, Italy, France and Japan. As a result of those improvements, the sales of products have gone up and accordingly the productivity of the men in the works has also gone up.
I turn now for a moment to the machine tool industry which has been criticised by the hon. Member for Dunbartonshire, East. We must be fair to that industry. It has to make a great many specialised products. It does not, like the motor industry, make a homogenous product. An industry such as the motor industry requires specialised machine tools. At one time America was foremost in making those machine tools and this country gravitated to buy those tools in America. The machine tool industry has hardly had a chance to develop and specialise to the extent that it should have done to meet modern demands, but there is a way in which it can do so in future.
The machine tool industry has developed its co-operative research through the Production Engineers Research Association, which is a very generalised body dealing with all sorts of trades besides machine tools. I understand that lately 83 the P.E.R.A. has fallen very largely under the control of the users of the products of machine tools, rather than under the control of the makers of machine tools. That is an error into which it has fallen, but the time has arrived when the machine tool industry must set up its own research organisation, and I hope that we shall hear from the President of the Board of Trade that he is encouraging the Machine Tool Trade Association to do that. I should like each year to see the machine tool industry put aside £50,000 and the Government put aside £30,000 to build up a research organisation specifically to improve British machine tools, rather than leave it as it is now in a generalised research organisation.
§ Mr. Gresham Cooke
Yes. We do not want to lag behind. When one has the benefit of research which is done by manufacturers and by research organisations one asks oneself whether it is a help in planning investment. In my opinion it is, because it can answer the question whether one ought to go in for mass production or for specialised production. It can answer the question whether the product is reliable and well designed, and whether it will find a market. It may be that that is more for market research, but it could answer those questions.
It may be that in the years ahead there will be a special place in this country for high-grade products, be they electronic or anything else, but we shall have to ask whether we are leading in these specialised fields or tagging behind. We have heard today that the percentage of our national income devoted to research is less than the percentage devoted by the United States of America and Russia, but vis-à-vis the U.S.A. we have the advantage that while their research organisations belong to individual companies, here we have cooperative research organisations which may take us a step ahead of the United States.
In my opinion, the co-operative research organisations referred to in the Amendment have performed a useful service, and can perform a greater service for us in future. We are dealing 84 with Supply today, and it is fair to say that the money spent by D.S.I.R. in the last ten to fifteen years has been well spent. The greater encouragement the Government can give to British industry to spend more money in co-operative research the more happily can we look towards the future of British industry and its leadership in world markets.
§ 6.10 p.m.
§ Mr. James McInnes (Glasgow, Central)
I have listened very attentively to the hon. Member for Twickenham (Mr. Gresham Cooke) extolling the virtues of private enterprise—and what a wonderfully efficient and effective institution it appeared to be. Yet, almost in the same breath, he was appealing to the Government to give more money to research to help private enterprise to function as it should. I can tell him that the English are exceedingly lucky in the matter of research. There is only one research organisation in Scotland—the Jute Industries Association. For long we have been hammering at the President of the Board of Trade to direct some of the scientific and research organisations to Scotland, with little or no success.
I intervene for only a few minutes in order to deal with the question of the lack of investment as it affects the frightening problem of the high unemployment rate in Scotland. Scotland is passing through one of the worst periods in its history. Its unemployment rate today is higher than it has been at any time since the war. That is related to the question of investment. It can hardly be asserted that there is a lack of capital in Scotland, but there is evidence of a very serious shortage of investment, both by private enterprise and by the Government.
Last Monday, as the result of a Question in the House, we were told that we were falling behind in the production of coal, gas, electricity and steed. In fact, we were told that Scotland was producing 13 per cent. less steel last year than it was in 1948. In all the industries I have mentioned, we continue to lag behind. I condemn Scottish industrialists for this. Of all the major postwar industrial undertakings which we have been able to attract to Scotland, no less than 66 per cent. came from 85 England, 23 per cent. from America, 6 per cent. from other European countries, 4 per cent. from Canada, and only 1 per cent. from Scotland. We Scots sometimes say that we ought to sell Scotland abroad, but we cannot sell it to the Scottish industrialists, never mind anyone else.
Furthermore, whether deliberately or otherwise, the Government are not investing in Scotland. Their total investment is concentrated in the South. I had occasion to put a Question to the Minister of Works concerning a number of schemes which had been started between January, 1957, and December, 1959. They were schemes on behalf of research establishments, including Royal Ordnance Factories, the Atomic Energy Authority, the Admiralty, and the Department of Scientific and Industrial Research. I was informed that 104 schemes had been started in these two years, to the value of £21,284,000. When I sought to elicit what percentage of that had come to Scotland I received the shock of my life. I was told that only three of the 104 schemes had come to Scotland, to the value of £241,000—in other words, 1 per cent.
I support the Amendment, but I must point out that both the President of the Board of Trade and the Minister for Science are conscious that what Scotland requires is scientific and technical industries. That is admitted, but nothing is done by the Government to invest in these industries in Scotland. The result is that we are in the tragic position of having a worse unemployment position now than at any time since the end of the war.
I take this opportunity of appealing to the President of the Board of Trade to give this matter serious consideration. He now has a greater opportunity of being able to influence industry to go to Scotland and to get the Government and private industry to invest in that country and help it to overcome its present tragic unemployment problem.
§ 6.17 p.m.
§ Mr. Richard Collard (Norfolk, Central)
If I do not follow the remarks of the hon. Member for Glasgow, Central (Mr. McInnes) it is partly because it takes a fairly bold man to speak about Scotland if he does not come from there, and partly because I want to confine my remarks to an industry of which I have 86 some experience, namely, the aircraft industry. This industry is not inappropriate to be discussed on this Amendment, because not only does it require a great deal of investment but it is one in which the Government are finding themselves obliged to invest.
I must declare an interest in the industry. I would also say that I would prefer the Government to keep out of it. I am at one with the hon. Member for Dunbartonshire, East (Mr. Bence) in that sentiment. If investment means detailed interference it will eventually be regretted, but there are some respectable examples of heavy investment without detailed interference. The Anglo-Iranian Oil Company springs to mind in that connection. Hon. Members on this side of the House have no dogmatic objection to Government investment; what we distrust is detailed Government control. Hon. Members opposite seem to have a dogmatic predilection not only for investment but also for control, Which, by the waste it creates, very soon calls for more investment.
§ Mr. E. G. Willis (Edinburgh, East)
That applies to the hon. Member for Kidderminster, (Mr. Nabarro).
§ Mr. Collard
The aircraft industry is an extraordinary organisation, containing some extraordinary people. The more picturesque figures—the pioneers—are beginning to disappear, and we shall be the poorer for their going, but the industry retains many of its unique characteristics. Aviation is not so much a profession, hobby or occupation as a disease, and it is of the sufferers from that disease that I wish to speak this evening.
The aircraft industry, I believe, has given good service to this country, but it does not get the benefit from that fact, partly because its public relations are so bad. The reason for that is not far to seek. The industry has consisted of a number of firms all competing for the favours of the same customer, and therefore one can hardly expect it to be a homogeneous organisation which could agree either on public relations or, for that matter, on the general policy of the industry as a whole. Nevertheless, I believe that it has given great service to the community.
What is most odd about the aircraft industry is its growth, which has been 87 quite abnormal. The industry has grown up in two wars. The whole of aviation, not just the military side but also civil aviation, so far as the manufacture of aircraft is concerned, has grown up and has been expanded as a result of two wars. The civil aircraft business has been carried on the back of the miltary aircraft business, and the vast expansion in the industry has not been justified by its commercial possibilities. It has been justified because the country on two particular occasions has required this enormous expansion which the industry has attained. Not that this military development was wasted, although many of the productions of the industry literally went up in smoke. There was the work accruing to many thousands of people employed in the industry. There were the profits accruing to the shareholders who invested in it.
In particular, the sophisticated techniques of aircraft construction were responsible for an enormous technological advance over the whole scope of engineering. Last, but not least—and most important of all—it has contributed enormously to the defence of the country, and its exports have been by no means negligible. They are the type of exports which are particularly suited to our national genius, in that they contain a very high proportion of skill in their value and only a very small proportion of hardware.
The business of making commercial civil aircraft has never stood on its own feet. After each war, civil air transport consisted of converted military types. Some civil types, both here and in America, have grown out of the resources originally established for military production; other civil types grew and were developed from military transport. In particular, engines which have been used for civil aircraft were originally put in hand and developed for military purposes. Electrical systems and hydraulic systems which have been used in civil aircraft were originally developed and used at Government expense for military aircraft.
Above all, civil aircraft construction has benefited from the basic research which has been put in hand in connection with the Government's requirements for military aircraft. This is not only 88 true of this country, but is equally true of the great aircraft manufacturing companies of America. The Douglas Company, the Lockheed Company, and the Boeing Company would not now be the power which they are in the civil aircraft market had it not been for the fact that, in two wars and for the first part of this century, they have been the recipients of Government support in respect of large military orders.
I think it is probably true to say that only one civil aircraft has, in fact, shown a profit, and that is the Viscount. Admittedly, it had some Government support at the beginning, but it has now paid it all back and more. There has probably been no other civil aircraft in the whole history of the industry which has actually shown a profit as a project on its own, other than the Viscount. I mention this to illustrate the point which I hope to make. Now that the requirements of military aircraft are much less in quantity and in variety of types, the volume of aeronautical research must be expected to decrease, and the necessity for making money out of the commercial market, as opposed to the military market, must arise. In this country, we are faced with the fact that we have no great home market. Once a large proportion of the requirements of military aircraft is taken away, we are left in the position that we do not get the cushioning which we had so long as military aircraft were in demand.
The difficulties of conducting a civil aircraft manufacturing business are considerable, but I will mention only one or two. Among the big difficulties we might list the fact that there is no specific requirement. When one is making military aircraft according to Government requirements it is quite clear that the requirement is there, but in civil aircraft one has to assess the requirement, to find it out, and hope that it will not have disappeared before the aircraft is developed. The financial difficulty is that, having allocated the original sum for the design of the aircraft and construction of the prototypes, one then has to make an agonising appraisal as to whether to lay down a production line and at what time to do so. If one lays down the production line too late one will not be able to offer decent delivery dates, but if one lays it down too 89 early one may find oneself with unsold completed aircraft on one's hands, and that is the quick way to bankruptcy in this business.
As to the commercial difficulties, we are serving a market in which the customers have profits which are either nonexistent or marginal. For that reason, they will invariably require very long credit. We are also serving customers who will demand an expensive and elaborate after-sales service which will involve, among other things, laying out a great deal of capital in vast stocks of spares which may remain unsold; in fact, the more efficient the aircraft, the longer will they remain unsold. We may also possibly be liable for heavy damages, which we cannot avoid by any form of contract, if we should be so unfortunate as to have an aircraft involved in a disaster.
One engages in lengthy and protracted negotiations in every corner of the globe. One receives a quite useless document from customers, called a letter of intent, on the strength of which one has to decide whether to start to construct an aircraft which one hopes, eventually, to sell. The negotiations for sale may continue for many years. Expenses on any project over that time will mount continually. There will be no return on them until orders have been obtained and the aircraft built and sold and until the credit has expired and the whole of the money is received.
I speak of these matters from personal experience. I make the point in order to suggest to the House some of the facts of life regarding this industry. It is not much good blinking them. By itself, the making of civil aircraft is not commercially attractive and by purely commercial criteria one would stop doing it. But on 15th February of this year my right hon. Friend the Minister of Aviation said that the Government regarded it as essential that the United Kingdom should maintain a strong and efficient aircraft industry. My right hon. Friend straight away and boldly accepted the implications of that policy. I doubt whether many hon. Members would disagree that we ought to have a strong and efficient aircraft industry despite all the commercial difficulties which I have mentioned and not tried to gloss over.
In accepting the implications of this policy, my right hon. Friend said that 90 he would do four things. He would continue aeronautical research on a large scale, even though it was not directly related to military projects. He said the Government would be prepared to contribute to the initial cost of certain projects for airframes and engines. He said that the Government would be prepared to share the risks of laying down a production line; in other words, to come in on that risk which I mentioned earlier when a decision has to be made whether to put in more money, having already invested money in the design and prototype. Fourthly, my right hon. Friend said that under certain conditions and in certain cases the Government would contribute towards the cost of proving civil aircraft in service. Financially, the Government will receive back royalties in cases where they give assistance in one or more of these ways. I hope that the Government will not confine their requirement for royalties merely to the recovery of the money which they invest. In the case of successes, I hope that the royalties will continue for all time so that the Government may share in the success, because without doubt there will also be failures.
My right hon. Friend has encouraged the industry to form itself into groups likely to be capable of benefiting from this new Government policy. He has been singularly successful in achieving this and it may be said that the industry has been singularly co-operative in acceding to his wishes. I have no wish to make any special plea for the aircraft industry. I desire only to draw the attention of the House, in all humility, to certain facts of life which affect this great industry.
Few would dissent from the view that we should be in the forefront of aeronautical development. Few would dissent from the view that we ought to build a supersonic airliner, but very few would claim that to carry out such a project is within the power of any private organisation. The fact is that the construction of commercial aircraft is not sufficiently attractive from a commercial point of view to attract enough private capital. So, boldly and rightly, the Government have decided to contribute not only towards the basic research for this industry but also to the capital, under one of the heads I mentioned, to enable the result 91 of research to be developed and finally to be put on the markets of the world.
I believe that the decision by the Government is in line with the Amendment so ably moved by my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn). I applaud it with the qualification that I regret its necessity. I hope that in this industry, as in others, it will be possible to make the capital investment and still avoid the detailed Governmental day-to-day control which I believe would defeat its own object.
§ 6.36 p.m.
§ Mr. Roy Jenkins (Birmingham, Stechford)
The hon. Member for Norfolk, Central (Mr. Collard) gave an informed and interesting if somewhat lugubrious account of the position of the aircraft industry today. If this was the sort of speech he intended to make, I cannot understand why the hon. Gentleman began by making the dogmatic statements he did about the extreme undesirability of Government interference in industry of any sort. It is only because gentlemen in Whitehall think that in some cases they know best that there is any aircraft industry at all today, and I think that the hon. Gentleman appreciated the advantage of that. Why, then, did he think it convincing to combine that belief with the dogmatic statements which he made regarding Government assistance to industry? I find that difficult to understand.
The hon. Member for Sheffield, Hallam (Mr. J. H. Osborn) moved his Amendment with an agreeable speech. Having introduced the subject three hours ago, it is unfortunate that the hon. Member has hardly been in the Chamber since. I am reminded of an occasion when the late Mr. Balfour, towards the end of his life, was presiding over a rather less than riveting lecture given by a member of the Royal Society. After dozing through some parts of it, Mr. Balfour apologised to the lecturer for having missed substantial parts of the lecture owing to increasing age and deafness and said he would judge that clearly he had missed the more significant parts. It is clear that the hon. Member for Hallam has missed substantial parts of the debate, and I am not sure that they have not been the more significant parts.
§ Mr. J. H. Osborn
I wish to apologise to the House. When I last spoke I had some difficulty in dealing with the HANSARD report and I wished to make certain of its accuracy this time. I regret not being in the Chamber.
§ Mr. Jenkins
We shall look forward to a remarkable degree of accuracy in the hon. Gentleman's speech after his absence of two hours or more on this occasion.
The hon. Gentleman dealt with his subject in relatively non-controversial terms. In a sense, because of that, he did not press issues which he might have done. Capital investment, after all, is in some ways the reverse of sin. Put in sufficiently general terms, very few people are likely to be against it. To some extent the hon. Gentleman started off in fairly general terms, but I think we must come more to grips with the subject, and I hope that will be done by the President of the Board of Trade.
The hon. Member for Willesden, East (Mr. Skeet), who also is not present in the Chamber at this moment, made an interesting speech, but for the number of occasions on which he had subsequently to rise to explain that what he said was not what subsequently he was credited with saying. Again, the hon. Gentleman did not deal with the issue in more than a general sense.
The hon. Member for Shipley (Mr. Hirst), another and more surprising absentee from the Chamber—I am sorry that the Government benches are so denuded at the end of this debate—was in kinder mood towards the Government than sometimes he is. He said that the Government had gone continuously in the right direction for the past nine years, though with occasional diversions, as I understood his point to be. His main contribution to the debate was the manner in which he put to the House, more forcefully than any other hon. Member, the hard figures about the relatively poor performance of our investment in this country at the present time.
I think the analysis which the hon. Member made was good, but I was less impressed by the remedy which he advocated—simply to offer industry a package deal in which investment allowances, and, I think, the initial allowances, too, were to be abolished and industry was to have the Profits Tax abolished at the 93 same time. The hon. Gentleman thought that would solve all the problems. Investment and private industry would be left to itself to do a great deal of highly satisfactory investment in the right places and in the right industries at the right time—just as the hon. Member has himself arrived back in the Chamber not quite at the right time but almost at the right time, if I may say so.
Before he came into the Chamber, I was congratulating the hon. Member for Shipley on his diagnosis of the problem, but I was being a little more critical about some of the remedies he suggested for dealing with it. In particular, I expressed scepticism about the abolition of investment allowances and initial allowances, on the one hand, and Profits Tax, on the other, as a solution for the problem of both the volume and direction of our investment, and about the argument that if the Government left things alone everything would work out satisfactorily.
§ Mr. Jenkins
Yes, but the hon. Member would not deny the propositions which he put forward and which I mentioned earlier. Indeed, continuity is something which, like capital investment, if put in sufficiently general terms, is likely to find favour, though the Government do not always practise it as completely as we or the hon. Member might sometimes wish.
It is difficult on the face of it to see how the abolition of Profits Tax with the abolition of investment allowances—which would benefit the firms with a low rate of investment and be a disadvantage to firms with a high rate of investment—would prove an advantage. It is difficult to see how this would affect the problem of what sort of investment we want and in what places.
My hon. Friend the Member for Dunbartonshire, East (Mr. Bence) dealt with this matter extremely well. I am not sure that the President of the Board of Trade would agree that the motor industry would have chosen the exact sites where development is to take place in 94 the future without—how shall be put it? —a little gentle persuasion from himself. As I understand the hon. Member for Shipley, he thinks that had the Profits Tax been removed the motoring industry would have gone exactly where the Government think it should go in order to develop, or alternatively, it would not have gone there, but that would not have mattered because the employment policy is nonsense anyway.
§ Mr. Jenkins
Does the hon. Member want the degree of Government planning in which the President of the Board of Trade has been indulging?
§ Mr. Jenkins
I thought the hon. Member's kindness towards the Government was likely to be fairly shortlived, and I see that this has indeed proved to be the case.
I think that there has been a temptation, from which some hon. Members opposite suffered and which they did not entirely resist, to make speeches perhaps more appropriate to gatherings of chambers of commerce, at which they were giving puffs to particular industries or even particular firms, rather than to debate the general problems of capital investment. I certainly suffer from the temptation, as conceivably does the President of the Board of Trade, to make my Budget speech all over again. I will, however, endeavour to avoid doing that and confine myself rather more closely to the problems of capital investment, but, openly, definitely and without apology, deal with it in a general sense and not look just at the problems of particular industries in the detailed way in which some hon. Members have done.
Are we satisfied with the level of capital investment in this country and with the prospects for a change in that level? If not, what do we, and what do the Government—for the Government have the power—propose to do about it? The starting point, on which we ought not to be in much dispute, is that our performance in 1959 in this respect was relatively bad. In the fourth 95 quarter of the year in manufacturing industry—and I am primarily concerned, as is the whole nation, with manufacturing industry, and the Amendment is about private industry—investment was the same as in the first quarter of 1959, which means that it was lower than in any quarter since the beginning of 1955. That is a bad record for the last quarter of 1959, this great boom quarter.
The performance is given some sort of respectability only by the promised spurt in private investment of which the Chancellor of the Exchequer made a great deal in his Budget speech and which, if it takes place, would certainly much improve the level of investment in private industry but—let us be clear about this—only to the extent of bringing it back to approximately the 1957 position and to the extent of narrowing the gap between our rate of investment and that of our main trade rivals. It would certainly go nowhere near to closing that gap.
To what extent does this matter? We do not want to make a shibboleth of the level of capital investment, as if it were something about which we all talk and to which we bend our knees as though it were a great thing which nobody should criticise. But if it matters, why does it matter? In a long-term sense, obviously the rate of capital investment governs the country's economic power, our standard of living and our position as a nation in the world. That is in the long-term setting.
Clearly, all the indications of the present trend, projected forward, are that, relatively, we are slipping pretty badly in this country, but in a way the level of capital investment matters for a more immediate and more short-term reason. There is mounting evidence that it is not just a question whether the rate of growth of which our industry would be capable at recent levels of investment—if it could go ahead continuously—would be enough to keep us more or less abreast of our rivals; it is a question that, as British industry is organised at present, the tendency, as soon as we make any sort of spurt, to run into balance of payments difficulties is so strong that there is no possibility, as far as we can see, of our being able to go ahead steadily even at the rates made possible by the present level of investment.
96 In other words, we are always in the position that we do not go ahead with a big spurt as fast as that of the Soviet Union, Japan, Western Germany or, conceivably, even France, and, moreover, that we cannot do so because as soon as any spurt takes place it immediately has a significant effect upon the balance of payments position and the brakes have to be put on much more quickly in this country than in almost any other country.
§ Mr. William Shepherd (Cheadle)
The hon. Member has said that we are slipping behind very badly. Would he like to tell the House which industries, with the exception, say, of the cotton textile industry, he considers would justify an immediate and substantial increase in capital investment above the level which is now taking place?
§ Mr. Jenkins
I will certainly answer it in a moment. In fact, if the hon. Member insists, I will answer it now and then deal with the implications. I would justify a great increase in investment in the machine tool industry and in the steel industry, apart from sheet steel—because a great deal of the investment in steel is geared to the motor industry and is concentrated on sheet steel. Those are two industries to begin with, and it would not be difficult to add to the list.
The hon. Member makes pertinent interventions: he made one in my Budget speech; I spent about two weeks thinking about it and I propose to reply to it later this evening. But he seems to be acting upon an assumption which is so despairing of the state of the country as to be hardly possible to countenance. He does not challenge the fact that our rate of investment is lower than that of our rivals, but he says to me, "Look at British industry. Where is there a place in which it is worth putting in more investment?"
§ Mr. Shepherd
The hon. Member tries to do an injustice in his remarks. I do-not think that the figures normally quoted reflect the true position. I think they are misleading. Had I not been in my constituency, I should have liked to speak about this in the debate. In my opinion, the steel industry does not 97 at the moment justify more capital investment than is envisaged and is being carried out, and the machine tool industry needs drive and imagination rather than capital investment.
§ Mr. Jenkins
It is conceivable that it needs all three. I dare say the hon. Member is well informed on these subjects and knows perfectly well that we cannot argue them in great detail across the Floor at this stage of the debate. I certainly have no desire to do him an injustice; quite the contrary.
He says that the figures showing our investment performance by comparison with that of our main trade rivals are picked out relatively unfairly and that our investment performance is in fact better than the figures indicate. Nobody will deny that the comparative use of international statistics is an extremely tricky art, with a great margin for error. But if what he is saying were true, and if these investment comparisons gave a false picture, one would expect this to be corrected by the picture of the results. Suppose it were the case that the figures showed our investment performance to be below that of Germany, France or the Soviet Union, but that our productivity figures showed that we were doing substantially better than would be expected from those investment figures; or suppose that the relative export performances showed that we were doing better than would be expected from the investment figures, conceivably there would be a temptation to agree with him and to say that there was something wrong with the investment figures. But when we are in the position in which we have the figures, in which it is difficult to challenge them in detail, and in which the results are exactly what we should expect if the figures gave a true and not a false comparison, then it seems to me that the balance of probability is heavily on the side of the figures and not on the side of the hon. Member.
§ Mr. Shepherd
Would the hon. Member like to tell the House in which industries, except the textile industry, our prices are not competitive with those of Continental countries? It is the end cost of the product which is important.
§ Mr. Jenkins
I am certainly willing to give the hon. Member some information. Quite unashamedly, I am anxious to keep this matter in terms relating to British industry as a whole and not to deal with particular industries and even with particular firms, as some hon. Members have done, because otherwise it is possible to become completely lost and to be unable to see the wood for the trees. But I am quite willing to argue in detail. Before the hon. Member started this series of interruptions. I was about to call attention to a leading article in yesterday's Financial Times dealing with the general export position.
It read:In 1959, to take but the latest example, U.K. exports rose by just over half the world average and showed a much lower rate of expansion than those of either Japan or any of the principal European countries.
§ Mr. Shepherd rose—
§ Mr. Jenkins
I like the hon. Member to make interventions, but I prefer him to ration them reasonably and not to have too many.
The Financial Times went on to deal with why it thought this was so and made a number of points which I should have made if the hon. Member had not deflected me. I wanted to deal with the structural imbalance which there seems to me to be in the British economy at present. It then dealt precisely with the price picture, and said:A glance at export prices suggests a large part of the answer. Compared with 1953 British prices have risen by 9 per cent., American by 7 per cent., while German prices have remained stable and Japanese have actually fallen.That seems a complete answer to the hon. Member. I hope that hon. Members opposite are not reacting with one of their favourite reactions and assuming that this is just a question of wages, because since 1953 German wages have risen quite as fast as those in the United Kingdom. German productivity has risen much higher, however, and the reason is that German investment has been consistently higher.
The point with which I was dealing is that not merely are we faced with an inadequate rate of long-term growth because of a low level of investment but we are unable to make full use of the growth which would be possible for us, 99 given our present industrial horsepower, because the balance of our industry is such that we have a far greater liability to run into a balance of payments crisis as soon as we move into an expansionary phase than have most of our trade rivals.
The next point I want to make is that, as I said earlier, the 1959 position was thoroughly bad and the present position is given respectability only by what I called the Chancellor's spurt, the additional 10 per cent. investment which was predicted earlier in the New Year. But, of course, that is something in the future and is not something firm; it is something which we hope will happen. Will it take place? After all, these were pre-Budget predictions, and they were probably pre-Bank Rate increase predictions. At any rate, since they were made we have had an increase in the Bank Rate and we have had the Budget and, perhaps more important than either of the other two, we have had the Chancellor's vague credit threats hanging over the economy.
One of the major troubles of the Budget was that it had a deflationary analysis followed by practically no deflationary action of any sort. It was a deflationary analysis with very little action but with general threats that something was about to be done in the use of the monetary weapon. This may well have been desirable at the time, but I am bound to say that nearly every hon. Member, and I think most informed and interested opinion outside the House, thought that when the Chancellor used that threat in his Budget speech he intended within a matter of days in all probability, and certainly within a matter of a fortnight, to make it absolutely clear what he had in mind. Yet we have gone on for two and nearly three weeks with this threat still hanging above the economy.
There is no doubt that if the Chancellor wanted to create uncertainty in the business world and a climate in which people might revise their investment projects downwards, he could not have done this more successfully. What is the position? Can the President of the Board of Trade tell us? The position is causing great concern at present.
I quoted yesterday's Financial Times leader in reply to the hon. Member for 100 Cheadle. The leader in today's Financial Times deals specifically with this point, and deals with it in extremely strong terms. It says:It is difficult to believe that the resulting confusion"—that is, from the Chancellor's policy of nods and winks, as they have been described—has in some mysterious way been beneficial to the economy. The object of the Government's policy is to bring about a slowing down, although not a halt, in the growth of demand, with the emphasis on consumption and property investment. The deliberate creation of uncertainty is a dangerous procedure for achieving this objective, as no one can predict in what direction it may lead. It could lead to too much or too little slowing down of economic activity, and the slowing down could be in productive investment, which the Government wants to encourage.We are entitled to hear something from the President of the Board of Trade this evening. It would have been useful if the Chancellor of the Exchequer had chosen to intervene in the debate in view of the amount of speculation there has been on the subject. I know that the President of the Board of Trade cannot make the Chancellor's statement for him, but I hope that he will tell us whether we can expect from the Chancellor in the very near future a definite statement clearing up the position. Unless that is done, there is grave danger that uncertainty will persist and that the very assumption of increased investment, which was one of the most cheerful factors the Chancellor had behind him in making his Budget speech, will be destroyed by the way in which he has set about carrying out this policy.
The Chancellor is wrong not merely to postpone making his policy clear but also, whether he made it clear earlier or whether he will make it clear soon, in allowing it to depend too much at present on the monetary weapon. The monetary weapon may or may not be effective. One thing which is certain is that, to the extent that it is effective, it is extremely indiscriminate. Looking back over the history of the past few years, it is clear that what we want is not perhaps detailed controls, but a little more discrimination in a broad sense between what activity we encourage and what activity we discourage. We want a little discrimination in general in favour of investment, as opposed to consumption. Within the 101 investment field we want discrimination in favour of investment which will be desirable from the point of view of overcoming the lack of balance in the economy which makes us so peculiarly susceptible to balance of payments difficulties.
Let me give the President of the Board of Trade a few examples on this. We do not want to cut down investment in general. There may be certain forms of investment in which some restriction would be proper at present. What about hire-purchase finance? How does the President of the Board of Trade feel about this at present? My information is that the obtaining of deposits from the public, the general system of hire-purchase finance at the margin, may well be growing into a major public scandal. It is certainly an undesirable use of resources to quite a considerable extent. Is the President of the Board of Trade looking into that at present?
It is generally true that the amount of what one might call property investment in this country is probably greater than we desire from the point of view of balance—even in this country. But to go in for large-scale property investment in New York, on which British capital is now being used on quite a large scale, seams to me to be going a little too far.
§ Mr. Jenkins
The hon. Member for Twickenham (Mr. Gresham Cooke) himself said—it was the only point in his speech I can remember—that the whole world was short of capital, particularly this country. When there is a great shortage of capital for domestic productive investment in this country and when there is a greater shortage of capital for helping under-developed areas, is it the best use of British capital to finance the building of a very large skyscraper on top of Grand Central Station?
§ Mr. Gresham Cooke
We must have a little exchange. In view of all the American capital invested in this country, are we not allowed to invest a little in America?
§ Mr. Jenkins
Unless Manhattan is regarded as an under-developed area, which it would be difficult to argue convincingly, this is an example of British 102 capital certainly not being used in the best way.
In so far as there is a development in investment in private manufacturing industry at present, there is no doubt that to an overwhelming extent that is accounted for by the steel and motor industries, and by the chemical industry to a lesser extent. The steel and motor industries are well ahead of the field. Those parts of the steel industry which are most geared to the motor industry are expanding most rapidly within the steel industry.
I am not against having a prosperous, buoyant motor industry in this country. How could I be, sitting for a Birmingham seat? We certainly want some expansion, but I am not sure that we want quite the degree of concentration of our very limited investment resources in this industry which we have at present.
This is a problem, not only of the total volume of investment, though that is still grossly inadequate, but also of using our limited investment resources in the best way. I hope that the right hon. Gentleman will not persist in the view which he has often put to the House, I think only for public consumption, that in these matters, unless he himself is doing it behind the scenes, any degree of Government interference cannot be other than a disaster. Do not let us have a complacent picture from the right hon. Gentleman this evening. I hope that he will face these problems and give us, not a debating answer, not an answer which might please one or two of his hon. Friends—there are not enough of them here this evening to be worth pleasing—but am answer which will face the world problems before the House and the country in this issue.
§ 7.7 p.m.
§ The President of the Board of Trade (Mr. Reginald Maudling)
In contributing to the debate I may not be able entirely to resist the temptation to make something of a debating answer, and I hope that the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), will forgive me if I do.
The Amendment moved by my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn) deals not only with capital investment but, more particularly, with scientific and technological research and development, though in the course of 103 the debate rather more has been said about investment than about science and technology. I agree entirely with what my hon. Friend said in emphasising the crucial importance of science and technology for this country in the 1960s. After all, apart from a certain amount of coal, china clay and iron ore, the only resources we have in this country are our brains. It is by the mobilisation and development of our brainpower alone that we shall survive in the world of the 1960s. There can be no doubt about the importance of scientific and technological development or of the Amendment moved by my hon. Friend.
My hon. Friend referred in the course of his speech to many points. He stressed the importance of research and development and of the D.S.I.R., which I think the whole House would agree does extremely important work, both in what it does itself and in the assistance it gives to industry.
I was particularly interested in what my hon. Friend said about the importance of assessing research and development projects from the market point of view. We must realise always that there is a great difference between Government financed research and development, where the Government are the sole customers; and research and development of a civil kind where there is a wide range of customers. Therefore, the ultimate control over the direction and balance of research and development must lie very much with the people who know what the market wants.
I am rather surprised, in a way, that nothing was said today about market research, because in some ways market research, the study of the customer's requirements, not only in this country but overseas, is just as important in the long run to our economy as the study of the technical possibilities of meeting those requirements.
I should like to call to the attention of the House, as has often been done in the past, the very great effort which the Board of Trade Export Services Branch puts into studying the requirements of markets throughout the world. Although those services are already very much used by businessmen, the more they are known and used the better for our export trade generally.
104 The hon. Member for Ashton-under-Lyne (Mr. Rhodes) made, as he always does, a very interesting speech. I will not enter into the possible political background to his speech, as other hon. Members have done. He mentioned the interesting point, often made, that the "consumer goods boom", as it is called, preceded the expansion in investment. It is perfectly true that the re-expansion in the economy in 1958 moved back through the consumer industries to the lighter engineering industries, and only later to the heavy industries—parts of which are, perhaps, still underloaded.
That, I think, is perhaps inevitable in any free economy because, however much we talk of the stimulation of investment—investment allowances and so on—people will not lay out money in new investment without seeing a market for their goods, and I must confess that my experience over the last few years has borne in on me very much that the key to expansion of investment must be the foresight of a steady expansion of consumption. But that is one of the great problems that we shall have to continue to face—
§ Mr. Douglas Jay (Battersea, North)
Then the right hon. Gentleman will agree that it follows from that that it was the Government's policy of cutting down generally on spending power in 1951–59 that was the cause of a fall in investment in the last few years.
§ Mr. Maudling
I must say it seems a little strange for the right hon. Gentleman to talk of the Government cutting down spending power in a period when consumption was in fact increasing. But we will come to that a little later.
The hon. Member for Ashton-under-Lyne mentioned cotton and shipping. Dealing, first, wtih cotton, I would ask him to wait a little longer to see the results of the reorganisation scheme. My impression certainly is that the scheme is working out extremely well. It has been very well administered by the Cotton Board, and although there are temporary difficulties of supply and so on—we must expect that sort of thing—I am sure that, in the long run, we shall see that the scheme has been of great benefit to Lancashire and. indeed, to the country as a whole—
§ Mr. Rhodes
I did not say that it was not. I was pointing out that the Government were offering 25 per cent. on new equipment, and I was merely saying that the Government should be aware of how the money was to be spent, and what they were really equipping for.
§ Mr. Maudling
I am sorry—I thought that the hon. Gentleman was criticising the scheme. If he was approving it, I withdraw and will say no more about it. I would only say let us wait a little longer to see how the results work out in the long term. The present signs are encouraging.
On shipping, I rather think that the hon. Gentleman was confusing the problem of flags of convenience and the problem of flag discrimination. For many years, the flag-of-convenience ship operating pretty well on a tax-free basis was a very great danger to our industry, but since the introduction of the very substantial investment allowance for shipping—the special premiums for shipping—there is not very much in the tax position when we compare the flag-of-convenience owner with the large owner, at any rate in this country, with a substantial replacement programme.
The danger now is far more that arising from flag discrimination. Obviously, I cannot enter into that question at any length now, but both we and the Norwegians—and the other maritime nations of Europe—feel very strongly the pressure of flag discrimination on our normal maritime trade.
I sympathise very much with what the hon. Gentleman said about the apparent remoteness of much scientific research from actual industrial needs, although as my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn) said it is very often difficult, with these scientific characters, to predict what the practical results of their work will be in the long run; and it is sometimes difficult at the time to see how valuable those results will be. I agree with the hon. Member for Ashton-under-Lyne that an increase of productivity should be a prime objective of research and development as applied to industry.
My hon. Friend the Member for Willesden, East (Mr. Skeet) referred to the importance of investment in the oil refining industry, and in petrochemicals, 106 which has been a very dramatic development indeed, and I was glad to hear what he said in support of the joint approach to development. The joint co-operative approach to research and development in industry has clearly been of great value in recent years.
The hon. Member for Gloucester (Mr. Diamond) was a little more controversial—although, perhaps, that was my fault for interrupting him on a controversial basis. In answer to a question which I think he asked, I believe that we could certainly do with a higher level of investment in the United Kingdom, although I think the reasons for the hold-back in investment in the manufacturing industries have been not entirely unconnected with the political scene.
If one looks at the forecast of investment made by many big firms in private industry, one sees the extraordinary change in the predictions before and after the General Election. The change was very great. The figures were probably exaggerated; they were too low before the election and too high afterwards, but it is a substantial point that a shift resulted from the change, or lack of change, in the political climate.
The hon. Member for Gloucester, like one or two other Members, referred to the desirability of a 100 per cent. write off of capital investment; the complete freedom of the business man to write off what and when he likes. That subject is perhaps more appropriate to the debates that will take place in the next few weeks, but when this question has been studied in the past it has appeared that the actual swing that might be involved in the revenue in a given year would be very substantial indeed.
I would say to the hon. Gentleman that, from the revenue point of view, he would find that the difficulties of giving complete discretion to the industrialist to write off as and when he pleased are very formidable and must not be underrated, although from the point of view of the businessman it might be a considerable advantage.
Where I do not go with the hon. Member for Gloucester is in his idea that one could accelerate or decelerate investment on detailed instructions after close consultation between a large number of firms and the Board of Trade. I do not think that that would work in practice. 107 We get a great deal of information from these big firms about their investment plans, and in operating the I.D.C. system we learn a great deal more, but the idea of getting a complete picture is impracticable. Even if one could get a complete picture, and one that could be relied on for a long time ahead, the idea of going to firm A and saying "You must expand," while saying to firm B, "You must not expand," does not, I think, agree with a free economy such as we have in this country.
My hon. Friend the Member for Shipley (Mr. Hirst) also referred to depreciation allowances, and said that there were too many changes in the initial and investment allowances. I know that my right hon. Friend the Chancellor of the Exchequer is very well aware of the difficulties that arise, but I am afraid that we must face the fact that the economic climate changes very rapidly for reasons that are not within this country's control.
If we are trying to run the economy on a very narrow margin indeed—say, between 98.5 per cent. and 99.5 per cent. effort—we are bound to have to make fairly frequent adjustments in one direction or another. While I appreciate that this is very often inconvenient to businessmen in their future planning, it is very difficult to see, at any rate with the economic techniques and knowledge at present available, how it can be avoided.
My hon. Friend made the point, as one would expect him to do, that Government expenditure is a very strong competitor with both private and public investment. I certainly accept that, but, of course, the main competitor is public consumption, and the question of competition between consumption and investment for the available national resources must raise very delicate problems, particularly in the course of Budget debates.
My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) referred to the co-operation of Government and industry in research, and particularly to the Motor Industry Research Association. I was glad that he did so, because I feel that in its activities the D.S.I.R. does many valuable things and, I think, does 108 nothing more valuable than in helping to promote in industries co-operative research that would not otherwise have taken place. My hon. Friend's example of the motor industry is a particularly valuable one.
My hon. Friend also referred to the question of machine tools, about which the hon. Member for Dunbartonshire, East (Mr. Bence) spoke at considerable length. I am afraid that I missed the hon. Gentleman's speech, but, as he is not here, he is missing mine, so that is fair shares. As the House will be aware, a great deal of study of the problems of the machine tool industry is at present going on by co-operation between the Government and the industry.
The hon. Member for Glasgow, Central (Mr. McInnes) rose in his place looking, I thought, a little ominous, and, as I rather expected, said that there was not enough research in Scotland. It is a familiar argument, but one into which it is difficult for me to enter today. I thought that he was a little lugubrious, if I may say so, when he spoke of unemployment in Scotland now being higher than at any time since the war. I thought that there had been a little improvement recently, although I certainly agree that there is a very long way to go. I was interested in what he said about Scottish investment in Scotland. I share his disappointment that, of all the investment there has been in recent years, such a small percentage comes from Scottish sources. I hope that the future may restore that balance.
My hon. Friend the Member for Norfolk, Central (Mr. Collard) made a most interesting speech about the great commercial difficulties facing the aircraft industry, and I know that my right hon. Friend the Minister of Aviation will study that with close attention.
I come now to the hon. Member for Stechford who, as usual, made a most lively speech. He was talking very largely about the level of investment—
§ Mr. Maudling
The Amendment is partly about investment, but also largely about science and technology, to which the hon. Gentleman did not refer.
I agree with one of my hon. Friends who said that some of these figures of 109 international comparisons arc rather unreliable, although we have to use them as they are the best that are available. The fact remains that the total level of fixed investment in this country has risen very considerably at constant prices over several years, and has risen continuously.
One interesting thing that has just been pointed out to me is that the proportion of the gross domestic product devoted to fixed investment other than housing increased more in this country between 1954 and 1958 than it did in the O.E.E.C. countries as a group. As the growth in the proportion devoted to machinery and equipment increased, so the position over those years has been relatively improved—
§ Mr. Jay
I do not want to question all the right hon. Gentleman's figures, but if he takes the increase in gross capital formation here since 1953 and compares it with other European countries he will find that in O.E.E.C. it is 31 per cent., in Germany 70 per cent.; in Italy 48 per cent., and, in France, also 48 per cent. That is surely not very encouraging.
§ Mr. Maudling
I was dealing with fixed capital investment other than housing, which is important. The proportion of the gross national product devoted to investment today is increasing. I agree that the proportion here is not as high as it is in a number of European countries, but it is at about the same level as in the United States, and, so far as I can see, the proportion devoted to research and development is also about the same here as it is in the United States.
In making these comparisons it is not unimportant to have regard to the United States economy which is, after all, a very big and rapidly expanding one. With a gross national product of over 500 billion it has been expanding very rapidly—
§ Mr. Roy Jenkins
Surely the President of the Board of Trade does not suggest that giving the gross national product shows that an economy is expanding. Would he like to give figures for American expansion for the last five years? Over which countries' economies has that of the United States expanded faster in the last five years?
§ Mr. Maudling
I could not say, but the American gross national product has reached the very high level of over 500 billion which, from that country's point of view, seems very satisfactory.
The other point made by the hon. Gentleman, and one that is extremely important, is our tendency to run into balance of payments difficulties if we expand too fast which, he said, happens more quickly here than in other countries. He may be right there, although I do not accept the reasons he gave for it. Frankly, I was rather mystified by his reference to the balance of industry being such that we run into difficulties more quickly than do other countries.
I believe that the reason is probably that our reserves in relation to our liabilities are infinitely smaller than those of other countries. The reserves backing sterling are much less than those backing the deutschmark and not much bigger than those backing the lira, yet, with sterling backing over 40 per cent. of world trade, the responsibility is very great. Inevitably with the ratio between our reserve situation and our international commitments we are liable to run more quickly into difficulties than are other countries—
§ Mr. Roy Jenkins
That would probably explain why we got into difficulties such as those we experienced in 1957—that was largely a reserves crisis. It does not appear, however, that what the right hon. Gentleman says would explain why our short spurt last year should have landed us in this balance of payments situation, which has nothing to do with reserves or with the strain on sterling, with the prospect this year of a still worse balance of payments position than last year, although, assuming that stronger rate of growth as compared with last year, the balance of payments position is still extremely strong.
§ Mr. Maudling
The sort of thing that I had in mind was this: when we get a re-expansion of industry we get a substantial restocking. One of the problems of the balance of payments is the high level of imports arising from restocking. If we have adequate reserves we can carry this, but if our reserves are inadequate we may rapidly be brought into very serious difficulties.
111 The trouble is that we must limit the total call on our resources to what they can produce. Last year we saw an expansion of over 10 or 11 per cent. in total industrial production, but that was because we were bringing into use a great many resources which were previously idle. I do not think one can expect another expansion on the same scale this year. Of course, there is room for the very vigorous and healthy expansion which is taking place. The purpose of my right hon. Friend the Chancellor of the Exchequer in his Budget—I cannot repeat my own Budget speech or that of the hon. Member—was to ensure that expansion, although continuing strongly, should not outrun the resources available.
Of course, in deciding what can be done we have to bear in mind that there is direct competition between consumption and investment. I thought that the hon. Member for Stechford rather avoided that question, because if he wants to see more of our resources going into investment it must mean fewer of our resources going into consumption. I have not noticed from the party opposite many proposals in recent months or years designed to reduce consumption. On the whole, their proposals tend to work in the other direction.
The hon. Member touched on the age-old story of controls. As usual, he did not say what controls he meant. He wanted to restrict consumption, but he did not say how it should be restricted. What sort of controls restrict consumption? So far as I know, there is only one form of control that restricts consumption. The hon. Gentleman talked about discriminating in favour of desirable investment. But how are any Government to say to a commercial firm what is a desirable investment and what is an undesirable investment? To a business, what is desirable is the investment which will produce something which people are going to buy. Unless capital investment is adjusted to the pattern of future demand, one is wasting one's resources.
§ Mr. Diamond
What was the Capital Issues Committee doing over all those years except deciding that very thing?
§ Mr. Maudling
That is precisely why we abolished the Capital Issues Committee. One might as well ask why we 112 do not continue with rationing. If we have a food shortage we have have a system of rationing. But I would not have thought that capital was short in the way in which it was at the time when the Capital Issues Committee was operating. I do not see how the party opposite can controvert this argument. Either our investment programme is planned to produce what people are going to buy or it is not. I should have thought that it was wiser to leave industry to plan the production of what the market needs. If we interfere and say to one firm, "You will produce this" and say to another firm "You will produce that," we shall finish up with a shortage of goods which people want to buy and a surplus of articles which people do not want to buy. If the motor car industry represents such a high proportion of the expansion of the economy, it is because the demand for motor cars represents such a high proportion of the total increase in demand in the economy.
I should like also to refer to the hon. Member's extraordinary remark about property investment in New York when he said that it was a bad thing to make a profitable investment in the United States. [Interruption.] I do not think that I could make a statement about hire-purchase finance. I do not think there is anything that I could or should add to what my right hon. Friend the Chancellor of the Exchequer said in the course of his Budget speech, which in any case seemed to me very clear.
On this question of investment in the United States, the principle of the party opposite seems to be that one should invest only in something that is unprofitable. Surely, it is a very good use of United Kingdom resources if we can use British "know-how" in property business, which is considerable, as the party opposite is aware because its members complain there is too much of it, and produce a substantial return to this country. Unless we earn a return on our overseas investments we shall not have a surplus out of which to provide the aid for the under-developed countries to which the hon. Member referred, and to which we on this side of the House are much wedded at the present time. I thought that argument was below the penetrating level of the hon. Gentleman's economic analysis.
113 We have had a very interesting debate which has ranged very wide indeed, and I should like to congratulate my hon. Friend the Member for Hallam on bringing forward this very important subject. I hope that in these circumstances he will be willing to withdraw his Amendment.
§ Mr. J. H. Osborn
In view of the extensive debate which has taken place and the reassurances of my right hon. Friend the President of the Board of Trade, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Main Question again proposed.