ECONOMIC SITUATION

HC Deb 11 July 1960 vol 626 cc987-1122

3.45 p.m.

Mr. Harold Wilson (Huyton)

The situation which we are debating today is painfully familiar. Once again, within a few months of a General Election which was fought on prosperity, the magic has gone and we have to face economic realities. Hon. Members opposite toasted themselves in champagne only a few months ago, and now we have the morning after.

I will not embarrass hon. Members by quoting the extravagant claims which they made last October on the hustings, but typical of them were the boasts of the Prime Minister, whose regard for objective truth in these matters has always been somewhat elliptical, not least on the hustings. This is what he said: …today, the British economy is sounder than at any time since the First World War. Sterling has been re-established as a sound and respected currency. Our balance of payments is strong.

Hon. Members

Hear, hear.

Mr. Wilson

The right hon. Gentleman also said: I do not remember any time in my life when the economy has been so sound and the prosperity of our people at home so widely spread.

Hon. Members

Hear, hear.

Mr. Wilson

Within nine months of the election we have had in quick succession a tough Budget, hire-purchase restrictions, the reintroduction, of the credit squeeze, an announcement about cuts in Government expenditure and now a crisis level Bank Rate of 6 per cent. I notice that hon. Members opposite are much more silent now.

This is 1955 all over again, because within nine months of the 1955 election we had the present Home Secretary's autumn Budget. He need not be so shy; I am glad to see him here. Within the same nine-month period, and as the first fruits of the reign of "Super-Mac" at the Treasury, we had the credit squeeze, a 5½per cent. Bank Rate, the clampdown on production and the scrapping of the investment allowances. What is going on now is all so sickeningly familiar.

It has happened simply because we increased production. After three years with no increase at all, the boom which they engineered for the election has proved too much for us. One thing is very clear. After eight and a half years of stewardship by right hon. Gentlemen opposite, the economy is so weak, so vulnerable, so narrowly based, that we cannot stand even a single short-lived spurt in industrial production. Production, even in 1959, was only 22 per cent. above the figure for 1951, and it was still the worst record in Europe.

During the years of the great stagnation I more than once gave the House the comparative figures for Europe. Hon. Gentlemen opposite should have the figures today after a year's boom, because they are still as bad. West Germany has shown an increase of 91 per cent. since 1951; Italy, 82 per cent.; Austria, 63 per cent.; France, 61 per cent.; The Netherlands, 51 per cent.; Finland, 40 per cent.; Norway, 38 per cent.; Denmark, 35 per cent.; Britain, 22 per cent., with only Sweden at 21 per cent., Luxembourg at 17 per cent., and Belgium at 12 per cent. lower. I ask hon. Gentlemen to contrast those figures with those for 1945 to 1951, when year by year Britain proudly led Europe.

For a few brief months, we tried to join the European race, but our muscles and wind are in such poor shape that the effort was too much for us. We have had to retire from the race. We are back once again to restriction, to the Prime Minister's 1956 policy of clamping down, and, worse still, of mortgaging the future by holding down investment.

The truth is that our economy is too weak to stand a sustained expansion of production, simply because Ministers squandered the great opportunities of the 1950s and squandered the chance held out to us by the most favourable world economic conditions we had since before 1914. A recent speech by the Parliamentary Secretary rather regretted the lost opportunities.

Let us look, then, at the economic position today, nine months after the election, eighteen months after the beginning of the election boom. First, we find the Government hag-ridden by the fear of renewed inflation. There are some of the old familiar signs—a depressed gilt-edged market; war loan has reached its lowest-ever figure, lower even than it was under the right hon. Member for Monmouth (Mr. Thorneycroft); and Consols are at almost the lowest level for forty years. So much for the Tory concern for the small investor and for the Home Secretary's call to "Invest in Success".

It was the labour position which caused the panic. The Bank Rate went up to 6 per cent. on the very day when, for the first time for nearly three years, the number of unfilled jobs equalled the number unemployed. Under this Government, whenever we have reached a position when there was no longer a surplus of men running after every job, we have had a foreign exchange crisis. Here we are, fifteen years after the war, and we are still so vunerable that we cannot achieve full employment without lurching into crisis.

Because of a shortage of manpower in the Midlands and the South, the blunt instruments by which the Government seek to regulate the economy—nationwide as they are in their effects—mean that areas where unemployment is still heavy have to suffer equally—indeed, in all probability more than equally—with the prosperous areas. The Government's failure, despite all their talk, to plan the location of industry means that some areas have still not tasted prosperity, even at the moment when these blunt, non-selective policies are applied to the economy as a whole.

The other flashing sign which stirred the Government was the round of wage claims. Last year, while productivity rose by 6 per cent. compared with the previous year, wage rates rose by only a little over 1 per cent., wage earnings by 5 per cent., profits, of course, by 11 per cent. and dividends by 13 per cent. But at the very suggestion that wages should rise to a level comparable with the rise in productivity which is possible to the country, the whole Treasury Bench react like a crowd of frightened sheep. Here we are again—after eight years of Tory government, Tory freedom breaks down if the wicked trade unions ask for a fair share of the prosperity their members have created. I am surprised that the Conservative trade unionists whom the Tory Central Office is so active in returning to the House have not protested to the Government at what is going on.

Let us look at the worsening overseas position. Here, the plain fact, and an ominous fact, is that exports are failing to rise as fast as imports. In the first five months of this year exports rose by about 11½per cent. over last year and imports by about 18 per cent. I know that the balance of payments for visible trade, as I am sure that the President of the Board of Trade is only bursting to remind us, are not as bad as the crude trade figures would suggest, but there is great anxiety even about them for the second quarter.

What seems to be happening is that, while imports are, as we hope, levelling out, exports are very disappointing indeed. Let us look at the figures for trade with the United States, about which Lord Rootes, the chairman of the Dollar Exports Council, has recently expressed very grave concern. In the past Ministers have been rightly pleased about exports to the United States, particularly of motor cars, and we have joined in their satisfaction. But in the first five months of this year, compared with the first five months of last year, exports to the United States have increased by only 9 per cent., while imports from the United States have increased by 58 per cent., partly the result of the liberalisation.

Taking the month of May alone compared with May last year, exports are 7.4 per cent. up and imports 94.8 per cent. up compared with a year ago. Putting it in another way, taking the crude balance of trade figures—this is just a bilateral balance between Britain and the United States—in January-May of last year we had a surplus with the United States of£15 million. In the same period this year we have a deficit of£49 million. Taking May alone, the last month for which we have figures, in 1959 we had a surplus on trade account of£8.8 million and in May, 1960, a deficit of£12.1 million. This represents a worsening—a turn-round—of about£21 million for one month alone.

All of us are, as I am sure that the President of the Board of Trade is, rather anxious about the future of our exports, both to the United States and to Canada, because cars, which have been the staple of our recent increase, now tend to he piling up in stock in North America. We all know that there are certain protectionist moves on in Canada against British export trade in motor cars to that country.

In general, our exports are lagging. We see it in the figures of our share in the total of world exports of manufactures, which have been falling year by year. We now account for 17 per cent. Only a few years ago we accounted for about 22 per cent. of world trade in manufactures. Even in the protected sterling area, our exports fell by 4 per cent. last year and by another 2 per cent. so far this year, and we are seeing Germany and Japan taking our trade on an alarming scale.

The plain fact is that the internal boom is exercising a pull on our exports. Delivery dates are lengthening. The President of the Board of Trade has expressed concern about that, and it is affecting not only our exports, but essential re-equipment at home. For example, the British Railways' electrification programme—no one would deny the importance of implementing that programme—has had to be held back because private enterprise is falling down on the job of delivering the equipment on time.

Another effect of the boom is to suck in imports. The obvious case is sheet steel, on which my hon. Friend the Member for Newton (Mr. Lee) gave the figures to the House a fortnight ago. Imports of sheet steel in the first five months of 1959 were£4.7 million. In the same period of 1960 they were£18.1 million. The same is true of consumer goods. The liberalisation of consumer goods at a time when the Government had not got the economy in balance has led to some-think like a flood of consumer goods coming into the country. For instance, imports of refrigerators are up 50 per cent. this year on last. Imported washing machines, at a time of growing depression at home, are now a sizable proportion of the total production.

Then there are cars. In the first five months of this year 30,000 cars have been imported, five times as many as last year. Imports of cars under 1,000 c.c. have increased more than tenfold compared with last year. Hon. Members opposite, when they are drooling about nationalistation, should remember that by far our biggest car import is the Dauphiné, a product of the nationalised Renault undertaking. The Dauphiné is still coming in in large numbers in competition with our own production over what is virtually a 45 per cent. protective duty. A similar argument applies, of course, to aircraft sales, where our exports have been hit by competition from the nationalised Caravelle.

Faced with all this situation, what have the Government got? The Chancellor, like a tired and discredited witch doctor, has given us his usual ritual incantation, ending with a 6 per cent. Bank Rate which is the last refuge of every Tory Chancellor. We all know that this is the Chancellor's last economic debate, and I want to say on behalf of my right hon. and hon. Friends that however much it has been our duty to criticise his policies, on personal grounds we regret his retirement from the office that he holds. Whatever our differences—and they are, and have been, fundamental—we have nothing but the highest praise for the courtesy and consideration that the right hon. Gentleman has shown to us and to the whole House at all times. In every personal sense, we wish him well.

Our feelings about the right hon. Gentleman's retirement, of course, are not eased by rumours about his successor—[An HON. MEMBER: "Which one?"] There are quite a number of aspirants. Some people say that the Foreign Secretary will get a Department of his own at last. Others, with a grotesquely misplaced sense of humour, say that we shall get the Minister of Education.

The Member for Shipley (Mr. Hirst)—whom I see is in his place—after making a personal attack on the Chancellor in a recent statement in terms that I personally would deplore, goes one worse. He wants to bring the Prime Minister back out of the misty stratosphere—in which, of late, he has been disporting himself, with singularly little result—and get him to put his oar in here. May I say, and this cry comes from the heart, "For heaven's sake, spare us from that."

The Prime Minister's year at the Treasury was, without exception, the most disastrous in our financial history. Even the present Home Secretary—nay, even the right hon. Gentleman the Member for Monmouth—appeared in shining raiment by comparison. The economic problem is too serious for there to be put forward such frivolous suggestions as that made by the hon. Member for Shipley. The hon. Member knows, as, indeed, every hon. Member knows, that for four years the Prime Minister's stock in trade has been an elegant improvisation—

Mr. Geoffrey Hirst (Shipley)

rose—

Mr. Wilson

In a moment. If the hon. Member will let me finish, I shall be very glad to give way to him.

As I was saying, the Prime Minister's stock in trade has always been to deal with any problem by a rather elegant improvisation, and always to seek to solve this year's problem with last year's gimmicks. It is very plain to us all that the problems facing us are not capable of solution by any gimmick, so I hope that the hon. Member for Shipley will not press that.

Mr. Hirst

I shall not press that, because the right hon. Gentleman was quite wrong as to what I was getting at. My point is that I felt that the Prime Minister should come more into the picture, so that the duties might be divided more between a minister for economic affairs and a minister for purely financial matters.

Mr. Wilson

I have before me what the hon. Gentleman said. It is certainly true that he made this proposal about a division with, I think, a full-time Minister for that side, but he also made it very plain that there was concern on the other side of the House that the Prime Minister was not taking enough interest in economic affairs. I may tell the hon. Member that that concern is not shared on this side of the Chamber.

I turn to examine the steps that the Government have announced. First, of course, there is Bank Rate. Six per cent. is a crisis rate. I do not think that the Chancellor will deny that. He does? I am surprised that he should, because when, under the Prime Minister, the Bank Rate was at 5½, per cent., the Governor of the Bank of England said that 5½per cent. was a crisis rate. I know that a lot of things have gone up and that a lot of standards have gone down, even since 1956, but it can hardly be denied that 6 per cent. is very much a crisis rate.

This is July; there is no margin for any 2 per cent. rise in the rate if storm clouds blow up—as they can blow up, even out of a clear sky—in the autumn, as we found in 1957. There should be no crisis. Certainly, this year, unlike 1957, nobody wants to hold dollars—whatever they may feel about Deutschemarks. There should be no crisis, but our balance of payments position is very much worse than in 1957, and the Chancellor, or his successor, faces the autumn having played his ace of trumps.

We were told, of course, that these measures were really designed to deal with the internal situation. Again, the plain fact is that 6 per cent., or even a higher rate, will not deal with the excesses in our economy; with the speculative gamblings in property, or with the anti-social profiteering in urban land. Six per cent. will not curb those gentlemen, but it will have serious results elsewhere, especially on local authorities.

Once again, because the Government cannot control the excesses of the private sector, as in 1955 and 1957, the public sector has to pay the price. Once again, the local authorities are the whipping boys. Once again, at the margin, vital social services are to be pruned, and, once again, where the services are fully maintained it will mean higher burdens for ratepayers—and some of us remember hearing only a few weeks ago, in the local elections, Labour-controlled councils being attacked for the rates going up as a result of Tory policies.

It will, of course, affect every item of capital expenditure there, but none, I think, more than housing. Every hon. Member can give examples of this from his own division. In my own constituency, we had a lot of difficulty at the time of the General Election because of rents of new three-bedroom houses being set at£2 7s. 6d. a week—a very high rent for people on fairly low incomes, as many of them are—and, generally speaking, the houses were very heavily rate-subsidised, but we all know that of that sum, about 8s. resulted from the removal of the housing subsidies, and 12s. was due to the fact that interest rates were so much higher than they had been in 1951. That, of course, was when the Bank Rate was at 4 per cent.; now it is 6 per cent. I hope that the Chancellor will give us his calculations of what the effect of that will be on an average council house.

All over the country one hears of very much more serious figures than those I have quoted. A very well-known civic leader in Liverpool, Alderman Braddock—not, I believe, entirely unknown to my hon. Friend the Member for Liverpool, Exchange (Mrs. Braddock)—said that in Liverpool the economic rent of a three-bedroom flat in some of the blocks that were now being built will be£4 8s. 7d. Now we have this additional interest charge at the very time when land is getting more difficult to obtain and of course, fantastically high in price.

The Bank Rate affects the cost of education. Or we can take another example. Last Thursday, when we were debating the problem of beach pollution, the only proposal made by the Minister of Housing and Local Government was that local authorities should borrow the money to put the matter right. He said nothing about the rates at which they would have to borrow.

Again, let us take the problem of the property-owning democrats—those of us who are buying our own houses on building-society mortgage. Recently, the ½per cent. knocked off, very conveniently, on the eve of the General Election was put on again. This, and I quote the Daily Mail, …would cost a couple buying a£3,000 house over 20 years another£169. To take another example, the total repayments on an 80 per cent. mortgage on a£3,300 house, with payments spread over twenty-five years have risen, compared with 1951, by£835. In other words, a couple buying a house of that size on that kind of mortgage have, by the Government's policy, been fined no less than£835 for the fact that during part of the period of buying a house we have had a Tory Government. Even at present rates, and so far there are no proposals to raise the rates further by the building societies, we all know that if a 6 per cent. Bank Rate remains, the ebb and flow of building society investment is likely to push the rate still higher.

I turn to the effects on industry. The Radcliffe Report showed that a high Bank Rate would have little effect on the industrial giants, but some smaller people will be hit sharply by this combination of the Bank Rate, hire-purchase cuts and the credit squeeze. One of the serious things is that all these lurchings and twists and turns of policy are making it impossible for those who have to plan industrial production.

Understandably, the managing director of Hoover's, in a recent interview with the Daily Mail, had this to say: The uncertainty created by this constant changing is bad for people's jobs and makes good production planning impossible. He went on to say, and this will interest hon. Members opposite: All this has an unfortunate impact on profits. What makes it all the worse is the very real feeling—and this is voiced very much in industry, and, I understand, in parts of the City—that the Government have, put on all these curbs at the very moment when, for many of the goods affected, the consumer goods boom seems to be petering out. In some cases, it has led to redundances and short-time working, and the impact falls most heavily not on the parent factories, but on the branch factories in the areas where there is already serious unemployment.

Indeed, the credit squeeze has been put on and was tightened up at the very moment when the figures suggest that the rate of industrial production is now flattening out. It has been put on at a time when, despite the welcome signs of improving investment, the new investment in manufacturing industry is still below that of the early part of 1957, when it was still suffering from the effects of the cuts imposed by the right hon. Member for Monmouth in the autumn crisis of 1957.

It is not only a question of the total volume of investments. What has happened since early 1957 is that so far we have not had any real recovery in investment in manufacturing industry. There has been a 40 per cent. increase in investment in service trades, and this is a matter which the President of the Board of Trade ought to be concerned about, because he has to think about exports. However much we may like improvements in investment in consumer trades, they have no effect at all in improving our export record.

Now I turn to public expenditure, which, I know, will be more popular with hon. Members opposite. Next year's figure is to be held down to this year's level. That is the announcement. Of course, we have heard all this before. The Prime Minister pledged his reputation——

Viscount Hinchingbrooke (Dorset, South)

On capital.

Mr. Wilson

On capital, yes. We had even more sweeping pronouncements a few years ago, which were applauded by the noble Lord.

The Prime Minister pledged his reputation on this undertaking to hold Government expenditure down to the then current level four years ago, and since that time Government expenditure has gone up by£1,000 million a year. Indeed, it has gone up by£600 million since the right hon. Member for Monmouth resigned on this issue two and a half years ago. I have as little confidence in the Government carrying out the Chancellor's announcement on this matter as the hon. Member for Shipley has, and I have every reason for saying that. We have just had the Blue Streak farce, and the failure of the Government's recruitment policy, with the likelihood of additional expenditure being involved there. I do not think that half the Ministers have their hearts in the job, not when there are votes in their minds.

For instance, a few months ago we had the present Minister of Education. who is one of the Treasury aspirants, when he was President of the Board of Trade, during the election telling the people in Lancashire that the sledgehammer, the Luddite, proposals of the Government last year, would cost not the£30 million which the House had been told about, but£60 million. He said that he had not dared to tell the House that it would cost£60 million because he would never have got it through. With that sort of approach, I can well understand the anxieties of the hon. Member for Shipley.

I suspect that any pledge on these lines by the present Government is an empty one. What is real is that right hon. Gentlemen will try to impress their supporters with some vicious and mean cuts, not least in the social services. It was no coincidence that one of the first tunes to reach the "Top Ten" after the election was an old tune with new words, "Mac the knife is back in town". We all remember that in the Budget debate the Financial Secretary told his back bench critics, and he had a very rough time with them, that expenditure was bound to go up—both income expenditure and capital expenditure—because of long-term commitments, and he seemed, I thought in somewhat bad taste, to be reminding them that some of these commitments were commitments which had helped them to win the election. If there is an automatic increase which we must expect, what, in fact, is to be cut?

I should like to tell the Committee what I think is to be cut. I think that there will be big cuts in the planned expenditure on roads and education. We understand that the Cabinet is split on this today, and I challenge the Chancellor to give the figures of what is intended for capital expenditure next year on roads and on education. Of course, on roads, we have seen in the past two or three years the complete lunacy of the Government's failure to plan. More cars, more factories for still more cars, inadequate roads, vast office buildings in the centres of big towns and cities, increasing urban congestion, and inadequate provision for people to travel to their work.

I am sorry that the Minister of Transport is not here, but I want to put this to the Government. It has been a mistake, in our view, to cut down on the road programme. We know that at present we have substantial numbers of skilled teams, expert technicians, design teams, advisers and all the rest, and we have very valuable and expensive plant, which is at present lying idle. It would cost relatively little to set all this plant and teams of experts to work. In the modern world, the building of roads is not nearly as expensive as it used to be, and, in terms of the classic problem of inflation, more investment in the roads would be a real investment for the nation.

What about education? I hope that the Chancellor will "come clean" about what his plans are in this direction. Recently, the House debated the Crowther Report, and we were given promises of increased Government help on education. I want to know whether those pledges are to be honoured. Even without the cuts, the Government's educational plans are quite insufficient for Britain to maintain her place in the world. In the Budget debate, I remember pointing out that Britain today is spending 4 per cent. of her national income on education and plans to raise it to 6 per cent., against the figure in the Soviet Union of 10 per cent. of the national income. In our economic debates, we have repeatedly stressed the need for more investment in material things, in the physical instruments of production. This is vital, but even more vital for our future is investment in the children

We on this side of the Committee have called for more, not less, priority for education, as well as for the ending of this arbitary system of educational selection at 11-plus, not only because we are democrats, because we are Socialists, because we believe in equality of opportunity, but because this country cannot afford to neglect this most vital of all investments, nor can it afford, through this system of 11-plus selection, to sacrifice the possible educational development of even one of her children.

I ask the Chancellor what is to be cut. I ask him what, against the background of this projected squeeze in Government expenditure, are his plans for the social services, and especially for pensions? Do the cuts mean that hope is to be for ever deferred? In the boom of the past eighteen months—the boom which the Chancellor of the Exchequer seeks to curb—the national income has risen by£2,000 million a year. Yet the Government cannot find the£200 million needed to give elementary justice to the old-age pensioners. It is because they have failed to curb greed and unproductive speculation that those with the greatest need have to suffer. Because private spending has got out of hand, public spending on priority social purposes is falling below its due proportion of the national income.

We on this side of the Committee are getting tired of the tedious repetitions of the Minister of Pensions and National Insurance whenever we debate old-age pensions. He thinks that he has answered the debate and has dealt with the needs of the pensioners by producing elaborate statistics purporting to show that we are paying the pensioner a meagre shilling or two more in real terms than in 1951—only six years after the end of a devastating war.

I put it to hon. Members that now, fifteen years after the war, we should be able to do a great deal more for them than we are. National income is up. Wages, profits and dividends are up, and, relatively, old-age pensioners and others in need have fallen back in the provision that has been made for them by the complacent society.

The plain fact is this, and I do not think that the Chancellor will deny it. In 1951, Britain led Europe in social security. Indeed, we led the world. That is not true today. In Europe, more and more nations are leaving us behind. It was an act of faith when the Labour Government, immediately after the war, with our national production still held back by war damage and world shortages, pledged the nation to set aside an unprecedented proportion of its income year by year for safeguarding the nation's health and caring for the needy. But since 1951 the nation's income has increased too slowly, and yet a diminishing proportion of that income has gone to the social services. Other nations have shown both a greater expansion in their national incomes and a greater provision for social needs.

This is a fact which needs to be remembered when we argue for or against joining the Common Market, with the emphasis that it places on harmonisation of social policies. A few years ago there were those who felt that to join Europe would mean undercutting our social services. Today, we are so far down in comparison with other nations that before long one of the strongest arguments for integration with Europe will be the realisation that harmonisation would mean that this laggard Government would be prodded into making social advances which, left to themselves, the Government would refuse to promote.

In his search for easy economies, will the Chancellor pledge the Government to keep their hands off the National Health Service? This has been a great ideal which has removed fear and anxiety from millions of working-class and middle-class homes. Yet even today, with all our pride in it—and the Health Service is now an all party matter—the hospital programme is a scandal in a so-called affluent society. The provision for mental health is still more so. I ask the Chancellor whether these programmes are to be cut simply because the Government have failed to control the excesses of private spending and speculation.

There is something warped in the minds of hon. Members opposite when they come to look at economic and social problems. Anything in the private sector is good; it is productive. In the public sector it is waste; it is parasitic and leads to inflation. I remember years ago, in a previous crisis—I think that it was the Home Secretary's crisis, but I am not sure—when I said, referring to investment, that the test should not be "Is it public or private?" but "How essential it is?" Because the Government reject controls, they reject this test.

If one builds a vast block of offices for property speculators, or advertising agents or company promoters, this is a desirable addition to our national wealth. If one builds a hospital our economy is endangered. One can build a "pub", or a bowling alley that is sacrosanct. But one more school—that is inflation. One can spend£120 million a year, with tax relief from the Chancellor and an initial allowance, on private cars for business firms; but another million or two on investment in the public sector—that is uneconomic and unproductive, and the hon. Member for Kidderminster (Mr. Nabarro) keeps us up half the night. One can spend£60 million on television advertising, to try to stimulate demand for goods to a point which even the Chancellor now regards as excessive. Yet one cannot find a million or two more for mental health.

A financial speculator can clear£1 million overnight on a property deal, buying and selling a block of flats with someone else's money. That is smart business. But if we pay a decent wage to an engine driver, with the lives of hundreds of people in his hands, that is raging inflation. The banks can lend tens of millions of pounds more, as they have, to Stock Exchange speculators; that is in the national interest. But local authorities trying to cope with their heritage of slums or with chronic overcrowding are forced into costly borrowing operations at penal rates of interest.

The Chancellor can knock£5 million off the tax on port, but he cannot find an equal sum for removing the individual prescription charge for chronic sick people. Private enterprise can use able-bodied men in their thousands to go touting round, putting coupons or advertising literature through letter boxes, or inflating the cost of the Health Service by pressing new branded drugs on hard-worked doctors. Yet we cannot afford a few more factory inspectors. We can titillate the consumer with striped toothpaste, or all the other lunacies of an Americanised society, but our beaches and rivers are a disgrace. This is the society that we are creating under the right hon. Gentleman.

Aneurin Bevan once said, "The language of priorities is the religion of Socialism". It is more than that. It is the means to creating out of great potential wealth a civilised society. Under the present Government our priorities are all wrong. We call for a new order of priorities, first, as between private and public expenditure, and the test must be not private profit or the lightening of the burdens on those best fitted to bear tax burdens, but national survival and social interest.

Secondly, we call for a new order of priorities between private consumption and national investment. We are falling behind Europe in our provision of the instruments of production. Before long we have to make, as a matter of urgency, our decision about Europe. Let me say to the Government, including the Prime Minister, that this is a decision that cannot be side-stepped by some new evasion, or gimmick. There is no gimmick in this. Whatever our decision in Western Europe or out of it, we can only compete and live if we devote a much higher share of our current production to strengthening the means of further production so that we can maintain a steady and purposive rate of economic growth.

This debate is not just concerned with the analysis of the present economic situation, nor the lurchings of the economy, nor the devious and outmoded devices by which Ministers seek to prod the financial and industrial system in one direction or another. We are concerned today with fundamental differences of view about the degree of responsibility which Parliament should assert over our economic life. By and large, Conservatives and Liberals accept the existing economic structure of the country. Their argument is about the division, and the method of division, of the national product.

We on this side of the Committee, deeply concerned though we are about the distribution of the national dividend, are equally concerned about the control and ownership of the instruments by which that dividend is produced. We cannot be neutral about the accountability of the strategic sectors of industry and finance to the nation as a whole. For the Conservatives the commanding heights of the economy are and should be in private hands, working for the consolidation of the existing order, and with profit as the sole criterion.

For them, too, the rôle of the State is confined to guiding, influencing and holding the ring—doing no more than prescribing the conditions in which that profit is made, always with the minimum disturbance to the existing order. For hon. Members on this side of the Committee the commanding heights of the economy should be in the strategic sectors of industry, owned by and answerable to the community, and working in its interests.

Hon. Members opposite are blind to the world in which we are living. At a time when the biggest challenge to our way of life comes from countries which plan their economic life in a purposive and rational manner—however much we may detest their political framework—hon. Members opposite scoff at Socialism as something which belongs to the politics of a bygone age, its case destroyed, if they are ready to concede there ever was a case, by the "Ten Hours" Act or, at the latest, by the acceptance by all parties, even their own, of full employment as a necessary objective of economic policy.

By these attitudes they show it is they who are living in the past—because our demand for Socialist economic policies relates not to the conditions of the 'twenties and 'thirties, unanswerable though they were, to the problems of the minds and transport, the squalor and inequality of mass unemployment. We do not base our case on any assumptions, even about the recurrence of mass unemployment. We base it on the much more compelling demands of the world into which we are moving in the future. It is a world characterised more and more by a scientific revolution beyond the dreams of only a generation ago. The potential release of energy—in the widest sense of the world—of productive power, of facilities for material development and for leisure alike, defies the measuring rod of the market place or counting house, or any system dedicated to private profit and speculative gain.

Hon. Members opposite believe that the fulfilment of this release of energy can be left to a system which, in its essentials and institutions, and, above all, in its motivation, has changed little since tht Forsytes. Our merchant bankers, our discount houses, our bank parlours, our daily more powerful insurance companies all have a job to do, and an important job, but they exceed their function if they claim to be the regulators and the directors of our economy. Our economic development will be safeguarded only when the Government party in this House accepts that, however vital, finance is the handmaiden and not the controller of our economic development.

Under the present system, those things—and only those things—will be developed which yield, on a narrow but highly personalised basis, a private profit, irrespective of the relevance they bear to the nation's real interest, and the wider needs of a rapidly changing world. Ministers keep repeating—and I have no doubt that they will repeat again today—that eighteen months ago they were able to escape from a recession in the private enterprise part of the economy—which they had done much to create—only by priming the pump with a particular type of consumer boom. They could stimulate a languishing rate of capital investment not by creating new instruments of production, but only by touching off a consumer boom based on mass advertising.

This, in turn, primed the pump for an investment boom. But the investment boom which resulted was inevitably based on the production of the consumer goods they had called into being. If the boom is in soft drinks and television sets the capital goods called into being are plant and machinery for making and distributing soft drinks and television sets, and not the types of investment—public and private—which are most related to the needs of Britain and the world.

I would put this to them: faced with this recession, which they have done so much to create, why should they not have started the process of stimulating investment by building, in an area of high unemployment, a State-owned machine tool plant, producing the latest type of product which is so greatly in demand here and in the export markets all over the world? Now that a world boom has begun, the development of out machine tool industry is inadequate to take advantage of the orders available.

Similarly with trade. We are relying more and more for our exports, to the dollar area and Europe—to take two very important parts of our export market—on the overspill of our consumer goods production. That is the main reason why I fear an economic integration with a European market, which would mean gearing our production and our exports to a consumer goods economy not very different from our own. We must not only transform our industrial system by making it more purposively directed to expansion and to the nation's needs; we must extrovert it by relating our products to the needs of a largely hungry world, whose wants are not for consumer luxuries but for the primary basis of life itself—basic, elemental goods and the means of producing them.

These are the main issues underlying the debate today. These are the real issues to which the Chancellor, even in his forthcoming retirement, should be addressing himself. Hon. Members opposite no doubt scoff at the arguments that have gone on in the Labour Party in the past few months. I do not apologise for those arguments. I should feel it right to apologise if we were not having arguments, because this is a debate about the future of the nation in a changing world economy. Let hon. Members opposite realise: we are arguing about the future; they seek only to consolidate the past.

4.36 p.m.

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

The right hon. Member for Huyton (Mr. H. Wilson)—and we must congratulate him on it—earned three stars out of six in a contest in a newspaper this morning. He got stars for ambition, age and technique. I understand that he failed to satisfy the examiners in leadership, appeal and red blood. Today, he has made a great effort to get a star for red blood.

The right hon. Gentleman has a great capacity for enjoying his own performances, and always seems to entertain himself most when he speaks first. I remember hearing that Bernard Shaw was once asked by his wife, when he came back from a party, "Well, dear, did you enjoy yourself?" His answer was, "Yes. There was nothing else I found worth enjoying" The right hon. Gentleman is sometimes in that mood. He seems to erect imaginary cases and then to enjoy knocking them down. In musical parlance his performance would be called a fantasie impromptu.

The right hon. Gentleman said some kind things about me, and I thank him for it. He also criticised my right hon. Friend the Prime Minister, and I do not find those criticisms worth replying to today. I would only say that however long I live I shall always be proud of having had the privilege of serving under our present Prime Minister.

Today, we are debating the state of our economy and the Government's responsibility for its management. It is important at the start to be clear how far our general aims are in harmony. We all want a strong and expanding economy, leading to a rising standard of living and a strong currency. That is common ground among us. But do we equally agree as to the main dangers and obstacles? I am not so sure that we do. In my opinion, the main enemy over the next decade—as it has been in the last—is likely to be inflation and not deflation. Ever since Governments and Parliaments all over the world decided to take an active hand in economic affairs that has been so.

Right hon. and hon. Gentlemen opposite, whatever lip service they pay to a sound balance of payments and stability in the cost of living, show by their proposals and policies quite definitely that in fact they rate other priorities still more highly. During their term of office it was inflation which beat them every time, and if ever they get another chance to try their hand it will beat them again. Between 1945 and 1951 they tried State planning, nationalisation, price controls, subsidies and State trading, but these led only to continual crises, devaluation and high taxes, and, at the time they left office, a falling standard of living.

At the time of devaluation, Sir Stafford Cripps said: We have been trying to deal with the economic situation by a series of temporary expedients which have led to a series of crises as each expedient became exhausted. By 1951 the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) apparently had little faith in further physical controls but relied instead on fiscal measures and in April, 1951, he introduced the most burdensome Budget in British peace-time history. In the late summer of 1951 the third Social financial crisis developed and the right hon. Gentleman cut imports of cheese. In their despair hon. Gentlemen opposite blamed sometimes the wicked capitalist, sometimes the wicked foreigner, and sometimes the wicked consumer: the Government were good but everyone else was bad. I mention these excerpts from history only so that we can decide to what extent right hon. and hon. Gentlemen opposite are well qualified to criticise the management of the national economy.

The right hon. Gentleman the Member for Huyton, has criticised the management of the economy on, I think, the following grounds. We have switched our influence from restraint to stimulation and back again to restraint; we have discouraged investment, he seemed to imply; and we introduced an electioneering Budget last year. Let me deal with each of those points.

As regards the first charge, I readily agree that we have thrown our weight at one time on the side of stimulation and at another on the side of restraint. We should have utterly failed in our duty if we had not done so. That is precisely the Government's task, if they are to keep our economy, which in our circumstances must operate within very narrow limits, in balance. We have in fact been seeing how far we can raise the ceiling of production and employment with safety, and I would ask the Opposition whether they have any objection to our doing that.

How, hon. Gentlemen opposite cry, can business or anyone plan soundly when such changes in policy take place? That is what the right hon. Gentleman said. My answer would be, first, that they are not changes in policy but changes in action required to carry out a firm policy consistently. Secondly, sound planning can take place only against the background of an economy kept in proper balance. So those who plan for the future should plan on the assumption that fiscal and monetary action will be taken as circumstances require to keep that balance. Any planning which is not made on that basis is unlikely to be sound planning.

Mr. Harold Davies (Leek)

I am grateful to the right hon. Gentleman for giving way, and we all appreciate his kindness, but would he explain to me this phenomenon? I am quite sure he means what he says, but will he explain to the country why it is that there always happens to be a General Election when the Conservative policy is for stimulation, rather than when the Conservatives are in a period of restraint?

Mr. Amory

I promise to deal with that in a moment, if the hon. Gentleman will wait.

As regards the timing of any such controlling movements as are called for, here, I agree, is a much more fruitful field for possible criticism. It must be a matter of judgment and at any moment the technical experts are very unlikely to find their views in harmony. I do not for a moment claim that such actions as I have taken over the last two and a half years have, all of them, been taken at infallibly the right moment, but I believe that none of them has been far out. On each occasion, whether of stimulation or of restraint, the general run of economic and financial commentators found my action a bit early rather than a bit late, and there are, I feel, worse faults than that.

Now what about the charge that we have held up investment? Well, no one would like to see our rate of national investment still higher than it is more than I. A high rate of investment is one of the absolutely essential foundations of our future prosperity. Our current level, not forgetting investment overseas, is at a higher rate than ever before in recent history. It is only slightly lower than that of the United States. As the right hon. Gentleman said, certain Continental countries have recently had a higher rate but they started from a much lower level. The right hon. Gentleman said that between 1945 and 1951 we proudly led the world; but, as far as the Government were concerned, it was a lead to devaluation in 1949. Despite austerity and planning, the National Income Blue Book shows that net capital investment at constant prices was, each year under the Labour Government, actually lower than in 1938. In 1959 net investment, at constant prices again, was 70 per cent. above the level of 1951 and twice as great as in 1948.

Still, I am far from being complacent, and we must do better still. A satisfactory rate of investment, of course, depends on a healthy rate of personal savings. Total personal savings never rose above£250 million a year between 1946 and 1951. They jumped immediately in 1952 to£660 million, and last year reached nearly£1,500 million. The Government have a successful record in the promotion of investment, and we need to continue to encourage it in every sound way.

Now what about the third charge, that of an electioneering Budget in 1959? Taxes were reduced in 1959, and public investment expenditure increased, because at that time manpower and factory capacity were available for higher production, and so both those desirable steps could be taken safely and with positive advantage to the economy. At the time of the Budget last year the voices of the economists were raised in almost unique unison to the effect that the stimulatory action taken at that time was about correct in amount. Such unison was almost embarrassing to me because it had never happened before. The Opposition certainly did not criticise it as being excessive. On the contrary, the right hon. Gentleman the Member for Huyton said: This is not to say"—

Mr. H. Wilson

What is not to say?

Mr. Amory

—that the Chancellor is wrong to increase purchasing power by tax concessions and otherwise to stimulate industrial production. Of course, that is right."—[OFFICIAL REPORT, 8th April, 1959; Vol. 603, c. 207.] I seem to remember the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) saying about last year's Budget that it was right as far as it went and I ought to have gone further.

Mr. Roy Jenkins (Birmingham, Stechford)

Sooner.

Mr. Wilson

I was not at that time criticising the right hon. Gentleman for the Budget before the election but for allowing things to go on for eighteen months without taking action, and I would remind him that two years ago we forecast that they would hold things up to have a rip-roaring boom in an election year.

Mr. Amory

Several times during the past few months, in the course of the Budget debate and the debate on the Finance Bill, hon. Members opposite accused me and alleged that the things I had done in stimulatory action in the Budget last year were excessive and were actions taken for electoral reasons. This year the right hon. Gentleman the Leader of the Opposition said of my Budget: …this is not to say that he was wrong to have a tough Budget on this occasion."— [OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 76.] Therefore, the Opposition seem to have concluded that on economic grounds my actions were right on both occasions; and if a Budget is right on economic grounds then surely a charge of electioneering is difficult to found.

Furthermore, the idea that the lifting of credit restrictions in the 1959 Budget won the election is not the conclusion which emerges from a survey on "Why Labour Has Lost Elections" published in the Socialist Commentary of May, 1960. Nor was it suggested as the reason for defeat, I understand, at the Labour Party inquest at Blackpool. On that occasion the right hon. Gentleman the Leader of the Opposition suggested that the two main reasons for the Conservative victory were the general dislike of nationalisation and the continuing real rise in living standards. I am sure that the right hon. Gentleman was right.

The truth is that both in 1955 and in 1959 the Conservative victory and the consequent lifting of the threat of nationalisation created a wave of confidence and an upward revision of investment plans, and here I come to the point raised by the hon. Member for Leek (Mr. Harold Davies). As I said the other day, it looks to me as if in our forward economic planning as long as there is the slightest risk of the return of Socialist Government we shall have to make allowances for a depressive despondency before an election and a bout of exuberant exhilaration after the Conservative victory. The fact is that hon. hon. Members opposite, in their economic as in their political thinking, have been left behind by a changing society.

The hon. Member for Stechford, in commenting on a pamphlet written by his hon. Friend the Member for Coventry, East (Mr. Crossman) used these words of his hon. Friend: He has seen a situation in which a sick and declining Labour Party desperately needed diagnosis and remedial treatment, and he has rushed in to attack the physicians and encourage the prejudices of the already complacent patient… Hon. Members opposite rather remind me of those melancholy people one sometimes comes across whose main contribution to discussion is the often repeated grumble that "Things ain't what they used to be", but judging by byelections the electorate is still well satisfied with the present management of our economy.

The right hon. Member for Huyton referred in passing to European trade. I shall not be able to deal with this important matter within the compass of this speech in any comprehensive way but I welcome the opportunity to say one or two things about it. I would sum up our present policy very briefly. First, we wish the Governments of the European Economic Community well in their constructive approach.

As for ourselves, our desire is to see a single European system established in which all can participate. That desire is shared by our partners in the European Free Trade Association and by many in the Six. If this is to be realised it will clearly involve give and take on both sides. We, for our part, are prepared to look afresh at the obligations which we shall be ready to undertake in order to bring such an association about, but in considering how far we can go we must have full regard to our responsibilities and our commitments both to the Commonwealth and to our partners in the E.F.T.A.

We shall take no action except in close consultation with them. We are eager to enter discussions on these long-term problems. In the meantime, we intend to work enthusiastically with our partners in the E.F.T.A.—not in a spirit of rivalry to the Six—to make that association the success that it promises to be.

Mr. Roy Jenkins

Does the right hon. Gentleman's negative statement on this mean that the Government rule out any proposal to join the Six as a possible basis for negotiation?

Mr. Amory

I have chosen my words carefully. My right hon. Friend the President of the Board of Trade will no doubt be returning to the subject and developing it further. We want the closest association that we can get with the other countries of Europe, consistent with the responsibilities and commitments which we are certain we must not and cannot ignore.

The task of bringing division in Europe to an end will not be easy for any of us, nor will it be something that can be settled by a few quick decisions. The issues involved call for full and careful study, which they are now receiving. It may be that we must not expect any significant development for some time. In the meantime, we must continue vigorously to develop our trade with Europe and to build up the strength of the E.F.T.A. where we have very great trade opportunities indeed. We must work in harmony with the Six in the fields of common endeavour which are open to us, for instance in a concerted effort to get tariffs down in the forthcoming negotiations in the G.A.T.T. The Six have expressed their readiness to do this, and so have we.

I would add one final reflection. No arrangements which we may be able to make in Europe will insulate us from the task of paying our way in the world. None will help us unless we maintain our own competitive strength and efficiency.

Mr. J. Grimond (Orkney and Shetland)

Presumably, consideration of Europe is not beginning now. It has been going on for some time. Leaving aside the Six, have we no proposal to make to our partners in the Seven or the Commonwealth to avoid this division in Europe which the right hon. Gentleman said he was anxious to avoid?

Mr. Amory

Of course we have. We have continuous consultation with both of them as to the opportunities and the prospects that lie ahead and the obstacles to progress.

As to our actions in the economic field in the past few months, hon. Members will remember that in my Budget speech I pointed to the change—

Mr. Roy Jenkins

Does the right hon. Gentleman seriously consider that after five months since we had the debate on Europe he has given us any information at all about the Government's proposals to deal with the European problem?

Mr. Amory

I said earlier that in the compass of one speech, when I have to deal with many other things, I cannot do justice to the subject or attempt to cover the whole ground. That is all, in the course of this speech, that I can possibly say, but this subject will arise during the debate and I have no doubt that my right hon. Friend the President of the Board of Trade will be returning to it when he winds up the debate.

Hon. Members will remember that in my Budget speech I pointed to the dangers of an increase in demand out-running the increases in production which can be expected. We looked back on fifteen months of rapid economic progress in which industrial production had risen by over 10 per cent. and the number of unemployed had fallen by one-third. Nor was this the result only of a rise in consumption. Exports had risen by about one-seventh over a twelve-month period and investment in fixed capital had also risen. Capital expenditure by manufacturing industry was resuming its response to the growth of prosperity. What was perhaps most remarkable about all this was that it had all taken place without any general rise in the cost of living and with an increase in personal saving—a very great gain to the economy and to the well-being of us all.

Only the balance of payments had been disappointing in the previous twelve months—an important exception. In 1959 our balance of payments surplus on current account was insufficient to pay for our investment, lending and other expenditure abroad, and, as hon. Gentlemen know, we are under increasing pressure to lend and to give more abroad, especially to the under-developed countries of the Commonwealth. We have very heavy defence commitments overseas. For all these purposes we need a bigger current surplus. That is one of the pre-dominant factors that I have had to take into consideration.

I said in my Budget speech that the increase in home demand looked like continuing strongly in almost all sectors and that we had no longer the reserves of labour and capacity that had been available to us last year. There was a danger that rising demand might put too much pressure on our resources, with damaging consequences to exports, to price stability and to the balance of payments. Events since the Budget have borne out the expectations that I had formed, and, indeed, the signs of strain have developed slightly further than I had expected.

A clear effect of the continued increase in demand has shown itself in the pressure on manpower. By June the average unemployment percentage was 1.4. The number of vacancies exceeded the number of persons seeking work. Labour shortages were widespread all over the midland, southern and eastern areas of the country. There were also signs of shortages of some industrial materials, and some lengthening of delivery dates, with its damaging effects on export.

Mention of exports brings me to the consideration which must always be uppermost in our minds, namely the need to safeguard our trade and balance of payments. When the balance of payments figures for the first quarter became available, they showed a surplus on current account of£46 million, and for this quarter there was an improvement of£22 million in the overall external monetary position. But I had to bear in mind that the first part of the year is usually the more favourable from the balance of payments point of view, and a surplus of£46 million on current account in a favourable quarter clearly provided no promise that without further effort we could earn a sufficient surplus for the year as a whole.

I also considered the current trade figures, which, as the Committee knows, differ in timing and in coverage from the balance of payments figures on trade. Provisional trade figures were available for the first five months, and they showed that, while the rise in imports was slackening, the rise in exports seemed, for the present anyway, to have levelled off. I could not rest content with a situation in which internal demand—and imports—continued to grow but exports were merely running along level.

Finally, I had to consider the reserves. They had been increasing during the first five months of the year, and had, in effect, risen by£56 million in the first six months as a whole. We have, in addition, paid off during that period some£30 million of debt to the International Monetary Fund and£14 million to the members of the former European Payments Union. But we have also to bear in mind that sterling holdings of non-sterling countries have been rising—they rose£19 million in the first quarter—and that this has helped to raise the reserves.

To sum up the external position as a whole, it was clear that we were still not earning enough to pay for our heavy capital and other commitments abroad, and I could not regard that as a satisfactory prospect. Bearing all those factors in mind, I decided, in full agreement with the Bank of England, that it would be right to take further steps to restrain somewhat the pressure of home demand upon our resources. As hon. Members know, these measures, announced on 23rd June, comprised a rise in the Bank Rate to 6 per cent. and a further call for special deposits, and I announced at the same time that public sector investment for 1961–62 would not be allowed to exceed its level for the present year.

I have been asked why it was necessary to decide the level of public investment for next year so soon. The answer is that if local authorities and nationalised industries are to be able to make their plans, decisions have to be made at about this time of the year. That is normal. I know that some critics are saying that it was unnecessary to have done anything because, as they said, demand would soon have begun to moderate without any further intervention by the Government. I would say there that, at present at any rate, the evidence for such a view seems to be quite insufficient. Total demand seems likely to be still very definitely on the increase.

But the real point is that, as always in these matters, it was a choice of risks. On the one hand, there was a risk that demand would overspill and cause dangerous effects to the stability of prices, to industrial costs and so to the balance of payments. On the other side was the risk that intervention might adversely affect production for some time. Faced with a choice of these two risks, can anyone argue seriously that the Government should have gambled on leaving things alone? When the symptoms of excess demand were so plainly visible and the effects beginning to show in the trade figures, there was only one safe course and that was to take remedial action.

The Government have been criticised in some quarters on the ground that their interventions disturb business, disturb the economic life of the country, introduce uncertainty and bring anxiety and frustration to those engaged in business. I am bound to say that I reject that criticism. It is remarkable how easily some people have forgotten the painful experiences which have taught us that our economic system has no inherent tendency to stability when left to itself. Surely the Economist was right when in its issue of 2nd July it said that the fluctuations in demand resulting from the Government's policy were as nothing compared with those that industrialists would suffer if the Government withdrew from the field. A very little study of economic history should suffice to persuade most people of the truth of this statement.

During the 1930's, when the Government intervened very little in the economy, the proportion of unemployed varied between 11 per cent. and 22 per cent. at the highest and lowest points. During the 'fifties, on the other hand, the difference between the highest and lowest points was only 1.1 per cent. The highest percentage we have had was 2.8—and that for a very brief period indeed. The public have, of course, grown to accept a far higher degree of economic stability now than in any previous period, and if this involves the Government in making necessary adjustments from time to time in the field of credit, surely that is a modest price to pay. It is infinitely more important to have stable employment and stable prices than to have a stable Bank, Rate. The degree of full employment which is nowadays our aim can be maintained with safety only if the Government are prepared to intervene actively and promptly by fiscal and monetary measures whenever the situation calls for restraint or the opposite.

I have already expressed my view that the more promptly controlling action is taken the least drastic this action need be and the more effective it will prove. But comparatively frequent movements one way or the other will, in my opinion, be the order of the day if we wish to avoid far more severe swings of the pendulum.

I am aware that there are those who do not accept that an excessive home demand interferes with exports and damages the balance of payments. I am sure that they are wrong. I agreed with the letter in, I think, The Times of last Monday which pointed out the analogy between the affairs of the nation and those of the grocer who, if he had allowed his family to consume all the most attractive goods from his shelves, would no longer be able to sell them to his customers and so earn the means to replace them and maintain his family.

A domestic boom provides easy alternative markets for the products of the firm which might otherwise sell to our export markets. Moreover, by creating shortages at home, or long delivery dates, it encourages consumers at home to look more to imports to satisfy their requirements. The argument that a buoyant home market, by bringing down unit costs, leads to buoyant exports almost automatically is one which, in the light of experience during the past two or three years, I can only subscribe to within rather narrow limits.

I would not use this argument it it were a matter of reducing demand at home from a level that was already rather low. But we are starting from a position in which internal demand is already very high and will stay up

There is, however, another criticism, which I take seriously, that a general credit restriction discriminates against investment. I take this criticism seriously because of my strong desire to see industrial development continue to expand. In both 1958 and 1959 we took steps, culminating in the Budget of 1959, to encourage both investment and consumption. The investment programme in the public sector was raised, and the Budget restored the investment allowances. It also gave considerable stimulus to consumption.

That was right because at that time there was unused industrial capacity, and higher consumption was the best way in which to bring it into use and to create a situation favourable to the further development of industrial capital. A firm consumption demand, leading to fresh industrial investment, that was the aim. The desired results were achieved there, and we are now witnessing a strong continuing rise in private investment.

I do not expect that the restraining measures which I have taken will have more than a marginal effect on industrial investment in fixed capital. Taking all the measures together, I would judge that the effect is more likely to be on consumer expenditure, and on stockholding, than on fixed investment whether in the public or private industrial sectors.

Some people have argued, I know, that the restrictions on the banks are likely to damage the prospects for industrial investment. Bank advances are, of course, a major source of credit to industry. But of the increase of£1,400 million in bank advances over the past two years, nearly half was accounted for by increases in advances to the three groups of borrowers most closely connected with consumer expenditure—that is, personal and professional borrowers, hire-purchase finance houses, and retail trade.

By May of this year some 35 per cent. of all bank advances were linked more or less directly with the financing of consumer spending. I think, therefore, that it is very likely that a considerable part of the effect of any pause in the growth of bank advances will fall on those three big groups which I have mentioned.

In the public sector, investment over the past few years has grown fast. Expenditure rose from£1,470 million in 1958–59 to£1,620 million in 1959–60, and the revised latest estimate of the programme for 1960–61 is£1,730 million. This latest revised figure of£1,730 million compares with the figure of£1,675 million given in the Economic Survey. There are a variety of reasons for the difference. The big item, really, has been an alteration in the method of accounting for the education programme, which is a purely statistical change.

The net effect of the revised figures on the Exchequer and central Government borrowing will be very small indeed. The rate of increase in public investment expenditure is now, in fact, levelling off, and no very drastic cutting back will be required to hold the total for next year in accordance with the announcement which I have already made

The right hon. Gentleman invited me to give the figures for the different items making up the programme. I am not able to do that on this occasion, but I have already said that when the programme has been officially completed and agreed we intend to lay it before parliament.

Mr. Douglas Jay (Battersea, North)

Can the right hon. Gentleman say whether each item is to be held to the level of the present year or only the total?

Mr. Amory

The total, not each item.

It is important also to get in proportion the general effects of these recent measures. Our aim is not to halt expansion but to moderate its rate to a safe pace. If, in the result, our restraints were to prove excessive nothing is easier than to relax them, and in that case we shall stand ready and indeed eager to do so.

The Opposition seem to me to have only one economic idea, namely, to push up demand by every means available to the maximum limit regardless of consequences. I ask them whether they learn nothing from experience? Do they really want us to involve ourselves again in the desperate sequence of shortages of labour, declining exports, lengthening delivery dates and soaring imports, ending in a reserves crisis?

In the end we should suffer a shock to the economy ten times worse than anything that could result from the series of moderate measures which we have been taking in the last few months. The consequence of such a line of policy as that of the Opposition for employment and the standard of living in this country, as well as for the sterling area and the international flow of trade and investment, could be terribly damaging. I can only say that we reject such a policy completely.

In conclusion I want to say that, in general, our economy is at present in good shape. Over the past two years we have achieved a big increase in production, investment, consumption and saving. Employment has continued at a high level. Sterling has been made convertible on current account and is regarded with confidence the world over. Its exchange value continues above par. And we have enjoyed two years of stability in the cost of living.

There are, however, as I have said, two grounds for anxiety. Our current export performance is still not good enough to ensure us as strong a balance of payments as we need, and there is a serious risk that rising money incomes may push up our costs and prices and thus make it still harder to get the exports which we must have.

During the two and a half years that I have been in my present post I have regarded two aims as of paramount importance. The first is safeguarding our balance of payments and the strength of sterling. The second is warding off inflation and preserving price stability and so our power to compete in earning our living. Those two aims are, of course, closely connected, and they are, in my sincere opinion, the two top priorities. Everything else must be subordinated to them.

It is to serve those two ends that the actions for which I have been responsible have been taken. If they are proved wrong, I shall take the blame. I know that I have not succeeded in everything I have tried to do. We must strive all the time to improve our techniques in the light of experience. As I said earlier, we must try all the time to see how fast we can raise our ceilings for production and employment with safety, but I have no shadow of doubt that the principles on which we have been working have been right in our present stage of economic knowledge.

As for those judgments and actions which I have thought it right to take, I must leave them to be judged by results, and I do so with confidence.

5.21 p.m.

Mr. Harold Lever (Manchester, Cheetham)

It is not surprising that, as the Chancellor has answered a case which the Opposition have not put, he has totally failed to answer the weight of the case which was made against his policy.

The complaint of the Opposition is that the Chancellor is now taking steps to retard our economy with some jeopardy to our capital investment. The Chancellor said that he does not want to bring expansion to an end, and he merely wants to moderate its speed or rate, but that was precisely the criticism made by my right hon. Friend the Member for Huyton (Mr. H. Wilson). What he wanted to know is what is wrong with the management of our affairs that, though we are enjoying a rate of expansion which compares unfavourably with almost every major country in Europe, we have to moderate that rate by active Government intervention. That the Chancellor has not attempted to explain.

There are three major problems with which the Chancellor has been faced and the lamentable fact is that on none of them have we made any progress which can reassure us. I wish to state the three problems briefly. In the first place, our problem is: how do we keep a reasonably buoyant home economy without prejudicing our export prospects? The second is: how do we stimulate capital investment without relying on what I would call the cat-and-mouse system of the Chancellor—that is, stimulating the demand for consumer goods in the hope that that will stimulate the demand for a capital investment which, as soon as it appears, is to be knocked on the head—or, as the Chancellor more hopefully put it, he hopes it will be only slightly retarded—by rebuffing the consumer boom which stimulates capital investment?

What we have to do is to stimulate capital investment in the hope of satisfying future consumer demand without having these cat-and-mouse tactics of the Chancellor. On the export side, I cannot help thinking that he adopts too rigid and naïve a view of the balance of payments problem. For example, he sees things year by year in a rather narrow sense. If imports rise sharply in a year in comparison with exports, this may he because the country, as it were, is gearing itself for next year's exports effort by increasing imports, but the Chancellor immediately sees signs of danger and strain. The three problems are, how to stimulate exports and capital investment on a continuous basis nad not on the accelerator-and-brake policy, how to stimulate our economy from periodic disturbances based on seasonal variations in our export-import performance, and seasonal and temporary variations in our balance of payments and reserves position.

The first two problems, of exports and capital investment, must, I think, depend to a large extent upon our fiscal measures. Here I must say a few brief words about our fiscal system, or, as most economists call it, the fiscal weapon—which has always for me a psychological lesson about the economists. Our fiscal system has the most ambitious objectives in the world, namely, in relation to economic policy and social justice, and is the most out-of-date and inefficient in the world. The recent Finance Bill does nothing to take away that fundamental criticism. It is certainly the most inadequate system to perform the tasks, economic and fiscal, which have been allotted to it.

Each year the Chancellor assures the House that large-scale tax avoidance has been dealt with, but I must confess that these annual obituaries by the Chancellor on the large-scale tax avoiders can no longer be regarded as the equivalent of a medical certificate of death. Those who are supposed to have died salute the Chancellor the following year with even larger depredations than in the last year. I fear that this year's Finance Bill will be no exception.

One might have supposed, by reason of the mountain of sermonising and a good deal of irrelevant insult which we had during the passage of the Finance Bill, that the businessmen, financiers, lawyers and accountants were charged with the duty of seeing that our finance system was up to date and efficient. It is sad to see that the Chancellor and his Revenue officials appear to pursue a perverse infatuation with the museum-piece which is our taxation system. Instead of starting to recast the whole system so that it could adequately fulfil its functions, year by year, it is patched up with another few bits of tormented prose which is almost incomprehensible to the lawyer, let alone the layman. It seems to me that this year the paroxysm of distorted prose exceeded all bounds in the effort to preserve our antiquated tax system from the total reform it requires if we are to have proper fiscal measures for economic planning to succeed.

I want to deal a little with the question of the balance of payments and insulating our economy from these seasonal and temporary upsets in our balance of payments and the state of our reserves. The Chancellor again has told us that he is rather pleased with himself about the Bank Rate. I endorse what my right hon. Friend said about the right hon. Gentleman's personal conduct of the office, but we cannot be certain that even to win these personal encomiums his successor will follow the behest, or, as it were, the dying wishes of the Chancellor on the subject. He assured us that there will be more fiddling with the Bank Rate, yet he has not told us what he expects to achieve with this fiddling with the Bank Rate in relation to economic policy.

The economic scene is fairly strewn with monuments to the success of the Chancellor's monetary policy. He set out to produce a stable and sustained state of affairs in our public finances, but let us see what the position is. As a result of several years of these fidgetings with monetary policy, we observe the following monuments. First, there is this disinclination to lend long term to Government or private industry, which is greater now than it has been in my lifetime in war or peace. The second monument which immediately meets the eye of anyone surveying the scene in England is that our municipal authorities are poised on a pinnacle of short-term finance at record rates of interest—and a great deal of it is money from abroad.

The achievements of the Chancellor in monetary policy, far from producing stability and longer-term lending, have produced instability, immediate precariousness and a high rate of interest and, in fact, a greater sense of apprehension if the foreign money or short-term money were withdrawn from the local authorities or businesses which are making use of it at the moment. That is hardly a tribute to the Chancellor's monetary policy.

Another, and the main, effect of the Chancellor's monetary policy, of course—I hate to sound like the small boy who insisted that the emperor had no clothes—is that, as a result of rising interest rates, people have to pay more interest. The proportion of the national wealth which goes to the non-risk taking rentier is increased and, correspondingly, the incentives available to society to reward enterprise and creative effort are reduced. That is the main consequence of raising interest rates.

The final factor which alarms me most, in a way, is that, to attract marginal quantities of hot money to this country to window-dress the Chancellor's reserves we have had to pay, on the whole of the country's borrowing from abroad, very high rates of interest, thus adding a genuine additional burden to our balance of payments problem. This is all for the sake of two or three hundred millions of hot, short-term money to be lured into the country so that the Chancellor's reserve figures may not look too had.

Every so often, the country is called upon to abate its plans of capital investment and consumption and the orderly progress of its economic affairs because the Chancellor gets alarmed about our balance of payments. This is all rather odd. I think it high time that we had a new look at the whole of our balance of payments and reserve situation in the light of conditions as they now exist in the world, not as they have been. One tends to continue ideas from the past into a changed situation, and this applies not only to the Labour Party, as the Chancellor seems to suppose.

After the war, in the precarious situation of the world, with great shifting movements in trade, serious devastation and much uncertainty all over Europe, it was true to say that, in many ways, we needed greater reserves than we had. But is this so today? I doubt it very much. Now, with buoyant world trade, a rehabilitated Europe and a much more intelligent and stable America in its financial affairs, it is quite time that we ceased our neurotic obsession of believing that we have not adequate preserves to take the shock of seasonal swings in the balance of payments position. These reserves are there precisely to take the shock so that we need not constantly throw the shock on the economy by the abrupt turns in policy that result when the Chancellor gets a little frightened.

What makes matters all the more depressing is that, side by side with this neurotic obsession with the reserve figures as they appear month by month, quite trivial changes produce a state of panic and alarm in the Treasury. Quite trivial changes involving, perhaps,£50 million or£100 million, send people at the Treasury and the Bank of England into a panic and they start lashing about with the economy. It is, after all, an economy which produces anything upwards of£15,000 million a year of goods and services, and it ought not to be interfered with in this manner for the sake of mere minor marginal temporary fluctuations in our reserve position.

I beg the Chancellor, or his successor, to wake up and realise that we are in a different world, no longer with the immediate anxieties which followed the war. We are in a buoyant world, a more stable and, indeed, an expansive world, and we should not be afraid to use our reserves as a cushion against seasonal variations in our payments position instead of disturbing and upsetting the whole economy.

The second feature which seems a little odd is that, side by side with the obsession about relatively minor fluctuations in our reserves, there is an extraordinarily frivolous recklessness on the other side at the Bank of England and the Treasury. For example, when it comes to investment and finding the money for multi-million pound schemes of building in New York or in Paris, for wildcat oil investment in Canada—about£100 million—or for repatriating smuggled£notes, the money can be found. On the other hand, we cannot have the money for the proper development of our economic affairs on a stable and sensible basis because we have to worry about minor fluctuations in the reserves. It just does not make sense.

There is a very strong case for using a good proportion of our reserves by way of investment overseas rather than having them merely in the form of gold, because they bring in revenue if they are invested and they may have secondary advantages in promoting trade. But, if we are to allow a proportion of our reserves to be used for investment overseas, then they must be available as second line reserves.

I refer particularly to our dollar securities. Some time ago, I asked the Chancellor what was the extent of our dollar securities, which are as much a part of our reserves as any gold holdings. He gave me a reply which quoted a Canadian estimate of what they were. Apparently, the Chancellor did not even know what our dollar security holdings were. He has since improved his erudition on the subject, and I am glad of that, but I think that he must agree that they are as much a part of our reserves as gold holdings themselves.

It is vital that they should be treated as such when we are, in effect, allowing our gold reserves to run down, but, if a proportion of them is going into investment, it must go into the right kind of investment. It must not go into any kind of speculative or foolish investment. It is the responsibility of the Government, without being meddlesome, to ensure that the investments made are those which can truly be regarded as part of the reserves of the country available to take these seasonal and temporary strains and help to protect the economy.

Therefore, I urge the Chancellor, if he does regard these dollar securities as a wise investment of part of our reserves, to put them in and make the Bank of England publish these reserves just as much as they publish the gold reserves. It is vital that the world should know that they are available to us to support our currency and our economic intentions, and it is very encouraging, also, for the people of this country to know about them.

The Chancellor has not succeeded in grappling with any one of those three heads which make for stability of purpose in our economic planning. He has shown a rigid and unsubtle and—I hope that he will forgive the word, which is meant in no unpleasant sense—a singularly naive approach to the tasks he has in hand, applying himself to them, unswervingly like a blinkered horse which will look neither to the left nor to the right. The Chancellor says that he will see to it that our£does not become worth less in buying power and he will ensure that there is as pretty a position as possible for our foreign reserve holdings from month to month. But these are not the only purposes of financial policy and they must not be taken in isolation, laudable as they are, in the way that he has taken them.

I am very sorry for the average businessman and industrial planner, notwithstanding what the Chancellor has told them about enjoying blessings which compare favourably with the economic upsets of pre-war years. I am sure that his own side of the Committee much appreciated the little homily he gave about the advantages of social and economic planning. The contrast with the disgraceful state of affairs which prevailed before the war when Governments took no responsibility for our economic progress is a marked one, and we in the Labour Party can congratulate ourselves that, perhaps, we have played a rather greater part in instilling these ethics and economic principles in the minds and consciences of our fellow citizens than the Tory Party did in the period when we were afflicted by the totally different philosophies and principles insisted upon by the Tory Party.

Be that as it may, I feel very sorry for the businessmen and the industrial planners because, in spite of what the Chancellor says, I am not sure that they know whether they are on their head or their heels. It is all very well for the Chancellor to say that he will interfere a great deal, and, if he does not, his successor will. At the very least, a general sense of purpose and planning should be visible, not, as the Chancellor seems to imply, a series of guesses about what the Government will do next. It would tax the most imaginative politician, let alone a businessman or industrialist, to guess what the Government will be up to next.

The businessman has hardly begun to forge ahead with the stimulating dose provided by the Chancellor when he finds his teeth being forced open for a powerful sedative to be pushed down. He begins to tense himself as he hears the roar of the open throttle and to prepare for a great surge forward when, suddenly, the brakes are put on with great violence and he is flung brutally against the windscreen.

He does not know what is coming next. He does not know whether he is being inflated or deflated, disinflated or reinflated. He is not sure whether he is being urged on to greater production, or whether he is being ruthlessly cut back. He does not know where he is because sedative follows stimulant in baffling alternation without reason, plan, or long-term indications.

Mr. Amory

I admire the number of similies used by the hon. Gentleman but, if he thinks about it, a deceleration of between 1½and 2 per cent. is not enough to throw one violently against the windscreen.

Mr. Lever

I accept the correction. It is possible that so far the unfortunate chap has been only mildly bruised and not flung against the windscreen, but it must be all rather startling for this unfortunate fellow, who does not know whether he will go forward or in reverse gear. He is not sure which is regarded as being the healthier. May I mix my final metaphors with this thought? I agree that I have given the Committee a fairly liberal dose of mixed metaphors, but I do not see why that should be the prerogative of hon. Gentlemen opposite who, when discussing financial matters, exercise that right copiously.

My final mixed metaphor is this. It is all very well to have this thin veneer of mutual admiration which protects hon. Gentlemen opposite from deep divisions of opinion within their ranks, but the ship of State is not sailing very happily on its way in the favourable weather that exists. There is a favourable tide in world affairs. There is buoyancy in world trade, and other factors in the Government's favour. Yet in spite of that, in this fair weather we are having many difficulties and the ship seems to be moving hesitantly on its course.

Thoughtful people must be asking what will happen in a gale, or even in half a gale, with the Chancellor and his hon. Friends at the wheel. We must be apprehensive if we are making so little progress towards stability, security and productive prosperity compared with other countries of the world in these favourable circumstances. We must view with alarm what is likely to occur in bad economic and political weather.

I conclude with a word to my hon. Friends. Unshackled by the responsibility which hangs heavily on those serious right hon. Gentlemen on the Front Bench, I can say quite frankly that this stale and discredited Government would have been out long ago were it not for the fact that the Labour Party was electorally its own worst enemy. No thoughtful person could be satisfied with the economic policies of the Government. No thoughtful person would be averse to changing this Government for a reasonably moderate and effective alternative Government. I hope that when we go to the Lobby to express our united disapproval of the economic policies of the Government there will be much reflection in all quarters of the Labour Party about what our responsibility is when we disprove of this bungling of our economic future in the way in which the Government have bungled it in these last years even under most favourable conditions.

We might ask ourselves what responsibilities we have to provide the kind of Government which will replace this discredited Government with a progressive alternative. I am sure that the people do not want merely a more sophisticated version of the Conservative Government. I am sure that they want to hear from us something which is neither extremist nor irrelevant nor fighting our soap box battles of long ago when we formulate our economic policies. They want a genuine Labour Government. They want a progressive and moderate Government which will replace the dissatisfaction which thoughtful people are increasingly beginning to feel with a Government whose policy cannot be defended and who cannot answer—as the Chancellor failed today to answer—the criticisms made against them a Government which offer so puny an expectation of prosperity and security for our people compared with the great advances being made in the rest of the world.

5.45 p.m.

Mr. R. H. Turton(Thirsk and Malton)

The hon. Member for Manchester, Cheetham (Mr. H. Lever) always dresses up his fallacies extremely attractively, and he did not fail to do so again today. In the second half of his speech he gave us more mixed metaphors than we had had for some considerable time.

I am sure that the last few worth of his speech are well worth consideration by all his colleagues. The country's view of the Socialist Party's economic policy is that the last time it attempted to lay down a policy it failed so dismally to keep the cost of living steady or to keep confidence in the£that in 1951 there was an economic crisis. That cannot be challenged.

I hope that the rumours about the Chancellor are false, but, when I look at the years of my right hon. Friend's Chancellorship, if, as he said in his speech his main enemy is inflation he can feel satisfied that he has won a complete victory over his main enemy because never at any time that I can remember has a Chancellor of the Exchequer held the cost of living so steady.

As the hon. Member for Cheetham said, quite rightly, my right hon. Friend has had to "fidget about a great deal" but I consider that that is partly because we and the Government are trying to do too much in the way of public expenditure, both revenue and in the capital sector. That is why in this sort of economy we must expect the Chancellor to rein in or spur on his horse at different moments.

When the right hon. Member for Huyton (Mr. H. Wilson) considered this, he expressed the view that the Government were spending about£600 million more in Supply expenditure than was done at the time when my right hon. Friend the Member for Monmouth (Mr. Thorneycroft) resigned, but they ought to spend more. He said that they ought to take over more industries. They ought to nationalise the machine tool industry, and then he had a throw away remark suggesting nationalisation of the motor car industry. Until the Labour Party realises the lesson, which tie hon. Member for Cheetham gave, damaging suggestions of more nationalisation will not make the electorate have morn confidence in the Labour Party.

Mr. G. R. Mitchison (Kettering)

Was not my right hon. Friend's point that if one is going to spend more money one should not promise that one will not do so?

Mr. Turton

I will come to that. The hon. and learned Member for Kettering (Mr. Mitchison) ought to remember that it does not help the Labour Party to threaten to nationalise the machine tool industry and to suggest how much better it would be if the motor car industry was also nationalised.

In his Budget my right hon. Friend drew attention to his concern at the rising level of Government expenditure. Estimates and Supplementary Estimates have now been published. They show a rise of£438 million over last year. That is a rise of about 10 per cent. The Government have failed to check the level of Government expenditure, but I do not entirely blame my right hon. Friend for that. I believe that the main reason for this great rise in public expenditure is that the machinery of Treasury control is defective and out of date.

The Select Committee on Estimates, of which I am Chairman, drew attention to that in a Report two years ago, and my right hon. Friend very wisely set up the Plowden Committee to advise him on Treasury control of expenditure. I want to keep away from that side of Treasury control because I hope that when my right hon. Friend receives the advice of the Plowden Committee either he or his successor will allow it to be debated early in the next Session of the Parliament. Therefore, I do not want to say anything about that today.

Turning to Departmental control of expenditure, I think that we must consider whether there is too much extravagance in Government spending. I have been Chairman of the Estimates Committee for nearly three years. It has been very rare that the Select Committee has found instances of Government extravagance. On the other hand, a Select Committee considering current expenditure is very lucky if it catches a Government Department in an act of profligacy flagrante delicto. It is much easier for another Committee considering the post mortem to show where there has been extravagance. But my experience has been that the accounting officers of Government Departments are always most prudent and responsible people and are fully aware of the responsibilities which they discharge to the taxpayer and are assiduous in trying to check extravagance.

I believe that the major cause of increases in Departmental expenditure is of another nature. I think that it concerns the unwieldly structure of Departments. We have Departments and divisions proliferating, frequently overlapping, all with their own little empires which are jealous to increase in numbers and responsibilities with very little co-ordination. That is usually described as the Parkinson's Law of the Civil Service, or, as I rather describe it, Parkinson's disease.

It is unfortunate that we have not been more successful in recent years in dealing with the problem of the structure of Departmental expenditure. On looking through the recommendations of past Select Committees on Estimates, I keep coming on recommendations made previously for greater co-ordination or integration which have either been shrugged off or accepted and then followed by inaction. In recent years we have had instances of this Parkinson's disease. I recall that in 1957–58 the Select Committee on Estimates, in its fourth Report, drew attention to the confusion and delay in the machinery of management of land by the Service Departments. There was, in our view, a very great waste of staff. Different policies were being pursued by each of the three Service Departments at home, and we made a recommendation that there should be as much integration at home as the Services practised overseas. This was not a very ambitious recommendation. It merely asked that the Service Departments should do at home what they did overseas.

Two Service Departments replied to that nine months later. One Service Department has not yet replied. The reply that we received was, "This would interfere with the chain of command"—in other words, it would disturb too many little empires. In consequence, nothing has been done and, unfortunately—this is the weakness which I want to stress—there has never been a debate in the House on the rights and wrongs of these two points of view—whether we were right in pointing out the very great waste in the system of administration or whether the Departments were right in saying that we must do nothing to interfere with the chain of command.

There was a similar problem last year. The Select Committee on Estimates, in its fourth Report, looked at the medical services of the Service Departments. It was again shown that there was great confusion in the administration of the medical services by the Service Departments. It was very costly. One hospital was costing£50 per in-patient per week and another£45 per in-patient per week. We again recommended a certain measure of integration. That was last summer. There has not yet been any reply from the Government Departments to that Report although nearly a year has passed. So far as I am aware, there has been no rectification of the conditions.

If we are to have an effective Select Committee on Estimates it seems to me most important that Government Departments should make an early reaction to its Reports, whatever their nature. It is wrong that they should wait, as nearly every Department has done this year, nearly twelve months before making a reply to Reports which took only six months to compile. I believe that it would be a stimulus to Departments to reply if hon. Members debated some of the Reports of the Select Committee on Estimates at least once or twice in a Session. This would spur Departments to reply to Reports.

I am certain that this extravagance and what I call Parkinson's disease are only contributory factors to the great increase in expenditure. After all, Supply expenditure is now very near the£5,000 million mark. The greater part of it must come from Government policy which is outside the remit of any Select Committee. What I feel is the real reason far this large increase is that Governments tend to accept commitments without realising the amount of money involved in future years. Until the Government get away from what I call "the 31st March complex" and get down to having a forward look on expenditure we will always have mounting increases in expenditure which the Government find themselves unable to check.

I should like to ask whoever replies to the debate to tell the Committee whether, when the Government accept a new decision on policy, they look not merely to the expenditure in that financial year or in the following financial year, but also to a consideration of the figure of financial commitments in a five-year period following their policy decision. The way to tackle this problem of mounting expenditure is for the Government, when they make a policy decision involving a future commitment, to tell the Department that it has so to check its expenditure that in the succeeding four years it cuts a part of its other expenditure to make up for the increased expenditure. I believe that in many directions that would be quite possible. To give one example, I believe that certainly in hospital expenditure if we could get new hospitals built there would be a very great saving on the maintenance side of hospitals on patching up old ones and that by increasing capital expenditure in one direction we should, on balance, save on a five-year period if that were the policy.

I beg the Government to look again at this question of what I call the forward look in expenditure, and I hope that the successor to my right hon. Friend will make it his endeavour not to make any cut in any one year, but, in the five-year period, try to get supply expenditure down from nearly£5,000 million a year to£4,000 million a year. Just as, since 1954, we have raised Supply expenditure by£1,000 million, in the next period we should try to cut it back to what it was before, the£4,000 million mark.

We have failed to check mounting expenditure and I see, also, another defect in our economy. Lately, we have been importing more than we can afford. Last year, the import bill went up by£244 million. In the first five months of this year, the increase in the imports bill has been£289 million, or 13 per cent. I do not consider that in the present state of our economy our exports can keep pace with that increase in imports.

The hon. Member for Cheetham said that it would be quite all right to have more imports if it were due to industry gearing itself up to more exports. In fact, that has not been the case. In the last five months of this year it is the import of manufactured goods that has gone up by 30 per cent. and that has caused the rise in imports. It is not the increase in the imports of raw materials.

There is a connection with the previous part of my speech in that some imports that have risen have had, and will have, repercussions on Government expenditure. In the recent increase in imports we find that there has been a very great increase in the imports of bacon from Denmark—a 25 per cent. increase in imports of Danish bacon at a price of 240s. a cwt. That is well below the guaranteed price and, therefore, will involve a very heavy subsidy bill. Imports of bacon from Holland have gone up by 58 per cent. at a price of 210s. a cwt. which is even more below the guaranteed price.

Turning to the egg position, the Government have allowed imports of Danish eggs to go up by 30 per cent. at an average price of 2s. 4d. per dozen, which is is, 7d. below the guaranteed price. Imports of eggs from other countries have gone up by 68 per cent. at an average price which is just half of the guaranteed price. All these imports mean that the Government subsidy bill will be far higher. We have an expanding pig industry and an egg industry that will be quite self-supporting. To give one final illustration of this, at a time when most farmers' potatoes are rotting in the fields and their new potatoes cannot be taken up because they cannot sell them in the market, the Government have allowed the import of new potatoes to be increased by 12 per cent. That has meant that the farmers find that it does not pay to grow potatoes. In my view, there is something wrong with our import policy when this is allowed to happen.

I think that it is in the interest both of the balance of trade and of the Exchequer to take some effective action to check some of these imports. I know that it will be argued against me that that is quite foreign to the liberalisation policy of the Government and its policy of free trade. I beg the Government to realise that other countries are taking effective action to preserve their own agricultural policies and to see that they do not have excessive imports. We are the only country that, having signed our international commitments, tries strictly to honour them. I would much rather that the Government came boldly out and said that they wanted to revise all these agreements that conflict with a proper agricultural and trade policy.

The other consequences of this—and this is where I disagree with the right hon. Gentleman the Member for Huyton and the hon. Gentleman the Member for Cheetham—is that I do not think they were looking at our trade position in its proper perspective. This great increase in imports, if it had come from the Commonwealth countries, would have been of lasting value to us because, later, it would have meant greater exports to those countries. In fact, two-thirds of the increase has come from foreign countries and£120 million of the increase from Europe.

If we compare the difference between our trade with Europe and our trade with the Commonwealth, I think that the best illustration is shown by the invisible earnings of last year. Our invisible earnings position was that we had a profit of£181 million in our earnings from the sterling area. We had a profit of£7 million on our earnings from the dollar countries and a loss of£70 million on our earnings from Europe. That is chiefly because, whereas two-thirds of Britain's trade with the Commonwealth goes in Commonwealth ships, two-thirds of our European trade goes in European ships.

The factor that is most worrying to me in our economic situation is that described in the G.A.T.T. Year Book, 1957–58. In describing the trade position of 1958 it said, on page 123, that it …again brought to the forefront the disturbing trends which have characterised the recent trade developments in the non-industrial countries. It was abundantly evident that the non-industrial countries cannot continue to experience indefinitely trade deficits of such extraordinary magnitude as those recorded in 1957–58,… And, on page 147: No other group of non-industrial countries was as seriously affected by the recession during 1958 as those in the overseas sterling area That brings me to my last plea to the Government, which is that at this time they should be working out a Commonwealth economic policy to buttress securely for the future our economy and that of the Commonwealth. At present, we have great opportunities, as the Commonwealth countries emerge, of helping to build up their economies. It is true that there has been a great upsurge in the economy of Europe in recent years, and we welcome it, but we could get just the same upsurge in the economy of the Commonwealth if we had a Commonwealth economic policy.

I know that some people say we must not have a Commonwealth economic policy because the Commonwealth countries are independent countries. But we have to remember that the value of the Commonwealth to the independent countries has lain in its economic partnership. I welcome the fact that there is greater unity in Western Europe today. I believe that should not be a cause for us to create rival blocs. I believe that it is a great opportunity for us and the Commonwealth countries to negotiate with those European countries to secure greater trading advantages both for the Commonwealth and for ourselves. But if we do not negotiate together round the table, I fear that severally we shall lose by the creation of rival blocs.

6.10 p.m.

Mr. J. Grimond (Orkney and Shetland)

If it is indeed true that what we heard earlier this afternoon was the Chancellor's farewell to the Committee, then this is a sad occasion because, quite apart from our views about his economic policy, undoubtedly the right hon. Gentleman will be sadly missed as a Member of the House of Commons. He has some distinctions. He has made the best Treasury jokes since the war without being accused of being a mere farceur. He has contrived to give the impression that he understands the Income Tax laws without incurring the most devastating of political criticisms, that of being clever. In addition, he has a distinction which makes him almost as rare as the Yeti or other strange beasts of being genuinely believed to be an unambitious politician even after he has had the sweet smell of success in his nostrils.

Having said these things about the right hon. Gentleman, I must confess that his remarks about the Common Market this afternoon must have been the most unenlightening exposition of Government policy since the days of Ramsay MacDonald, who said that he was going on and on and up and up.

I do not share all the views of the right hon. Member for Thirsk and Malton (Mr. Turton) about foreign trade. To me, he seemed to disapprove of the possibility that we should import from foreign countries at all. But his views about public expenditure are respected in this Committee, and I think he had something when he stressed that what is wrong with public expenditure is not so much the total of the money spent but that it is badly laid out. I think, however, that we must look at the economic situation in a rather wider context, because the fundamental fault of the country is not that the Government has spent too much, even though the Government have spent it badly, but that the country is not producing enough.

When people look back to the 1920s and 1930s, they are astonished that we tolerated the unemployment of men who were willing to work. I suspect that when the Chancellor settles down in the west country and contemplates the 1950s, he will be astonished that he tolerated a system which has led to continual economic and financial difficulties, to the considerable under-employment of machines, and has impeded the technical advance in various ways. I think also there is a danger that we are coming to accept this condition.

If we are to manage the currency, some reins are necessary. The disturbing feature about the reins we have had round our necks during the last ten years is that we have managed them in a way which has invariably given us a poor rate of economic growth. The Chancellor spoke of throwing our weight sometimes on stimulation and sometimes on restraint, but the sad thing is that the result seems to be curiously similar, that we have always lagged behind our neighbours in economic growth and investment.

In The Times of 7th June, there was a table which showed that in growth of output per cent. per year from 1950 to 1958 Britain was lowest of the eleven countries listed. If it be objected that Japan and Germany were in a special position—because of their need to build up since the war—with their figures of 7.9 per cent. and 7.4 per cent., there is no reason why we should have been passed by Belgium, with a figure of 2.9 per cent., or even Denmark which, with 2.3 per cent., got ahead of us.

Again, the Chancellor says that last year we did much better in raising the industrial output. We came sixth out of eleven. That is not a very sparkling record, but even that got us into trouble. Now we have to cut back even on that. If we look at productive investment as a percentage of the gross domestic product from 1950 to 1958, the United Kingdom was ninth, sneaking ahead of the United States and beating Belgium. In a commentary on the figures The Times wrote: If industrial expansion is examined over the past decade Britain's performance becomes even more discouraging"— with a low rate of growth in production and a very modest rate of investment, probably because in the post-war balance of payments crisis investment-demand was the first sector of demand to be restrained by controls. That, surely, is true and is one of the root causes of our maladies.

On the other hand, it has been widely assumed that we cannot have growth without inflation. But there has been very little more inflation in most of the countries which surpassed us in production than there has been in this country. Taking 1953 as 100, the United Kingdom on one computation had a figure of 120 for its cost of living by 1959. Admittedly France beat us and went up to 129, but Germany, Japan, Belgium, the United States and Italy were all below us in the rising cost of living race. So it is not true that our record lately in holding the cost of living has been so very outstanding.

Everyone knows that today expansion is expected. Expansion is talked of all over the world, and most of the world is expanding. I think that the expectations of expansion must be met in this country. We must get off the recurrent switchback of inflation and balance of payments crises leading to restriction and eventual stagnation. In the introduction to Mr. Shonfield's book, "British Economic Policy", there is an economic diary showing that ever since the war we have had this recurrent series of crises all primarily met by cuts in investment. A pamphlet issued by the Federation of British Industries said that we have always tended—and this is true—because of our small reserves to produce emergency decisions at the expense of our truer or longer run interest.

Our children will look back and ask why it was necessary. Why did we have to run an economy in this extraordinary fashion? The indictment of the Government surely must be their failure over the years to deal with the long term problems which erupt so often into crises. I am bound to say that at the same time it is rather astonishing that the Left in this country should have given practically no thought during the last 15 years to the financial methods by which the country is run. Surely the Commanding Height of the economy today is the control exercised by economic and financial policy. It has nothing to do with nationalisation of particular industries.

Surely, when the hon. Member for Coventry, East (Mr. Crossman) writes a pamphlet drawing attention to the danger of a great upsurge of production in Communist countries, the answer is not the conclusion reached by the hon. Gentleman that we must nationalise a few more industries in this country. The answer is that the Communist countries may achieve this by the way they run their whole economy. We have to learn how to run our economy with a high rate of production, without recurrent crises, without interminable inflation, and without intolerable restraints on freedom. Surely, one of the things we might be discussing is that it might be well to separate the economic from the purely fiscal parts of the Budget as Norway has done with some success. Again, must it be taken as the law of the Medes and Persians that the Government should continue to finance themselves short-term by Treasury bills and that these should form the basis of the credit in the country? What is the real rôle of our reserves? Should our private dollar holdings not now be included? Are we seriously to go on for ever with the present Income Tax structure? It may not be true that it stops people from working, but it certainly stops them from changing jobs, and it is incredibly complicated. If it is to go in this form, it will be beyond reason. What we need is not a Radcliffe Report, which tried to get a maximum agreement about the present situation, but some radical new thought on our economic and financial methods.

Another aid to expansion would be to broaden the whole basis of our economy by trying to join the Common Market. I agree with the right hon. Member for Thirsk and Malton that we should first enter into negotiations with the Commonwealth and with the Seven to see whether we cannot negotiate a combined entry, but we must make up our minds whether we are to go in or not.

But I want to make one particular and major suggestion on this topic of expansion. While I do not accept that one can have sensible and productive investment simply by decree, because it depends on a generally expanding economy, confidence and rising demand, I believe that in most countries which have been enjoying a high rate of expansion and investment there appears to be a mainspring in their economy which we have lacked.

In Russia, there is the forced blast of Communism. In the United States, there is still the frontier urge, a growing population and a mobile society. In France, there has been the drive of a small band of politicians behind de Gaulle, and the European-urge of certain people high up in the French Civil Service dedicated to the idea of a United Europe. The Scandinavians rely on their Governments to push their economies, and many backward countries have made advances by calling on a spirit of dedicated nationalism.

This urge seems to be somewhat lacking in Britain. I do not wish to exaggerate, for we are not doing all that badly, but there is a lack of a determined movement forward. We should be becoming a highly skilful country, eager to accept new methods and ideas, with a higher mobility of labour. But I do not think we are. Some people will say that it is the fault of the trade unions. That is so, in part. But it is time that the employers gave a lead. I would remind the Committee of a remarkable speech made in 1957 by Lord Chandos. I will give some of his arguments and conclusions: First of all, longer notice of termination of employment, based upon the length of service of the man employed. It is, I think, a psychological anomaly that everybody in my industry should be nominally at one week's notice, whether he has been employed by the company for 25 years or 25 days That is the first thing—to give contract of service. Secondly, I believe in a wage agreement covering five years giving an annual increase in the basic wage of (say) 2½per cent. per annum to every employee working a 44 hour week who had served his reference period of a year or two. Lord Chandos then went on to explain how this would be calculated, and continued: We should then have to combine, Government, employers, trade unions, to see that these advances in wages were real and represented a real increase in real living standards. Now nothing is easier than to say that such a wage agreement sets out upon an inflationary spiral. In practical politics, such a system would make for far greater stability than the conditions under which we now live. I should describe the present system as a dreary routine. First, an annual wage claim is put forward, supported sometimes by figures relating to the cost of living index…The next round follows almost inevitably, the routine rejection of the claim, whether rain or fine, by the appropriate Employers' Federation. Lastly, some uneasy compromise, usually of short duration, closes the cycle until the next one begins…It is an outrage that an industrial nation of our maturity should still carry on in conditions of complete instability regarding wages. The speech of a man with such experience of running industry cannot be ignored.

Mr. Douglas Houghton (Sowerby)

Does the hon. Gentleman recall the disappointing reaction by the trade unions to that speech?

Mr. Grimbnd

I am interested to hear the hon. Gentleman say that, for he is a great authority. If there was a reaction at all, it was extremely disappointing. Perhaps this might be tried again, however. It is indeed an outrage of our society that we conduct our negotiations in this way. If we are to have an expanding industry, we have to get down to a sensible settlement of wages. We are too likely in the near future to meet another cycle of which Lord Chandos spoke, of rising wage claims which have not much relevance to rising production.

I agree that the trade unions did not respond to that proposal, but what have the employers done? What has the Institute of Directors done? If it has done nothing, why has it not given a lead? I would like to see action taken, the sort of lead for which Lord Chandos tried to call. The Government have to come in on this. They also must give the type of lead in our economic organisation which has not been given since the days of Sir Stafford Cripps.

I did not agree with Sir Stafford Cripps's economic policies, but he did give a certain lead to the nation, trying to explain what he was trying to do and what it was all about. Although I did not like his policies—the situation has now changed, anyway—we should have that impress of authority from the Government. But first, they must put their own house in order. There should be control over public expenditure.

I am not so much concerned about the height of Government expenditure, because of the great need of such things as hospitals, schools and roads, but I am concerned that the expenditure should go into the right channels, and I agree with the right hon. Member for Thirsk and Malton that that is not clear at present. The Government must then be willing to indicate the sort of overall increase in wealth which they believe can be achieved. They should also set up some body to ensure better direction to investment in the nationalised industries. It is extraordinary that the Chancellor should tell the House that the Government are to hold their expenditure at last year's level. Why? There has been no explanation about it. Why is it right to hold investment in nationalised industries and for hospitals, schools and roads at last year's level? Why not the year before? There is no indication of what a proper level is, or of the need to keep a balance between the needs of one industry and another. We should have an investment council to see that investment in these industries is based on some rational argument and is held steady.

I have not run a nationalised industry, nor am I likely to do so, but it is an impossible position for those who do if they are to be the whipping boys of any change in the Government's economic policy. I do not know exactly what changes should be made in the Treasury, but perhaps there should be a further widening of the economic and fiscal branches. We should have an economic planning staff, not just to take slices out of the economy by, say, building controls, but a staff which is directed to ensuring the maximum increase in the industrial productivity of the country. I am certain that if we are to run a free society, it must be an expansive society. If it must be an expansive society, then in the first place the Government and employers must get together and discuss the general pattern and size of production. They must then ask the unions to come in and share the decisions about wages, about hours and about getting the extra production which will make this economy dynamic. I do not know whether the unions will play. Perhaps they will not. But it is high time that we tried, otherwise, as Lord Chandos said, we shall go back to the dreary routine of the present methods Let us remember that last year Western Germany lost only 62,000 man-days in industrial disputes. In this country we lost over 5 million.

It is not impossible, I believe, to improve output and relations in this country. If the Government will give a lead, I think they can achieve a great deal. Perhaps as his last gesture the Chancellor will summon a meeting with the Minister of Labour, the President of the Board of Trade, industrial leaders and the unions and will see whether we cannot aim at a more steady rate of increase, fairly shared between the public and private sectors and between the employers and the wage-earners. If he will do that I believe that he will crown what, in my view, at any rate, has been an enjoyable and not wholly unsuccessful tenure at the Treasury.

6.32 p.m.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

Early in his remarks the hon. Member for Orkney and Shetland (Mr. Grimond) recalled, as did the right hon. Member for Huyton (Mr. H. Wilson), that the rate of industrial expansion in this country in the last few years compares unfavourably with that in certain countries in Europe and elsewhere. I think that it is also true, however, that the rate of improvement of the standard of living of our people compares very favourably with that of some of the more successful of our competitors who, I think, would very much like to achieve what we have achieved. The hon. Member quoted the United States of America in one of the league tables, and their record was very little better than ours. We should recall what my right hon. Friend said earlier—that we are a highly industrialised country, that we started at a much higher level than some of the other countries and that the law of diminishing returns applies in that context.

I want to deal with the two groups of complaints which have been made about my right hon. Friend in the last few weeks, particularly since he agreed to the increase in the Bank Rate, hire-purchase restrictions, and restrictions involving special deposits. The two groups who complained were, on the one hand, the City of London and a number of newspaper commentators, and, on the other, hon. Gentlemen opposite and their supporters.

The first group consists of two types of complaints—in the first place, that my right hon. Friend has been too pessimistic and secondly, that he makes too frequent changes. First, I will deal with the complaint that he is too pessimistic. There were a number of very clear warning signs which have become apparent since the beginning of this year.

There have been a number of references already to the external payments position. There is a favourable balance, or there has been for the first five months of the year, but it is only moderate and it is not one which gives cause for great satisfaction. The gold and dollar reserves are rising, but they are not rising sufficiently fast and the same is true of our export records. In that case the curve is flattening out. Finally, as my right hon. Friend pointed out, the curve of the number of unemployed has crossed that of the number of vacant jobs. I want to say something about that later. That, I think, is the clearest possible pointer that some changes are necessary. I think that we should be quite clear that there is no crisis yet; there is no need for alarm. But the need for some action, I should have thought, is evident. It is quite clear that there would be grave danger if nothing were done at present.

What particularly impressed me about these critics at present is that they are the very people who, in years gone by, have complained bitterly that the Government never do anything until it is too late and then, when they do, the steps have to be much too drastic. These are the same people who are now saying that he has acted too early.

In any case, the Conservative Party made the position perfectly plain in their General Election manifesto "The Next Five Years", in which they said: We shall use flexible monetary and other measures to achieve the right balance in the home economy, to keep the cost of living as steady as possible in the interests of the housewife… That is most certainly what my right hon. Friend has done.

My right hon. Friend suggested that he did not think that a difference of plus or minus 1 per cent. in the Bank Rate would have a substantial effect upon the expansion plans of a manufacturer, and I entirely agree with him. A manufacturer does not expand his factory capacity, and he does not put in new plant and machinery, merely because it costs him 1 per cent. less to do so. He does it to meet a growing demand which he can see in the future. He makes his plans long-term for the years ahead, and an increase of 1 per cent. in the Bank Rate, which he knows perfectly well will be only a temporary factor, will not affect his plans in any shape or form.

Mr. John Cronin (Loughborough)

I am following the hon. Member's argument with great interest. I wonder whether he will expand it further and tell us what is the purpose of increasing the Bank Rate by 1 per cent.

Mr. Stevens

It has a two-fold purpose, as I was about to say. I know that the hon. Member is a very rapid talker, and he also seems to be a rapid interruptor, although I make no complaint about that.

I was about to say that if that extra 1 per cent. damps down the marginal schemes, that is precisely the effect Which it was intended to have. Furthermore, as a by-product, but a very important by-product, the increase of 1 per cent. in Bank Rate slows down a tendency for foreign funds deposited here to leave the country. Those are the two main reasons for the increase of 1 per cent. in Bank Rate.

Mr. Richard Marsh (Greenwich)

Will not the hon. Member also agree that there have been considerable complaints from a number of industrialists recently that another effect of the increased Bank Rate is to increase export prices, because the general demand is for credit on more expensive items nowadays. Since the company itself has to borrow at a higher rate of interest, it frequently faces the problem of having to charge higher prices.

Mr. Stevens

That is true to the extent that a manufacturing company has to borrow to finance its export trade. I shall have something more to say about that in a moment.

Companies of the type which the hon. Gentleman and I both have in mind are much more liable to finance their export trade out of reserves—profits ploughed back to reserves—than out of borrowed money. That is another point and I will come back to it in a moment.

I should like to say a little more about the danger sign represented by the curve of the number of unemployed crossing that of number of vacancies. This has two effects. First, it means that where an exporter receives an export order which may necessitate the engagement of additional labour, he cannot get that additional labour, he cannot keep the delivery date and the reputation of that company and of this country consequently suffers.

Secondly, it leads to a condition which is common at present, in which many factories in the same area are competing for labour and are paying more than the normal rate paid over the country as a whole. For the time being that is very pleasant for the worker engaged in that industry, but it means that the manufacturer is paying more than the economic rate for the job.

By "the economic rate for the job" I mean the rate which can be recovered from the selling price of the article which is produced by the workers in that factory. It is not very difficult to sell at that higher price in the home market, but it is exceedingly difficult to do so in the export markets. As a result, the home prices constantly tend to rise and, as a consequence, we have inflation straightaway.

I think that in his actions my right hon. Friend was by no means pessimistic, but was, in fact, realistic. There have been complaints about the frequency of changes. I would much prefer more frequent, moderate changes in good time, because that is bound to tend to have an effect which every industrialist wants—stability. Stability is the one thing above all others which the manufacturer wants.

May I turn to the other group of complaints, which come from hon. Members opposite and their friends? We heard something about these earlier this afternoon. They say that with the Tories it is always a question of a pre-election boom and a post-election crisis. My right hon. Friend dealt with the question of the pre-election boom quite satisfactorily by quotations from remarks of right hon. Gentlemen opposite on the Budgets of this year and last year. I want only to deal with the other aspect, namely, the allegation that there is a crisis now. There is no crisis at present. Expansion continues, but it must not continue at a rate far in excess of our annual productivity increase, which in fact, during the last few months of 1959 and the beginning of this year, has been the case. On the other hand, living standards have continued to improve, but not at the rate of the rake's progress.

There is nothing new in the use of controls. From 1946 to 1951, under the Labour Government, we had plenty of controls—steel allocations to the motor car manufacturers unless they exported 75 per cent. of their output, building licences, and every form of control. My main objection to rigid controls of that nature is that no one can accurately forecast. just what will be the effect of a particular control nor how great the effect will be.

As the hon. Member for Manchester, Cheetham (Mr. H. Lever) quite rightly said, we are rather travelling to some degree along a difficult uncharted path. I am trying to mix my metaphors as much as the hon. Gentleman did, but I can stick to the straight and narrow path along which the ship of State is sailing. It is to a very considerable extent uncharted, but we know a good deal more about these things in these days than we did before the war, and that is undoubtedly a main reason why, since the war, we have never suffered from such unemployment as we did before the war.

The main drawback of the rigid form of Socialist control is that it is too cumbersome and complicated. If it has the wrong effect, or if it has a greater effect than is intended, it may well be that Parliamentary consent must be obtained before it can be varied or done away with. The time lag is too great, and the damage is done. On the other hand, Bank Rate changes, hire-purchase controls, special bank deposits and such measures, can be quickly and finely adjusted as their effects become apparent.

Today, we must be clear on two things. First, on a question of fact, under my right hon. Friend's policies there has been expansion. Secondly, expansion remains the Government's policy—not uncontrolled expansion, but controlled expansion, certainly not tear-away inflation. What governs the rate of expansion? I suggest that two things do: first, increased savings—my right hon. Friend had something to say about that—and, secondly, improved methods and machines.

Arising out of those two things, which I do not think can be gainsaid, is it wrong, as hon. Gentlemen opposite are very fond of saying, for companies to make large profits? Secondly, should there be, as some of my hon. Friends would like there to be, a separate company tax, so that if the Chancellor of the Exchequer wants to alter the rate of individual tax he does not have to alter the rate of tax on company profits as well? Is it wrong for companies to make large profits? Historically, for the last 200 years and more the industrialist has lived on a third of his profits and ploughed the other two-thirds back into his business. That is still as true today as it was then. If any hon. Member doubts it, I can refer him to many books of reference in which that is quite clearly shown. It is true today.

One objection which hon. Gentlemen opposite sometimes raise to the ploughing back of profits is that it simply redounds to the benefit of shares. They allege that the ploughed back profits are in due course reflected in the increased Stock Exchange prices of shares and the worker derives no benefit. That is quite untrue. The worker in the industry where profits are ploughed back benefits in two ways. First, out of the ploughed back profits the company can buy the new machines without which increased productivity is impossible and from which alone high wages can flow. Secondly, the ploughed back profits add to the strength of the company, and thus improve the stability of the jobs of the people working in it.

On the point of whether or not there should be a separate corporation tax, I am very doubtful. I am certainly extremely doubtful if it means increased taxation, because increased taxation on companies would have the very opposite effect of what I have just been saying, namely, the benefits gained from increased profits ploughed back to reserve.

The general economic outlook at present is not unfavourable. My right hon. Friend took modest steps as soon as the first warning signs appeared, and I congratulate him on doing so. At this moment, he can derive a good deal of satisfaction from two things. First, when he took office he established as his unquestioned first priority the stability of the£. My right hon. Friend can look back on more than two years of no increase in the Interim Index of Retail Prices—the cost of living. That is a record unequalled by any Chancellor since before the war. Secondly, he can look back on two years of improving the standards of living and a fundament4ly strong economic and financial position today from which further advances in that direction can be made in the future. That is a record of which any Chancellor and any Government can well be proud.

6.46 p.m.

Mr. Richard Marsh (Greenwich)

The hon. Member for Portsmouth, Langstone (Mr. Stevens) is a typical example of the terrifying complacency which exists about this country's economic situation at present. He said several times that there is no crisis now. This is the operative question. This is the point which worries so many of us—not that there is a crisis now at this moment, but that a very serious crisis is around the corner. Many people feel that the right hon. Gentleman's present proposals and his policies in the past are not so far steering us away from it.

Some of the arguments which the hon. Member put up and then proceeded to demolish were fascinating. He champions the cause of higher rates of industrial investment. No one on this side denies that. The Labour Party fought its campaign at the last General Election primarily upon the economic argument that there was a need for a much higher rate of investment and that that higher rate of investment is not taking place at present.

The hon. Member mentioned, as other hon. Members opposite mentioned, the controls, restrictions, and difficulties with which this country was faced between 1945 and 1950. It is a rather sad pass when a Government in 1960 look for comfort upon a comparison between 1945 and 1950 when this country was emerging from the biggest war in history, with its industrial potential wrecked.

I have only this to say on those "wicked" Socialist controls. Many countries in Europe did not have such Socialist controls at the end of 1945 to 1950, and the majority of those countries finished up with very large Communist Parties instead. If the Labour Party can claim credit for anything in its economic record, it can claim credit for the fact that its policies and the controls it imposed gave people at least a minimum standard of living, which enabled them to maintain their faith in democracy, which people lost under many Right-wing Governments elsewhere.

A number of tributes have been paid this afternoon to the Chancellor of the Exchequer, with which from a very limited experience of his speeches I would very much like to be associated. I am sure that all the other new Members agree with me in that. His charm, his courtesy, are the envy of all and an instruction to many.

That, however, is a feature of the whole Government economic team. The one thing that can be said of all those on the Treasury Benches is that they are a charming, courteous, pleasant group of people. One echoes the words of Bishop Crichton, who said of one of his parishioners: He is as good as gold and fit for heaven, but of no earthly use. That statement might well be applied in that direction.

The most dangerous thing about this crisis is that it has a dreadfully familiar ring about it. It is already becoming a regular pattern of the economic system. In January, we have restraint. In April, we have a Budget that seeks to put matters right. But it is based on the assumption that everything will go in our favour and, unfortunately, that never happens. Then, in the early summer months, we have credit controls and, recently, we have been faced with higher interest rates. We had it in 1955 and, to a lesser extent, in 1957.

The trouble is that by the time the remedies are applied the complaint is changing. By the time we have met the boom, the economy is already moving—as I think it is now—towards a recession. This type of machinery is all very cumbersome. It is very easy to reverse the Bank Rate when one has applied it—and its effects are quite rapid—but the efficacy of special deposits is, to say the least, dubious, and, in any case that step takes longer to take effect and is much more difficult to reverse once it has been put into operation.

Several times today we have been told that this is something that will always be with us; that there is no escape from it; that the maintenance today of a low level of unemployment allied to a relatively high standard of living makes this perpetual economic tightrope part of our existence for all time. If that is the case, then, by the very nature of things, by the very law of averages, at some time a mistake will be made.

The Chancellor makes the point—I think, very fairly—that the degree of manoeuvrability is very narrow; that at any time he has either just hit the mark or has just missed it. But to base the future economy of 52 million people on that is to ensure that at some time in the future, in a rapidly changing society, we shall be faced with a serious economic crisis. It is regrettable that hon. Members should go away from here pleased with themselves because, at least, there is no economic crisis at the moment. The biggest present necessity is to plan far enough in advance to avoid an economic crisis later.

Many gibes have been made at the tendency of the Government to manipulate the economy in order, it is suggested, to enhance their General Election prospects. The Chancellor and some of his hon. and right hon. Friends get very annoyed at this allegation, and one can understand it. If it is a true allegation, it is an extremely serious one. If, in fact, any Government, of any political complexion, is prepared to endanger the economic well-being of a nation to enhance their electoral prospects. they are guilty of most serious offences.

If that allegation came only from this side, one might, perhaps, dismiss it as pure party propaganda. But the right hon. Gentleman knows full well that it does not. During the Second Reading debate on the Iron and Steel Bill, on 18th February last, the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) intervened—he and his hon. Friend the Member for Kidderminster (Mr. Nabarro) played a notable part in that debate. The noble Lord said: What I am certain this country does not want to see again is the sort of violent rise in prices which occurred after the 1955 Election in consequence of the economy having been dressed up for that Election…—[OFFICIAL REPORT, 18th February, 1960; Vol 617, c. 1486.] The noble Lord can be accused of many things, but incipient Socialist sympathy is not one of them, and I think that one is bound to give some weight to statements made by hon. Members opposite that their own party—they themselves—was guilty of rigging the economic scene for the last General Election.

The biggest problem we face results from that pre-General Election boom—this artificial boost to hire purchase. I am one of those innocent characters who was brought up as a child on the simple doctrine that if one could not afford something one did not have it. I married an economist, so I have to treat them very gently, but I think that economists tend to complicate economic affairs too much.

There is much similarity between the economic well-being of a country and the economic well-being of a family. Any family that gets up to its ears in debt will have a wonderful time—until the day of reckoning dawns. It was much easier, as hon. Members opposite will appreciate, to start the hire-purchase boom than it will be to stop it. It was much easier to turn the country into a national "slate club", living on "tick", and almost turning that into a form of patriotism—much easier than to turn it away from that.

In April, the hire-purchase debt went up by£29 million, and the country as a whole now has a hire-purchase debt of£949 million—nearly£19 of debt for every man, woman and child. While I think that it is morally wrong to give people the impression that they can live on things for which they do not pay—and which they have not earned—it is also economically stupid to base the prosperity of a country on something so transient.

The increase in the hire-purchase debt in February, March and April was£76 million, over£10 million more than in the same period of 1959, despite the fact that the burden of hire-purchase repayments, quite apart from its economic effect, is having a serious social effect on many of our people who, for whatever reasons—and one can criticise them—are being encouraged to take on a degree of debt that they are not capable of bearing. That is something for which the Government bear a very great responsibility.

The other problem that we face is the complete inability of any industry to plan its future with an economic policy that varies from day to day. At one time we are faced with a Government policy which, in a matter of six months, becomes the reason for an economic crisis. The hon. Member for Langstone said that he did not think these variations adversely affected industries, but we recently had the classic example of Hoovers. That is a typical company, whose financial structure is based on hire purchase. In response to an artificial boom in hire purchase. Hoovers had just prepared to expand production, but were suddenly told "Sorry, the Government have changed their mind and are now going into reverse"——

Mr. J. M. L. Prior (Lowestoft)

I believe that Hoovers admitted that the redundancies resulted from a slowing down in sales that occurred before the hire-purchase regulations were tightened up.

Mr. Marsh

My whole point is that no industry based on this type of sale can have a successful existence in a perpetually changing economic system, and Hoovers are typical of that.

I was pleased to hear the Chancellor admit the need for planning, and this probably points to one of the biggest problems we have. Among hon. Members opposite we now have a peculiar mixture. We have the real Conservatives, those like the hon. Member for Kidderminster, the noble Lord the Member for Dorset, South and some of their hon. Friends. However much one disagrees with their political philosophy, it is known how they will react in certain circumstances, and one can take action in that direction. Unfortunately, in economic matters the bulk of the Conservative Party today appears neither to have the guts to be Conservatives nor the intelligence to be Socialists. They flannel around like economic jellyfish in a sea of indecision, with no idea where they are going nor any idea why they are going there.

It was said, and it will rebound in the near future, that the ordinary people do not understand these fluctuations in the economic policies of the country; that, in fact, from the by-elections and the results of the local government elections one can say that most electors are very content and quite happy with the Government in office. I can only say that that sort of ignorance is changing rapidly. My own constituency—and I was taught very early on that one should never miss in a debate, whether on Tibet or economic affairs, an opportunity of mentioning one's constituency—has dealt with this question of the Bank Rate and has written to the Chancellor of the Exchequer. At its last meeting, the Greenwich Borough Council—[Laughter.] It is a borough whose political intelligence and integrity is of a very high level indeed. The borough council wrote to the Chancellor of the Exchequer deploring the Government's decision to raise the Bank rate from 5 to 6 per cent., having regard to the detrimental effect this will have on the cost of borrowing money for various capital projects for which the Council is committed in the immediate future Translating this into specific terms, in just a local paper, we had a reference to the fact that the recent 1 per cent. increase in the Bank Rate means an increase to ordinary people of£11,600 in Greenwich alone—a comparatively small London borough. This is£11,600 which could have been spent on the welfare of the people in the borough, and is almost equivalent to a 1½rate. The time in which they will fail to connect the increase in the difficulties which they experience locally and Government policy is very much on the way out.

The biggest problem is the question of exports. The hon. Member for Lang-stone made great play with the fact that he did not think that the balance of payments position was as terribly serious as might be gathered from statements made in the debate. The biggest problem that faces us at the moment is this one-sided problem of exports. I do not say that our imports are anything to be complacent about, but May showed exports to the value of£317½million, which on the surface looks quite comfortable, and is£10 million more than in April, but if one takes the corrected figure, one finds that it is£10 million below that for January and February. The most that can be said about our position at the present time is that we are possibly just managing to maintian the status quo, and at a time when other countries in the volume and value of their exports are sweeping ahead of us.

The position elsewhere has been mentioned on several occasions, but taking this question of exports—and this has nothing to do with the original position after the war—in the United Kingdom we showed in the first quarter of 1960, over the average for last year, a 4½per cent. increase in our exports. The Federal Republic of Germany showed an increase of 11½per cent., France an increase of 15¼per cent., and in every case, bar one, the other countries are able to export at a much higher rate than we in this country.

Mr. John Harvey (Walthamstow, East)

Does not the hon. Gentleman perhaps feel that it follows from the figures which he has given us that countries with free economies seem to be able to do very well in this export field?

Mr. Austen Albu (Edmonton)

What is this, a bound economy?

Mr. Harvey

The hon. Member for Greenwich (Mr. Marsh) is trying to suggest that our own economy has all sorts of things wrong with it and needs controls to rectify them, and then quoted figures from other economies perhaps even freer than ours.

Mr. Marsh

One of the features of these figures is that with all types of economies in Europe, in many of the Scandinavian countries, in Germany and in France, this country cannot compete in the field of exports with any of them, and this is simply—[Laughter.] The hon. Gentleman laughs, but this is a statement of fact.

Mr. Anthony Kershaw (Stroud)

The hon. Gentleman has got his figures completely wrong. He should look at his books again. In fact, our export trade is about equal to West Germany's, and if he will look at that "League Table", which has been quoted in this House so often before, he will find Sweden is bottom of the list, and Sweden has about the highest standard of living in Europe.

Mr. Marsh

One finds it difficult to follow this particular argument as pursued by hon. Gentlemen opposite. What I am stating is the simple point that, in respect of value, other countries in Europe are exporting to a higher value than is this country, and that world markets are getting more difficult rather than less difficult for this country. For example, our exports to the United States of America are largely dependent on car exports, but the recent emergence of the American compact car will make it more difficult than in the past. Though this can easily be over-estimated, the contribution of the Soviet Union in this field is likely to be much more dangerous in the future than hitherto. No one can say whether or not the Russians are at this stage able to compete with the Western countries, though they probably are, but there are very few people who would argue that they will not be able to compete within the next ten years at a very high level indeed. While there is no sign at the present that they would like to transfer from a political to an economic cold war, it is true that if they did wish to do it they have the capacity to do it, and they would cause us a great deal of embarrassment.

The position is a clear one. We are going into a changing and more and more difficult world, and the Chancellor of the Exchequer and his colleagues have blundered around for the last few years and have produced a situation in which the most we can say is that we are not in an economic crisis at the present time. Unless we can have a sensible direction of our economy, which can be achieved only by some extent and some degree of economic planning, then on the 'present basis some sort of economic crisis with a serious balance of payments problem will be the inevitable result.

7.8 p.m.

Mr. Geoffrey Hirst (Shipley)

The hon. Member for Greenwich (Mr. Marsh) certainly lost no chances of making the most of the many opportunities which he provided in his speech for enjoying himself, and which I think we enjoyed with him as well, but I do not know what he was doing in 1947, 1949 and 1951. He seems not to have caught up with the background which he must have known existed at that time, because none of the difficulties which we have had—and we have had our difficulties—have been anywhere near the size, the nature or the devastating effect on the economy which the devaluation crisis and the balance of payments crisis brought upon this country.

Although I cannot accept the hon. Gentleman's figures, there is just one thing upon which I agree with him, and that is the very important problem of exports. I feel that he would carry everybody in the Committee with him about that, although, as I say, I cannot agree with the hon. Gentleman's figures. The importance of the problem of exports is obviously tremendous, and I hope that everyone, irrespective of party—because I feel that this is a vital matter to our economy—will play his part in bringing to the notice of everyone the need to make this country thoroughly export-minded. There is no doubt that that is the overall need.

In the past, people have gone out and have conducted their export trade but not, I think, in the way in which we were brought up to be sea-minded, with the traditions of the Navy behind us. Now we have got to think differently, and our greatest need is to be export-minded. There is a mass of opportunities for the smaller firms who have not trodden this path seriously. This is a matter in which every Member, irrespective of politics, can play some part because it means so much in terms not only of spreading our economy but of the happiness and progress of us all.

Time marches on, and I am only too well aware of the little time available in this debate. I hope, therefore, that if I omit three-quarters of my speech and stick to one aspect I shall not be too unpopular. I wish to deal with an aspect, to speak on which I claim a little precedence. I am a little sorry that the right hon. Member for Huyton (Mr. H. Wilson) used an occasion when I put a Question to the Prime Minister to make a veiled attack on him. It was, I thought, a great shame. I think that we have had no better peace-time Prime Minister in the memory of any of us. He has done a magnificent job and it is rather a pity that the right hon. Gentleman should use such an occasion to attack him. I admire the Prime Minister tremendously. It was because of that admiration that I wanted to see whether I could associate him a little more clearly with an object and aim which I have pursued in the House almost relentlessly for many years.

I will spare the Committee the various extracts which I had proposed to read. The idea to which the Economist gives a good deal of space under "Divide to Rule" this week is something about which I was talking quite a lot in April, 1954. I have consistently been in favour of some system of that kind. When we come to the question of Government expenditure, it throws back upon us the phrase "The back benchers are responsible". In the broad sense, since we are all together in the House of Commons, of course we are responsible.

The Prime Minister at least gave me a Written Answer—not the one which I had intended to quote, which I had hoped would be an Oral Answer, but at least it was intelligible—in which he said: Responsibility in this matter rests where it should—on the Government as a whole, on my right hon. Friend the Chancellor of the Exchequer as custodian of the national finances, and on each of the Ministers in charge of the Department"—[OFFICIAL REPORT, 30th June, 1960; Vol. 625, c. 142.] I do not quarrel with that. I maintain that that is exactly where responsibility does rest. It rests with the Government, and in particular with the Cabinet who are, in this context, with the Government, like a board of directors of a company. There is only one subtle difference. We do not have so much control over them as, for example, have the shareholders of a company.

It is also said that, having willed the end, the nation wills the means. It must be borne in mind that the nation does not will the means if, in fact, it is going to cause unnecessary difficulties or serious cutbacks in investment or reductions in taxation not being made, or whatever it may be. Clearly, it does not will the means in that context. There. I think, my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) was on a point of which I highly approve. There must be some forward assurance of where Government expenditure is going to lead.

One can talk about instances galore, but I can call to mind one instance which is particularly interesting. That is the London-Yorkshire Motorway. In 1955 it was going to cost£12½million. It was adjusted in 1957 to£15¼ million, and later in the year to£17½million. In 1959 the cost was estimated at£19 million, and in 1960 the first section cost£22 million. That is not what I call a clever little story. But when we come to the second section, the part which runs up to Doncaster, I am informed that at a rough estimate it will cost£36½million for a distance only a little longer than the first section. It goes through more difficult country.

As these battles have been fought so much in the House already, one knows only too well about the route which was offered to the former Minister of Transport two or three years ago. I wonder whether that came up at Cabinet level. I wonder whether its possible cost was foreseen or whether any form of budgetary control was envisaged. All too often the cake is baked before the Treasury can check the ingredients, and that is one of the growing troubles in connection with expenditure. One only has to read the Reports of the Public Accounts Committee and of the Auditor General to see the difference between estimates and performances of which I have given an instance.

In the campaign which I have waged over the years, I have had a double purpose: first, a vast improvement in the control of Departmental expenditure and some machinery to ensure better control of nationalised industry expenditure; and secondly, the control of the level of expenditure at early policy stages and budgetary control thereafter. I am not in inner circles, but it does not appear to have been done, as I know it is done in the businesses of which I have personal experience.

My hon. Friend the Member for Wolverhampton, South West (Mr. Powell) in The Banker in 1958 said: The Gladstonian garrison may still be at their posts, but to repel the foes of the twentieth century they have only the weapons of the nineteenth. That is true. The Economist on 9th July, referring to myself and to my Question to the Prime Minister, said: Mr. Hirst was right—there is no senior Minister with sufficient time to fulfil the Victorian Chancellor's traditional job of seeing that the department give the best possible value for the taxpayers' money. I feel that there is room for reform and that it should take this form. There should be a Minister for Economic Affairs. He might well be the Chancellor. The name does not matter so long as the functions are performed. This Minister for Economic Affairs should watch over the economy and study the likely trends and circumstances which arise from Government policies and plans, such as the school-building programme. I wonder how many people know what that will cost in the next ten years? Can we contain it at the past level or not?(/quote> Next there should be a Minister of Finance who is in charge of the machinery of the Budget itself—the financial aspects and the carrying out of the ordinary day-to-day job of the Treasury. Something of that kind is required. Both are important, of course, but the Minister for Economic Affairs. or whatever he is called, must be the leading light and in the confidence of the Prime Minister. The Prime Minister would have to be willing to associate himself and to give a lead.

That is the simple issue which I have been advancing for so long and it would help a little towards obviating this "blow hot, blow cold" tendency which is damaging to our investment pattern, and will damage both the private and the public sectors if it is allowed to continue for too long. One gets evidence of this, for example in cases where customers cannot carry the expense or obtain loans with which to finance deals, and fall back on the firms from whom they are ordering, whose resources for investment are thus reduced.

That may be what is required at the moment, but it cannot be to the good of the country, taking the long view. If we are to lift our economy we have got to find greater investment opportunities and propagate export mindedness among our people. We cannot afford to potter about parochially with our own affairs and ignore what is happening elsewhere. I shall not develop other aspects of the matter which I had in mind. I content myself with that one plea, which I have made on more than one occasion each year since 1953.

I end on a personal note. As my right hon. Friend the Chancellor knows, as the Committee knows and, indeed, as the world knows, I have not, I am sorry to say, seen eye to eye with my right hon. Friend in his Budget and Finance Bill this year. Far from it. I have never been one to say things behind a person's back that I felt ought to be said to his face. I have never been one to hide my views at any time, even if it required a large amount of courage sometimes to give them. I have been highly critical, and I remain highly critical, of that Measure, but I wish to say that I have appreciated enormously the integrity, courtesy and personality in the House of the Chancellor of the Exchequer.

I have appreciated enormously the job which my right hon. Friend has done for this country over the years. I value it very greatly indeed. It means far more to me than my little past quarrels, if I may call them that. I cannot possibly eat the words in which I expressed my own economic thinking and I cannot possibly withdraw my attack on the Budget and the Finance Bill, but those are very small things in a period of years and certainly small measured against my personal regard for my right hon. Friend.

7.20 p.m.

Mr. John Cronin (Loughborough)

I imagine that hon. and right hon. Members on both sides will sympathise with the hon. Member for Shipley (Mr. Hirst) in his wish to restrain unnecessary Government expenditure. I think he has shown considerable courage in the way he has drawn attention to it in the past. I was a little sorry to hear him speak rather severely on expenditure on roads. Having regard to the inadequacy of the Government's road programme, I feel sure that many of his constituents who may spend many a frustrated Sunday afternoon would not welcome economies in road building.

Mr. Hirst

I am not questioning the overall amount. I am drawing attention to the absence of budgetary control and the failure to foresee that estimates would turn out to be 100 per cent. wrong.

Mr. Cronin

I am obliged for the correction. We are reassured to know that the hon. Gentleman does want more and better roads. Nevertheless, it would have been refreshing it we had heard the hon. Gentleman speak in the Blue Streak debate and comment on the hundreds of millions of Government money wasted on that project. I think that he was silent. We shall expect him to be the censor of expenditure in the future.

Mr. Hirst

If I can catch the eye of the Chair.

Mr. Cronin

I wish to echo the words of several of my right hon. and hon. Friends in saying how sorry we are to know that the Chancellor is about to leave his present office. He has always treated the House with amiability and courtesy, and we have always regarded him as a person of very special integrity. We have not always agreed with his views on fiscal matters and, of course, he suffers from a tendency to want the maximum private profit and the minimum amount of control, which is the occupational neurosis of Conservative Chancellors of the Exchequer. But we can overlook that.

The right hon. Gentleman is leaving his office at the right moment. Like a certain French king, he will be able to say, "Après moi, le deluge".

Mr. Amory

indicated dissent.

Mr. Cronin

I gather that he does not agree with me. We all feel a little discomfort when considering the possibility of who the next Chancellor will be, whether the Foreign Secretary or the Minister of Education. In any case, whoever does become Chancellor, I hope that he has all the success he deserves. I hope that that thought does not depress hon. Members unduly.

My hon. and right hon. Friends have expressed great dismay at the series of restrictive measures to which the country's economy has been subjected during the last few months—the January rise in Bank Rate, the April hire-purchase restrictions, and the further rise in the Bank Rate in June. As hon. Members have said, these measures do present formidable problems for the country's economy. If the restriction and constraint had come on top of a long period of economic advance, no one on this side, I think, would have worried very much. If our productive position were as good as that of the rest of the world, we should be perfectly happy. It has, however, followed a very short period of economic expansion, a period of economic expansion which, I have no doubt, purely by coincidence, occurred at the time of the General Election. Nevertheless, it was a very short period of economic expansion.

To emphasise this point, we should consider some figures. I apologise for using figures, because they are rather tedious things. I think it was Disraeli who, when rather pressed by figures, classified lies as lies, damned lies and statistics. As the Government themselves now produce many figures, I think we should examine them. The Chancellor will not disagree when I say that the country's gross national product has varied between£4,100 million and£4,200 million quarterly. The level has been steady from 1955 until 1959, and there has been hardly any change. It was only last year that there was an increase in the total product of the country.

Taking the level of industrial production in 1953 as 100, we find, by reference to the O.E.E.C. report to which reference has been made, that our index of total industrial production in this country was 114 in 1955 and 1956, 116 in 1957, dropping back to 114 in 1958. Only last year did it rise to 120. We see that the expansion of industrial production was for a very short period only and it followed a period of complete industrial stagnation.

I hope that the President of the Board of Trade, when he winds up, will answer this very simple question. In what conditions will production in this country be allowed to expand for a long period? In what conditions can our economy look forward to a marked rise? Under the present Government, as far as one can see, any increase of productive activity for a few months is immediately curtailed by severe restrictive measures.

This situation is made all the more serious by the rapid rise in production in neighbouring countries. Using the same basis of 100 for 1953, again taking the figures from the O.E.E.C. report, the index for Germany last year reached 172, for France 170, for Italy 166, while for the U.S.S.R. it reached 170 in 1958. There seems to be little doubt at all that we are lagging very seriously behind our competitors in productive capacity.

The Government have a duty to state exactly their aims. What are their intentions in regard to productive capacity during the next few years? Do they intend to continue their restraint? Are we entering a period of industrial stagnation as we did in 1957? Are we to maintain our production at that low level which has been maintained almost the whole time we have had a Conservative Government?

We ought to consider various aspects of the Chancellor's restrictive measures individually. As we all know, the raising of the Bank Rate has many deleterious effects. It has a very unhappy effect on housing, on mortgage payments and on local authority finance. Moreover, of course, every increase of 1 per cent. means an increase of£15 million on the adverse side of our balance of payments per year.

Are these large increases in Bank Rate really worthwhile? Would it not be better if they were scaled down. If one looks at the Radcliffe Committee's Report, one sees that that Committee did

not seem to regard Bank Rate as being a very important factor in affecting the country's economy as far as it affects balance of payments. I shall not weary the Committee by quoting the Report, but if one looks at paragraphs 433 to 440, one sustains the impression that an increase of Bank Rate is largely a psychological gesture and is effective only if it is part of a package deal and is combined with other forms of economic restraint. So I think that the Government ought seriously to consider whether they should keep on using Bank Rate so vigorously as an economic weapon or whether they should dispense with it, or certainly reduce the size of the increases and decreases.

I turn now to the special deposits. These are for the purpose of decreasing the banks' liquidity. The banks, when the Government want them to reduce their liquidity, have to deposit certain sums in the Bank of England and, as a consequence, they are not in a position to make advances to the extent they were before. Of course, the special deposit mechanism depends very largely upon the Government not being agreeable to the purchasing of gilt-edged stock which the banks sell, because the banks can always maintain liquidity by selling gilt-edged stock; and in February, I think it was, the Government let the bottom drop out of the gilt-edged market to show the banks that they could not remedy their situation by selling gilt-edged stock.

This seems to be a rather cumbrous mechanism for controlling bank advances, particularly as it depends to a large extent on undermining the security of gilt-edged stock, and I would suggest that the Government give some serious consideration to more direct control of the banks than they are doing at present.

We know that the 1946 Bank of England Act gave the Chancellor of the Exchequer power to give directions to the Bank of England and also gave the Bank of England power to give directions to the banks, but this power has never been used, and if one looks to the evidence in the Radcliffe Committee's Report it seems rather doubtful whether the Government can through this double mechanism actually give directions to the banks. It does seem that the legal ability of the Government to direct the banks directly as was envisaged in 1946 does not really exist. So I think that the Government might well think in terms of some amending legislation to enable them to give the banks directions without this sort of rather cumbrous mechanism. I seem to recollect that the right hon. Member for Monmouth (Mr. Thorneycroft) himself gave the banks informal directions; he expressed a request; but it was not effective. I should have thought that some formal and legal ability to give the banks directions as to their advances would have been more effective.

I turn to the question of hire-purchase controls. These seem to be rather unfortunate because they affect largely the people of the lower income groups. Wealthy people do not buy their goods on hire purchase. Hire-purchase restrictions very largely affect the lower and middle income groups.

Of course, hire purchase is always a somewhat erratic part of the economy. There is always a tendency for the hire-purchase pattern to be unstable. An unstable purchase pattern is always followed in a few years by an unstable pattern of replacement, and so there must always be big changes in the total amount of hire-purchase credit outstanding. Purchase of the sorts of commodities bought through hire purchase can usually be postponed or accelerated, so there is always a tendency for instability.

Of course, Government interference with the hire purchase of consumer durables such as kitchen equipment does, if anything, increase this instability. One rather doubts whether those Government interventions in hire purchase are really worth while, because this constant wide fluctuation between the peaks and valleys of hire-purchase debt outstanding is one of the most consistent features of Western economy. So I feel that the Government might seriously consider whether it is worth while intervening in this way. It may be argued that the intervention should be more continuous, but the sort of intervention we have had, complete freedom from restraint in 1958 and then quite severe restraint in 1960, seems to me rather likely to aggravate the problem of instability in hire purchase credit.

Of course, hon. Members on both sides of the Committee have deplored the standstill on investment for 1960–61, and there can be little doubt that our invest- ment situation compares very unfavourably with that of most of our competitors. I think that mast hon. Members who have given thought to this matter must deplore that it is rather difficult to comprehend that the investment situation next year will help any economic crisis which is likely to arise this year. We have had an exposition from the Chancellor today of the desirability of these various forms of constraint, and all these forms of restraint in the economy have one common purpose that appears to be to damp down expansion and as a consequence decrease imports and have a favourable effect on the balance of payments.

Missing from the Chancellor's speech was any attempt to improve the balance of payments from the other side of the equation; in other words, to improve exports. We have not heard that the Government have any policy at all for improving our exports situation. I think that one hon. Gentleman on the other side of the Committee did speak somewhat unfavourably of the controls, the allocations, under the Labour Government between 1945 and 1950; but they did work, they did induce companies to concentrate on exports, which certainly is not being done at present. One gets the impression that many manufacturers are rather export-shy, and it is rather disturbing to look at our declining share of the world's export markets.

There has been throughout the world in the last few years an export boom. Countries have been increasing exports to a large extent, but if one looks at the Board of Trade Journal for even last June one will find that the United Kingdom's total share of world exports was 19.7 per cent. in 1955, that it dropped to 18.1 per cent. in 1957 and was 17. per cent. in 1958. If that continued drop goes on, it does not require much arithmetic to see that our exports will be reduced almost to zero in about eighteen years from now. This is, of course, posing a rather extreme hypothetical case, but the figures do clearly show that our share of world exports is steadily decreasing.

So have the Government any definite policy for persuading manufacturers to export more? Have they considered the possibility of some form of controls, some form of allocations, so that exports increase? Of course, there is an answer to which some of my hon. Friends would agree, and that is that there should be increased public ownership.

Mr. J. Harvey

May I put the same point to the hon. Member that I put to the hon. Member for Greenwich (Mr. Marsh) when he made much the same remark? The hon. Member has already quoted figures to show that a number of other countries in Western Europe are doing very much better than we are in the export market. Are they doing it through quotas and controls or through a free enterprise economy?

Mr. Cronin

The answer is that their manufacturers are much more export-conscious than ours are. I want to hear from the Government what they are doing to make our manufacturers more export-conscious.

When industries are obviously letting the country down from an export point of view, some measure of public ownership is the answer. I do not expect hon. Members opposite to agree with me. Public ownership is anathema to them and private enterprise is one of the most important matters in their constituency associations. All of us would agree that the concept of private enterprise is guarded by the party opposite as zealously as the sacred flame was guarded by the vestal virgins in ancient Rome, but it seems to me that public ownership is something that might well deal with the export problem.

Reference has been made earlier to our relations with the Common Market. These relations are not working very happily at present, to say the least, and it looks as if in a few years we shall be faced with difficult competition from Common Market countries. To give an example, our motor cars which are at present entering Germany across a 13 per cent. tariff will have to enter the Common Market in a few years' time against a 29 per cent. tariff, and it is very unlikely that our export trade will be able to cope with that situation.

The President of the Board of Trade has dealt with this problem for some years. It is rather unfortunate that he has had nothing but an almost uninterrupted succession of failures in his negotiations, each followed by a considerable parliamentary success. I hope that the Government will take the problem much more seriously than they take it at present. It is usually given to us as a reason for not entering the Common Market, or for not having close association with it, that we cannot afford to have a harmonised tariff which would perhaps discourage the import of Commonwealth raw materials, but List G published by the European Economic Community shows that the tariff on raw materials is quite low and liberal. Therefore, that should not be a serious difficulty.

We have also had the argument that the Common Market countries absorb only about 14 per cent. of our exports and that, therefore, less than about a quarter of our industry will be affected by the tariff and that the ultimate effect on exports will be only from 1 per cent. to 3 per cent. But that is not the total consideration. We have to bear in mind that a tremendous capital investment boom is taking place in the Common Market countries. The United States is pouring capital into the Common Market and even countries of the Commonwealth are doing so. We are left out of this large advance in capital investment and, as a consequence, we shall not be able to compete in future in the Common Market. The outlook, therefore, is rather gloomy. I hope that the Government will give more serious consideration to this matter than they have done so far.

We have discussed many aspects of economic policy today, but we ought to consider what is our ultimate goal in economic policy. On this, of course, there is a large difference of opinion between the two sides of the Committee. As I understand, the Government's principal economic object is to maintain the supply of consumer demand at a maximum consistent with the safety of our balance of payments. Whether that consumer demand is artificially stimulated by the intensive use of advertising or consists largely of a demand for vitally essentially consumer goods does not seem to concern the Government at all. They are merely concerned with maintaining the supply of maximum consumer demand for those who can afford to pay for it.

This seems a gross and materialistic attitude rather suggestive of the bread and circuses policy of decadent Rome. It is part of the inescapable philosophy of the party opposite. The Conservative Party, like Wellington's army, marches on its belly and thinks entirely in terms of materialistic advantages for the limited section of the community which can afford to purchase them.

The Financial Secretary to the Treasury (Sir Edward Boyle)

Surely the whole economic system exists ultimately to satisfy the consumer and his demands. One can say that one would like to achieve a higher level of investment because it would enable us to have a higher level of consumption in the long run. The whole of the economic system exists for the sake of prosperity. There is nothing wrong about that.

Mr. Cronin

I agree that the whole economic system exists for that purpose, but we on this side of the Committee feel that the benefits of the economic system are restricted to a comparatively privileged group of the community. The fact that this group may be the majority does not alter the consideration that a large proportion of the population are left out of these economic benefits. I refer to the aged, the sick, the disabled, the widows and the unfortunate people in all walks of life who are left out of the Conservative wish to increase the general living standard.

Even by their own philosophy the Government have failed, because our inability to compete with other countries in production must mean a declining standard of living even for those fortunate people who do well under the present régime. We on this side of the Committee want to see everybody brought into the rising standard of living and to see money spent not merely on raising the standard of living for a proportion of the community but for the whole community, including those unfortunates who are at present not having the good things of life which they would have if the country's material means were spread more evenly. Sooner or later, the moral conscience of the electorate will apprehend the situation and that will be the end of the Conservative machine.

7.48 p.m.

Mr. Maurice Macmillan (Halifax)

I hope that I shall be forgiven if I do not follow the hon. Member for Loughborough (Mr. Cronin) in his essay in pessimism. I agree with him when he says that it is necessary, if we can, to increase our production, but it is not quite as easy as all that. We have seen and suffered too much in the past from the consequences of Socialist attempts to finance increased investment and production. As has been pointed out several times today, they led to disaster, inflation and, finally, devaluation. We could achieve production by the control methods of the Soviet Union, which some hon. Members opposite appear to desire, but our problem is to finance our investment without causing inflation. It is a question of limiting the rate at which we expand to what we can manage.

A great number of figures have been quoted for various purposes today. However, I think that if one looks at HANSARD tomorrow one will find there is one thing in common to all of them. They all show that the countries mentioned, which have the highest rate of expansion, the highest rate of export and the highest fixed capital formation and so on, are not those which have the highest standard of living, and that the countries which have been quoted as having the slower rate of expansion and the lower level of exports have been the United Kingdom, the United States of America and Sweden.

That, to me, is a clear indication that those countries are doing something which it is very difficult for an individual to do and equally difficult for a nation; they are trying to live beyond their income, and it is that which the Chancellor has been trying to remedy in his recent measures. I think it was the hon. Member for Greenwich (Mr. Marsh) who found it a little difficult. I agree it is a little difficult sometimes to see what is happening, since it is nearly always the situation that has not yet arisen that the current measures are trying to deal with rather than the one which is actually happening now.

Therefore, I hope the Chancellor will forgive me if I am a little critical of all the Governments' measures. I base my criticisms on the fact that, although we have been very successful, I believe, being like Oliver Twist and determined to ask for more, that there is greater success that we can achieve and a greater degree of stability. The weapons he has been using are, I think, admitted by everyone to be crude. We have limited hire purchase. We have not prevented people from diverting their money to imports from the United States or elsewhere.

I will not weary the Committee with arguments which I produced before about the opportunity that was missed to give extra incentive to save through the fiscal measures which could have been employed even in a standstill Budget. I am bound to admit that after the Financial Secretary's reply to a debate about a fortnight ago, I thought the Treasury was being a little more sympathetic than it had been in the past.

I have been looking at some figures and making comparisons on this subject between the period before the war and now. I find, so far as I can work it out, that the proportion of personal incomes being saved now is very much the same as it was in 1937–38, and that is something which I think Government policy could well try to remedy, to see whether, now that a greater proportion of our people have a bigger margin to play with in their personal incomes, they can be persuaded to save more of that margin for the future.

The other crudity is that the Chancellor's measures have tended to hit the smaller businesses rather than the larger, and the higher interest rates have made it difficult, particularly in the export market, for some smaller businesses. The Chancellor mentioned that the effect of the higher interest rates was very much on the financing of stocks, and that is exactly where the smaller business, which is trying to increase its proportion of exports, gets hit. There is a particular difficulty for the small firm which has been doing 30 or 40 per cent. of its business in the export market and which pushes it up to 50 or 60 per cent. There are in my constituency many firms which sell machine tools to Canada, and they have to wait a minimum of six months after delivery before they get their money. At the present high interest rates, these firms find it very difficult to finance the extra stocks which are needed to enable them to carry out their operations.

But my main criticism is that we—not only the Government, not only the Conservative Party, but the House and the country as a whole—are too ready to accept the limitations that seem to be imposed on our financial and economic policy, not, I agree, with complacency but almost from a sense of inevitability that in the modern world this rapid and violent movement is an absolute necessity. I think that it probably is far more of a necessity than it was before the war, particularly for this country which no longer has very large overseas investments as a sort of cushion. But I still feel that there is a great deal more work to be done in considering what can be done by alternative methods.

I have again looked back a little, and I find that even in the days of the Gold Standard the Treasury and the Bank of England were not quite so committed, so to speak, to the worship of the Bank Rate as they are now and that in the past this sort of measure—that of persuading, through the Bank of England, banks to restrict personal credit—was taken without the need for calling for special deposits, which to my mind is really even more a Socialist measure than some small amount of physical control.

Because we have now to accept an inevitably higher rate of Government expenditure, that is all the more reason for keeping it as low as we can. I should like to see the Government trying to find some method of fixing a percentage limit on Government expenditure in relation to the gross national product and making in that limit of expenditure an allowance for capital investment both here and overseas.

I myself would like to see Parliamentary control over this at a far earlier stage. I believe that the early relation of taxation to expenditure and the early relation of future monetary policy to the present state of buoyancy of the economy is necessary if we are ever to get a more positive approach to the economic problem and if we are ever to get a more radical approach to the division between fiscal and monetary measures for controlling our economy.

I am certain that this pragmatic approach, which is descriptive of Governments since the war, is no longer adequate. It must tend to be negative, because it tends to deal with situations after they have arisen. It is, incidentally, a fallacy to think that one deals with a situation before it has arisen simply because one deals with it before its results are obvious to the world at large. We must have a clearer object to our economic policy, and here I agree with some hon. Gentlemen opposite. I take Europe as an example. To me, all the argument which has been going on about how we are to manage and what we are to do next is fruitless, because we have not decided what we want or expect out of Europe and what we are prepared to give.

In considering a more positive approach, I should like to suggest with great humility that perhaps both in the Government and in business the experts—the technicians the economists and the accountants—should have some limitations on them. They ought not to be entirely in control. I feel that part of our export difficulty is due to the fact that too much attention is paid by the businesses concerned to the figures and too little to the opportunities. One of the difficulties is that such people are rather wedded to means. They regard the figures as if they were facts, or a more or less accurate description of the facts.

Therefore, I would urge that we should have a more careful and more fundamental examination of the problems which underlie our economy and that we should make that examination with a more constructive and open mind. I should like to make a few practical suggestions, chiefly to avoid committing the fault which I have been criticising in others, that of being purely destructive instead of constructive in my approach.

Part of our international difficulties have been due to the high German rate of interest. I hope that this is one of the problems which will be borne in mind when we go into the G.A.T.T. negotiations. Various suggestions have been made of how to deal with the difficulties of the International Monetary Fund, and suggestions have been made of how to deal with the pressure of European currency on sterling, but I have not time to deal with them now.

I should like the Government, through the O.E.E.C., to take steps to prevent any division which exists, or which may arise, in Europe to spread to the underdeveloped countries, and to ensure that whatever happens between the European Economic Community and the European Free Trade Area we get a proper pan-European contribution to the general Atlantic arrangement for the development of the backward countries.

At the same time as we are considering such things abroad, we should consider big changes in our fiscal policy at home. I said the other day—and I make no apology for repeating it to the Committee because I feel it is of basic importance—that we should at least try to examine the method of making the taxation of the earner and the dealer operate on a fairer basis. I am not suggesting that there is anything wrong in being a dealer. I am not saying that there is anything immoral in capital gains. I am suggesting that, as we now organise things, the man who works for a salary is at a disadvantage compared with the man who does very much the same work, possibly in a smaller way, on his own account. It is a disadvantage which has nothing to be said for it, either practically or in justice. I would not defend the more conventional form of capital gains tax which, unless it is penal, is ineffective, and in any case tends to be a tax on an illusory paper profit arising out of an inflationary situation.

We should do something to equalise the burden by the taxation of profits that arise out of what one might call general commercial or business activity, however the profit may now be defined, whether as a capital or an income gain. I do not know the law on this, but it is my impression that many profits which now escape as capital profits could, even under the existing law, be brought into taxation by classing them as the personal income of a regular dealer in that field.

We must try to distinguish true capital gain from this because, until we do, we shall find that in every Budget there will be fresh anomalies and fresh devices to get over the regulations that we make. That has been the case for the last twenty years. I looked up one of Sir John Simon's speeches in about 1935 and found a short passage about what, to my inexpert eye, seemed very much the same problem as dividend stripping.

I would suggest that in considering alterations to the basis of home taxation the Chancellor should look at the question of a sales tax, or its variation, a turnover tax. I know that hon. Gentlemen opposite argue that such a tax tends to produce too heavy a burden on the general run of the community, but I do not believe that that is necessary. Sales and turnover taxes are in force in Europe. They seem to avoid that difficulty.

I do not consider that it is necessary to go too far, or to reduce Income Tax and Surtax too much, if one can do it—which I think one can—by introducing a sales tax. I do not suggest, for example, that we should go as far as the Soviet Union where, from the latest figures that I have been able to find, the highest rate of tax on incomes is about 13 per cent., and the average indirect tax element on consumer goods adds about 80 per cent. to price levels. I think that a turnover tax would be easier to administer and be less of a burden than a straight sales tax.

I do not want to detain the Committee for too long, but I must say a few words about Europe and our economic situation there. When the Government introduced the Cotton Industry Bill—now the Cotton Industry Act—I was heartened not so much by the details of it, but by the fact that to me it showed that we had accepted the need for freer trade, and the principle that in regard to such freer trade, at least as far as the Commonwealth was concerned, we would protect by direct methods and not by tariffs or quotas those industries at home which were likely to be damaged by the liberalisation of trade. I hope that that will be the principle behind any future action by the Government when dealing with Europe.

I agree with the Chancellor that there is not very much that one can do at the moment. There are the two great problems of agriculture and of the Commonwealth, apart from political difficulties, but I hope that the Government are considering these problems and that they will encourage, for example, the National Farmers' Union to consider the long-term effect on agriculture and on our market garden industry of anything that we may achieve by bringing about greater unity in Europe. What will be the effect on consumers and on prices? What are our best competitive products, and where would they be able to compete to the best advantage? We cannot compete with Italy and Spain in the production of peaches, any more than potato-growers in England can compete with potato-growers in Florida. Are the Government using the right methods to study these problems?

Very little work has been done on the Commonwealth problem. Commonwealth statesmen and economists tell us to go ahead and work more closely with Europe, provided that by doing so it does not hurt New Zealand, Canada, or whatever country the speaker represents. There has been little detailed attempt to discover what would happen if, for example, we were to move into the Rome Treaty. I do not suggest that we should, but I hope that we will use this opportunity to examine these problems more closely.

I have considered the various problems very rapidly and sketchily at this late hour, but these are the kinds of problems that could be examined. I have tried to show concretely the sort of solutions, not which might be right, but which should be considered. I agree with the hon. Member for Orkney and Shetland (Mr. Grimond) that it is not only our present methods that we must consider, but our attitude to the future development of our economy.

At the moment I think that too many people feel rather like Alice Through The Looking Glass where, to get somewhere, one has to walk rapidly in the opposite direction. If we are to believe the newspapers, we could almost cast the Chancellor in the rôle of the Cheshire cat—gradually fading from the scene until we may expect to see his disembodied grin hovering above the Dispatch Box. But this is part of a dream from which most of the country would like to awaken. I hope that the future policy of the Government will give us a clearer indication of how we are to do it.

8.20 p.m.

Mr. Austen Albu (Edmonton)

I very much agree with the last part of the speech of the hon. Member for Halifax (Mr. M. Macmillan) in which he referred to the actions of the Government to deal with the decline in the cotton industry in face of the liberalisation of imports and his demand that the Government should take more steps to ascertain the effects of economic change. I think, however, that he will find that if he pursues this argument very far he will land himself in schemes of economic planning with which at the beginning of his speech he pretended not to agree.

I must apologise to the Committee for not being able to hear the opening speeches. I was involved in the last stages of the deliberations of the Select Committee on the Nationalised Industries which, as the hon. Member for Scarborough (Sir A. Spearman) will know, has produced a very important Report. However, I can very well imagine what the speeches were like, as I have heard them very often over the last few years. I am sure the Chancellor of the Exchequer explained to the Committee the grave dangers of inflation and the strain on the economy, and went on to claim the credit for such small expansion as we have had in the last year and to point out that we could go on expanding only by standing still. I am certain that my right hon. Friend the Member for Huyton (Mr. H. Wilson), in a witty and telling speech, managed to quote a large number of figures showing that we are bottom of every league table in the economic game—the productivity league, the investment league and the export league—and he was perfectly right.

Mr. H. Wilson

May I point out to my hon. Friend that my speech was neither witty nor telling? I have not for four or more previous speeches quoted these leagues, but I did quote one today. We are not exactly bottom of it. There are three countries below us.

Mr. Albu

I apologise to my right hon. Friend. I have not the figures in my mind. I had forgotten the exact position we were in at the moment.

It is clear that the Government have no idea how to maintain an expanding economy. We on this side have not been in office for nine years, so that our remedies are untested. I have, however, listened to a number of speeches, none of which seemed to me to get down to the crux of the problem. All our economic problems arise from balance of payments difficulties and our inability to export enough to pay for our imports. Every Chancellor is from time to time forced to take the sort of actions which the present Chancellor is taking because he sees looming ahead of him balance of payments difficulties and a consequent decline in our very small gold reserves. I cannot understand how suggestions for Gladstonian cheeseparing by the Treasury or cuts in investment in the nationalised industries without consideration of what that investment is intended to produce make any contribution to this problem. For instance, there is no evidence that the finance made available by reduction in Government expenditure or by the reduction in investment in the nationalised industries will be transferred to investment in private industry, in particular that part of it which is manufacturing goods for export.

We have now just about reached what many people think is a very serious situation. For the first time for many years our imports of manufactured goods are rising very much faster than our exports and we are entirely dependent on our exports of manufactured goods. The situation is particularly serious because the imports of manufactured goods are largely of the more advanced type on which alone this country will be able to depend in future. Unfortunately, it is our exports in that type of goods which are not expanding fast enough.

I am told that the motor-car industry is running down quite seriously and that even in the home market the times of delivery of quite popular cars have been radically reduced, while there is the very serious possibility of our exports declining even more seriously. We have depended far too much on the motor-car industry for our exports in the last few years. About one-sixth of our total exports are products of the motor-car industry. This is an industry in which intense competition will be felt in future and which, even in some of our main markets, like the American market, competitive models are being made.

The growth of the European Common Market is a threat, not so much because of our exports to that market, but because it forms so great a base for investment, for research and development, and so on, which will enable its manufacturers to become much more highly competitive in third markets. Already in other countries, particularly Germany, their industries are far more dynamic. There is much greater investment and much more research and development. What is even more important is that they have far better trained managers and export salesmen. I regret to say that the majority of those in this country involved in the export business have had no formal training whatever. This does not apply in Germany.

Mr. William Shepherd (Cheadle)

Will the hon. Gentleman tell the Committee what justification he has for saying that the volume of research and development in Western Germany exceeds that in the United Kingdom?

Mr. Albu

I have not the exact figures; they are extremely difficult to obtain—but anyone who has visited Germany will know that this is the case. An enormous amount is going on. In the industries I know best, for example, the machine-tool industry, the quantity is infinitely greater. A recent report showed that Germany was the only country which said that it was not short of professionally trained engineers. The number of them in German industry is much greater than it is in this country. The amount of research and development is undoubtedly greater, and the combinations which have taken place between firms in the Common Market would give them much greater resources for it, even if it were not the fact that they take much more interest in it than most British firms.

There are extremely unpleasant clouds on the horizon. I have referred to the motor car industry. The position of the machine-tool industry is well known. It is a frightening thing for this country that the value of our exports of machine tools per ton is half the value of our imports. A friend of mine recently visited the famous Swiss firm of Societé Genevoise, which makes one of the most highly sophisticated machine tools in the world. He told me that they use British machine tools. I asked him which ones. He said shapers, planers and slotters and so on. I said, "Of course. They do not bother to make that sort of stuff, because they buy it from us and sell us their much more highly sophisticated product". It is as if we were still trying to export grey cotton cloth, which we rightly had to give up several years ago. We cannot go on selling this sort of product. We have to sell a much more advanced product, otherwise we shall have the standard of living of countries which make grey cotton cloth, or countries like China or India which will he making the sort of machine tools which we are making now.

My hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) has frequently told the Committee about the inadequacies of our textile machinery industry which employs very few professional engineers and carries out very little research and is being beaten by the textile machinery industries of Europe. Most of the new ideas in textile machinery come from abroad. The industry on which this country has prided itself most is the shipbuilding industry. In the last four or five years the proportion of the output of ships produced by this country of the world output has gone down from 40 to 16 per cent.

Hon. Members do not often consider the details of this industry which has come in for some criticism recently. I am sure, however, that the Chancellor has heard of some articles which appeared in March and April in Lloyd's List. They were frightening in their criticism of the industry, and the industry so far has made very little reply to them. They are critical, not only of our shipbuilding methods on which we know no research is done but also of some of the designs, particularly of the propulsive machinery. This is very frightening. We cannot go on having traditional industries on which our exports largely have been based falling back technically.

It is not merely a question of being competitive in price. If we are to try to compete with the rest of the world in price alone our standard of living will go down. More and more of our industries are falling back technically in the competitive struggle.

This is the real problem that this country faces—the problem of how to break down the resistance to change that exists through a large part of British industry. I admit that it exists on both sides of industry, but it is management's business to manage. Many of our industries have not taken the steps that are seriously needed if they are to change both their products and their processes. If they do not change their traditional products and try to go on selling the goods that they have been selling during the last century or in the earlier part of this century, they will come up against the most terrible difficulties and this country will fail in the export drive.

It may well be that British industry in the last fifty years has been too protected and had too many price fixing agreements. Perhaps the Restrictive Practices Act has produced some effect already. I have never been in the past a free trader, but I am beginning to think that the winds of competition would be a good thing for a very large part of our British industry. When that takes place, as the hon. Member for Halifax said in the case of the cotton industry, the Government will have to do much more planning to ensure that individuals, not industries, are protected and are able to move from their industries to other industries, and that new industries are established to take the place of the old.

My own view is that the Government will have to take a much more active part in this process of economic and industrial change, and particularly in the modernising of some of our more backward industries. It is also very important that the Government should do much more to provide first-class economic intelligence. I believe that in the United States and in Germany much better economic intelligence is provided. It is also a fact that in those countries firms take much more trouble in obtaining economic intelligence, in regard to what markets there are abroad, what new industries are growing up, and what products which they used to sell will no longer be bought because they will be made in those countries, and so forth.

The Government have taken a small step in setting up the Wilson-Smith Committee, which is, I believe, to make a study of our commercial services abroad, and I would ask the Chancellor why on that Committee there is no industrialist and no one to put the critical industrial point of view. I understand that the Committee is entirely composed of civil servants. I think that it should certainly contain some industrialists. We want larger and better qualified staffs abroad to provide much better economic intelligence if we are to be able to win the export battle in the future.

To sum up my main theme, it is that the real problem in this country is not to be solved by playing around, as it seems to me we have been doing in the last few years, with every sort of economic and fiscal change to keep the economy in balance. We are faced by the much bigger social problem of how to get this country to wake up from the lethargy which exists through a large part of its industries, to become receptive to changes and willing to make changes, and how to get our manufacturers not only to make changes in their products but to go out and sell those products when they have made them.

This means that there will have to be many changes in management which will have to be much better qualified, not only technically but in all the processes of commercial activity and salesmanship. Whatever Government are in power in the years to come, they will find themselves more and more involved in this process of effecting change and getting economic dynamism into those sections of our economy where at present it does not exist.

8.25 p.m.

Mr. Stanley R. McMaster (Belfast, East)

I have listened to a number of interesting speeches during this debate. The hon. Member for Edmonton (Mr. Albu) said that he missed the first few speeches, but he thought that probably he did not miss anything important as no doubt the same old record had been played over again. I can assure the hon. Gentleman that his right hon. Friend the Member for Huyton (Mr. H. Wilson) played the old record, and his remedy was more nationalisation. The hon. Member for Loughborough (Mr. Cronin) suggested more controls as being the Labour Party's remedy for the troubles which face us today. I say to hon. Gentlemen opposite, particularly to the hon. Member for Edmonton, that though they may complain that the imports into this country contain more manufactured goods now than they did in the inter-war period when the main imports were raw materials, there is a changing pattern of trade in the world today.

Between the wars, and particularly before the First World War, our exports consisted mainly of coal and textiles which now occupy a small place in the volume of our exports. An increasing amount of manufactured goods is being exported and more and more trade is being done between largely industrialised nations like the United States, Canada, and Europe as a whole. This trade produces balance of payments problems but, although such problems have been caused recently by excessive imports and low exports, I maintain that the Chancellor should remember that imports which are not for the time being balanced by exports create an effective demand for our goods abroad. I say, therefore, that the Government should be careful not to run into panic measures which might prejudice expansion and our efforts to improve Great Britain's share of world trade in manufactured products.

Some of the measures which have been taken in the short run will be extremely difficult and bad for the country in the -long run. I was glad to hear the Chancellor admit at the beginning of his speech that high interest rates will inhibit investment. I should like to compare the position today with that which obtained before the war when trade was in the doldrums. It might be asked—and this has been implied in some of the questions asked from this side of the Committee—why should Britain engage in the increasing trade we have heard about and which everyone admits has gone on in the past ten years? The answer is obvious. The more we can take part in trade from abroad, the more imports we can have, not only of raw materials but of machinery; the more different areas of the world can specialise so that trade between the manufacturing nations improves the ability of us all to specialise in the goods we are best suited to produce, the quicker we shall raise the standard of living in this and other countries.

I say in all seriousness to the Government, and to those who may read the speeches made in this debate, that we must recognise the need for adaptability and resilience in the economy of the country. The pattern of exports and imports is continually changing and we have to accept changes in our own economy and in the pattern of production and techniques and skills, and changes in the traditional commodities which we have exported. Reference has been made to the changes in the textile industry, to the rehabilitation of the cotton industry which is costing the country about£30 million. There will be other and similar changes in the years to come, and if we wish to look forward to the 1960s and try to plan ahead, one of the main factors we shall have to keep in mind is this readiness for change and adaptability.

I must say how much I have admired the Chancellor of the Exchequer for the stand which he has taken recently. I know that the measures he has adopted are unpopular among hon. Members on both sides of the Committee and I sincerely trust that the measures of credit restriction are only short-term. It is essential that we should not be preoccupied, or over-preoccupied, with fears about inflation or with the temporary balance of trade reverses to which I referred just now. These are psychological extremes and it is easy to go from one to the other. We must steer a middle course. Perhaps there has been too much reference tonight to mixed allegory but I advise the Chancellor to be careful not to lean too far backwards.

I wish to return to the important subject of investment which is of great importance to this country if our economy is to survive. In this competitive world we must keep a fundamental balance on the one hand between production and consumer goods and investment, and on the other between expenditure of the national income and consumption and saving. If we look at the statistics published over the last year we find that saving is running at a high level. High saving is an encouraging feature. It helps to provide the means for investment and it amounts to a curtailment on consumption by the public.

The Chancellor is extremely nervous lest consumption should run away in this country, but I do not think it is necessary to impose heavy hire-purchase controls in order to prevent that from happening. Tonight there has been criticism about hire-purchase controls. I would remind the Committee that hire purchase in itself is a form of saving. It results in purchases of durable consumer goods being made and these purchases are paid for over the succeeding year or years. There is today consumption of consumer durables which is offset by no consumption, or a fall in consumption, until the hire-purchase debt is repaid. What would hon. Members prefer. Would they rather encourage the working men to spend their incomes on drink, or dogs or holidays—

Mr. George Brown (Belper)

All the rest, but not dogs.

Mr. McMaster

—or would they prefer that people should invest in the purchase of durable consumer goods like washing machines and other domestic articles?

Mr. H. Lever

Surely hire purchase is scarcely a form of saving but alleges the very opposite, namely, that the money is spent before it is actually earned. Is not it precisely by means of excessive hire-purchase payments that the room made for real investment by saving is wasted, by one man's savings simply becoming the means of financing someone else's advances for hire-purchase spending, instead of making room for real investment in capital goods?

Mr. McMaster

The hon. Gentleman draws a rather strange example. He seems to think that savings must necessarily be accommodated only by investment in capital goods. There can be savings of other varieties. If a person puts money aside in order to build a house, then that is saving. If the hire-purchase companies obtain funds as a result of the savings of some persons in order to finance others so that they can purchase durable consumer goods, and those others, in the future, put money aside to repay that debt, then that, too, is a form of saving, in so far as it is not an immediate expenditure on consumption. Hire purchase is financed to a certain extent by savings. I do not want to go into that in too great detail, however.

My last remark in favour of hire purchase in that our productive capacity is very high. If we are to balance that capacity, and its output, with effective demand, there must be some way of increasing the money available—that is, money on credit. This country was bedevilled for a long time by a too strict adherence to the Gold Standard which, in its time, stopped investment and investment expansion—I speak of the period before the First World War. We got off the standard and the amount of money available in the community was no longer strictly tied to an artificial limit like the amount of gold mined. The banks used the printing of money and the replacement of gold sovereigns by bank notes to extend credit, to provide the wherewithal for more and more investment and consumption.

We have now reached another limit. Unless there is an expansion of credit and money available, sufficient to allow communities to consume goods that we are able to produce by modern methods, we shall face another slump. I am reluctant to criticise hire purchase, because it represents the means whereby the community can consume its production of goods and services. Also, such increased consumption creates the correct climate for further investment.

That brings me back to something which is the main aim of the Chancellor if he is to protect the economy—that is, to encourage investment. But industrialists will invest not for speculative reasons for the export trade but first of all because they see a good home market. That has always been so. Once they have invested in capital equipment and have satisfied the home market they will undoubtedly find that they have surplus capacity which will produce goods that they can export cheaply. This happens, and this is what will enable us to compete not only with Germany but with Japan and other countries, because we have the inventive skill, industry and ability to produce goods as cheaply as any other countries.

I say earnestly to the Chancellor that he should not carry the credit squeeze and hire-purchase controls too far and limit our own market here, because he will defeat his own ends in the long run if he does. We want to increase consumption and encourage industrialists to invest. The savings are there. Many people are quite prepared to save a proportion of their income, and that will create capacity which will enable industry to invest.

My last consideration is that not only is there a need for the Government, in planning ahead, to see that the balance in the economy is not lost, but there is also responsibility on everyone else—on the industrialists to invest and to seek foreign markets, and on the trade unions and workers not to press wage demands to such an extent that the volcano on which we sit erupts and completely destroys the wealth and prosperity of the country. If we are to survive we must export our goods at competitive prices.

It is only if a certain restraint is accepted by everyone in the community that we will be able to maintain and better our position in the world. As productivity increases, wages and profits will rise, and so will everything else, but each section of the community must be careful not to be too greedy and to ask for too much in case the whole structure tumbles to the ground. There is an overall need for restraint, care and careful planning, including the Government, industrialists and the trade unions.

I should like to mention, in particular, the effect of the Chancellor's credit squeeze on those areas of the economy where there is no strain. The Chancellor is frightened of the effect of strain on the economy, but I remind him that there are areas, such as Scotland, Wales and Northern Ireland, in which the economy is not under strain. I am particularly concerned with the needs of Northern Ireland, where we have plenty of brains and initiative, a very good market and an ample supply of adaptable workers, both skilled and semi-skilled. Skills have been built up in shipbuilding, and we have the largest shipyards in the country. We have an aircraft industry, linen and other textile industries, the tobacco industry, the electronics industry and numerous light industries, all to be found in Northern Ireland. In spite of this, we still have an unemployment rate of 7½per cent., which is four or five times greater than the national average. I ask the Chancellor to pay particular attention to the needs of such areas as Northern Ireland, which are still suffering from high unemployment.

In Northern Ireland factories are available and there is very generous Government assistance for capital re-equipment and to help to meet the transfer costs of any industry going there. But at a time such as this, when the credit squeeze is in operation, industrialists who may have been thinking of expanding have second thoughts about it, and it might well make them think twice and even prevent them from expanding to those areas where their factories are needed.

If he wants to use all the resources not only of raw materials but also of men which are available in the United Kingdom, I ask the Chancellor to pay particular attention to ways of protecting areas such as Scotland, Wales and Northern Ireland from the worst effects of the credit squeeze. In particular, he should support the Northern Ireland Government in financing a new large dry dock, which is very much required by the shipbuilders in Belfast if they are to maintain their position among the largest shipbuilders in the world. Money must be spent on roads, hospitals and schools, which could be provided by the Government, and this is expenditure which would have little repercussion on the rest of the United Kingdom. It would impose no additional strain on this side of the Irish Sea but it would do a great deal to relieve the difficult unemployment situation which exists in Northern Ireland.

8.43 p.m.

Mr. J. Idwal Jones (Wrexham)

I followed the speech of the hon. Member for Belfast, East (Mr. McMaster) with interest. Some of the points which he made might well have been made from this side of the Committee. I was interested in his theory of the localisation of industry. There is no doubt that a case can be made for hire purchase, and we can certainly make a case for Wales just as he made one for Northern Ireland. But that is not the subject of our debate, and in the short time at my disposal I want to draw the attention of the Committee to one aspect of our problems.

It cannot be challenged that there is a deterioration in our balance of payments position. We expect a surplus of£60 million for the first six months. If the trends of previous years are followed, the figure will be much less than£60 million for the next six months. Prospects for the remaining part of the year are, therefore, not very promising. Therefore, the judgment of the Chancellor of the Exchequer that there is a crisis round the corner may be right. We started well this year. That has not been maintained. As a result, we have had the usual remedy, namely, the raising of the Bank Rate.

There are certain well-known disadvantages involved in our method of carrying foreign trade. For example, there is the practice of paying for our imports before they arrive at our ports, although we do not get paid for our manufactured goods until some time after they have arrived at their destination. Consequently, there must be a time lag between our payments and our receipts. In certain circumstances the balance of payments can be disturbed for this reason. But we should not worry unduly about this so long as the lack of balance is a result of lack of synchronisation in payments rather than of lack of balance between imports and exports of goods. I am sure that when we are in difficulties of this kind the remedy is not in the restriction of our productive capacity.

So we are witnessing today what we have been witnessing for many years, namely, a conflict of interests between the strength of the£, on the one hand, and invigorating our productive capacity, on the other. This has been with us for a very long time. What is frightening is that it has been suggested to us that we may have to live with the conflict.

For example, as far back as the interwar periods every conceivable effort was made to strengthen the£and make it strong enough and proud enough to stare every other currency in the face. Every effort was made to do that between the two wars at the price of 2 million unemployed over a period of twenty years.

It is exactly what has been happening since the war. We have had financial crises at more or less regular intervals varying in intensity and due to varying reasons but the remedy has always been the same, namely, resorting to monetary restraint.

To the layman it must be a very strange phenomenon that the production of a stout financial John Bull means that an economic John Bull must be put through a course of slimming. That is what has been happening. It does not appear rational that there should be a conflict of interests between the volume of production on the one hand, and the volume of currency required to carry it, on the other.

But the brake has been applied once again. We are told that it is a stitch in time, but we are entitled to ask what it is expected to achieve. It has been argued that it is a stitch in time to jerk our country from a complacency over buoyancy in the home demand to a realisation of the greater need for capital investment. We are told that that is one of the main objects in view. We do need capital investment. We on this side have always said so. The great need of the post-war period has been capital investment. But if the present policy is conducive to capital investment this country should be leading all European countries in the level of its investment, because this has been the policy ever since 1951.

What has been the result? We have fallen behind other countries in our industrial investment. For example, according to the General Statistics of O.E.E.C. for 1957 Britain was tenth on the list of European countries in the percentage of national income ploughed back into industry. Norway ploughed back one quarter of her national income; Britain, only one-eighth. Only one country was behind us in that respect, and that was Belgium. I turn to the increase in our productive capacity between 1951 and 1958. During that period Russia increased hers by 113 per cent., Germany by 79 per cent.—Britain, by 16 per cent. Again, we were tenth on the list.

Reference has been made to the 1951–57 period, but the subsequent years are also interesting. Gross fixed capital expenditure by private enterprise in 1958 was 4½per cent. less than it was in 1957, and according to the Board of Trade Journal of 30th January, 1959: Gross fixed capital expenditure by private enterprise and business in 1959 is now expected to be about the same as, or a little less than in 1958. If the argument is that the present monetary policy will assist capital investment I, for one, am not convinced.

On the contrary, there has been a measure of revival during the past year but, when this revival was beginning to get under way, we find the brake applied once more. Even if capital investment proceeded vigorously and uninterruptedly, we would have a long way to go before our manufacturing capacity was large enough to compete with that of our foreign competitors. If our productive capacity even approached our potential we would not today be witnessing the phenomenon of increasing order books.

Our eyes have in the past been riveted and are today being riveted on the£rather than on production and techniques of production. Are we having the brake applied because of the exuberance of the home front? Is it really the case that a boom on the home front cannot co-exist with a boom in exports? If so, why is there no such conflict between a boom on the home market and a boom in the export trade in Germany and in Western Europe? France, Germany, Japan are able to enjoy a boom at home and in their export trade because they have earned an increasing share of foreign trade. They have been able to do that because their capital investment has been on a larger scale than ours. One 'thing is absolutely certain—a policy of accelerator and brake is not the policy for Britain in the modern world.

8.53 p.m.

Mr. George Brown (Belper)

We have certainly had an interesting debate, opened by my right hon. Friend the Member for Huyton (Mr. H. Wilson), who, like so many other speakers, has referred to the fact that we are led to believe that this may well be the final appearance in these debates of the Chancellor of the Exchequer. If that is the fact, then, like everyone else, I say that, in a personal sense, this will be a sad occasion. On the other hand, it gives rise to imagery. The Chancellor has been so often winged from this side of the House and yet has gone on, apparently finding from somewhere the stamina to stay in the air, or, if not to stay in the air, to struggle along on the ground. Then, with his stamina getting less, some Members of his own party, scenting the sitting duck, let off at him an irregular volley of their own. The consequence seems to be that he is expiring and leaving us.

The poetic irony of this is that he got his real start on the ladder as a result of the same thing happening to Sir Thomas Dugdale, as he then was, whom I used to have pleasure in following from this side of the House when I was more interested in agricultural than in other matters. Sir Thomas expired rather more rapidly after a volley got him, but the interesting thing—and I recall it merely in the hope that the Chancellor will not suffer the fate that is worse than death—is that Sir Thomas was reincarnated to be, with Lord Shawcross and Lord Monckton, the only other name on the short list that the Prime Minister has for heads of Commissions he may have to appoint. I hope that it does not turn out to be the fate of the Chancellor as a result of what has happened to him.

The Chancellor followed my right hon. Friend with a speech which, I suspect, is not the one that he would choose to go out on. I listened with very great interest, as did everybody else at the time, and I found it peculiarly below the standard that he normally sets. It began with a really pathetic bit of what he himself called excerpts—it seemed to me that this was the right word, because they were so selective—pieces and bits taken from history, as he chose to recall it, from 1945 to 1951. It was so selective, so distorted and, in every sort of way, so pathetic that the only conclusion to which I could come at that stage, except to dismiss it from my mind because it could not be true, was that he had decided to settle for the job of Chancellor of the Duchy of Lancaster when he made his move.

When the Chancellor got over this rather pathetic piece of history, when he had distorted all the facts about those years, he turned to a passage in which he claimed, first, that there was nothing wrong, even indicating that, in his view, there had been no economic crisis since 1951, and then turned to what he himself said were the four causes for anxiety. Obviously, he cannot have it both ways. He continued this sort of peculiar dichotomy all the way through. He went on to claim that the measures were not open to the attack which my right hon. Friend levied on them because they really would not hit anything. Having claimed that, he claimed that they were not open to attack from his own side because they would restore the position. Again, I do not think he could have it both ways.

The right hon. Gentleman then went on into that terrible bit about Europe, which was referred to later by the leader of the Liberal Party, and about which I am sure he felt very sad in not being able to do better. To me, the frightening thing seemed to be, first, that refusal, or it may be inability, to decide what was wrong at the moment, or even sometimes to admit that anything was wrong. For example, at one stage when talking about capital investment, he used a set of what to me, because I am not a professional economist, seemed quite incomprehensible figures about the capital investment in this country, which he seemed to think proved a very good case, but which, so far as I was able to see, had no relevance to the attack that was made. I think this was really frightening, because presumably he was speaking to a Treasury brief, and the frightening thing was that this was the advice he had been given from inside that institution.

To me, and I think to other hon Members also, the second rather frightening thing was the frank refusal by the Chancellor to face the consequences of his decisions on investment in the public sector. Somebody has talked about public squalor in the midst of a private affluent society, and it seemed to me that the Chancellor never for once this afternoon saw that the consequences of what he was trying to do on investment in the public sector could only be an increase in the difficulty and trouble, of unhappiness and of squalor, in this important area, the communal area of our society.

Finally, the Chancellor got round to admitting a rather remarkable thing—something which Socialists ought to take out of his speech, frame and hang up. He was answering his own friends, not us. I took down his words. He said "Our"—I think he was using the Conservative "our"—" economic system has no inherent tendency to stability when left to itself." I can only conclude that if, when he gets to the West Country or wherever he is going, he gives a little more time to this study he will be well on the way to accepting the Socialist case for planning and the need for public control of the key sectors of the economy.

The burden of our case, which my right hon. Friend developed, is that there is a sickness in Britain's economic state of health, that this is shown by a variety of figures and evidence to which I shall refer in a moment, and which has been written about by all sorts of people. With this sickness in our economic state we are trying to face perhaps the greatest challenge that this nation has ever faced. We are facing the challenge of the twentieth century, when we have to meet the demands of the developing areas of the world for whom trade without strings is an enormous need, and which presents -a great opportunity to us.

We have to find how to integrate the economies of the free world. The old traditional measures of ourselves and others are no longer adequate in the political situation of the world. We have at the same time to continue affording to our own people a rising standard of Living. It seems to us that the economics by which we seek to do this are all wrong. It also seems to us that the policy to which those economics are directed is wrong, and that in consequence we are failing to meet this essential challenge.

I think it goes further than that, and my right hon. Friend spoke about this, too. It seems to me that, above all else, the basic foundations of the system which the right hon. Gentleman described as having no inherent tendencies to stability are wrong, and this is our real problem. These inherent contraditions are such—and they came out so clearly in the apologia that he developed this afternoon—that there is no set of incentives or discouragements that the Government are able to apply to the system. It is impossible for the Government to be selective in what they seek to do. An inducement to one purpose produces an altogether unsoughtafter result. All sorts of other things happen. A discouragement to that set of operations produces a discouragement all round. Hence we get the lurchings of the system. This is hew we get the lurching economy to which my right hon Friend referred.

The Chancellor of the Exchequer virtually confessed that there is no way of preventing the discouragement of socially desirable and economically essential effort when one is attempting to cut out the dross. This was his case—"I have to cut the dross at this stage. If that means that I then discourage socially desirable and economically essential work, that is too bad. It is one of those things. You have to take your choice between allowing things to open up and then applying restraint. You move about between one and the other." He said, "We may have to do it more frequently than we are doing now." If that is true, we shall have a violently lurching economy all the time.

The trouble is that if the Government set out to induce industrial production, growing exports, and capital investment in industry, either private or public, then under this system under which we are working, everybody gets in on the act—those we do not want as well as those we do. If one discourages those one does not want and seeks to do it in that way, then the consequences are that production is hit, genuinely desirable production is hit, capital investment is hit, exports are hit and socially desirable work such as the building of houses, schools, hospitals and roads is hit.

It remains true—I think that this was really given away by the Chancellor this afternoon—that the more desirable the work is, the more liable it is to be hit. Under the system the Government are operating, the less desirable it is—and it is often more profitable than the more desirable—the more easily it can sweat out the consequences of Government action, the more easily it can take the odd 1 per cent., because its profits are high enough to permit it to do so.

Let us examine the symptoms of the disease. First, there is the undeniable and quite dramatic failure to have a real, continued and controlled rise in industrial output. The Chancellor's only answer this afternoon was to take the one good year there has been in four or five, the one which has now pretty well ruined us so that we have to go back again, and say, "Look at that one year". There is no point in doing that. The fact of the matter is that we cannot, apparently, as we are now going, maintain a steady, controlled and desirable rise in output and, at the same time, avoid the unhappy consequences.

I will not quote the figures. I have them here, but they have been quoted by everyone. Whether we take them in absolute terms or in relative terms, relative to our friends in Europe or to our friends in the world, with only an odd exception or two we come out extraordinarily badly in any comparison. When the right hon. Gentleman was giving us his little bit of pathetically distorted political history about the years before 1951, he forgot the salient fact that we kept production rising all the time. This is something which the present Government, under the system they are trying to work, have not yet been able to do.

The second symptom is the unhappy state of our balance of payments. Again, I need not bring out the figures. They have been repeated many times and they cannot be denied. It is a very worrying situation, worrying at a time long after the 1939–45 war which gave rise to so many of the earlier problems at the beginning of the period the Chancellor spoke about. These things are happening at a time when it looks as if they will inhibit us from making any real advance in the five or ten years to come. I do not know who are the Chancellor's favourite correspondents or what is his favourite reading, but I thought the article by Alan Day in the Observer of 3rd July was a very impressive one. I will not waste time at this hour by quoting it in detail, but I urge hon. and right hon. Members opposite who have not yet been seized of the thought which worries us that this is a very serious matter to read and ponder it.

Mr. Day deals with the possible surplus in the first half-year, the same sort of thing that was in the mind of the Chancellor when he spoke today. He goes on to deal with the probabilities in the second half-year and concludes that …we are heading for one of the worst results of any of the post-war years. He went on to talk about the needed surplus if we are to face the oncoming situation, talking of about£300 million a year and pointing out that last year we had only£145 million. …we were he says, seriously short of the target; on present showing, 1960 will prove even worse. I quote that article not because I necessarily accept the figures and conclusions in toto, but to emphasise that to imply that the situation is such that only the marginal things need be hit is really quite out of the question. One of my hon. Friends interrupted an hon. Member opposite this afternoon to ask to what extent he thought that the rise of 1 per cent. in the Bank Rate would make any contribution. To which the answer came, "This will hit only marginal things." How it can be said that this is a marginal problem in the light of those figures I really do not know.

Of course, the President of the Board of Trade, who is to follow me in this debate, does not himself pretend that it is—not, at least, until he gets as far away as he can from this Chamber, when he talks as frankly as he was speaking in Washington about the fact that Britain had lost ground in world export markets, and it was bound to be a warning sign which we should not ignore, and the fact that our share of world trade has declined makes it clear that we are not as competitive as we ought to be.

Those are stronger words than one really expects to come from Ministers nine or ten years after they took over the responsibility for the economy which, they claimed at the election, was doing so well. Really, at the moment, I am only wanting to get it clear that the situation is in fact a difficult one, a grave one, in this field as well as the other, and to establish that there are symptoms of grave unhappiness and distortion in our economy. We will in a moment look at the remedies and at the conclusion we on this side of the Committee have come to about it.

So the problem which worries us is our tragic inability to help ourselves in world trade. It is absolutely incredible that, with the rise in world trade in total, and the proportions of it which are going to our competitors, there should be such a declining share coming to us. It seems to me and to my hon. and right hon. Friends a really very serious matter indeed, and that is why what the Chancellor had to say today about the Common Market was so terrifying.

After all, the growth of this organisation of European countries and the way in which it has gone ahead really does present this country with a new situation, a new threat, if hon. Members like—certainly a new problem to which we have to give more attention than the Chancellor seems to be doing. When I read the other day that the Japanese were opening a factory in Limerick in Ireland whence goods will come out marked "Made in Ireland", it seemed to me a very good reason why we should be worried not only about what we are achieving but about the situation immediately ahead of us.

I repeat, we face an enormous challenge. We face also great opportunities, but we do it at a time when all the symptoms of our state of health are discouraging. I have quoted the President of the Board of Trade. One reads what Lord Rootes had to say after his recent visit to America. One reads what any Minister says, and it is a commonplace that when they are away from this Chamber and from a debate like this they take a very much more worried stance than the Chancellor took today.

What never appears—and this surely is the basis of debate for us—is a Government plan to deal with it. These lurchings about, this occasional restraint and then the occasional withdrawal of restraint, which the Chancellor calls stimulation, this sort of ad hoc movement—yes; but no overall economic plan designed to put this country on an even keel to make a steady movement ahead. That one never hears of at all. We heard the Chancellor at some length today, but we still do not know what the Government propose, and I think that one is entitled to ask the President of the Board of Trade for some indication tonight that there is such a plan, because if there is not, then the Government do stand convicted of a tremendous failure to match up to the need of the country at this moment.

All we ever get, from the President of the Board of Trade in particular singe he has been the Minister for trade with Europe, is one long tale of failure. It always just has not come off. It is always because somebody else has not really been helping us. I must say, speaking for myself, that I really do not see why Ministers should go around all the time behaving as though they expected everybody else to help us. It must surely be our business, and not somebody else's business, to help ourselves in this matter?

It seems to me that we ought to stop this long tale of woe, this long grumble that nobody is being as good as he ought to be, and get down to our own proposals and plans. But what we get from right hon. Members opposite is a series of so-called remedies which in the view of my hon. and right hon. Friends only worsen the situation, because they are the wrong remedies or are addressed to the wrong problems or are such blunt tools that they cannot select between the problems that we want to hit and something that we want to encourage.

Let us look at the remedies, which really have been the cause of our having a debate today. These are the 6 per cent. Bank Rate and the new credit squeeze, the new restrictions on lending and so on. What contribution do these really make? In the debate on the monetary system on 26th November, 1959, my right hon. Friend quoted from paragraph 451 of the Radcliffe Committee's Report. It appears in c. 597 of HANSARD. I will not repeat the quotation but the whole effect of the Committee's Report there was to lay down its view which it had gathered from evidence presented to it, about the ineffectiveness of this method of trying to procure a change in the situation and about how this did not discourage the things that we were trying to hit. The Committee spoke about the insignificance of the interest charges in relation to the cost structure of these things which tended so often to be so profitable. The Committee also spoke about the effect of taxation on the ultimate cost.

This is not the instrument that the Chancellor tried to make out it was. It is unselective. It has a relative lack of impact on the profitable but socially undesirable projects, and it has a deleterious effect on investment, especially in the public sector. One of the points that come out of today's debate is that it is in the public sector that, on the whole, we have the socially desirable and economically essential services to run and yet, because it is the public sector, it is the more responsive sector. It is the only plannable instrument that the Government have, and it is precisely on this area that the Government can impose their writ. It is the one area in which the Government can have their way, and it is the one area in which we say that the results of Government policy of which we complain should not take place.

Let us look at the effect of this policy on the lives of our people. It is no use having a debate on the economic situation and talking about the subject as if economics had no social, political or humanitarian impact. Let us look at the housing situation as a matter of providing homes for our people and at the effect of actions taken by the Chancellor recently.

There is a letter in The Times today which I hope Ministers have read. It is from a vicar in the Borough of Camberwell in which I live. He gives a very moving account of the human tragedy involved in our present inability to house people in overcrowded and sordid boroughs like Camberwell. He says: As the vicar of a not untypical parish in the County of London I have to face the fact that anyone whom I marry is unable to get accommodation through the council housing list for at least 10 years. (This in spite of the local authority's magnificent housing record.) As my brother is the chairman of the housing committee, I am delighted to commend that to the Committee.

The vicar goes on: There are over 5,000 on the waiting list. Would anybody in his senses who really cared about people and the impact of our policies on them choose such a moment to add to the cost and, therefore, the difficulty and, indeed, the impossibility of meeting those human tragedies? Would anybody choose to do it? I do not think even the present Chancellor would, and not even some of his colleagues, and that is going a great deal further. Yet the effect of their policies is to do just that.

I will not go into all the details of the financing of housing—my right hon. Friend referred to some of it today—but I am told that the effect of an extra ¼ per cent. in the interest rate for borrowing money for houses is to put an extra 2s. a week on the rent of the house, or in the case of people trying to buy their own houses the effect is to put an extra 8s. a month or thereabouts on their mortgage repayments. What the Government have done is indicated very clearly if one makes a comparison between 1951 and 1959, ignoring the new change this year. In 1951 the economic rent for a local authority house at the then average tender of£1,400 was 19s. 4d. a week. In 1959 the economic rent for a house at the average tender figure of£1,500—incidentally, a much poorer house than the one built in 1951 for£1,400—was 34s. 3d. a week, an increase of nearly 80 per cent. I repeat that that is before we take into account the more recent increase.

If we add to that the scandalous rise in the cost of land, which we shall be debating separately, the effect of all this is that it is more difficult for local authorities or anybody else to house people, and it is much more costly either for those who are housed or for the ratepayers who have to bear the cost, and thus the human misery about which the Camberwell vicar spoke is increased. So I could go on. We referred to education this afternoon. We have also referred to the effect on the roads. A leading contractor, Mr. Laing, has been talking about the vast unused or under-used capacity which exists in the industry.

I will not go all over the ground, except to say to the President of the Board of Trade that I really think we are entitled to ask him to do what the Chancellor would not do. The Chancellor was asked point-blank this afternoon which of the social services are to be cut back in order to meet the limitation that he has now imposed, that next year's total expenditure shall be the same as this year's. All the Chancellor said was "It is only the total. I am keeping the same amount. I do not say whether any particular item shall or shall not be the same." That is a nonsensical answer unless we assume either that they are all to be kept the same or that some are going up, in return for which some will be cut back. We are entitled to ask Ministers to come clean before the country and say which of the admittedly socially desirable projects, all of which are in arrears—which contribute to human difficulties and even human misery—they propose to cut back.

If the Government proved that certain of their measures gave economic expansion or made economic expansion more possible, that might be an argument on the other side. But it is not. I do not know how closely right hon. and hon. Gentlemen opposite follow Sir Roy Harrod, but the other day he made a speech at a bankers' conference at Oxford at which he said that he would like to see a return to an expansionist policy similar to that of the immediate post-war years. He criticised the Government for their financial policy and said that they were being overcautious and were too frightened of inflation. He then said that the Chancellor's specific proposals were inimical to the growth of the country's economy. He is not a special friend of mine. I understood he was more agreeable to right hon. and hon. Gentlemen opposite. I quote him as evidence of the fact that there is not an argument on the other side to counterbalance the bad social effects of what the Government are doing.

It does other things. I listened to the hon. Member for Belfast, East (Mr. McMaster. There is nothing so calculated as a 6 per cent. Bank Rate and a restriction on lending to make it more difficult to steer industry to the places that need it. This afternoon the Chancellor made great play with the fact that unemployment is at a low figure and that the number of jobless is balanced by the number of vacancies. That is not true in Northern Ireland. It is not true in Scotland. It is not true in other places. The moment one applies this sort of policy, the effect is to make it that much more difficult to get industries there, and, as my right hon. Friend said, the moment some of the companies which are already there begin to be hit the effect will be felt at their branch factories in those areas and not by their main factories in the Metropolis.

This hits earnings and overtime. Many people talk about an affluent society and the prosperity of working people compared with what it used to be. Do not let anybody go away from this Committee with the idea that this is the basis of high wages. This afternoon I listened to somebody—I think it was the hon. Member for Orkney and Shetland (Mr. Grimond) but I may be doing him an injustice—talking about rounds of wage advances. Do not get this wrong. High wage rates are not the problem. It is not high wage rates that have underwritten prosperity so far as it exists. It is the level of overtime worked and the number of women at work that has done that.

This morning I looked through the list of wage rates negotiated by my union. I was surprised—and I suspect hon. Gentlemen opposite will be staggered—by the number of wage rates under£9 a week. That figure applied to the overwhelming number, and if ever we cannot provide overtime for our people, if ever their wives stop going to work, their prosperity will collapse, the hire-purchase problem will become a real one, and somebody will realise that hire-purchase is not a form of saving but is a way of storing up a good deal of trouble for the future.

I looked at the Financial Times of 11th June, 1960, when a comparison was made between rises in dividends in the first five months of this year, and rises in wages over the same period. I will tell the Committee what I found. The rise in dividends was 6s. 2d. in the£. The rise in wage rates was less than 6d. in the£. The trouble does not lie on this side of the Committee. At the end of the debate it will be obvious that none of the Government's policies are going to the heart of the trouble. That is the difference between us. The Government attempt to apply hasty, jerky, violent, corrective action every time the car gets out of its straight lane. It is for all the world like the action of a drunken driver who is always pulling his car back but never gets on to the straight or maintains his course.

It is for the Government to produce evidence that they are succeeding, if in fact they are, but the Chancellor did not do so this afternoon. He produced no evidence. He simply set up a lot of Aunt Sally's of his own making and knocked them down with his own arguments and left the gravamen of the charge entirely unmet.

It is a fact that hon. Gentlemen opposite will occupy the benches opposite for the next four years. During that time the nation will face its greatest economic challenge. It is for the country to know, and for us to ask tonight, what is the Government's overall plan? By what inducements do they think they will get industry to follow the overall plan? How will they match resources, capacity, and national requirements?

Some people talk about the need for our party to change its beliefs. The Economist this week writes about it coming: kicking and struggling into the twentieth century. My own original acceptance of Labour and its Socialist programme was a protest, a protest of a human being against the squalor and indignity of life in a poor London borough. My right hon. Friend the Member for Llanelly (Mr. J. Griffiths) the other day said that the valleys were not much to look at but were wonderful places to grow up in. Ours were not. Ours were neither one nor the other.

The case for Socialism today is no longer a protest case. It is a rational case for the extension of the sector which the public interest can control, in which the public interest runs and in which we can ensure the allegiance of the nation to the plan which we set down. The Chancellor above everything today proved that the only sector on which the Govern-can impose their will and which they can bring into line is the public sector. I believe that it becomes clearer daily that if we had commodities like steel in that position we would get rid of one of the problems with which the Government are so ineffectively trying to grapple. They cannot provide the rewards. They cannot provide the inducements. They cannot provide the encouragements. They cannot achieve a stable economy. They cannot get it on a steady course or going towards an effective increase in output, exports or earnings. All this the Chancellor confessed in so many words, and we think that that justifies our action today.

9.32 p.m.

The President of the Board of Trade (Mr. Reginald Maudling)

A particular interest attaches to the comparative performances of the right hon. Members for Huyton (Mr. H. Wilson) and Belper (Mr. G. Brown). Both of them have spoken with vigour. They proclaimed with extreme vigour their faith in the true Socialist doctrine. I was particularly interested in what the right hon. Member for Huyton said about the commanding heights of the economy being all in public ownership. At any rate, we know where he stands on Clause Four. It is a very different position from that of the Leader of his party.

Mr. H. Wilson

The phrase which I quoted was part of a statement subscribed to by my right hon. Friend and myself and by all other members of the executive except one.

Mr. Maudling

As for the right hon. Member for Belper, in an incursion into an economic debate which we hope will be repeated, I felt that neither in loudness nor in length did he compensate for the absence of good argument. There was no pointed or effective criticism of Government policy and certainly no shred of any alternative policy.

The year 1959 was one of very rapid expansion in the economy, which carried us—[Interruption.] We listened quietly to the noisiness of the right hon. Member for Belper. The party opposite should learn to take as well as to give. The year 1959 saw record levels of real wages, record levels of consumption and record levels of personal savings. Civil employment was at an all-time high level and unemployment was down to 1.4 per cent. [HON. MEMBERS: "Where?"] In the United Kingdom of course. When we hear these international comparisons, we are never told the unemployment figure in this country which, year after year, has been much lower than it has been in Germany or Italy.

Contrary to what the right hon. Member for Huyton said, which was quite wrong, the percentage of the national expenditure on social services has not been falling but rising. In the last year for which we have figures it represented 18 per cent. of the gross domestic product, the highest for many years and higher than when the Labour Party was last in office. Expenditure on public investment has been rising at an average rate of 5 per cent. over the last ten years. These are facts which should be taken into account.

The expansion of 1959 arose from the expansion of demand which was the result of deliberate Government policy started by my right hon. Friend as long ago as the Finance Bill of 1958. Of course, the expansion of 10 per cent. or more in industrial production that we saw in 1959 cannot be fully repeated in 1960. [HON. MEMBERS: "Oh."] Of course it cannot. Even the party opposite should realise that when we are taking up a certain amount of slack in capacity and in employment we get a more rapid expansion of production than we can at the present moment. It is a matter of mathematics.

The right hon. Gentleman spoke about the economy violently lurching—very nice strong words, but with very little meaning. The fact is that the economy is expanding rapidly and will continue to expand rapidly. The only danger to this expansion is if we allow demand to expand faster than production can bear. If consumption rises too fast, we shall hinder the growth of investment about which we have heard so much this afternoon.

In the first quarter of this year, manufacturing investment was up by 12 per cent. and the output of the capital goods industries by 13 per cent. That is precisely what we want to see. If we allow demand at home to rise too fast, we shall be competing with exports and stimulating imports, as the right hon. Member for Huyton said. If we allow that demand to rise too fast, we shall increase costs all round by creating a shortage of materials and components, inflating profits and encouraging wage demands that go beyond the productive capacity of the economy. All these things will inevitably happen if we allow the increase in demand to go too fast. No one wants to stop the advance or to restrain the growth of production below what the country can bear. What we want to avoid is the growth of demand going just that much faster than the economy can stand.

Mr. Mitchison

If the right hon. Gentleman would address the Chair and face it, some of us here would stand a better chance of hearing what he is saying.

Mr. Maudling

I am doing my best to address the Committee as a whole. If my remarks at times were inaudible, I think that was the result of the activities of hon. Members opposite.

We shall not get investment until there is a buoyant consumption demand. It has been said in the Committee more than once this afternoon that people will not invest in new machinery and plant unless they see a growing market among consumers for their goods. Therefore, we are right to start our expansion of the economy by encouraging consumption. That has been followed, as we said it would be, by increasing investment which has been moving back through the lighter sections of industry and now is marked in heavy engineering, in the electrical industry and in the steel industry, which is what we wanted to see.

What is it said that we have done wrong? Were we wrong to stimulate consumption? I do not think we were. If we were, why did not the party opposite say so at the time? Why did not they oppose reductions in taxation in the Budget and the removal of controls on hire purchase? We hear a lot said about the wickedness of allowing hire purchase to go ahead, but that was not said at the time. There was no opposition to the measures taken to stimulate consumption. Throughout debate after debate in the House and at the hustings the party opposite put forward policies designed to stimulate comsumption more and more. They talk about the election. How about their promises of increased Government expenditure? How about the reductions in the Purchase Tax and in the Tobacco Duty? In every single case the policies of the party opposite were designed to stimulate consumption rather than reduce it because politically that suited their purpose.

What is the present position of the party opposite? Are they opposed to any restraint upon consumption? I do not think so. They know perfectly well that if there is no restraint on consumption demand we should outstrip ourselves and run into inflation and balance of payments problems.

Mr. Cronin rose——

Hon. Members

Sit down.

Mr. Maudling

I have not time to give way to the hon. Gentleman.

Hon. Members

Sit down.

The Chairman (Sir Gordon Touche)

Order. If the right hon. Gentleman does not give way the hon. Member must resume his seat.

Mr. Maudling

I was saying, in the short time in which I have been left to reply, that if hon. Members opposite agree that there must be some restraint and if they argue that there should be less restraint on investment, the corollary is more restraint on consumption. It cannot be argued that there should be less restraint on investment unless we are prepared to accept the consequences that we must restrain consumption. But all the time we have had criticism of the Government for doing too much in the way of restraint, and I think that the party opposite are in a illogical muddle and dilemma on this point—although I agree there is nothing unusual about that—-[Hon. Members: "You have never had it so good"] Tell me when has this country had it better?

Mr. A. C. Manuel (Central Ayrshire)rose——

Lieut.-Colonel W. H. Bromley-Davenport (Knutsford)

Sit down.

Mr. Maudling

Certainly not in the critical days of the Labour Government. Things have been going up and are going up fast. Consumption, production and employment are getting better, and have continued to get better since the election.

So far as the effect of active Measures are concerned, the Bank Rate works quickly, as my right hon. Friend says, on stocks and on the encouragement of foreign funds to stay in this country. The hire-purchase restraints, which I think a lot of hon. Members opposite think in themselves are probably justified as a social measure, have an immediate effect in restraining consumption. If we are to restrain the total demand, there must be effects which are felt in some fields.

I think that the party opposite exaggerate the effect on the public sector investment. To judge by the evidence given by the local authorities to the Radcliffe Committee, the effect of the Bank Rate on their building programmes is relatively small—[HON. MEMBERS: "Oh."]—Of course, in all these matters the party opposite fail to distinguish between short-term and longterm money. The movement of short-term interest rates is far less important in capital investment than long-term interest rates movements. If hon. Members opposite face that they would realise that they are greatly exaggerating.

Unlike the right hon. Member for Belper, the right hon. Member for Huyton pointed out that in fact local authority loan rates have not risen and building society rates have not risen, and these are the things which are effective in these matters—[Interruption.] Well, building society rates have not risen anyway.

When we talk about restraint on public expenditure, we must have some regard to the level at which public investment expenditure is being controlled. Expenditure on roads and the health services, for example, is running at record levels. There is a higher level of expenditure now on the social services and on housing, roads and so on than the pitiful level of expenditure achieved by the party opposite. It makes one realise that to stop a further rise in public investment expenditure is not to cut back social services but to stabilise things at the highest level ever reached.

The same thing applies to the Government's current expenditure referred to by my right hon. Friend for Thirsk and Malton (Mr. Turton). If we exercise some restraint on expenditure it is right to exercise some restraint in the public sector. This is the problem to which my right hon. Friend constantly gives the closest attention. I think that the figures quoted by my right hon. Friend the Member for Thirsk and Malton were not quite right, because I think he twice counted£85 million of railway deficits.

Certainly the level of Government current expenditure must give rise to concern, and I very much agree with my right hon. Friend about the importance of not only looking at the first twelve months but of planning the policy for succeeding years. It is always the endeavour of the Treasury to try to keep a forward-looking picture of the pattern of expenditure so far as possible.

I have pointed out that the party opposite are trying to ride two horses. They have not succeeded in producing any valid criticism of the measures introduced by my right hon. Friend to maintain the level of expenditure in this country at a height which our economy can stand.

Members opposite have talked a great deal about the problems facing us. Serious, grave, and far-reaching problems—to which the right hon. Member for Belper referred—do face this country, but I have not yet seen any alternative proposed by the party opposite, which would make a radical alteration in them. Of course, nationalisation is irrelevant to these problems. It is relevant to certain other problems today, but it is certainly irrelevant to the economic problems of the nation.

Nor has any spokesman of Members opposite, so far as I know, referred to the possibility of solving these problems by a system of controls. At any rate, they seem to have got over that and have accepted that. The idea that one can solve the problems of inflation and of the balance of payments by physical controls is a complete illusion. We are now in a position where it is accepted by the party opposite—by implication If not openly—that neither in nationalisation nor in the application of physical controls is there any solution to the problems of the country.

What are the great problems which we are facing? Among them is not the challenge of the party opposite—which is irrelevant—but the challenge arising from the fact that our economy is not expanding and our exports are not expanding as fast as we want them to. The economy is expanding and exports are also expanding—or have been until very recently—but within the last few months, along with the French and Germans and others, we have been experiencing a flattening out. One of the fundamental reasons is the fact that our reserves are still inadequate for our purpose.

I have spoken on seven Budgets in about five different capacities. Each time we have had a debate on the shortage of reserves, and the lack of freedom of manoeuvre that arises therefrom has handicapped and trammelled us in the policies that we have been pursuing. This is something that we cannot get out of.

Mr. William Ross (Kilmarnock)

What have the Government been doing for ten years?

Mr. Maudling

This arises from the sterling system, whereby we have become bankers to the sterling area, and have borrowed short thousands of millions of pounds, and have invested them long in our economy. That is a fact which underlies any policy of any Government and will continue to do so for many years to come.

Secondly, there is the problem of our relations with Europe. People talk sometimes about Britain joining the Community, but if one looks at the Treaty of Rome, which is the basis of the Community, one sees very formidable difficulties. It involves the concept of common policies commonly carried out by a common authority—for example, a common agricultural policy—which, by definition, means the end of a national agricultural policy, nationally controlled. There is also the acceptance of a common external tariff, which would mean the end of duty-free entry for Commonwealth products. It also means the acceptance of a common commercial policy and common commercial negotiations with third countries, and that would mean the end of our present system of British negotiations with Commonwealth countries.

Those are factual implications of the Treaty of Rome which are examples of the difficulties involved for this country in what is called "joining the Treaty of Rome". Other difficulties exist for other European countries. The Free Trade Area, which we and so many people in Europe supported, would have solved these difficulties and solved them, I believe, without harm or detriment to anyone else. We know that the Free Trade Area did not succeed. Apparently the idea of a Free Trade Area involves difficulties for some of the Six.

Surely if we have difficulties about one idea and they have difficulties about the other, the sensible thing is for both sides to sit down together to analyse the situation, to work it out, to dissect the difficulties and to try between them to find a system which will meet the difficulties of both. That seems to me to be a logical procedure, and that is what the Seven have for some time declared their readiness to do. We have said that we are very ready to sit down in the spirit of compromise—and by "compromise" we mean that an agreement in these matters means substantial movement on both sides. We hope that the Six will agree to meet us in a discussion.

Mr. Roy Jenkins

Will not the right hon. Gentleman realise that as a result of our diplomacy towards Europe, of which he has been the instrument for the past few years, a situation has arisen in which the Six are perfectly happy to go on as they are, whereas we cannot do so? Until he recognises that there is not an equal responsibility for taking an initiative but a special responsibility on the Government, we shall get nowhere.

Mr. Maudling

The hon. Member has recently become a great enthusiast for the European Common Market, an enthusiasm which is not shared by many of his hon. Friends. [HON. MEMBERS: "Answer the question."] I will answer it. Throughout the negotiations in Europe we have had discussions more than once in the House on these problems, and I have never known the Labour Party offer different views on the subject from ours. Throughout they have supported our point of view. If the Labour Party say that our diplomacy was lacking, what British interest would they have given away? For three years I have done everything I can to try to reach some agreement between this country and Europe. I am prepared to be told that I have been wrong but I am not prepared to be told that I have not tried.

Mr. F. J. Bellenger (Bassetlaw)rose——

Mr. Maudling

I have given way too often, and I will not give way again.

The position is as simple as that. We see difficulties in the concept of the Treaty of Rome and the Six see difficulties in our concept. Surely the sensible thing, therefore, is that both sides should sit down together and try to work out a system which preserves the interests of both and is satisfactory to both. Surely that is simple common sense, and that is precisely what we want to do.

That is one of the problems which we have to face. Another is how to play our part in financing the development of the underdeveloped countries and how to meet the competition first from Asiatic low-cost producers and, later, from the Communist countries—competition which, as hon. Members have said, will certainly develop. As part of our general programme of helping the under-developed countries we must think not only in terms of providing them with aid but also in terms of providing them with a market for their goods. That will mean many difficult adjustments for us as we go ahead

The key to these problems must be the expansion of British exports. There is no solution to our balance of payments in import control. The right hon. Member for Huyton referred to the figures of our trade with America. If we make the comparison over two years, our exports to the United States have gone up faster than our purchases from the United States. The big increase in imports from America has not been in goods recently liberalised but in aircraft, which have not yet been liberalised, and, for example, cotton, which was liberalised a long time ago. The big increase in imports from the United States in the last year arose from the growing demand of our industry for raw materials and machinery. Industry needed these for its expansion, and had it not bought them from America, it would have bought them elsewhere, and probably at a higher price.

If hon. Members look at the trade we conduct with the industrialised countries in manufactured goods they will find that in the last two years our sales to them have risen faster than our purchases from them. On balance, the policy of liberalisation has proved an advantage to our balance of payments, and it is in any event in accordance with the policy of the General Agreement on Tariffs and Trade, to which the Labour Party so rightly subscribed in 1947.

The problem is how to expand our exports faster than we have been expanding them. What part can the Government play in this process? In the first place, we provide the export services of the Board of Trade, which I think even now are not used as widely or as often by manufacturers as they might be. People in many countries are rightly jealous of the information and the efficient services provided for exporters by the officials of the Board of Trade. The same thing applies to the Export Credits Guarantee Department, where the service available to British industry stands comparison with any in the world. Those are the ways in which government can help and will continue to help with the export drive.

Beyond that, there are two main things which must be done. The home market must be restrained to the extent of avoiding the diversion into the home market of goods which might be exported. That is a thing we must constantly do, and the right hon. Member for Huyton said so rightly earlier this afternoon. Secondly, it must be the job of British industry to take all the chances available when it has the product to sell in overseas markets. As my hon. Friend the Member for Shipley (Mr. Hirst) said, we must become throughout the country more export-minded than we are at present.

The increase in exports which is needed in relation to the total wealth of the country is not so big. An extra 1 or 2 per cent. of our gross national product exported would make all the difference to our position. I am convinced that the need is not so much for a better product as for more vigorous selling. I am quite convinced that in quality, delivery and price the products of British industry will sell in competition with any of our European neighbours.

I am not convinced that they are yet being sold quite as hard as they might be. We must have a much more vigorous effort to sell harder, and also a continuing and more vigorous effort to hold down costs in this country.

Much reference has been made by hon. Gentlemen opposite to the figures for German exporting in recent years. Germany's success has not depended upon following the policies we have heard advocated by the party opposite. Its success has very often depended on doing precisely the opposite—on restraining the home market, on the vigorous use of interest rates, on avoiding controls, and on the use of a more progressive tax policy. The lesson to be learned from the German expansion is not that we need more controls or more Socialist policies. The lesson for us is that we must continue to restrain the home market and give more encouragement to export.

The position we have reached is that my right hon. Friend's latest measures have preserved the position of sterling and put us in a position to face any difficulties which might arise this autumn. When the difficult autumn period is passed, we shall be able to make a judgment as to the measures for the future. It is certainly the desire of the Government to resume more rapid expansion as soon as possible, but in all that we do, and in all that my right hon. Friend has done throughout the time he has been in charge of the Exchequer, he has rightly put in the forefront of his policies maintaining the strength of sterling and ensuring the expansion of the economy, which though as big as we can afford is not so large as to throw strains on the economy of the country that it cannot afford. I have heard nothing today from the party opposite which undermines my confidence in that policy or suggests that the Labour Party has any possible alternative.

Mr. G. Brown

In view of that, I beg to move, That Item Class I, Vote 4 (Treasury and Subordinate Departments), be reduced by£5.

Question put:—

The Committee divided: Ayes 238, Noes 320.

Division No. 138.]	AYES	[9.58 p.m.
Abse, Leo	Griffiths, W. (Exchange)	Oliver, G. H.
Ainsley, William	Grimond, J.	Oram, A. E.
Albu, Austen	Gunter, Ray	Oswald, Thomas
Allaun, Frank (Salford, E.)	Hale, Leslie (Oldham, W.)	Owen, Will
Allen, Scholefield (Crewe)	Hall, Rt. Hon. Glenvil (Colne Valley)	Padley, W. E.
Bacon, Miss Alice	Hamilton, William (West Fife)	Paget, R. T.
Balrd, John	Hannan, William	Pannell, Charles (Leeds, W.)
Baxter, William (Stirlingshire, W.)	Hart, Mrs. Judith	Pargiter, G. A.
Beaney, Alan	Hayman, F. H.	Parker, John (Dagenham)
Bellenger, Rt. Hon. F. J.	Healey, Denis	Parkin, B. T. (Paddington, N.)
Bence, Cyril (Dunbartonshire, E.)	Henderson, Rt. Hn. Arthur(Rwly Regls)	Paton, John
Benn,Hn.A. Wedgwood (Brist'I.S.E.)	Herbison, Miss Margaret	Pavitt, Laurence
Benson, Sir George	Hill, J. (Midlothian)	Pearson, Arthur (Pontypridd)
Blackburn, F.	Hilton, A. V.	Peart, Frederick
Boardman, H.	Holman, Percy	Pentland, Norman
Bowden, Herbert W. (Leics, S.W.)	Houghton, Douglas	Plummer, Sir Leslie
Bowen, Roderic (Cardigan)	Howell, Charles A.	Popplewell, Ernest
Bowles, Frank	Hoy, James H.	Prentice, R. E.
Boyden, James	Hughes, Cledwyn (Anglesey)	Probert, Arthur
Braddock, Mrs. E. M.	Hughes, Emrys (S. Ayrshire)	Proctor, W. T.
Brockway, A. Fenner	Hughes, Hector (Aberdeen, N.)	Pursey, Comdr. Harry
Broughton, Dr. A. D. D.	Hunter, A. E.	Rankin, John
Brown, Alan (Tottenham)	Hynd, H. (Accrington)	Redhead, E. C.
Brown, Rt. Hon. George (Belper)	Hynd, John (Attercliffe)	Reid, William
Brown, Thomas (Ince)	Irvine, A. J. (Edge Hill)	Reynolds, G. W.
Butler, Herbert (Hackney, C.)	Irving, Sydney (Dartford)	Rhodes, H.
Butler, Mrs. Joyce (Wood Green)	Janner, Barnett	Robens, Rt. Hon. Alfred
Callaghan, James	Jay, Rt. Hon. Douglas	Roberts, Albert (Normanton)
Castle, Mrs. Barbara	Jeger, George	Roberts, Goronwy (Caernarvon)
Chapman, Donald	Jenkins, Roy (Stechford)	Robinson, Kenneth (St. Pancras, N.)
Chetwynd, George	Johnson, Carol (Lewisham, S.)	Ross, William
Cliffe, Michael	Johnston, Douglas (Paisley)	Royle, Charles (Salford, West)
Collick, Percy	Jones, Rt. Hn. A. Creech(Wakefield)	Shinwell, Rt. Hon. E.
Corbet, Mrs. Freda	Jones, Dan (Burnley)	Short, Edward
Craddock, George (Bradford, S.)	Jones, Jack (Rotherham)	Silverman, Julius (Aston)
Cronin, John	Jones, J. Idwal (Wrexham)	Silverman, Sydney (Nelson)
Crosland, Anthony	Jones, T. W. (Merioneth)	Skeffington, Arthur
Crossman, R. H. S.	Kelley, Richard	Slater, Mrs. Harriet (Stoke, N.)
Cullen, Mrs. Alice	Kenyon, Clifford	Slater, Joseph (Sedgefield)
Darling, George	Key, Rt. Hon. C. W.	Small, William
Davies, G. Elfed (Rhondda, E.)	King, Dr. Horace	Smith, Ellis (Stoke, S.)
Davies, Harold (Leek)	Lawson, George	Snow, Julian
Davles, Ifor (Gower)	Ledger, Ron	Sorensen, R. W.
Davies, S. O. (Merthyr)	Lee, Frederick (Newton)	Soskice, Rt. Hon. Sir Frank
Deer, George	Lever, Harold (Cheetham)	Spriggs, Leslie
de Freitas, Geoffrey	Lever, L. M. (Ardwick)	Steele, Thomas
Delargy, Hugh	Lewis, Arthur (West Ham, N.)	Stewart, Michael (Fulham)
Dempsey, James	Lipton, Marcus	Stonehouse, John
Diamond, John	Logan, David
Dodds, Norman	Loughlin, Charles	Stones, William
Donnelly, Desmond	Mabon, Dr. J. Dickson	Strachey, Rt. Hon. John
Driberg, Tom	McCann, John	Strauss, Rt. Hn. G. R. (Vauxhall)
Dugdale, Rt. Hon. John	MacColl, James	Stross,Dr.Barnett(Stoke-on-Trent,C.)
Ede, Rt. Hon. Chuter	Mclnnes, James	Summerskill, Dr. Rt. Hon. Edith
Edelman, Maurice	McKay, John (Wallsend)	Swain, Thomas
Edwards, Rt. Hon. Ness (Caerphilly)	Mackie, John	Swingler, Stephen
Edwards, Robert (Bilston)	Mahon, Simon	Sylvester, George
Edwards, Walter (Stepney)	Mallalleu, E. L. (Brigg)	Symonds, J. B.
Evans, Albert	Mallalieu, J.P.W.(Huddersfield,E.)	Taylor, Bernard (Mansfield)
Finch, Harold	Manuel, A. C.	Thomas, Iorwerth (Rhondda, W.)
Fitch, Alan	Mapp, Charles	Thompson, Dr. Alan (Dunfermline)
Fletcher, Eric	Marquand, Rt. Hon. H. A.	Thomson, G. M. (Dundee, E.)
Foot, Dingle	Marsh, Richard	Thornton, Ernest
Forman, J. C.	Mason, Roy	Timmons, John
Fraser, Thomas (Hamilton)	Mayhew, Christopher	Tomney, Frank
Gaitskell, Rt. Hon. Hugh	Mellish, R. J.	Ungoed-Thomas, Sir Lynn
Galpern, Sir Myer	Millan, Bruce	Wade, Donald
George, Lady Megan Lloyd	Mitchison, G. R.	Wainwright, Edwin
Ginsburg, David	Monslow, Walter	Warbey, William
Gooch, E. G.	Moody, A. S.	Weltzman, David
Gordon Walker, Rt. Hon. P. C.	Morris, John	Wells, Percy (Faversham)
Gourlay, Harry	Mort, D. L.	Wells, William (Walsall, N.)
Greenwood, Anthony	Moyle, Arthur	White, Mrs. Eirene
Grev, Charles	Neal, Harold	Whitlock, William
Griffiths, David (Rother Valley)	Noel-Baker, Francis (Swindon)	Wigg, George
Griffiths, Rt. Hon. James (Llanelly)	Noel-Baker,Rt.Hn.Phillp(Derby,S.)	Wilcock, Group Capt. C. A. B.
Willey, Frederick	Winterbottom, R. E.	Zilliacus, K.
Williams, D. J. (Neath)	Woodburn, Rt. Hon. A.
Williams, Rev. LI. (Abertillery)	Woof, Robert	TELLERS FOR THE AYES:
Willis, E. C. (Edinburgh, E.)	Wyatt, Woodrow	Mr. John Taylor and
Wilson, Rt. Hon. Harold (Huyton)	Yates, Victor (Ladywood)	Mr. G. H. R. Rogers
NOES
Agnew, Sir Peter	Drayson, G. B.	Johnson Smith, Geoffrey
Aitken, W. T,	du Cann, Edward	Jones, Rt. Hn. Aubrey (Hall Green)
Allan, Robert (Paddington, S.)	Duncan, Sir James	Joseph, Sir Keith
Allason, James	Duthie, Sir William	Kaberry, Sir Donald
Alport, Rt. Hon. C. J, M.	Eccles, Rt. Hon. Sir David	Kerby, Capt. Henry
Amery, Julian (Preston, N.)	Eden, John	Kershaw, Anthony
Amory,Rt.Hn.D.Heathcoat(Tiv'tn)	Elliott, R. W.	Kimball, Marcus
Arbuthnot, John	Emery, Peter	Kirk, Peter
Ashton, Sir Hubert	Emmet, Hon. Mrs. Evelyn	Kitson, Timothy
Atkins, Humphrey	Erroll, Rt. Hon. F. J.	Lambton, Viscount
Balniel, Lord	Farey-Jones, F. W.	Lancaster, Col. C. G.
Barber, Anthony	Farr, John	Langford-Holt, J.
Barlow, Sir John	Fell, Anthony	Leather, E. H. C
Barter, John	Finlay, Graeme	Leavey, J. A.
Batsford, Brian	Fisher, Nigel	Leburn, Gilmour
Baxter, Sir Beverley (Southgate)	Forrest, George	Lennox-Boyd, Rt. Hon. Alan
Beamish, Col. Tufton	Foster, John	Lewis, Kenneth (Rutland)
Bell, Ronald (S. Bucks)	Fraser, Hn. Hugh (Stafford & Stone)	Lilley, F. J. P.
Bennett, F. M. (Torquay)	Fraser, Ian (Plymouth, Sutton)	Lindsay, Martin
Bennett, Dr. Reginald (Gos & Fhm)	Freeth, Denzil	Linstead, Sir Hugh
Berkeley, Humphry	Galbraith, Hon. T. G. D.	Litchfield, Capt. John
Bevins, Rt. Hon. Reginald (Toxteth)	Gammans, Lady	Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)
Bidgood, John C.	Gardner, Edward	Longbottom, Charles
Biggs-Davison, John	Gibson-Watt, David	Longden, Gilbert
Bingham, R. M.	Glover, Sir Douglas	Loveys, Walter H.
Birch, Rt. Hon. Nigel	Glyn, Dr. Alan (Clapham)	Low, Rt. Hon. Sir Toby
Bishop, F. P.	Glyn, Sir Richard (Dorset, N.)	Lucas, Sir Jocelyn (Portsmouth, S.)
Black, Sir Cyril	Goodhart, Philip	Lucas-Tooth, Sir Hugh
Bossom, Clive	Goodhew, Victor	MacArthur, Ian
Bourne-Arton, A.	Gough, Frederick	McLaren, Martin
Box, Donald	Gower, Raymond	Maclay, Rt. Hon. John
Boyd-Carpenter, Rt. Hon, John	Grant, Rt. Hon. William (Woodside)	Maclean, SirFitzroy(Bute&N.Ayrs.)
Boyle, Sir Edward	Green, Alan	McLean, Neil (Inverness)
Braine, Bernard	Gresham Cooke, R.	Macleod, Rt. Hn. Iain (Enfield, W.)
Brewis, John	Grimston, Sir Robert	MacLeod, John (Ross & Cromarty)
Bromley-Davenport, Lt.-Col. W. H.	Hall, John (Wycombe)	McMaster, Stanley R.
Brooke, Rt. Hon. Henry	Hamilton, Michael (Wellingborough)	Macmillan,Rt.Hn.Harold(Bromley)
Brooman-White, R.	Harris, Reader (Heston)	Macmillan, Maurice (Halifax)
Browne, Percy (Torrington)	Harrison, Brian (Maldon)	MacPherson, Niall (Dumfries)
Bryan, Paul	Harvey, Sir Arthur Vere (Macclesf'd)	Maddan, Martin
Bulliard, Denys	Harvey, John (Walthamstow, E.)	Maginnis, John E.
Builus, Wing Commander Eric	Harvie Anderson, Miss	Maitland, Cdr. Sir John
Butcher, Sir Herbert	Hay, John	Manningham-Butler, Rt. Hon. Sir R.
Butler,Rt.Hn.R.A.(Saffron Walden)	Heart. Rt Hon. Antony	Markham, Major Sir Frank
Campbell, Cordon (Moray & Nairn)	Heald, Rt. Hon. Sir Lionel	Marlowe, Anthony
Carr, Compton (Barons Court)	Heath, Rt. Hon. Edward	Marshall, Douglas
Carr, Robert (Mitcham)	Henderson. John (Cathcart)	Marten, Neil
Cary, Sir Robert	Hendry, Forbes	Mathew, Robert (Honiton)
Channon, H. P. G.	Hicks Reach, Maj. W.	Matthews, Gordon (Meriden)
Chataway, Christopher	Hil[...], Joseph	Maulding, Rt. Hon. Reginald
Chichester-Clark, R.	Hill. Dr. Rt. Hon. Charles (Luton)	Mawby, Ray
Clark, William (Nottingham, S.)	Hill. Mrs. Eveline (Wvthenshawe)	Mills, Stratton
Clarke, Brig. Terence (Portsmth, W.)	Hill. J. E. R. [...]s. Norfolk)	Montgomery, Fergus
Cole, Norman	Hinchingbrooke, Viscount	Morrison, John
Collard, Richard	Hirst, Geoffrey	Mott-Radclyffe, Sir Charles
Cooke, Robert	Hobson, John	Nabarro, Gerald
Cooper, A. E.	Hocking, Philip N.	Neave, Airey
Cooper-Key, Sir Neill	Holland, Philip	Nicholls, Harmar
Cordeaux, Lt.-Col. J. K.	Hollingworth, John	Nicholson, Sir Godfrey
Cordle, John	Hope, Rt. Hon Lord John	Noble, Michael
Cortield, F. V.	Hopkins, Alan	Nugent, Sir Richard
Costain, A. P.	Hornby, R. P.	Oakshott, Sir Hendrle
Courtney, Cdr. Anthony	Hornsby-Smith, Rt. Hon. Patricia	Orr, Capt. L. P. S.
Craddock, Sir Beresford	Howard, Gerald (Cambridgeshire)	Orr-Ewing, C. Ian
Critchley, Julian	Howard, John (Southampton, Test)	Osborn, John (Hallam)
Crosthwaite-Eyre, Col. O, E.	Hughes-Young, Michael	Osborne, Cyril (Louth)
Crowder, F. P.	Hulbert, Sir Norman	Page, John (Harrow, West)
Curran, Charles	Hurd, Sir Anthony	Page, Graham
Currie, G. B. H.	Hutchison, Michael Clark	Pannell, Norman (Kirkdale)
Dalkeith, Earl of	Iremonger, T. L.	Partridge, E.
Dance, James	Irvine, Bryant Godman (Rye)	Pearson, Frank (Clitheroe)
d'Avigdor-Goldsmld, Sir Henry	Jackson, John	Peel, John
Deedes, W. F.	James, David	Percival, Ian
de Ferranti, Basil	Jenkins, Robert (Dulwich)	Peyton, John
Digby, Simon Wingfield	Jennings, J. C.	Pickthorn, Sir Kenneth
Donaldson, Cmdr. C. E. M.	Johnson, Dr. Donald (Carlisle)	Pike, Miss Mervyn
Doughty, Charles	Johnson, Eric (Blackley)	Pilkington, Capt. Richard

Pitman, I. J.	Simon, Sir Jocelyn	Turton, Rt. Hon. R. H.
Pitt, Miss Edith	Skeet, T. H. H.	Tweedsmuir, Lady
Pott, Percivail	Smith, Dudley (Br'ntf'rd & Chiswick)	van Straubenzee, W. R.
Powell, J. Enoch	Smithers, Peter	Vane, W. M. F.
Price, David (Eastleigh)	Smyth, Brig. Sir John (Norwood)	Vaughan-Morgan, Sir John
Price, H. A. (Lewisham, W.)	Soames, Rt. Hon. Christopher	Vickers, Miss Joan
Prior, J. M. L.	Spearman, Sir Alexander	Wakefield, Sir Wavell (St. M'lebone)
Prior-Palmer, Brig. Sir Otho	Speir, Rupert	Wall, Patrick
Profumo, Rt. Hon. John	Stanley, Hon. Richard	Ward, Rt. Hon. George (Worcester)
Proudfoot, Wilfred	Stevens, Geoffrey	Ward, Dame Irene (Tynemouth)
Ramsden, James	Steward, Harold (Stockport, S.)	Watkinson, Rt. Hon. Harold
Rawlinson, Peter	Stodart, J. A.	Watts, James
Redmayne, Rt. Hon. Martin	Stoddart-Scott, Col. Sir Malcolm	Webster, David
Rees, Hugh	Studholme, Sir Henry	Wells, John (Maldstone)
Rees-Davies, W. R	Summers, Sir Spencer (Aylesbury)	Whitelaw, William
Renton, David	Sumner, Donald (Orpington)	Williams, Dudlay (Exeter)
Ridley, Hon. Nicholas	Talbot, John E.	Williams, Paul (Sunderland, S.)
Ridsdale, Julian	Tapsell, Peter	Wills, Sir Gerald (Bridgwater)
Rippon, Geoffrey	Taylor, Sir Charles (Eastbourne)	Wilson, Geoffrey (Truro)
Robinson, Sir Roland (Blackpool, S.)	Taylor, W. J. (Bradford, N.)	Wise, A. R.
Robson Brown, Sir William	Teeling, William	Wolrige-Gordon, Patrick
Rodgers, John (Sevenoaks)	Temple, John M.	Wood, Rt. Hon. Richard
Roots, William	Thatcher, Mrs. Margaret	Woodhouse, C. M.
Ropner, Col. Sir Leonard	Thomas, Leslie (Canterbury)	Woodnutt, Mark
Royle, Anthony (Richmond, Surrey)	Thomas, Peter (Conway)	Woollam, John
Russell, Ronald	Thompson, Kenneth (Walton)	Worsley, Marcus
Sandys, Rt. Hon. Duncan	Thompson, Richard (Croydon, S.)	Yates, William (The Wrekin)
Scott-Hopkins, James	Thornton-Kemsley, Sir Colin
Sharples, Richard	Tiley, Arthur (Bradford, W.)	TELLERS FOR THE NOES:
Shaw, M.	Tilney, John (Wavertree)	Mr. Edward Wakefield and
Shepherd, William	Turner, Colin	Colonel J. H. Harrison.

Original Question again proposed.

Mr. Ray Mawby (Totnes) rose——

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

Committee report Progress; to sit again Tomorrow.