HC Deb 15 April 1964 vol 693 cc482-552

Question again proposed

6.15 pm
Mr. Powell

When the House went to another place just now I had not intended to detain hon. Members for many minutes longer; indeed, I was approaching the last point that I wished to make. As I said, I do not regard these economic questions as matters of academic or impersonal interest. I consider that they are of intensively human significance for the wellbeing of the whole nation It is not only false, it is also dangerous, to inculcate into a nation, as many do today—and as the very vocabulary which we all get into the habit of using implies—the idea that prosperity is something which can be engineered for it by financial arrangements; that its economic progress and development wait upon the acts and upon the nod of governments, and that it is within the power of any government to set a specific rate of advance and guarantee by their policies that it will be achieved.

The creative forces in a nation lie in the people themselves—in their determination their effort their hopefulness their thrift their readiness to venture and to change only in proportion as they show and apply those qualities can the economy advance The truly creative policies are the policies which enable the nation to put forth the effort and to take the decisions upon which alone, the rate of its advance depends. It is this conviction which unites all hon. Members on this side of the committee and the converse which is represented by the party opposite, lies the battlefield on which, this year, we shall be contending for the mind and for the heart of the nation.

6.18 pm
Mr. Roy JENKINS (Stechford)

The third in an recent series of articles in The Times contained the following sentence:— the essence of the conservative case is that the gentleman in whitewall does not know best i.e., never (except by accident) knows best. It is obvious, having listened to the right hon. Member for Wolverhampton, South-West (Mr. Powell), that he regards the Chancellor as very much in the centre of Whitehall, although occasionally accident-prone. However, I thought that the speech of the right hon. Gentleman, who was in powerful voice, gave us more indication how the remainder of the time of this Parliament might be filled up than did that of the Chancellor yesterday.

I am sure that the right hon. Gentleman could develop his ideas at considerable length. Being a great admirer of his articles in the Sunday Times, I filled in the interval to what I think was rather better purpose than going to the other place by looking up a quotation from an and interesting article that he wrote a little time ago about the art of public speaking. He said: Certainly continued and regular practice is as necessary to a regular speaker as to a professional singer or a violinist. One notices immediately the slight falling-off in fluency and command when one has not been speaking frequently enough. The right hon. Gentleman continued: No doubt everyone has his own happy mean". I am glad of that even though I do not always associate the right hon. Gentleman with happy means. He then said: Personally, I find three speeches a week is about ideal—neither so many as to make for hack work, nor so few that concert pitch is lost I am sure that it is a great comfort to the Government, the Chief Whip and others to know that henceforth we may expect to hear from the right hon. Gentleman up to three speeches a week during the current Session. I shall greatly look forward to them, because I think that there are a number of points on which he was able to touch today only in outline, and if he were to fill them in with more detail it might give them, at least to me, rather more meaning. This afternoon, despite his normally cogent use of language, I found it difficult at times to follow what he meant.

But the words which he used and the sort of policies he recommended bear extraordinarily little relation to the economic world in which we live or in which we are likely to live, extraordinarily little relation to how this country will be governed over the next few years and also extraordinarily little relation to how any advanced democratic country anywhere in the world is governed at present. There is no substantial body of opinion anywhere which accepts his view, and therefore, even if I come back to him again later, I do not propose to argue these matters in great detail.

There are only two points which I want to raise in relation to his speech. First, the right hon. Gentleman, as we all know—we have been left in no doubt about this—has one of the most acute consciences in the House. Yet he was in the Government for three-and-a-half years, and a member of the Cabinet for a substantial part of that time, under the right hon. Member for Bromley (Mr. H. Macmillan) when, as I understand it, the Government were carrying out, admittedly rather weakly, fitfully and belatedly, policies which the right hon. Gentleman regards as complete anathema.

I understand that the main economic achievement of which the Government claim to be proud is that they have set up N.E.D.C., about which the right hon. Gentleman has been very disparaging. They also made some belated and weak attempt to do something about regional planning—and we know what the right hon. Gentleman's views are about that. I wonder how it is that he stayed so long accepting Cabinet responsibility for these policies which he apparently regarded as absolute nonsense. He must have listened with acute embarrassment to previous Budget speeches. Secondly, knowing his views and how opposite they were to what the Government were claiming to do, I wonder how it was that he was kept in office—and very important office at that—for so long by those who apparently had an entirely different approach to our present economic problems.

I have a few more things to say about the right hon. Gentleman towards the end of my speech, but in the meantime I want to turn to the Chancellor and the Budget. Yesterday we all thought that it was a dull and flat Budget, and I do not think that anybody's views have been changed about that in the 24 hours which have since gone by. It was one of the strongest arguments which one has heard for a June election rather than an October election. It seemed to me that, having been defeated in the Cabinet and not allowed to have an earlier election, the Chancellor was carrying on his argument in public when he presented his Budget and was trying to show the Prime Minister how unwise it was to have forced the alternative choice upon him.

At the same time, I admit that this is a difficult year, at this phase in the trade cycle, for any Chancellor of the Exchequer—a year in which perhaps no great change is required in the total level of demand, a year in which, if anything, one has to deal with the moderation of a very strong expansionist drive. At the same time, it was a year which called above all for two important approaches. First of all, just because there was no great need for the Chancellor to do much in terms of adjusting the total demand, it was a year for fiscal imagination and for recasting many of the old, out-of-date, unfair aspects of our taxation system. Yet what was extremely noticeable was the fact that the Chancellor shied away from every one of those problems. He did not even mention many of the major problems, and even when he mentioned them it was only to say, "Maybe somebody will deal with this at some stage in the future".

Secondly, this is a year in which it is necessary to attempt the admittedly delicate operation of controlling the boom without snuffing it out as dismally as the preceding ones have been. It is a year for ensuring that there is no repetition of what happened in 1955 and last time, when it took us three years or more to recover from the effect of snuffing out the boom. It was not until the summer of 1963 that the productive forces of the economy began to recover from what the Government thought had to be done after 1959–60.

The problem which should have been in the forefront of the mind of any Chancellor at present is, "How can we make it different this time? How can we prevent the boom from having the result which it had last time?" So far it does not show many signs of being different from the booms which we have experienced several times in the past. It is a great tragedy that in a year when these two major problems confronted the Chancellor and the Government, two major problems demanding, above all, new departures, we have a Chancellor and a Government whose one desire is to cling to their moorings as long as they possibly can and who are completely incapable of moving off in a new direction.

The Chancellor referred to a number of problem; which were involved in trying to see that we did not have this dismal repetition of old difficulties. But he did absolutely nothing about getting to grips with them in his Budget. What were those problems? Let us take them on the basis on which he dealt with them himself. First there is the incomes policy, which he put in the very forefront of the problems facing the country at present. I understood him to take the view that incomes policy was not at present being successful and that he was not satisfied with what had happened. But he made no attempt to approach the problem of how the Budget might have helped here. He made no attempt, for instance, to discuss the proposals p at forward, not in particular from these benches but in the Economist six months ago, for a specific form of taxation, called an incomes equalisation taxation, for dealing with what, after all, is the major problem about getting voluntary acceptance of an incomes policy.

The major problem is the fears on the part of the trade unions—and these are very real fears, on the basis of all experience—that if they accept an incomes policy, profits and dividends will go ahead faster than wages. That has happened in the past and is happening at present. By this proposal for an incomes equalisation tax we might deal with the problem without falling into the excessive rigidity of limiting individual dividends, which penalises the fast growing companies. What is proposed is an additional tax upon dividend incomes varying not with the dividend income from a particular company but with the extent to which dividends as a whole move ahead of hourly wage rates.

At the end of each year the position would be looked at and it would be seen what had happened in the preceding year and whether it was necessary to impose or remove an additional tax of this sort. This is an extremely constructive proposal, which was put forward over six months ago and which would go far towards dealing with the root of a problem which the Chancellor himself says is an absolutely major problem confronting this country. There was no indication that his mind was upon this or that he had thought about a matter of this sort.

What is the second problem? The Chancellor did not refer to this—

Sir Harmar Nicholls (Peterborough)

Before the hon. Gentleman comes to the second problem, may I ask whether we are to understand from his words that he is advocating this special profits tax, however much he ties it up with an article in the Economist? He has criticised my right hon. Friend for not having taken advantage of a rather quiet period in the fiscal field to deal with the middle of the boom. Is his recommendation thus far that, in addition to what has been done in the Budget, he would have introduced a special profits tax, which would be an extra burden on industry, however it was applied? Is that what he is saying specifically?

Mr. Jenkins

I am saying that I would recast the whole system of company taxation, and even the Chancellor wanted to do something about that. I am saying that this, as part of the general measure of tax reform, is what I would like to see done. I should like to see the question of capital gains looked at again, and an effective tax brought in there, but as part of this general scheme I should consider seriously—and I believe that anyone with a responsibility for tax affairs at present ought to consider very seriously—constructive proposals of this sort for dealing with an extremely difficult problem—

Sir Harmar Nicholls

The hon. Gentleman is advocating it?

Mr. Jenkins

Of course I am advocating it as being a serious thing which should be looked at constructively. Surely the hon. Baronet is not so foolish that he thinks one cannot put forward ideas, or say that these are important ideas which one believes might well be looked at, without committing oneself in every detail. I am bound to say that all our debates would be as dull as the Chancellor tried to make this one if that were to be the rule which had to be applied in these matters.

The second problem is the question of the regional imbalance in this country and the fact that we are getting to a state in which labour conditions in the South-East are very tight, and also to some extent in the Midlands, while there is still a great deal of slack in other regions. This is something which is causing the Chancellor to put on the brakes with a much higher national total of unemployed than he would have if employment were anything like spread out throughout the country. In these circumstances it would have been desirable to look at the possibility not merely of going ahead far more vigorously with a regional development programme but also at fiscal means of helping to deal with this problem.

There is a lot to be said for a differential employers' National Insurance contribution; a higher one in regions where there is a labour shortage and a lower one in regions where there is chronic unemployment. This, I think, would have been extremely well worth consideration by a Chancellor who was not at the end of his tether, but was looking and thinking about the problems of the future.

There is a third problem and one the Chancellor mentioned a great deal. It is the problem of savings, the attempt to moderate consumption demand by savings, among other means. I should not wish to criticise in detail what he did in the way of re-vamping different issues of savings bonds, but I think it unlikely that it will make much difference to the total volume of personal savings. It might make a difference to the way in which people hold particular savings and also help certain technical problems of Government financing. But I do not think that it comes to grips with the problem of savings at all. Had we had a really imaginative recasting of our taxation system in which loopholes were closed, capital gains dealt with effectively, and a small annual capital tax considered, it might alongside this have been possible to come to a real remission of taxation on people who wanted to save a substantial part of their income. This would have come to grips with the problem and would not have been merely playing with it. These are three ways in which it seems to me that the Chancellor could have faced the real issues which confront the country at the present time rather than producing this tired, stop-gap Budget.

This is, above all, a Budget of missed opportunities, leaving us, as was said by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), increasingly sceptical about whether there is any difference between this boom and past booms; whether we have made any substantial progress in putting the economy in better shape in the time that has gone by. What, after all, is the difference between the present Chancellor and his predecessors?

Regarding the presentation of the Budget, I think that the present Leader of the House was a ball of fire compared with the Chancellor as he appeared yesterday. We know that the Lord Chancellor of the time said of the present Leader of the House, when he was Chancellor, that unfortunately there were few indications that he ever thought deeply about the great problems of our time. I do not know what he would say about other Chancellors.

The present Minister of Defence, probably realises that he allowed the right hon. Member for Wolverhampton, South-West to do too much thinking for him and now he greatly regrets that he ever allowed that to happen. I am sure that the Foreign Secretary thinks deeply, but whether about the problems of our time one never quite knows. The present Chancellor, too, may have thought deeply. I am sure that he has the ability to do so, but, if he has, he has not shared many of his thoughts with the Committee, or allowed much of the results of his thinking to seep through into his Budget.

In another of his Sunday newspaper articles—a very recent one, last Sunday—the right hon. Member for Wolverhampton, South-West accused the Chancellor and the Government as a whole of introducing Trojan horses into the economy and "working for the barbarians"—I think that was the phrase which he used. I am bound to say that if the present Chancellor is working for the barbarians, at least he is not working very hard for them.

6.38 p.m

Sir Edwin Leather (Somerset, North)

One is naturally tempted by the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), who has expressed his personal opinions and innermost thoughts about one's right hon. Friends, to reply by dealing with the Opposition Front Bench. However, I think it is better left to Private Eye rather to debate it in the House.

I should like to follow the hon. Gentleman in his discourse about the Economist idea of an incomes equalisation tax, but I freely confess my inability to do so. I did study these articles very carefully, and I agree with the hon. Gentleman that when one first reads them one thinks, "Gosh! Here is a new and a fresh approach to something which we have all been looking for ". That induces not only hon. Members on both sides of the Committee, but people in nearly every country in the free world. We have been looking for some new basis by which we might make an incomes policy appear fairer to all people. This was very encouraging. Not having had the academic and economic education of the hon. Member for Stechford, I confess that the more I tried to work it out the more confused I became.

Earlier today, the Leader of the Liberal Party showed his great experience by casting about in Keynes' General Theory wits some knowledge and the gay abandon which I am sure that my right hon. Friend the Member for Wolverhampton, South West (Mr. Powell) brings to the General Theory and also to Frazer's Golden Bough. I confess that I never got past the first chapter in the General Theory. The thing I found most confusing about it was that whenever Keynes, like the Economist, was about to make the most abstruse economic statement, he always started by saying, "It is, of course, obvious that—". From there on to me it read rather like Beachcomber in the Daily Express. I quite follow the idea that the hon. Member for Stechford put forward. I agree that it would be interesting to debate it, but the more one tries to work out the sums the more hopelessly impracticable it seems to became.

The hon. Gentleman agreed—I think that we would all agree—that the Government's task at the moment is to try to keep the economy steady without snuffing out the boom. This is what we would all like to do. Experience, both in this country and in every other Western country since the war, would lead one to take a somewhat sceptical view of the suggestion that any of us are yet clever enough to know the answer.

My right hon. Friend the Member for Wolverhampton, South-West, whatever he may have said in articles to which the hon. Gentleman referred, made a speech today with which I could wholeheartedly agree. I envy my right hon. Friend's ability to make it in the cogent and delightful way in which he did. I would like to take up the theme with which he ended by saying that it is false and dangerous to mislead the country into thinking that anyone in the House of Commons, even the Leader of the Opposition, is so clever that he can work out some formula policy and pass some clever law, get Bank Rate and Public Works Loan Board and net borrowing rate at exactly the same level, and then everything will go just like clockwork. Life is just not like that. I believe that one of the falsehoods, one of the dangerous things that has been done in this country very much in years since the war, has been the tendency, for the sake of simplicity sometimes, to oversimplify—to over-clarify, if that is not a completely Irish expression—the problems with which we are dealing and reduce them to bare statistics and graphs, in such a way that we possibly mislead ourselves and do harm rather than good.

I do not want to make a party point out of this, because I think that it is serious, but I am bound to say that when it comes to hurling off statistics to prove almost anything under the sun, and usually the most unlikely thing that anyone expects at any given moment, and when it comes to pulling out so-called league tables and constantly trying to persuade the British people that everything is dreadful, there is nobody in public life to compare with the Leader of the Opposition. He has made a speciality of this technique for many years. However, I believe that it is extremely dangerous and misleading.

My right hon. Friend the Secretary of State for Industry, Trade and Regional Development and President of the Board of Trade dealt at some length with statistics which the Leader of the Opposition used yesterday in talking about the rise in rents, dividends, wages and so on. By selecting certain years—admittedly it was twelve years, not one year—and by selecting the twelve years which suited his argument, the Leader of the Opposition came to the conclusion that wages and rent had had an absolute field day under Tory Governments, while wage and salary earners had been positively down-trodden.

We all know that this is not true. We all know that had almost any other twelve-year period been selected precisely the opposite could have been proved. I repeat that this technique is misleading and dangerous. It may be very clever, it may make debating points, and it may make one's own supporters laugh, but I believe that it is extremely dangerous. I am certain that, if the Leader of the Opposition and any of his hon. Friends are at any time in the dim and distant future entrusted with the Government of this country, they will very quickly discard this kind of thinking for the fallacy they must know very well it is.

Mr. Walter Monslow (Barrow-in-Furness)

Would not the hon. Gentleman agree that rates, to which he is now referring, have increased six-fold in the London area during the last year?

Sir E. Leather

I am not a Member for the London area, nor is the hon. Gentleman.

Mr. Monslow

I live here and I am speaking from personal experience.

Sir E. Leather

I could not accept for one moment that rates have risen six times—

Mr. Monslow


Sir E. Leather

I have a flat in London, but my rent has not risen for about seven years, so obviously I have been luckier than the hon. Gentleman. It would not be remotely true to say that rents over the whole London area have risen by six times. Of course they have done no such thing. One rent may have risen by six times. This is arguing from the particular to the general, with respect to the hon. Gentleman, in a way that produces a completely misleading impression. This is the very point I am trying to make. Taking one figure out of context and then saying that it applies to everything is like the old statement—Pierre has a beard. Pierre is a Frenchman. Therefore all Frenchmen have beards. This makes nonsense of statistics.

The Leader of the Opposition over the last few years, and the hon. Member for Cardiff, South-East (Mr. Callaghan) today, have trotted out the same league tables to prove to us that Britain, the United States and Canada have been doing far worse than any other country in the world over the last fifteen years and that our economies arc all stagnating. I happen to know a little about all three of these countries. The suggestion that for the last few years we have all been stagnating, whatever statistics may be produced to prove this mathematically, completely belies the evidence of one's own eyes wherever one gees in a period when more houses have been built, more schools have gone up, more motor cars have been sold and when more prosperity abounds than has ever before been experienced in these three countries. To say, despite all this, that these countries are stagnating, to try to persuade people that there is something radically wrong with them and that everything is going badly, is, to use the words of my right hon. Friend for Wolverhampton, South-West, both dangerous and false. It creates a completely wrong impression and it is done by producing statistics eclectically to prove a debating case at any given time.

On television not long ago the Leader of the Opposition made the absolutely broad and sweeping statement that, if in the last five years the Government had followed the policies he had been advocating, the gross national product would be 3,000 million times higher than it is and, therefore, everything we wanted to do could be financed out of that. He must know perfectly well that this is simply not true; it is a complete mathematical abstraction.

Mr. Douglas Houghton (Sowerby)

With respect to the hon. Gentleman, the figure was not 3,000 million times.

Sir E. Leather

I did not say "times". I said "pounds".

Mr. Houghton

The hon. Gentleman said "times".

Sir E. Leather

I apologise. I meant £3,000 mil ion. I am grateful for the correction. This is a pure statistical abstraction The hon. Member for Cardiff, South-East castigated my right hon. Friend the Chancellor of the Exchequer because there were a lot of "ifs", because he had said if wages do not rise too rapidly, if export prices and import prices remain stable, and if a lot of other things. The hon. Gentleman hurled this off with great distaste. Precisely all the same "ifs", apply to the kind of statistics that the Leader of the Opposition produces and to the completely hypothetical statistical abstraction whereby he tried to persuade millions of viewers that, if we had followed some other policy, everything would have been lovely.

Mr. Monslow

My right hon. Friend was dealing with production, too.

Sir E. Leather

Of course he was dealing with production. That makes no difference.

Mr. Monslow

Does it not?

Sir E. Leather

It does not. I suggest to hon. Members opposite that even the United Nations statistics on production can be desperately misleading. Hon. Members opposite mislead themselves if they maintain that because the statistics are produced by an independent body they must be absolutely right.

Perhaps I can illustrate this in a way that is relevant to the Budget proposals. It could well be—and this is certainly within the realms of the sort of reality the Leader of the Opposition likes to argue—that one might reach a position in which, for reasons best known to themselves, the British people suddenly enormously increased their consumption of cigarettes and gin. We should then end up by the United Nations, the London and Cambridge Statistical Review and so on solemnly assuring us that the gross national product had risen by an enormous figure. According to the theory of the Leader of the Opposition, that would be a marvellous thing. The truth about it might be, however, that the British people were drinking themselves into delirium tremens and that the lung cancer rate was going up appallingly. Despite this the production statistics would show an enormous improvement.

Not only are statistical points of the kind I have described adduced by the Leader of the Opposition, but sometimes he takes them through to the last .1 of a decimal place. If one speaks with the people who compile these statistics one learns from them, when they are under pressure, that the margin of error allowed by them is anything up to 10 or 12 per cent.

Mr. Maslow

Does that apply to company balance-sheets?

Sir E. Leather

Not for an individual company balance-sheet. The statistics about which I am speaking and which are produced by Government and international organisations represent the compilation of millions of sets of figures and individual figures—not balance-sheets as such—and produce results from samples which contain a wide range of error, particularly in the vast sphere of the activities of private companies, small traders, shopkeepers and so on. To say that one knows the answer to a given problem as a result of studying the figures, considering that they allow for a wide margin or error, is sheer delusion.

Here is an illustration from an experience I had. I vouch for its truth, although it would be wrong of me to divulge the name of the organisation concerned. It will be within the recollection of most hon. Members that when the 1959 General Election campaign started the graphs showed the Conservative Party with a lead of about 7 per cent. During the course of the campaign—I can see the headlines on the front pages of the newspapers—each day the graphs went down and down. On polling day nearly all the graphs agreed that the lead was 1 per cent. I recall colleagues in London who were con- cerned with these things asking me each day on the telephone, "What is happening in your area?" Each day I would reply, "I do not know what the London newspapers are talking about". I had to say that because the canvas returns each day showed no change and I could not understand how the statistics could possibly show such an enormous drop.

Mr. Charles Fletcher-Cooke (Darwen)

I would remind my hon. Friend that among the questions which are asked of the public is this favourite one of mine, "Are you satisfied with Harold Wilson as the Leader of the Opposition?" That question is frequently asked, in those very terms. When I am asked I always reply, "Yes".

Sir E. Leather

I am grateful to my hon. and learned Friend for that observation, although it is not the point I am making. I am concerned with an extremely important matter, and it is because I regard it as so important that I have the temerity to delay the Committee for this length of time on this issue.

When the election was over I comcluded that I must have been ignorant of something. I wrote to the managing director of an important statistical organisation and asked, "Could I have this explained to me?" I was invited to lunch. I went along to the luncheon expecting a stimulating and fascinating argument, particularly since this is a matter of national importance. Remember that all sorts of people in many places—not just the Stock Exchange and international bankers, but the bookies and others who had been winning and losing by risking their money on the way the graphs were going day by day—had been concerned with the changes in the graphs.

Hon. Members can imagine the astonishment I felt when, having been introduced to the learned gentlemen at the lunch, they told me, "There is no argument about it; we were wrong". I said, "What on earth do you mean"? to which they replied, "No, we were just wrong"—and they told me that it is a well known fact that the recognised error in samples of that sort was 3 per cent. "On the day of the election we were all so pro-Tory that we interpreted the whole of the 3 per cent. in your favour," they told me, "which made 7 per cent." They agreed that the sample figures had not varied by a fraction throughout the campaign and that each day they considered that that could not possibly be true. So they altered the graph, although there had been no variation the whole time.

That is a fair example. All the other big statistical organisations, including the Sunday newspapers and reputable weeklies made the same mistake. They were, in fact, dangerously misleading the public, and I implore hon. Members opposite to give some consideration to the deplorable weakness of sample statistics and carefully to consider whether or not they prove anything before using them. I would not suggest in what part of the House of Commons the hon. Member sat who wrote that classic book, How To Lie with Statistics, but I commend it to the Leader of the Opposition, if he does not already know it by heart.

Mr. Houghton

The example which the hon. Gentleman has just given concerned statistics based on the collection of sample opinions as against the collection of facts, which surely is the basis of statistics from the United Nations and similar sources.

Sir E. Leather

If the hon. Member wishes to consider the mathematical estimates sent in by people throughout the world as facts, he is welcome to do so. My experience causes me to consider them with the greatest suspicion. In this wonderful book, How To Lie With Statistics, this example is given: The statistics for 1958 prove conclusively that there was a direct relationship between the increased consumption of rum in Haiti and the increased number of Anglican curates in Devonshire. That statement was perfectly true. They had both risen by 5 per cent.

There is another good factual example which the hon. Member for Sowerby (Mr. Houghton) might like to mull over. It concerns my catching a train. If the train leaves at 6 o'clock and I get there at 5.50 I catch it in comfort. If I get there at 6.2 I have missed it—but statistically I arrived on average at four minutes to 6 o'clock both days and caught the train both days. [Laughter.] With respect to hon. Members opposite, this is not carrying the kind of league tables and production figures the Leader of the Opposition likes to use one bit further than he does, if one gets over the glitter of the brilliancy of the debating and solemnly works out what the figures really mean.

The hon. Member for Cardiff, South-East began his speech by boldly saying that he was going to give the Opposition's proposals. At the end of 45 minutes no proposals had yet been given. It is perfectly true, of course, that he was in a very great rush in the last four minutes, and hurled out a whole list of proposals which, as my right hon. Friend the Secretary of State for Industry and Trade pointed out with great clarity, were all old and had been dealt with t therefore. Above all, none was likely to make the slightest contribution, as the Leather of the Opposition said yesterday they must, to the immediate economic conditions in the country. That was the bull point in the right hon. Gentleman's speech yesterday, but nothing that either he or his hon. Friend the Member for Cardiff, South-East said had the s lightest relevance to the country's economic position.

The hon. Member for Cardiff, South-East hinted—he was, of course, much too careful to say that we should do so—that we should go back to the classical Socialist formula when they want more money, and tax it out of companies. He tried to prove by statistics—I though that they were "phoney" statistics, but they satisfied the hon. Gentleman and he was very pleased with them—that while taxation of companies had proportionately gone down taxation on individuals had proportionately gone up. Again, that is true, but the hon. Gentleman knows perfectly well that it is largely I rue because the number of those employed in industry has increased enormously in the last few years and their individual earnings have also increased enormously in the last few years.

But does the hon. Gentleman really want us to adopt his own corollary at a time when this country's taxation of companies is still amongst the highest in the world, when we are still taking between 50 percent. and 52 percent. from all companies—

Mr. Houghton


Sir E. Leather

With great respect, yes. There are exceptions, of course, but the average rate imposed on most businesses is still of the order of 50-odd per cent.—

Mr. Houghton:


Sir E. Leather

All right—gross; but 50 per cent. is still cash out of the companies' pockets.

Mr. Houghton

Perhaps the hon. Gentleman will permit me to point out that the difference between the gross and net figures in company taxation is accounted for by the fact that companies deduct tax at the standard rate from distributed dividends for which they do not account to the Inland Revenue. They retain it, and it is therefore, a net subtraction from their taxation.

Sir E. Leather

I have been involved in company taxation for quite a number of years. Technically, what the hon. Gentleman says is perfectly true, but the net result is still the same, and I still put my same point. First, the corollary that the Government have been sheltering companies at the expense of individuals is completely untrue—and, again, arrived at by a statistical abstraction. Secondly, even if it were true, are the Opposition really prepared to tell us that they think that this is the moment—when they are talking about encouraging industry and blaming the Government because British industry is not spending fast enough—to whack on more Government taxation? That is the only possible logical conclusion of the argument advanced by the hon. Member for Cardiff, South-East, and it leaves one believing that there was no logical conclusion to his argument at all but that it was his painful duty to get up and say something.

The Budget is certainly not spectacular. No one likes putting any taxes up but, taking the point made by the hon. Member for Stechford, that we must try to keep the economy on balance without snuffing out the boom, and after listening all yesterday and today to leaders of the party opposite, I do not believe that anyone can be in the slightest doubt that not only the best but the only method of doing this that has yet been put forward is that put forward in my right hon. Friend's Budget proposals yesterday.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

Before the hon. Gentleman sits down, he has made great play with my hon. Friend's reference to the taxation of companies and the taxation of individuals and with the fact that a large number of people now pay tax who did not pay it before. Progressive inflation means that people who, under the old gold value of money, were regarded as too poor to pay tax are now being roped in for taxation because inflation brings them into the taxation range. That is not necessarily indicative of an increase in real income, but simply means that taxation is being steadily extended. I am sure that the hon. Gentleman will not contend that the £100 million that the Chancellor proposes to raise should be found by people and not by companies, and that companies should escape altogether.

Sir E. Leather

With great respect to the right hon. Gentleman, what he says about wage earning and taxpayers is just not correct. It is not correct to say that poor people pay more taxes. The truth is that the minimum below which people do not pay tax is at a vastly higher level than ever before. The people in the lowest income groups do not pay tax at all, and the greatest problem is how to benefit them. If they do not pay Income Tax, whatever is done about that has no effect on them. That is the problem.

7.6 p.m

Mr. David Ginsburg (Dewsbury)

As a practising statistician and economist I listened with growing incredulity to parts of the speech of the hon. Member for Somerset, North (Sir E. Leather). His views on statistics sounded as antediluvian as were the views on economics expressed by the right hon. Member for Wolverhampton, South-West (Mr. Powell) with whom the hon. Member appeared to align himself. I should very much enjoy spending some time this evening debating statistics with the hon. Member, but I do not think that the Committee would like me to go too far into this rather esoteric field.

There are two witnesses in support of statistics I would mention. One is the former Prime Minister, the right hon. Member for Bromley (Mr. H. Macmillan), who introduced quite substantial reforms into our statistical services in 1956 because, when Chancellor, he said that he was finding it very difficult to steer the economy when statistics were late, and that it was rather like looking up the trains on the basis of an outdated Bradshaw.

If the hon. Member has any further doubts about statistics, we had a very interesting knockabout performance by the Secretary of State for Industry and Trade, and a powerful performance at times. Perhaps I should take the hon. Member's advice, and assume that that was simply a case of statistical manipulation and that I should not believe anything that the Secretary of State said. After all, the right hon. Gentleman was using the Government's own statistics. I will leave that subject for the time being, however, and turn to the Budget.

For all the Budget's repetitiveness and apparent stodginess the Chancellor is entitled to have it judged in economic terms. I am probably not the only hon. Member who is prepared to give the Chancellor's character the benefit of the doubt, which is saying rather a lot in relation to this Government. The Economist last week wrote this about the right hon. Gentleman: If the Chancellor makes any bad mistakes next week, they are likely to arise from economic misjudgment rather than from political venality.' That being so, the fact that this is a dull Budget does not mean that we should not be alert to false diagnoses on the Chancellor's part, and to the fact that, although he is admittedly rather more efficient, technically, than some of his predecessors, it does not mean that he too, cannot make—or, indeed, has not already made—substantial mistakes.

Before dealing with the economic aspects of the Chancellor's judgments, I wish to say a few words on the politics of the whole affair. The deferment of the General Election has meant, as some of my colleagues have said, the deferment of vital decisions, for instance, about incomes policy. It has meant the deferment of decisions to extend Purchase Tax to cover other goods and services, to which point of view the Chancellor was clearly attracted in his Budget Statement.

It has meant more. It has meant the deferment of any moves to find more efficient ways of taxing gambling and the deferment of steps to seek more sensitive discriminatory fiscal instruments, for instance, ways and means of discriminating against excessive import stocking which would have been a possible line of policy and ways of stimulating growth—such as my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) mentioned—in the North while damping down on demand in the already overloaded South. All these and many other things are clearly much too difficult in an election year although it is quite clear that the House had plenty of time to deal with them.

I return to the economic judgment. There is of course a danger to the balance of payments. I for one wish that the Chancellor had said rather more about how he proposes to keep the imports bill in bounds. I wish, too, that he had said a lot more, because we have heard nothing so far in the Committee, about why our invisible balance is so very disappointing. It is my estimate—a purely statistical estimate, I say to the hon. Member for Somerset, North, but I think a fair one—for the figures over this long time are not quite comparable—that the surplus balance on invisible account was two and a half times as big in the last two years of the Labour Government.

This is a serious state of affairs. I hope that when a Minister replies this evening or tomorrow we shall hear a little more about what has gone wrong in this component of our balance of payments accounts. There seems a tendency in the Government to watch over the progress of visible exports but not to watch this particularly vital component in our balance of payments.

I should like to have heard more also from the Chancellor about the wisdom of the recent liberalisation measures announced by the Bank of England two weeks ago, liberalisation measures at a time when it is quite clear from balance of payments figures that outflow of capital is already heavy. Nevertheless, I am at heart an out-and-out expansionist. From that viewpoint I am personally glad that the Chancellor did not venture to cut demand by more than about £100 million. These I concede are exercises in judgment; I agree with the Chancellor. They are as significant psychologically as—forgive me for using the word again—statistically.

However, to my way of thinking there are risks even in what is being done, mild though the Chancellor's actions seem to some people. What he is proposing to do may prove to be too harsh. Lord Amory, for instance, when he was Chancellor was criticised for being too mild in his 1960 Budget, yet it is a fact that even Lord Amory's actions brought the economy to a halt before the more punitive methods of the Leader of the House took effect. Once again I quote from the article in the Economist on the question of the 1960 Budget and its moral for the present time. The leader writer wrote: Modern economic computers can sometimes badly overestimate the exact amounts of tax increases that are really desirable in times of boom, because nobody has yet devised a science of gauging the way in which a boom mentality among consumers can quite suddenly be deflated. It is, for example, possible that the Chancellor was over-cautious about the tobacco revenue. He said that he hoped to get £55 million from it but he might get the whole £100 million which the Customs and Excise estimated was possible. There are certain risks even in the modest lengths to which the Chancellor has gone.

I was particularly struck by his argument that he chose as his remedy an increase in indirect taxation because its effect was speedy. That is quite right, but it is then also interesting to take up the argument, why did the Chancellor and the Government not recognise in the summer of 1962 and the Budget of 1963 that the quickest way to deal with unemployment and the stagnant economy was to use the Purchase Tax Regulator or to reduce indirect taxation in some other way? Instead, the Chancellor relied to a large extent on methods which, however good in themselves, only moderately increased demand in 1962 and early 1963, but which have caused big increases and will cause big increases in demand in 1964 and 1965.

There is a danger in attacking consumers' expenditure to the exclusion of everything else, which of course is the policy the Chancellor is adopting. It is true that consumer expenditure is the largest claimant on resources in the economy. It is, therefore, right that the consumer must pay his full share if sacrifices are required. But let us also remember that not all the bottlenecks which are developing in the economy, and of which there are signs, are in the consumer goods industries. There is very good evidence that some probably have spare capacity. The National Economic Development Council, for instance, implied that recovery in the wool textile industry with which my constituency is concerned, was held up by a deficiency demand in 1962. This sort of situation of deficiency of demand in which cyclical factors play a part can easily return.

The Chancellor also spoke proudly of his public expenditure programme. Of course no one in the Committee wants to cut it, except possibly the right hon. Member for Wolverhampton, South-West, but it is an important claimant on demand. Like my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) in his article in the Financial Times and in his speech this afternoon, I should have expected to have heard from Ministers some words about the need to avoid waste and overlapping in Government expenditure. There is no doubt from the many reports which have recently been published that the Government's housekeeping could be far more efficient. If their housekeeping were more efficient it would not be so necessary for the Chancellor of the day to press his tax increases so heavily on consumers.

One reason why I hold the view that the pressure on resources and the economy has been exaggerated and is not so heavy as it was in 1959–60 is that there are still—quite apart from the unemployment figures which, as one of my colleagues pointed out this afternoon, are higher than in 1959—reserves of manpower in the country. Unemployment is only a partial indicator of the position, the tip of the iceberg, perhaps. The employment figures, which should also be considered, are up. But they are up by only about 100,000 in this period of boom, for the whole of 1963. In the whole of 1959 the employment figures rose by 27,000, at a time when unemployment was lower than it is today.

Judging by their Economic Report, the Government are, clearly, very puzzled by this development and cannot quite explain it. To my mind, the concealed unemployed, married women, retirement pensioners and so on, are not yet flocking hack to the labour market. This is certainly true in many of the older industrial areas. I mention this to emphasise that, in constituencies such as mine, we are, if anything, as concerned about what the experts call concealed unemployment as about actual unemployment. For us it is as important that opportunities for employment should increase and be broadened as that the actual statistical unemployment figure should be kept down.

Today, the Secretary of State for Industry and Trade gave some account of his stewardship. It is a very disappointing stewardship for regional development in the West Riding of Yorkshire. It is, perhaps, worth mentioning that the National Economic Development Council forecast a substantial drop in employment in the wool textile industry, about 10 per cent. over the five years 1961–66. The decline is under way. Much of it is due to the higher productivity which we all welcome. Nevertheless, it is a fact that job opportunities are not growing in the wool textile areas. Meanwhile, it is clear—the Secretary of State gave no indication to the contrary—that the Government are doing next to nothing for the wool textile areas. Is the Committee surprised, therefore, that the West Riding of Yorkshire has today one of the highest migration rates to presumably the southern part of the United Kingdom?

The Chancellor had an excellent opportunity in this Budget to go much further with discriminatory regional fiscal devices which would have assisted areas like mine, but this opportunity, although there would have been plenty of time to deal with it in the coming weeks, has been altogether missed.

I come now to a point which is vital in any intelligent discussion of incomes policy. While we have full employment, the problem of equity, as my hon. Friends have already said, is far more serious than the Chancellor and the Government imagine. Many people are still very badly paid in their existing jobs. I notice that the hon. Member for Somerset, North has left the Chamber, but, nevertheless, I wish to mention some recent Gallup poll figures. I hope that they will be listened to with some—

Mr. Powell


Mr. Ginsburg

—credulity. These are not statistics about political intentions or opinions. They are statistics produced in connection with an article published about the number of people having two jobs. They show that one-sixth of all workers in this country have to do, or do, two job. They show also, on the question of intention—I acknowledge that one can take these figures with a certain amount of moderation—that one-fifth of all workers would like a second job in order to earn more money, if they can. It is interesting to note, also, that the demand for a second job extends to nearly one quarter of all manual workers. This requirement, therefore, is rather higher among manual workers. Making every allowance for all the special problems of the affluent society which, no doubt, hon. Members opposite would mention, it can be said, with some restraint, I think, that the figures do not reveal a very healthy state of affairs.

I realise that the Chancellor would argue that ht. sought in his Budget to be fair in levying his new tax burdens. I go so far as o concede that the structure of indirect taxation today is no longer as regressive as it was before the war. But I ask Ministers when they consider this Budget to look very carefully at the Treasury's figures in the publication Economic Trends on the incidence of taxes and social service benefits in 1961 and 1962. Quite apart from the pensioner housel olds, mentioned by my hon. Friend the Member for Cardiff, South-East, who will unquestionably be hit by the Chancellor's measures, the wage earner earning £10, £12 and even £15 a week will, depending, of course, on the number of children in the household, be significantly affected if increases in indirect taxation are not compensated by action on the welfare side. The Government's own statistics will confirm this.

In this sort of situation, with some wages at that sort of low level, it is very difficult to lecture working people about cost inflation unless or until a greater sense of equity can be created. This tired Government lack the moral authority to do what is necessary. In due time, they must make way for a Government who will have that authority.

7.28 p.m.

Mr. Charles Fletcher-Cooke

The hon. Member for Dewsbury (Mr. Ginsburg) made a very interesting point about the number of our fellow workers who have two jobs and the even greater number who would like two jobs. I suggest to him that those numbers have a direct relation to the weight of direct taxation. In spite of the skill and cunning of the Inland Revenue, there are undoubtedly more opportunities for avoiding—I will not say evading—tax if a person has two jobs than if he has one. I am sure that if my right hon. Friend had increased direct instead of indirect taxation the number of those seeking two or even more jobs at the same time would have risen considerably.

This is a short Budget, and, to judge from the speeches made on the benches opposite, when the Finance Bill arrives there will be no divisions on it, because no one, today or yesterday, has attacked the Measures proposed to be included in it. I have heard a great deal of criticism about what is not to be included, but I have heard no direct or serious criticism about what will be included. This surely is a most remarkable thing. Here we are in election year. Here we have the Chancellor of the Exchequer proposing to increase taxation by £100 million, and no one on either side of the Committee objects. If one suggested that that was possible at any other time, I do not think it would have held water. This surely must be a great compliment to my right hon. Friend the Chancellor and, to give credit where it is due, a great compliment to the Opposition, too.

Here we are all agreeing to increase taxation and about the method by which it should be increased. Of course, it is a simple method and one which is understood. If we want universities, schools, more teachers and many other things, we must pay for them. That was the basis on which it was put by my right hon. Friend—not on the esoteric basis of skimming off excess purchasing power, but simply on the basis of simple housekeeping. We have to pay for them, and the best and least painful way to pay for them is out of the little luxuries of life and out of a system which already exists and which does not require the erection of some costly new procedure.

It is true, as many hon. Members have said, that the Budget omits reform of the tax structure. I do not believe that an annual Finance Bill is the right vehicle for reforming the tax structure. It seems to me that a special Bill is required for that purpose, one which can be considered upstairs in Committee rather than on the Floor of the House.

There are several reforms which should be made, but I do not think that they should be made in the annual Finance Bill. All of them, I think, will probably involve a slight diminution in Government revenue. There is the question of merging the different forms of company taxation. There is the merging of Income Tax with Surtax. There is the harmonisation of the expenses of the employed man with those of the self-employed man. There is the scandal, as I regard it, of the joint assessment of man and wife. There are many other things of that kind.

I do not think it is right to say, as the hon. Member for Dewsbury said, that it would be difficult to do these things in an election year. I think that the obstacle to doing them is that the Treasury knows that, if they are done, it will lose a certain amount of revenue, because most of these anomalies work against the subject and in favour of the Treasury. I hope that that is not the reason why we are not to have tax reforms now. I should like to see a special Bill introduced for this purpose, but I dare say that we cannot have it until a bit later. However, when we do get it, let us ensure that it goes upstairs, because tax reform is not in the least linked with an annual Finance Bill, which should be short I am glad to say that this year's Bill is to be short.

I have never known an increase in taxation—which is a very loathsome thing—generally accepted with such understanding not only by this Committee but by the country. The public does not like it, but the public is not objecting to it at all—or only marginally. Why is this? It is not because the public like paying imposts. It is because there is another form of impost which has attracted people's bile and they have none left for the increase in the price of tobacco, beer and spirits and wine. The public has become startled and shocked by the quite sudden increase in the rates. There are no headlines about that, or not many. There is no drama about it. There are no television discussions between the Front Benches night after night on that subject. Not even the hon. Member for Pontypool (Mr. Abse) puts on his top hat when we discuss that matter.

Yet, this is the subject which is gripping the population far more than the Budget. The only reference to it in the Budget is this mysterious addition in the below-the-line expenditure of £200 million because the Government have accepted some responsibility for loans to local authorities. Presumably, since it is a deficit in the Budget, there should be some reflection of the advantage in local authority finances. But no sign of it has yet appeared in anybody's demands for rates which I have seen. The public was led to believe that when industrial hereditaments were to be partially included in the rating system the burden on the individual householder would he relieved. But that is no one's experience as far as I can see, even in the areas which have been least hard hit.

The sudden increase in rates is particularly loathsome because there is no way of avoiding it. These increases in taxes which have been quite rightly proposed can be avoided. One is not compelled to smoke or to drink. Further, their merit is that they tap a source of supply, in particular, among non-householders, the young, teenagers, and so on, who have money to spend, whereas the rates do not touch them. The ratepayer cannot escape because he cannot move in nine cases out of ten.

I believe also that this is extremely inflationary. One can speak only from experience, and I speak for one of the constituents of Mr. Speaker since he cannot put the case himself. My secretary, who lives in the City of Westminster, has a modest flat, the rates of which have been increased from just under £100 to £163—a rise of over £63 in eighteen months. Tha t is not the end of it. Of course, her wages will have to go up, and I think that my wages should go up since her wages must go up.

This is obviously an extremely inflationary move, and yet we do not devote four days to discussing it. Instead, we devote four days to discussing something on which, by and large, we agree. We have all the paraphernalia of something on which we agree, yet something which is exercising the country's attention and which is enormously resented is barely discussed.

If I had a criticism of this Budget. it would be that nowhere in it is there any sense of urgency about this terrible problem which many of us realised was coming but which has only just hit the public between the eyes. I should very much like to see a new sense of urgency in relieving local authorities of some of their burdens in this matter. This is not something which can be put off. I am afraid that it is something which will overwhelm the Government because of its unpopularity in all parts of the country, although it is more unpopular in some parts than others.

The small measure of relief proposed by my right hon. Friend the Minister of Housing and Local Government is not sufficient. It would help if, at least, we could hive an indication of what sort of matters the Treasury feels that it could take over in due course. Would it be part of the education Vote, or would it be all? If it is part of it, is it a general across-the-board assumption of responsibility or is it by sections? Is it salaries or something on those lines? Is it an increase in the General Grant? That the ratepayer, who is caught in a vice, or so he feels, must be given hope. I believe this to be a vital political reality, because good though the Budget is and excellent though I believe has been the estimate of the amount of extra taxation which is necessary, it does not deal with the subject that is exercising the minds and, I believe, worrying the hearts of the vast majority of our people.

7.41 p.m

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I should like to intervene for a few minutes because the subject of inflation has interested me for many years. I have always been convinced that here is a misunderstanding about inflation in the sense that every time there is a tendency for inflation, the Chancellor of the Exchequer seems to think that he must introduce a general measure of restriction. Inflation does not necessarily happen all over the country at the same time and what is a cure for inflation in the south of England may be an aggravation of industrial trouble in the North, where there is unemployment, under-employment and the need for stimulation and not frustration.

Lord Amory, when Chancellor of the Exchequer, once introduced what he thought was a scheme to combat that. He gave permission to the Scottish banks to continue to issue credit while placing restrictions upon the English banks. There was no restriction upon Scottish banks lending money for development in England, but there was a restriction upon English banks lending money for development in Scotland. This was no discrimination. If it was discrimination, it was a complete misconception of what would happen as a result.

I suggested to Lord Amory that if there was to be discrimination in the issue of credit, credit should be given to people who would develop in the industrial and development areas and to firms who would develop export industries. That was a kind of discrimination in which I could see sense. Merely to say that the Scottish banks could lend to England and that the English banks could not lend to Scotland was no solution to any problem. The main mistake about the general restrictions is that they aggravate the trouble which we want to cure in the North and they do not necessarily cure the trouble that exists in the South.

In the South and Midlands, there are far more jobs chasing men than there are men chasing jobs. In the North, hundreds of children who are leaving school cannot find employment and in some areas we are getting a little of the demoralisation that set in between the wars. This is desired by nobody. Therefore, a method must be devised by which there is discrimination.

Let me give credit to the Government. They have done this to some extent because they have lent money at cheap rates to Colvilles, they have loaned it at cheap rates to the British Motor Corporation and to Rootes and they have also lent money for the starting of a pulp mill at Fort William. This is a proper thing to do and this is the proper use of the fiscal method for stimulating industry where required. The other method could equally be used in the South by restricting credit where there is over-employment. This would be a balanced and discriminating method of applying the brake instead of plunging down the brake and stopping everybody because somebody is growing too fat in the way of employment and industry.

The hon. and learned Member for Darwen (Mr. Fletcher-Cooke) spoke about rates. There is no question that it is a serious problem in many parts of the country. Local authorities are reaching the point where they will become exasperated and it will be difficult to get them to carry on. A great deal of those rates arise, however, from Government action and one of the Chancellor's defects is that nobody seems to have tackled the question of how far the Government can impose policies upon the local authorities and make them pay the major part of the cost. Until the general grant is altered, every increase in teachers' salaries and in expenditure is bound to go on to the ratepayers. The greatest part of the increased rates in many local authorities comes, however, from the increase in interest charges due to the increase of Bank Rate with a view to applying the brake to the development of industry.

I have heard it said that that is necessary and that that kind of development cannot be physically controlled, but this is nonsense, because no local authority can start any serious development without the permission of the Government, who have complete control over the plans and development of local authorities without increasing interest rates. The Minister of Public Building and Works said the other day that the Government must charge the interest and must pay for their own borrowing. This also is a bit of nonsense. Government borrowing is done through the Bank of England creating credits, and the only increased costs of that are the bookkeeping entries of increasing the credit and managing the accounts for the next 60 years.

I do not know the cost of that—I do not think that anybody does—but it certainly does not go up by the kind of increase in interest rates that takes place because the Chancellor wants to impose a restriction on development. This is another case which the Treasury and the Government should look into. They should examine what is the real cost of borrowing money, charge the local authorities that cost and no more and not put it up or down according to the fluctuations of a quite different market.

We are told that if interest rates were reduced, this would be a hidden subsidy to the local authorities. If that argument is correct, to increase interest rates is to reduce the subsidy to local authorities. On what ground have the subsidies to local authorities been reduced in recent years through no particular change in the economy except that the Chancellor wants to put a brake on industry?

There are all kinds of ways of controlling development. The hon. Member for Somerset, North (Sir E. Leather) spoke as if there was no possibility of planning and that it was all imaginary. After the war, we had seriously to plan the use the building trade. This was another way of curbing inflation. The Minister of Works had a complete tabulation of the composition of the building trade, its manpower and its capacity. It had to he allocated to different purposes, so much to housing and to the repair of housing. Between them, these two took about 60 per cent. Then, so much was allocated to the War Office and other buildings. The churches were given £1 million a year, which they allocated among themselves. This was an allocation not of money particularly, but money was used to allocate the men in the building trade and the capacity to build.

If people are to be allowed to start building all over the place without any controls, this will mean that when the Government's new programme starts there will be pressure upon the building trade. If it does not inflate wages and everything else at the end of the day, I shall be very much surprised. When the Government have within their grasp the power to plan industry and development, there is no reason why they should not do this in an intelligent fashion and not pretend that it all depends upon pure chance and allow the money to fly.

Inflation also requires a certain amount of flexibility. It is true that the Chancellor of the Exchequer has the difficulty of trying to keep the economy working on an even keel. The Government are terribly culpable for deliberately provoking inflation before the last two elections and creating a much bigger wave above the line and below the line than necessarily. The Government's business is to keep marching like the governor of a steam engine so that the engine may move at a steady rate all along the line. But if they steam up the engine, make it drive at an enormous rate and then violently put on the brakes, they destroy confidence throughout the country.

The most important factor to industry is steady development. If they know that there is to be steady progress and development people will put their capital into industry and will be prepared to develop and to take risks. But if, following a sudden boom when they put their capital in, within a few months restrictions are again imposed, their capital will be lost. That means that, when the Government return next time, they will not evoke the same good response, before the last election the Government stimulated purchasing to an enormous extent. Directly or indirectly, they induced the banks and everyone eh e to lend money galore. One just handed one's name in and got a loan to buy a car or a house or anything else. The banks went into it as well as the loan companies.

A few months ago the Observer pointed out that the loan and hire-purchase people were meeting in London and that they hold lost about £75 million—I cannot remember the exact sum but it was tremendous—in the boom which had come to nothing. If people burn their fingers and lose a lot of money the Government cannot ask them to do it again. Hire-purchase is, after all, a way of spending the money of the future as well as the money of the past and if people tie themselves up for seven or eight years ahead they have not the resources to take on any more debt—if they are sensible. A Government can work that trick only one or twice.

This is especially important for industry, which must have confidence. This is where the Government have come up against an obstacle which they will be unable to shift. Industrialists have so lost confidence in the Government after the last boom and slump that it will be difficult to convince them that this is not just a temporary boom again. It is important that some assurance should be given that we are not to rush ahead and then suddenly be stopped and that any progress we make is as steady as possible. To that extent, I think that the Chancellor of the Exchequer, in restricting his extra taxation to £100 million and agreeing that the boom should go on, has contributed to a steady development.

I may have missed it in his speech but I think it would have been wise for the right hon. Gentleman to have told cigarette smokers and drinkers what their money is to be used for. But I did not hear that it is to be used for all these splendid purposes such as building hospitals and schools. I think that smokers and drinkers might feel a little better if they knew that the money was being used for such things.

However, I do not think that there was much calculation in the increase of tax on cigarettes and drink. The approach was obviously designed for a June election. The idea originally was to do nothing at all and the imposition of £100 million more in taxation was brought in so that there could be no great debate upon it, no great resistance and no great resentment. Curiously enough, after a few weeks taxes on cigarettes and drink are forgotten. People forget all about it and drown their sorrows with what they buy with the remainder of their money.

The sad thing is that this is an unfair tax because, obviously, it will deprive old-age pensioners and others of their smokes and drinks unless the Chancellor does something to increase their pensions. I think that everyone agrees that it is not satisfactory to give them coupons with which to buy either drink or cigarettes. Nevertheless, much hardship will be caused among these people by the increase in tax. I know that the right hon. Gentleman does not mean that but it is one of the effects.

It is an unfair tax and it is true that all indirect taxation is unfair. The trouble is that people prefer it to direct taxation. It is rather sad that the most civilised and fairest tax in the world—Income Tax—is disliked by the people. They also dislike the rates. The reason for their dislike is that they have been completely misled as to what these rates and taxes are for.

People who pay rates get great value for money although they insist on talking about the burden of rates. It is not a burden at all. Let us consider what people get for the rates. They rise in the morning to find clean water available. Instead of stepping outside into mud they step on to concrete pavements. On the roads, the policemen look after their safety. Their children receive education. Their refuse is taken away. Just imagine the cost of hiring people privately to do all these things. What would it cost to the individual in that way?

Quite clearly, buying these things collectively is one of the greatest bargains we get. We get good health. The local authorities prevent us from being poisoned by seeing that food is clean. They look after our sanitation. Pure water is a gift in itself. In some countries one cannot get it. We get it flowing cleanly into our homes.

It is a mistake to talk about the burden of rates. They are a great bargain. Even when we buy a house and pay rates for the services of the community, we are getting a better bargain than we would otherwise. Incidentally, it was not the Labour Party which introduced rates but the Conservative Party. A Conservative Government introduced them over 100 years ago in order to protect ratepayers against disease and the cost of disease. At that time the poor had to be kept in poor houses and obviously it was cheaper to keep them healthy than in a state of disease. It is a mistake to call the rates and taxes a burden.

The hon. and learned Member for Darwen is debating the question as to how much the State and how much the local authority should pay. I agree that this must be examined very carefully, because the State is the institution that can raise money fairly. Raising money from rates on householders is not a fair method of taxation. Many people have suggested other methods but they are all costly and difficult to organise. A local income tax would not be as fair as the national Income Tax and if we had an extra national income tax for local authorities we would merely be returning to the general grant. There are also the complications of how far the local authorities want to retain their independence and feel that they are spending their own money and are not just being rubber stamp for the State.

Obviously, they must have some control over finance. It is a good rule that, when the local authority spends the State's money, it must also spend some of its own. A 100 per cent. grant system has never worked satisfactorily. A local authority must have a sense of responsibility. I am afraid that the burdens, as they are called, being put upon them now—and it is a burden if they have to carry the whole cost of a national service—are very great. Something must be done about education, for instance, for its cost has not yet finished rising and I am not sure that the narrow basis of rates is sufficient to carry the whole cost.

In some of the sparsely populated counties it is almost impossible to meet the cost and so, through the equalisation grant, the State has become a ratepayer. I think that this system must be developed to a greater extent. If the State becomes a ratepayer it will have a say in spending the money and it must take a bigger share than it does today.

One of the ways in which it can do that is to stop imposing high interest charges on local authorities which have put up the price of a house, over 60 years, from £4,000 to £9,000 in about 12 years. This is a ridiculous situation. It has been shown how impossible it is to expect the local authorities to carry all this on the local rates. It amounts to a decrease in subsidy. It wipes out subsidies so that what the Government give with one hand they take away with the other. This must be dealt with at an early stage.

I would say, therefore, that the Budget has been unfair inasmuch as the £100 million extra that is to be taken is not a very well-balanced deduction of purchasing power. It acts very largely against those who have the least purchasing power. It is no burden at all on the wealthy and therefore to that extent it is a very unfair tax. We believe that it is no use in tempering what might become inflation.

However, the dye has been cast and we shall not be able to discuss the tax. It has been imposed and we must grin and bear it. So the marvellously generous people—those who smoke and drink—bear a tremendous part of the country's taxation. Yet they bear it smilingly and seem to enjoy it, because they enjoy smoking and drinking away their incomes and do not seem to mind that a large part of it goes to defend the country and, perhaps, to pay a little towards the social services. To that extent, I think that, in this debate, we ought to think them for the way they accept the burdens that are placed upon them

8.1 p.m.

Sir Douglas Marshall (Bodmin)

By accident I very frequently follow in debates the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn), but I have never before heard such flattering words at the end of his speech. I am very glad to know that those who are foolish enough to smoke and those who are so unwise as occasionally to take some liquor are so generous with their cash. I art grateful for what he said, a great deal of which I agree with.

I agree with the points that the right hon. Gentleman made with regard to the regional approach in a number of matters. I think that possibly the right hon. Gentleman would agree that we have never gone so far as we have of late in the regional approach. A point which I should like to stress to the Committee and to the right hon. Gentleman is that, although all right hon. and hon. members quite naturally have a dislike for any policy that appears to be based at times on what has now become commonly known as stop and go, they Trust also realise that if we are to expand and have a growing world market with conditions throughout the world of which we are not in sovereign control, it will almost need a magician to say that there shall not be moments of stop and moments of go. I think that occasionally in the language which is used both in this Committee and outside we are apt to forget that point.

Then again, I think that I am right in saying that the right hon. Gentleman said with regard to this Budget that he thought that it contributed to a steady development. Those were the words, more or less, that he used. I share that view. It must have been quite anxious thinking for my right hon. Friend the Chancellor to decide what the global figure should be if he generally raised taxation. Nearly all right hon. and hon. Members who, no doubt, read the different papers published just before the Budget, must have realised that there seemed to be more or less a general theme, with very little disagreement, that the Budget would raise another £200 million. Be that as it may, I think we all realise that, whether it is £200 million, £100 million or £50 million, in proportion to the total sum collected in taxes, it is a very small amount.

I think that the Chancellor was wise to select the figure of £100 million. I share with the right hon. Gentleman, and so I imagine would any one else, the view that this will press harshly on certain small sections of the population who are very near the narrow margin of life. But I think that we must also realise that, although we may hope at a later date that this figure will be raised, in purchasing power, from the start of the operation, the old-age pension is now three times as much as it was when the right hon. Gentleman and I were in the House in the 'forties.

The right hon. Gentleman mentioned that he thought with regard to rates that, at the end of the day, we would all see an even far larger figure in respect of education. Surely this thinking must be shared by all hon. Members. If we look at our standard of living, which a goodly portion of the world envies, and then look at the raw materials that we have in this country, the greatest raw materials that we have are the brains of our people, upon which we are dependent. It is therefore absolutely necessary that every opportunity and facility that can possibly be afforded by one generation should be given so that succeeding generations might develop even greater capacity in order to help this country and, fortunately, help themselves.

I felt when I listened to my right hon. Friend the Chancellor yesterday and to my right hon. Friend the Secretary of State for Industry, Trade and Regional Development and President of the Board of Trade and the right hon. Gentleman the Member for East Stirlingshire that not sufficient had been made of three things. First, it was not just a question of putting a slight brake on with the question of £100 million, but we were also making ourselves dependent upon the savings of the people.

My right hon. Friend's new approach to savings is good, but at a later date we should explore further means of attracting savings, because the provision of savings is one method by which increases in taxation might be avoided. The danger is increasing consumer demand and if that demand can be hived off in savings, the danger is not so great. Not sufficient tribute was paid to my right hon. Friend on that issue.

The right hon. Member for East Stirlingshire rightly said that the money collected is collected primarily for the different things which we all want. More education, more houses, a greater Health Service and greater hospital facilities all cost money. I will not weary hon. Members with figures which they already know, but I pay my right hon. Friend the compliment of saying that if all the figures are added up, we can be reasonably happy about the total, and that he only wanted an extra hundred million can only be due to good administration.

My right hon. Friend the Secretary of State for Industry and Trade came to Cornwall to have a "look see" about the need for further development in that area. We were grateful to him, but I hope that he realises to the full the danger which may crop up. It is that firms starting to develop in development districts may later want to expand, and yet cannot find from the Government to what extent an area may suddenly and smartly no longer be a development district. Lack of the knowledge of what warning would be given may jeopardise development and expansion which might otherwise take place.

For many years, I have hardly spoken in a Budget debate without mentioning our mineral wealth. I still believe that there are many people in the Government and the Treasury who will not accept that there is great mineral wealth still lying hidden in our hills. Help was given to the mining industry—provided that it was in a development district—in the last Budget, but the location of tin does not run nicely and gently according to the provisions of any Finance Bill. Special financial measures are necessary to help the development of metalliferous mining. Great risks have to be taken. The mines were flooded 50 or 60 years ago and no one knows whether there is sufficient mineral wealth in them to justify the cost of procuring it without having tax incentives.

It is a pity that the leader of the Liberal Party gave the impression, at least to me, that one of the methods which he would adopt to obtain more money would be a slackening of the sovereignty of our defences. This is nothing new or novel. The Liberals said more or less the same thing in 1938. I regret such an approach.

This has been not an exciting Budget—there is no particular reason why a Budget should be exciting—but it has been a sensible Budget which people will understand to give good value for money and from which they will understand that we are still in a process of expansion and that by that expansion and the work of our people—not just the Government, but the people—they can afford to expand all those social improvements which all hon. and right hon. Members sincerely want. The difference between us is how to reach that objective.

8.16 p.m

Mr. Julian Snow (Lichfield and Tamworth)

I am sorry that the Secretary of State is no longer in his place, but I am very glad that the Financial Secretary to the Treasury is present, because I know that he has specialist knowledge of exports, the subject to which I propose to address my speech.

Potential exporters must be excused if they are becoming increasingly bored by the exhortations of successive Governments to increase their exports and to devote more energy to that aspect of their business. That does not mean that they should not treat the matter extremely seriously.

But I was depressed by the Secretary of State's speech, because he made two mistakes. First, he did not reply to the challenge of my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) on the relative position of this country in the world's export markets. It is not good enough and it misleads the public for Government spokesmen to keep saying that our exports are increasing. That is entirely irrelevant unless they are increasing compared with the world position of other exporting countries. It was a pity that the right hon. Gentleman did not respond to that challenge, because the Conservative Press will use an increase in exports to justify the Government's record, whereas in reality our relative export position is getting worse.

Secondly, he emphasised, as other Conservative spokesmen have emphasised, the fact that we are doing good trade with other sophisticated industrialised countries. This may be the case and in its own way it is desirable; but the job of any Government is to plan not for the short-term, but for the long-term economy.

One of the reports which the Government have so far neglected to have examined try the House of Commons is the Plowden Report, the Committee on Representational Services Overseas. There are certain comments in this Report affecting our trade missions and representation in other countries which should have; attracted a great deal more attention from hon. Members in general and certainly from the Government. I was very sorry that neither the Budget speech nor the right hon. Gentleman's speech today mentioned implementing these urgent and valid suggestions which have been accepted by the Government in principle and which are to expand and enlarge our commercial departments abroad.

Paragraph 10 of the Report says: The strength of our diplomacy depends on and must be related to our economic strength. The survival of Britain let alone her influence, depends on trade". I have examined the estimates for the commercial Departments for the current financial year on both sides of our overseas representation, but I can see no action being taken on the lines suggested in the Report.

The Government may say that it is a little premature to expect that, but this is an urgent and pressing problem. I suggest that the problem can be summarised by saying that we have to examine the way in which other countries have consolidated their long-term export potential, which we do not appear to be doing. With other hon. Members, I have recently been to the Far East, and I was extremely concerned at the evidence with which we were confronted of the activities of other nations—I am thinking particularly of Japan—in consolidating their position in the new markets which one day will be open to the world in general. For instance, even before the troubles over Borneo broke out and affected our trade with Indonesia, Japan was exporting to that country about eight times the volume of our exports, and that is only one case.

The comments of the Plowden Committee in paragraph 42 of its Report relate to the Commonwealth, but I think that they are equally applicable to other nations with whom we have been bound in close commercial contact for many years. The Committee said: We need a system"— this is an argument to strengthen and co-ordinate the various forms of commercial departments overseas— which recognises that individual Commonwealth countries have developed regional interests and relationships of their own and cannot regard their relationship with Britain as paramount. To the old-fashioned, to the Imperialists, to the great enthusiasts for the Commonwealth—amongst whom I include myself—those are rather harsh words, but I wonder how many hon. Members realise that Australia and Japan, in their combined trade both ways, are doing more trade than Australia does with this country.

Until one goes to these far-away places—and I speak in aid of more Parliamentary delegations going abroad—such as East Asia, the Pacific, and so on, it is very difficult to understand how countries in those areas look towards us and examine their own commercial interests. In East Asia, for example, unless we are very careful, we shall find ourselves unprepared for the day when Communist-dominated countries like China open their doors to more trade. Incidentally, the latest reports from China indicate that her sterling asset position may be a good deal stronger because of oil development. The Minister shakes his head. I draw his attention to a recent article in the Financial Times.

The Financial Secretary to the Treasury (Mr. Alan Green)

I was not shaking my head. I was doubting the relevant value of what the hon. Gentleman said. There may be these oilfield developments, and I agree that they will make a difference.

Mr. Snow

It is a matter of judgment whether China's development of her oilfields and the accruing of sterling assets may be of importance to us. Indonesia, on the other hand, is under-developed. Some people say that she is economically misdirected, but other nations are still doing substantial trade with her.

I think that there is a case for co-ordinating our export endeavour from the Board of Trade, not so much towards individual countries, but towards co-ordinating all our efforts in a given economic theatre. I believe that that is very important. If one considers what trade is being done in the Far East and what trade is being missed, and the possibilities open to us, one realises that one has cause for great concern.

Some days ago when I was talking to some people on this subject, I was tempted to refer to the Japanese effort and also to her record of activity in this connection which began in about 1940 when she tried to organise a Far East co-Prosperity Sphere. This has a very sinister connotation, but nothing that I say now should be construed as being hostile to Japan because I think that in her new form, and provided that we do not adopt an antagonistic attitude because of past unhappy events, she can play an important part in developing the Far East. But, bearing in mind that a sinister connotation attaches to the old Far East co-Prosperity Sphere, I believe that unless we are very careful we shall find some sort of Far East organisation for the development of mutual co-operation, with us being left out in the cold, and colour is lent to this possibility by an article in The Times today which reports that Mr. Nixon, who has been to Tokyo, has suggested a Far East Common Market as a counter-balance to a European Common Market. I stress that that is a matter at which we ought to look.

I come back to the point about strengthening our trade missions in our Embassies and High Commission offices abroad. In the Far East there has been an unfortunate failure on the part of our civil aviation industry to obtain a share of the market. For instance, I was not particularly happy to find a British company operating a Pacific airline with American aircraft. We are all also aware of the unhappy story of the failure to obtain a share of the Japanese market with the Trident aircraft.

I have yet to find someone who can explain why the post of air attaché in Tokyo was abolished a few weeks ago, although I understand that that decision has been reconsidered. I suggest to the Government that, bearing in mind the enormous potential for civil aircraft in that area and the developing potential in Korea, Indonesia and China, it would be a good thing to consider the appointment of a civil air attaché, the kind of appointment that is made in other countries, who will specialise in civil aircraft as opposed to aircraft for military considerations.

I am afraid that too many potential exporters and businessmen in this country who come up against Japanese competition—and it is a serious form of competition—attribute the wrong reasons to the efficiency of that competition. Too many of them ask how they can compete against the low wages and poor working conditions in Japan. This is a highly fallacious argument, as the low labour cost argument is out of date.

Why is it that in a country like Japan we do not maintain a labour attaché? We do so in other less economically important countries. In view of the undoubted wrongs that exist in the Japanese labour structure, I should have thought that by the appointment of a labour attaché it might be possible to ensure that we were properly informed about Japanese labour costs; not forgetting that the function of a labour attaché is also to try to bring influence to bear in the country to which he is appointed to improve the labour organisation and practices there; to try to bring those practices which are undesirable—and some of them are in Japan—more into line with Western European practice.

I also found—and I have met this elsewhere in the Far East—that the working of commercial departments is jeopardised by a shortage of staff. I have put his point to various Foreign Office officials, who say, "Well, you know, we are up to establishment there by comparison with our staff in other countries." I would have thought the yardstick should be, "What is being done by the other major exporting countries", and not what we may be doing in Peru as compared with Tokyo, or in Bangkok as compared with Durban. We must seriously examine what other exporting countries are doing.

The Chancellor referred to the fact that he is shortly going to a meeting of the International Monetary Fund, and that he will there draw certain matters to its attention. There is one matter that I wish he would raise there. If he examines the practice of the Japanese Government on the question of imports—and this has been reported to the Foreign Office—he will find that they have adopted a practice called import Collateral, which is highly prejudicial to this country. It is a practice whereby an import licence is granted for a period of six months, and where a deposit must be paid to ensure that the licence is used within that period. In the case of raw materials exports, which do not come from this country, the deposit is 10 percent. of the value of the licence, but for consumer goods, which do come from this country, it is 35 per cent. This is prejudicial and discriminatory against this country, and inhibits many potential small importers from importing goods from the United Kingdom.

Some time ago I was discussing with a previous President of the Board of Trade the role of the really small British manufacturers, amongst whose number one finds many men running little companies manufacturing highly specialised machinery and equipment. I said that I thought that it was a great shame that no matter low many times the question had been raised in the House by hon. Members, including myself, the Government had taken no real action to try to bring the small manufacturers into our export potential. The reply that I received was, "Well, you know, so many of these s nail businessmen are rather bad businessmen.".

I am sorry that he gave that answer, but because it was a private conversation I will not personalise. This is the wrong attitude. Other countries bring in small manufacturers as sub-contractors to major exporters. Much more could be done if we had a better survey carried out of the position in this country.

I do not want to end on a controversial note, but I sometimes feel that the attitude of the Government towards small businessmen is similar to their attitude towards small shopkeepers—the feeling that they can be discarded to some extent. This is a great pity. In ignoring the small manufacturers the Government are wasting a potential production element of great significance to this country. More attention should be given to this matter, bearing in mind that much information which could be used for co-ordination purposes is already available, in terms of the census of production. It is a question of bringing the small firms into the comity of exporters. The Government are falling down badly in not realising our position in the export world and taking steps to consider more carefully, in the long term, our potential customers in the under-developed countries.

8.34 p.m.

Dame Patricia Hornsby-Smith (Chislehurst)

I am grateful to be able to follow the hon. Member for Lichfield and Tamworth (Mr. Snow) in some of the remarks that he has made with regard to Commonwealth trade. I agree with some of his points, especially the last. I, too, would like to see more collective encouragement given to the smaller exporter who cannot on his own project what might be a good seller, although I wish to pay tribute to the excellent work which I have seen done by our trade commissioners abroad.

I disagree with the hon. Member, however, in his disparagement of the amount of export trade that is being sustained and expanded within the Commonwealth. Many of our great Commonwealth partners still regard Anglo-Commonwealth trade in the light of the old Ottawa Agreement days of the 1930s. At that time our trade, overall, was complementary. They sent us food and raw materials and we sent manufactured goods in exchange. They are still following that basic principle and adopting the view that no matter how much food and raw materials they produce we shall still be able to stomach—and that is an appropriate word in that connection—the same proportion and absorb their increased production. They tend to ignore the fact that time and time again we find ourselves losing the markets which we had with them, not through any inefficiency on our part but because of their expanding industrialisation—in which we rejoice—as a result of which they are now making themselves many of the goods which they used to buy from us.

The most significant of all comparative figures in respect of Australia is that, whereas in 1939 she had one person working in agriculture for every person working in industry, today she has eight people employed in industry for every one in agriculture. Together with the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) and my hon. Friend the Member for Rye (Mr. Godman Irvine), I had the privilege of going to Australasia last year. We were all enormously impressed by the tremendous development in Australia. In fairness to our exporters, however, we must recognise that this is a tug-of-war. We are asked by Commonwealth countries and our own people to export and at the same time we are pressed to invest and open up companies in those countries.

If anybody were to look at the export figures of four very distinguished companies in the Cray Valley in my constituency, he could make a powerful speech deploring the manner in which their exports to Australia and New Zealand have dropped. But if he probed further into the matter he would find that all four companies—Standard Telephones, Klingers, Morphy-Richards and Wiggins-Teape in Kent have opened plants in Australia.

Mr. Snow

The hon. Lady said earlier, in error, that I had disparaged Commonwealth trade. I did not. I quoted from the Plowden Committee, which drew attention to the attitude of some Commonwealth countries in this respect.

Dame Patricia Hornsby-Smith

I apologise to the hon. Member if I misrepresented him. What I hoped I said was that he disparaged the extent of our Commonwealth trade. We have this tug-of-war with the investment by British companies in these territories by which, I will not say that we cut our throats, but we scratch our throats. These four companies which I have named are among the 500 companies which have set up subsidiaries in Australia. No longer do exports flow from the works in the Cray Valley to Australia Or to New Zealand because these four companies are manufacturing in Australia and not only for Australia.

I am not likely to forget a meeting which I had with a former constituent who three years ago went out to Klinger's new factory near Perth. I said, "I remember you proudly telling me at some celebration at your works in about 1955 that you were then exporting Sidcup to 91 countries. I suppose that now it is 90 countries". He told me, bluntly "Do not be stupid. Through opening the works here we have taken over all the Southern Hemisphere exports. We are doing all the trade with India as well as with Indonesia and Hon.g Kong, and some with China, and certainly with New Zealand and eight countries below the Equator in Africa ". I rejoice in the development in Australia. I am delighted to see it, but I think it grossly unfair that we should condemn some of the very many companies in this country which have supported the Commonwealth by opening up branches of great industries in those territories. Thereafter they cannot expect to export to the territories and, therefore, must turn their attention to increasing and expanding their exports to areas not necessarily in the Commonwealth.

I pay great tribute to the large body of exporters who year after year have re-adapted themselves to the needs of these Commonwealth countries. We must acknowledge that in many cases we now see manufactured goods being produced from the newly developing countries. There are now millions of yards of cloth from India some being sold in Australia. That is still Commonwealth trade. But India being nearer to Australia and with cheaper labour is able to sell more cheaply cottons which formerly Australia took from this country. It is not because of bad trading or lack of foresight on the part of our own exporters, but because of, and we should pay tribute to, the contribution made by companies which have invested in the Commonwealth territories. I say frankly, I do not think that we get sufficient acknowledgment of the tremendous efforts and investments which have been made, not in one Commonwealth country but in 40 territories by various companies in Great Britain.

There are still many companies in this country which could make a greater export effort. I congratulate my right hon. Friend on the record returns of which we heard this week. That is a great tribute to companies which are prepared to send out people who can really talk to our colleagues abroad. That is much more useful than sending out brochures. When in Australia and New Zealand we found that the people there do not like looking at brochures. There were Japanese, Indonesian, American India Swedish delegations all selling as lard as they could and we must send out more people to negotiate contracts—people at a high level, at director and executive level.

There are still some firms in this country who adopt the attitude, "Why should we bother to export when we can sell everything we make in the High Street?" I hope that my hon. Friend wit exert pressure to persuade those firms which could export but will not do so that they would not be able to produce their goods for the home market were it not that other firms do export, and provide the wherewithal to supply the raw materials for their products. People who could export but will not art: living on the backs of those who go out to get the trade.

We are proud of our record export figures. It shows that we have firms in the export trade which are adaptable and capable of looking ahead to meet the challenge provided by those former customers who now make things which were previously supplied to them. They have gone out with more sophisticated goods which we in this country still have the know-how, ability and capacity to produce so that we are able to keep one jump head of those who have not our experience, such as in electronics and heavy plant and machinery. We have every reason to be proud of our contribution. The Budget is not dramatic or exciting, and there is no particular reason why it should be, but it is a tribute to the fact that our policies have been right. When a Chancellor of the Exchequer can say that he is absorbing £1,700 million more expenditure for education, hospitals, roads and housing, for which the country has been asking, and at the same time can sustain the economy, by increasing taxation by only £103 million, we can say that it is a job well done.

8.46 p.m.

Mr. A. E. P. Duffy (Colne Valley)

I hope that the right hon. Lady the Member for Chislehurst (Dame Patricia Hornsby-Smith) will forgive me if I do not follow her arguments. Trade is of tremendous importance and I was much interested in her speech, but I shall confine my observations on the Budget to the relationship between the flow of demand and the flow of production.

May I go back to the speech of the hon. Member for Bodmin (Sir Douglas Marshall), who thought that the cut in demand of £100 million made by the Chancellor was a wise cut. He thought that it would make for steady development. I am sorry that the hon. Member is no longer in the Chamber, because I was aching to ask him how he had managed to work this out and why he is so certain that the Chancellor's cut in demand is just right. When I recall all the advice which has been given to the Chancellor in recent weeks, I cannot think of one authority which worked out, with a reasonable argument to support it, that this was the amount of cut in demand which should be made.

The weightiest authority is the National Institute of Economic and Social Research which had no trepidation in diagnosing the trouble as requiring a 2 per cent. reduction in the forecast level of home output in mid-1965. It said that: given the uncertainty of the forecasts, the need for a smooth transition and the effects on confidence and other indirect consequences of any big change in taxation or expenditure, this would be an excessive adjustment for the Government to make at this stage. Therefore, the National Institute was prepared to step down from the 2 per cent. recommendation. It said, We suggest a cut of about 1 per cent. in the rate at which real expenditure, public and private, is rising. This would require an increase in present taxation of about £200 million or a reduction in Government expenditure of rather less than this. As we all know, the Chancellor has opted for just half of this amount. I wonder whether he was fully mindful of the experience of his predecessors in trying to relate demand to production in the post-war years and especially in more recent years, because it was the experience of every one of them that in trying both to stimulate and to restrict demand it was necessary to over-shoot. Yet the Chancellor has opted again for what the hon. Member for Bodmin described as a moderate cut—and this description was repeated by my right hon. Friend the Member for Clackmannan and East Stirlingshire (Mr. Woodburn).

Will the Chancellor succeed? Let us assume at this stage that he will. I think that his cut in demand, given that it is only half what the National Institute regarded as a bare minimum, can be regarded as a dampening down. Will the dampening down of our economy suffice? If it suffices, will it take us out of the stop-go cycle? If it does not, shall we not still find ourselves as an economy in the all too familiar pattern which has given rise to successive post-war economic crises, which in turn have led us to lose our international place to countries which are increasing in number and whose identities are all too well known to bear repetition? This pattern, moreover, has seen us inexorably being responsible for a shrinking percentage of world trade.

I think, given this, that we are entitled to query the Chancellor's premise. We are entitled to ask him: is the present crisis, or his forecast of the movement our economy in the near future, one of over-expansion? I think that it will be agreed that I am staying with the Chancellor for as long as I can and I am going as far with him in my argument as I possibly can. I am following his assumptions until I think that they are no longer tenable.

If the present crisis is one of overexpansion, it certainly is not due to wage costs, because since 1961 wage costs in this country have declined by over 10 per cent. relative to France and Germany and by over 20 per cent. relative to Italy. Is over-expansion, in the view of the Chancellor, due to money in the pockets of old age pensioners, because the right hon. Gentleman clearly intends to use them as one of his regulators? I do not want to make much of this, because the thoughts and the experience of many old people as the result of the Budget must be all too vivid in the minds of my hearers. Further, if I were to try, even briefly, to describe what the Budget would mean to many old age pensioners, it would be painful.

Neither is over-expansion due to congestion in all parts of the economy. It may he true in the Midlands and the South-East, but it is certainly not true in the North-East, in Scotland and in Northern Ireland. It is clear that a lifting of the foot from the accelerator in the South-East and the Midlands is tantamount to standing on the brake still in the North-East and in Scotland.

I do not think that I can push the argument any further. It will be seen that global control of demand is not appropriate to our difficulties and to their relief. It is neither fair nor suitable for regulating the flow of income to production, which task I set myself. What it is clearly needed are selective stimuli of our economy. What is needed is an increase in productivity. If we cannot get an increase in productivity, if we cannot alter units of labour costs in the Midlands and the South-East any longer, given the present phase of the trade cycle, surely there is hope in other parts of our economy where there are still under-employed resources. This calls for regional policies.

I leave the assumption of the Chancellor there. It is reasonable to argue that measures different from those he has used are called for because the situation, and therefore the problem, is different. A year ago the Chancellor was rightly concerned with the recovery of the full employment of existing or underemployed productive capacity. However, the right hon. Gentleman began his Budget speech yesterday by saying: I described the theme of last year's Budget as expansion without inflation, expansion at a rate that can be sustained, and I said that its purpose was to do the Government's part in achieving the 4 per cent. growth rate that we had already accepted as our target in the National Economic Development Council. This year I have the same theme and the same purpose."—[OFFCIAL REPORT, 14th April, 1964; Vol. 693, c. 239.] I take issue with the right hon. Gentleman there because I do not regard his problem this year as similar to that of last year. As I have more than hinted, his problem this year is not the recovery of the full employment of existing or underemployed productive capacity but how to accelerate the expansion of existing capacity.

Mr. Green

The Chancellor agrees with the lion. Gentleman. His problem this year is not the same as last year and this is really the theme of his Budget speech. It is in order to get the country c n to a sustainable rate of growth as opposed to the first starting impulse that was given last year.

Mr. Duffy

That may be so, but I thought, as I gathered from the speech of the Secretary of State for Industry and Trade this afternoon, that the Chancellor was concerned with getting a break-through, but in an entirely different situation. I thought that he was trying to get our economy on to a smoother ascending curve, rather like what happens to an aircraft after it has taken a lot of buffeting and has broken through the sound barrier. This reminds me of the difficulties which confronted the aircraft manufacturers when aircraft were being buffeted against the sound barrier. Finally flying became more smooth as the break-through came. The economy is rather in that position. We need to break through a sort of sound barrier in the economy and I do not believe their the Chancellor has taken measures which will achieve that breakthrough. If he has, or if he considers that he has, that fact has not been made clear to me.

We must be concerned not merely with the underlying growth. We must be concerned with the 4 per cent. growth target of N.E.D.C. and I am not at all optimistic that that target can be reached given present arrangements. That target must be reached and sustained if we are to meet our capital needs, which will continue to grow. Demand for capital will increase in the new industrial revolution, with the coming of automation and computers. Demands for capital will also increase for the supply of new services and entertainments to meet the leisure opportunities which will stem from automation.

I need not elaborate the demand for capital for roads, universities, schools, hospitals and so on. Expenditure on all these things cannot be estimated, but the rate of growth over the last decade can be projected to a necessarily steepening curve to give a hint of the magnitude of the expenditure involved. Capital formation rose to £4,600 million in 1962. This rate of progress must and will be in the region of £10,000 million by 1972. In 1962 the capital formation was equivalent to one-fifth of the gross national product. Already, the Government, contemplating the financial repercussions of Beeching and Buchanan, Newsom and Robbins, have forecast in last December's White Paper an average annual increase in public expenditure—from 1963 to 1968—of just over 4 per cent. or nearly £2,000 million in absolute terms over the whole five-year period both on current and capital account.

Can we meet this target in public expenditure without the necessary gross capital formation, and can we get that gross capital formation without the necessary underlying growth of the economy? I think that the N.E.D.C. is doubtful. Its Reports make very interesting reading but they cannot be taken at their face value. They remind me of the reports of the H.M.I.s, who never really say outright what they are thinking; one has to read between the lines and weigh words. One can understand why they write in such guarded language, and if that is true of H.M.I.s it must be true of the N.E.D.C. With the best will in the world, Sir Robert Shone is human and must be concerned with Government and with the knowledge that he is writing for an audience likely to be more critical of his recommendations than, perhaps, another party would be.

In paragraph 21 of the N.E.D.C. Report The Growth of the Economy we find: While industry believes that there will be sufficient capacity to achieve a 4 per cent. growth, some industries may have underestimated difficulties in obtaining skilled labour which it may be possible to overcome only by the re-equipment of their factories with new plant giving higher output in relation to the labour required. Investment in private manufacturing industry, after a peak in 1961, has been relatively low for some time and will have to be substantially higher in future. The Council believes that industry should be made more fully aware of the significance of the system of capital allowances. The N.E.D.C. does not seem to be quite sure that the necessary levels of investment will be forthcoming. When I recall the recent rise in Bank Rate, I cannot believe that that will help investment. I know that it was thought necessary to increase the Bank Rate because of the rise in imports, and bank advances of something like £500 million quite clearly show that a lot of these imports are being financed by credit. I do not want to speak further about imports now—much has already been said about them in this debate, although I sometimes wonder—when I look at their changed character, and when I note that the largest increases in imports have not been in raw materials but in manufactures, which increased 40 per cent., and in chemicals, which increased 50 per cent.; and that the importation of machinery and transport equipment contains such items as central heating equipment, refrigerators, sewing machines, T.V. and radio sets, electric shavers and so on which can contribute little to our output and efficiency—that we do not look once again at the changed character of our imports, despite all that has been said this afternoon and despite the exchanges between the Secretary of State and my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan).

Before I leave the subject of the Bank Rate, which is now at the 5 per cent. level, I cannot resist reminding hon. Members that the last clear-cut instance I can find where an Administration retained office at a General Election when the Bank Rate was at 5 per cent. or above was in April, 1857, when the Palmerston Government were returned to power with an increased majority. The previous Parliament had been dissolved on 21st March, when the Bank Rate was 6 per cent. The rate was raised to 6½ per cent. in April. A marginal case did occur at the General Election held in December, 1910, when Asquith's Liberal Government retained power. When Parliament was dissolved on 28th November, 1910, the Bank Rate was 5 per cent., but it was reduced to 4½ per cent. on 1st December, two days before the first day of polling. The Government established a constitutional record in 1959 by winning three elections in a row. I doubt whether it will set up another record by breaking this 107 years sequence.

Clearly, if we are to achieve the necessary level of investment which will give the gross capital formation required and expansion of our economy to support the vast expenditures which are pending, there is need for savings. Again I consult the N.E.D.C. Report, and I find a note of doubt in the paragraph on savings, paragraph 24: On the basis of the growth programme consumers' expenditure can continue to increase more rapidly than in the past, but it will need to take a smaller share of the growing national product in the next few years to leave sufficient savings to provide for the rapid increase in investment. Private savings should increase substantially but there may be a need for measures to stimulate them or to increase government savings. Again there is this note of doubt. I welcome the announcement yesterday of the new Development Bonds, but I am sorry that the Chancellor did not consider a suggestion put forward by Alan Day in the Westminster Bank Review in February this year. He thought the Chancellor might consider issuing securities in the form of national equities. The Government might have considered issuing securities in the form of national equities, whose dividends varied with the economic success and prosperity of the country. Many variations of this idea could be developed, but probably the most useful way of thinking of the idea is to consider a Government security which would contractually commit the Government to paying an annual dividend whose amount would vary in proportion to changes in the gross national product of the country. Thus a national equity issued at £100 in this year might pay an annual dividend determined by the gross national product. The attraction of such a national equity would be particularly great for the small investor. Such national equities could be marketed on the lines of National Savings by deliberately encouraging small investors to buy them in small amounts by imposing a maximum limit to the holdings of any individual.

If I am dubious that we shall be able to provide the underlying growth in our economy that in turn will enable us to do all the things to which the Government have committed us as well as to meet the N.E.D.C. target, what do I think is called for? How can we make this breakthrough to which I have referred? Again I must make resort to the last Report of the N.E.D.C. in paragraph 44. I think this a very important paragraph, not so much because it tells us what we all know about the need for a rate of growth during the next few years, but because of the important words and pregnant phrases such as the extent to which new conditions can be created and the particular challenge of how they will require constructive effort in many directions and the widespread acceptance of new responsibilities. It will not come as a surprise to the Committer that we shall have many obstacles to growth in education, training incentives The industrial structure must all be clanged in response to general change. We have already made significant moves in the last year in the direction of education and training. I am sorry that the Chancellor missed this opportunity of doing something by way of incentives to imaginative tax reform. I could not disagree more with the hon. Member for Bodmin, whom I now see in his place, who thought that the Budget was sensible but not exciting. He asked, do we need an exciting Budget? Of course we need an exciting Budget. We have never had a greater need for an exciting Budget than this year. Given the need I have already stated, we must break through.

In conclusion, I confine myself to one particular set of recommendations that bear on the structure of industry. We must, of course, adjust our structure of industry. We must stimulate the nationalisation of individual industries. There is an overwhelming need to stimulate the application of research to industry. There is a need to stimulate innovation and promote dynamism.

Do not all these exciting possibilities call for an exciting Budget? They can be achieved only through purposive rather than indicative planning. Only in this way can we secure faster growth and a better increase in incomes. Only in this we can we secure a stable and expanding economy, and, incidentally, provide the indispensable conditions for widespread acceptance of a national incomes policy.

I regard all these needs as part of the objective situation. The situation should compel any Government to adopt the kind of approach which I have recommended. This Government are hesitating now, as the y have hesitated before. They are hesitating now because they are not quite clear what they are about. This is why the right hon. Member for Wolverhampton, South-West (Mr. Powell) may yet do a great service to his party, by obliging it to rethink its position. There have been all too many examples in recent years of dithering, vacillation and hesitation on the part of the Government when their policies have run into trouble, because they have not been clearly thought out, or when the going has been rough and caused them to dither or retreat.

This is why our society in recent years, under the present Government, has been less of an affluent society than an equivocal society. We have had a Government who have equivocated and who have not been able to make up their mind. I am entirely at one with the right hon. Member for Wolverhampton, South-West when he says that the battleground for the next election may be this kind of question, about the way in which our country's economy should be conducted, whether there should be planning of the sort which I have recommended as opposed to allowing our economy to be governed by market forces.

I hope that that will be the battleground. If it is, in face of the facts of the present developing situation as I have stated them, I am sure that we shall be the victors, not the present Government.

9.12 p.m.

Mr. Brian O'Malley (Rotherham)

I am in complete agreement with my hon. Friend the Member for Colne Valley (Mr. Duffy) when he says that he cannot join in the congratulations to the Chancellor on his Budget which have been paid by a number of hon. Members opposite. It seems to me that the verdict of history on this Budget will be that, in the stormy twilight of a moribund Administration, the present Chancellor avoided his real long-term responsibilities to the nation.

One central problem has caused an enormous difficulty in our economy throughout the 1950s. Whenever we have had an expanding economy, whenever the wheels of industry have begun to turn and we have had full employment, within a short time we have had inflation and a balance of payments crisis on our hands. As long ago as the time when the present Foreign Secretary was Chancellor of the Exchequer we were told—these were the right hon. Gentleman's words at the time—that we could no longer allow this country's economy to go at full tilt for long periods together.

In dealing with the central problem of growth, which has been so adequately described by my hon. Friend the Member for Colne Valley, this is the obstacle to be overcome, the obstacle which the present Administration have failed to overcome. We have seen a number of Measures, all equally ineffective, taken by the Government to deal with the shortened trade cycle. Indeed, many hon. Members opposite often give the impression that they believe that this shortened trade cycle has almost a ring of inevitability about it, just as in the last century and the early decades of this it was thought that the decennial trade cycle, coming every seven to ten years, was almost a rule of nature about which one could do nothing.

This Administration, in 12 or 13 years, has tried a number of things. There was the interesting experiment, which can best be described briefly as "Boyle's Law", to keep the cost of living down by forcing prices up. This was the dictum put forward by the present Minister of State for Education and Science. The Tory Administration, in I think 1955–56, abolished the subsidy on bread and lowered the subsidy on milk. In 1956, Purchase Tax on household goods was increased. The full burden of restraint, just as in later years, was laid at the door and made the express responsibility of the wage and salary earner.

A few years after that we had the plateau theory, then the theory of high Bank Rate. Now in 1964 we are in a boom period fostered to coincide with a General Election, but the Government are no nearer to solving what any of us would admit is the tremendously difficult problem of dealing with this shortened trade cycle of stop-go which we have experienced for a number of years.

I should have thought that one of the most important things which the Chancellor should have proposed in his Budget was to put into operation measures to control and deal with this problem of the cycle of stop-go, the cycle of recession and slight growth, which we have with regular monotony every 12 or 18 months or two years. Hon. Members on both sides would seem, on the surface, to agree that one way of solving this problem of the shortened trade cycle is through a national incomes policy.

I agree with the hon. Member for Bodmin (Sir Douglas Marshall) that there are important outside influences beyond our control which from time to time put strains and pressures on our internal economy because we are a trading nation which is largely dependent on world trade for making our living. The long-term task of any British Administration is to see what can be done to increase international financial liquidity so that we can sell more of our goods overseas, particularly to the under-developed nations, which, if they are to get out of the take-off period and raise the level of their economics, will need all the benefits of credit and increased liquidity. But this does not exonerate the Government from at least attempting to play their part in dealing with the shortened trade cycle which we have been experiencing.

A few weeks or, perhaps, months ago, the Federation of British Industries issued a statement about the problem of an incomes policy and prices. It did precisely what the Chancellor of the Exchequer did yesterday. The right hon. Gentleman agreed in principle with a national incomes policy. He agreed with many other things in principle. He examined all kinds of situations and then said why he could not do anything about them. The right hon. Gentleman says that we must have discipline and a national incomes policy. Part of the Government's difficulty in attempting to implement an incomes policy is the fact that the trade unions can have little trust in a Government who have dealt with legitimate claims over a number of years in the manner of this Government.

What makes the situation particularly difficult is that one cannot go to one's trade union branches—and certainly as a trade unionist, I have no intention of going to my union branches—and say that we will operate only a wages policy. We must genuinely operate an incomes policy dealing not only with wages and salaries, but, at the same time, with profits, dividends and capital gains. The fact that the Government have failed even to begin to plan an incomes policy can be soon in the fact that no suggestions have come from the benches opposite about how to implement a national incomes policy. At the Labour Party Conference last year, the unions said that that would agree to a planned growth of wages. How can one expect them to do this unless there are suggestions for a form of incomes policy for other kinds of income? As yet, I have heard nothing from the Chancellor of the Exchequer or from hon. Members opposite about how, by tax or other means, w e are to implement an incomes policy which is really an incomes and not a wages policy.

I should like to refer particularly to the steel industry, its growth and some of its problems under the system of what I call not private enterprise but private ownership, for which the Government, the Minister of Power and the Iron and Steel Board have some responsibility. Yesterday, the Chancellor said that the steel industry was booming. I am pleased that in my constituency the short-time working that we experienced a year ago has disappeared. The right hon. Gentleman said that production was 30 per cent. higher than a year ago. It should, however, be pointed out that a year ago steel production was running at the 1959 level.

It is not enough for hon. Members opposite to argue, as they have done, that the difficulties of our steel industry arise from a surplus of capacity throughout the world. This is, obviously, a factor which has influenced the steel industry the world over. We have a situation in our steel industry in which the men who work in it have lost millions of pounds in wages precisely because of the failure of the Government to deal with the shortened trade cycle which we have experienced in the 1950s and in the 1960s.

Although the hon. Member for Somerset, North (Sir E. Leather) was opposed for league tables, I must use some of them. When the hon. Member said that such tables were dangerous it should have been pointed out to him that when looking at some of the production figures and comparing the rate of growth in our steel and other industries with industries abroad, from the viewpoint of the Government and their chances of being returned to power at the polls in October or whenever the General Election comes, they are very dangerous.

It is worth examining the growth of crude steel production and comparing it with the growth of production in other countries of Western Europe and beyond. Because I would not want to lay myself open to the charge that I was choosing a particular year or combination of years to quote tables and statistics, I consider it useful to look at a period of nine or ten years in which we have seen several times over the working of the shortened trade cycle from which we have suffered in recent years.

The lesson of the information from such tables is clear. When production of crude steel everywhere has been rising, ours has been rising at a slower rate than that of countries overseas. Between 1955 and 1957, for example, it was increasing in the E.E.C. countries by about 13.6 per cent. In Japan—but I would not make a lot of this—output was up by 35 per cent. In this country it was up by 9 percent.

Then came the period of recession in the world steel industry. Production in 1958 dropped by 11 percent. in the United Kingdom. It also fell in the E.E.C. countries but by nothing like as much—only by 5 per cent.

The pick-up came in 1959–60 a situation comparable with that of 1963–64. The British steel industry increased its production by 20 per cent., the West German industry by 29 per cent. and the Japanese industry by 80 per cent. By 1962 our steel industry was back to the level reached in 1959. There were general surpluses of steel capacity in the world and difficulties in the E.E.C. countries as well as elsewhere. Nevertheless, the rate of production of steel in the E.E.C. countries in 1962 was 15 per cent. up on 1959. A similar kind of situation prevailed in 1963.

This example is a serious indictment of the Government's economic policy. The growth rate of industry in this country—of which the figures I have quoted are an illustration—has been much lower than in most other European countries.

Then there is the problem of raw materials. We are large-scale importers of raw materials. Sometimes the amount of such imports constitutes a serious danger to our balance of payments. In the 1950s, the working of home ores was the subject of prolonged wrangling between the Iron and Steel Board and the iron ore mining concerns. I think that it is now generally accepted by hon. Members that more home ore should be used by the steel industry.

We shall import increasing tonnages of foreign iron ore rich in iron content but, nevertheless, although this is an industry over which the Government have supervisory powers under the 1953 Act—I do not blame the Iron and Steel Board, for it has not the teeth that it should have—they have not been able to persuade the iron ore mining concerns to put the necessary capital investment into the development of underground mining.

The Government have great responsibility for the present cost of importation of foreign ores. The British Iron and Steel Corporation (Ore) Ltd., either directly or indirectly, has spent in the last 10 years about £60 million on bulk ore carriers but these have been limited to ships of 8–9,000 tons and 15–16,000 tons. Yet, at the same time, the Japanese have been building bulk carriers from 40,000 to 75,000 tons. The smallness of our vessels has added several shillings a ton to the cost of foreign iron ore.

At the tail end of 13 years of the Conservative Administration, we now have the National Ports Council, which is beginning to deal with this problem. But the fact remains that perhaps £60 million has been spent on ships that were out of date before they were even completed. This is the result of the inadequacy of the Government's investment programme and their failure to direct investment into essential public services. If the right policies had been pursued, so much could have been done to help our balance of payments situation.

The Financial Times only yesterday mentioned that growing imports of foreign steel were causing concern among some members of the National Economic Development Council. It is notable that steel imports have been climbing steadily since last August, rising to more than 55,000 tons in February of this year. The Financial Times went on to say: It has publicly stated that the situation is significant for the balance of payments position because additional imports of the order of import ingot tons might cause a deterioration of some £15m.–£20m. per annum'. Council members will also try to discover what possibilities exist for producing in Britain and on a competitive basis, goods of the type now coming from overseas. While fully appreciating some of the price cutting which has been going on in steel in world markets, I would have thought that one of the reasons why we were suffering from this kind of difficulty with the imports of finished steel products was that the steel masters, through their conferences, have been using and putting into operation the maximum prices which have been fixed by the iron and steel industry and that in this industry maximum prices have always been minimum prices. This is part of the difficulty.

On 2nd September, last year, the Financial Times quoted the estimate of one shipyard which said that by using British steel for a 50,000 ton vessel, £140,000 was added to the total cost of the estimate. I am not being dogmatic about this, but when the Government clearly have a supervisory responsibility for the industry and for pricing in that industry, when that kind of situation starts to raise its head—and it has been going on for some time—and when shipyards are making that kind of complaint, at least more than a cursory examination should be made of steel prices. Now that the steel industry is to benefit to the tune of about £2 million in the reduction of the cost at which the nationalised coal industry will sell it coking coal, I hope that that production will be reflected to some degree in the prices at which steel is sold in this country.

At a time when we are particularly concerned about imports, it is surprising that the Government seem to have made no examination of the restrictive agreements which the steel owners have made. I understand that there is clear evidence that cold rolled sheets and tin-plate exports are being held up because of restrictive agreements of this kind. I would have thought that any Government, seeing the fall in the exports of steel products to the Commonwealth which this country has experienced while other countries have been increasing their exports, would have looked to see what was wrong with the industry. Between 1961 and 1962, while E.E.C. countries expanded their steel exports to the British Commonwealth by 62 per cent., United kingdom steel exports to the Commonwealth fell by 28 per cent. This kind of situation should have been investigated a long time ago.

I know the importance of the arguments for looking at regional planning and making regional proposals to avoid distortion and the situation when we are putting on the brakes when we still have endemic and chronic unemployment in some areas. But what is most important to these regions and for the long-term prosperity and growth of the country's economy and the single most important problem which the Chancellor should have faced in the Budget is that of beginning to implement and beginning to create the atmosphere and conditions for a national incomes policy. This the Chancellor has failed to do and it is this failure for which he will be remembered.

9.35 p.m

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

It is a privilege to be called in this debate, even if it is only to share in the feelings described by the noble Earl, Lord Longford, as the loneliness of the long distance talker.

We have had a good debate today, and I war particularly impressed by the opening exchanges. I felt that the hon. Member for Cardiff, South-East (Mr. Callaghar), who is, of course, on his annual visit to the B.B.C. as the Quest star in "juke Box Jury ", did not really come out of the exchanges as well as he had expected to do. I wondered whether, perhaps like another famous battler. Floyd Paterson, he had not been led away by Press comment in advance to feel that he had a walk-over in front of him, because, as we know, it was not long ago that hon. Gentlemen opposite said shat the Conservatives' chances of winning the next election were about as good a; those of Cassius Clay winning the world title.

I am certain that today's exchanges with my might hon. Friend the President of the Board of Trade and Secretary of State for so many other matters must have left the hon. Gentleman rather relieved to think that in adjourning to the B.B.C. he would have a more congenial audience, probably equally divided between the Mods and the Rockers.

I thought that today's debate was rather given to the Mods. I thought that the Rockers did not really take much part in it, but no doubt when the weekend speeches are made the Rockers will be able to express their views about the document which the Parliamentary party seems to have accepted with a great deal of equanimity.

I should like to comment a little on the speech of the right hon. Gentleman the Leader of the Liberal Party who, with his usual courtesy, is present now. His great charm of manner sometimes conceals a certain paucity of thought. I felt that on this occasion he did not really give a great lead to the faithful, who no doubt were hanging on his words. In that connection, I congratulate him on a particularly satisfactory turn-out by the Members of his party. I think that 100 per cent. of them were present at one time. That is a fine record, which any other party would envy.

Of the right hon. Gentleman's suggestions for improvements, the only concrete one that I grasped was the taxing of the one-armed bandit. No doubt clubs play a lesser part in the work of the Liberal Party than they do in the work of the Conservative and Labour Parties, but I think that even in some Liberal clubs people would be very sad to find that not only were their beer and cigarettes taxed, but their one-armed bandits were taxed, too.

I think that his suggestion about immediate tax reform seemed to overlook the point made so well by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) that all these reforms of taxation involve a loss to the Revenue, and that this was particularly a year when revenue was needed.

The right hon. Gentleman taxed my right hon. Friend with having a problem for every solution, but I suggest that the solutions he propounded had no particular reference to the problems at all, and were about as relevant as a suggestion I remember being made in an earlier Liberal paper that we should save a great deal of money by turning our Air Force over to N.A.T.O.

The most interesting speech I heard was that of the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins). He does not come here often, and when he does he has something valuable to say. I also feel that he drinks from the Pierian Spring and that the true gospel emerges from his lips—although it was rather muted in coming from the hon. Member for Cardiff, South-East. He mentioned what he called the small capital tax. I suppose that that is the old wealth tax of last year. The hon. and learned Member for Kettering (Mr. Mitchison) suggested that I was out of order in mentioning it last year. All I say now is that perhaps I gave it a bad name—but it was they who hanged the dog.

I noticed that in the hon. Member's party piece he made reference to the small capital tax and to a dividend equalisation tax. Both proposals would have the effect of discouraging investment, and we surely want to encourage investment more than anything else in this age. I need not labour the point. This has been a good year for the economy. We have congratulated ourselves on our highest-ever exports this month, and the fact that this is a good year is reflected in the Budget figures. We have a surplus above the line instead of the deficit for which we budgeted a year ago, and our below the line deficit was lower than we expected.

We are, therefore, entitled to ask why we should increase taxes at the moment. It is not helpful to talk in analogies about the economy overheating. The fact is that unless we tax ourselves more we shall not cover, out of revenue, the charges which the Revenue normally has to carry. Every now and again we can indulge in deficit financing—in other words, run an overdraft—but we cannot, as a responsible country, make a habit of it. I would have thought that deficit financing was the Chancellor's niblick. It gets him out of a bunker every now and again. But it should not be his sole club. If it is, he will not make much progress.

It is clear that this is not a year for deficit financing. We must pay more taxes, because we are planning not only to spend more in the coming year, but to do so increasingly in the years to come. On Monday last there was an interesting article in the Daily Telegraph by C. T. Saunders, the Director of the National Institute of Economic and Social Research. By an ingenious combination of figures, which I am sure most hon. Members have seen, he was able to project the total expenditure on public services for this year and also for 1967. I have no reason to suppose that his figures are incorrect. He said that if we include the expenditure of local authorities, and transfer payments, such as National Insurance benefits, Government payments amounted to 40 per cent. of the gross national product in 1952; that percentage fell to 35 per cent. in 1959, and then rose slightly to about 37½ per cent. this year. On the basis of the public expenditure forecast in Could. 2235 in 1967 public expenditure will represent 39 per cent. or 40 per cent. of the gross national product. That, of course, is allowing for this growth, of 4 per cent, per annum. I wonder what are the implications for us all. We should be very optimistic to think that a 4 per cent. growth is a figure on which one could live. We could have a higher growth one year or a lower or another growth in another year. But a 4 per cent. growth has been reached for these last two years. It was surpassed last year and reached this year. Mr. Saunders sums it up by saying: What is certain is that if we fall short by a wide margin of the 4 per cent. growth objective, then anything on the scale of present projections for public spending must mean a quite marked increase in tax rates—at least 10 per cent. I think my right hon. Friend found this year in the increased tobacco duty that the law of diminishing returns might be operating. In other words, there must be a number of taxes not capable of very considerable expansion. This raises some problems for us which are bound to be serious. Generally speaking, like back benchers the taxpayer has been chastised with whips and is now in for a dose of scorpions. Like the Red Queen in Alice in Wonderland we can say that it takes all the running that we can do to keep in the same Place This is a sobering reflection for us in the middle of this week because, as I say, we have had a good year.

One must now turn to see what our defences are like. Yesterday my right hon. Friend detailed the massive reserves on which we could call if we met balance of payments troubles. He mentioned our portfolio of dollar securities amounting to 1,000 million dollars and the facilities for borrowing from the central banks of 500 million dollars and the International Monetary Fund standby of 21 billion dollars If we add that up it comes to 4,000 million dollars, and with our gold and dollar reserves we reach the very big figure of £2,500 million. But it is no use linking the facts with that. In December 1963, our external liabilities were £3,689 million according to the Monthly Digest of Statistics. In other words, out. reserves are negative. In this position I think that we are alone of any important trading nation. We ought not to blink these figures. They are published and everyone concerned in these matters knows about them. They give us course for thought. I remember the right hon. Gentleman, formerly Minister of Education and now Minister of State for Education and Science, saying in a finance debate some years ago that all these reserves very often turn out to be fairy gild. They are not there when we want them. All this enjoins on us the necessity to conduct our affairs seriously, soberly and sensibly.

If I ask myself why do people send their money here, my answer would be, because they can use it profitably when it is here and because they are confident that they can withdraw it at will. If the confidence is lacking, changing interest rates does not remedy the position. When there was a run on sterling in 1961 we put up the Bank Rate to 7 per cent. and money returned. It was not because the rate of interest was so attractive but because of the willingness of the Government, and particularly of my right hon. and learned Friend the Leader of the House, to take unpopular measures at the time. They were bitterly criticised, as I remember very well, but they convinced outsiders that we were determined to keep our house in order. In this, lipservice alone is not sufficient. If we will the end, He must will the means.

Years a job, when I first studied these matters, there was a financial crisis in Belgium, and the Belgian Minister appeared waving a bag saying, "Le franc est sauvé". The next day the Belgian franc was devalued. Lip-service is not sufficient, and the integrity of sterling depends on the interaction of a number of forces. First, on the Government's side, there is need of the moral courage to take unpopular action if it is necessary. The British public, on their side, must have confidence in the Government and in their own domestic banking institutions. The banks, valuing confidence as their greatest asset, for their part must co-operate with the Government and must conduct their affairs as trustees of the public. These are the basic elements in the integrity of sterling, and it is no good thinking that we can achieve it by concentrating entirely on Government action. There must be the full co-operation of the banking system if confidence in sterling, without which we cannot exist, is to be maintained.

Sterling is buttressed by no substantial resilience. I will compare its position with the Etruscan arch in the ancient walled town of Perugia. This arch has supported all outside pressures for many hundreds of years, but even a coster's barrow jarring it from inside might bring catastrophe. Some years ago a former Member of the House of Commons, Sir Harold Nicolson, wrote words which I should like to quote because they have a certain application to this analogy: The monoliths of which it is composed are joined by no cement. Impressive in their apparent solidarity these granite masses lean against each other, thrust resisting hidden thrust. Yet a swarm of summer bees upon the architrave, a sound of April water through some hidden crevice will cause a millimetre of displacement, will set these monoliths stirring against each other, unheard, unseen. One night a handful of dust will patter from the vaulting: the bats will squeak and wheel in sudden panic: nor can the fragile fingers of mere men stay the rush and tumble of destruction. Those who in this House are entrusted with the responsibility for these great affairs should remember that analogy.

The British people have over the centuries been willing to undertake great tasks and have usually achieved them. The task which we have set ourselves now, summed up by my right hon. Friend as to achieve expansion without inflation, is in some ways no smaller than any we have ever faced before. Nor is it a mean or selfish one. If we want expansion, it is in order to play our part with our allies in the defence of the free world and to extend its frontiers not by conquest but by persuasion. We want to aid the emergent nations. We want to build up the lives of our people, to make sure that they are properly housed and if, through illness or through other misfortune, they fall upon hard times, to make sure that they are properly cared for. We want to go forward with great educational programmes which will do so much to enrich the lives of generations yet unborn.

On the other hand, we seek to avoid inflation because we know how disastrous are its effects on the old and the retired and all others who are least able to help themselves. We know what a mockery a painful rise in the cost of living brings to the great range of our social services. We know, finally, how dishon.est it is for a Government to seek to escape their obligations by debauching the currency it is their duty to protect.

It is because I hold these principles as the dearest in our public life, as I am sure we all do, that I welcome my right hon. Friend's Budget as an earnest of our Government's determination to play their full part in these high objectives and I thank him for the lead he has given to all of us in meeting our responsibilities.

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again—[Mr. Hughes-Young]—put and agreed to.

Committee report Progress to sit again Tomorrow.