BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 15 April 1964 vol 693 cc430-81

3.49 p.m.

Mr. Robert Cooke (Bristol, West)

I have no dot but that the hon.. Member for Cardiff, South-East (Mr. Callaghan) would be lighted if I were to conclude the 50-minute speech which I had hardly begun when the Committee reported Progress last night. It might leave the hon.. Gentle man short of time and spare him the agony of spinning out those meagre criticisms which, no doubt, he will have to make of a really quite reasonable Budget.

However, I have no wish whatever to detain the Committee from hearing about the complete lack of financial policies of ton. Members opposite, and I am very happy to give way to him.

3.50 p.m.

Mr. Jams Callaghan (Cardiff, South-East)

I am deeply obliged for the courtesy that has been extended to me by the hon.. Gentleman the Member for Bristol, West (Mr. Robert Cooke), but not 'or the sentiments which preceded it.

The right hon.. Gentleman the Chancellor of the Exchequer ended his speech yesterday with an astonishing invitation. He invited the Committee to consider not his Budget, which he had spent 90 minutes delivering, but instead that any hon.. Member who had criticisms to make should make his own proposals clear so that the country could judge. I suppose that there are not many occasions when a Chancellor has asked that his own Budget should not be discussed. I can say to him now that on this side of the Committee my right hon.. and hon.. Friends and I relish the opportunity which he has afforded us of filling his vacuum. We will take the opportunity, in so far as we are in order, during the next few days, to expose to the country not only the nakedness of hon.. Gentlemen opposite, but also the alternative policies which they should have followed and which the next Labour Government intend to follow as soon as the Prime Minister calls the General Election.

I think it fair to describe the Budget as straightforward, simple and inconsequential. It wore the air of a man who recognises the problems that exist, but who sees no prospect of solving any of them this side of the General Election. There can be no doubt that the Budget, in its content, has deferred any solution of the major problems which face this country until the election is over and, judging by the way the Chancellor presented it, he seems to think that he will have little interest in solving them.

The Chancellor denied on television last night that he is taking risks. He said that he is taking a chance. I am not sure what is the difference, unless it is the difference between fixed odds betting and football pools. I agree that he is taking, whichever word he cares to choose, a chance or a risk, but the criticism I make is not that he is taking a chance in what is admittedly a risky situation, but that over the preceding 13 years the Government have not steered us further away from the financial rocks than we are today; that they have not during those years so strengthened the economy that we could face more easily and with greater equanimity nine months of boom without dire speculations going on about whether we are likely, in the autumn, to enter into a balance of payments crisis.

The proposals which the right hon.. Gentleman has made are almost irrelevant to the situation that could arise in the autumn. The tax on beer and cigarettes is basically irrelevant to the balance of payments problem. As has been pointed out, although it can be borne relatively easily by a considerable section of the community, it will bring hardship to those citizens whose plight is often represented in Parliament, the old-age pensioners, who enjoy a pint of beer or a packet of cigarettes. I know of no way, except by increasing the pension in some way, to take account of these deliberate acts of Government policy.

This is by no means the first series. Rents is another by which the Government deliberately operate the levers of policy to discriminate against some of the hardest hit sections of the community. I hope that the right hon.. Gentleman will take some of the proposals which we have to make on this issue. The right hon.. Gentleman has also got into trouble with the bookmakers, although he is not the first Chancellor to do that. A famous ex-Chancellor, nearly 40 years ago, got into trouble not only with the bookmakers, but with the bishops. I do not know whether the present Chancellor will incur the wrath of the Church, but we had better wait to hear what representations will be made and what the Chief Secretary has to say about the Finance Bill to find out whether the Chancellor has, in the words of the bookies, backed a loser or dropped a clanger.

It is also interesting to note that the nationalised coal industry is giving a helping hand to private enterprise steel. This is a trait which has distinguished the nationalisation of our industries and which, I believe, will continue. But, basically, the chance, or risk, that the Chancellor is taking is this. He is saying, "If exports continue to increase, if imports moderate, if inflation continues in other countries, if world trade continues to rise "—and, with a sidelong glance at his fellow Ministers on the Government Front Bench—"if I am not pressed by the rest of the Government to indulge in any grandiose schemes of new expenditure, if excessive wage claims are avoided and if the capital outflow slows down, then I can look forward with confidence to moderating the rate of growth of the economy from 6 per cent. to 4 per cent." What an epitaph on 13 years! I wish that he was taking the chance to keep the rate of growth up to 6 percent. instead of reducing it, as he intends and wishes to do. Maybe in the present circumstances he cannot avoid reducing it to 4 per cent.

Among the minor proposals that the right hon.. Gentleman has made, I would like to acknowledge with gratitude that relating to invalid cars. I recall those long and turgid Finance Bill debates that we had last year when the House got the bit between its teeth and insisted that, whatever might be the difficulties of the Treasury, the House of Commons as such intended to have a concession for invalid cars. I am grateful, as are all hon.. Members, that the right hon.. Gentleman should have taken note of the views of hon.. Members which were expressed so strongly on both sides of the House on this issue. I only wish that he could have taken more note of our views. I do not suppose that many cheers will be raised about duty-free tobacco and spirits for people travelling by B.E.A. to Paris or elsewhere for the week-end.

I will not delay the Committee by dealing with the other minor changes, but I am glad, in respect of a major point, that the right hon.. Gentleman is taking new steps to encourage savings. It is absolutely vital to the economy that we have a high level of savings. I wish that he had launched the National Development Bonds with a greater flourish of trumpets.

I was disappointed with the right hon.. Gentleman on the question of tax simplification. It was his predecessor, the present Leader of the House, who told us three years ago that, at that stage, he had set on foot a full inquiry into one system of taxation of companies instead of two, the amalgamation of Income Tax and Surtax and the form of Exchequer accounts. Every year we get a bow in the direction of tax reform from successive Chancellors, but that is all. This year we have had a White Paper. If it takes three years to produce a White Paper on tax simplification, goodness knows how long it will take to get the reforms.

I turn to dividends, rents and wages. The charge I make against the Government is not related to the last 12 months, but to the last 12 years. During that time successive Chancellors have shifted the burden of taxation from dividends and profits to persons That is the charge I make and it is a charge which can be clearly demonstrated by the figures which can be produced. Let us consider two or three of them. Consider, first, the receipts of taxes. Tax receipts from companies, including Profits Tax, have gone up during the lifetime of the last four Administrations by 27 per cent., or little more than a quarter. Tax receipts on capital have gone up by 37 percent.

On the other hand, tax receipts from persons have more than doubled. I realise that this is a crude comparison because there are, naturally, more taxpayers, but if the revenue is as buoyant as we are led to believe it is, this also reflects itself in the profitability of companies. One would expect, therefore, to see a natural buoyancy in the receipts from taxes based on company profits, but that has not happened. It has not happened because the party opposite has deliberately and ostentatiously shifted the burden on to the individual.

Let us consider some other examples which may be drawn from the tax receipts or receipts of dues. Receipts from rates have increased by 179 per cent. and from National Insurance contributions by 190 per cent.

I should like to add my tribute to the Richardson Committee for the clear way in which it disposed of the added-value tax and set out the considerations. It is not surprising that its conclusion was that the percentage rate of tax falling on companies in this country compares favourably with the rates that apply in other countries. I am delighted that this should be so if our overall fiscal position permits it, but I do not accept the view that the Chancellor should achieve this position by shifting the burden, as he has done, on to the wage-earners in a way that has affected the poorest of them worst.

Over the span of Conservative rule total incomes from rents and ordinary dividends have increased to a much greater extent than total income from wages and salaries, and so has the total value of ordinary shares. It comes to this—0that at the end of nearly 13 years of Tory rule incomes from rents and dividends have gone up more than incomes from wages and salaries, proportionately speaking, but tax receipts from wages and salaries have gone up more than the tax receipts from profits Yet the right hon.. Member for Wolver hampton, South-West (Mr. Powell) is still dissatisfied and would like us to do more in this direction.

If we take 1963 by itself, earnings from salaries have increased by 5.3 per cent. Hourly rates of earnings in manufacturing industries have increased by 4.5 per cent., but the increase in the total of ordinary dividends is up by 7.8 per cent. Therefore, taking that year alone, there is a marked discrepancy. The Government have promised more than once to take action against these dividends if they rose at a faster rate than wages and salaries. But when does the Chancellor propose to start? He had the opportunity yesterday and he missed it.

In our view, the right hon.. Gentleman should have taken action. He failed to do so and I am astonished that he should expect to succeed with an incomes policy in the face of this manifest unfairness. Yesterday's increases in the taxation on tobacco and alcohol shift the burden against the wage earner, against the man at the bottom end of the tax scale, and they increase the level of indirect taxation. They depart, once again, from the basic principle behind which we on this side of the Committee are firmly united, that taxation should be based on the ability to pay. This is where any attraction towards indirect taxation faces its greatest weakness.

I give the figures because it is important that they should be on the record. Anybody can challenge generalisations, but these are as accurate figures as I can give. For example, a married man with two children and an income of £12 a week pays in indirect taxes 15.9 per cent. of his income, but at £2,000 a year a similar family man pays only 7.6 per cent. of his income away in indirect taxes. This is the objection to it. The amount paid by the £2,000 a year family man is, of course, greater, but the proportion of taxation that comes out of the total income is less.

The Chancellor said yesterday that he thought that there was substance in the argument that the basis of indirect taxation would have to be widened. I can see the attractions of it to a revenue-hungry Chancellor. There are undoubtedly a number of fields in which this taxation could be extended with some profit to himself, but on this side of the Committee we would be opposed to any increase in indirect taxation which would have the effect of adding to the burden of the wage-earners because it would not be related to the capacity to pay. Any scheme for broadening the basis of indirect taxation as suggested by the Chancellor would have to satisfy us that that would not be the result.

I turn to another problem on which I feel that the Government have been singularly lax, namely, waste in Government expenditure and disinterest in true economy. The Government have spent more on defence than any other Government in peace time. This year, defence makes up the largest single Vote. It reaches a total of £ 2,000 million. In these circumstances, one might be forgiven for thinking that when defence is eating into our resources so considerably there would be the most rigorous efforts to avoid waste and to ensure that we get full value for our money.

Outside the Government Front Bench there is an almost universal belief that this gross expenditure has utterly failed to provide us with adequate defences at a reasonable cost. Yet time after time we have been fed with complacent statements from Ministers about what is happening. The pattern is always the same. We have all heard it more than once. Defence Ministers, Service Ministers, and particularly the Minister of Aviation, come to the Dispatch Box promising great new developments in weapons. Research teams are established, work begins, money is spent and after a time rumours circulate that all is not plain sailing. When my hon.. Friends question Ministers there are indignant denials and reflections on our patriotism that we dare to challenge.

More money is spent. Work continues. Difficulties multiply. Then suddenly a Minister announces at the Dispatch Box that he intends to abandon the weapon on which he had placed so much reliance and to cancel the contract. But he has found a better weapon and he spends more money and the whole circle comes round again. We had a sample of this recently from the Minister of Aviation, when he was asked by my hon.. Friend the Member for Newton (Mr. Lee) about the cancellation of the T188. The right hon.. Gentleman said: This is another typical example of the hon.. Gentleman's characteristic tendency to miss represent the facts. We have not cancelled T188. All we have done is to terminate the programme. It is all very well for hon.. Members to laugh. There was laughter on that occasion, too. The right hon.. Gentleman went on: …there is no question of cancellation. Our decision has been based on the fact that further expenditure would not pay off. The expenditure so far incurred has given a reasonable return."—[OFFICIAL REPORT, 25th March. 1963; Vol. 692, c. 459–60.] Since 1951, 30 major defence projects have been cancelled by Tory administrations. Since the last General Election, in 1959. they have cancelled eight projects. They are: December, 1959, Blue Steel Mark II cancelled, cost £825,000; March., 1960, Bloodhound Mark III cancelled, cost £600,000. I am taking the figures that the Minister gives. I prefer to rely on his figures and let him be hanged out of his own mouth. April, 1960, Blue Streak ballistic missile cancelled, cost £84 million; October, 1960, Spectre rocket engine cancelled, cost £5.75 million; December, 1961, low level surface-to-air guided weapon cancelled, cost £800,000; February, 1962, Rotodyne helicopter cancelled, cost £11 million; August, 1962, medium range surface-to-surface missile cancelled, £32.1 million; December, 1962, air-to-surface ballistic missile cancelled, cost £27 million. Eight projects cancelled at a total cost of £162 million.

Mr. Stephen Hastings (Mid-Bedfordshire)

rose—

Mr. Callaghan

I will gladly give way to the Minister of Aviation if he wishes to interrupt.

Sometimes, of course, these projects are very successful, and they go into service, as in the case of the Bloodhound missile. In this case, the Minister of Aviation told us that a 10 per cent. return on the capital employed, a very reasonable rate of return, would have yielded Ferranti a profit of £400,000. In fact, as we all know, the profit to Ferranti was £4.5 million—a 100 per cent. return. The House of Commons has a right to demand that a Govern- ment who are so lax in their control of expenditure should submit themselves to the country.

To take another illustration, no Service or Treasury Minister has ever successfully explained to the House of Commons Idly all the three Services were allow ed to continue to develop, even though there was some merit in allowing them to begin, three separate missiles simultaneously for ground-to air and sea to-air attack purposes. They are the R.A.F. with the Bloodhound, the Army with Thunderbird and the Navy with Seaslug. What detailed investigations has the Chief Secretary to the Treasury or his predecessors made—and they were appointed for this purpose—into the question whether the necessary results could have been obtained by a single weapon and a single development instead of tying up technological resources and men with the skill and qualifications in three separate projects of this sort?

Lord Plowden, in his Report on the Control of Public Expenditure, was fully aware of this danger and he outlined it some year; ago. So the Government were not in ignorance. He spoke of the danger of wasteful Government expenditure which arises in the no-man's-land between the conception and launching of a polio) and the continuing administration, or, in this case, between the time the project is accepted and the work begins and continuing expenditure even when its purpose has been outdated or parallel developments have rendered it superfluous.

I understand that at long last, and many millions of pounds later, efforts are being made to co-ordinate, among the Services, the design of a weapon which will be suitable for both sea and air purposes. I am not surprised that experienced commentators speak of the general choas in the missile field. From the financial angle it is a history of default and failure by Ministers to control the defence Services. Is this what the Chancellor had in mind recently when he made his party political broadcast on the television and said: We are determined to ensure that you get full value for money"? There are other examples, too, in the civilian field. There is their failure to grapple with monopolies, to prevent wasteful spending, and the failure to prevent rising prices. Of course, they are willing to fight the small shopkeeper and, thanks to the Secretary of State for Industry, Trade and Regional Development and President of the Board of Trade, I think that they will succeed in bludgeoning him into defeat. But as far as monopolies are concerned, they go their way unchallenged.

The Chancellor has remained silent about the conclusions of the Purchasing Officers' Association, a group of men drawn from 351 firms responsible for spending a sum in excess of £2,000 million per annum. They reached the conclusion, after detailed investigation among their members, that whilst there was a clear justification for an increase in prices by the engineering industry of between 2½ per cent. and 3 per cent. because of the recent wage award, nevertheless the average rise being demanded in engineering prices has been between 4 per cent. and 5 per cent. and a number of firms have attempted to obtain increases ranging from 7½ per cent. to 15 percent.

They ascribe this to the fact that "the climate is considered opportune" for price increases. They properly advised their members to resist strongly such unjustified claims. I congratulate them, as the whole Committee should, on the stand that they are taking. But when does the Chancellor propose to speak out on these matters?

Then, again, there is the Government's failure to examine, or to reach any conclusions on, proposals which are now going ahead in South Wales which will involve expenditure of over £30 million on two separate projects for importing iron ore. There are very strong grounds for believing that the whole of this importation could be centralised in one pair of hands, but I believe that no view has been expressed by the Government as to whether one project at half the cost or less would not serve the purpose equally well and save the nation £15 million to £20 million of scarce resources at a time when pressure on investment is building up.

There is the Chancellor's failure to deal with the situation created by the increase in investment allowances in relation to tax repayments. The Comp- troller and Auditor General has already reported on the matter. He has drawn the attention of the Government to the fact that as a result of the large increases in investment allowances a number of large companies which he examined have been "repaid"—I put that word deliberately in quotation marks—£12 million in Income Tax that they have never paid in the first place and are never likely to have to pay. The old-age pensioners who omit to declare their old-age pension on their Income Tax returns are chased for every penny of it. These companies have got £ 12 million through a loophole that the Chancellor could have closed up yesterday. He had his opportunity.

Take another example, a minor one, the decision 14 days ago to abolish the so-called property dollar. Why did the Chancellor think it appropriate at this stage to allow it to become easier and cheaper for those who seek a place in the sun to buy a villa in the south of France? Is this really the time, when the current account is moving into deficit, when there is a serious deterioration likely in the coming months, to make it easier to escape from the consequences of Tory rule by buying villas in the Mediterranean? All these and many other illustrations that I could give to the Committee betoken feebleness of control and disinterest in true economy. This country is spending over £7,000 million a year and it is the Chancellor's duty, indefatigably and without ceasing, to ensure that this gigantic sum is well spent, and to wage a constant and unremitting campaign for efficiency and economy in Government spending. He cannot claim that he has done so.

Now I come to the failure to expand the economy. The Chancellor, naturally, was very pleased with himself—and we should join him—that for the third time in 13 years of Conservative rule the economy has been growing at a reasonable rate during the last 12 months. He pointed out that the rate of production, exports and investment has increased. We are all grateful. But does he not realise that this in itself represents the clearest possible condemnation of the policies of his predecessors? We used to talk about a trade cycle. Now we have a new phenomenon, a political trade cycle which my right hon.. Friend the Leader of the Opposition has often described, and which comes round at every General Election.

The trouble on this occasion is, as my right hon.. Friend said yesterday, that this time it was mistimed. This Budget was timed to come after the election and not before, but, for reasons which it would be painful to go into, we have not yet had the General Election. So with this Budget I fear that hon.. Members opposite are faced with the hang-over without having had the advantage of the celebration.

But when the Chancellor was glancing, as he did on a number of occasions, at the 12-year record of the Government, he did not mention that our progress in production over that long period makes dismal reading by comparison with many other major industrial countries in the world. We have been at the bottom of the league year after year. The Chancellor boasted about the increase in production since last April. But let us look at a 10-year average from 1953. He warned us not to take short-term trends of imports. Very well, let us take a long-term trend on industrial production. Our increase in industrial production in the last 10 years has been 37 per cent. The world as a whole, including Peru, Algeria and any other group of countries that one cares to mention, has managed a rise to 58 percent.

Let us look at some of the countries nearer to ourselves: Western Germany, 107 per cent. increase in industrial production; France, 105 per cent.—[An HON.. MEMBER: "Capitalist Governments."] I agree that they have capitalist Governments. But is the complaint that this capitalist Government does not know how to make capital? Italy has an increase of 138 per cent.; Belgium, 52 per cent.; Holland, 71 per cent.; Canada, 51 per cent.; Sweden, 52 per cent.; Japan 275 per cent.; and the United States, the closest to us, 38 per cent. Of course, it is the richest country in the world. Are we the second richest country in the world?

My right hon.. Friend pointed out the other day that for the first time since the days of the Tudors the British workman, in terms of real wages, is getting a lower wage than the German worker. It is a fact that the average increase in the E.E.C. countries since 1951 has been 104 per cent. It is time that we destroyed this myth that real wages in Britain are: going up faster than they are in other countries. They are not going up faster. The best figures available show that labour costs in Britain, taking into account National Insurance contributions, are much the same as in other countries of Western Europe, though far less than costs in the United States.

How do we put up real wages and expand the economy? We were waiting to hear about this from the Chancellor yesterday. I agree with the right hon.. Gentleman to this extent. We cannot permanently expand the rate of growth faster than the growth in exports. Exports come first. There is no doubt about that. The Chancellor told us that exports w ill look good again this month.

But let us look at the long-term trend. I take the right hon.. Gentleman up on his own point. The United Kingdom share in world trade of manufactures has declined since 1950 from 25 per cent. to 15 per cent. During the last five years, when, surely, no one will argue that the other nations had not fully recovered from the effects of the war, as one might do about 1950. Britain's share of world trade in manufactures has declined from 18 per cent. to 15 percent.

N.E.D.C. does not take a very optimistic view about the future. It has just completed an examination of the prospects of 17 major industries between now and 1966, and it reports: The extort estimates of the 17 major industries appear to be insufficient to achieve a satisfactory balance of payments. Does the Chancellor disagree with that view, or does he believe that exports are going ahead sufficiently fast to take care of any balance of payments situation?

Exports have risen by 8 per cent. in the last year. They have done better than I expected they would. I am very glad to acknowledge that this is so. [HON.. MEMBERS "Hear, hear."] But let hon.. Members wait for the sting in the tail. Imports are up by 7 per cent., having risen twice as fast, and of those imports raw materials are up by 7 per cent. and finished manufactures are up by 16 per cent. Within the most recent period of three months the export volume is up by 3 per cent. over the previous quarter, but the import volume is up by 7 per cent. I think that the Chancellor dismissed this relationship rather lightly. He acknowledged that manufactures play a substantial part in the figures, but the estimates shown to me are that machinery imports are 33 per cent. higher than a year ago, clothing and footwear 36 per cent. higher, and miscellaneous manufactures 20 per cent. higher.

The Chancellor argued—I was glad that he departed from the doctrinal ground in the matter of controlling imports; he said he did not take his stand on doctrinal grounds—that cutting off manufactured imports, machinery, was undesirable because it might afford protection to our own industries and make them less competitive. I agree that this is a good argument against it. But the further argument that we should not be helping the underdeveloped countries is much less valid, except in the case of textiles. For example, I do not know how many computers we import from East Africa.

The most superficial argument is that we cannot expect to export machinery and consumer goods unless we are prepared to import them. Stated as a generalisation, that is true, but the most advanced countries which are importing and exporting the same types of manufactures are doing better at it than we are. This is the point. This is the weakness of the case. I see hon.. Members opposite shaking their heads. I am making a long speech, so I merely invite them to look at the figures. The position with all our major competitors —at least Germany and Americas—is that their exports of these advanced manufactures far out weight their imports of them. This is true of us, but to a much less extent. There are specific examples in office machinery, metal working machinery, scientific instruments and organic chemicals. In each of these important industries the record of the United States and Germany is better than ours in establishing a favourable ratio between exports and imports of the same manufactures.

What does the Chancellor say about this? I should have thought that this was the nub of the problem. It is no use saying that we have to bring them in if we are to sell them. The point is that others are doing it but doing it very much better. Moreover, since 1958 in all the cases I have quoted except metalworking machinery our position relative to other countries has deteriorated. This is what one expects when one sees that our share of trade in world manufactures has decreased from 18 per cent. to 15 per cent.

There is an argument which the Chancellor might have used against import control which seems to me to have a great deal of validity. Maybe the Chancellor accepts it, but he did not use it. It is that in conditions where home demand is high, the net effect of restricting imports might be to divert to the home market goods which would otherwise have gone for export. That is something which must be weighed. But what I regret, and what I believe the Committee regrets, was the passivity of the right hon.. Gentleman's speech on all these matters.

The N.E.D.C. has given him a great many components about which we have heard none of his conclusions. It recommended, for example, that specific industries should be identified in this sort of grouping where rapid growth of manufactured imports has taken place. It said—I hope that the right hon.. Gentleman will not mind this little piece of Socialism which crept into the N.E.D.C. Report—that we should find out the possibilities of producing on a competitive basis in this country goods of a similar type. This is the Labour Party's approach. I wish that it were the Chancellor's; we might have done a little better by now if it had been.

There are a number of ways in which we could establish industries in this country to compete with imports. The Chancellor may have objections to it, but he has never argued the case. We have never had the privilege of hearing what his conclusions are on these matters. For example, we should take the view that we could set up publicly-owned factories—[Interruption.] This is what N.E.D.C. is proposing. I repeat; it said that specific industries should be identified where rapid growth of manufactured imports has taken place, and we can then find out the possibilities of producing on a competitive basis in this country goods of a similar type. If hon.. Gentlemen opposite object to a publicly-owned factory or to the State entering into partnership with private enterprise, when do they propose to withdraw the State money in Wiggins Teape or in Colville's?

Under this policy, if these were the Government's conclusions, we could combine two aspects of our policies by establishing such publicly-owned factories in development districts in Scotland and the North-East. I claim that this would be a dynamic and positive approach to the problem. But if this were not sufficient—I make this clear—and if we were threatened with being engulfed by a flood of imports, no doctrinal grounds should stand between us and controlling imports as a means of ensuring that our growth continues and expansion goes on. The alternative if we allow ourselves to be flooded and take no action will be what we have seen before. It will be 1961 all over again. It will he stop-go, the pay pause and unemployment.

Our main emphasis is on exports. Exports come first. We need a growing and not a diminishing share of world trade. That means more competitive export prices and enlarged industrial capacity. The Richardson Report shows that exports are frequently the least remunerative part of an industrialist's enterprise. Again, the Chancellor was singularly passive about this on television. All he had to say was: If I could think of any other way of encouraging exports I would do it. The Chancellor has had the advantage for a year of the N.E.D.C. document on conditions for faster growth, and he will find, in paragraphs 137 to 160, a whole series of proposals made by the N.E.D.C. and a whole series of ideas put to him as ways and means of overcoming this problem. Why have we not been favoured with his conclusions on this set of ideas? Does he accept them? Does he reject them? Or does he, as seems most likely, intend to put the whole thing off until after the General Election and let the Labour Government deal with it?

I agree with the Chancellor's interjection that we have undertaken, through G.A.T.T. not to give financial aid, directly or indirectly, to exports. I sometimes wonder whether our competitors are a; scrupulous as we are. Even here, it seems hard to draw a line as to when one is giving aid to exports and when one is not. I can think of a number of illustrations which I could give now.

Although we now have the opportunity of giving permanent aid, I think that the Chancellor should have examined seriously the N.E.D.C. suggestion of giving strictly temporary financial aid to our balance of payments and to prevent a further period of stop-go. This was put to him by the N.E.D.C. We do not know what his conclusions are. Others will have to reach their conclusions when we have had our discussions with other countries. Such aid could take the form of subsidies or the remission of taxation. This is the proposal of the N.E.D.C. It is not mine. This could be tackled. We could see how other nations react to it, because we are envisaging a situation in which the current account in our balance of payments is deteriorating and we are entitled to protect that situation.

I think tat the whole nation is united in its determination not to go back to a period of stop-go again. We should he ready to form consortia to aid small firms with their exporting problems. We should make an examination, industry by industry and firm by firm, to see what prevents firms from exporting and what assistance they need. We should make experts more profitable to them. This, we are told, is the stimulus, at least in the capitalist system, to which they will respond.

We should review the quality and experience of our economic staff in our overseas missions to see if we have the right people in the right place. The Government should enter the field of marketing research on their own account and make the results available to British industry. We ought to consider more standardisation of export products so that spares can be made easier to secure and servicing simplified. We ought to review the system of overseas agencies and, if necessary, set up special machinery for negotiating with the U.S.S.R. in conditions where a State trading monopoly is making contracts with individual firms, and especially with countries which have long-term plans.

The Chancellor called for ideas. There are plenty of them. Most of these have been put forward by the N.E.D.C. and others in the past, but there have been no conclusions and no action. This is the difficulty and the trouble with which we are faced. The N.E.D.C. has canvassed these ideas and I believe that it depends how seriously the Government take the problem as to what they will do. I thought yesterday that the Chancellor seemed to exude some grim optimism, whereas, on the other hand, most of his critics believe that we are heading for trouble in the autumn.

There are two other things. We should have a review of overseas military expenditure which is now running at record levels, and we are bearing a very heavy burden across the exchange. There should he a review of overseas trading corporation tax arrangements to see whether there is still a net advantage.

Apart from putting exports first, what about a firm incomes policy? It is clear that the Chancellor has no idea why his predecessor's policy failed. I hope that he knows the reasons, but I will repeat them once again. It failed because it was manifestly unfair and one-sided. It was a panic reaction to a crisis in our capital payments account. The right hon.. Gentleman's predecessor introduced the pay freeze and economic stagnation at the same time. There was no consultation with either side of industry. He breached agreements that had been freely entered into. He set aside negotiating machinery.

The right hon.. Gentleman allowed prices and rents to rise. He made no attempt to control profits or dividends except through the speculative gains tax. How much has that tax raised? We have had a complete year of that tax. I suppose that the figure is hidden away in Clause 7 or 8 of Schedule D, but it would be very interesting if the Chancellor could give us an inkling of the estimate which the Treasury has got. The policy failed because it was manifestly unfair in its application as between the various sectors in the community.

I felt impatient when I watched the Chancellor on television last night—no doubt he will feel the same about me tonight—and I heard him say that all we needed was a collective act of will in order to get an incomes policy and that he doubted whether the Budget could do much to help with an incomes policy. I completely disagree with him. Does the right hon.. Gentleman really believe that the Budget cannot do much to help with an incomes policy? Well, then, the sooner we have a General Election the better.

I have already shown how tax changes have created unfairness in our system and how these trends could and should be reversed. The Chancellor could use the Budget to ensure through the capital gains tax that land speculators do not go unscathed. He could examine the question whether relative taxes on earnings and on capital do not bear too lightly on capital and too heavily on earnings. He could have told us what his reaction was to the F.B.I. failure to agree on a policy for "disciplining" profits. It proposed, and rejected, the idea of a variable Profits Tax scheme under which profits and earnings would move together. We heard nothing of this. These are budgetary measures. This is what the right hon.. Gentleman could have used the Budget for had he believed it possible to get a fair incomes policy. I think that the need for an incomes policy is widely understood and accepted throughout the country.

The Government have failed to use their own vast influence in the social and financial fields to establish background conditions that would enable an incomes policy to be introduced. The right hon.. Gentleman has relied on exhortation, and where it has acted it has done so in a way which has made the situation worse instead of improving the prospects. The Chancellor admits that an incomes policy is by far the most important element in his calculations. He has failed, and after the General Election we shall begin the task once more, untarnished by the Government's guilt, unencumbered by the "I'm all right Jack" philosophy and operating against the background of a policy, both social and fiscal, which will be fair and just. I hope that my hon.. Friend the Member for Southwark (Mr. Gunter) will return to this topic later.

public service investment is now going ahead at 20 per cent. per annum or 17½ per cent. at fixed prices. The present Leader of the House disagrees with this increase. The biggest concern must be with the construction industry. If this fails to take the tremendous load that the Government are laying upon it, it will not only fail on its own account but it will act as a bottleneck for other projects. The recent N.E.D.C. Report was very clear about the inadequacies of the building and construction industry to take the strain. It said that drastic changes would have to be made and that new techniques would have to be pressed forward. I quote: There is no certainty in present conditions that the industry will be able to meet the demands made upon it. What are the Chancellor's views on this? What will he do in these circum-stances? He challenges us to say what we would do. I will tell him. We would co-ordinate public investment so as to avoid a return to the stop-go policy which resulted in our falling behind in schools, roads, etc. We would employ a starting date procedure on a regional basis so that, if necessary, it would be possible to enable projects to go ahead in Scotland and the North-East and to hold them back in London and the South-East.

The Chancellor cannot yet rely upon industrial building systems to see him through his difficulties. At present, these systems account for less than 20 per cent. of the output of the industry, although I hope and trust that they will grow fast. But for the next three or four years the right hon.. Gentleman may be faced with this bottleneck which will prevent him fulfilling the growth which he wants and demands. We come back in all these matters to the Government's failure to plan either nationally or regionally. Regional planning is as essential as national planning if we are to succeed. It entails both employment policy in regions and the physical planning for land, by the distribution of population, making assessments, and endeavouring to guide it into particular areas and ensuring that it remains in those areas. It means planning for overspill, transport, communications, etc.

There is no regional planning yet. There is merely a series of public works programmes for some of the regions. Regional planning would involve some control over premises in a congested region left vacant because firms move out. When they become vacant, all that happens at present is that someone else moves in. Much of our dispersal policy is negative at the present time. There should be control over office development in particular areas. We need plans for the use of land and much tighter regional organisation by the central Government. That, in company with developments on regional lines along the lines suggested by the N.E.D.C., would do a very great deal to introduce some coherence into our planning system.

This Budget is irrelevant—[An HON.. MEMBER: "And the hon.. Gentleman's speech."] I will leave it to the country to judge whether or not my speech has been relevant. I ask the Chancellor: what differentiates this political trade cycle from the previous trade cycles of 1959 or 1955? What is there different about what is happening this time from what happened last time or the time before? Where is the evidence of any new thinking on this problem? Where is the evidence that the Government have used the intervening period since the last political trade cycle to get down to solving some of the fundamental weaknesses in our economy? There is no reality about the Governments planning. They say that they have been converted, but it is like the Chinese general who converted his troops by baptising them with a hosepipe; but the right hon.. Gentleman escaped while the rest went under the hosepipe. I fear that the conversion is no more deeply seated than was that of the Chinese general's troops.

If we are to carry on through this present cycle as we are going at present, then, as it seems to be developing, I say that sooner or later we shall come back to the point at which we started, the same end-result—stop-go, pay pause and unemployment. The Government have made no structural alterations to British industry—how can we trust them not to go back to the same old remedies they have adopted time after time when they have been in trouble?

Because the Government have pushed the problems of the present period to one side until after the General Election, because they have failed to deal with the fundamental weaknesses in the economy, because their conception of social justice and fairness is entirely different from ours, it is high time that they went. This is the basic case for a change of Government at the earliest possible opportunity.

4.42 p.m.

The Secretary of State for Industry, Trade and Regional Development and President of the Board of Trade (Mr. Edward Heath)

It is becoming customary, I think, to congratulate the hon.. Member for Cardiff, South-East (Mr. Callaghan)—the "Shadow Chancellor", as I think he likes to be known—on the charm of manner and the smoothness of delivery of the speech he customarily makes on this occasion. It is, indeed, a very pleasant task. It is no empty compliment. I think that we on this side would agree that the hon.. Gentleman brought to his speech something that was perhaps lacking in that of the right hon.. Gentleman he Leader of the Opposition yesterday.

The Leader of the Opposition then very clearly laid down the lines—indeed, he did rather more than that; he produced the arguments and provided the figures. It was quite clear that there was to be no discussion of the Budget, there was to be no commitment by the party opposite—no views at all—and the hon.. Gentleman was, of course, to deal with the four points of the import gap, industrial shortcomings, incomes policy and regional development. The hon.. Gentleman has very faithfully carried out his instructions. He has dealt with those four points, and has quietly padded his way along the path of the master. The hon.. Gentleman must, therefore, be getting used to being "Shadow Chancellor", which is a position he is most likely to fill for some time, I think, whoever may win the next General Election.

That being so, I will turn to the speech made by the right hon.. Gentleman the Leader of the Opposition, who finds it so difficult to take any comments on his own speeches. His first point yesterday was that he discerned that we were now getting warning signs of critical strains in the economy. I put it to him quite frankly: if he believes that that is so, what does he think should be done about it? I ask, because in the whole of his speech yesterday there was but the one suggestion concerned with the nature of the development of our industry to deal with manufactured imports. That was the right hon.. Gentleman's sole suggestion. What, may I ask, does he think will be the time phasing of developments of that kind in regard to what he himself has said are the signs of critical strains in the economy?

Mr. Harold Wilson (Huyton)

The right hon.. Gentleman has been a Member of the House long enough now to know the convention on Budget day that the Leader of the Opposition speaks only briefly, as I did yesterday—20 minutes—after the Chancellor's speech. The right hon.. Gentleman knows perfectly well that it is the convention that the statement of what the Opposition would do is made on the second day. That has been done today.

We had far more ideas in 50 minutes from my hon.. Friend the Member for Cardiff, South-East (Mr. Callaghan) than we had yesterday in 90 minutes from the Chancellor of the Exchequer. But if the right hon.. Gentleman is concerned to know what I, as an individual, as opposed to my hon.. Friend, would do, we, too, would very much like to know what the Prime Minister, as an individual, would do. I can, at any rate, send the Secretary of State a very long speech that I made in Swansea dealing with the very point he has just made.

Mr. Heath

Yes, I read the very long speech that the Leader of the Opposition made in Swansea, and I wish to refer to it later. But this is precisely what his hon.. Friend has not dealt with. He has gone into the whole field of defence expenditure and over the whole ground of the endless and age-old ways in which exports could be improved, but he has not committed himself to a view about the present state of the economy. Does he believe that this is a state in which there are critical signs of strain, or does he not? Does the hon.. Gentleman himself think that there will be floods of imports, or does he not? On his judgment of those two things depends his view of my right hon.. Friend's Budget activities.

This is one reason why The hon.. Gentleman has very carefully refrained from giving any expression of judgment about this Budget—absolutely none at all. Does he drink that more purchasing his power ought to be taken out of the economy? Last year, he had no hesitation about making a judgment, and said that the chancellor should have gone much further in encouraging enterprise—much further—by giving greater con-cessions financially That was his commitment.

The hon.. gentleman said then: I believe that there is a case this year for doing more if he is to lower employment if he is to get the economy growing."—[OFFICIAL REPORT. 4th April, 1963; Vol. 675, c.642.] The hon.. Gentleman had no hesitation in making that statement and he was wrong—absolutely wrong. This year, he entirely refrains from committing him- self on whether or not my right hon. Friend's judgment is right, and that is a view that the Committee ought to have from the Opposition if they are a responsible Opposition.

Does the hon. Gentleman say, in fact that my right hon. Friend ought to have levied more taxation on the public, or not? He has very carefully refrained from making any judgment of that kind. He has not even been specific on whether he thought that different measures ought to have been taken. He has indicated fairly broadly that he thinks taxation is too heavy in its in- direct form and should be moved back in balance to direct taxation. He has made that statement before in this House. He has said: …towards direct and progressive taxation is the right way in which we should try to focus our own fiscal system."—[OFFICCIAL REPORT, 3rd May, 1962; Vol. 658, c. 1333] That, to some extent, has been his general thesis today.

I was, therefore, very interested to read an article in the spring, 1964, copy of the Twentieth Century Quarterly by his hon. Friend the Member for Sowerby (Mr. Houghton), who is billed as the Labour Party's Front Bench spokesman on taxation, which stated: A tax system suited to the affluent mass-production economy of the second half of the twentieth century is almost bound to rely more and more upon indirect taxation. Perhaps it is more suitable that hon. Members opposite should speak as individual persons, as has been suggested Perhaps they think to escape the con- fusion and trouble arising from the views being expressed by hon. Gentlemen sitting next to each other.

What the hon. Member really suggested was that my right hon. Friend should have done more to put the burden on to profits. He was objecting to indirect taxation, but was very careful indeed not to commit himself too closely to that idea. Why? Because the party opposite did not vote against those taxes yesterday. The hon. Gentleman thought that Profits Tax should take the burden, but how does that fit in with yesterday's exhortations to do everything; possible to encourage Industry and take the burden off it? We see in these two speeches and the writings of the hon. Member complete confusion and no policy whatever.

The one thing which intrigued me was whether the judgment of the hon. Member, whatever amounts he thinks should be taken out of the economy, would lead him to the conclusion that this was the position in which he would impose a wealth tax. That is an extremely interesting question to study. I wonder what his views are. Is this the right point at which a wealth tax should be imposed? It is obvious that the right hon. Gentleman has banned the wealth tax.

Mr. Callaghan

rose—

Mr. Heath

I shall give way in a moment. So far, this is the only proposal which can be tied to the hon. Member, but now it is banned by his leader. The one child, strangled at birth—or has it perhaps been quietly boarded out for the time being?

Mr. Callaghan

I quite realise that the right hon. Gentleman feels happier this week than he did last week when he was dealing with resale price maintenance, but obviously he did not listen to my speech. Perhaps he will do me the hon. our of reading it tomorrow. He will find answers to both the questions he has put so far.

Mr. Heath

Of course I shall read the speech. I also listened to it with tremendous interest.

The other question to which we ought to have an answer is: what is the Opposition's attitude on imports at this moment? Is it the view of hon. Member's opposite that the level of imports is dangerous and ought to be controlled now? There is no point in talking in hypothetical terms and saying that there may be a situation—[Interruption.] The hon. Member ought not to be hesitant He said when he opened his speech that he would accept the invitation of my right hon. Friend to put all his party's proposals on the table. I am asking for the very first. Are our imports at this point in such a situation that they ought to be controlled? If they are, the hon. Member ought to say so. If not, he should acknowledge that the Government's policy is right and that my right hon. Friend's policy is right.

I am going to deal with four points raised by the right hon. Member for Huyton yesterday, of which the first was the question of the import gap. Let us look at the figures. The Chancellor indicated yesterday that the preliminary figures for March are encouraging They have been published this afternoon. I should like to give them to the Committee. During March the figure for imports was £452 million, seasonally adjusted. This was much the same as in January when it was £457 million and in February when it was £449 million. The level remains roughly the same for these three months.

But exports continued to increase. The March figure, seasonally adjusted, was £373 million, compared with £326 million for January and £369 million for February. Thus the March figure sets an all-time record. In the first quarter as a whole exports were about 2 per cent. above the fourth quarter of 1963 In other words, the annual rate of increase was about 8 per cent. the same as last year I am sorry that the hon. Member for Cardiff, South-East looks so disappointed, but these are the facts. It seems clear that exports are rising strongly again after the pause in the second half of last year.

Mr. Douglas Jay (Battersea, North)

To get it clear, could the right hon. Gentleman give the figure for the gap between imports and exports in March on his new figures as usually calculated?

Mr. Heath

I think it is minus 17 for March. All the figures are published and the right hon. Member will be able to see the whole picture this afternoon.

Over the past year as a whole our exporters have done well. In the three months, December to February, our total sales were 11 per cent. up on their level in the corresponding months a year ago This growth has been secured in many different parts of the world. Exports to the sterling area were up by 9 per cent., to Western Europe by 12 per cent., and to North America by 18 per cent.

I shall deal with imports in detail and with the whole of the right hon. Gentleman's analysis. We ought to be able to achieve a widely based growth in exports over the next year. World trade in manufactures should grow as fast as in 1963, perhaps even faster. Prices for raw materials have been moving up and demand for them is strong. This affects our balance of payments, but at the same time it means that primary producing countries have more to spend on our products. Much of what they need can be supplied from Britain. In the United States the economy is buoyant and the programme of tax cuts will stimulate it This is our biggest market and we ought to be able to send more there.

The rich markets of Western Europe, which are now taking nearly 40 percent of our exports, still offer plenty of opportunities. In E.F.T.A. in particular there has been continued growth which now absorbs some 14 per cent. of our exports. In the three months, December 1963 to February 1964, E.F.T.A. exports rose by 13 per cent. compared with the previous three months.

Looking ahead, the surveys conducted by industry support this favourable out- look and export order books in the engineering industries stand at record levels. We can be reasonably optimistic provided that we always remain competitive. At the same time we must expect imports to go on rising over the next 12 months as production and investment increase and stocks continue to be built up.

Before going further on the question of imports, I wish to say something about what we are doing in exports. During the debate on Commonwealth trade we discussed in detail exports to Common wealth countries. I mention here the Visit which was paid by the Canadian minister of commerce, Mr. Mitchell sharp and our pleasure that afterwards the candian Government dealt with discrimination against Scotch whisky, which was one of the matters we discussed with him, and also that they have promised to look at Canadian valuation and anti-dumping procedures.

In Spain we have just had an Industrial fair where nearly 300 British firms put on a most impressive display. I believe the results will repay their efforts Certainly the opportunities are considerable. In May we are to have a British Week in DÜsseldorf with about 600 British firms taking part. As Germany is our third best market in the world and our largest customer in Europe we believe there are considerable opportunities in that country.

In the debate on the Address I informed the House that I was willing to consider wider trading arrangements with the Soviet bloc. Over the last five years our trade with the bloc has increased by 60 per cent. It is still comparatively small, but we have offered, subject to safeguards, to liberalise as far as we can. We have reached agreement with Czechoslovakia, I am glad to say, on this programme and are now negotiating with other countries in the bloc In particular, we are very pleased to welcome here the Soviet Minister for Foreign Trade, Mr. Patolichev, and we are negotiating a fresh trade agreement with him.

In 1963 our exports increased by £55.4 million. This was 32 per cent. Above1962. Our imports were £91 million, 12 per cent. more than in 1962. This shows the gap which exists in our trade with the Soviet bloc. It is one of the matters to which we must give particular attention in the present negotiations.

As regards credits, mentioned briefly by the hon. Gentleman, the Export Credits' Guarantee Department insured £1,160 million of exports in the financial year just ended. This means that a quarter of all our exports are covered by export credit guarantees. This is almost double the proportion covered by our nearest overseas competitor, and I regard it as a remarkable action by the E.C.G.D., one of the Departments under the President of the Board of Trade, which remains flexible in its approach towards these problems of credit arrangements.

There are two major factors in the export situation in the long term. First, there is the Kennedy Round, in which our interest is well known but in which the difficulties of turning 50 per cent reductions into negotiating rules, in particular with tariff disparities, are proving considerable. Second, there is the United Nations Trade Conference, at which I spoke in Geneva. I was able then to put forward ten points mainly dealing with trade but also, of course, taking in commodity agreements and supplementary finance, in an endeavour to reach agreement with other countries to improve and increase world trade, including that of the developing countries.

Therefore, in our export activities we are undertaking a great deal both immediately and in the long term to deal with this very important aspect of which the right hon. Gentleman spoke yesterday.

I come now to the question of imports. They were rising strongly throughout 1963. I have given the figures for the last three months, which were roughly at the same level. I believe that there is nothing wrong in this rise in imports. It is an essential condition if the growth of the economy We cannot expect exports always to expand stop by step with imports at a time of expansion such as this. The hon. Gentleman said that my right hon. Friend the Chancellor was taking a risk and rather implied that he was not justified.

Mr. Callaghan

No, he said it.

Mr. Heath

When the Trades Union Congress wrote to my right hon. Friend in February, it suggested just this. It said: The measure of success that has so far attended the nation's attempts at economic planning rust now be reinforced, even if that means taking calculated risks on the level of internal demand and on the balance of payments. So the Trades Union Congress, as the general secretary has made plain today, fully supports what my right hon. Friend has done.

Yesterday, the right hon. Gentleman quoted tie figures for manufactured imports.

Mr. H. Wilson

Before he leaves that point, will the right hon. Gentleman deal with this? He has given us the quarterly figures for exports. Will he now give us the quarterly figures for imports compared with the fourth quarter of 1963? I think that he said that there was an improvement of 2 percent. in exports. Will he tell us what is the change in imports and also, since he gave the export figures for the first quarter of this year compared with last year, may we have the corresponding figure for imports, so that the picture is complete?

Mr. Heath

I said that the quarterly exports figure was 2 per cent. up, and I said that for imports the figures are practically the same; there is no change This is a separate question. As far as this quarter is concerned—

Mr. Wilson

Compared with last year.

Mr. Heath

I said that the increase in exports for this quarter is 2 per cent.

Mr. Callaghan

Over the previous quarter?

Mr. Heath

Over the previous quarter, yes. I have not got the other figures with me. I shall give them to the right hon. Gentleman. They cannot be concealed, and I have no wish to do so, of course. What I am trying to do is to give the trend at this moment.

Mr. Callaghan

Seven per cent.

Mr. Heath

All right, 7 percent; I fully accept that. I am indicating the trends in the present quarter, and I have asked right hon. and hon. Gentlemen opposite to give their views about what deductions they make from the figures.

As regards manufactured goods, the right hon. Gentleman said yesterday that, over the past 10 years, exports had risen by 62 per cent. but our imports had risen by 141 per cent. But, of course, in his base year, 1953, these imports were less than one-third of the exports. There is a great divergence between the volume of exports and imports; and, as the right hon. Gentleman knows, it is obviously much easier to secure a large proportionate increase in a small figure than in a big one. This, of course, is the trick used in the statistics which the right hon. Gentleman quoted. The absolute increase in exports was one-third higher than the absolute increase in imports, that is, £1,300 million as against £900 million.

I want now to spend a few moments in putting the import bill into proportion. [Interruption.] I am spending time on this because it was the one positive point which the right hon. Gentleman made yesterday in the whole of his speech. Eighty-five per cent. of our imports are fuels, industrial materials—raw materials and semi-manufactures—food, drink and tobacco. About 10 percent. is capital equipment and less than5 per cent. are manufactured consumer goods. These are the ones, very largely, with which the right hon. Gentleman is dealing.

Mr. H. Wilson

And semi-manufactures.

Mr. Heath

Semi-manufactures as well. But, surely, it is ridiculous today to suggest that, as a manufacturing country we ought not to import manufactured goods—

Mr. Wilson

I did not say that.

Mr. Heath

—or import them on the scale we do. The right hon. Gentleman's object is greatly to reduce them; other-wise, there is no point in putting the argument forward. But is not this a very old-fashioned idea? Is it not a hangover from the right hon. Gentleman's own time at the Board of Trade in the late 'forties when restriction was the rule, the time when, as he has always prided himself, he managed to encourage an artificial way of obtaining sulphur? Is it not a hangover from that!

World trade today is not now the old pattern of primary-producing countries sending food and raw materials to Industrial countries and industrial countries sending goods back to the primary-producing countries This is what the right hon. Gentleman is suggesting.

Mr. Wilson

No.

Mr. Heath

One-third of all world trade today is an exchange of manufactured goods among industrial countries.

The hon. Member for Cardiff, South-East said that we came badly out of the Comparison These are the figures In exchanges of manufactured goods among industrialised countries, we sell half as much again as we buy. Therefore, we do not come badly out of it. We come well out of it. We sell half as much again as we buy from them.

Mr. Callaghan

The right hon. Gentleman has got it wrong.

Mr. Heath

I think that I have got the idea very well and the hon. Gentleman has been shown to be wrong in the arguments which he used.

Our imports of manufactured goods amount to about 5 per cent. of total sales in the British economy. The figure is the same for Germany.

Mr. H. Wilson:

semi-manufactures?

Mr. Heath

Our figure is less than the figure for France, where the proportion is 10 per cent., and it is less than for many other of the main European countries. If we are compared with these other countries, we are shown, in fact, to be in a better position.

Nor is there anything surprising in the fact that, as manufacturers of machinery, we also import machinery. In 1963, we imported £2 million worth of metal working machine tools from Italy. The right hon. Gentleman, apparently, strongly objects to that. We exported £3.9 million worth of the same type of tools to Italy. We imported £1.4 million worth from France but we exported £3.2 million worth to France. We imported £500,000 worth of typewriters from the United States and exported £1.2 million worth to the United States. This is the sort of thing which the right hon. Gentleman, for some strange reason—an old-fashioned, puritanical, Gladstonian view of trading—is trying to suggest we should not indulge in. There is absolutely no justification for that attitude at all.

Mr. Callaghan

rose—

Mr. Wilson

rose—

Mr. Callaghan

I am sorry that we are all trying to get up together, but it is really very difficult when the right hon. Gentleman fails to understand the argument. In order to complete the figures, will the right hon. Gentleman now give us, if he has them, the similar figures for 1958 or 1955 and draw a conclusion from them as to whether our ratio of im- ports to exports in these categories, by comparison with other major countries, is getting worse or better? That is the argument, and that is what he should address his mind to, with respect.

Mr. Heath

With respect to the hon. Gentleman, that is the wrong question. The right question is, What arc the ways of increasing trade between the industrialised countries? The characteristic of trade during the past 13 years since the right lion. Gentleman and his hon. Friends went out of office has been a great expansion between the industrialised countries of the world; this is where the increasing prosperity of the West is coming from. I believe that, as a practical measure, we ought to maintain our freedom to import these goods as well because they are essential to the economy.

Mr. Wilson

I am sorry to interrupt again, but it is very hard to get the right hon. Gentleman even to first base on this point. Will he understand that the argument which I was putting yesterday and which I have put in many speeches recently—I am sorry that the right hon. Gentleman has not got it yet—is that it is not a question of putting import controls on this machinery; it is a condemnation of the Government in the exercise of their responsibility over the past 12 years that we have not created the dynamic in these firms and industries so that the balance has not developed in the way it should? Does not the right hon. Gentleman recognise that the figures I gave yesterday for machine tools show that we are, by and large, importing the sophisticated machine tools and exporting the more old-fashioned types? Is he really complacent at out the fact that over the last two, three, five or ten years we have been losing ground in the most modern types and that it is a question of encouraging the production of the most modern types and not a question of controls or Gladstonian free trade?

Mr. Heath

At the Barcelona Fair, I saw some of the most sophisticated machine tools being sold by British firms for export. The right hon. Gentleman does not seems to realise that it would be foolish for us to try to produce every sort of modern industrial machinery It is quite natural that firms should want to import specialised machinery of different kinds. It is to the advantage of producers and exporters of consumer goods that we should do so. We should, therefore, concentrate on expanding trade and not on the right hon. Gentleman's project of replacing imports by home manufactures. It would be better to concentrate on the expansion of world trade as a whole.

The right hon. Gentleman also talked about our uncompetitive and backward industries. We have, of course, industry which needs to improve its standards, but we have much industry with great achievements to its credit. We do not produce the figures which I have quoted of sales to Western Europe and North America with backward, inefficient industries. We produce them with efficient industries. We supply one-sixth of the world's manufactured goods, and one-sixth of the world's exports of machinery are British. We account for one half of the world's exports of agricultural tractors, we are one of the largest exporters of electronic equipment and one-half of the world's ocean-going tonnage is equipped with British marine radar. These achievements should at least be mentioned when the right hon. Gentleman tries to give his impression of backward and inefficient British industry. It just happens to suit him at the moment to give that impression, but in the national interest the real facts should be stated.

The right hon. Gentleman then turned to other points. He particularly mentioned the problem of regional development and suggested that my right hon. Friend's Budget would have little effect on this. He entirely omitted to mention all that was done in the last Budget for what he is pleased now to call the two-nations economy, all that was done through free depreciation and the changes in allowances, and all that was done in the 1963 Local Employment Act for the standard grants. If the right hon. Gentleman wants more done in this respect, either he or his hon. Friend should suggest ways in which it should be done. They know perfectly well that what is being done in regional development is unequalled elsewhere in the world. This has been complemented by the two White Papers which we have published. The hon. Member for Cardiff, South-East is on record as saying that what we are doing in our programmes could not be exceeded by any party with any degree of responsibility. It is, therefore, obvious that he cannot now project further things in this field, because he would be going against his own declared statements earlier on. What my right hon. Friend has done in regional development has contributed enormously to it. He gave the figures yesterday.

I want now to give the figures for the rising programme of capital investment. According to business forecasts, there will be an increase this year in private investment. Eighteen per cent. of our national product now goes into fixed investment, compared with less than 14 per cent. of a much smaller product under the Government of which the right hon. Gentleman was a member.

The other figure which I want to give for the regions is that of industrial development certificates, which confirm the upward trend in investment. In the year ended March, 1964, the area of industrial floor space approved in Great Britain was 42 million sq. ft. compared with 36 million sq. ft. in the previous year. That is the scale of new industrial expansion. This is true also of the development districts.

I can give further figures for I.D.C.s issued in the various regions. During the nine months ended March, 1964, Scotland had 4.1 million sq. ft., the Northern Region 4.5 million sq. ft. and London and the South-Eastern Region 3.3 million sq. ft. This is despite the fact that Scotland and the Northern Region have a much smaller proportion of the insured population—16 per cent. altogether, compared with over 25 per cent. in the London and South-Eastern Region. This gave an estimate of increased employment for over 25,000 people in Scotland and the North, and just over 5,000 in London and the South-East. This shows the scale on which private investment and development are going on in the development districts.

The other point which the hon. Member for Cardiff, South-East mentioned in accordance with his right hon. Friend's programme was the question of an incomes policy I want to deal briefly with the figures given yesterday by the right hon. Gentleman, because he was careful to choose his own base. One can only deduce from this that he concludes that the moment the Labour Government went out of office was the exact point of time at which balance had been reached between incomes, profits, rents and all the other factors.

Mr. H. Wilson

indicated dissent.

Mr. Heath

I cannot see any other reason why the right hon. Gentleman should draw the deductions which he did.

If one looks at other dates, one gets quite different figures. This is important. To go back to 1938, one finds that whereas wages and salaries have increased by 465 per cent., ordinary dividends have increased by 220 per cent. This is a completely different picture.

Mr. Callaghan

Why go back to 1938?

Mr. Heath

The right hon. Gentleman chooses his special picture to bolster up his argument. His hon. Friend the Member for Cardiff, South-East took simply the figures for 1963 and 1964. He said "even one year ". One knows quite well that in these matters one cannot form a judgment on a movement of wages and salaries, dividends, profits, prices, and so on, taking just one year alone.

Mr. Jay

Does the right hon. Gentleman's use of the 1938 figures mean that he wants to go back to the distribution of national income of that date?

Mr. Heath

Not at all. I have not been arguing that. Let us take 1960. Since then, wages and salaries have increased by 19 per cent., company profits by 3 per cent. and dividends by 20 per cent. There is a difference of 1 per cent. between them, that is all. My point is that the right hon. Gentleman must not base his arguments about an incomes policy upon one specific year and take that as the only true and proper balance.

Mr. R. E. Winter bottom (Sheffield, Brightside)

In his estimate of dividends and company profits, has the Minister taken account of the issue of bonus scrip during the past few years?

Mr. Heath

The figures are all on the same basis, so they are comparable That is the main thing.

Yesterday, the right hon. Gentleman was scathing about an incomes policy. His hon. Friend has been much fairer about it and the difficulties which are involved in it. We all recognise these difficulties, but I have never heard the right hon. Gentleman in public urging his friends n the Trades Union Congress to work more actively for an incomes policy. I lave never heard him stand up in the House of Commons and state it as his view that in the N.E.D.C. there should have been much closer work to achieve an incomes policy. When my right hon. Friend was struggling for this in the earlier months of the year, it was not from tie right hon. Gentleman that we got support. He should bear this in mind when discussing the question of an income: policy.

Mr. H. Wilson

I will give the right hon. Gentleman this other reference: 26th July, 1961, in the House of Commons. That was the day that we debated the crisis statement by the present Leader of the House. I made the clearest statement that up to that time had been Wade from either side of the House on the need for an incomes policy and on the policies that should be followed in the Budget to make it possible. Those policies have never been followed in any Tory Budget.

Last year, at the Transport and General Workers' Union Conference at Scarborough on 8th July, I made a clear appeal for an incomes policy. This was followed by my hon. Friends and my right hon. Friends at our Scarborough conference last October. At all times, we have come out plainly on the need for an incomes policy, but not on the basis of f le kind of Budget policy that we have been having from right hon. Gentlemen opposite. We stated the conditions that were necessary for an incomes policy. The Government have rejected those conditions.

Mr. Heath

Of course, the right hon. Gentleman has always proclaimed the need for an incomes policy. The hon. Member or Cardiff, South-East did so again this; afternoon. What I want to hear front him is a positive urging of those involved to work for an incomes policy. My right hon. Friend's Budget last year was acknowledged by everybody to be an extraordinarily fair Budget in the interests of the whole nation. That was the verdict on it. It certainly deserved an incomes policy.

I want, finally, to deal with the point raised by the hon. Gentleman on industrial policy. He said that what is at the root of all these problems is the industrial situation. At the end of his speech he went on to say: "We shall deal with this not by monetary methods, not in the main by budgetary methods, but by industrial policy." What exactly does he mean by that? Indeed, in the Swansea speech, the right hon. Gentleman once again said, "We shall deal with industry not based on finance but purposeful industry." Words, words. What does "purposeful industry" mean? We have never had a clear indication as to what he means by "purposeful industry ". How will he deal with this matter? He is not to deal with it by budgetary methods or by financial methods. How will he deal with it, and what more does he suggest?

We have now had a disclaimer that direction is to be used. Will the hon. Gentleman do anything more than is already being done to try to influence industry in its development? The hon. Gentleman says that he will encourage firms. How will he encourage firms in their work? He is going to make them efficient. How? Not by budgetary methods, otherwise he would have to use taxation. How will he judge whether they are efficient—by their profits, or what means? If he judges them on their profits and losses, he will, presumably, tax those which make smaller profits more than those which make larger profits.

This is the situation that the hon. Gentleman gets himself into as soon as he says that he believes in a purposeful industrial policy without defining what it means. We have had suggestions for export incentives, but we must remain within our international obligations There was not a single new suggestion—[Interruption.] Is he suggesting that we should not remain within our international obligations?

Mr. Callaghan

I made it clear in my speech.

Mr. Heath

I am putting a simple question. I listened very carefully to what the hon. Gentleman said. It is my view that we must stay within our international trading obligations in using export incentives. I am surprised that the hon. Gentleman should even question that. He put forward many ideas, but I could not hear a single new idea about export incentives.

There is the aspect of resale price maintenance, about which the Leader of the Opposition is muttering to himself. We are setting out to encourage competition. What have we had from the right hon. Gentleman throughout the controversy ever since I made the statement in the House on 15th January? The right hon. Gentleman has been completely committed to a policy of the abolition of resale price maintenance since he was President of the Board of Trade. Would he deny that? His successor, who was in office for only a very short time after his resignation, published a White Paper which condemned resale price maintenance. It must have been prepared when the right hon. Gentleman was there. He said the same to the "Director" in 1959—that resale price maintenance should go.

Yet, during the whole of this controversy, what have we had from the right hon. Gentleman? We have not heard a single expression of view. He has not attended the debates and has taken no interest in this matter at all—absolutely none. In fact, he has been one of the most—

Mr. Callaghan

What about the Prime Minister?

Mr. Heath

My right hon. Friend has expressed his views clearly on every occasion that he has spoken since the statement was made. From the right hon. Gentleman we have had absolutely nothing. His has been one of the most shoddy and reprehensible performances by any Leader of the Opposition—[HON. MEMBERS: "Hear, hear."] It has been quite contemptible.

From the point of view of industry, we have had nothing of any consequence from the right hon. Gentleman—absolutely nothing. His only proposal is that we should somehow, in a way unspecified, try to encourage industry to replace imports. That is what the whole of his policy consists of.

I would sum up the matter by saying that we have a position at the moment in which the trend of exports is steadily increasing; that imports are high to support expansion, and that we have the reserves and resources to support them; and that we should take any risk involved, as my right hon. Friend the Chancellor is doing, because I believe that at this moment and during this year we have an opportunity economically to break through which is absolutely invaluable. We can break through to a steady expansion at a higher level than we have been able to achieve since the war. We can break through to a new high level of output. I believe that the measures of my right hon. Friend the Chancellor are intended to enable this to be done, and I therefore believe that the Committee should fully support them.

5.26 p.m.

Mr. J. Grimond (Orkney and Shetland)

I think that the Secretary of State for Industry and Trade and everything else was justified in pointing out that the position of the official Labour Front Bench has been ambivalent, to say the least, on the question of the abolition of resale price maintenance.

Mr. Callaghan

No.

Mr. Grimond

It would, perhaps, have made the right hon. Gentleman's case rather stronger had his own captain been present on the burning deck when half the Tory Part put out in the boats.

There are two other points in the Secretary of State's speech which I want to take up before coming to my main theme. First, I hope that he will take the opportunity to withdraw the unmerited slur which he cast on Mr. Gladstone, to whom he attributed views on trade which the poor man would never have dreamt of holding. He must be spinning in his grave in view of them. Secondly, may I ask the right hon. Gentleman about his figures for industrial development? I understood him to say that 42 million sq. ft. of new factory space had been agreed to in the past year and that industrial development certificates in respect of 4.1 million sq. ft. had been granted in Scotland. If that is right it is not a very high proportion. It is one-tenth, which is about the normal proportion, and does not show any emphasis on Scotland's needs.

The right hon. Gentleman said that I.D.C's in respect of 3.3 million sq. ft. had been granted in London. He explained what appears to be a high figure by saying that the industrial population of tin: London area was higher.

Mr. Heath

That was the figure for London and the whole of the South-East.

Mr. Grimond

Even so, it seems to be relatively high.

What interested me particularly—I am not sure that I heard the Secretary of State aright—was that industrial Development Certificates for Scotland would account for 25,000 new jobs, while those for the London area would account for only 5,000. This is a proportion of one-fifth, although the proportion of space is three-quarters. Does this mean that this is an entirely different form of industrial development? One thing of which I am afraid is that, although we are grateful for it, in Scotland we al e getting a very considerable number of jobs of a sort, but not our full proportion of office jobs, technically skilled jot s and higher paid jobs. At some time during the debate, I should like to have some further information about what this curious discrepancy in the figures means.

The Secretary of State started his speech by complaining that there had not been much discussion of the Budget. But there is not much Budget to discuss. The Chancellor of the Exchequer's last will and testament has been to leave most of tae problems to his successor. Like other people, it struck me that the content of the Budget was designed for a Juno election and that the Budget speech ha d been put in because of an October election and that this was the difference between the somewhat lengthy speech and the few proposals.

I sometimes wonder in Budget debates whether we could not have the sermon of the Budget circulated beforehand. This would save a very great deal of time. We have heard most of the admonitions again and again, though some of them were admirable. There was the curious part in the Budget when the Chancellor talked of the things which he would not do. It reminded me of an old saying which can be applied to this Government—that they have a difficulty for every solution. The right hon. Gentleman pointed out with great clarity how it was impossible to do many desirable things and that therefore the position must be left as it is.

One of the things which could have been attempted by the Government in their last months of office was a review of the tax system, but obviously it was felt in the Treasury that it was easier to put more weight on the two old whipping boys of tobacco and drink than to make an attempt to reform the system.

The Chancellor spoke of betting, and he has made certain changes there, but is it not possible to put a tax on one-armed bandits?

Then the Chancellor spoke of tax reform and simplification and it seemed at one moment that he was contemplating some change in company taxation. Indeed, he went so far as to say: Discussions on this matter have now been completed and most of those who have discussed the matter with the Inland Revenue are, in principle, in favour of the scheme that has been devised. But they urged that there should be more time for consideration of the details and implications of the legislation that would be required than is normally available between publication of a Finance Bill and the Committee stage debates. Surely the Government have had sufficient time to consider this kind of matter. But so it goes on. There is to be no change in the general structure of direct taxation.

I understand that the Chancellor said on television last night that if anyone produced ideas for tax improvements he would be delighted to hear them. We in the Liberal Party have already produced some. We brought out a pamphlet drawn up by a Committee presided over by Professor Wheat croft, which made suggestions that Income Tax should be broken down into personal occupation tax, business tax and company tax. These ideas have been undoubtedly welcomed. I do not want to embarrass him, but among those who have approved them is that lion of the Inland Revenue, the hon. Member for Sowerby (Mr. Houghton).

These ideas are well worth considering, and if they had been accepted they would have got the Chancellor out of some of the difficulties to which he pointed yesterday. I also understand that he went on to tell the viewers that everyone thought the British tax system pretty good. That is not my impression. I also understand that one of the reports to which he referred in support of this view was the Richardson Report. It seems to have been overlooked that Richardson himself, although he rejected the value-added tax, suggested that the base of the Purchase Tax should be widened and reformed. I am surprised that the Government did not take the opportunity to carry out the recommendations in that chapter of the Richardson Report.

Then the right hon. Gentleman came to the form of Exchequer accounts. He said: The Committee will recall that last May we published a White Paper on the Reform of the Exchequer Accounts…it may be useful to carry forward a year the figures which we published in last year's White Paper, and I am considering the publication of a further White Paper which would do this and indicate the lines of our further thinking."—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 248–50.] The Government have been in office for 12 years. That is not a very decisive statement on this matter. Again, they have had plenty of time for cogitation about it.

A striking feature of the Budget proposals is that the deficit is up to £800 million and that £100 million is the amount that the Chancellor proposes to take in extra tax. I do not think that anyone could claim that the right hon. Gentleman was being unduly pessimistic or that this was an unduly harsh Budget, although I know that the right hon. Gentleman hinted that later in the year he might have to use the regulators. It would have been much better had he been able to start with a different tax system, but granted that he did not and that he felt only able to deal with the situation on its present basis, I do not think that I complain about this, although it implies an optimistic view of our export performance and of the economy generally. A most striking feature is that the Government are budgeting for 9 per cent. extra on defence at a time when other major countries—certainly the United States and the Soviet Union—are decreasing their defence bills.

The Chancellor told us, of course, that once more the theme of the Budget was expansion without inflation, and that it was particularly important to avoid inflation because of the balance of payments situation. Again, I would have wished him to say something about the sterling area. Sooner or later this country will have to face the difficulty of maintaining sterling as an international currency on the narrow base of our own economy.

I was glad to hear what the Secretary of State for Industry and Trade had to say about exports, but I was not very clear on hearing his figures what the overall picture is. Do I understand that there is still a deficit and that we are nowhere near the surplus that the Government have time and again said is necessary?

While our export performance may be a matter for congratulations to industry, it cannot be a matter in which the Government can take complete satisfaction. The way in which we must compete in the world is through improved industrial efficiency and what did the Budget do about that? I cannot see that it did very much. An improvement and simplification of the tax system would reduce the enormous need for accountants and the time taken up in calculating the tax effects of doing things. Another obvious way is to take the tax off fuel oil. This would be a simple thing to do and now it would have been of some assistance in keeping down industrial costs.

The whole of the Budget is very much dependent upon keeping up the rate of saving, because this surely is the right hon. Gentleman's answer to those who think that he has budgeted for too big a deficit and that he has not taken enough out of the economy by taxation. The right hon. Gentleman must maintain the rate of saving. Here again, it looked at one time as if he would bring in a scheme for what we Liberals call "Save as you earn ", but this is to be for another day. It is a valid criticism of the Government that they have no scheme to cover contractual saving. I do not believe that the new Savings Bond will be adequate.

Then there is the question of regional development. The Chancellor and the Secretary of State claim that last year's Budget gave so much assistance to regions with high unemployment that they need do no more. But I see that the rate of unemployment is still very much higher in Scotland, Wales, and the north-east of England and the West Country then in south-east England. While I do not belittle what has been done there In as the opportunity this year to vary the rate of employers' contributions as between different regions.

It is wise to consider the case for regional planning because it has been called into question. The case is, first of all, that the economic climate is never neutral. It is impossible to say that if a country left to what is called the free play of economic forces these will operate to The best possible advantage to everybody in a vacuum. The reason that there's so much employment in London is because London is the centre of power and influence. It is the headquarters of the Government, the City and industry. One only has to talk to people elsewhere to find that they want to come to this area because they feel that they will be in touch thereby with the heart of affairs. This, in itself, means that there is an artificial incentive to come to this area. We should reverse that to some extent and move power and influence to areas far from London and make them magnets not only for economic growth but for social and political growth as well.

The results of the concentration in London and the South-East cannot be measured simply by some form of economic cost alone. We must look at the social costs and of the frictions and delays that traffic problems for instance create. Now a considerable amount of work is being done on this subject, and quite rightly. If we reject regional planning, surely we must also reject what Crowther and Buchanan have said, and that will mean quite intolerable conglomeration in certain parts of the country and depopulation in the rest.

Lastly, nobility is not infinite. Those who say that, left to economic forces labour will flow to the places where jobs are available, forget that this is to live in a totally artificial world, and a fairly unpleasant type of artificial world at that.

Some of the same considerations apply to those who are critical of the attempt to have an incomes policy, and I want to say a word or two about that. I do not believe that an incomes policy can put right everything in the economy. It may be just as important, if not more important, to get extra efficiency in industry than to hold down income. But certainly it would be totally unrealistic to suppose that the regulation of incomes can be left to some theoretically perfect economic machinery. I sometimes think that those who believe this are not addressing their minds to the real problem before us, because it is a problem of running a mixed economy and not an economy which is entirely socialised or entirely free enterprise. I would recommend them to read the introduction to Keynes' General Theory, where he pointed out that The characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live. I believe that since Keynes we have learned a great deal about looking at the economy as a whole. His major book. General Theory, is opposed to the atomised view of the interplay of resources and so forth in a theoretically free market. Therefore, we have to try to move towards an economic policy without believing that this can entirely take the place of the bidding and counter-bidding in the market, and without believing that it will be the solution of all our difficulties.

There are a few points that I want to make about this. First, this is largely a political problem. It is not entirely an economic problem by any means, and it requires certain value judgments which cannot be made by any economic criteria. We have to make up our minds how much we think that doctors and other public servants and people who are outside the wage structure are worth. It is very largely the trouble over these categories of public servants that makes it very difficult to have an incomes policy. We have seen only recently how we have had a lot of unnecessary friction owing to our failure to have any policy for public servants, thereby creating trouble with the Post Office staff which eventually has to be met by some ad hoc machinery.

Another point which is made again and again is that if we are to have an incomes policy, then clearly it has to take account of other incomes besides wages. Here I emphasise a point to which I do not think enough attention is paid. There is a case for saying that profits are not a cost, but there is no case for saying that business salaries directly are not a cost. I gather the impression, looking through company reports, that the total emoluments of directors go up whatever is happening to their companies. Our late colleague Lord Kilmuir did not feel it at all odd to leave a Government which had been appealing for wage restraint and go straight into industry and take a job as a director at an extremely high salary. There is no case for this. We must regard the incomes policy as covering the whole range of incomes.

Again, I believe that this may be a peculiarly acute matter now because we have not any philosophy for the public service and because we have not given enough attention to how we think that part of the economy should be rewarded. I should like to quote again Essays in Persuasion by Keynes where he said: The problem of want and poverty and the economic struggle between the classes and nations is nothing but a frightful muddle, a transitory and an unnecessary muddle. For the Western world already has the resources and the techniques, if we could create the organisation to use them, capable of reducing the economic problem, which now absorbs our moral and material energies, to a position of secondary importance. The author of the Essays goes on to say that he believes the day is not far off when the economic problem will take a back seat, where it belongs, and that the arena of the heart and the head will be occupied or reoccupied by our real problems, the problems of life and human relations, of creative endeavour, behaviour and religion.

So while I cannot complain very much about the proposals in the Budget, as is so often the case, it was the dogs which did not bark yesterday that would have been the most interesting to hear. It is what is not going to be done by the Government in the next few months that I find the most depressing. If they stay in office, the only justification for their doing so is that they have a job to do. I do not believe that job can simply be to wait and see what happens in the autumn and pray that things get better.

I believe that there must be many people who, when they read the Budget speech—people who hoped for signs of new vitality in the Government—heard a message of a flatness comparable to the celebrated lines of the Poet Laureate on the illness of the Prince of Wales: Across the wire the electric message came He is no better. He is much the same.

5.46 p.m.

Mr. J. Enoch Powell (Wolverhampton, South-West)

The right hon. Gentleman the Leader of the Liberal Party did at least in part of his speech address himself to that subject which the spokesmen for the Opposition have conspicuously neglected—the economic significance of the Budget as a whole and the major act of judgment on the part of my right hon. Friend which it conveyed.

I should like to follow him in that part of his speech because the economic experience of the financial year just ended seems to me one of great importance and profound instruction for one of the great problems of our time, namely, the relationship between the movement of the economy and the budgetary and monetary management of government.

The central decision of my right hon. Friend last year, as this—as he made clear in his speeches—centred round the size of the net borrowing requirement with which he was to enter upon the financial year. He formed the judgment a year ago that the economy would probably not expand at an adequate rate, certainly not as fast as 4 per cent. per annum, unless he took steps through his Budget to increase the net borrowing requirement by a substantial amount—it was some £260 million.

Looking back at my right hon. Friend's speech, one must admire the wisdom, the caution and the foresight with which he expressed that forecast, caution and foresight which were not shared by many of his critics. My right hon. Friend the Secretary of State for Industry and Trade pointed out how far astray the Opposition spokesmen went on that occasion. "Half speed ahead" sneered the Economist in its leader on my right hon. Friend's Budget and ventured the opinion: It looks a; if too little has been done to encourage the growth of demand in the short term. We are now able to look back over what actually occurred in those 12 months. The addition to the net borrowing requirement which my right hon. Friend had thought desirable did not in fact occur: the cumulative requirement as it eventuate at the end of the year was little more than he had anticipated before the addition which he made in his last Budget. What is much more important, during far the greater part of the financial year the net borrowing requirement was not running appreciably above its level in the year before, 1962–63. In fact, in the first quarter of the financial year it was actually below it and in the first three quarters it never rose much more than £100 million above the corresponding figure in 1962–63. It was only in the concluding weeks that the excess rose to the figure of £412 million with which the financial year concluded.

Yet, although experience in this respect was so different from what had been anticipated, the economy did expand ant; at a faster rate than my right hon. Friend had then dared to hope for, at about 5 per cent. overall and in some sectors—in industrial production, for instance—at a rate of 8 per cent. In other words, the causes or intended causes were almost wholly absent and yet the effects took place, took place in full measure.

This was an experience similar to that of the analogous period in 1958–59, when it was also observed that the resumed forward surge of the economy began long before the budgetary measures which were intended to produce it could have produced a practical effect. Indeed, I think that someone writing at teat time said that the patient was up and playing golf before he had swallowed the medicine.

In his great book, The Golden Bough, Sir James Frazer speaks of an Australian aboriginal tribe which believes that the rising and setting of the sun are controlled magically by their own medicine man. They imagine that sunset can be delayed by fixing a clod of earth in the fork of a tree and that it is necessary, if the sun is to rise, that a fire or light should be kindled during the hours of darkness on behalf of the tribe. The author goes on to imagine a sceptic suggesting that there might not be a relationship of cause and effect between the ceremonies and the phenomena which follow them. He imagines the retort of the medicine man on being faced with this scepticism: 'Can anything be plainer,' he might say, 'than that I light my two penny candle on earth and that the sun then kindles his great fire in heaven?'… The fallacy of this reasoning is obvious to us, because it happens to deal with facts about which we have long made up our minds. But let an argument of precisely the same calibre be applied to matters which are still under debate, and it may be questioned whether a British audience would not applaud it as sound, and esteem the speaker who used it a safe man—not brilliant or showy, perhaps, but thoroughly sensible and hard-headed. The first sentence of this year's Economic Report runs as follows: The economy expanded very rapidly in 1963 under the influence of fiscal and monetary stimuli. The first part of that sentence as far as the word "1963" is a plain and, I think, indisputable statement of fact. The second, which I observe my right hon. Friend in his Budget speech did not use, is a statement of a purely superstitious character.

What, then, did happen during the financial year 1963–64? I will not use the expression of the steward on the cross-Channel steamer in the Punch cartoon who said to the sea-sick lady, "You do not have to do anything, ma'am; it does itself", and say that "it did itself". I will say that it was a spontaneous movement and reaction not of the economy only—for that is a cold, callous, abstract term—but of the nation as a whole to its opportunities and circumstances. Forces deeper, wider and more embracing than anything in the Budget, forces partly external, but also partly internal to this country, swept forward, obliterating the landmarks of the intended net borrowing requirement. Financially speaking, this was expressed by an increase in the velocity of circulation, to which the Radcliffe Committee found "no reason to believe" there is "any limit".

In short, this was a reaction to circumstances, to opportunity, by the nation as a whole. From now on, now that the greater part of our key resources are employed, the rate of further advance is limited by two things: first, by the further remaining unused or under-used resources which could be put to use; but secondly,—and this is the great condition and pace-setter of further advance—by the rate at which the resources employed at present can constantly be moved towards more valuable, more effective applications, applications in which they will be more supported by more effective capital. The economy cannot expand faster than those things take place. There is no need to take steps to reduce the rate of expansion from 6 to 5 or 4 per cent.

Whatever be the rate of expansion—and let it be as high as possible—that is practical in the light of these real movements and changes in the future, that rate of expansion, this year and in years to come, can be expressed either in the monetary terms of a stable currency, or in the monetary terms of a currency which is constantly losing its value. In other words, it can be accompanied by a level of monetary demand which keeps pace with the economic advance, or by a level of monetary demand which constantly threatens to overshoot it. It is here that the central decision of my right hon. Friend's Budget is of its true significance to the economy.

If the "twopenny candle on earth" does not cause the sun to rise in the heavens, still, if we are not careful with it, it can set fire to the little hut and burn it down. The size of the net borrowing requirement and the size of the share of the total national output which the Government claim as their own have a potent effect upon the monetary expression of the nation's real economic experience; for Government expenditure, and the net borrowing requirement which follows from it, have peculiarities which give it a force that no other kind of expenditure or borrowing has. Not only is it backed by great political forces, by political commitments, not only is very much of it long-term in its conception and difficult to modify at short notice, but, unlike other expenditure, it is capable of generating its own finance and it is much less sensitive than any other expenditure to changes in prices.

Hence, above all, the supreme and unenviable responsibility of my right hon. Friend the Chancellor of the Exchequer in taking his decision that in the circumstances of this year the net borrowing requirement could be increased by more than £300 million to nearly £800 million, or, if one eliminates the borrowing on behalf of local authorities—though I am not quite sure that it is entirely logical to do so—by about £150 million to over £600 million. I will say only this of that decision, that it certainly represents the utmost limit to which prudence could possibly go.

These questions of budgetary and financial policy are commonly regarded, certainly out of doors, as dry, recondite, and uninteresting. They are indeed matters of fascinating academic speculation and study, but I believe that they are much more. I believe that they have a profound human and national importance. It is not only false, it is dangerous, to inculcate into any nation, as so many do today, and as the very phraseology which we have become accustomed to use implies, that prosperity can be produced—