HC Deb 07 December 1964 vol 703 cc1239-68
Mr. MacDermot

I beg to move Amendment No. 14, in page 19, line 16, to leave out "the foregoing paragraph" and to insert: paragraph 1 or paragraph 2 of this Schedule". This is a drafting Amendment consequential on the aircraft relief.

Amendment agreed to.

Further Amendment made: In page 19, line 47, after "1", insert "or paragraph 2".—[Mr. MacDermot.]

12.3 a.m.

Mr. MacDermot

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

I move the Third Reading almost formally, but there is just one point to which I wish to draw the attention of the House because we did not have an opportunity of doing so on Report. In Committee, we had quite an interesting debate on the question of the effect of the oil duty upon disabled persons, and my hon. Friend the Chief Secretary, in reply to that debate, pointed out that this was a matter for the Minister of Health to consider in the first place, owing to his power to deal with the matter by regulation.

We were pressed to give an undertaking that the decision would be reached by Report. We could not give that undertaking, but we did, nevertheless, immediately get in touch with the Minister of Health, and hon. Members may be aware that there was a Written Answer given by the Minister of Health to a Question on the Paper today, announcing that war pensioners and National Health Service patients with invalid tricycles will be given an allowance of £5 a year in respect of petrol duty, in place of the present allowance which—I am subject to correction—I think runs at £3 a year at the moment.

This will take effect from 1st December. The car maintenance allowances which are paid to war pensioners present a more complex problem, and the Minister of Health is still considering the matter and how best to deal with it.

I thought that hon. Members might like this matter brought to their notice at the earliest opportunity. Apart from this, I do not think that the House wants to hear further from me at this stage. I believe that my right hon. Friend the Chancellor will wind up the debate, so I will leave him to deal with any true Third Reading matters.

12.6 a.m.

Mr. Maudling

I will endeavour to be brief, but I cannot be quite as quasi-formal as was the Financial Secretary.

We come to the end of the discussions on the Bill which, as we have explained in clear terms throughout, the Opposition regard as bad, a Bill which will do nothing to improve our economic situation and, in fact, taken as a totality, may do harm to it. There are only four proposals in the Bill—the increase in Income Tax, the increase in petrol duty, the imposition of the surcharge and the export rebate. I will briefly take each in turn, in the reverse order.

The export rebate is put forward as a positive measure to stimulate exports. We on this side—and, indeed, the whole House—welcome any measures designed to stimulate our export trade, but we must express our doubts whether this measure will have any appreciable effect. The measure of the incentive given to anyone exporting goods from this country will be very small indeed in practical terms. On the other hand, the cost of £75 million to the revenue and the consequent burden on the country's finances are very heavy. Clearly, many difficult problems will arise from the operation of the scheme and there will be arguments as to who should benefit—the export merchant, the manufacturer and so on. I think that its legality internationally is at the least doubtful.

The Chancellor of the Exchequer (Mr. James Callaghan)

Why?

Mr. Maudling

I think that it will be acceptable in the circumstances of the greater illegality of the surcharge. The right hon. Gentleman has asked why we did not introduce this earlier. I have said that we considered such a scheme and that such a scheme has been in Whitehall over many years. The answer to his question is twofold. First, the benefits likely to arise, compared with the cost involved, are small. Secondly, I doubt very much whether the export incentive without the introduction of the import surcharge would have been worth the candle.

Mr. Callaghan

The right hon. Gentleman misunderstood me. When the legality of this is being challenged by those who are not friends of this country overseas, I wondered why he felt that he had to give comfort to them by lending his authority by casting doubts on its legality.

Mr. Maudling

The question of legality is a question of fact. I seem to recall that, speaking in the House a little while ago, the Chancellor criticised us for not having done this earlier. I challenged him a while ago when he said that we ought to have done many things. I asked, "Which things?" I also asked whether at the time he had advocated these measures. The only one which he could dredge up, after a good deal of thought, was the fact that we had not introduced an export incentive. I am giving him reasons why we did not do so, and I think that, on the whole, they are very good reasons. But I am equally sure that, in the circumstances of the present day, this export incentive will be internationally acceptable. As I said earlier, where the example of members of the Six is concerned, I regard complaints from them as not complaints that we should entertain.

The surcharge is in some ways the major measure in the Bill. Whatever the arguments about the comparative merits or demerits of surcharge and quota, it is clear that the introduction of this surcharge was very seriously mishandled by the Government. The effects on our international relations are well known and I am a little concerned—and perhaps the Chancellor will help the House on this—at the reports one is constantly receiving of British export orders being cancelled as a result of the surcharge. I believe that some of these stories are put around by our competitors deliberately, but there is a real danger here, one which we must not ignore, and the House would welcome an assessment by the Chancellor and his views on how he feels this situation will develop.

I interrupted the Chief Secretary earlier about the urgency argument and the trend of imports. I say again, and deliberately, that if one looks at the trend of imports over the last three months—not the last month alone, for one should not take one month by itself—against the background of what must have been, as any businessman would know, a very large amount of anticipatory ordering of imports forestalling the possibility of import controls, there can be no doubt that the level of imports—and this must be obvious to any independent observer—had already begun to fall substantially before any question of the surcharge arose.

I come to the details of the surcharge. My hon. Friends and I are profoundly dissatisfied with the explanations given by the Government as to the nature and details of the surcharge. We queried it from the outset, we queried the level of the surcharge, the need for having a universal level over all types of goods, for imposing it on goods already here or in transit and we queried, in particular, the purpose of imposing the surcharge on goods which would in any case come to this country.

This last point is where the arguments put forward by Government spokesmen have been so confusing. Time and again my hon. Friends have asked, "If you say that the purpose is to keep out imports, what is the point of applying it to products and goods which will come to this country in any case?" We have not been given a satisfactory answer to that question. The Government still seem to be uncertain about whether the purpose of the surcharge is to cut down imports or whether it is deflation, which is a wicked word in some, but not all, of the many concentric circles which exist on the benches opposite.

Having listened to the Financial Secretary this afternoon—to his interesting and helpful statement about pharmaceuticals—it is difficult to see what he meant. He said that he did not want to reduce imports, but did want to stop them going up. It is difficult to follow the Government's reasoning. Is the purpose of the surcharge to stop goods coming in, or to gather revenue from goods which will come in willy nilly, in ally case? This is the weakest link in the whole chain of arguments from the Government about the surcharge and one on which they have totally failed to meet the arguments adduced by my hon. Friends.

The third proposal is the increase in the tax on hydrocarbon oils. Our argument has been that this is bound to put up production costs—and at a time when exports are vital, to put up production costs must be wrong. I agree that the Government say that they are taking this into account by increasing the export rebate from £70 million to £75 million, but no hon. Member can believe that that fractional increase in the rebate will compensate for the general increase in costs which is bound to result from this increase in the petrol duty, particularly since about 60 per cent. of it will fall on trade, commerce and industry.

The fourth proposal is to put up the standard rate of Income Tax. This we believe to be wrong in principle because we believe that it is operating against effort, against incentive and against enterprise. We also believe it is wrong because it is bound to have a bad effect on both savings and investment. Undoubtedly, a great deal of the additional £122 million of revenue which the Chancellor expects to get from this increase in the standard rate of Income Tax will come not out of consumption, but out of savings, both company and individual savings. Undoubtedly, the incentive to invest in this country is bound to be reduced by it, because the net return after tax on investments made is reduced by the increase. Therefore, taking all these four proposals, we say that the exports rebate will be doubtful in its practical effects, while the other three cannot but fail, in practice, to make worse our economic problems.

Finally, there is the effect of the Budget in inflationary or deflationary terms, about which there has been so much controversy. It still seems, whatever may have been said, that the effect will be inflationary. It will, if the Government's calculations are right, cut out about £300 million worth of imports, but this very fact, as successive Government speakers have recognised, creates of itself a new problem of inflation. It is the Government's intention to meet this by £200 million from the surcharge, and £93 million from the increased duty on petrol and, with restocking, we are told that this will balance the disappearance of £300 million of imports, and the £75 million for the exports rebate.

This, then, is the balance of inflation and deflation arising from the operation of the surcharge and exports rebate and the petrol duty; but this is surely not deflationary in any sense. It does not reduce demands on the economy. If we turn to the other half of the Budget—the increased expenditure of £340 to £350 million, and the increased revenue from the stamp and Income Tax—I can only repeat that, although, mathematically, they appear to balance, it is bound to be that while the expenditure items are such that their total effect will be felt in increased demand, the additional revenue designed to counterbalance it will not be felt in full. That is because the tax on individuals and on company profits will come out of savings, and will not have the deflationary effect other savings would have.

The total effect of the proposals in this Budget are bound to add to demands on the economy. There may be those things which will act in a deflationary manner. Perhaps the very presence of the Government is deflationary because the uncertainty created by its announcements to date has affected investments, and will affect them over the years ahead; but I doubt whether that appears in the Chancellor's calculations.

We oppose this Bill because we believe—and nothing which has been said during the course of our debates has changed our views—that it will put up costs and prices and only serve to make our economic problems more difficult than they were.

12.19 a.m.

Sir Cyril Osborne (Louth)

I have said nothing up to now in the House about this Finance Bill, or taken part in the Budget debates, but I have stayed tonight because there are one or two things which I should like to put from the point of view of the small manufacturer.

First, I very much regret that this Third Reading is taking place at such an hour. We are concerned with one of the most important Bills in the whole of the parliamentary year and it should have been taken at a more normal hour. The Chancellor, if I may remind him, spoke during the Third Reading of the first post-war Socialist Budget in 1946. He spoke for 16 minutes and, generally, said he did not agree with everything that his own Chancellor was then doing. This has some importance because, if, as the Government claims, it is legislating to deal with what we have been told is the tragic economic situation it has inherited, then that legislation should not be pushed through when, so to speak, the nation is not looking. We should have had a proper debate at a proper time—not when half the House is absent.

The businessmen on whose behalf I seek to speak say that there are two practical tests of the Chancellor's proposals. First: will they make our economy more efficient? The businessmen say that they will not do that. Second: will they make the nation live within its income? I say that they will make the nation live increasingly outside its income. I think that the proposals were brought in rather in a panic, and that if the right hon. Gentleman could have his time over again he would produce a different type of Finance Bill altogether.

These proposals have destroyed business confidence for the time being. They have produced uncertainty in business, and that is the worst enemy of business confidence. I fear that, unless we are very careful, 1965 will see a very bad trade slump. Already, there is evidence of orders falling off. Already, as far as I can see, there is a danger that the country will next year face a very difficult trade position. As a consequence, trading profits will be a great deal less, and the amount of tax collected will be correspondingly less. We may see unemployment up to a 1 million—[HON. MEMBERS: "No."] Hon. Members can say "No," but many of them are not as closely in touch with business as others of us.

To increase the standard rate of Income Tax from 7s. 9d. to 8s. 3d. is the wrong way to stimulate the economy. The Chancellor has made a wrong decision. He should not have taxed men's earnings, but their spendings. We want the nation to earn more and to spend less, and Clause 1 will have just the opposite effect. It will cause men not to work so hard, and not to try to earn as much money.

I recently came across an example of that in one of my factories—a textile factory which has for some time been extremely busy. I was round one Saturday morning where a lot of men were working—and some of our people are doing a fine job of work, let us make no mistake about that. I said to a presser, who makes a lot of money, "Will you help this afternoon to get this stuff out for Monday morning?" He said, "Me? Guv'nor, last week I paid so much in P.A.Y.E." He mentioned the amount. "Me work this afternoon and pay a lot more, and City playing at home as well? Not me." I put this to the Chancellor very seriously. If he raises direct taxation more, and penalises the men who produce our wealth, he will tend to make them not work hard.

The man said, "This is against all trade union rules and traditions. We have always said that if you work overtime you should have time-and-a-half, but if I work extra this afternoon, as you want me to, I shall get proportionately less." These men are not interested in their gross earnings, but in their total take-home money. If the Chancellor wants more efficient production, and if we are to have it, we need to reduce overheads and get prices down to allow us to sell better in the export market. The Chancellor has gone the wrong way about it. He should tax spendings, not earnings.

That is the workman's point of view. Now look at it from the employer's point of view.

Mr. Loughlin

I am very much intrigued about this mythical employee who earns so much money that he will be caught in the Income Tax net by the increase in standard rate. Will the hon. Member tell us what the man is earning and what will be the increase in tax that he will pay?

Sir C. Osborne

The hon. Member uses the word "mythical". If he will give up his next six weeks' increase in pay as a Member of Parliament, I will accept the challenge. I will take him to this man, who is not mythical, and he can talk to him personally. This man is not mythical. He feared that he would have to pay extra for working on Saturday afternoons.

Look at the operation of Clause 1 of the Bill on the successful businessman who produces the goods so that we can get exports. After all, exports are more important than imports. It is no good trying to deal with the problem of imports unless we can get an improvement in exports. A man paying top Surtax has now to pay 18s. 3d. in the £ on the top ranges of income. That means that he will be working for the State until about Guy Fawkes night and for himself only in the last six weeks of the year. This is not very much encouragement to him.

Mr. Henry Solomons (Kingston upon Hull, North)

Would not the hon. Member agree that it is not what is taken away but what is left that matters? The man paying 18s. 3d. in the £ has quite a lot left.

Sir C. Osborne

That is perfectly true, of course, just as hon. Members when their pay is increased will take a lot more home than the old-age pensioner will. The successful businessman, upon whose efforts the Chancellor has to rely does not get much encouragement if the Chancellor is to take more and more from him and leave less and less. That will not encourage him to make an extra effort. The Clause gives the impression to the businessman that the Chancellor is determined somehow to squeeze all profits out of private industry and leave practically nothing.

I commend to the Chancellor the editorial comment in The Times on Monday, which quotes the Chairman of Barclays Bank, D.C.O., as saying: Profits are the motive power of economic growth … —[Laughter.]—How stupid hon. Members can be when they laugh at something they do not understand. The Times goes on: The recent fashion in Britain to regard profits as 'hardly respectable' has doubtless played its part in the relatively poor progress made by the United Kingdom since the war. Instead of increasing direct taxation in this way he would have got better results in the export markets by giving export subsidies. If he continues the policy of increasing still further direct taxation, as under Clause 1, he will destroy the mainspring of our economic activities. If he does that, I should like to know what he proposes to put in his place to make the economy work. This is the problem which faces the country.

By Clause 2 an extra 6d. is placed on the price of petrol. I wonder whether the Chancellor realises the industrial consequences, not to the giant industries but to the smaller businesses throughout the country. I speak from experience, for I am associated with a small civil engineering company. Within days of his proposal, into the office came numerous letters from contractors for whom we have to do a lot of earth, stone and rock moving for foundation work. They said that they were sorry, but they would have to put up their prices for the sub-contracting because of the increase in the price of petrol which was imposed by Clause 2. This impost affects this type of trade, as well as distributive trades, which spend so much on petrol. The Chancellor must know that this tends to put up our costs and will tend to increase our prices, and therefore must make it more difficult for us to sell abroad.

Under Clause 3, which, I think, is the most difficult that he has got to answer, he has put the 15 per cent. ad valorem duty on imports under the word "temporary." I know that the question has been asked before, but this is the crux of the whole matter. How temporary is "temporary" so far as industry is concerned? If the impost does not last for more than two years, it cannot have any permanent effect upon our problems. If, on the other hand, he takes it off quickly owing to foreign pressure, he will merely put up unnecessarily our own costs of production.

May I give another example? Another company with which I am associated, a textile company—[Laughter.] I do not see that there is anything funny about trying to find employment, paying good wages and producing exports. If hon. Members could only realise how stupid they are, they would not laugh so much. I should like to tell the Chancellor that because of the relatively high price of Lancashire cotton yarns, we have been buying a great deal from Portugal. Portuguese yarns were roughtly 10d. per 1b. cheaper than the comparable Lancashire yarns on a price basis of between 60d. and 70d. per 1b.

The directors feared that something like this might happen. They are sensible business people. They bought all they possibly could, and this affects our trade balance. They bought at 10d. per 1b. cheaper than they could buy Lancashire yarns, in spite of the fact that the price already includes a 7½, per cent. Import duty. The Lancashire suppliers, knowing that they have a guaranteed home market, promptly put up their high prices by another 4d. or 6d. per 1b.

This material is used for the specific purpose of making clothing for working-class people which is sold in the popular stores. If the company can manage until August it can do without buying any more Portuguese yarn, because it can live on what it has already purchased. If the Chancellor takes off the surcharge by next August, which some newspapers suggest he is likely to do, the effect of his action will have been to temporarily put up prices of clothing to the poorest people. It will not have affected the total import of the commodity, because once he takes off the surcharge there will be a flood of this cheap stuff into the country again, for it will be 1s. 3d. to 1s. 4d. cheaper than the comparable Lancashire yarn.

If, therefore, the surcharge is to be temporary, the right hon. Gentleman will merely have done injury to the economy, put up our costs and increased the cost of living and not affected the real situation at all. I ask the right hon. Gentleman, therefore, how temporary this surcharge is to be. Unless he keeps it on for at least two years it cannot affect our position permanently at all. But if he does—and this is the other side of the argument—it will make our relations with E.F.T.A., the Common Market and America more and more difficult, and if we are not careful we shall have not only reprisals from them in their own markets but in third world markets in which we have to compete with them. I hope, therefore, that the right hon. Gentleman will be good enough to say something about this issue.

As for export rebates under Clause 7, my friends who concentrate on the export trade say that the proposals are pathetically small, that they are just enough to annoy our foreign competitors but not enough materially to increase our exports. Furthermore, I put it to the Chancellor that there is no ultimate benefit to our country if by any means at all he induces exporters to sell goods abroad below their proper price, which is a danger and a temptation in some industries and trades. If we sell abroad at materially below our home prices we are not only failing to secure for the Chancellor taxation through profits but we are actually making our import-export position worse.

I should like the right hon. Gentleman to guard carefully against driving industry to get exports at any price. Our object should be to get exports to sell at a profit, because however much his hon. Friends may sneer at profits they are the basis of our welfare services. Instead of giving, as he has done under Clause 7, this quite inadequate export incentive, if the right hon. Gentleman could induce the people who control dock labour to see that our exports go through that bottleneck more quickly and to see that our exports are not left on the docks for weeks, he would do far more to increase our exports and cure the imbalance of trade.

I beg the Chancellor to look at the practical points which I have put to him. He cannot incorporate them in the Bill now, but he can answer the fundamental question about the temporariness of the 15 per cent. surcharge. If the right hon. Gentleman will do that and if in his statement tomorrow on tax proposals he puts back confidence into normal business, not the giants of industry but the ordinary small business man who is employing between 200 and 500 people, he will restore confidence which will help him and help to solve the nation's difficulties quicker than anything else.

12.40 a.m.

Sir Alexander Spearman

The House will be glad to know that, at this late hour, I shall confine myself entirely to Clause 3 and be as brief as I can.

I have three points to make about the surcharge. First, the handling of it. Even an ardent supporter of the Bill could not convince an objective and impartial observer that it had been introduced by the Government in a skilful way. I have always heard that, when E.F.T.A. was first established, the Ministers agreed among themselves that in the intimate environment of the Association they could speak in confidence and with a freedom which had been impossible in the other situations in which they had met.

I think that this explains some of the disappointment and bitterness which is felt today by our E.F.T.A. partners. On 3rd December, The Times, reporting the O.E.C.D. meeting, quoted the Belgian Minister of Foreign Trade as saying that Britain had instituted in this very forum this year a procedure for prior consultation on changes in trade practice". What a sad contrast to that action of the last Government we have been witnessing lately.

Secondly, will the surcharge achieve its objective? I agree that it will, to some extent, slow down imports. I think that it was Charles Lamb who once said that, by burning down one's house, one could have roast pork, but the cost was stupendous and the product was poor. That just about hits this situation. The cost of this proposal is very great. Whatever the Chief Secretary may have said today, it will inevitably protect the inefficient producer. It brings less competion at a time when more competition is urgently needed in British industry. Costs will be pushed up by the extra cost of machinery and partly manufactured goods. We have had instance after instance of this in the speeches of my hon. Friends during the past few days. Also, of course, there will be some increase in inflationary pressure.

More serious and more lasting is the ill will the surcharge has created. On every side, I hear our salesmen saying that, when they travelled abroad in the past few weeks, they encountered difficulties and antagonisms which they had never met before.

Still worse is the possible effect on world policy. I believe that the contribution which this country can make to world prosperity, and, in this dangerous nuclear age, perhaps to world safety, too, is to set an example in freeing and expanding world trade and building up confidence in the Western world. Instead of that, we have disastrously gone into reverse. We are encouraging a parochial and protectionist spirit. I do not believe that Mr. Heath Robinson at his most ingenious could have contrived a more clumsy instrument for slowing down imports.

Thirdly, is it necessary? Any arbitrary control of imports is always bad, but I accept that, in extreme emergency, it may be necessary, rather as a doctor will prescribe a harmful drug for a patient in order to get him through a few hours until he can be operated on. But that is not our situation. At least in October, our balance of payments position was nothing like as serious as it was in 1951 or 1948. In 1948, the drain on the gold and dollar reserves was £1,023 million. It is about comparable to the situation in 1955 and 1961. What happened was that the economy was a little overheated and there was a tremendous amount of stock building, no doubt in anticipation of the election.

What is the alternative to this proposal? I believe that it is what the Government have done, and what the United States did after the assassination of President Kennedy—to get a loan to tide us over a temporary period. I believe that in the short run this measure was quite unnecessary, and that in the long run it does no good at all. When it is taken off there will be a rush of imports. It does nothing to create what is needed, which is an ability to produce goods more competitively. On the contrary, it makes it more difficult.

I listened to the Prime Minister on television last week. He was asked whether he thought that in his first 50 days there had been any mistakes. He replied that all Governments make mistakes; and, of course, that is true. The really successful man is not the man who makes no mistakes. Infallibility is not given to us humans; everyone makes mistakes. The successful man is the one who has the courage and good sense to cut his losses in time, and if only right hon. Gentlemen opposite, who must see the folly of this measure now, would have the courage and good sense to cut their losses, the country would benefit very much.

12.46 a.m.

Mr. H. P. G. Channon (Southend, West)

I shall delay the House only five minutes. I wish to follow up some of the points made by my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman).

I have had the pleasure, which the Chancellor has not had for good reasons, of listening to practically all the Committee stage and Report stage debates, and, in particular, the debates on Clause 3 and the surcharge. I think that the House will agree that the points made were made for genuine reasons. There was no obstruction. But many serious points were treated by the Treasury Bench with great lack of sympathy. I will not argue at this late hour whether the Government were right or wrong to apply the surcharge, but what I strongly resent, and so do many people, is the method by which they have chosen to apply it and the inflexibility with which they have treated the matter since.

I appreciate that the surcharge was imposed extremely quickly. I have heard of great ill will caused abroad by failure to consult and by the other measures which the Government have taken. But surely the least the Government could have done on the home front was to make sure that they applied the surcharge with equity upon a large number of people who were facing some hardship. I was astonished to find during our debates that the Government were prepared to give no concession to goods which were under contract, no concession to goods already in transport and no concession to those who were in severe hardship. All these matters point to the fact that, although perhaps it is not intended, there is a severe measure of retrospection in the surcharge.

What is worse is that the House, by the Government's will, has gone on imposing a charge on health, knowledge and homes. [HON. MEMBERS: "Oh".] That is strictly accurate. Hon. Members opposite may be entitled to say that they do not think that the effect will be as great as some of us have made out, but what I am saying is a matter of strict accuracy and I am not trying to overstate the case. They have imposed this tax on health, knowledge and homes.

Earlier today, the Financial Secretary talked about pharmaceuticals. He said that he did not wish to limit the imports of pharmaceuticals coming in at the moment, but to apply the brake generally, whatever that may mean. I understood that the purpose of the surcharge was, as stated in the White Paper: A scheme for temporary import charges will be introduced immediately with the object of affecting a substantial reduction in the present level of imports. Yet now the Financial Secretary says that he does not wish to reduce the level of imports of drugs coming into the country—quite understandably.

Surely the surcharge has not been put on as a revenue-producing measure. No member of the Government has suggested that, although some back benchers opposite have come close to saying so. The Government might have looked at the matter with a little more flexibility by exempting goods which will come in any way. The surcharge has not reduced the importation of certain goods. It has merely put a tax on things which will come in regardless—drugs, for example—or which cannot be stopped because they are under contract or are in transit.

As the Financial Secretary admitted, there are many hard cases for relief. But, despite three days of constructive examination of the Bill in Committee, and again today, the Government, I am sorry to say, have seen fit to make very few concessions. I hope that the Chancellor will say—I am sure he will—that he will review all these matters which have been raised sympathetically in the next few months and will not necessarily wait for blanket release of everything from the surcharge. I hope that he will release many goods as early as possible where there is good reason to do so.

I support my hon. Friend the Member for Louth (Sir C. Osborne) in saying that one result of the surcharge is considerable lack of confidence by industry in the Government. The Government imposed it in a very bad way indeed. They have got themselves in a mess. [HON. MEMBERS: "No."] I am not arguing now about the wisdom of imposing the surcharge, but the method, which has been inflexible, inelastic, unfair and unjust. That is what I mean when I say that the Government have got themselves in a mess. I hope that the Chancellor will do all he can, although it is too late in this Bill, to relieve some of the injustices caused by the imposition of the surcharge.

12.53 a.m.

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

Third Reading is customarily the time when we try to abandon the making of debating points and concentrate on things which are of national importance. Before I do that, however, it is only right that we should pay a modest tribute to the Chancellor and his junior Ministers who have assisted him.

The right hon. Gentleman has not been here very much, for he has had other places to go to, but he has had very agreeable deputies and I must say that, although we were arguing before what was undoubtedly a panel of hanging judges, they delivered their verdicts—or, rather, read their briefs—with good manners, patience and charm. Perhaps the palm should go to the Minister without Portfolio, who was undoubtedly Judge Jeffreys in this bloody assize—or should I say bloody Committee?

I notice, too, that the Chancellor, returning from Paris, commented that when one has been in a typhoon a Force 9 gale is quite agreeable. I expect he would consider our debates here to be something in the nature of an autumn breeze. But he should realise that when we have spent as long as we have on this very simple Measure, we must wonder how we are to get through his main Budget in April—if he ever makes it—in as short a time as was taken for the Lloyd George Budget of 1909. I really do not know.

Mr. Loughlin

Is this a speech in the national interest?

Sir H. d'Avigdor-Goldsmid

I am grateful to the hon. Member, who is always anxious to speak in the national interest, but usually in a seated position and without adding very much to our debates.

My hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) has put very well what we feel about the Bill. I was sorry for the Chancellor of the Exchequer in bringing it in. It is designed to destroy the confidence that the country normally enjoys. Both at home and abroad, it has had that effect. It has neutralised the effect that some of the Government's other Measures might have had. I say to the Chancellor in all sincerity that unless he looks at this matter again, unless he sees what a blunt instrument it is when applied to the economy, which is unlikely to recover from it if it is left as it is, the prospects are very bleak.

12.56 a.m.

Mr. Hirst

I, too, wish to speak briefly, because I have taken part in most of the proceedings on the Bill. First, however, I join with several of my right hon. and hon. Friends in saying that I deplore the rush with which the Bill has been put through the House, with Third Reading at this time of night. Even more do I deplore the speed with which one stage has followed another. It is not in the national interest that this should be so. It is not, as I see it as a not very old Member, in the interests of the House of Commons that it should be so.

Clearly, the rush with which the Bill has been put through has not allowed of the natural consultation which can often lead to a new look at things. For this, there simply has not been time. This has been shown up time after time in these debates, and the nation has lost a great deal by it. I am not prepared to believe that right hon. and hon. Members opposite, many of whom I know and respect highly, if given a little more time, would not have been able to see our point better than they appear to have done by the degree of lack of concession that we have received.

I consider this to be fundamentally, from top to bottom, a bad Bill. I very largely agree with my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) that it is largely an unnecessary Bill. It is full of imposts, the results of some of which have, I am sure, taken even the Government by surprise. I thought that they were doing something to stabilise the economy, but what has resulted? This and other things have so shocked the world—[Laughter.] I shall not quote, but it is on record, what the Prime Minister said in this matter. Hon. Members below the Gangway opposite who are laughing would be more intelligent if they read their leader's speeches.

The Government's policies have shocked the world. The world took considerable umbrage at the actions they were taking. World reaction, quite rightly, was that many of these measures are totally irrelevant. That was the basis on which the damage was mainly done, and a very poor job has been made of trying to clear it up.

I do not say that that is the most important feature for the whole economy, because I think that the inflationary effect of the Finance Bill as a whole is by far the most dangerous. It is, however, important concerning our reputation abroad that the so-called temporary surcharge has been put on, and that it has been put on in the way that it has been. I have quite a lot of contacts abroad. I have been connected quite considerably from time to time with the export business, and I still am in an organisational way connected with it quite a lot.

I do not need to tell right hon. and hon. Members opposite what the views and feelings are abroad. I am very worried, because I have never known this country to be so unpopular. That cannot be good for our trade and industry, and it really is not justified by any possible results which the right hon. Gentleman may get from this impost. I agree absolutely with what my right hon. Friend the Member for Barnet (Mr. Maudling) has said, that quite obviously imports were falling. Indeed, I will go further. I forecast that, taking the relatively short period, they will fall more.

Mr. Callaghan

Of course.

Mr. Hirst

But not because of this impost. It has nothing to do with this impost whatsoever. Not a bit of it. They will fall for certain technical reasons about stockpiling well known to Members on both sides, but particularly because of the reason my hon. Friend the Member for Louth (Sir C. Osborne) gave.

All of us who have any direct connection with industry will know that right, left and centre, as a matter of business this situation was faced, and it was perfectly right for industry to face it, because industry has a right to face things as it sees them, and there was the shattering foreknowledge of the danger of the Labour Party coming to power, and, irrespective of the balance of payments, and just because of that party's love of quotas and all the rest of it, there was an inherent danger. [HON. MEMBERS: "No."] Oh, yes. I know what I talking about. There was an inherent danger. I know the talk in the board rooms of several companies. "There is a danger," they said. "We will get in a good stock of goods so that we can plan reasonably for the future and not be upset if the Labour Party is returned." There is no shadow of doubt about it. They built up materials stocks in consequence.

The converse now happens particularly because the President of the Board of Trade in his more confidential moments, as has been reported to me, dealing with the converse position, has or has not—but I have it that he has—actually made, at any rate, such noises to a very considerable number of countries which believe that this impost is probably more temporary than the Government are prepared actually to say. I do see why the Government cannot literally here and now give a date. I appreciate that, but, on the other hand, the same thing is being effected by reason of this, because imports will be dammed up. I know that orders are being placed now with the proviso, which is accepted as the basis, that the imports will take place only if the orders are renegotiated when the surcharge comes off.

I think that if the right hon. Gentleman keeps it on for too long, then the converse will happen and there will be greater damage to our reputation and to confidence in us in countries with which we trade. Heads or tails, he must lose. This is the futility of this step, and it is a futility which three-quarters of the commercial world has demonstrated all down the line in expressing its views and opinions of it.

Sir C. Osborne

If the Chancellor takes it off quickly, as my hon. Friend says, how can it possibly permanently affect our economic situation? That is the problem.

Mr. Hirst

I do not think that it will affect our economy in any way along the line the right hon. Gentleman imagines. The way in which it will affect the economy is by damaging it. This is the sort of miscalculation which has disturbed Europe and led to the run on the £—amongst other considerations which are not germane, possibly, to this discussion tonight. It is this sort of thing which has disturbed confidence, and confidence is very easily disturbed. It was prepared to be disturbed at the thought of a Labour Government being returned. Then, when the Government handle the situation in such a ham-fisted, bad way as they have, what was a possibility becomes a certainty. The Government should not be surprised at the reactions to their policies.

These may have been taken into consideration in early Cabinet meetings of right hon. Gentlemen, but what, so far as I can see, was taken into consideration was a mass of political decisions with no regard whatsoever to the consequences. Everybody in Whitehall and the Customs has been working on these misbegotten decisions ever since, and there has been trouble all down the line, because many have been saddled with this surcharge which I think will make an awful mess of things and achieve nothing beneficial.

We have been arguing all through the Committee that the large majority of the imports which are essential to industry, including many which are the raw materials of industry, will continue to be imported if we are to maintain our basis for exports. We already have "Stop". There is no "Go" about it. We can only hope that we shall not go downhill. If we are to export, we must import these goods, and their import will not be stopped by the surcharge. Industry has stocked up and can live off the camel's hump, as it were, for some time. But for this futile business the position would have fallen into equilibrium, as we said during the election, but because of this evil measure the balance of payments crisis may be more dangerous than ever in a few months' time.

I do not think that the Government get any marks for the Bill, and certainly not for the way in which they have handled Schedule 3, which is an example of muddled minds. I can think of no speech from the Government Dispatch Box which has not demonstrated that. To me, it is a matter of shame that the industry and commerce of the country, and all the work in it, should be treated as a political shuttlecock in this way. Right hon. Gentlemen opposite must realise that they have greatly disturbed world confidence and have caused a great deal of alarm and despondency in many quarters of industry.

If they think that this will be paid for by the export incentive, they must think again. The export allowance is too small to attract people away from the home market and into exports—apart from the first which do the great bulk of our export trade. In fact, about 250 firms do 70 per cent. of the export trade. The export trade can be a dangerous business; I have burned my fingers in it. To attract many people away from the home market into exports will require a much better incentive than is offered here.

The Chancellor ought to know what people in business circles are thinking of the questionnaire which has been thought up for this occasion. It will be such an appalling bore and they will be so angry with the futility of form filling that they will resent it. We have been told that with chemical products—an industry in which I did part of my training in life—it does not matter whether the chemical changes its form; one can fill in a form and get drawback. This is the sort of thing put up seriously to industry as an incentive for exports.

The Government stand condemned for this Measure. However good they have been at the Dispatch Box in trying to explain it, the fact remains that it is utterly incapable of being explained—and the country knows it, and the world, too.

1.9 a.m.

Mr. Dudley Smith (Brentford and Chiswick)

My right hon. Friend the Member for Barnet (Mr. Maudling) said that this was a bad and inflationary Finance Bill, and I agree with him and with my hon. Friends who have said that this is the case. How inflationary it is will not be seen until the New Year, when prices will begin to creep up and, as a result, many people will realise that the provisions are thoroughly bad.

I want to deal, however, with the provisions of Clause 4, in respect of the surcharge on newsprint. In doing so I must declare an interest, because I am connected with the newspaper industry. But far be it for me to make a special plea, for I am concerned with the Press as a whole.

Newsprint is a special commodity. It has not been treated as such in the Bill and it is a mistake that it should have been included. Newspapers generally, particularly the national ones, have extremely high costs, probably much higher than most other aspects of industry. The new tax will bear severely on them. Newsprint has increased in price since the war more than practically any other commodity and the signs are that there are other increases in prices on the way.

Costs are extremely high in newspaper production, largely due to the high wages paid in the printing industry and the costs of the materials used. My concern is not for the prosperous newspapers particularly but for the many others which are operating at a less satisfactory financial level. At a time when we must be ever vigilant to see that we have a free Press—that we have as many newspapers as possible—this additional charge will impinge drastically on a number of newspapers which are not doing so well. Indeed, to some, it may tip the balance between continuing and closing down.

I will not go into the details of the newspapers which are not being very successful, except to say that it is common gossip that at least one national newspaper is in danger of closing and that two or three others may be on the brink. The extra cost may have a material bearing on whether or not they are closed down. I agree with my right hon. Friend the Member for Bexley (Mr. Heath) that this is a tax on knowledge. It is a retrograde tax which has ramifications going further than perhaps the Government realise.

1.16 a.m.

Mr. Callaghan

I would like, first, to thank hon. Members for the considerate way in which they accepted my absence last week for two of the three days. Perhaps they preferred my absence to my presence. I regard my duty to the House as being the first consideration. The growth of international committees sometimes results in their being a conflict of interests. I regret not being able to be here and I am grateful for the understanding that has been shown.

Having read the speeches in the OFFICIAL REPORT, and having listened tonight to my hon. Friends the Chief Secretary and the Financial Secretary, I feel that my hon. Friends have borne a considerable burden with great diligence and care, and a great deal of knowledge. I thank them for the way in which they did their job.

We had another team opposite, some old familiar faces and some new batsmen, bowlers, or whatever they may be. The right hon. Member for Barnet (Mr. Maudling) was in his accustomed place, although he seemed to desert the crease whenever the right hon. Member for Bexley (Mr. Heath) arrived. I do not know the reason, but I have been glad to see sharing the bowling the hon. Member for Nottingham, South (Mr. William Clark), and the right hon. Member for Taunton (Mr. du Cann), who has great experience of these matters. Together they formed a formidable team, with the new recruit, the hon. Member for Wycombe (Mr. John Hall). There is no doubt that in terms of their capacity to put their case across, they are worthy foemen, although they did not appear to have their arguments agreed.

The major argument has centred around the question, "Is this Budget inflationary or deflationary?" The right hon. Member for Barnet, from the first moment, has never been in any doubt. He said that this is an inflationary Budget. The hon. Member for Louth (Sir C. Osborne), on the other hand, said quite the contrary; that we are in such a deflationary situation that we are likely to run into a slump, a slowing down of trade and that unemployment faces the country. They cannot both be right.

One thing flows from what the right hon. Member for Barnet said. If he regards this as an inflationary Budget, what would he have done to disinflate the economy? Would he have increased taxes? The Opposition have been voting against every proposal for increasing taxes we have proposed? What is his remedy, if he regards this as being an inflationary situation? I assume that he would have increased the measure of deflation which he thinks I have inadequately taken. What taxes would he have proposed? Would he have used the regulator, or increased Purchase Tax—one way of doing it, I agree—or would he have increased Profits Tax or put up Surtax?

Which taxes would the right hon. Gentleman have preferred to those which I chose? If he analyses correctly, and this is an inflationary situation, then he is quite unjustified in voting against the taxes proposed in the Bill. He should, on the contrary, be proposing additional taxes in order to take the heat out of the economy. I think that it is a measure of the sterility of the Opposition's case—and I am referring to the official, and not the unofficial, Opposition—that it tries to make clear that we are in an inflationary position while it is not willing to say how the inflationary situation should be handled.

Mr. Maudling

I did not say that we were in an inflationary situation. I said that this was an inflationary Budget.

Mr. Callaghan

That really is an amendment which makes no difference. Does the right hon. Gentleman say that we should not have increased pensions? His right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) and the hon. Lady the Member for Finchley (Mrs. Thatcher) have both made it clear that they thought the pensions should have been higher and should have been paid sooner; but that would have added to the inflation. This is a disinflationary Budget, certainly in the initial instance, with the initial impact of the petrol duties, which came into force as soon as the Budget Resolutions were passed. The pension increases, as hon. Members know, are not being paid yet.

When we came to office we found that in leaving the balance of payments situation alone the previous Government had let the economy get overheated. We all know of the strain on the construction industries. We have heard my right hon. Friend the Minister of Public Building and Works talking about the acute shortage of bricks. There are well-known signs of strain in the engineering industry. However much the right hon. Gentleman tries to evade the balance of payments issue, he cannot avoid the other question; there is no doubt that, during the summer months, for electoral reasons, he allowed the economy to become overheated.

The right hon. Gentleman knows that when we take the steps we proposed we are following what he would have done had he had the courage. Admittedly, he is walking back a little now, but the simple truth on the balance of payments is this: that all the evidence, and all the persuasive and logical and cogent pleas made from the benches opposite to relieve individual companies and firms and industries from the incidence of the surcharge, neglects one important fact. There is no painless way of solving the balance of payments problem, and that is the overriding case from the Government Front Bench. There is no perfect remedy, either. Everybody can find weaknesses in any plan, but, so far as the surcharge is concerned, it is true to say that operating directly on imports is a method much less deflationary than operating on wages and incomes as was done in 1961.

To get the same diminution in the level of imports, one has to have much greater deflation by operating through a pay pause and wages freeze than by operating directly. The right hon. Gentleman was committed, and we are commited, to getting a substantial rate of growth which, alas, we shall not see this year. Because the country is committed to this, and desires it, we were right not to choose to tread the path of 1961 all over again, but to try to operate directly.

That is why some other countries, in my view mistakenly, are so angry about it. Some of them say that it is having no effect while others say that it having an appalling effect but, like hon. Members opposite, both cannot be right. Some countries are saying, "You are operating against our exports—your imports—directly, whereas you ought to operate on your own internal economy much more than you have done." That is the battle I have been fighting the whole time. What they did not realise—and this is what I have tried to say to them—is that if we did operate directly on our own economy and deflated the economy to the extent to which it was deflated in 1961, and to the extent to which some would like, the ultimate effect on their exports to us would be as great as, if not greater than, the effect today.

I believe that the country understands and recognises this. That is why it is impossible to satisfy right hon. and hon. Members opposite about all the cases which, considered separately and in isolation, all have a great deal to commend them, but which, in relation to trying to live within our means, and balance our payments, simply cannot be allowed because, in the end, we would be left with practically nothing to reduce imports, or else have to transfer the charge to foodstuffs and raw materials, which the Government deliberately excluded—

Sir C. Osborne

But would not the Chancellor agree that with this admittedly difficult problem of curing the imbalance between our imports and exports as a whole he has concentrated too much on imports, and has not dealt sufficiently with the problem of exports, which I think would cure the problem better?

Mr. Callaghan

There is no doubt that when the hon. Gentleman says this he is uttering a criticism that I have found very widely expressed on the Continent, that we have not solved the fundamental problem of Britain's disequilibrium. I must say that I plead guilty to that charge afer six weeks in office. It is difficult enough to take, when one is abroad, that one has not found the philosophers' stone within six weeks, and has not got the cure for this imbalance between exports and imports, but I cannot take it from right hon. and hon. Gentlemen opposite.

The right hon. Member for Barnet may say that imports would have gone down. That is possible. I suppose that hon. Members opposite were deceived by their own propaganda, and forestalled because they believed that restrictions would be placed on imports by a Labour Government. I do not know why they should have thought that, if they were good businessmen. Indeed, many good businessmen did not believe it because they knew from our policy statements and from our speeches in this House that this would never have been the policy of a Labour Government. But, as I say, deceived by their own propaganda, they created the very situation that has now happened.

This is the difficulty. I do not know whether imports would have gone down. I very much hope that the right hon. Member for Barnet is right, and that they would have done, but, with respect, he has been a poor prophet before. Where arc those exports? I have been waiting for them all the year. He told the whole House, throughout the year, when he was Chancellor, that they were in the pipeline, that they were emerging, and would come. When am I to see them?

Mr. Maudling

If the right hon. Gentleman does not believe that imports will fall next year, and exports rise, why do the Government accept that our balance of payments position will be very much better next year, without any other action being taken?

Mr. Callaghan

I was hoping that I would get an answer to my question, but, instead, I got another question. Of course exports have gone up this year. They have gone up by 4 per cent., but alas, imports have gone up, as the Chief Secretary said, by 14 or 15 per cent. It is not just a matter of forestalling. If the right hon. Member takes the difference between 1962 and 1963 he will see that it is very substantial. This is one of the serious weaknesses we face that in the field of manufactures and semi-manufactures there is an increase of some hundreds of millions of pounds on imports. It should concern the whole House and the country that this is so.

The right hon. Member is right in saying that the only way to deal with this is to push up exports. When the hon. Member for Louth asks whether I have paid too much attention to imports, the answer is "No." This was a situation in which action had to be taken. I stand by that. On the basis of any advice I could have been given I would have been guilty of a grave dereliction of duty if I had not taken action in relation to balance of payments within a matter of days of getting into office. I stand by that. Although I know that hon. Members opposite will not agree, action should have been taken months earlier. Because it was delayed for so long—I regret having to say this, but I must make the position clear—in the end we had to take more violent action than we would have wished.

One cannot steer a ship by making violent twists on the wheel. The more violent they become, the more violent the correction one has to make. Because the ship was allowed to get so much off-course, we had to make a violent action on the tiller. This means, I quite agree, that it will be a long time before we can get back to those delicate adjustments which, in my view, fit the economy most.

Mr. Maudling

I am most grateful to the right hon. Gentleman for giving way again, but he said this the other day and I must put the question again, because he failed to answer it. What were the measures which he says should have been taken in the summer, and was he himself advocating those measures at that time?

Mr. Callaghan

I was not advocating any measures at that time, because I was told by the right hon. Gentleman, and more particularly by the then Prime Minister, that there was no need to do anything. I certainly was not advocating these measures at that time, but the right hon. Member should read the speeches I made at that time, what I said in the spring Budget debate and in the debate on economic affairs. I must say that when I read them I am astonished at my own prescience. One could see what was coming.

Mr. Maudling

What measures could I have taken?

Mr. Callaghan

The right Member knows that there were some measures which he considered and rejected. We have had to take some unpleasant measures. He might have chosen different ones. He might have chosen the regulator. In the summer he could have chosen the regulator if he had wished, but that would have been a confession immediately before the General Election that his right hon. Friend the then Prime Minister was wrong, so he did not choose it. In fact, he chose to do nothing.

The Opposition, having opposed everything we are proposing to do, and are doing, in this Bill, have put forward nothing in its place. They may say that it is not their job to do so. When I heard the fervour with which the hon. Member for Shipley (Mr. Hirst) attacked me, I felt that it was exceeded only by the fervour with which he attacked his own Front Bench when he was sitting on this side of the House. I would almost have believed in the fervour of his speech tonight if I had not been used to making such speeches myself from the Opposition benches.

In a difficult situation, where quick decisions had to be taken, this combination of measures is the one most likely to see that the stop on the economy, which we want to avoid, is, in fact, avoided. I have fought, and will continue to fight, to prevent our getting back into the stop-go period. I have resisted demands for this from wherever they come, whether from the Opposition Front Bench or anywhere else, because I do not believe that our economy is in that state at present.

I think that we are in a delicately poised situation and that enough has been done, and is being done at present, especially if bank advances are focused on exports and on loans for productive industry and all the rest of it, to ensure that we can keep the economy moving. The great distress to me, as I said in Committee, is to find that we have got a growth rate of 2 per cent. and programmes to which we are committed based on a growth rate of 4 per cent. This presents the whole House with a very real problem which we shall have to face before very long, because it is something which the country is crying out for.

I believe that the Budget, which will give assistance to pensioners and which tries to match that assistance by facing the country with the need to pay for that assistance, in conjunction with the other measures which we have taken, represents the best short-term approach to rescuing ourselves from the very difficult problems with which we are confronted. But it is a short-term rescue operation. This is not a long-term Budget. I cannot tell the hon. Member for Louth how long the import charge will last. I do not think that he would expect me to do so. What I do say is that this is not a long-term Budget. It was not intended to be. It is a Budget to meet a short-term situation. There will be another Budget in April, in which other measures of a longer-term nature, I hope, will be taken.

I apologise for speaking for so long. I do not wish to detain the House now, but I feel that I have no reason to be dissatisfied with the reception of the Budget in the country, whatever reception it has had on the Opposition benches. Wherever I have gone, and judging by all the instances that one can find, it looks as though this Budget has been recognised as a realistic Budget based on social justice, designed to do the best for the country in the economic situation with which the Labour Government were confronted on their return to office.

Question put and agreed to.

Bill accordingly read the Third time and passed.