BUDGET STATEMENT

HC Deb 12 November 1964 vol 701 cc1198-327

3.43 p.m.

Mr. Reginald Mandling (Barnet)

I hope that the Committee will allow me to start by congratulating the Chancellor of the Exchequer on the manner of his Budget statement yesterday. I know from experience that it is a considerable ordeal to make this particular speech. I should like to say with all sincerity that I thought that the clarity, coherence and lucidity of his statement was quite remarkable. While I cannot go on to add the further traditional words, "I hope to hear him often again in that capacity", nevertheless, as long as he is speaking from that Box as Chancellor of the Exchequer, I am sure that the Committee will receive from him a very clear, lucid and forthright statement of what he intends to do.

We have it on the authority of the Prime Minister that there were three purposes in this autumn Budget: first, to give effect to the surcharge and export incentives; secondly, to get the economy into shape, as I think he called it; and, thirdly, to pay for the Government's social measures. It is true that the Budget and the Finance Bill will give effect to the surcharge and to the incentive. It is also true, very true, that the Budget will enable the Chancellor to pay for the Government's social measures. But I canont see much in this Budget, or in the Finance Bill which will follow, which will, in the Prime Minister's words, get the economy into shape.

I can see nothing in the Budget which will increase the efficiency of British industry, which will improve our balance of payments or which will do other than add an additional burden to an economy already heavily loaded. I am convinced that the effect of these measures is bound to be to inflate costs of production throughout the country, to increase the dangers of inflation and thereby to aggravate rather than to improve the economic situation which we face.

I should like to deal, first, with the surcharge and the export incentives. When the Government decided to take measures to deal directly with the balance of payments they had a choice of possible measures available, of which, obviously, the two main measures were import quotas or the import surcharge which they chose. These were clearly the two main choices if they decided, as they did, to try to impose a check upon imports into this country.

I should start by saying that, whatever the comparative merits of the surcharge or quotas, I cannot imagine how the surcharge could have been introduced in a more hamfisted manner than it was. The effect has been to introduce a charge which falls heavily and without discrimination on a wide range of imports many of which, frankly, are both essential and irreplaceable. It is bound to put up costs and it is also bound to increase home demand in certain areas of our economy. Possibly most serious of all, it has certainly created a most serious reaction among our friends overseas, and particularly in Europe.

I think that all hon. Members in the Committee feel that the reaction of E.F.T.A. is very serious. I have a personal interest in this matter, having been concerned very much in the foundation of E.F.T.A., and I think that on both sides of the Committee we feel that it is of great value to this country. We are grieved very much at the reactions which we have seen expressed by our friends in the Scandinavian countries and the other countries of E.F.T.A. at the measures which the Government have taken and, possibly more important, at the way in which those measures were taken. I have no doubt at all that many of the difficulties to which I have referred, and to which I will refer, could have been avoided in practice. I have no doubt about that at all.

The Government's argument is this: imports had to be reduced because they were too high. According to the letter of international law, the only way to do this is by quotas, but the Government say, "If imports are reduced, it has the same effect on our trading partners whatever method we adopt." They say that Italy and France, for instance, in various ways cut down their imports from other countries, thereby affecting us. They say that in logic the imposition of a tariff surcharge does no more harm to our trading partners than the introduction of quotas, which are permissible under international agreements.

There is in logic, I accept, something in this argument, but there is also a very large psychological effect which, I think, the Government have totally ignored. It is all very well for them to say that the existing rules of our existing international obligations are wrong and should be changed. But these rules exist. There is no doubt that a quota is permissible, whereas a tariff surcharge is not permissible. If, therefore, the Government decided, as they did, to introduce the illegal method of protection rather than the legal method of protection, I should have thought that the least they could have done was to prepare the way by consultation and by working together with our colleagues and allies, particularly in E.F.T.A.

I am sure that they made a mistake. I am sure that an immense number of the problems which have arisen and misunderstandings which have descended upon our heads could have been avoided if it had been handled with more common sense, more deliberation and more consideration of the obligations into which this country has entered. Nothing was more inept than to rub salt into the wound by putting in the wholly unnecessary, and I think very foolish, reference to the Concord in the Government's White Paper.

That can be taken with the reference of the President of the Board of Trade, who, I believe, at one time implied that we could give some special preference to E.F.T.A. He knew perfectly well that this was not possible, and subsequently it had to be denied. Bearing that in mind, and the reference to Concord, I have no doubt at all that the manner in which the surcharge has been imposed has been as damaging, as hamfisted and as inept as could possibly have been foreseen, even from this Government.

The Government's argument is that this was unavoidable because of the urgency of the situation. This I wholly refuse to accept. I do not believe that it is true at all, and I will explain precisely why. The Government talk about facing a deficit of £800 million. This is the substance of practically every interjection in this Committee's business at present. Let us look at the facts. The £800 million, of course, is the highest possible figure they could choose from a range of figures.

Secondly, of the figure of £800 million something like a half, I would reckon, is not trade deficit, but either overseas investment in new solid assets for Britain or repayment of existing, outstanding overseas debt, including the North American loan. Those are the first points.

Thirdly, of course, the Government could only be facing this deficit if they were looking backwards, because when they came into power three-quarters of the year was over, three-quarters of the year when this large deficit had been taken care of—by us. They were facing not 1964, but 1965. They were facing the fag end of 1964, a year of exceptional difficulty, as the Chancellor very frankly admitted yesterday—a year of higher import prices, exceptional capital outflow, stocking up. All these things, mentioned his speech, made 1964 an exceptional year. The Government, when they came into power, were facing the remaining months of 1964, and facing also the prospect of 1965 where, they agree, and the estimates they accept show, the deficit would have been cut without any further action by several hundreds of millions of pounds.

They were coming into power also at a time when we were moving through the difficult period for the sterling area and moving once again into a period of strength for the sterling area. They were facing, also, a situation where the Finance Ministers of the Commonwealth had agreed only a few weeks before that between 1964 and 1965 the balance of the sterling area as a whole with the rest of the world, which is what determines the level of reserves, would be stable over the year 1964–65. This is what they were facing, not what they talk about.

Let us look at what happened in 1964. In the first part of 1964 we had, as they say, a deficit on current and capital account of £340 million. Of course, there was a balancing item of £85 million which they ignore, and there was the exceptional Shell/Montecatni deal of £60 million which they also ignore, but the important thing is that such was the confidence in sterling, such was the international confidence in the strength of this country's economy, that we carried the whole of that £340 million deficit in the first half of this year without any loss to the reserves. The reserves, in fact, went up.

This went on through July and through August. Confidence in sterling remained strong, and sterling remained strong, and until the very last few days of August we made no net drawing from our American facilities and no approach whatsoever to any European bankers under the Basle arrangement. This was the position for two-thirds of the year, which the Government now describe as their problem.

The situation changed in September. I quite agree that the situation changed with the advent of the election. The situation changed. People overseas had some doubt as to the continuation of existing policies.—[HON. MEMBERS: "Oh."] Oh, yes. There was a very big change between August and September, not accounted for by any experience in the trading position of this country. There was a big change which, I think, must have been partly associated, in the minds of people overseas who did not want to hold quite so much sterling, with the wholly inflationary nature of the policies of the party opposite. The inflationary nature, I may say, of those policies was proved yesterday, by the fact that to meet those policies they need £300 million or £400 million of taxation they never mentioned during the election.

I have no doubt in my own mind that had the Conservative Party won the election this speculative position would have reversed itself, and we would have seen a flow back of money into London. I say, therefore, that while the party opposite can argue—and one can argue with substance—the need for measures to deal with the balance of payments, there was no case whatsoever for panic measures of the type we have seen; and if there was any element whatsoever of an emergency it was created by the Government themselves.

I have been dealing with the import surcharge, and the fact that the manner in which the import surcharge was imposed was hasty, and saying that the way in which it was done has done immense damage to our international relations. I want now to say one or two things about the surcharge itself, because I think that the character and the details of it are really hastily devised and ill-thought out so that there is a very high level of surcharge over the whole of the very wide range of goods affected.

I think that I am right in saying that when the Canadian Government did the same thing they had a level of 15 per cent. for one kind of thing, and other levels of 10 per cent. and 5 per cent. for others. We have manufactures, consumer goods, semi-manufactured goods all affected and all at the same level of surcharge. A bit more thought and a bit more discrimination might have produced far better results.

Why is the charge cast so wide? It is a little difficult to understand precisely the point of the argument, on which it is based. Is it to hold back imports—a point which has already been referred to—of things which can be made in this country? If that is the reason, why is the charge falling on many things which cannot be made in this country? There is a whole wide range of them, chemicals, raw materials, semi-processed raw materials, where, clearly, the charge is falling upon these imports without any benefit to our balance of payments, for we must have those imports, and the effect of the surcharge is to put up the costs of manufacture in this country and probably export costs as well.

Finally, why is it being applied to goods which would have come here anyway, goods arriving under irrevocable letters of credit already made and goods already in transit? I have one example, from one of my own constituents, of goods which had already landed in this country and were awaiting Customs clearance. How can it possibly help our balance of payments to apply this charge to goods which would have arrived anyway and for which we have had to pay?

These, it seems to me, are very practical and very important points, and I hope that the President of the Board of Trade, who, I understand, is to speak immediately after me, will be able to deal with them in his speech, because these are the things which matter, these are the details which are of essential importance if we have to measure what will be the influence upon our economy and our export prospects of the imposition of this surcharge.

I turn next to the export incentive. This is an idea, of course, which has been around in Whitehall for a long while, the idea of giving an arbitrary rebate to exporters calculated to be roughly the equivalent of the indirect taxation paid in the process of manufacture. It has often been considered, but never in the past accepted, and for good reason, I think. In the first place, it is rather doubtful whether it is valid internationally as a long-term measure. That is illustrated by the way in which it has been complained about by our friends in Sweden. I have already had a telegram from someone who said that his German customer is asking to be paid the equivalent of the rebate.

I have not much sympathy with the German customer, because I think that it is roughly the equivalent of T.V.A. rebate given in a good many European countries, but it is certainly doubtful whether this particular device is really in accordance with the letter of our international obligations. What is quite clear is that the benefit that will arise from this export incentive is rather small in terms of cash return to the exporter. I agree that it is better to do something for exports than to do nothing, but it is a rather small additional incentive to give.

On the other side, we must count the cost of this measure, which is very large indeed. I understand from what the Chancellor said yesterday that the cost to the taxpayer of this incentive will be about £75 million. I thought that the Chancellor set his sights rather low when he said that he hoped that the expansion in exports induced by this rebate would eventually be greater than the budgetary cost. I should hope so, too. If one pays £75 million of budgetary money for £76 million of exports, I am not sure that that is a good bargain. We shall watch the development of this measure with interest, but I say to the Committee that it would not be wise to expect any large development of exports to arise from it.

So much for the measures by which the Government expect and predict they will solve the present balance of payments problem.

I turn now to the main part of the speech, and I want to emphasise that this is the main part of it, because the main part of the new additional taxation announced yesterday was not concerned with the balance of payments position. It was concerned with the programme of the Socialist Government. The following additional taxation is to be levied: £215 million on the stamp, £93 million on petrel, and £122 million on Income Tax, making a total of £430 million. Of that figure, £280 million will be paid by industry and commerce, a very important point indeed.

As against this additional taxation of £430 million, no less than £345 million are required to meet additional expenditure arising from the deliberate policy decisions of the present Government. The fundamental point of the present Budget is that the overwhelming preponderance of the additional taxation to be levied is being levied as a result of the policy decisions of the Government, and bear no relation to the balance of payments situation.

My first comment on this is that there is a contrast between what the Chancellor said yesterday and what he and his colleagues were saying a month ago. They were rather reluctant then to give the cost of their programme. I remember trying to persuade them to be a little less reticent, and more forthcoming, about what their programme would cost the country. I did not have much success. They were not very willing to say how much we would have to pay for their programme. They were not willing to admit—rather the contrary; they were unwilling to admit£that any tax increases were involved in their programme.

I seem to remember making a statement just before the election, when I estimated that the full cost of their programme over a whole Parliament would be about £900 million a year to the taxpayer. No one denied that estimate. It was a modest one; that is why they did not deny it. I went on to estimate what this would mean in terms of taxation. I did my best to work out a specimen Budget. I mentioned three possibilities: 9d. on Income Tax; 6d. on petrol; and 6s. on the stamp. That was not a bad treble, because it turned out to be 6d. on Income Tax, 6d. on petrol and 5s. 3d. on the stamp.

What was the reaction of hon. Members opposite to my statement? They said that that was a disgraceful thing to say, that it was nonsense, that they had not the slightest intention of doing that sort of thing, and that it was nursery talk. We said quite clearly at that time that to implement the policy being put forward by the Labour Party would involve vast additional expenditure and much additional taxation. This has been wholly proved to be true, and they have no excuse whatever for saying that they did not know.

They say they have discovered that the revenue for several years ahead in an expanding economy was laid aside for the programmes of the previous Government. They may just have discovered that, but it was in our White Paper 11 months ago. We said it all the way through. The party opposite knows that that is true. The present Chancellor very honestly said, a few months ago, during the summer, that no responsible party could possibly bid to do more than we were proposing in schools, hospitals, and such things.

They knew from the published documents on Government expenditure—published in more detail than ever before—that the programmes which we were putting forward would absorb the taxable revenues of the country for several years ahead on a 4 per cent. growth basis. Nevertheless, they committed themselves to vast additional expenditure, and tried to pretend that it would not involve vast additional taxation. This has come home to roost and there will be many other birds to follow it.

I am talking about what the Prime Minister said. For example, in a broadcast he was asked about taxation and said: Over the period of a Parliament I believe we can do it certainly without any general increase in taxation …

The Prime Minister (Mr. Harold Wilson)

Instead of taking a page from the Central Office, why does not the right hon. Gentleman look at the transcript of what I said during the broadcast? Perhaps he will allow me to tell him what I said. I said: Let me say this quite frankly. If it is necessary to increase taxation"— this is what I said in reply to Mr. Robin Day— then we shall not hesitate to do it. We shall have to follow a system of priorities—we can't do it all at once, after twelve years, and we are going to be clearly responsible about this question and if we have got to increase taxation we shall say why we must do it, and we shall not shrink from doing it. That is from the B.B.C. transcript.

Mr. Maudling

As it happens, I have the transcript too. The interviewer asked: Alternatively, will your proposals involve increases in taxation? The answer was: No. Over the period of a Parliament I believe we can do it certainly without any general increase in taxation … Does the Prime Minister intend to rescind these tax increases before the next election? If he would like to answer that and undertake not to have an election until these taxes have been reduced, I shall be delighted to give way.

I turn now to the actual proposals which the Government have made as a means of meeting the additional expenditure which they have decided to incur. The effect of these proposals is bound to be inflationary. It is bound to put up prices. It is bound to damage the economy of this country.

Let us look, first, at costs. I think that we all agree that nothing is more important than to keep our costs of production as steady and as competitive as possible. This is the theme which runs through speeches from both sides of the Committee, and it is manifestly true. What will the proposals in this Budget do? The petrol tax will cost £93 million, of which at least £50 million will be borne by the trade, by commerce, and by industry. The additional £5 million bounty for exports will be pretty poor compensation for industry, which has to pay an additional £50 million by way of taxation.

Next, let us consider the insurance stamp. I think that the total to be collected is £215 million, of which £140 million to £150 million will be a direct and unavoidable addition to the costs of production of British industry. All this comes on top of the surcharge which, in many cases, because it has been applied too widely and without adequate discrimination, will add to the costs of production in British industry and make exporting from this country more difficult than it otherwise would have been.

There is no doubt that the effect of the Budget is to lay an additional direct and unavoidable cost on British industry. If this is the purpose of the party opposite, I think that it has little concept of the real problems of our economy. Secondly, these measures cannot fail to be a discouragement to investment. I am sure that any addition in the level of direct taxation is bound to influence the level of investment, whether by individuals or companies, because the net return on investment will be affected adversely by the increase in direct taxation, and the prospect clearly held out of more taxation to come in the future is bound to be even more damaging than the experience to date. My right hon. Friend the Leader of the Opposition yesterday described the bit of the iceberg that we have seen so far. It is the rest of the iceberg which will affect the intentions of investors in this country in the months and years ahead.

Then there was the threat of a corporation tax. I read with great care the passage in the right hon. Gentleman's speech about the corporation tax. It is very interesting indeed. But I cannot feel that it can possibly give any encouragement to British industry to invest further. The idea of a separate corporation tax has been examined by many Chancellors and has always been found, in practice, to be unworkable. I think that the main danger, certainly under the new dispensation, is that a specific and separate tax on the profits of companies will be a standing temptation to Chancellors to raid the necessary reserves or profits of companies, because they will not be exposed to the political odium at the same time of putting up the level of taxation on individuals.

Secondly, I was surprised to see, peeping out of the right hon. Gentleman's speech, this strong addiction to the idea of a differential in taxation as between distributed and undistributed profits. I know that this was in the original doctrine of the Leader of the Opposition, but I thought that the Chief Secretary, in his most illuminating address in the Investors' Chronicle symposium, a few months ago, had completely destroyed this silly idea of a discrimination between distributed and undistributed profits.

Thirdly, I am sure that the effect of the Budget is bound to be bad for savings. The right hon. Gentleman did not make any reference to savings, apart from a proper and courteous reference to the National Savings movement. He made no reference to the need for more and more savings, but, believe me, if we are to have the level of expenditure envisaged by the Government we shall need more savings than ever before if the level of taxation is to be anything like tolerable. I would have thought that one of the first things which the right hon. Gentleman should do would be to look for more ways of encouraging savings.

What is the right hon. Gentleman doing about our ideas—about the contractual savings scheme, the new Post Office idea, and the other ideas we left for him? I hope that he will take them over and develop them, because they seem to be very desirable and necessary in the interests of the economy. But the right hon. Gentleman said nothing about savings, apart from a proper reference to the National Savings movement.

I have little doubt that the reference to a capital gains tax is bound to work adversely against the level of savings. If I understand it correctly, we are to have in the much anticipated Budget of next year—and I cannot complain about the right hon. Gentleman's reference to it, because I anticipated one of mine extensively in the same way—a capital gains tax. We shall certainly await the details of this tax before we judge upon the claims put forward for it, that it advances social equity and justice. On the economics of it, I do not think that anyone this side of Ruritania—or possibly that nearby country that is in favour at the moment—can expect a capital gains tax to contribute towards solving the problems of a heavily burdened economy, because a tax on capital gains will basically come out of savings and not out of current expenditure. The effect of the tax will not be to restrain expenditure; it will be to encourage people—if I may put it in the vernacular—to spend the money before the rats get at it.

Those are three reasons why this Budget is bound to have an inflationary effect; why it is bound to put up costs and to discourage investment, while doing nothing whatever to encourage savings, and might well do the opposite. Finally, the economic assessment seems to me to show quite clearly that this in an inflationary Budget, that prices will be put up and that the tax yield involved and the reduction of savings involved will mean that the net effect is bound to be substantially inflationary.

We have the proposals for increased Government expenditure of £345 million, roughly speaking, on the social services, all of which will pass immediately into expenditure and will inflate demand in the economy by 100 per cent. straight away. On the other hand, we have duties, like petrol tax, stamp duty and Income Tax, which will not have the same effect. The petrol tax will be borne largely by industry, the effect of which will be to put up prices, and all the £50 million borne by industry will be offset against tax assessments, and, therefore, half of it, and perhaps more, will come out of the Exchequer anyway.

The same is true of stamp duty: £140 million or £150 million gross, will fall upon industry, of which probably less than half will be taken out of consumption. As for the increase in Income Tax, there can be no doubt in the mind of any unbiased person that a great part of the payment of Income Tax under the new increased rates, whether on persons or companies, will come not out of current expenditure but out of savings.

Therefore, when we take into consideration the effect of these three factors there can be no doubt that the amount of direct increase in purchasing power stimulated by the Budget will be very much in excess of the amount withdrawn from purchasing power by the tax increase measure, so that the effect of the Budget will be inflationary. It will increase demand, and I do not see how that can possibly be justified by the speech of the Chancellor of the Exchequer and by the position that he sought to lay before the Committee yesterday. Indeed, the more the party opposite argues that the economic situation is difficult the less it is justified in adding to the difficulties by precisely the sort of Budget it introduced yesterday.

There is a possibility that the Chancellor believes that this inflationary effect can be justified either by better chances of greater efficiency or better chances of getting an agreed incomes policy. As for greater efficiency, I see nothing in the Budget which is likely to encourage greater efficiency, or productivity, in British Industry. The surcharge, the increase in Income Tax and the other measures will not increase efficiency; they will tend to militate against it.

I do not believe that the Budget will make any contribution towards an incomes policy. I share with the right hon. Gentleman—as the Committee is well aware—the belief that an incomes policy is perhaps the most important item for this country to face. I do not agree with those cynics who say that an incomes policy is impossible. They may be right—only experience will prove whether they are—but until they are proved right we should try to press ahead and create an incomes policy.

Time and time again last year I said that the essential condition for the progress of our economy is more exports; that the essential condition for more exports is to keep our costs competitive, and that the essential condition of keeping our costs competitive, above all, is an incomes policy, rational and effective. I tried time and time again, in meetings of the National Economic Development Council, to get agreement on an incomes policy, even an agreement of a temporary character, and it is only right to say—because it is the truth and should be known—that all attempts made by the previous Government in the last year to get agreement on an incomes policy were met with and foundered upon the continued resistance of the trade union movement [HON. MEMBERS: "Oh".] It is true.

There is plenty of evidence. I know that the trade unions leaders have many difficulties. I accept that. They say, with justice, "It is very difficult for us to put across to the people who follow us a policy which is so different from our traditional outlook." I appreciate their difficulties. But it must be said for the sake of honesty, and for the record, that attempts have been made time and time again to get agreement on an incomes policy, but that our arguments have not been accepted.

The proposal put forward, which I still believe to be the right one—[HON. MEMBERS: "What was it?"] I will say what it was. It was for a tripartite agreement that the function of management should be to do everything possible to keep prices stable; that the function of labour should be to do everything possible to keep the rate of increase in wages in line with the rate of increase in productivity; and that the function of Government should be twofold: first, to keep the economy expanding and not to use restrictive measures, and, secondly, to undertake, as we did, that if, as a result of restrictions by wage or salary earners, profits received an unfair share of the national cake we would deal with the situation by fiscal measures. The Committee should know this, because it is true and it has been said many times. It is known to N.E.D.C., it is known to the trade unions, and it should be known to the country. This was the proposal by the then Government which was turned down. But it will be necessary in the end—of that I have no doubt. We shall find that this will be the solution.

Mr. J. J. Mendelson (Penistone)

The right hon. Gentleman the ex-Chancellor would not wish, I am sure, on his first appearance on the Opposition Front Bench, to give a totally false impression of what happened. He said that the trade union movement was responsible for it. Has he forgotten, or does he not wish to tell the Committee, that when a modest proposal was made, and one which had probably been worked out by the Director-General of N.E.D.C., to ask the employers to look at certain proposals for a scheme of price review and certain proposals to make it possible to get a contribution from the employers side, six employers' representatives on the N.E.D.C. said that they were ready to look at it. They took it back to the Federation of British Industries, whereupon it was immediately voted down.

Mr. Maudling

The fact is that I was there and the hon. Gentleman was not. It is wholly and completely untrue. If the hon. Gentleman looks at The Times of 7th or 9th February—I have not the memory of the right hon. Gentleman the Prime Minister—he will find that what happened was that at a meeting of the N.E.D.C. the employers' representatives themselves put forward a proposal for a price review—put forward very much the same as what the Government are now proposing—and the trade unions turned it down. That is true.

I will, if he likes, send the hon. Gentleman the lefthand column of The Times to which I refer to prove to him that, precisely as I have said, it was the employers who proposed this and that it was turned down by the trade unions as "a hasty and an ill-advised" action.

We shall only get an incomes policy in this country if we have a tripartite agreement of this kind and a price review body—I am not quite certain of the details and how they will work out—and, I am quite sure, something like an incomes commission which is designed to ensure that the exception from the general levels in an incomes policy is treated properly and fairly, but remains the exception.

The other great tragedy of an incomes policy during the last 18 months has been the determination of the party opposite and of its friends to have nothing to do with the National Incomes Commission, which could have done enormous benefit for the exports of the country.

I sum up what I was saying about the Budget. There are, first, the surcharges and the export incentive. I say that the surcharges could not have been imposed in a more hamfisted, incompetent and inept manner. I say that the increase in taxation arises to an enormous degree from the Government's own deliberate policy and is wholly at variance with all that they said in the election campaign. I say, moreover, that this is an inflationary Budget which will do great damage to our economy.

4.23 p.m.

The President of the Board of Trade (Mr. Douglas Jay)

I can well understand that the right hon. Member for Barnet (Mr. Maudling), in his apologia today for his past policies, was trying to convince his supporters that he is not really so moderate and reasonable in his comments on this Government's policy as he appeared to be in his first speech only a week ago. But I must say that I doubt whether he succeeded.

The right hon. Gentleman now tells us that everything was right with our economy until 16th October. He also now tries to argue that the higher tax on petrol, in particular, will have a serious inflationary effect on our economy, but when he himself and other of his colleagues in the previous Government repeatedly raised indirect taxes they all asserted that this was deflationary because it stopped people spending money on other things. That was the famous "Boyle's Law" invented by the right hon. Member for Birmingham, Handsworth (Sir E. Boyle), when he was a Government colleague of the ex-Chancellor.

The truth is that this change in the petrol tax will have far less effect on prices than the increase in Purchase Tax on necessities imposed by right hon. Gentlemen opposite. The right hon. Member for Barnet not merely differs from the right hon. Member for Handsworth, but also from his right hon. Friend the Member for Bexley (Mr. Heath). The right hon. Member for Barnet, I must say, normally makes such enlightened speeches that one wonders how he came to join the Tory Party at all. The right hon. Member for Bexley is quite different. Now that he is bereft of any official duties he is so bereft of serious argument that he has to sprinkle his speeches with personal abuse. This contrast has been particularly marked during the speeches in the past 10 days.

The ex-Chancellor told us on 4th November—barely more than a week ago—that he did not seriously quarrel with the present Government's measures to correct the balance of payments. He virtually said that he had prepared them himself. On the other hand, the ex-President of the Board of Trade said last week that they were ruining E.F.T.A., threatening G.A.T.T. and alienating 18 different nations.

The right hon. Member for Barnet really cannot come along today and say that this was all wrong, because he went out of his way last week virtually to bless the action which the Government had taken. He said on 4th November: I entirely agree with them"— the Government— that if they feel now—and this was their judgment and responsibility, which we will not oppose in principle in any way at all—that action should be taken, then they are right to act directly on the balance of payments and not by 'stop-go' or deflation. The right hon. Gentleman went even further than this. A little later in his speech he said: … if the total amount of imports has to be cut back, there is something to be said for doing so by the most efficient method rather than by imposing quotas which may be extremely cumbersome to administer and more harmful to trade."—[OFFICIAL REPORT, 4th November, 1964; Vo1. 701, c. 239–40] That is to say, the right hon. Gentleman approved the surcharge only a week ago, but the right hon. Member for Bexley says that the surcharge is disruptive and wholly mistaken.

Mr. Maudling

Anything which the right hon. Gentleman has just read out I agree with, but I still say that nothing could have been done in a more ham-fisted and damaging way.

Mr. Jay

I leave that part of the argument to the judgment of the Committee.

I must say that after this sharp clash of opinion between the Leader of the Opposition's two principal economic advisers, I was interested to see whether the Opposition would vote against the surcharge or not. Today, the ex-Chancellor said that they are against it, but yesterday they did not vote against it. The Opposition did decide to vote against the increase in both the petrol duty and the Income Tax, and we have had the ex-Chancellor doing his best this afternoon to justify this peculiar decision.

The right hon. Gentleman did not even mention the real issue before the Committee today. That issue is this. Do we, or do we not, think it right to raise the old-age pension substantially, help widows and remove the prescription charges? Those who vote against these rises in tax are voting against the increase in old-age pensions, the help for widows and the removal of the prescription charges. [HON. MEMBERS: "No."] If that is not so, how do hon. Members opposite propose that these benefits should be paid for?

Mr. Peter Bessell (Bodmin)

Are we to understand from what the right hon. Gentleman is saying that the increases in these taxes are to do with old-age pensions and not with the balance of payments?

Mr. Jay

They are to do with both, if the hon. Gentleman will have the patience to listen to my speech.

I have absolutely no doubt that the first priority for this Government—having corrected the yawning balance of payments gap bequeathed to us by the cowardice of the party opposite—was to do something immediate and substantial for the old people. During the last election I was invited to two meetings of old-age pensioners and at those meetings it was obvious to me that I was among some of the poorest people in our present society. They unanimously urged on me that the two measures which would bring the greatest relief to them would be a substantial rise in pensions and the abolition of the prescription charges.

One pensioner who said that he was 75 years old—that was not the highest age of those present—argued his case like this. He said that many of those present at the meeting had started work 60 years ago and had worked for far lower wages and for far longer hours and under far more arduous conditions than almost anyone would stand today. They had helped by such work to build up much of the capital which all of us are enjoying now. He asked me whether I did not think that we who are now earning more and enjoying much higher standards, owed these older people an inescapable obligation. I thought then, and I think now, that that is an unanswerable argument. It is the unanswerable justification for my right hon. Friend's proposals of yesterday for increased rates of taxation.

If for that reason tax revenue had to be raised somehow, I believe my right hon. Friend was also unquestionably right in selecting two general sources for his new revenue, road traffic, on the one hand, and direct taxation, on the other. If some tax has to be raised, we cannot ignore the fact that road transport and the oil industry today are both, to say the least, exceedingly buoyant and expansive.

Secondly, whatever one may think of the British system of Income Tax with its many admitted imperfections, which we hope to correct, I believe that it remains the fairest instrument of taxation in the world. It is no doubt true, as I think Edmund Burke once said: To tax and to please, no more than to love and to be wise, is not given to men. If this revenue has to be raised, I believe that my right hon. Friend has gone the best and the fairest way about it.

Do not let us forget—the ex-Chancellor agrees with the facts, anyway—that over half of the revenue to be gained from the rise in the standard rate of tax will come from company profits which have been rising strongly. In itself that will materially improve the chances of achieving a real incomes policy. It would, of course, be very pleasant if, thanks to the expansion of our national product, we could give the assistance needed to the weaker and poorer without higher rates of tax. It is an economic truism to say that had our economy been properly managed over recent years, this would certainly have been possible.

No doubt the ex-Chancellor has been explaining to the Leader of the Opposition that if our national product had grown during the 13 years of Tory rule by the 4 per cent. by which the ex-Chancellor himself thinks that it ought to be growing, our national income would be about £5,000 million a year higher today than, in fact, it is. But, of course, it did not so grow. The Leader of the Opposition did not seem yesterday to understand—this is the answer to the hon. Member for Bodmin (Mr. Bessell)—that the limitation on imports which we are now compelled to adopt is in itself inflationary and needs a counter-inflationary tax measure.

Right hon. Gentlemen opposite first imposed two shattering deflations on the country in 1957 and 1961 which held back our progress to the miserable snail's pace which brought us to where we are now. This was precisely because right hon. Gentlemen opposite restricted imports by deflation and not by the direct limitation which we have adopted and which the ex-Chancellor now, too late, approves. Deflation restricts imports just as drastically as a surcharge. If it did not, it would not work. But it was at the cost of slowing down our whole national income and impoverishing the whole country. Professor Austin Robinson has calculated—I do not think that this is seriously disputed—that the 1957 and 1961 deflations together, in order to cut down imports by £200 million a year, cut down the whole national product by £660 million a year. We do not propose to do that now. We intend to restrict imports temporarily until our balance of payments recovers; and to ensure that our national product goes on rising at the same time.

After first weakening our economy by those two deflations the previous Government, having then in 1964 swung into the other phase of the electoral cycle, let the economy get completely out of hand. Three weeks ago we found the situation far worse than even the pessimists had expected. The right hon. Gentleman talked about the election. I will tell him this. I ventured, during the election, to guess that the country might face this year a current balance of payments deficit of £300 million and a current and capital deficit of £500 million. Hon. and right hon. Gentlemen opposite, during the election, said that was scare-mongering and spreading panic. Then we found that the deficit was not £500 million, but somewhere between £700 million and £800 million.

This afternoon the right hon. Gentleman invented a new excuse. He said that part of the deficit was on capital account. He knows as well as I do that whether on current or on capital account it is equally a drain on our foreign exchange reserves. I cannot see how the leaders of the previous Government can escape the charge that either they simply did not know what was going on, or else they misled the electorate. Today, the right hon. Gentleman says that the deficit up until last October had been taken care of; but it had not been paid for. All that had happened was that debts owed by this country to others were mounting up in the sterling balances and the right hon. Gentleman knows perfectly well that those debts would have to be met.

It was, in fact, obvious as early as January or February of this year—and some of us said so over and over again—that imports were getting out of hand, and that we should face a severe deficit by the autumn. What did the then Government do? The then Prime Minister said that the economic situation had never been better. The then Chancellor first said that one month's figures were misleading; then that the rise in imports was solely in industrial materials; then that an increase in exports would appear very soon; then that it was just a matter of stock building and finally, by mid-summer, that the figures must, somehow, he wrong.

If I may say so, I am not being wise after the event. During the Budget debate on 16th April of this year I said: I do not believe, therefore, that in the present situation the Government really serve the national interest by complacently looking the other way and pretending the balance of payments situation is much better than it really is ".—[0FFICIAL REPORT, 16th April, 1964; Vol. 693, c. 621.] That was what they were doing and that was why we found the situation completely out of hand on 16th October.

At any rate, hon. Members opposite cannot complain, even if they did not understand the facts themselves, that they were not warned by hon. Members on this side of the House. These warnings were gaily ignored, and so we had, in 1964, a year of rising deficit, rising prices, and stagnant industrial output. The epitaph on the previous Chancellor must be that he gave us inflation without expansion. Finally, the hon. Gentlemen opposite, as yesterday's vote showed—when they did muster up courage to vote—having created this situation by their own inaction, are still running away from the measures which that situation has made inevitable.

In the past three weeks this Government have certainly made a start, but we will do a great deal more yet. Even the first 100 days are not yet over. In my Department, with its responsibility for trade and industry—with shipping and shipbuilding now added—for industrial efficiency, distribution of industry, and exports, we have a great deal more which we plan to do.

I believe—and I think that on this I carry the right hon. Gentleman with me—that the expansion of our exports is now the supremely important task facing us, not just for the Board of Trade but for British industry and the nation. If we succeed here we will succeed everywhere. With our balance of payments in hand, growth can go forward; and, with that achieved, we can afford the things we want, both at home and abroad. But if we fail in this we are in danger of failing everywhere, as the present crisis again unhappily proves.

I do not believe that the export task can possibly be beyond our powers. We are already exporting more than £4,000 million a year and our total exports have been going up by between 4 per cent. and 5 per cent. a year. [HON. MEMBERS: "Hear, hear."] Hon. Members opposite say "Hear, hear". I am pointing out that if we could raise the rate of increase by only a few percentage points we should be within sight of the end of our troubles. And even 5 per cent. is no more than £200 million a year, or materially less than 1 per cent, of our gross national product. That cannot be beyond our resources.

As is often pointed out, about 200 firms in Britain are doing more than half our export trade at the moment. That means that a large number of firms could do much more. It seems highly probable, therefore, that if these other firms, or most of them, could be mobilised, we should soon be within reach of our target.

I earnestly hope that every British firm, however big or small, exporting or not, and every other industry or commercial agency concerned, will now realise, if they have not yet realised it, that this will be the real test of our national success or failure in the years ahead. Not merely our standard of living, but our standing in the world, our defences, our aid to poorer countries and our whole future depend on it.

The first necessity is for all those who are in any way concerned with the export drive to redouble their efforts in every possible way as their contribution to our prime national need. I say this because I have been listening to the advice about exports of a great many industrialists, including particularly Sir William McFadzean and other members of the British National Export Council in the past three weeks.

I expected, frankly, that they would say that the last thing any businessman wished to hear was more exhortation from Ministers about achieving more exports. In fact, these advisers have told me that, on the contrary, in their view a large number of people in many firms throughout British industry do not even now treat the export effort as of really overriding importance. It is interesting to note that Sir William McFadzean said at the Institute of Transport a week ago: Every company with an export Department, and, therefore, a belief in exports, must make a special effort immediately, perhaps on direct instructions from the Chairman and Board. I endorse that comment here today.

I often hear it said that although our prices may be right, our quality excellent and our design good, where British firms fail compared with their Continental and American rivals is in selling, not only in hard, aggressive salesmanship, but in foreseeing and meeting their customers' requirements and providing the service which they need and expect. I do not think that managements can altogether ignore this criticism, and we in the Board of Trade will see in what ways we may be able to help too.

Of course, a great deal has already been done and I pay tribute here and now to the successful firms which have tried hard and with highly encouraging results. A great deal has also been achieved by those working in the Government's own export services at home and abroad. I propose now to examine, together with those who are actually experienced in exporting, all possible new lines of action, in a purely practical empirical spirit and to adopt those which offer the best chance of success. It would be wise, in addition to everything that has already been done, for us to try out a number of concrete suggestions which have been made from one quarter or another, in the frank knowledge that some of them may succeed while some may not.

Already, we have taken a number of firm decisions. Within our first fortnight the Government have introduced an export rebate scheme. Details of this have been announced, despite the fact that such a scheme was pronounced as being impossible by the party opposite for 13 years. We regard this as one, but only one, valuable contribution to the concerted export plan which we are proposing to launch. Industry has long asked for a scheme of this kind. Now that it has it I hope that it will seize eagerly upon it. Hon. Members opposite have said that such a scheme would be extremely costly to the taxpayer and that it would be negligible from the point of view of the exporter. I do not think that either argument is correct.

Sir Harmar Nicholls (Peterborough)

The right hon. Gentleman says that no thought to export incentives was given by hon. Members on this side of the House. Is it not within his recollection that a number of my hon. Friends and I have in the past put down Amendments to Finance Bills suggesting the introduction of an export incentive, but that on no occasion that I remember did we receive support from hon. Members opposite? Is he aware that every patriotic hon. Member will support him in his scheme and that we all want more exports? Is he also aware that the way the surcharge has been handled may make it more difficult to persuade the G.A.T.T. countries to co-operate with us, in view of the useful incentives which they have announced?

Mr. Jay

I did not say that no hon. Member on the benches opposite had ever thought about it; just that no action was taken until we came to power.

We are, secondly, setting up a Commonwealth Export Council—another move which has been deferred for far too long. It is clearly necessary that this shall be closely interlocked with the British National Exports Council, the activities of which span the whole of the world with which we trade. I am glad to say that to ensure this and to bring his great experience of export promotion to bear on the Commonwealth, Sir William McFadzean, Chairman of B.N.E.C., has agreed also to become Chairman of the C.E.C. My Department is now arranging with him how the C.E.C. can best be organised to tackle its important job.

Next in all the controversy about E.F.T.A. in the past fortnight, many people seem to have neglected the huge growth in trade within E.F.T.A. which has already occurred. Nearly one-sixth of our exports now go to E.F.T.A. markets and this year our imports from E.F.T.A. have increased by 26 per cent.

The present surcharge, as we have repeatedly said, is strictly temporary and we will do everything possible to strengthen E.F.T.A., both in the Ministerial Council next week and in the future. We are convinced that its continued growth and prosperity are essential to British trade.

Fourthly, we are launching serious efforts to establish an incomes policy. This, if successful, would, by common consent, enormously enhance our hopes of keeping export costs down. I am astonished at the right hon. Gentleman's discovery that the F.B.I. was in favour of price control all the time. We never heard that before.

I believe that the measures announced by my right hon. Friend yesterday, both on the side of pensions and of capital gains and direct taxation, will greatly improve the chance of getting agreement on an effective incomes policy. So will the price review body, which we hope to set up, and which will seek to restrain unjustified increases in prices. So, materially also, will the legislation to control rents and stop evictions, which the Government will introduce this Session. Rises in rents have been one of the most potent causes of the rise in living costs, so of export costs, over the past seven years.

We in the Board of Trade are now reviewing a whole series of detailed suggestions for export promotion. Because I judge it better to discuss these thoroughly with those practically engaged in exporting and not try to impose them on industry, I will not attempt to make further detailed announcements today. I will, however, mention a number of the ideas being examined, with the frank admission that some may turn out to be non-starters.

First, just because the Export Credits Guarantee Department has been such a brilliantly successful public enterprise up till now, we are reviewing export credits to see whether more business can be won for British industry by further expansion without too much immediate strain on our balance of payments. Of course, we cannot give our exports away, nor can we wait inordinately long for payment, but if—and I have often said this before—particularly in exporting capital goods, we can extend our markets and obtain some down payment at once on reasonable terms our exporters will be better placed to hold or win back business that has tended increasingly to go to those who offer the best credit terms.

Next, we are exploring methods of mobilising the small firms who, up till now, have simply not had the expertise or "know-how" or resources to achieve the job of exporting. I have recently flown to Peking and back in eight days, and I say with feeling that export work may sometimes be exciting, but it is not always fun. I have found wide support in our industry for the view that some sort of group or co-operative selling might help in some cases in mobilising those firms who are not exporting today.

Next, I am certain—this will not be a very long catalogue—that we must not neglect the opportunities in the Communist countries, such as they are. I agree with the Leader of the Opposition, in this at least, that well-fed Communists are likely to be more keen on peaceful co-existence than ill-fed ones. Indeed, in a world where Canada sells wheat to China and the United States sells wheat to the Soviet Union it seems plain common sense that we should sell non-strategic goods to both these and other Communist countries.

That I found to be the near-unanimous and enthusiastic view of the British industrialists attending the industrial exhibition in Peking last week, which was in itself an encouraging sign of co-operation between British industrialists and the Chinese authorities. Our exchanges of trade with the Soviet Union—though they are still unbalanced, as I pointed out very firmly to Soviet Ministers—and I think I would carry the right hon. Gentleman with me on this—are now approaching £100 million a year each way, but those with China stand at barely £20 million a year. The latter is an absurdly low figure between two great nations and though we must not expect any spectacular increase I am sure that a steady growth is possible provided peaceful policies are followed by both sides. I am, therefore, following up the Peking Fair by inviting to this country the Chinese Trade Minister, the head of the China Council for the Promotion of International Trade and heads of Chinese purchasing missions.

Next, and this is no order of priority, we mean to press on strenuously with the Kennedy Round and the international long-term effort to reduce protective tariffs and restrictions throughout the world. We are tabling our list of exceptions to the proposed Kennedy tariff cuts next week and keeping it to a minimum. We must learn here to distinguish sharply between those short-term emergency measures which any country may have to take temporarily to defend its balance of payments—and many others besides ourselves, including the United States, have done this in recent years—and permanent protective barriers.

I repeat today, therefore, that the new Government intends to work unremittingly for the success of the Kennedy Round and the policies approved at the U.N.C.T.A.D. conference last summer. We in the Labour Government wholeheartedly supported the initiative at that conference by my predecessor, for in so far as these efforts succeed the opportunities for British exporters will be proportionately wider.

Mr. Charles Loughlin (Gloucestershire, West)

Is there an examination going on into the possibility of the creation or expansion of technical and sales staffs attached to our consulates and embassies throughout the world?

Mr. Jay

Yes. That is one thing that we are examining. We are also reviewing urgently the possibility of market studies organised jointly between Government and industry, of more specialised trade missions, of more publicity for the Government's export services, of more concerted action within our own Government machine and of more trade centres and fairs at home or abroad. But even if all these things were done and these measures pushed forward, the export effort, I believe, will still not decisively succeed unless the efficiency and productivity of the British economy advances much more rapidly than hitherto.

I believe that one paramount need is to correct the acute geographical unbalance in the location of employment in this island, which lands us with congestion and labour shortage at one end, and waste and under-employment at the other. This is gross national inefficiency. It means that the growth of the whole national product has to be checked because of over-heating in the South-East and the Midlands while manpower and other resources are being wasted elsewhere. I believe that the most potent single thing we can do to gear up to a 4 per cent. growth rate over the next few years would be to correct that unbalance. That is why I propose, as the Minister responsible for the distribution of industry, to introduce a Bill to control office as well as factory development. This is the first essential step if we are to check extreme congestion in the South-East.

Secondly, to speed up modernisation and higher productivity in the underemployed areas, we propose to launch a new programme of Government-financed advanced factories in the development districts. This is the quickest way, in addition to many other efforts now in train, to stimulate positive new development, which is what we all want in the least fully employed areas. It fulfils the promise in the White Paper on the Economic Situation, 26th October, that the Government will foster more rapid development in the under-employed areas of the country". I shall announce the details of this programme in the near future after consulting the regional officers of my Department and others.

Thirdly, I told the regional controllers of the Board of Trade yesterday, after a full discussion, that I wished to see a tougher application of the I.D.C.s on factories being built in the really congested areas. These measures are only a start in the campaign to get employment more economically spread out, but I believe that they are the first urgent practical steps necessary to remove the geographical drag on the growth of our national product.

At the same time, we shall introduce, as soon as we can, major legislation to strengthen the Government's present power to prevent monopoly abuses. Certainly, such abuses exist on many sides of industry and we mean to attack them all along the line. In some respects we shall amend the proposals in the Government's White Paper of last summer. In particular, I think that we need to consider whether powers could be taken to hold up a merger where there is a prima facie case against it and not to let it go through and then unscramble it months or years later.

I believe that all these measures on the economic and social front, so far taken or to be taken by the Government, stand together. The Government are determined to secure expansion and growth, and if we succeed in the export campaign we shall secure them. We will not get efficiency, however, unless there is a conviction of social justice. And we shall not be able to achieve social justice unless our economy is efficient enough to sustain it.

We intend to go on as we have begun, pushing forward by whatever is the best practical method on both these fronts, and enlisting the support of industry—public and private, managers and employees alike. That, I believe, is what the country wants to see, what it voted for last month and what, under this Government, it will get.

5.0 p.m.

Mr. Peter Bessell (Bodmin)

In accordance with tradition, I crave the indulgence of the Committee for a maiden speech, especially as I shall be speaking for my party. I have the honour to represent the Bodmin division of Cornwall, a constituency that has been represented in this House by men of great distinction, not the least being the late Mr. Isaac Foot.

Mr. Foot rendered great service to the nation—and, indeed, to my party—and, if I may say so without impudence, he has also rendered great service to Her Majesty's Government, in that two of his sons are members of the Government and another son sits for Ebbw Vale. I am happy to report that yet another of the late Mr. Foot's sons continues to render sterling service to my party in the West Country. It is because of the outstanding record of Parliamentary service rendered by former representatives of the Bodmin division that I approach my duties mindful of a great heritage as well as of the needs of my constituents at present and in the future.

The Bodmin division is an area of high unemployment, and one in which there is serious depopulation. It is an area where there are low wage standards, and where the people do not share the same prosperity enjoyed by others living in the large urban districts. It may, therefore, seem appropriate that I should have chosen to speak in this debate on the supplementary Budget because, whilst the stability and growth of the national economy affect every single person to a greater of lesser degree, areas like Cornwall are infinitely more susceptible in times of financial crisis than, for example, the over-populated, over-employed areas of the South-East.

We Liberals recognise that Her Majesty's Government are rather in the position of expectant relatives who, arriving for the reading of the will, discover that they have inherited a series of Income Tax demands and a request for payment of the mortgage. We, like the Government, vigorously opposed the policies of the late Government which have resulted in this situation, and I believe that if many of the constructive proposals that I know have emanated from this bench during the last 13 years had been adopted by the late Government, not only could this crisis—if that is the correct term—have been avoided but the Conservative Party might be occupying the Government benches at this time.

It was, therefore, with some relief that many people were reading in the national Press, about three weeks ago, of the sweeping changes taking place in Whitehall; of civil servants working 80 hours a week to fulfil the demands of the new Ministers. Much of the Gracious Speech appeared to us to be in keeping with the demands of a modern Britain. The climax of this period of high expectations came at 3.30 yesterday afternoon, in this Chamber. We had arrived at the moment of truth; the moment when the Chancellor of the Exchequer would unfold the dynamic economic policies that would galvanise British industry into new life, would encourage our exporters to redouble their efforts, and would provide the incentive to bring together the two sides of industry in a revolutionary spirit of co-operation.

It is true to say that every nation judges its Government by that Government's economic policies. I need not remind the Committee that yesterday this Chamber was packed, the atmosphere tense. The —hancellor took his place at the Dispatch Box and we waited—and waited —and waited. When, an hour later, the right hon. Gentleman resumed his seat, we on this bench at least were bewildered to discover that apart from a few long overdue reforms, to which I shall refer in a moment, it was the mixture as before. In fact, it would not be unjust to describe the Chancellor as a sort of semi-detached Tory.

Where is the dynamic policy of expansion? What promise does the Budget contain of measures which, for example, will bring new opportunities of employment in Cornwall? I readily admit that I have been rather more encouraged by the utterances of the President of the Board of Trade just now, but where are the policies that will raise the standard of living of people who have struggled too long against adversity in the Highlands of Scotland, in Northern Ireland and in parts of rural Wales? Where are the policies that will restore Britain's falling prestige in Europe—or, even more important, in the great family of nations, the British Commonwealth?

Perhaps nothing illustrates my point better than the imposition of the 15 per cent. import levy. I do not for a moment dispute the gravity of our balance of payments position, but need Her Majesty's Government have acted with what seems to some of us to be indecent haste? A month would have made little difference to the ultimate position, and during that time proper consultations could have taken place between the E.F.T.A. countries and, more important, with the Commonwealth countries. It has been suggested that such discussions might have led to a further drain on our sterling resources, but I reject that argument because it reflects upon the honour and integrity of our friends and allies without justification. If America could be trusted—and she was—why not the British Commonwealth?

Her Majesty's Government, when in opposition, condemned the late Government during the Common Market negotiations for their failure to consult E.F.T.A. and the Commonwealth—and I believe that that condemnation was justified. This further breach of faith between friends and family can only do further harm to the prestige of our nation. Within days of taking office, the present Government are doing precisely the same thing as the late Government did at the time of the Common Market negotiations.

While we reluctantly accept that the surcharge may be necessary as a matter of expediency, and acknowledging with relief the Chancellor's statement yesterday, reiterated by the President of the Board of Trade this afternoon, that this measure will only be temporary, there is one other aspect of the matter that is causing concern to many people. It is extremely unfair that the surcharge should have been applied to goods already in the docks and awaiting Customs clearance, and to any goods for which bills of lading had been despatched from foreign countries before the announcement of the surcharge was made. Provided that those bills of lading name British ports of entry, those goods should be exempt. As it is, many small importers—and some larger ones, too—are faced with having to accept deliveries at costs far higher than those on which they budgeted. That will cause real and quite needless hardship. This is a serious matter, and I urgently beg the Government to reconsider the unfortunate plight of these firms and individuals.

Hon. and right hon. Gentlemen on both sides of the Committee will welcome the pensions proposals—for many of us, they went some way towards redressing the balance yesterday afternoon. We in the Liberal Party still maintain that by introducing a social security tax to replace the present National Health Insurance scheme it would have been possible, without straining the economy, to have provided still higher old-age, Service and widows pensions. Nevertheless, it is a step in the right direction, and we welcome the proposals.

There are, however, some other matters that concern us and, once again, I trust that the Chancellor will give consideration to our plea. Now that the iniquitous earnings rule is at last to be abolished for widows, why not abolish it also for old-age pensioners, whose need is just as great? Next, will the Chancellor reconsider the position of public service pensioners, many of whose pensions were granted some years ago and who see pensioners who recently came on to the retirement list getting pensions far greater than those which their unfortunate fellows receive? Also, the Chancellor omitted to mention the rate of increase in National Insurance contributions for self-employed persons. I trust that he will bear in mind that any drastic increase would cause real hardship to many people in a small way of business.

A curious feature of the Budget proposals is the fact that the Chancellor has announced measures which will form part of the annual Budget proposals next April. He has given advance notice of a capital gains tax and a corporation tax which, in principle, we welcome—which will give the tax avoidance experts another field day, or should I say another hundred and fifty field days, in which to devise fresh tricks to ensure that those who do the least work but have the sharpest wits will make the smallest contribution to the National Exchequer while those who toil honestly will continue to foot the lion's share of the bill.

That is the very opposite of the intentions so forcefully expressed by the right hon. Gentleman yesterday. A capital gains tax is long overdue, but there is a need for other reforms at the same time. For example, a quid pro quo is needed in respect of capital depreciation allowances on new buildings if investment of the right kind is to be maintained and the modernisation of our larger cities is to continue.

There are two fundamental issues I should like to touch upon. The greatest disappointment of this Budget is the fact that Her Majesty's Government are still apparently wedded to the nineteenth century notion that Britain can continue to support indefinitely the sterling currency of the world under the present system. Even if this is true —and I do not accept that it is—and if we are to be at the mercy of other countries calling upon our slender resources at times when their own balance of payments problems become acute, clearly Her Majesty's Government should initiate talks as a matter of extreme urgency with the countries concerned with a view to finding some sensible method of ensuring that our and their economies are not constantly at risk.

In the long term we have to overcome the problem of a nation which is living far too close to the bone. Our sterling reserves for the first quarter of 1964 represented 11.1 per cent. of our total export-import bill. In the United States the reserves were approximately 36 per cent. and in Western Germany they were about 25 per cent. The effect of this is that we are desperately vulnerable to changes in world markets. It has been well said that when Wall Street sneezes we catch pneumonia. A drop in our exports, or comparatively small but sudden demands on our resources, appear to cause panic. This will not do and we believe that it is capable of correction.

We in the Liberal Party supported the Government in the Lobby yesterday on the proposal to increase Income Tax because we recognise that improvements in the social services have to be paid for, but we did this reluctantly. We opposed them on the Resolution to increase the tax on petrol and diesel oil because this will tend to increase the cost of living and because it has long been our policy to seek a reduction in the existing tax which causes very considerable hardship at present.

How much happier we would have been to have voted with Her Majesty's Government on the kind of dynamic economic policies which for a few fleeting days we hoped and believed might be forthcoming—policies which, as I said at the beginning of my speech, would have given incentives to working people to increase production rapidly and which would have encouraged our export manufacturers to far greater efforts, the very things which are so desperately needed if we are to build up our reserves and to restore and stabilise Britain's economy and above all if we are to earn the respect of the free world.

I believe that the right hon. Gentleman the Chancellor of the Exchequer was profoundly right when he affirmed yesterday his confidence in the capacity of the British people to face reality, however unpleasant, and to work with honesty and determination in the interests of the nation as a whole. We on this bench wholeheartedly share that view, as will hon. Members on both sides of the Committee. There is, however, one word of caution to be added. No residue of good will is inexhaustible. If new demands are to be made on the peoples of these islands, they are entitled to a clear-cut programme from Her Majesty's Government, a programme of reform that will give them the inspiration they need for the prodigious efforts they will be called upon to make in the years ahead.

I have crossed Jordan. If I have landed safely on the other side it is only because of the courtesy of hon. and right hon. Members of this Committee. I wish to thank them for their forbearance.

5.16 p.m.

Dr. Shirley Summerskill (Halifax)

I thank you, Sir Herbert, for making it possible for me to make my maiden speech to this Committee, and I ask hon. Members to show their customary indulgence on this occasion. I am extremely proud to be the new Member for Halifax. but I am also conscious of the many predecessors I follow in this capacity. The most illustrious of these was John Henry Whiteley, Speaker of this House from 1921 to 1928, born and bred in Halifax. On his retirement, the then Leader of the Opposition, Mr. Ramsay MacDonald, said: You have shown us in a most remarkable way how to be patient and courteous without being lax; how to be strict and severe without being mechanical and formal; … how gentleness can rule and how persuasiveness can subdue."—[OFFICIAL REPORT, 19th June, 1928; Vol. 218, c. 1597.] I humbly submit that as a new Member of this House I can do worse than emulate my predecessor. I should like also to pay tribute to my two more immediate predecessors who for many years sat in this House, Dryden Brook, who sat on these benches, and Maurice Macmillan, who sat with hon. Members who are on the benches opposite.

My constituency of Halifax is probably best known as a textile town. In fact, the town weaves one-seventh of the world's worsted yarn. It has 100 different industries, but it is because I represent the people of Halifax that I am very proud today to speak in support of the Budget's pension proposals. The Budget shows, if nothing else, that this Government believe that people do matter. In spite of a grave economic situation, humane End just measures have been given priority in the first few weeks of this Government.

Halifax, along with several other parts of the West Riding of Yorkshire, has an unusually large proportion of retired people. They will welcome the Budget. I urge the Government to make an annual review of the retirement pension. This is imperative, for two reasons. The first reason is that the pension must always be related to the cost of living. Social justice means the relating of income to need. The second reason is that the pension must be linked to national average earnings so that pensioners share in national prosperity.

I welcome the demise of the 10s. widow, but I would also urge that the Government soon alter the present illogical scheme for widows' pensions so that all widows are treated similarly, because, however they are widowed, the problems and difficulties of widows are the same. It is a fact that women are living longer than men. I will not go into the reasons for that in this Committee, but 60 per cent. of all old people over 65 are women. This is a fact that must be faced. It is quite clear that widows' pensions will form a major part of any social security scheme that the Government introduce in the future.

May I express, too, the hope that in the spring Budget the same help will be given to single women with dependants? These women are a vast unsung army with no trade union to represent them. Many of them have one parent or two elderly parents to look after, sometimes sick parents, and at the same time they go out and do a full-time job of work. A fallacious argument often put against the case for equal pay is that women have no dependants. These women definitely do. I hope that the Government will not forget them in the spring.

I ask my right hon. Friends the Chancellors of the Exchequer and the Minister of Health to give urgent consideration to taking the charges off prescriptions as soon as possible. This would be a positive step towards rescuscitating the National Health Service, which has been starved and neglected in the last 13 years. Two shillings for a prescription may seem a mere trifle to many hon. Members, but there are thousands of housewives with families who think not in terms of shillings but in terms of pennies when they go out shopping and budgeting. The chronic sick who may have to pay for six or eight items a week on a prescription are waiting for this measure to be introduced. As a doctor, I frequently write prescriptions of many items for retired people and often they say to me, "Will you not take one of those items off?" Everyone will realise that that is a question to which it is very difficult to respond.

Yesterday the Leader of the Opposition implied the existence of a relationship between free prescriptions and the issue of Concord. I am at a loss to see this relationship. Aneurin Bevan said that the National Health Service was at the heart of politics. It certainly has nothing whatever to do with the British aircraft industry. It could, however, benefit from a few prestige projects.

Before the charges are removed, I hope that my right hon. Friend the Chancellor of the Exchequer will consider how the excessive profits which their removal will yield to the 141 private drugs firms which exist because of the increased use of drugs can be directed towards the Treasury. I am aware that my right hon. Friend the Chancellor of the Duchy of Lancaster has been studying this matter in his capacity as Chairman of the Public Accounts Committee. Meanwhile, doctors can play their part by prescribing from the National Formulary, wherever it is possible to do so. Preventive medicine, which we all aim at, means encouraging people to seek medical advice, not only when they are ill, but when they think they are ill. It is for doctors, not a prescription charge, to sort out the malingerers. We cannot afford to put a premium on health as we are doing at the moment.

I conclude by thanking the Committee for its attention and by hoping that I shall have the opportunity to address it on a future occasion.

5.26 p.m.

Mr. Geoffrey Howe (Bebington)

Like the hon. Members for Bodmin (Mr. Bessell) and Halifax (Dr. Summerskill), I crave the indulgence of the Committee as I make my maiden speech. The constituency which I have the honour to represent includes not only the young and very vigorous Borough of Bebington itself, but also that part of the County Borough of Birkenhead which is not already represented in the House of Commons by the hon. Member for Birkenhead (Mr. Dell). I am sure that right hon. and hon. Members on both sides will remember with affection and respect my predecessor as the Member for the division, Lord Oakshott of Bebington, who represented it so faithfully since its creation in 1950. The devoted services which he gave to all sections of the community in Bebington won him equal effection and respect throughout the division. He has been most kind to me as the candidate who sought to succeed him, and I know that it would be the wish of hon. Members on both sides to join me in congratulating him on the honour conferred on him during the Recess and saying how glad we are that he will have the continued opportunity, we hope, of many years of public service in another place.

There is another feature about my constituency which is, possibly, of a slightly more controversial nature, though I hope not so. In the heart of the division is the Wirral Grammar School. It was at that school that the right hon. Gentleman the Prime Minister spent what must I suppose be described as his formative years. He was apparently an enthusiastic member of the school dramatic society. The school magazine records this verdict on his first performance there 31 years ago: H. Wilson as a middle-aged businessman was convincing and direct. With more vivacity he should do well. Possibly more portentous to my hon. Friends would have been the rather more brief verdict on his second performance a year later: H. Wilson was a most villainous villain. I know that my constituents would wish me most sincerely on this occasion to congratulate the right hon. Gentleman on his appointment as Prime Minister, a great distinction for an ex-citizen of the Borough of Bebington. I do this most warmly and most sincerely.

Like the hon. Lady the Member for Halifax, I should like to say a very few words about the category of people identified by the Chancellor yesterday, as the elderly, the sick and the needy. In the Borough of Bebington just over two years ago the borough Old People's Welfare Committee undertook a survey of all the elderly people. The number of old people over the age of 65 of both sexes was ascertained to be just about 5,000. One-fifth of them lived alone. About 300 of them were housebound. Those figures are probably very typical of many other constituencies. It is perhaps one of the more valuable features of the conventional procedure of electioneering through which we have all gone very recently that we are able to meet so many people who we do not normally meet outside their homes and to renew our awareness of the personal and pressing nature of the problems which many of them face.

The increases proposed by the Chancellor in the retirement pension have been matched by identical increases suggested in the National Assistance provisions. That particular course of action which the Government are proposing interests me in the light of some observations contained in a pamphlet produced by a group of young Fabians only two years ago, entitled "National Assistance: service or charity?" That pamphlet contains this message: … it is safe to assume that a Labour Government"— that is talking of what would have happened in 1959— would have raised National Assistance rates, as well as pension rates. However, this would have meant that the numbers on National Assistance would have increased. National Assistance recipients would have admittedly been enjoying a higher standard of living, but the task of reducing National Assistance to a minor role would have been retarded. That is not intended as a preface to a controversial observation. The Government have chosen to adopt this method at this time to meet the standard suggested by the hon. Member for Halifax when she said that social justice means the relating of income to need. It is the Government's first method of fulfilling the objective, which, I think, was first referred to by the hon. Member for Jarrow (Mr. Fernyhough) who moved the Address in reply to the Gracious Speech, of the principle: to each according to his needs. I do not presume that this is the Government's last word upon it. We know that a minimum income guarantee is under consideration and may or may not be decided, but it involves recognition of the arguments contained in the pamphlet from which I have quoted that it simply is not prac- tical politics to meet the needs of the existing generation of people in need by flat rate increases at a higher level. Such a course would involve spending about 10 per cent. of the total national income on social security. The same point was covered in the manifesto of the Conservative Party at the last election when we said that help will be concentrated first and foremost on those whose needs are greatest. The point, like so many others, has been put with the greatest clarity by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), whom I am delighted to see in his place, when he said, not many months ago, Benefits for all are the enemy of care for the few. That is the principle accepted in fact—let us be frank about this—by both sides of the Committee. Both sides are striving for a method of identifying those citizens of our community most in need and securing for those people a standard of living as high as the community can possibly afford. It is a principle which I suggest is unanswerable, the principle of selectivity.

How this is to be implemented has involved the suggestion of various mehods. Right hon. and hon. Members opposite are now espousing a suggestion which has been made for some years by hon. Members on this side of the Committee for a scheme which should to some extent be based on the P.A.Y.E. Income Tax code system. The Conservative Party during the last election was to some extent espousing a method of identifying particular groups in the community whose needs were greater than others—more elderly pensioners, more recent widows, and categories of that kind.

The point that I invite the Committee to accept is one which was most clearly put by the hon. and learned Member who formerly represented Kettering, Mr. Mitchison, when he said In a sense we can say that this is a means test",— he was speaking of guaranteed minimum income proposals— just as an Income Tax return is a means test, but it is in a quite different sense from what it has been in the past. The plea I make is that when proposals are put forward from either side of the Committee they will not be condemned from the opposite side of the Committee simply because they involve going back to the means test. A test of means is implicit in many social services. It is one which we already freely accept and for which all parties have in the past made legislative provision. A test of means is administered for the supply of school meals and milk free of charge, for the granting of legal aid, and for the home helps service. For all the social services we accept the notion, as the hon. Member for Halifax said, of relating income to means and need. For none of these services has anyone suggested universal free provision, regardless of need and regardless of the means of the recipient. It is only when this principle, generally accepted throughout the Committee, comes to be applied by either party to the central section of social security, to provision for retirement pensioners particularly, that hon. Members on the opposite side of the Committee, whichever that happens to be, are easily tempted to condemn the proposal out of hand as involving a means test.

My hope is that hon. and right hon. Members on both sides of the Committee will support the Chancellor of the Duchy of Lancaster and my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) when and if either of them bring forward proposals which represent a real step towards the solution of this problem which besets us all. The solution at which we finally arrive must be one of which all in need can take advantage. It must be one that is simple. It must have a real flavour of humanity about its administration, and it must take account of differing needs as well as of differing means. We should all be wary of attaching to it the so-called stigma that has so often been said to have attached to similar proposals put forward from both sides of the Committee in the past.

We can perhaps agree on this point. The only defect about a means test as a matter of principle, as administered by both parties in the House in the past, has perhaps been that it has been too darned mean, if I may put it in that way. We wish to achieve more generous provision and use the means test in a modern sense to achieve this. The point was best made, again by the former hon. and learned Member for Kettering, in the last Parliament, when he said: This is not a matter that we want to debate in terms of slogans, or anything of that kind. We are dealing with old people who have not enough to live on, and we are trying to make their lot more comfortable. Let us for heaven's sake not get this thing cockeyed by putting the wrong label, or the right label in the wrong way, on it. Let us look at the scheme on its merits."—[OFFICIAL REPORT, 10th December, 1963; Vol. 686, c. 244–5.] I thank the Committee for the indulgence which it has shown to me on my maiden speech, and I hope, perhaps like the hon. Lady the Member for Halifax, that I may have other opportunities of speaking in the future.

5.39 p.m.

Mr. Kenneth Lomas (Huddersfield, West)

Like the previous three speakers, I crave the indulgence of the Committee for my maiden speech. It is not my intention to follow the hon. Member for Bebington (Mr. Howe) into the arguments on the justification or not of the means test, because this is supposed to be a non-controversial contribution.

I cannot claim to bring to the Committee or to the House of Commons any great high academic qualifications. I was one of those who left school at 14½ and had to make my own way in the world. Equally, I cannot claim to have had the experience of working in a scientifically-based industry. For the last nine years, I have been with the National Health Service and for the previous seventeen years with the trade union movement, neither of which can really claim to be scientifically based. But I have the honour and distinction of representing Huddersfield, West, and my pleasure at representing that constituency is shared by my constituents in the fact that it is the birthplace of my right hon. Friend the Prime Minister. The people of Huddersfield are very proud of the fact that on the day that the Prime Minister was elected, Huddersfield, for the first time in its history, had two Labour Members of Parliament. Indeed, between 1945 and 1950 my hon. Friend the Under-Secretary of State for Defence for the Royal Navy served Huddersfield alone, and since 1951 he has made a wonderful contribution on behalf of Huddersfield, East.

It is true, however, that during the last 14 years my constituency has been represented by the former Deputy Leader of the Liberal Party, Mr. Donald Wade, and I should like to take this opportunity of asking the House to record in its journals its appreciation of the work that he did in this House and in its various committees during the time that he served here, and to express the thanks of his constituents of Huddersfield, West for the way in which he attended to their problems. I hope that those remarks of mine will not for a moment be construed as an attempt on my part to fly a kite for any kind of Liberal-Labour affiance. I have always believed that the differences as divide the Labour Party from the Conservative Party are the same differences that divide the Labour Party from the Liberal Party. We are fundamentally different. But this in no way prevents the Liberal Party from entering into alliances of its own. During the last 14 years up to 15th October the Conservative Party, by standing down, allowed the former Deputy Leader of the Liberal Party to retain his seat.

It is unique that no Conservative has had the opportunity of representing Huddersfield, West since 1929. In that year a former Member of this House, a respected temperance Member, Jimmy Hudson, was elected. It was said of Jimmy Hudson that his agent Arthur Gardiner used to say to him at election times, "If you will do the chapels and churches I will do the clubs and pubs," and this arrangement seemed to work very well. It has also been said—and it has certainly been true during the last 40 years—that whenever the Conservatives fight in Huddersfield the Labour Party wins, and it is my earnest hope that the Conservatives will continue to fight in that constituency for the next 40 years.

The main industries in my constituency are chemicals, engineering and textiles. En particular, engineering and textiles have at one time or another felt the chill winds of economic depression—so much so that in 1931 the firm of John Crowther & Sons, led by Stoner Crowther, introduced a gimmick in the West Riding, when Stoner Crowther accepted a challenge by the last Sir Malcolm Campbell to make a suit in record time. The story is—and it is quite true—that 12 sheep were gathered in the mill yard together with expert Yorkshire Dalesmen. The sheep were sheared, the cloth was woven, dyed and made up into a suit in two hours and nine minutes. That occasion has a connection with this House, because the following day that suit was worn by yet another respected Member, the Right Hon. Jimmy Thomas, as a boost to British Industry.

Today that firm of John Crowther & Sons is playing a very large part in the export trade of this country and it is turning out goods that are sold in practically every country in the world. It is unfortunate that in order to meet the competition that it faces from Italy and elsewhere, this firm is compelled to import machinery from abroad because it cannot obtain that machinery in Britain. One of these machines is a cloth polishing machine known as the Pol-Rotor machine. It is most unfortunate that it should be necessary for that firm to have to pay the import surcharge on a machine that it would like to obtain in England but which the British machine industry cannot produce. I should like my right hon. Friend to consider whether anything can be done about this.

I should like briefly to refer to a couple of the other Budget proposals. Certainly pensions had to be increased. As a Socialist, I have always believed that that which was morally right must he politically right, and it was obviously morally right that pensions should be increased. But I implore the Chancellor to find some way of ensuring that pensioners get the increase before Christmas. It must be borne in mind that if the present rate of pension is continued until the end of March 10,000 or 12,000 old-age pensioners will have died before the increase comes through and I, therefore, hope that something can be done to make sure that they get the increase for Christmas.

Let it not be forgotten that even with this increase they will still not be privileged members of this affluent society. Even £4 a week is not a lot in our present-day society, though I know that it will help many people in Huddersfield. I checked with my local Assistance Board and found that 65 per cent. of all the National Assistance payments made in the Borough of Huddersfield went to old-age pensioners to help them make ends meet. Hon. Members opposite must not resist these proposals or find reasons for delaying them, for they are essential.

Like my hon. Friend the Member for Halifax (Dr. Summerskill), I welcome the removal of the prescription charges. No one should have to put his hand into his pocket to decide whether he can afford to have medicine. It is right and proper that these charges should go.

It is unfortunate that the 2s. increase on the National Insurance stamp will be an extra burden on many people who have a take-home pay of less than £10 a week. As a local branch official of the National Union of Public Employees, I know that many people in the Health Service have a very low rate of pay. I wish we could find some way round this, perhaps by extending the capital gains levy and by introducing it at an early date.

I thank the House for having listened to me. It has always been my policy, as a member of the Labour Party and as a worker for Socialism, to try to ensure that the producers of wealth obtain a fair share of the wealth which they produce. I believe that the only way in which we can ensure this is by having a Labour Government that is dedicated to that end. I have tried not to be controversial, but after 27 years in the trade union and Labour movements I find it very difficult and I hope the House will forgive and understand if I have been controversial.

5.49 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

It falls to me to congratulate no fewer than four maiden speakers in our debate this afternoon. I have perhaps been singular in that although I have been a Member of this House for five years it has never fallen to my lot before to congratulate a maiden speaker. However, this afternoon there have been four, and I suppose that it is debating justice.

I should like to pay sincere tributes to the four speakers whom I have heard. The hon. Member for Bodmin (Mr. Bessell), who spoke first, gave us a very clear and expert speech. He covered many aspects of the Liberal Party's policy which perhaps would not have been in a maiden speech if that party had a greater number of representatives in this House, but we can all agree that we look forward to hearing him again expounding his party's views.

I should also like to congratulate the hon. Lady the Member for Halifax (Dr. Summerskill), who gave us a most impressive and successful maiden speech. I was glad that she paid tribute to my friend Maurice Macmillan who, for a very short time I hope, is not with us on these benches. The whole tone of the hon. Lady's speech, the sentiments and the ideas which she expressed were very much to our liking. We all look forward very much to hearing her on future occasions.

My hon. Friend the Member for Bebington (Mr. Howe) made another speech which will be remembered by all of us who heard him. Again, he follows a person much missed on these benches, Lord Oakshott. My hon. Friend gave a most interesting account of differences which divide the Committee on the question of how pensions should be handled in future. He covered ground of immense importance and somehow managed in a very clever way to make it noncontroversial. I am sure that we all hope that he will expound these points in future debates.

Lastly, it is my pleasure to congratulate the hon. Member for Huddersfield, West (Mr. Lomas), who gave us a speech which was well laced with wit and humour. There was very much of what he said which we all found agreeable.

I should like to take up straight away one point which he made and that was on the question of the imported cotton polishing machine which was put at a disadvantage by the 15 per cent. surcharge. The hon. Member pleaded that the machine should be allowed to be imported free of duty. The argument which the Government put forward is that we should be able to make just such machines here at home and that it is for this reason that they are trying to discourage imports. But as long as these surcharges are temporary there is no encouragement for any British firm to install plants to make similar machines while they feel that the surcharge will last only six months or a year. It is mainly on the surcharge that I want to speak.

First, however, I should like to know whether we can be told something more about the balance of payments. We are told that the gap will be £700 million to £800 million by the end of the year. I should like to know what the long-term capital movements have been. We know that there has been an oil deal of £60 million and many other capital transactions. How much of this is E.C.G.D. business? We are spending more and more and exporting more for which we shall not be paid for many years because we lend the money on a long-term basis. The President of the Board of Trade said that he was doing all he could to expand E.C.G.D. but it is bound to be an added strain on our balance of payments if he succeeds.

Then there is the question of overseas aid. How much of the £700 million to £800 million is accounted for by that aid? It is no use the right hon. Lady the Minister of Overseas Development talking about increasing aid and splashing it around wholesale. It must fit into a purposively planned balance of payments. Hon. and right hon. Members opposite who believe so sincerely in planning should take into account the need for planning the balance of payments. They should think how to fill the gap and cut down on such things as long-term credit and aid if we cannot find any other way of making the payments balance.

I should like to know what the balancing item will be. In 1960, it was £312 million. If the balancing item this year is as big as that, it will throw all the figures out. What will this item, which deals with errors and omissions, be? I feel that the Government have been less than frank about these figures and about what comprises the £700 million to £800 million. It is difficult for the Committee to make up its mind about the matter without more information.

It is natural and understandable that the Government should exaggerate the information into a crisis, and I suspect that this is what they have been trying to do. Despite the fact that they urged my right hon. Friend the Member for Barnet (Mr. Maudling) to do more in the spring, I think that they have tried to overplay their hand in this matter. Either there is no crisis and the situation is not as bad as it has been painted, in which case there was no need at all for the surcharge and other measures; or, indeed, there is a serious strain—and I think that there certainly is a strain—in which case I cannot but think that these measures are wrong.

They run counter to everything in which I believe in politics and economics. There was no consultation either with E.F.T.A., Southern Ireland, the rest of Europe or indeed any other part of the world. I do not put too much on that argument because I never believe that it is a strong argument to say, "Nobody told me about this". But the effect shows how much wiser it would have been to try to get some consultation at least.

We have broken the rules of G.A.T.T. and of E.F.T.A. and we have exported our troubles to Europe and the rest of the Commonwealth. Indeed the only countries not affected by these measures are probably the Communist countries, which export to us principally raw materials and food. I wonder whether this again is the Hungarian influence being felt in our economic policies.

I went to Strasbourg last week and I should like to quote words spoken in debate there by a Swede. I think that this will help right hon. Gentlemen opposite to understand, if they do not do so already, why their action has so much upset the whole of E.F.T.A. and the rest of Europe. He said: If any country is to feel free in an emergency to take unilateral action, what does that mean in relation to the reliability of the agreements into which we have entered so far, and into which we might enter in the future? I think it is quite clear that unilateral action of this type, particularly because it is unilateral, will have a negative effect on the GA.T.T. negotiations. We have broken our word at a time when the countries of Europe were struggling to abolish restrictions and high tariffs. We have run suddenly counter to all the rules and put the tariff on again. It is this that has surprised these countries so much. What is the point of struggling to cut tariffs down and to get the Common Market to reduce their tariffs, if this is to be nullified by our putting a 15 per cent. surcharge on everything?

Hon. Members opposite try hard to tell us that this will not affect the Kennedy Round. I hope that it does not, but even if the Kennedy Round succeeds and tariffs are cut down throughout the world, what will stop any country from putting them up again and saying, "We are following the British example in 1964. Why should we not do the same?". Furthermore, we are a big and rich trading nation. If we do this, the temptation to the small and the weak, to those without our resources, becomes very strong.

Free trade has been denied by the very hon. and right hon. Members who taunted the European Economic Committee with being inward-looking and protectionist. I remember their criticisms during our Common Market debates, saying that what was wrong with the E.E.C. was that it was protectionist and inward-looking. Now we have a Government who, within a fortnight of taking office, do something which is seen throughout Europe as being of the same colour. No longer can we read with any conviction the words in the Gracious Speech: My Government will continue to play a full part in the European organisations of which this country is a member and will seek to promote closer European co-operation. What a way to start, and what damage has been done!

But none of this is so important as whether the measures will work. I do not believe that they will, and not many people in Europe believe that they will. The President of the Board of Trade will confirm that he had a fairly rough passage on his visit to Europe. He came in for fairly stiff questioning and criticism from the G.A.T.T., from the members of the "Paris Club", from the Council of E.F.T.A. and from all those whom he saw. I am sure that the main point of their attack was directed to whether these measures would, in fact, work.

Of course, imports will decline. They will go down quite startlingly. Importers will be waiting for the surcharges to come off so that they can do their importing then. Everything rests on what is meant by "temporary". Is it six months, a year or two years? How long will it be? I am sure that we shall find it very hard to keep the surcharges in being for more than about six months. Canada did something similar in 1962. She imposed surcharges. Admittedly, they were graduated within a range of from 5 to 15 per cent. on different classes of goods, and there was, at the same time, a devaluation of the Canadian dollar and strong internal measures to put the situation right. But, despite all that, international pressure through the G.A.T.T. and other trade councils succeeded in getting those surcharges removed within six months. I wonder whether this Government will be able to hold them for as long as six months.

Will their incomes policy have borne fruit in six months? Do they believe that they will succeed in establishing the planned growth of incomes in six months, or even at all? Will they have abolished restrictive practices on both sides of industry by then? Will they do these things in the first 100 days or the first six months? Shall we have had the technological revolution and the modernisation of British industry which we have been promised? Will this be bearing fruit by the time the surcharges have to come off? It is impossible.

Even giving right hon. Gentlemen the maximum credit, and assuming that they work all their miracles, they will not work them before they have to take the surcharges off. So, when the surcharges come off, we shall be left with demand building up and the economic situation unchanged. If anything, demand will be greater in this country, with all the pent-up imports flooding in. I find it very hard to see what the import surcharges have done other than postpone the problem until such time as the Government are forced to take them off.

Turning to the Budget, I welcome the rise in pensions, but this rise and the addition to Income Tax which virtually pays for it are not relevant to the situation about which I am speaking because nothing in them bites until the latter part of next year. Neither the increased demand for the pension nor the deflationary effect of the Income Tax changes will effect us for at least six months. We are left only with the petrol tax which can affect demand. The Chancellor admitted that the surcharges would increase home demand, so he had to put the petrol duty up straight away to deal with the increased home demand caused by the surcharges. A very much better way to go about it would have been not to put the surcharges on, or the petrol tax. He has created demand by the surcharges, so he has had to take it off with the petrol tax.

The right hon. Gentleman said: The effect of the import charge and of the export rebate will be to increase demand on home production."—[OFFICIAL REPORT, 11th November, 1964; Vol. 701, c. 1035] I do not know by how much—perhaps, by at least as much as £100 million. The rise in petrol duty will bring in £93 million. The significance of those two figures is such as to make one believe that they were meant very nearly to balance.

There has been hardly any net change in demand at all. I wonder whether the Government have tackled the situation which causes our uncompetitiveness at all. They have merely scratched at the symptoms without attempting to cure the disease. Their long-term measures, with the best will in the world, cannot work before they have to take the surcharges off. They have done nothing to affect demand in the economy during the next six months here at home, and the problem will pile itself up and become worse.

It is as though the right hon. Gentleman had been asked to perform an operation for appendicitis on a patient, but he had been given the job on the express pledge that he would not cause any pain. He has, therefore, rejected appendectomy. He is trying every sort of pill and medicine to cure the patient, but he is not prepared to try the one thing which will help. The Prime Minister made "stop-go" so unpopular and made orthodox economics so unpopular that he has been forced to use the weapons least likely to cure the disease. There were references yesterday to my right hon. Friend's maxim—

Mr. H. Hynd (Accrington)

The hon. Gentleman is describing a very gloomy prospect. Can he suggest what the Chancellor ought to have done?

Mr. Ridley

I do not believe that it was necessary to put the surcharges on at all. I believe that they were put on to heighten the sense of panic and to try to make the situation appear worse than it is.

Mr. Jay

Can the right hon. Gentleman tell us what he would have done about the balance of payments situation? What- ever his estimate of it, he cannot argue that it is wholly imaginary.

Mr. Ridley

I think that he ought not to have put on the surcharges. The increase in the petrol duty would probably have done considerable mopping up of demand, as also would the increases in the contribution for pensions. I only wish that these could have been brought forward earlier so that they would begin to bite sooner.

Mr. Jay

But if the increase in the petrol duty is the one change which the hon. Gentleman does support, why did he vote against it yesterday?

Mr. Ridley

For the simple reason that, when coupled with the surcharge, it made absolutely no sense at all, as I explained in my speech, if the right hon. Gentleman had listened.

I am quite certain that this is not the right way to go about curing our troubles. The Budget is both irrelevant and wrong in its whole conception of trying to cure the disease by removing the symptoms rather than go to root causes, and it is extremely unlikely to work at all.

6.9 p.m.

Mr. Henry Solomons (Kingston-upon-Hull, North)

I, too, trust that the Committee will grant me the tolerance which is usual for a Member making his first speech in this Chamber. I was particularly interested in the remark of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), that the Budget is irrelevant. I wondered whether the old people in my constituency of Kingston-upon-Hull. North would say that an increase in their pension was irrelevant. It would be very interesting to get their reactions.

I, too, was struck by the same point as the President of the Board of Trade, that the right hon. Member for Barnet (Mr. Maudling) failed to mention the pensions increase in his speech. He, too, presumably thought it was irrelevant. The country will be interested to know that when we go to it again in four or five years' time.

Those of us who have worked among old people, those of us who have been on old people's welfare associations, war pensioners' committees, and so on, know the poverty that still exists. In this debate, when old people and old-age pensions have been mentioned so often, I have been reminded of an incident that happened only a few weeks ago in Hull. I saw a queue outside a church hall waiting for the doors to open for a jumble sale. In the queue there was an old gentleman upon whom I had called a few days earlier. He recognised me and greeted me. I asked him what he hoped to buy at the jumble sale. He replied, "You see my shirt. It is the only one I have. I could do with a new one. I have to wash this one out and hang it up and dry it for the next day". So, in England, in 1964, we have descamisados—"shirtless ones". I for one plead that the Budget proposals shall include some measure of alleviation of the distress of the poverty-stricken in this country.

The same applies to widows. Any of us who have, like myself, been brought up by a widowed mother know the struggles that widows have to endure and realise that one of the finest pieces of legislation that the Government could bring into operation would be legislation to increase the benefits for widows. It is the same with regard to unemployment benefit and other benefits.

But there is one point in connection with unemployment benefit that I would draw to the attention of those who would be responsible for reviewing the details of future legislation about it. About 18 months or two years ago I had a long spell of unemployment—brought about, I might mention, by the fact that a Conservative board of directors sacked me because I had been adopted as a Labour candidate. Naturally, I went to the employment exchange and filled out the usual form. At the end of the first week I was paid as a single person. The Chancellor told us that unemployment benefit for married couples would be £6 10s. But the employment exchange does not look upon a married couple automatically as being married.

As I say, I was paid as a single man. When I remonstrated, I was told that when I filled out the form I said that my wife was doing a part-time job. Of course, my wife was doing a part-time job. One in every three women in industry today is married and doing either full-time or part-time work because of the standard of living, the high cost of rents, and so on. My wife had to go to work so that I should be able to pay the high rent, but because she earned more than £2 a week she was classified as being able to keep herself, and, therefore, I obtained unemployment benefit only as a single person. I hope that that will be looked into. It is not fair to classify as being independent a wife who has to go out to work to eke out what is already a low income when her husband is out of work and is getting an even lower income still.

I am very glad that the Government have brought in these changes. The old people will be grateful to them, just as they were vocal in their condemnation of the previous Administration, which I have always called the "Bingo Government". Those of us whose local organisations have tried to raise money by running bingo know that when the caller comes to No. 13 he says "Lucky for some". The Bingo Government that we have just got rid of was lucky for some—lucky for the land speculator, the take-over bidder and the tax evader. The present Government will be lucky for some—lucky for the pensioner, the unemployed, the disabled and the chronic sick—and I am sure that our "lucky for some" will be far more appreciated than other people's "lucky for some".

Perhaps I might just say one word in conclusion. I bear in mind that I have been told to be both brief and noncontroversial. I would remind the Prime Minister that he is in a very difficult position at the moment because not merely has he the Leader of the Opposition, the ex-Prime Minister, watching him very carefully, not merely has he in the country ex-Prime Ministers like Lord Attlee, Lord Avon, Mr. Macmillan and Sir Winston Churchill, but behind him on these benches he has another ex-Prime Minister in the person of the hon. Member for Kingston upon Hull, North, who was the Prime Minister in the famous Cairo Forces Parliament during the war and will be keeping an eye on him, too.

6.16 p.m.

Mr. A. E. Cooper (Ilford, South)

All I can say about that is that I hope I am in the House when the hon. Member for Kingston upon Hull, North (Mr. Solomons) makes a contrversial speech. In the last few days we have heard some magnificent maiden speeches, and it has been a great pity that we have not been able to reply to them in a way which they really justify. I should like to complement the hon. Gentleman on the presentation of his speech, and we shall look forward to hearing him on more controversial occasions. We know at least one thing, that we have an optimist in the House. Any hon. Member opposite who thinks that the Labour Party will form the Government of this country for four or five years must be "stone bonkers".

I suppose that the Budget can be called a goulash, and a not very tasty one at that. The first duty of any Government is to ensure that conditions exist for industry to prosper, for a prosperous industry is the seed corn of our country. The Government measures must be judged against that background. We have heard a good deal about the. I believe, imaginary figure of £700 million to £800 million deficit. I thought that the first half of the speech of the President of the Board of Trade was rather fifth-form stuff, and that he could really do better than that. The second part of his speech was most constructive, and I am sure that he will get full support from those of us on this side of the House who have experience in industry for any measures which he proposes which will be for the benefit of British industry.

But the right hon. Gentleman has been less than frank with the House. We do not expect the Prime Minister to be frank with the House, but we do expect the President of the Board of Trade to be so. What the right hon. Gentleman should do is to set out in a White Paper just how the £700 million or £800 million is broken down. An hon. Friend of mine a little earlier spoke about the balancing item, which could be anything from £200 million to £400 million—we do not know. It could be the smaller figure. We have no idea yet what has been the total sum on capital account of the big Shell chemical project and other items of that kind. We do not know precisely how much repayment of overseas debt is accounted for. Speaking from memory, I believe that it amounts to about £90 million a year on the North American debt alone.

We must also take into consideration the very important point relating to the Export Credits Guarantee Department. This aspect has not been raised sufficiently in the Committee; at least, it has not been sufficiently appreciated by many people. The facts are quite simple. We pay for our imports largely by cash out of the current year's earnings. Any goods that we buy now are paid for and come into this year's accounts. But a proportion of the goods which we export—and exports this year are running at an annual rate of £4,000 million—are covered by the E.C.G.D. and manufacturers are paid for these goods out of Government funds from the revenue of the country. The Government itself does not receive payment from the overseas buyers for some years afterwards—perhaps, three, four or five years and up to seven or eight.

We do not know what is the extent of that, but let us assume that 20 per cent. of our trade is done on E.C.G.D. terms, which amounts, roughly, to £1,000 million a year. Our export trade builds up year by year. Although it increases slowly, it is, nevertheless, increasing. This must mean that in the current financial year we are drawing payment for goods sold as far back, perhaps, as seven or eight years, which must obviously be very much lower than the total value of the sales entered this year—as much as £100 million to £150 million. I am not being controversial, because this is a very important point which perhaps is not widely appreciated. It would be a good thing—perhaps not during these proceedings, but later, when we discuss the Board of Trade—if this aspect could be illuminated and Parliament told how far back we are drawing money and what it really means.

Mr. Jay

I am sure the hon. Gentleman realises that, in the normal E.C.G.D. transactions, there is an immediate down payment, usually a good deal less than 50 per cent. of the total value of the export. In other words, some payment is secured in the year of export.

Mr. Cooper

But it is a very small item, sometimes the payment being as low as 15 per cent. I am aware of many transactions where that has been the case.

Mr. Edward du Cann (Taunton)

E.C.G.D. cover is available in respect of about 25 per cent. of the total volume of British business. The figure, therefore, is slightly larger than my hon. Friend the Member for Ilford, South (Mr. Cooper) has suggested, which reinforces his point. The forms of credit are suppliers' credit and the financial guarantees introduced by my right hon. Friend the Member for Barnet (Mr. Maudling), when he was President of the Board of Trade. The normal form is, in the first case, to allow five years' credit and, in the latter case, credit up to 15 years, with a down payment of about 20 per cent. Some of these transactions are very large.

Mr. Cooper

I thank my hon. Friend the Member for Taunton (Mr. du Cann). My point is that these transactions make a very considerable contribution to the balance of payments problem, which will continue to right itself as years go by but, paradoxically, will get worse as our exports build up—the more so if the E.C.G.D system is extended as suggested by the President of the Board of Trade. The gap will tend to grow larger all the time. We must not lose sight of this in future consideration.

Taking these capital items into consideration, with the E.C.G.D. idea, I am forced to the conclusion, reluctantly, that this crisis exists largely in the minds of the Government and has been created from a deliberate political motive in order to raise additional taxation to pay for social service benefits which they had not the guts to talk about during the election campaign. We tried for the three weeks of that campaign to force every member of the present Government to cost their programme, to tell the country honestly what it meant in terms of extra taxation. Not once did we ever get a reply.

Mr. Sydney Silverman (Nelson and Colne)

rose—

Mr. Cooper

Just a moment. The hon. Gentleman gets up so often that perhaps he will allow me to finish what I am saying.

My right hon. Friend the Member for Barnet (Mr. Maudling) costed this programme for the Labour Party and the country. He was told that he was indulging in schoolboy economics. But when they come into power the very thing that he said they would do is done and it costs exactly what he said it would cost.

We are not complaining about the increases in pensions. They were right and justified and everyone applauds. We complain that the Government during the campaign made no mention of the cost of this part of their programme to the electors. It is for that that they stand indicted by this party and the nation.

Mr. S. Silverman

The hon. Gentleman has just said that the party opposite is in favour of raising old-age pensions. He has said that his party made that perfectly plain—as, indeed, it did—during the course of the election campaign. Can he tell me whether his right hon. Friends themselves assessed what the cost of this would be, whether they told the country during the campaign, and whether they said how the money would be raised?

Mr. Cooper

We set it out quite clearly. We said that it could be done on the basis of a continual 4 per cent. growth.

Mr. Silverman

This is still not quite clear. Of course, it could be done out of a 4 per cent. growth in the economy. We all said that. But we cannot do it out of a 4 per cent. growth until we have such a growth. Does this mean that the party opposite would have done nothing until it got a 4 per cent. growth.

Mr. Cooper

It will be found that in the last 12 months growth has been substantially better. We were within measurable distance of getting 4 per cent. growth under the Conservatives. [HON. MEMBERS: "Oh."] The party opposite is supposed to be the dynamic party, elected on the policy of making the country move forward. As I walk about the country I do not see a glow of expectation on the faces of the people. I see them going about their work in the ordinary way and looking rather unhappy this morning at the extra tax bill. They will soon find out what is the real cost of Socialism.

One of the items which has caused the balance of payments difficulty has unquestionably been stockpiling in a big way. The President of the Board of Trade will find in his Department all the evidence he needs that a great deal of deliberate stockpiling by industry as an insurance against the type of thing that the Government have introduced was done this year. This will obviously rectify itself as the weeks and months go by. So, again, I am quite sure that it was quite unnecessary, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, to put the surcharges on.

If we wanted any further evidence to support what I say, the level of industrial activity has not got to a state of being overheated and would certainly not justify the volume of imports coming in now. It must, therefore, be obvious to anyone with the meanest intelligence that stockpiling was going on. Nevertheless, this is taken as one more excuse by the Government for panic measures. Investment in industry must continually increase and the source of this investment must he from limited places—for example, the percentage of profits ploughed back into business and further money coming in from private investors.

This latter money is available to industry only if savings are high. In the last financial year, savings reached a figure of £2,000 million compared with £100 million when we came to power in 1951. A high level of savings is vital to the country's whole economic structure and we have to consider whether the measures which the Government have now introduced will assist savings or cause them to dry up, thereby denying industry its very life blood.

Industrial profits are not high in the strict sense of the term and, in any event, the State benefits if profits are high. The right hon. Gentleman knows this, for at one time he was Financial Secretary to the Treasury. On average, about 50 per cent. of all company profits go direct to the State, while about 25 per cent. are paid out in dividends, all taxed at the standard rate and in many cases at the Surtax rate, and about 25 per cent. go back into industry.

It must be obvious to anybody that if profits are forced down by some means, the amount which the Exchequer gets from industry and the other recipients of profits will fall. It is this volume of money which now largely finances the Welfare State and which would have to be met by higher personal taxation. The right hon. Gentleman must decide what he wants to do. Does he want industry to play a great part in all this, or to depress it so much that he has to force more and more taxation on to the private individual?

If dividends are restricted, savings will decline and that will have serious effects on industry generally and on our general economic structure. We must get out of our heads the idea that dividends are the perquisite of a few. There are nearly 14 million people in this country who are, directly or indirectly, the beneficiaries of company dividends.

Mr. Jay

indicated dissent.

Mr. Cooper

I wish that the right hon. Gentleman would not indicate that that is not true. I will explain how true it is. The trade unions, for example, have very large investments in British industry and get a substantial part of their incomes from those investments. The Labour Party has much of its funds invested in British industry—capitalist industry, for it does not invest in nationalised industry.

Mr. Robert Maxwell (Buckingham)

The Labour Party does not have any investment in industry. Some trade unions have investments in industry through the trade union unit trust, but the Labour Party invests its funds only in Government securities.

Mr. Cooper

The fact remains that it invests its money and, therefore, has a beneficial interest in dividends. That is the point and it is very important.

Mr. S. Silverman

indicated dissent.

Mr. Cooper

I wish that the hon. Member for Nelson and Colne (Mr. S. Silverman) would apply his considerable intelligence to these matters. This is very important. Savings result from a surplus of earnings over expenditure. I cannot put it more simply than that. Dividends are part of the income of a person or organisation. If there is a sufficient balance, the balance is savings which go back to be reinvested in productive industry. If dividends are cut back in some way so that savings are restricted, the lifeblood of industry is dried up. That is the simple ABC of economics. If the right hon. Gentleman does not believe me, I suggest that he has a word with the two professors who will put him right about this matter.

Mr. S. Silverman

I promise not to interrupt again. Everybody realises that dividends are not illegitimate and that a great many people have them who are not rich people, but if we want to get an equitable incomes policy, if we expect people to restrain increases in wages, which are just as legitimate as dividends and probably a little more, is it not necessary, reasonable and effective also to restrain rents, dividends and interest? Otherwise, we will not get an equitable incomes policy which everybody agrees to be necessary.

Mr. Cooper

We do not want to go into the whole subject of how an incomes policy is made up, but there are very few cases—of course there will be some—of excessive dividends, for companies generally do not indulge in an excessive give-away of their capital. They are much more interested in ploughing money back into their businesses so that they can be rebuilt.

Unfortunately, the Labour Party itself has created the atmosphere of hostility towards capitalist industry. There is no getting away from the fact that over the years the Labour Party has criticised dividends as immoral, saying that they were paid to people who sat back on their backsides and got money which they had not earned. They forgot that the money was risked when it was invested in industry. Let us forget this "holier-than-thou" attitude towards dividends and recognise that they are vital to the whole economic life of the country.

I now come to some of the Government's measures. The 15 per cent. Impost on imports is reprehensible and illegal. There is no question but that we have broken our international agreements. In the eyes of foreign countries, we have destroyed the industrial reputation of this country which took many years to build up and which will now take us many years to restore.

There is no doubt that costs will go up permanently. This is not a matter of costs going up and being brought down again very quickly, for their will obviously be an effect upon wages, and once wages go up, they do not come down again, even if prices come down. In industry we shall be saddled with a permanent increase in the labour costs of nearly all the goods we manufacture.

The cost of living will be increased. This, too, will make for demands for higher wages and again industry will suffer. Yet right hon. Gentlemen opposite are supposed to be a Government trying to encourage exports, to keep our costs in line and to get them down. Every action they have taken will positively put up the cost of production and worsen our competitive position. There is no gainsaying that.

There is also the effect of the increase in the cost of petrol. What genius told the Chancellor of the Exchequer that the effect would be only one-fifth of a point? This is too absurd. The effects are cumulative over a very wide range. They are not easy to calculate, but I am certain that they will be far greater than the small amount which the right hon. Gentleman suggested yesterday.

I now raise a subject of very great importance to the chemical industry, and in this connection I declare an interest. Practically all chemicals are affected. The memorandum from which I am about to quote has already been submitted to the President of the Board of Trade in part or in total. A great many of the chemicals which are affected cannot be made in this country, or are basic natural products from other countries. For the purpose of what I am now saying I am not for the moment arguing the case for or against the general proposition of a 15 per cent. surcharge. All that I am saying is that where it can be shown conclusively that basic raw materials are not available in this country—the machine to which reference has been made is a case in point—they should be exempt.

Many of these chemicals are essential to the Health Service, and the surcharge will be an increased cost to it. Other materials are used in great quantities for our export markets. It is no use the Government saying that it is possible to get rebates on these things. The Civil Service is in such utter confusion that one cannot get replies from it on any subject. At one time we used to be able to get an "off-the-cuff" answer to questions on the telephone. Now we are told, "Will you please put it in writing?" I am still waiting for replies.

I apologise to the Committee for mentioning these products, but I must get them on record. They are bromine; iodine; selenium; silicon; mercury; arsenic trioxide; calcium carbide; hydrocarbons. Next comes a most curious one which sticks out like a sore thumb and about which the Government mist do something, methane. We have been spending a great deal of money in North Africa to bring it here in order to produce gas for our industry. We bring over our first shipment, draw up technical plans to get it in production, and what happens—bang, 15 per cent. straight away. This is absurd.

The list continues with calcium tartrate; dicyandiamide; calcium pantothenate; potash; gambier; quercitron bark extract; essential oils; turpentine; rosin and resin acids; and copolymers of acrylonitrile, used by the great firm of Chemstrand, which gives enormous employment to people in Northern Ireland. This firm now faces a 15 per cent. impost and will have to sell its products in the rest of the world in competition with countries which do not have such a surcharge imposed on them.

What do the Government want? Do they want money? Do they want exports? If they want exports, what do they propose to do to encourage them? Will they take off these ridiculous imposts on basic raw materials in industry, or are we to believe that they do not care a hang about the export trade? We shall put down Amendments on behalf of the chemical industry during the passage of the Finance Bill, and I hope that the Government will give very serious attention to the points which I have made, which affect not only the chemical industry, but other industries of equal importance. The criterion must be, "Will our industry be helped by this? Are we to encourage industry to bring these materials in and to make goods for export from them, or are we to have to fight with one arm tied behind our backs?"

The new Income Tax changes undoubtedly will have a very serious effect on the very people we are anxious to help. A salary of £2,000 a year, either for an individual or for a husband and wife combined, is not out of this world. I know a large number of teachers, for example, whose combined salaries are between £2,500 and £3,000. In this salary bracket are young thrusting scientists who have just got their first foot on the ladder. We want to encourage them. We do not want them to go to America or anywhere else. These are the sort of people we want in this country. We want to encourage young executives, who are the future lifeblood of industry. Is what the Government propose the way to do this—to take about £100 a year out of their pockets in extra income Tax? Most of the rise which teachers are to get in April next year will be gone before they get it as a result of the new income Tax proposals.

Hon. Members opposite always seem to think solely in terms of people with £5,000 or £10,000 a year, but it is the people in the middle income bracket who are most seriously affected by these pro posals than anybody else. They are the people who are penalised.

Hon. Members may say, "You have made many criticisms. Is it not time you said something constructive?" That is not an unfair question. I have always argued with the right hon. Member for Battersea, North (Mr. Jay) about the right way to impose taxation. Should one impose it on earnings or on spendings? I have always believed that a greater degree of taxation should be levied on spending. In other words, I should have preferred to see increases in taxation on spirits, beer and tobacco. That would have been a far better way of dealing with the matter than by putting an extra tax on petrol and increasing Income Tax. This would have been much fairer and would not have been open to anything like the criticism to which it is open.

I am sure that the Opposition will support all propostals which can be shown by the Government to be of benefit to the nation. But this Budget is highly inflationary and, I am sure, will endanger the whole prosperity of our nation.

6.46 p.m.

Mr. Paul B. Rose (Manchester, Blackley)

As the youngest Member on this side of the Committee, I think that it is particularly appropriate that I should address myself to the subject of pensions. I am profoundly convinced that the unfair treatment of pensioners before 15th October was uppermost in the minds of many young people when they cast their vote on that day. I believe that this is a tribute to the idealism of so many young people who are too often denigrated by their elders.

During the past week hon. Members on both sides have expressed their strong opposition to restrictive practices. I am told that there are two restrictive practices which obtain in this Chamber. One requires me to be non-controversial, and the other requires hon. Members to listen to me with a tolerance and courtesy to which I am not accustomed. While I find the latter restrictive practice most commendable, I am not so sure about the first, because it is very difficult to be restrained and non-controversial in the face of the complacency which has previously been shown concerning the problem of old-age pensioners.

There has been far too much complacency on this subject over the years. There can be no room for complacency now, because the Chancellor of the Exchequer's proposal will do more in one fell swoop than all the sanctimonious protestations in the years prior to 15th October. If there is any criticism which may be made, it can only be about the sources from which we draw the revenue to pay the pensions. Perhaps we may pay more attention to the question of spending on defence and our overseas commitments in that respect.

Before dealing more thoroughly with the question of pensions, I should like to take the opportunity to observe a custom of the Committee and to refer to the former Member for Blackley, Mr. Eric Johnson. Despite our political differences, I would be the first to say that he cared a great deal for the old people in the division, and, within the limits in which he was allowed to work, did as much as he could for them. He was generally liked and popular among people of all political persuasions. His parting shot to me after the election result was declared was that, because he was 67, he would hold me to our promises on old-age pensions. I am glad to say that he will be a beneficiary of my right hon. Friend's proposals. I am as delighted to support an increase in his pension as I was to assist in his retirement.

It is an essential prerequisite to an equitable society that strong Government action should be taken to protect those least able to protect themselves—the elderly, the sick, the handicapped, the widows, and the infirm. There can be no substitute by means of private charity. This is the job of the Government and this is the job that is being done. It is this social aspect of budgetary policy rather than any narrow technical consideration that concerns me and, I believe, concerns ultimately the people of this country.

A Budget does not merely balance the nation's books. It does not merely dictate economic priorities and the direction of economic growth. It also can be used to regulate social priorities. It is as much a reflection of our moral concern for our fellow men and women as it is an exercise in accounting. I believe that the Budget this time has been used in this way as an instrument of social justice. The Chancellor of the Exchequer has used the weapon in a way which demonstrates certain attitudes to the way in which people acquire their wealth, attitudes which, in my submission, are the bedrock of the philosophy of hon. Members on this side of the Committee.

When we talk about a tax on capital gains, this is not merely another method of obtaining more finance for pensions. It is recognition of the fact that there are some people who earn their money in an unproductive way and that they have to give up some of this money to the community which has helped to create that wealth. Today, the teacher, the public servant or the ordinary employee of a company has a right to kick when he sees the evasion and avoidance of tax that goes on in a variety of ways, particularly among people who are fortunate enough to have their own business or who can invest on the Stock Exchange. In this atmosphere of the devil take the hindmost, the hindmost has been the man or woman living on a fixed income, particularly the retirement pensioner.

It is not possible to assess the extent or the intensity of human misery which has been caused primarily by the sheer financial inadequacy of the retirement pension. The Salford Report talks of old people who have to go to bed at six o'clock in the evening because they cannot afford the coal with which to keep themselves warm. Any general practitioner can tell of cases of malnutrition among old-age pensioners who cannot afford to buy food and to whom our elementary needs are an unascertainable luxury. There is also the wounded pride of those to whom National Assistance, whatever its intention, is seen as the twentieth century equivalent of the old poor law. Very often, they would rather starve than have recourse to it. Rightly or wrongly, this is often the attitude.

In addition to 1¼ million old-age pensioners who are forced to seek National Assistance, there are also an estimated ¾ million who do not seek National Assistance because they either do not know of their entitlement or are too proud to take it. Remember that this was the generation which was forced to march to London for bread. Talk of donations hardly helps to alter these attitudes.

The way in which the present system affects old people can probably be best assessed and most graphically illustrated by specific references. Only two or three months ago, I called on an old lady in my constituency of Blackley and she told me that the 4s. National Assistance allowance which was given for coal had been withdrawn. The reason was that it was simmer—summer in Manchester, on a night when my fingers were freezing to my canvassing card and the sky was that shade of grey which only a Mancunian can know and still love.

That old lady was denied the 4s. which she needed for coal. I took up the matter with the National Assistance Board, who replied that it was summer and that she was not entitled to the money but agreed to look into the matter. The Board sent an investigator, who decided on a compromise. He felt that as the lady was nearly 80, she needed assistance in window cleaning. She was given an additional 1s. 6d. a week, and this at a time when we were told that the economy had seldom been stronger. I therefore hope that as the increase in pensions is to be postponed for four months, immediate action and attention will be given to assist pensioners over these coming months during the winter.

We now have a Government who are acting in a rather remarkable and unique way. They are actually doing what they promised to do. This seems to be the point which is causing so much difficulty to hon. Members opposite. But the whole questions of public service pensions, the need for an annual review and a comprehensive super- annuation system need to be tackled at the earliest opportunity. While I am delighted at the increase to 30s for the 10s. widow, there remain many curious anomalies in the system with regard to widows' pensions, not least the arbitrary 50-year age barrier.

I would add a word not so much on the financial aspects of the problem, but on the human side. In my constituency there are many families who are separated through municipal housing. Their children grow up, they go to live on overspill estates and they, in turn, have children. Their problem there is one of loneliness. It is compounded by the problem of distance and the expense of travel. To my mind, it is an act of sheer humanity to allow these people the privilege of cheaper fares to facilitate their much diminished mobility and the possibility of going to see their children and their grandchildren. Just as man cannot live by bread alone, so the problem of old people cannot be resolved purely by Budgets alone.

It is in that context that I hope we will hear later of more money being allocated, not so much in pensions but in assisting the care of the elderly. We have to end, for example, the near-Dickensian horror of old people who have lived a lifetime together being separated in old people's homes, such married couples being allowed the privilege of walking together once a week. I should like to see a modification of the earnings rule to assist those who can still do a useful service to the community. More important is the fact that work at 65 should no longer be a matter of economic necessity, but should become a matter of choice.

The Budget displays a new attitude to the widow, the elderly and the sick. It is a recognition of society's obligation, and to the extent that this has happened it is a breath of fresh air. If it fails to tap some of the sources of wasteful expenditure which I mentioned earlier, I hope that this will be only in the short term. Every fairminded and humane person will welcome the. Budget. I welcome it, not only on my own behalf but on behalf of the people of Blackley. I thank hon. Members, on both sides, for the tolerance and indulgence they have extended to me and which, I am sure, after this occasion, will not be extended again.

6.58 p.m.

Sir Alexander Spearman (Scarborough and Whitby)

I am glad that it has fallen to my lot to congratulate the youngest hon. Member on the benches opposite on his excellent maiden speech. It was both vigorous and interesting and clearly on a subject near to his heart. The hon. Member for Manchester, Blackley (Mr. Rose) showed a happy combination of confidence and modesty and knowledge of his subject, qualities that particularly appeal to the House of Commons. It does not, perhaps, happen very often, but I am sure that on this occasion I speak for everyone here where I say that we look forward to hearing the hon. Gentleman again.

I am sorry that the Government have imposed the import surcharge, and particularly that they have done it in a way that seems to me to have been both hasty and ill-considered. When Governments make what are thought to be serious mistakes, tears on the side of the Opposition tend to be of rather a crocodile nature, for obvious reasons. But, on this occasion, I believe that the damage done is far greater than party advantage.

I had hoped that, whatever party was in office, this country would set an example in freeing and expanding world trade, because I believe that that is the greatest contribution which we as a country can make to a safer as well as a richer world. It must be a sad day for the progressively-minded members—and I freely admit that there are many on the benches opposite—who have always disliked being on the defensive and supporting out-of-date protectionist policies and who have wanted, on the contrary, to be on the attack in adapting policies to changing conditions.

The right hon. Gentleman the Minister of Aviation, who in any other surroundings I would call my right hon. Friend, is very preoccupied today with his own problems, but he must be very unhappy at the antagonism which this country has created for itself in Western Europe. If our goods are competitive abroad, or, as has happened before, if the Government took action to ensure that they would be competitive and to convince foreigners that they would be competitive, then there would be no difficulty in borrowing abroad enough to see us over a difficult situation. When the economy is excep- tionally buoyant, of course stock-building is exceptionally severe.

But if our goods are not competitive, then this surcharge will be of no avail. It is attacking the symptoms and not the disease itself. It will put up costs because of the effect it will have on the imports of plant and partly manufactured goods. It will possibly cause retaliation, and it certainly is causing ill-will, which must affect our exports. It tends to protect the high-cost inefficient producer—and British industry today urgently needs not less but more competition.

Mr. Maxwell

Would it make any difference to the hon. Member if I told him that the Managing Director of the International Monetary Fund, Mr. Schweitzer, from which institution this country has applied for a loan of 1,000 million dollars, stated on his authority that the steps taken by the Government were both right and urgently necessary and, furthermore, that there was no alternative to the 15 per cent. surcharge? Regardless of what hon. Members opposite say, no country has taken steps against our exports, because they believe that the steps taken by the Government were right and necessary and will be only temporary.

Sir A. Spearman

That is not my opinion. Furthermore, it will cause inflation. May I quote what was said by a former Chancellor of the Exchequer in the House: … we must strengthen still further, and without delay, our budgetary defences against inflation. This need arises from the decisions which His Majesty's Government have taken … to increase exports and reduce imports, in order to narrow, as swiftly as we can, the very wide and dangerous gap in our overseas balance of payments … The effect of these decisions must be, if taken alone and unsupported by other measures, to increase the inflationary pressure by reducing the supply of goods available in the home market without, at the same time. reducing the total of purchasing power. To help to counteract this is the purpose of the proposals which I am making today."—[OFFICIAL REPORT. 12th November, 1947: Vol. 444, c. 391.] He later said that he proposed to increase the rates of Purhcase Tax as follows:— the 16⅔ per cent. rate will be increased to 33⅓ per cent.; the 33⅓ per cent. rate to 50 per cent.; and the 100 per cent. rate to 125 per cent.—[OFFICIAL REPORT. 12th November, 1947; Vol. 444, c. 403.] That was in contrast to the present Chancellor of the Exchequer who, though he said very much the same thing, has cut back spending only by putting a tax on petrol which he estimates will bring in the current financial year £32 million.

The President of the Board of Trade gave me the impression today, not for the first time, that he thought that if only we could export more or import less our troubles would be solved. Of course, all hon. Members agree about the extreme urgency of increasing our exports, but it is quite impracticable to increase exports or to reduce imports unless at the same time we produce more or spend less. That would only create inflation.

Obviously the ideal remedy is to produce more, and I have no doubt that we can produce more if and when we can get more enterprise and fewer restrictive practices in industry. That will take time, and with the present shortage of skilled workers there is no possibility of a materially quick increase in output. We must therefore fall back temporarily on the much less desirable alternative of spending less. Lord Amory—and I think that hon. Members who know him will agree that it is not his way to exaggerate—said last week that the Government's programmes contained the seed of inflation in the immediately foreseeable future. Had he spoken after the Budget speech he would have had no cause to change his mind in that view.

I do not know whether, now that they are in office, all hon. Members opposite think as one man or whether, as was the case when they were in Opposition, they are still a coalition of incompatibles. But, on this matter, it seems that every one of them is agreed that there shall be no more stop and go. Perhaps they feel fortified by the very superficial leading articles in The Times, the Sunday Times and other newspapers on this subject. If they and the papers only mean by this that the Government must provide themselves with better statistics to foresee more accurately changes in demand and better instruments for controlling that demand, then of course I agree that this is an improvement which we should all like to see. But it is very difficult, and I am not entirely sure that the new recruits from Central Europe will find a solution.

But if they mean by this that the brakes are never to be applied, then I say that they are talking nonsense—and dangerous nonsense. The only way it is safe to drive a car without brakes is to drive it very slowly. We had this prewar when there was huge unemployment. Then there was no need for brakes. But we all agree that we shall not go back to that again. All experience shows that whenever our spare industrial capacity—and by that I do not mean only the plant but the plant and the skilled workers available for it—falls below the danger level, round about 5 per cent., we inevitably run into balance of payments difficulties. We found that in 1951, 1955 and 1960–61. If home demand is so great that every manufacturer can sell everything he produces at home, clearly conditions are not competitive. When conditions are not competitive managements do not exert themselves. After all, we must take men as they are and not as we would like them to be, and, human nature being what it is, managements do not exert themselves in the same way to keep their costs down and their efficiency up. Moreover, and this is not so often said, they tend to choose the wrong sort of investment. They tend to choose to invest in the sort of plant that will give them the maximum production per unit of capital, whereas what they ought to be doing, and what many do when competition is more keen, is to choose investment that will give the maximum production per unit of labour.

There is sometimes said to be a conflict between growth and stability because growth means more inflation and inflation means higher prices. I believe that that is an absolute myth. I believe that in inflationary conditions we only get "bubble" growth. I would like to read one sentence from a publication which I strongly commend to hon. Members, "Policy for Incomes?" by Professor Paish and Mr. Hennessy—Hobart Paper 29. I may divert here just to say that we hear quite rightly a great deal about social justice but nothing is so cruelly unjust as inflation, hitting just those who can least afford to bear it. Professor Paish says Inflation is not only grossly unjust in its effects but also leads to the inefficient use of resources and to the survival of inefficient managements, and thus in the long run tends to slow down growth. I am quite convinced that any Government aiming at near-full employment and growth and stability have all the time to be prepared to use both the accelerator and the brake alternately. After all, if one is driving a car very fast one has to use the brake. The earlier you put it on the less shock to the passengers, and the later you put it on the greater the shock. In the inter-war years we had vast unemployment because there was a glut of goods people had not the money to buy. That will not happen now because we know—both sides of the Committee will agree on this—how to create demand when the economy is under-stretched. What we do not know so well is how to cut demand back smoothly when the economy is over-stretched.

I think my right hon. Friend the Member for Barnet (Mr. Maudling) deserves great credit for being the first Chancellor to put the brakes on before we began dropping below the danger point of surplus capacity. He had the courage—it was not an easy thing to do in election year—to impose unpopular taxes. It may be that he expanded too much in 1963 and cut back too little in 1964. Some of us said that in our speeches in the Budget debate at the time. But right hon. Gentlemen opposite cannot attack him on that score. In 1963, the present Chancellor of the Exchequer, the present President of the Board of Trade, and the present Minister of Aviation all condemned his Budget as too timid and too cautious. In 1964 the President of the Board of Trade condemned his Budget for cutting back spending. I will not give the actual quotations because I have given them in the House before, but I have them by me if anyone wants them.

I am convinced that if the brakes are not put on now they will have to be put on later, and the longer the delay the more drastic the measures will have to be. Dr. Dalton chastised consumers with whips. I am afraid it will fall to the present Chancellor—and he will not like it because he is a kindly man and a very old friend of mine—to chastise the with scorpions. Perhaps on the harsh and difficult days that lie ahead for him he will draw some comfort from the prophecy made on Tuesday by the Chancellor the Duchy of Lancaster, when he said: The Christian spirit must and will live, even in adversity."—[OFFICIAL REPORT, 10th November; Vol. 701, c. 875.]

7.16 p.m.

Mr. Adam Hunter (Dunfermline Burghs)

I am pleased to have this opportunity to address the Committee for the first time, and I crave hon. Members indulgence. I am doubly pleased, when I consider how many new Members are still waiting to make their maiden speeches. I represent Dunfermline Burghs, in which constituency is situated the City and Royal Burgh of Dunfermline. There we have the ancient abbey which is a great part of Scottish history. The abbey is not a standing monument to the past, but a living organism and it plays a very great part in the current and religious life of the community even today.

There are, of course, three other small burghs in the constituency. Two of them, Lochgelly and Cowdenbeath, are at present facing economic and social difficulties due to the decline of the coal mining industry on which the area has been solely dependent for quite a number of generations.

As Member for Dunfermline Burghs I follow Dr. Alan Thompson; and before Dr. Thompson, Mr. James Clunie; and before Mr. Clunie, Mr. William Watson, whom I am quite sure many Members still in the House remember with great respect. These three hon. Gentlemen made a great contribution to the business of this House and served their constituency well. I am sure that all members of the Committee will wish Dr. Alan Thompson every success in resuming what I feel sure must be a brilliant academic career.

Looking back on the record of my immediate precedessor's maiden speech I find that he made it from the Liberal benches, a mistake for which he profusely apologised. I could not possibly have made this same mistake, for I have seen, since I came to this House, that the Liberals are still on the other side of the House and that Dr. Thompson's colleagues and many new ones, including myself, are firmly—despite the small majority—established on the Government side.

I should also inform the House that I was until a few weeks ago a miner working in the bowels of the earth, an occupation I have followed for just over 40 years. To be suddenly transported from a working environment of that nature to the most important institution in the land, with its long history and tradition, was certainly, to put it mildly, a most interesting and exciting prospect. An hon. Member is advised to make a maiden speech non-controversial. On the other hand, he is informed that maiden speeches are allowed to proceed without interruption. The latter could be interpreted as some sort of licence, but, if so, it is not my intention to abuse it. To be non-controversial in a Budget debate seems virtually impossible, so if I transgress traditional procedures a little I plead to be excused.

The Budget proposals have my support. A supplementary Budget was necessary. By taking early action in an effort to begin an attack on the adverse balance of payments situation, the Government have again shown their determination to get Britain on its feet again. Everyone knows that desperate situations need desperate remedies, and it is unfortunate that some people have to suffer in consequence of the measures taken this time.

I particularly welcome the proposed increases in National Insurance and associated benefits, particularly the increase in the amount for old-age pensioners. I have had close and practical experience of old people, and I know their difficulties in maintaining decent and civilised standards. This prompts me to say that the Government are doing no more than they said they would during the recent election campaign: that immediate attention would be paid to this outstanding social problem.

Tax increases are often a cause of resentment, but it seems to me that those who are now asked to pay more are more able to pay the increase. Due to closure of pits, my constituency is now a low-wage area, but I am sure that those of my constituents who suffer from this mild taxation increase will accept it readily, in the knowledge that it is inevitable and that the burden is placed on those who can the better afford it. A big majority of taxpayers will not be affected by this new taxation, and that is how it should be.

While I noted with some regret that there was no mention in the Gracious Speech of a national fuel policy, I am heartened to find that the increase in oil duty will not adversely affect the operations of the coal mining industry. Any budgetary measures that promise for the future some hope that the Government of the day will formulate some regional planning are acceptable to me. The lack of alternative employment to offset the rapid decline in the coal mining industry in certain parts of my constituency constitutes a major social problem.

That problem can only be solved by the introduction of new and modern industry which will replace the old and dying industry and thus bring the constituency back to its former position of being considered a high wage area. As it is, too many of the working population there are earning too little; many of them are working in Her Majesty's dockyards, in local authority public services, and the like, which do not pay high wages.

I thank the Committee very much for the attention that it has given to me.

7.35 p.m.

Mr. Charles Doughty (Surrey, East)

It is a very great pleasure and an honour for me, as a Member representing a constituency in the south of England, to welcome to this House a Member from Scotland, and to congratulate him on his first speech in the Chamber.

This speech of the hon. Member for Dunfermline Burghs (Mr. Adam Hunter) was clear; at times I thought he was approaching the controversial, but he was able to skirt round that in the way to which we are accustomed in this House. I congratulate the hon. Member on what he said, and on the interest he aroused in all of us in describing conditions in his constituency. We look forward to hearing him in the future.

In considering the Budget Statement, we all want to bear in mind the avowed policies and purpose expressed by the Chancellor himself yesterday. He said that it must contribute to a healthy foreign balance, stable prices, full employment, social justice for the needy, fair play for all taxpayers, and sound planning of public expenditure. A little later he said that it would make possible the achievement of an income and prices policy.

While I wish him well in all those policies, I very much fear that after this Budget not one of them can be realised, because this inflationary Budget will lead to the exactly contrary state of affairs. The Budget, for reasons I shall give later, is inflationary the whole way through. All hon. Members will wish the right hon. Gentleman well, particularly when he said that it is part of his policy to pursue an incomes policy. Whatever has been done or said yesterday, or at any other time, I am sure that the Chancellor, or any other Chancellor, will come up against human nature.

I am sure that whoever he went to to suggest the details for an incomes policy, he will have got the same answer, human nature being what it is, "We entirely agree with what you say. We think that your policy is for the good of the country, but it cannot be applied to our trade or occupation—apply it to the others." And, of course, a variety of reasons could be put forward to support that particular person's argument. And as the present policy will undoubtedly lead to an inflationary increase in prices, the Chancellor will also be met with the answer, "Look at what you have done to put up our prices, our costs and our charges. How can we, at the moment, discuss such a policy when we do not know what the future can possibly bring?"

I am glad that the Opposition decided yesterday not to vote against the 15 per cent. surcharge, but that does not mean that I am 100 per cent. in favour of that surcharge. I am not in favour of it, because it is a breach of agreements—there is no question about that. Whether the present Government like them or dislike them, we were forbidden by those agreements from imposing surcharges. It may well be that hon. Members opposite can say that the surcharge is better than quotas, but if we break agreements we cannot expect people to trust us in the future.

That is exactly what the Government have done. They have not only broken agreements, but have done so in a most ham-handed way. They have done it without any consultation. If there had been consultation, it may be that our trading partners, if I may call them that, would have agreed, perhaps reluctantly, to this surcharge being put on as a temporary measure, but to do so without any form of discussion, or even giving any information to our trading partners beforehand, was to make bad worse.

It was done in a ham-handed way from another point of view, because I am informed that those who have the job of imposing the duty at ports of entry have not the faintest idea of what the regulations mean—whether the surcharge is to be imposed ad valorem or on quantity. As a result, there will certainly be for many days a great holdup in Customs sheds while that is being sorted out.

Another matter has been overlooked. Our export trade does not depend only on prices and quality, although those are among the most important matters that have to be decided.

It also depends upon good will. It also depends upon our word being trusted and our relations being friendly. It will be a very long time before the good will which has been destroyed among our foreign customers by this action will be restored, a very long time indeed. It was done at a time when E.F.T.A. was doing very well and some countries in the Common Market appeared to be having difficulties. E.F.T.A. received a shaking from which I hope it will recover, but it is in a very bad way.

The tax on petrol is not only put on petrol used for pleasure or for holidays, but on petrol used throughout industry. Everything that is not carried by rail is carried by some vehicle which burns either petrol or diesel oil. If we increase the cost of that necessary raw material we must put up costs right through industry. That will be an inevitable and obvious result from what was done yesterday.

In the thirteen years of Conservative Government Income Tax was brought down from 9s. 6d. to 7s. 9d. Even so, hon. Members of this party were always saying that the tax was too high. We know that it was too high, but we could not bring it down below 7s. 9d. Now, for the first time for many years, it has increased to this extent. Who will suffer from this? I do not mince words. This is a big attack on the skilled worker, on the white-collared worker, on the executive and on the professional man or woman. In the years since the war his condition has increased very much, but it has not increased so much as that of the manual worker. I have been pleased to see the condition in wages of the manual worker increase so much, but for people of the class I have described the increase has not been quite to the same extent.

Many of them are having considerable difficulties. They have mortgage interest to pay on their houses, children to educate and a car to run for business or pleasure or both, and many other costs and charges of that kind. In most cases they are not left with very much to spare. They are the people who will get no benefit, but who will suffer most from the imposition of the taxes put on yesterday and from the increase in the cost of living which undoubtedly will rapidly follow from what has been done and is threatened to be done. They have been completely abandoned by the Government of the day.

I hope that they will now realise fully that they cannot look to the Liberal Party for any support. The Liberal Party voted against the Government on Monday and with the Government on Tuesday. They voted against them yesterday at 4.37 p.m. and voted with them at 4.51 p.m.

Mr. J. Grimond (Orkney and Shetland)

I am interested in the account given by the hon. and learned Member of our voting, but does he approve of the increase in old-age pensions? If so, how does he presume they are to be paid for?

Mr. Doughty

I have not yet reached that part of my speech—

Mr. Grimond

The hon. and learned Member will do so?

Mr. Doughty

I shall certainly do so.

This matter is referred to in an article in The Times today. A kind of atmosphere has been endeavoured to be created that the Government have increased old-age pensions which were not increased before. I am not going back over long periods of history but when we just lost the election a few weeks ago old-age pensions had been increased—I am talking about purchasing power—to a far greater value than they were in 1951. I hope that people realise that.

The criticism I have to offer about the increase in old-age pensions announced yesterday is that it is entirely nondiscriminatory. That is what The Times said in its second leading article today: It is questionable whether, given that the Government's policy allocates greater sums to insurance benefits and bearing in mind the amount of parliamentary time needed to authorize the changes, the proposals make either the best use of the money or the time. The best use of the money was what we suggested that we would make. We would give it where it is most wanted, to the older pensioners. We should not spread the butter so thinly that everyone gets it quite regardless of whether all need it or not.

Mr. Eric S. Heffer (Liverpool, Walton)

Would the hon. and learned Member tell us whether it is more difficult for an old-age pensioner of 75 to live than one of 65? Does he have to pay more for food and other commodities?

Mr. Doughty

That is not the point. The old-age pensioner is far less likely to be earning any useful sum at 75 than at 65. If proof of that were needed, one has only to look around this Committee. Money would be much better spent where it is really wanted.

That is where the party opposite has gone quite wrong. It has taken the money largely from those who, in many cases, can ill afford it—there is no argument about that—and given it in some cases, not by any means all—to those who do not require it so much.

Yesterday's Budget Statement had a peculiarity in that the Chancellor announced what would happen in April. Generally—I make no criticism of this—if one puts a Question to the Chancellor before April he says, "I cannot anticipate my Budget Statement". That cannot apply now. There is a curious thing about which I should like some information. In the Budget speech yesterday there was no suggestion about reducing the level of Surtax. This seems clear if my reading and my knowledge of English is correct. The Budget Resolutions say: in the case of an individual whose total income exceeds £2,000, at such higher rates in respect of the excess as Parliament may hereafter determine. That seems a clear indication that next April the Surtax level will be brought down to £2,000 thereby increasing possibly largely—the amounts are not disclosed—the taxation which those who earn those sums, and, believe me, they are not riches, will have to pay, making their condition harder at that time. We decreased the Surtax rate thereby helping the executive man, the scientist and, in many cases, school teachers.

For other items of taxation we shall have to wait and see the details. I shall certainly not anticipate company taxation, but those who talked about people making large speculative capital gains are, to put it mildly, not accurate. An hon. Member has spoken about people who spend their time only in investing on the Stock Exchange. As it is at present, the law sees to it that in buying and selling one may do not many deals before one is liable to heavy taxation. This is a question of administration. What the effect of an excessive tax of the suggested nature will be in slowing down all forms of business, all forms of capital investment and all forms of capital borrowing we do not know.

Who will put money into some speculative concerns—honestly run—when he feels that if it goes wrong he will lose his money? He thinks, "If this wins and the value of the shares is increased, the Chancellor of the Exchequer gets it". Companies with a somewhat speculative business or a risk business, will find it very difficult to obtain capital. I hope that the Chancellor, before he comes down to the details of the capital gains tax, will think carefully of what the results will be. I do not think that he will get much money out of it. I think that it will be extremely difficult to administer and that it will be a great brake upon industries.

I am sorry if I repeat myself to the Committee, but I repeat myself because I feel very strongly for those who will suffer most from the Budget and the additional taxation and the threats of what is to come in April. They are the white-collared worker, the skilled worker, the executive, the professional man, the man with family responsibilities and a not very large income but many liabilities who is already feeling that things are difficult for him. These people will feel that things are a great deal worse. They will feel that things are a great deal worse because of the activities of the Chancellor of the Exchequer as he expressed it yesterday and as he threatens for the future.

7.41 p.m.

Mr. Alfred Morris (Manchester, Wythenshawe)

I think that it was Aristotle who held it to be the essence of probability that some improbable things will happen. He might perhaps have said something also on the need for legislative assemblies to show restraint and indulgence towards maiden speakers.

His remark about the essence of probability was certainly true of the election from which I have emerged as the first Labour Member for the Wythenshawe constituency of my native Manchester. In addition to a superb fellowship of natural supporters, I had the help of some extremely improbable visiting speakers. The Committee might think it churlish, even ungenerous, were I not to acknowledge the efforts of these improbable visiting speakers on my behalf.

First, I must acknowledge the support which accrued to me from the efforts of the then Prime Minister, the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home). He spent half an hour or so making his speech in Wythenshawe, and there were some who thought that he might be encouraged to stay a little longer. It was even argued, perhaps a little scurrilously, that he had spent upwards of an hour in other marginal seats and that he was selling us a little short.

But we had the advantage of a two-hour visit from the then Leader of the House, the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), and I am most deeply grateful for his splendid contribution to my success. Unfortunately, we did not have the services of the Secretary of State for Education and Science, the right hon. and learned Member for St. Marylebone (Mr. Hogg), but we were touched by the quiet, persuasive work he was doing on our behalf in well-reported speeches made elsewhere in the country. Again, it would be uncharitable not to mention the generous support we received from the right hon. and learned Gentleman's calm, reasonable and mature appeals to the electorate. In my view, he is the sort of speaker who not only encourages people to vote Labour. He seems to have the further knack of making them life-long Socialists at the same time.

One of the more endearing remarks made in Wythenshawe by the right hon. Member for Kinross and West Perthshire was that its people lived in surroundings very much like those of his home place. Hon. Members who know Manchester will readily appreciate the discernment of this remark and how very much I owe to the right hon. Gentleman's efforts on my behalf. Wythenshawe is a place most of whose people earn their living as industrial workers or as employees of national and local public services. They are a very lively, warmhearted, sociable, hardworking and intensely practical community of people. I am deeply proud to be their representative, as I know that my unfortunate predecessor was proud to have been their representative, in what is still the most illustrious of legislative assemblies.

One of the Wythenshawe community's main concerns is to see that our industry and our economy are energised, modernised and radically expanded. They know that economic expansion requires an incomes policy which is, and is seen to be, both fair and socially just. They will have been heartened that my right hon. Friend the Chancellor of the Exchequer has shown the courage and the will to tackle the grave economic problems with which he was faced on assuming office. They will be indebted to him, also, for the feeling of social justice which informed the speech with which he opened this debate.

In particular, they will rejoice at the improved benefits envisaged for elderly people, widows and war pensioners. In the months ahead, they will be looking to the Treasury Bench for stern proposals to deal with the scandal of land profiteering and the effects of high interest rates on the standard of living of owner-occupiers and council-house tenants alike. They will want to see some early initiatives towards disarmament and a reduction in arms expenditure. They will also want to see drastic action to curb the exploitation of consumers and some improvement in the housing prospects of the many young people for whom matrimony is followed by years of living with "in-laws".

Most of the people of my constituency know that in the Britain of past years the highest rewards have not gone to those who have worked the hardest or whose work has been of most value to the community. Those on fixed incomes have barely kept pace with an ever-increasing cost of living. Many have fallen utterly behind, including so many super-annuitants of the public service. They have been expected to tolerate the intolerable. Such features of the policy pursued in recent years are the central cause of our failure to achieve the twin objectives of economic expansion and a socially fair incomes policy.

Governments are not entitled to hope for a dynamic economy unless they have shown that they can be trusted to share the rewards of economic growth equitably. As one who has for some years held a position of responsibility in the public service, I trust that in their talks on incomes policy with representatives of industry my right hon. Friends will take into account not only the views of what one may call the federal leaders of industry, but also those of the more direct practitioners, trade union officers and managements alike, who do the day-to-day work of salary and wage negotiation. In my view, they could tell us far more about the causes, if not the effects, of what has come to be called the "wage drift" than could more senior people on both sides of industry.

Secondly, I should like it to be emphasised that when employers decline to bargain adequately with trade union officers but agree to negotiate only when, and sometimes after, they are faced with strong industrial action, they are actively discrediting the trade union movement and will be exposed as disruptive elements in our industrial life.

Thirdly, I hope that we shall have an incomes policy which attempts to cure the disease of overtime. By this I mean that I should like us to create an industrial society in which it will no longer be necessary to work long hours of overtime to earn a living wage. Work-people in my constituency are today as apprehensive of losing their overtime as they used to be, or their fathers used to be, of losing their jobs.

He was an acute observer of our industrial life who remarked that overtime is no longer the jam: it has become the bread of life for millions of working people in Britain today. And an industrial society based on overtime becomes a tired, ineffective and, if I may say so, an ugly and demoralised society. I should like to think that hon. Members on both sides of the Committee will give a lead to our fellows in industry by showing that they can conduct the business of the House of Commons efficiently and well without the incidence of unnecessarily long hours of overtime. I look forward to a happy coincidence of precept and practice in our approach to this subject.

Finally, one of my main impressions of the House so far was when, on the election of Mr. Speaker, it was said that what unites the House is the love which all right hon. and hon. Members have for it as an institution. Perhaps I may be permitted to say, as a new Member, that I bring with me an enduring respect for a House of Commons which has been an instrument of revolutionary social change and which has provided the means for such change to be carried through peacefully. As a life-long democratic Socialist and co-operator, I feel that we are honoured to be here at a time when I believe that we shall see this House acting according to its finest traditions.

7.52 p.m.

Mr. Stanley R. McMaster (Belfast, East)

First, I should like to congratulate the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) on his interesting and non-controversial speech. I look forward to hearing many more speeches from him, and, perhaps, a controversial one.

I should like to deal generally with the state of the economy as I see it. Our economy has been dogged ever since the war with the difficulties of balancing exports and imports. I feel that we have become very much too preoccupied with the phrase "stop-go" and that it is because of this that we are landed in the difficulties which the Budget reflects.

It is a fact that as a trading nation this country must export sufficient to provide, first, the raw materials which are essential for our exports, and, secondly, the food which is essential to sustain our population. It is also true that we are living in an intensely competitive world. We face fierce competition, not only from Europe and countries including old enemies, like Germany, but also from Eastern countries which have progressed very rapidly since the war. It is against this background that I should like to examine briefly the measures which have been introduced by the new Chancellor of the Exchequer.

I listened with great interest today and yesterday to speeches from the Government Front Bench and noted particularly that none of the Front Bench speakers scorned the use of the regulator. In fact, the Chancellor said that he would not be afraid to use the regulator. I feel myself that it is a shame that he has not considered this point first and placed it in front of the measures which he has announced for dealing with the present imbalance.

I feel that the surcharge which has been introduced is only buying time. It does not meet the problem which has been raised. In fact, so far from curing the country's difficulties and ills, it will, if it is extended too long, act in the opposite direction, because whenever 15 per cent. surcharge is placed on imports the countries from which we import are bound to take retaliatory action. Some of them have already announced that they intend to do so and individual manufacturers who previously bought some of their commodities or raw materials from this country have announced that they will not do so any longer. In this way, the 15 per cent. surcharge defeats its own ends. Also, it may mask the true difficulties which face this country.

If imports and exports are in a state of imbalance, I would suggest to the Committee that the correct thing for us as a trading nation is not to attempt to cut down our imports, but to step up our exports. The only way in which we can do so is by making our exports more competitive. What does this 15 per cent. surcharge and the other measures announced yesterday do? Does the increased tax on fuel oil and on petrol help to make this country more competitive? I think that the answer is obvious. They are bound to add to the cost of production and make us less competitive.

So far as the surcharge is concerned, now that our industry is no longer facing keen direct competition from foreign industry but is hiding behind a 15 per cent. tariff barrier, will it become more competitive? I suggest to the Committee it will be anything but; it will become less competitive. When industrialists are met with stern wage demands, vigorously fought for by the trade unions, will they not be tempted now to say, "We have 15 per cent. in our favour. We can give them a little more rather than face the prospect of a strike". It is this attitude which makes this country much less competitive, and prevents us, rather than helps us, from meeting the fundamental imbalance which has arisen over the past 12 months.

It has been frequently asked during the debate what measures hon. Members on this side of the Committee would suggest to meet the problem. First, I should like to suggest that instead of increasing the petrol tax we might have considered increasing the Purchase Tax on luxuries. Our shops now are very full of luxury goods. I accept the case that pensioners needed a rise, but that, of course, is a totally different matter from the necessity of meeting and balancing our foreign trade. I suggest that instead of raising the tax on fuel oil, which adds to the cost of production, Purchase Tax should be raised on some luxury commodities—cameras, perfume, spirits and perhaps tobacco. Commodities of this nature are much less fundamental than fuel and petrol.

The measures which have been announced by the Chancellor are irrelevant to the needs of the country. The Resolutions which the Opposition voted against will not help us to cure our ills; instead, they tend to be inflationary. This point has been very well developed in speeches from the Front Bench on this side of the Committee and by other of my hon. Friends. I would suggest that the Chancellor will find, before this Parliament is very much older, that he is forced to use the regulator. What will happen then to all the attacks of the Labour Party during the election on the questin or "stop-go"?

We find that we are continually on a knife-edge. With rising wage demands, our exports tend to be priced out of world markets, and unless we clamp down on home demand and make our industries more competitive this problem will recur. It is no use applying a surcharge of 15 per cent. and then perhaps increasing it to 30 per cent., only to have to increase it again. This, in a way, is a form of devaluation—true, a temporary devaluation, but that is, in effect, what it amounts to. This does not help the country. In fact, if this surcharge is not removed quickly we shall find that the retaliatory measures which are taken against us by other countries will be so severe that we shall lose export markets, and any benefit that we get from reduced imports will he quickly cancelled out and, indeed, more than cancelled out.

As for the Chancellor's suggestion that the tax changes will be disinflationary, I feel that he should know that these tax changes are much too slow-acting to take the pressure out of the economy. The best and quickest way of removing pressure from the economy by tax changes is by immediate increases in Purchase Tax. This acts rapidly. The increase in the standard rate of Income Tax will not help to meet the immediate problems of this country—problems which we face as a result of our £700 million or £800 million deficit on world trade.

I should like to mention briefly the effect of these measures in areas of high unemployment. As hon. Members know, I represent one of the Ulster constituencies and I am particularly apprehensive about the effects of these measures on areas such as Northern Ireland. Such proposals will only make it more difficult for us to meet our problem of unemployment. One of the reasons for the persistently high unemployment in Northern Ireland, as in Scotland and the North-East, is transport costs, and the increased taxes, particularly on fuel, are bound to aggravate the problem.

Further, the disincentive effect of a high standard rate of tax is bound to be bad for that part of the economy which is suffering from under-employment. While this continues, there is no incentive to manufacturers to expand or increase their rate of production or, indeed, to be venturesome at all. Unless we can encourage that element which my hon. Friend the Member for Ilford, South (Mr. Cooper) mentioned, unless we can encourage those persons on whose ingenuity, brains and initiative this country depends, by giving them a greater return for their efforts, they will pull in their horns. The economy will cease to expand and the great expansion forecast by the party opposite will be completely frustrated.

It is very much in the interests of Northern Ireland that British industry should expand rapidly, but I am afraid that the measures which have been introduced by the Chancellor all act in the opposite direction. The country will very soon find out their results.

Mr. Arthur Lewis (West Ham, North)

Accepting every word that the hon. Member has just said, and particularly that part of his utterances which we know to be true, namely, the high degree of unemployment in Northern Ireland, which, incidentally, has existed for many years, may I ask whether he can say what the Government should do which the previous Government never did to bring full employment to Northern Ireland? I have been in the House for the last 13 years and I have heard the hon. Member complain bitterly—and rightly so—on many occasions about the high rate of unemployment in Northern Ireland, but the previous Government never did anything about it.

Mr. McMaster

I am glad to answer that interruption. While I sat on the Government side, members of the Socialist Party frequently supported these ideas, which I put forward at that time, and I am very glad to say that the Conservative Government on many occasions adopted measures which were directly designed through the tax system to assist Ireland.

In the last Budget, as the hon. Member may recall, we gave free depreciation to areas of high unemployment. This has considerably helped the Northern Ireland Government, and as a result our level of unemployment is now between 1 per cent. and 2 per cent. lower than it was a few years ago. The level has been steadily falling. After all that has been said by the Socialists, I would have expected the present Chancellor to have introduced some such measures.

The hon. Gentleman asked me what I would suggest. I would suggest measures such as the Conservative Government proposed, such as relieving Northern Ireland from the payroll tax, providing free depreciation and other similar measures, using the tax system, not only to encourage exports but to help areas of high unemployment. The Chancellor could have given special rebates to areas of high unemployment. It is no use the hon. Gentleman shaking his head; these are proposals which he was advocating a few months ago.

Mr. Maxwell

The previous Government had 13 years in which to do all this. The present Government have been in power for only 23 days. Would not the hon. Gentleman agree to wait and give the Chancellor of the Exchequer a chance to make such proposals in his April Budget?

Mr. McMaster

Considering that the party opposite made this the main plank in its election platform, I would have expected it to adopt such proposals during the first 100 days.

In view of what I have said about the dangerous effects of the Chancellor's proposals, and the fact that there is no special relief for areas of high unemployment, I have not got much confidence in anything which is likely to be introduced by the Government in the future. All that I expect to see is a spiral of inflation, which will make things particularly difficult for areas such as that which I represent. I think particularly of the shipbuilding industry in Belfast. How will steel nationalisation and a high fuel tax assist shipbuilding? How will they help us to compete against the German and the Japanese shipyards? I suggest that these measures will have the opposite effect.

Already, my hon. Friend the Member for Ilford, South has mentioned the synthetic fabric industry. Besides the firm that he mentioned, we have Courtaulds, Chemstrand and Dupont. They all depend on cheap fuel and electricity. The raising of the fuel tax is bound to make conditions for them more difficult. The other day I was speaking to the director of one of these companies, and he said that it was cheaper for a firm whose head office is in the United States to set up a factory in Holland rather than in Northern Ireland, because it could get its electricity cheaper in Holland to enable it to manufacture synthetic fabrics, 50 per cent. of which, incidentally, is exported. That would not help Ireland. These measures will make it much more difficult for us to continue the high level of exports which this country needs.

Mr. Arthur Lewis

What the hon. Gentleman does not seem to understand is this. Accepting every word that he has said, is it not a fact that after 13 years of Tory rule—accepting all that the Tory Government did and all that they did not do—Northern Ireland still has the highest level of unemployment of any part of the United Kingdom and has had that for some years? Why has that state of affairs been allowed to continue? Why did not the previous Government put it right?

Mr. McMaster

I do not want to continue these exchanges because I know that other hon. Members want to speak, but I should like to answer that point briefly.

The numbers of gainfully employed in Northern Ireland have been rising rapidly. Our established industries, including shipbuilding, linen and agriculture, have all suffered from a run down in employment, owing to modernisation and changes in trend. In five years, more than 10,000 workers were laid off in Harland and Wolff, that is, 50 per cent. of the work force, but these have all been absorbed in industry in Northern Ireland. Unemployment has dropped, though not as quickly as one would like, but considering the rise in population and the run-down in industry we have made considerable progress during the last 10 years or so.

Our productivity in Northern Ireland is much higher than in the rest of the United Kingdom. We have been increasing productivity at a rate of 4 per cent., 5 per cent. and even more each annum, which sets a fine example to the rest of the country. This, again, has been supported by the action taken by the previous Government to help us. If the present Government can do anything like this they can be proud of themselves.

Mr. Arthur Lewis

What is the present unemployment figure?

Mr. McMaster

Unemployment is at 7½ per cent. This is a substantial improvement over the figures a year ago, and particularly two years ago, when it went as high as 11 per cent.

Mr. Arthur Lewis

This is the point which the hon. Member does not seem to accept. I agree that 7½ per cent. is better than 10 per cent. or 11 per cent. unemployment, but all these figures are due to the action or inaction of the Government supported by the hon. Member.

Mr. McMaster

Perhaps I should not be tempted to go any further into this. I have attempted to explain to the Committee that other reasons and factors are operating in Northern Ireland which have prevented our reducing unemployment to the national average, but I feel that the measures announced by the Chancellor of the Exchequer and promised in the Queen's Speech show nothing to give any hope to people in Northern Ireland.

On the contrary, because they tend to increase our costs of production they will prevent us from continuing the expansion which has been going on and from attracting new industries. Over the last 13 years, or so, 170 industries have been attracted to Northern Ireland in a way which has made hon. Members representing constituencies in Scotland and other parts of the United Kingdom quite envious. I look forward to the day when a Conservative Government can take effective steps to meet the problems of areas such as Northern Ireland and get the United Kingdom's exports back into balance.

8.14 p.m.

Mr. Arnold Gregory (Stockport. North)

I am very sensitive of the great personal occasion of addressing the Committee for the first time and pray the indulgence of hon. Members for any crimes which I may commit in procedure or any boredom which I may inflict upon them.

As my hon. Friend the Member for Bolton, East (Mr. Robert Howarth) said the other day in his maiden speech, like him, I share in the representation of a town and I also have strong links with the cotton industry. Furthermore, I have a direct link with the industry in that for the past 20 years I have earned my living in it. It is a very happy experience to represent in the House of Commons a cotton town which has long boasted the quality of its cotton products, spun and woven, which have meant so much to the economy of the country.

The constituency has returned to Parliament many distinguished people, including "men of cotton" who have distinguished themselves in the Manchester district as champions of free trade and sponsors of reform both economic and political, in what was known in the area as the Manchester Movement.

The only monument in Stockport is to one of these men of radical spirit, Richard Cobden. As times change and the town changes it appears that we are likely to lose this one and only monument in the course of town-centre redevelopment. As he is the only principal Liberal representative we now have in Stockport, we shall care for him and put him safely in another place so that people may see him as a monument of past political activity in the borough.

In a recent election campaign article, The Guardian said that the cotton industry in Stockport had declined. It bracketed my party and my candidature with that decline in a way that was somewhat dispiriting. But whilst cotton in Stockport has declined, the Labour Party in its influence and standing increases daily and it has added to its political representation in the House of Commons for the first time for nearly 35 years.

In the 20 years that I have spent in the cotton industry, incidentally not in Stockport, decline has been the order of the day. During that time we have seen a considerable reduction in the labour force. We now have only 25 per cent. of the labour force in the town compared with that of 20 years ago. Furthermore, only three spinning mills are running in the town. The rest are closed, either running to ruin or converted to light industry, such as mail order business and light assembly work. We do not complain, in that this ensures a good supply of alternative means of employment in the borough.

At a time when there is a demand in the national economy for an increase in exports, for modernisation, and the use of modern technology, the cotton industry can contribute, but in spite of £30 million having been invested in the industry we have not had modernisation followed by greater production. The industry has weakened, and unfortunately control of imported goods has not followed through and we have not had Government policy to support what had been done in modernisation and rationalisation.

A speech by my right hon. Friend the Minister for Economic Affairs, which he made in Manchester 18 months ago, on the part which the cotton industry could play in a national economy was well received by both sides of industry and was most encouraging. I recently had a discussion with the chairman of a large cotton group, and he assured me that, from his point of view, the 15 per cent. temporary import surcharge would give great encouragement to the cotton industry because it would give an essential measure of protection. Indeed, where there had been thoughts of shut-down before, the surcharge is regarded as a most encouraging piece of legislation which the industry hopes will stay for quite some time.

In Lancashire, we find that, instead of money pouring into the industry to make it expand, mills are closing. Although there are full order books, there is a shortage of labour. We are extremely short of the kind of workers who can find a decent basis for employment in the industry as such, and, instead of staying in cotton, a good many of them seek employment elsewhere.

In Stockport, tremendous concern is being expressed also about a newer industry with a high degree of modern technology. Last week, I met a group of representatives of men and management from a factory which not long ago employed 15,000 people in aircraft production. This labour force is now reduced to 2,000, and the workpeople are very worried about the distribution of nuclear contracts to the Midlands and the south of England, since the very existence of this factory with its 2,000 employees is now seriously challenged. There have been several closures in the Stockport area, and it is a matter of fair play, at least, that something should be done about the distribution of such orders, particularly when it is known that still more work is going to areas where orders are plentiful and full employment prevails.

It was most encouraging to have the Government's assurance that there would be early measures to introduce effective policies which would sweep away slums and ancient overcrowded schools. The obvious matter of overstrained and inadequate hospital services was strongly emphasised by my hon. Friend the Member for Stockport, South (Mr. Orbach) the other day, and I firmly endorse what he said.

I am much obliged for the opportunity given me to address the Committee. It has given me the chance to deal with the problems and virtues of a town with which I have had the closest political connection for four years and of an in-industry in which I have earned my living for 20 years. I am happy to think that this occasion has opened for me a medium through which, I trust, I shall be able to contribute in a small way in the future.

8.22 p.m.

Mr. Patrick Wolrige-Gordon (Aberdeenshire, East)

I very warmly congratulate the hon. Member for Stockport, North (Mr. Gregory) on his maiden speech, It was a most interesting address, obviously well informed about the situation in his constituency and, particularly, in the cotton industry. I hope that he enjoyed making it as much as we enjoyed listening to it, and I know that we all greatly look forward to hearing from him again.

Ever since the recent election campaign began, we have heard a great deal about a balance of payments crisis. This, of course, is nothing new. Obviously, my memory cannot go back as far as that of some right hon. and hon. Members on both sides of the Committee, but to anyone who studies economics it early becomes plain that our country, with its responsibilities for sterling, with its proud position in the world to maintain, and with its inevitable difficulties over raw materials, will always have a difficult balance to achieve in the matter of exports and imports.

My complaint about the Budget is that it contains next to nothing to do with this problem. We have the surcharge, which had been already announced, and we have the export incentive proposals, but otherwise this very real problem, the significance of which I feel keenly, has been used as an excuse to raise general taxation in order to find money for social benefits. I regard this as absolutely deplorable, first, because the present Government promised that it was exactly what they would not do when they were bidding for people's votes. They said that their increased social expenditure would be financed out of the growing expansion of British industry. [HON. MEMBERS: "Hear, hear."] Hon. Members may cheer, but it has not happened. The finance has come out of a rise in the general level of taxation.

Secondly, the doctrine that this is the necessary groundwork for an incomes policy seems misleading and dangerous. If the only means by which one can achieve an incomes policy is by raising the level of benefits for those worse off before one starts, it seems to me very likely that many other sections of our national life will try to get in on the act.

Thirdly, the inflationary effect of what we heard yesterday will be out of all proportion to the value of the benefits conferred. Indeed, it seems likely that there will be such a progression upwards of taxes first, then wages, and then costs, that very soon further increases will be required. I wonder whether the present Government will find it so easy to obtain the money then as they seem to think it is today in a country grown prosperous under a Conservative Government.

I go back to the measures to deal with the balance of payments problem. It seems odd to me that, after all the talk, what we get to deal with our balance of payments problem is good old-fashioned protection. There has been much talk of the measures as blunt instruments bluntly produced. I agree with that. I know of firms with a very fine export record which are keen to increase it and to invest to this purpose but on whom the surcharges act in exactly the wrong way, making it difficult, not easier, for them to export because they have to rely on imported materials which are simply not available in this country. I hope the Chancellor will take urgent steps to disentangle exactly where the increased burden that he has laid on our export trade by this measure is to be found and take steps to remove its weight, particularly from our heavy construction and mining industry, as quickly as possible.

I would mention also the export incentives scheme. The Chancellor of the Exchequer talked about various ways in which the export rebates would help exporters. Then he uttered what I felt to be a very interesting sentence, stating: The intention will be defeated if firms merely pocket their rebates and make no effort to expand their sales abroad."—[OFFICIAL REPORT, 11th November, 1964 Vol. 701, c. 1029.] I wonder that any Chancellor has to say anything like that. Is there no way of ensuring that if these firms do not use the rebate for increasing their export trade they shall not get it? It seems a complete waste of money if they do not do so.

What other plans have the Government to deal with the crisis and remedy it? I find it hard to believe, after all the build-up, all the scolding, all the jargon about silence, and so on, that the Government are simply going to meet the problem with increased and temporary protection. Presumably we shall have to work harder to sell more abroad than we did. Is protection an incentive to harder work? I do not think so. I should have thought that absolutely the opposite was necessary. After what we have seen so far, I confess to having little confidence that the Labour Government have any fundamentally new ideas about how to get the country going.

Mr. Cyril Bence (Dunbartonshire, East)

Is the hon. Gentleman suggesting that in order to encourage the efficiency of the fishing industry Government protection should be removed from it?

Mr. Wolrige-Gordon

What I am saying is—and I want to make this absolutely clear—that the simple fact is that if we want to increase the efficiency of British industry and the competitiveness of British industry the last thing we want to do is to increase its protection.

Mr. Bence

The fishing industry as well?

8.30 p.m.

Mr. J. J. Mendelson (Penistone)

The hon. Member for Aberdeenshire, East (Mr. Wolrige-Gordon) has been raked by a mild form of crossfire from his Scottish colleagues. I do not think that he received as much artillery fire as he may receive—indeed, will receive—on future occasions, because my colleagues did not want to interrupt the general debate too much. It is my intention to leave him to his fate and to my Scottish colleagues for future occasions. I say this particularly because I have other fish to fry.

My first reference concerns the major decisions on pensions. In many ways this is an occasion when hon. Members on this side of the Committee who have worked for years to bring about some of these improvements must begin by congratulating the Government on having brought in these measures at such an early date. Quite obviously, the decision to bring in these measures of social reform a few weeks after taking office involved not only keeping an important pledge to the old-age pensioners, the disabled and the widows, but also is an indication of the kind of change in our approach to policy in general that will take place under the new Government.

It was interesting to see among the many comments quoted today in the national Press a report by a reputable political correspondent of a newspaper firmly in support of the Opposition at all times. He quoted a very senior member of the House on the Conservative benches as saying: What I cannot see for the life of me is why our lot did not bring in these measures for social reform nine months ago. The correspondent did not identify the hon. Member, and I fully accept that, since it is not the custom of Lobby correspondents to mention names on such occasions. But I would dearly love to know the identity of that senior hon. Member if only to ask him why, if he was so much in favour of these measures, he did not, when we were fighting for them, give comfort and support to us. After all, as a senior member of the Conservative Party in this House, he would have had immediate access not only to the hon. Member for Taunton (Mr. du Cann)—and I do not underestimate his importance in these matter—but to the right hon. Member for Barnet (Mr. Maudling) himself and to the then Minister of Pensions and National Insurance. He could have used his influence then; but obviously he did not. It has taken a change of Government to introduce some of these humanitarian reforms. This explains the gloomy faces on the Opposition benches yesterday afternoon when my right hon. Friend the Chancellor of the Exchequer was announcing the improvements for our old people, the war injured and those injured in industry.

When they go home to their constituencies this weekend and try to refresh themselves with the opinions of the people at home, hon. Members opposite will find that many of the speeches which we have heard today, including that of the hon. Member for Aberdeenshire, East will not sound as acceptable as they did to themselves. The hon. Member used a very dubious phrase, which he never qualified or clarified, when he said that the money from the new taxation was to be used to improve pension payments and that it was all very deplorable. We must ask him whether it is deplorable that pensions should have been increased. Is it deplorable that public money is being used to pay for these increases? What is deplorable?

Mr. Wolrige-Gordon

I will tell the hon. Gentleman exactly what is deplorable. It is fighting an election campaign telling the people that one will not raise taxation in order to pay for social benefits and two weeks later doing exactly that.

Mr. Mendelson

I do not know whether the hon. Gentleman was here earlier when my right hon. Friend nailed that allegation for all time. If he goes back to the many occasions on television and elsewhere and rereads the speeches of my right hon. Friend the Prime Minister and a speech which has not yet been mentioned, that of my right hon. Friend the Member for Coventry, East (Mr. Crossman), now the Minister of Housing and Local Government, but who had a great deal to do with the working out of the pensions policy of the Labour Party in recent years, he will find that my right hon. Friends made it deliberately clear, as was reported on television, that what we were asking our people to do was for those at work to accept their responsibilities for those who had done the work before and who had worked up the machinery of our industries but who were now in retirement and needing our help.

Mr. Wolrige-Gordon

rose—

Mr. Mendelson

I have dealt with the hon. Gentleman. Once is enough.

I move from that to the equally important consideration before us in the Budget statement. It concerns the policy adopted by the Government in dealing with imports. It is of singular importance that every Member of the House of Commons, Government and Opposition Members alike, should be conscious of the fact that all we say in the debate will be listened to with great interest by our E.F.T.A. and other trading partners in Europe and elsewhere. I remember sitting for years on the other side of the Committee and having to suffer allegations from Her Majesty's Ministers that whenever we criticised some of the policies then being pursued we were being unpatriotic, piling it on, turning every subject and argument into weakening the position of this country in relation to our trading partners abroad. In and out of season, this accusation was made.

Like the right hon. Member for Barnet and other hon. Members opposite, I and many colleagues on this side of the Committee have recently had conversations with representatives of the E.F.T.A. nations. A number of things must he discussed between us concerning the policies we wish to pursue, but I put it on the record that in all these private conversations I have found much more understanding on the part of our E.F.T.A. partners about what the Government are trying to do; I have found that they understand that it is in the long-term interests of all the members of these organisations that Britain should put her balance of payments in order.

As hon. Members opposite will know, the alternative facing the Government was not making these decisions to put on a 15 per cent. tariff and continuing unhappily as before. However much the right hon. Member for Barnet may now try to make it appear that a crisis was not developing, the alternatives facing the Government were to take these measures or to allow things to go on as they were and at the end of the year and early next year, before there was time for any normal recovery, to have to come down much more heavily with much more serious potential cuts in our imports. I am not teaching the hon. Member for Taunton anything in saying that. He was a Treasury Minister and he knows that that was the real choice facing the late Government and, equally, the present one. In face of that, to make mere debating points and to ignore the seriousness of the problem is to act with a degree of irresponsibility which we never accepted when we were in opposition.

I had an exchange this afternoon—it is within the recollection of the Committee—with the right hon. Member for Barnet. I have sent him an urgent note giving him notice that I would raise the matter again. However, it may not have reached him and that may be why he is not present.

Mr. Edward du Cann (Taunton)

Perhaps the hon. Gentleman will allow me to explain to him and the Committee that my right hon. Friend the Member for Barnet (Mr. Maudling) has had to be elsewhere during the most of the afternoon. I imagine that the hon. Gentleman did not know that.

Mr. Mendelson

I accept that explanation immediately as long as it is clear that notice has been given and that for an unavoidable reason the right hon. Gentleman is not in his place.

This is a matter of great importance, and that is why I have secured photostat copies of the relevant documents. I should like to refer to these documents. The right hon. Member for Barnet, who was Chancellor of the Exchequer only a few weeks ago, with all his knowledge of the work of the N.E.D.C., when talking at the Dispatch Box about the discussions on an incomes policy in the N.E.D.C., said that during those discussions it was the trade unions which were responsible for holding up progress and that the trade unions were not prepared to agree to any of the suggestions which had been made.

I intervened and said that the right hon. Gentleman was putting a misleading record before the House and that on a very important occasion the officers of the N.E.D.C. had produced proposals which were designed as a basis of discussion in advance of reaching agreement on an incomes policy and that those proposals included a suggestion for a price review body of a certain kind. I further stated that the six representatives of the employers' organisations on the N.E.D.C. were prepared to look at these proposals and regarded them not too unfavourably when they were put to them. But, alas, they found that their opinions had been completely unrepresentative of the opinions of the people whom they purported to represent on the N.E.D.C., because within a short time a committee of the Federation of British Industries issued a report which was endorsed and accepted by acclamation at a large meeting of the Council of the F.B.I. attended by 180 members which completely rejected the proposals which had been accepted as a potential basis for discussion by their six representatives on the N.E.D.C.

The right hon. Member for Barnet then repudiated what I had said. After saying that in particular he had attended the meeting and I had not—those were his Words—he stated that, far from this being the case, the true position was that the employers had put forward a suggestion for a price review body and that the trade union representatives had turned it down. I have stated almost verbatim what the former Chancellor of the Exchequer said in rejecting my factual account of what had happened.

This is what we find when we turn to the facts. As this is the first occasion on which we have had an intervention from the former Chancellor of the Exchequer about the importance of this body and a future incomes policy, I should like to quote, first, from the official statement issued by the Federation of British Industries in March this year. In introducing and examining the report of the sub-committee set up by the F.B.I., this is what was said: Price supervision and variable profits tax. Report of an F.B.I. Working Party on which the A.B.C.C., B.E.C. and N.A.B.M. were represented. 1. We have examined certain proposals for discipline over profits or prices on the basis that if they were practicable and were put into effect, they would be matched by restraint in seeking wage increases on the part of trade unions. These proposals may be called:

1. (i) The Variable Profits Tax Scheme.
2. (ii) The Prices Registration Scheme.
3. (iii) The Prices Complaints Scheme."

Those were the proposals which I quoted this afternoon. I did not give these names because I did not want to take too much of the time of the Committee during the speech of the right hon. Gentleman.

I turn to the front page of this official statement by the Federation of British Industries and I quote its first paragraph: We have given detailed and objective consideration to certain proposals in the field of prices and profits in the hope that they might contribute to the search for an incomes policy. We publish today a summary of the arguments which have driven us to the conclusion that the schemes so far examined would not serve the desired purpose or the national interest. This committee's report was endorsed unanimously, as the right hon. Gentleman well knows, by a meeting attended by 180 representatives of the council of the F.B.I. four days later.

Mr. du Cann

I remember well the exchanges which took place earlier this afternoon to which the hon. Member has referred. My recollection is, however, that the former Chancellor of the Exchequer, my right hon. Friend the Member for Barnet (Mr. Maudling), quoted in particular a newspaper account of an N.E.D.C. meeting of 8th or 9th February. He was uncertain of the date. It occurs to me that possibly my right hon. Friend and the hon. Member are talking about two entirely different matters, because there appears to be a discrepancy in the dates of the incident to which he is referring and the meeting of the N.E.D.C. to which my right hon. Friend referred. Does not the hon. Member think that this might be the case and the explanation?

Mr. Mendelson

For the former Chancellor to stand at that Box and say with superiority, "The hon. Member was not at the meeting but I was", without making certain what he was talking about, is an act of irresponsibility on the part of a former senior Member of the Cabinet. What he says about the attitude of the trade unions, although he is now in opposition, is still of considerable importance, because he was chairman of the committee at the time the discussions took place.

If further evidence were needed, there is a report, which I shall not quote, from the Economist of 14th March, this year, in which the same point was made in considerable detail and was commented upon. It is important that the record should be clarified before this debate ends and that it should be clearly established that in his statement the right hon. Gentleman was giving a misleading impression of the negotiations which had taken place. These were proposals for price control and price review and restraint on profits which had come from the N.E.D.C. and were turned down by the council and the committee of the Federation of British Industries.

I now turn to another matter which concerns the proposals of the Government for the implementation of the policies which they have put before us. Having given this warm welcome to the measures of social improvement which the Government have produced so quickly, I am deeply critical of the decision by the Government that the various pension improvements should not come into effect before the end of March next year. I say this all the more definitely and clearly because I was a member of the pensions group of the Parliamentary Labour Party when we sat on the other side of the Committee and time and again with my colleagues I complained against the long delay in introducing the improvements which were sometimes achieved after a long battle in years gone by. It is not sufficient for my right hon. Friend the Chancellor to explain that there are these serious administrative difficulties, which are entirely responsible for the long delay. I am sure that this is so, but there are a number of questions which the Government spokesman must answer when he replies to the debate this evening. I will formulate them as precisely as I can.

Given the existing administrative machinery which, according to the Chancellor's statement—which I accept—has made it so difficult to bring these pensions improvements into effect before the end of next March, what precise proposals did my right hon. Friend the Chancellor make to the Minister of Pensions in requesting a speeding up of this machinery? Secondly, precisely what reply did he receive, and, thirdly, what advice did my right hon. Friend the Minister of Pensions receive as to why it is impossible to devise a scheme which would allow these improvements to be brought into effect before the end of next March?

There is a great deal of disturbance in the minds of many old-age pensioners and other pensioners all over the country who will profit from these improvements. There is a doubt in the minds of some of my constituents, and no doubt the constituents of some of my hon. Friends, and those of us who support the Government in their general policy, and this Budget in particular, have the task of putting searching questions on this issue and demanding answers.

For example, a proposal is being discussed among old-age pensioners whereby it might be possible to introduce a temporary pensions payment book or temporary payments slip in order that these payments could be made earlier while the machinery of changing the books, drawing the old ones in and sending new ones out, is being completed. Did my right hon. Friend the Chancellor suggest this to my right hon. Friend the Minister of Pensions? Did my right hon. Friend the Minister of Pensions make such proposals to the administrators involved? Precisely what was the reply which she received when she made such a proposal?

Already there have been a number of meetings of old-age pensioners. These are points which have been discussed by them and which will be discussed by many more of them over the weekend when we visit our constituents to refresh ourselves with the views of the people we represent. It is of the greatest importance that the Government should provide precise replies as to why, after all the experience we have had of delay in the past, and after this long delay and this long-overdue reform, once again it should be 20 weeks before anybody can profit from them.

Yesterday afternoon the Leader of the Opposition gave a qualified welcome to those parts of the Chancellor's announcement which did not imply action next week but implied action after next April. He seems to be not unhappy at the fact that the precise details of the capital gains policy have not been announced and that, according to my right hon. Friend, some of them remain to be worked out. The Leader of the Opposition thought that this was a time when he could still advise my right hon. Friend to go slow on these measures. We have also seen a certain recovery on the Stock Exchange, probably inspired by the same motives as those which motivated the Leader of the Opposition yesterday afternoon.

I want to draw the Government's attention to an important fact. We have decided to increase the contributions for all those employed by 2s. a week. This will be a very considerable additional payment which people will have to make. I fully support this decision. It is in line with our general policy that those who are at work accept their responsibility for those who arc retired or who have suffered from injury either in war or in industry.

I would draw the attention of the Government to the fact that the actual increase in contributions from the employers' side will be far more diffused and will not have the severe impact that it will have upon people who will have to pay their increased contributions week by week. For instance, according to a calculation made this morning in the Financial Times, the big corporation of Associated Electrical Industries will have to pay a yearly additional sum of £.850,000; though, as the Financial Times hastens to point out, this is very little compared to the profits for this year of £9,600,000. Also it is very important to remember that this is a tax which hits equally every income group and, therefore, those people who are on rather lower wages than some of the others will have to bear more of a burden because of the additional 2s. a week than will some others.

In this situation, I accept that it is a necessary imposition and a policy that we can support both because of its moral purpose and also because it is an operation which makes sense, namely, that if we want an increase in social benefits we have to pay for them. At the same time I think it is essential for the Government to make it clear that, when we proceed from the present measures to their implementation which will start now or next year, we must be equally assured, particularly in the circles of wage-earners who are very much concerned with the long-term policy of the Government, that when the capital gains tax comes to be worked out, and when the policies affecting the distribution of income come to be worked out, when the approach is made to an overall incomes policy, which we hope will be successful, that we can make it quite clear to all the people who are interested in this in the country, in the workshops and industry in general, that there will be no holding back, that there will be no acceptance of the hopes of the right hon. Gentleman the Leader of the Opposition that the capital gains tax will not have any teeth in it, that it will be made quite clear that we mean business and that we shall have a capital gains tax which will bite.

I have dealt in some detail with these points and with questions directed to Her Majesty's Government and have spent as much time as I have in criticising the attitude adopted by the right hon. Gentleman the Member for Barnet and other speakers from the other side because I believe we on these benches have a very important function in this matter. It is our duty to make quite certain that at all times the views of those whom we represent are brought to the notice very early on of the members of Her Majesty's Government, our colleagues for many years, so that they are given the earliest opportunity to give precise answers to these important questions.

8.59 p.m.

Mr. Edward du Cann (Taunton)

I have been asked by my right hon. Friend the Member for Barnet (Mr. Maudling) to make an apology for his inability to be here for a few minutes. My impression of the matter raised perfectly fairly by the hon. Gentleman the Member for Penistone (Mr. Mendelson) is that the unions said that the proposals put forward in N.E.D.C. were rash and impossible. The matter was nonetheless pursued by the F.B.I. Whatever the outcome was, that is my impression, but, as he knows, have been sitting in the Chamber the whole of the afternoon and I have not had the opportunity of checking the matter closely. But I am sure that he and other members of this Committee will certainly acquit my right hon. Friend of any intention deliberately to mislead the Committee. There will doubtless be an opportunity to deal with the matter further, if need be, and it can be cleared up then.

During the nine years I have been a Member of the House I have never followed a maiden speaker. I do not know why it is, but I share the experience of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). But today we have had eleven maiden speeches. The hon. Member for Heywood and Royton (Mr. J. Barnett) spoke yesterday from his own experience and, in the words of my hon. Friend for Walsall, South (Sir H. d'AvigdorGoldsmid), made a very attractive speech. I agree very much with that description. The hon. Gentleman for King's Lynn (Mr. Derek Page) spoke in very glowing terms of his own constituency and its problems, and the hon. Member for Bodmin (Mr. Bessell), who is not here at the moment, impressed all who heard him, though his speech was somewhat controversial, as one might expect from the West Country.

We also heard the hon. Lady the Member for Halifax (Dr. Summerskill). I cannot pay her any higher compliment than to say that some of those who heard her had memories brought back for them. There was my hon. Friend the Member for Bebington (Mr. Howe), who spoke with a splendidly light touch and had some interesting remarks to make about a certain old pupil of a school in his constituency, and also made some serious points in an excellent speech. The maiden speech of the hon. Member for Huddersfield, West (Mr. Lomas) was particularly well spiked with humour and again had underlying points of importance.

The hon. Member for Kingston upon Hull, North (Mr. Solomons) was, perhaps, the most controversial of a very controversial bunch of maiden speakers, but spoke with great effect from his experience. The hon. Member for Manchester, Blackley (Mr. Rose), whom we welcome particularly as the youngest member on the Government side, had some pertinent points to make. I am sorry that when I left the Chamber to get a bite of food I missed the speech of the hon. Member for Dunfermline Burghs (Mr. Adam Hunter), but my right hon. Friend tells me that it was an excellent speech. The hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) gave us his views of the future and made social points, and the hon. Member for Stockport, North (Mr. Gregory) spoke from his local knowledge, and spoke very interestingly about cotton, in particular.

Apart from the controversial nature of some of the speeches—which was really rather refreshing in a way—one factor was that, without exception, they paid the most pleasant tributes to their predecessors, and the fact that their speeches were sincere, constructive and modest will, I am sure, have endeared them to the House from the very beginning.

I should like to say to the hon. Member for Heywood and Royton, who replaces a very old friend of mine, Mr. Leavey, who was very much respected on both sides of the Chamber, that Mr. Leavey and I were often mistaken for one another. The only time I have ever seen my own name on the enunciator was when Mr. Leavey was speaking. The hon. Gentleman will forgive me if I say that I look forward to doing that again after the next election.

There was a twelfth speech. I join with my right hon. Friend the Member for Barnet in paying a tribute to the right hon. Gentleman the new Chancellor for the manner and humour of his speech, although I cannot pay so warm a tribute, obviously, to the contents of that speech. I was amused by what he said about his naval experiences, for which many of us give him great credit. I would only say that many of us would have said that any vessel over 80 tons was a dirty great battleship. As a man, we certainly wish him well. He has always been a most engaging opponent, and we shall, of course, always be ready to respond to any measures he may introduce to defend sterling and, more on the positive side, to improve its world role as one of the main trading currencies, with increased benefit to the United Kingdom.

My hon. Friend the Member for Nottingham, South (Mr. William Clark), in an able speech, made a point about international liquidity which was invaluable. I hope that the new Chancellor will follow the initiative that my right hon. Friend the Member for Barnet originally, in circumstances of some difficulty, took in this field with some success, for which he has not yet had the credit. I believe that this will be a subject of increasing importance, and I do not doubt that the right hon. Gentleman will remember this.

The solution of the balance of payments problem depends on two things; an accurate diagnosis of the problem and the taking of effective countermeasures, which is really what the debate is about. The solution will not be assisted in any way by an exaggeration of the problem, and I think that we are entitled to ask the Government what the true position is. I should like, in particular, to quote from paragraph 4 of the White Paper, which states: It is expected that, when the accounts for 1964 as a whole are available, they will show a deficit on the balance of payments, taking current and long-term capital account together, which is most unlikely to be below £700 million and may well reach £800 million. Two points emerge from that. First, the figure of £800 million is apparently the maximum. Secondly, current and capital account, in the words of the White Paper, are being taken together. The balance of payments White Paper published in respect of the first half of 1964 showed that we had a capital deficit of £216 million and a current deficit of £125 million. Therefore, two-thirds of the deficit was on capital account and due to the sort of special factors of Shell and Montecatini, to which the Chancellor referred. These are non-recurring items. I suggest for the consideration of the Committee and in the context of what has been said by the Government that they are not so much a sign of weakness but rather of an accretion of strength.

It is worth remarking, in parenthesis, that so far as we know—the Chancellor has not told us yet—he proposes no measures to contain further capital expenditure in future, which makes one assume that he shares that view. There are other special factors. Part of the estimated deficit on capital account is represented by the demand of interest and capital on the American and Canadian loans for the year, which amounts to £67 million and is perfectly easily deferable. Much of the current deficit is due to our massive overseas aid, which hon. Members on both sides of the Committee of course wish to see continued. How much falls on current account I do not know, but it possibly amounts to something of the order of £100 million per annum.

Judged on the trade figures for the first nine months of this year, the current account deficit looks like being not £800 million, not £700 million, but nearer £350 million, and that is the figure to which we should be addressing ourselves at pre. sent. The year 1964, as my right hon. Friend the Member for Barnet rightly pointed out, is nearly over. It is quite remarkable that the White Paper says very little about 1965. It quotes no figure. It is reticent. The Chancellor in his speech yesterday was entirely silent on this subject. However, we have some evidence, and we can all make our estimates. The best estimate it is possible for me to make at the moment£and I believe this is the kind of figure given to O.E.C.D. by British officials last Friday—is that the deficit for next year on capital and current account together will be of the order of £300 million or £400 million.

In other words, the economic situation will be distinctly better. I quite appreciate that the Chancellor may not wish to refer to specific figures. I understand that, but it is fair that I should make the point that in our judgment the situation next year will be distinctly rosier. [Interruption.] We had already published figures. Some hon. Members below the Gangway opposite do not seem to have got the point, but the situation would have been distinctly rosier whether there were this Government in office or not. The rise in imports is mitigating in spite of the stocking factors to which the Chancellor referred. We all know that the prospects for exports at the end of this year and the beginning of next year are better.

In considering the strength of the British economy, we must have a look at the capital side in particular. Prospects for the sterling area are good for 1965. Our capital assets are now £12,800 million, a growth of £1,500 million during our Conservative stewardship. We have extra preserves beyond the gold and convertible currency holdings in the dollar portfolio. We have the substantial borrowing facilities of the I.M.F., the Anglo-American swap arrangement and the arrangement with the Central European banks.

Whatever may be said irresponsibly by some people—I exempt hon. Members in this Committee—the capital position of the country is strong. I do not deny that there is a problem on current account and that we want to increase our share of world trade, but we should not confuse capital and current account. I believe that the figures which have been given to the public, with all respect to the right hon. Gentleman, in the White Paper are exaggerated and incomplete. It is right for me to make that point.

It is certainly arguable that the 15 per cent. surcharge on imports will affect the level of them further. I say "further" advisedly, because it is feasible to hold the view that imports at present are at a peak. Whether it was right to introduce it is a matter of judgment. I say plainly to the right hon. Gentleman that our view is that the action taken was precipitate, as my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) said, and that its effect, particularly upon our European friends, was probably not fully considered.

We all sympathise with the new Administration coming in, but I must make these criticisms. However good the Government may honourably believe their reasons to be, the breaking of any international agreement by Britain is a most serious matter and is in any circumstances to be regretted. [Interruption.] I say "any breaking of any agreement". The fact that the rules of G.A.T.T., for example, may require revision does not excuse a breach of those rules.

Certain speakers during the course of the debate have made the point that hurt cannot be avoided if exports from our friends into the United Kingdom are limited. Of course this is true, but I do not accept what that very able new Minister, the Economic Secretary, said in the House of Commons a few nights ago on the Gracious Speech, namely, that consultation was impossible. I do not accept this. I do not believe it. My right hon. Friend the Member for Bexley (Mr. Heath), in a speech the other evening, went through the matter in some detail. Even if full consultation was not possible, some information should certainly have been given to out friends, as the hon. Member for Bodmin and my hon. Friend the Member for Cirencester and Tewkesbury both said. The Daily Mail puts it rather well in its leading article today: Britain is not, was not, teetering on the edge of ruin. She had time to consult her friends, to do the right thing. The Times puts it rather more modestly, but the point is valid. My hon. Friends the Members for Twickenham (Mr. Gresham Cooke) and Cirencester and Tewkesbury spoke of their experience at the Council of Europe. It was I suppose, only natural that the President of the Board of Trade should carefully skate over his own experiences at the E.F.T.A. Consultative Committee.

It is thoroughly unfortunate that we have broken the rules of G.A.T.T. It is thoroughly unfortunate that we have broken the rules of E.F.T.A. I do not wish to exacerbate an already difficult situation, but some of the things said by our friends in E.F.T.A. have been deeply concerning. As to the position of Austria and Denmark, I can only say that I wish the right hon. Gentleman, when he goes tothe E.F.T.A. meeting at the end of the week, as I think it is, all success in healing wounds which should never have been opened.

We have broken the rules of the European Coal and Steel Community. We have broken trade treaty after trade treaty. Last but by no means least, we have upset many of our friends in the Commonwealth whose chief desire it is rightly at this moment to sell us their exports of manufactured goods. If we in Britain have a duty to the underdeveloped nations, the developing countries of the Commonwealth, it is to provide access for their manufactured goods in future. I speak not in detail of the humiliations we are enduring where our affairs are being examined by committee after committee.

Mr. Maxwell

rose—

Mr. du Cann

With great respect to the hon. Gentleman, I would be very happy to give way to him but for one fact. I have never heard anybody make so many speeches as he has in the last two days. I would happily, however, give way to him on another occasion, and I shall look forward to that.

I certainly accept what the Chancellor has said about his long-term objective of wanting freer trade in the world as a whole. Of course. That was our objective, and that is what we worked towards, and worked towards with some success. We shall support him in all he does to realise that situation in future.

I wish to remind the Chancellor of a matter which I believe he should never forget. All the nations of the world, whether they are behind the Iron Curtain, whether they are members of trading blocs, whether they are independent nations, are interdependent in matters of trade. I seriously think that the danger of reprisals, etc., which arises from these measures will set back the progress that he wishes to make, that we wish him to make, and that the whole Committee wishes should be made in the national interest.

As to the Kennedy Round, of which the right hon. Gentleman the President of the Board of Trade spoke, the importance of this, in spite of all the very grievous difficulties—they are very real—cannot be over-estimated. It is the only bridge between the rival trading blocs in the world at this time. We must do our utmost to ensure that it succeeds. I hope that it will not be long before the right hon. Gentleman when he negotiates for Britain in the Kennedy Round can live down the blunder of this surcharge.

I will make one further point on this matter. The Committee understands very well that the whole political and economic situation in Europe is now again apparently in the melting pot. What the future may hold none of us can tell, but it is plain that sooner or later—and I am not speaking about entering the Common Market—Ya new initiative will have to be taken and possibly by this country. Europe looks to us for a lead. I hope with all my heart that nothing that has been done so far by the present Government will prevent us from being successful in that respect in the future.

Now for some detailed points about the surcharge. We have seen the list of products which are exempted from it. The right hon. Gentleman is right to exempt ships, aircraft and, above all, books, and thereby to save us breaking one more agreement with U.N.E.S.C.O. The hon. Member for King's Lynn, my hon. Friend the Member for Ilford, South (Mr. Cooper) and others have rightly drawn attention to this list and have suggested that it should be brought more up to date. There are some important raw materials which cannot be made in this country and which have not been excluded, for example, in the fields of man-made fibres and glass. Each of us in our constituency post bags and in other ways has a long list of grumbles to put forward, and I hope that when the Committee stage comes, the right hon. Gentleman will look seriously at the constructive suggestions put forward in this Committee and by the House as a whole, if he does not accept evidence which is put front of him in the meantime.

The hon. Member for Huddersfield, West raised the point of orders in train. I beg the Chancellor to realise that this causes very real difficulties for some firms, particularly where payment has already been made. The hon. Member for West Ham, North (Mr. Arthur Lewis), in his typically ebullient speech which we all enjoyed yesterday, rightly made the point about new inventions and how important they are. Again in the context of modernisation I hope the Chancellor will look again at items falling in that category. The list of exemptions is not in the state that it should be, and I hope that the Chancellor will consider reforming it.

As to pensions increases, we naturally welcome these in general. We ourselves were pledged to increase pensions in due course in continuation of our good record and of our policy which has been to ensure that pensioners should continue to share in the national prosperity; 1961, 1963, 1965—it is a good progression.

However, certain questions must be asked. The first is this—which the hon. Members for West Ham, North, for Huddersfield, West and for Penistone asked the Chancellor during the debate—why the delay? It would have been possible to introduce some of these measures earlier. When we were the Government we introduced them earlier. Why the delay? The person who should answer the question is the Chancellor. I think the country had the impression that it would be one of the first aims of the Labour Party, if they became the Government, to reform the pensions arrangements much more substantially.

We were told by the Chancellor that his right hon. Friend the Minister of Pensions and National Insurance had been working very hard. Those of us who know her and like her, as we all do, do not doubt that for a moment but, as my hon. Friend the Member for Bebington said, this is an interim measure, and it is very important to see the new reforms got right, and I hope these arrangements will not make any more difficulties in carrying out the structural reforms that we all want to see.

The third point concerning the pensions increases is this. There are many quotations on the record. I exempt the right hon. Gentleman who is now the Minister of Housing and Local Government from saying clearly that there would be no increases in taxation. Whatever the Prime Minister may have said today, he is on record as having said exactly that. I think that the immediate change in policy is very damaging for the Prime Minister's reputation and for others who made statements of that sort in the election.

I remind the Chancellor of something which he said in the House of Commons on 20th July, 1964: We should be aiming in the latter part of the 1960s for a 5 per cent. and then a 6 per cent. growth rate. Only then shall we attain the programme of social expenditure that is both necessary and desirable. I want to make it clear that on this side of the House we recognise that our programmes cannot be achieved until we are maintaining a growth rate of 5 per cent. or 6 per cent."—[OFFICIAL REPORT, 20th July, 1964; Vol. 699, c. 75.] That was a wise thing to say and an objective we can all understand and sympathise with.

To come back to the White Paper, we see in paragraph 9 that in truth—a point not yet made in the debates that we have had—the White Paper, in fact, and the Government now are accepting not a 5 per cent. or 6 per cent. growth rate hut a 4 per cent. growth rate, and yet during the whole of the election we were constantly attacked for not doing more. In other words, the policy has changed. The electorate were told one thing; another thing is now being put into effect. It is well that this should be clearly understood.

I turn to some of the Measures in this Budget. First, the increase in Income Tax. As the Chancellor rightly said, this is going to hit very hard. It will hit seven million people very hard indeed. As my hon. and learned Friend the Member for Surrey, East (Mr. Doughty) said, it will hit the young managers, the young technicians, the young scientists—surely exactly the sort of people whom we should he encouraging at this time.

"Encourage enterprise", the Chancellor said. Quite right. That is the thing to aim for; that is the thing to do. That is what we need in the context of economic advance—to encourage enterprise. They talk about it and do something different in practice. It is a sorry matter. I regret particularly the effect this must inevitably have, as my right hon. Friend the former Chancellor pointed out today, on the volume of savings coming forward in the future.

Inside one month up go taxes. The hon. Member for Penistone, in his speech a moment or two ago, urged his right hon. Friend the Chancellor to do more. And there is the threat of more to come—very much more.

Mr. Mendelson

Hear, hear.

Mr. du Cann

"Hear, hear", the hon. Gentleman says. Note it in the country. The Chancellor is a worthy disciple of the late Mr. Gaitskell. I remember very well his Budget of 1951. Income Tax going up. [Interruption.] We have not had an Income Tax rise for 14 years. That Budget led to two things in 1951. It led to the resignation of the right hon. Gentleman who is now Prime Minister and to the Labour Party being defeated at the subsequent election.

I contrast our own record: Income Tax down from 9s. 6d. to 7s. 9d. In the 1953 Budget—3½ million people taken out of tax altogether. Abolition of the Entertainments Duty, reduction of the Purchase Tax top rate from 100 per cent. to 25 per cent. As my hon. Friend the Member for Ilford, South pointed out. we were able to increase pensions and put up the total volume of social expenditure and at the same time, over the years, reduce the rate of taxation, not just occasionally but consistently.

There are many criteria by which one can judge the Budget. My hon. Friend the Member for Aberdeenshire, East (Mr. Wolrige-Gordon) asked whether it would assist exports. We have the rebate. That will help, but how much? That, as my right hon. Friend the Member for Barnet said today, is a matter for conjecture. Some hon. Members may think that there are other methods of helping exports which would not be so spectacular, like tourism mentioned by the hon. Member for Dewsbury (Mr. Ginsburg), clearing the docks, and matters of that sort, but which would be more effective. All right, the rebate will help; but the whole of the Budget seems designed precisely to add to industrial costs, and it cannot assist our competitiveness in any way. I go as far as to say that, overall, the Budget must make it more difficult to sell abroad.

The speech of the President of the Board of Trade interested me very much. [An HON. MEMBER: "A good speech."] Yes, it was a good speech, but if right hon. Gentlemen would be good enough to refer to a debate in the House of Commons on 17th April, when my then hon. Friend the Member for Meriden who is not now with us, raised the subject of exports, the right hon. Gentleman will find that virtually every so-called new measure which he put forward in his speech as being new policy was mentioned by me in that debate as being the policy of the Conservative Administration. During his speech the right hon. Gentleman made the admission, quite rightly, that exports during our tutelage were running at a record level.

We were interested in particular points which the right hon. Gentleman put forward, and I should like to put two of these to him. First, in his review of E.C.G.D. matters, I hope that he will change his views as they seemed to me before he joined the Government and that we shall export to people who will pay us and not to those who are not prepared to pay. Do not let us have dogma standing in the way of that. [HON. MEMBERS: "Hear, hear."] All right, let us see a bit of activity in Spain, for example. When the right hon. Gentleman mobilises the activities of small firms, will he look at the activities of the International Gifts Fair which have been good and will be valuable in the future?

As for the Budget and the question whether it will contain inflation, it is without doubt an inflationary Budget. We have seen today that road haulage costs are to go up by 2½ per cent. Taxi fares—and we may well ask what is coming next. What about the discussions on public transport? We have no indication when they will be completed or what the Chancellor is aiming at. Those who represent rural constituencies in particular bitterly resent this new impost on transport.

Will the Budget assist in the preparation of an incomes policy? The Chancellor's other measures may have an effect, but I would quote the words of Mr. Frank Cousins at the T.U.C. Congress in 1963: We will not have wage restraint whoever brings it in and wraps it up for us. I do not know how the right hon. Gentleman will deal with that. Certainly it is true that an increase in the cost of living must lead immediately to demands for wage increases. We wish the right hon. Gentleman success with a wages policy, but we believe that he has created new difficulties for himself.

As for the question of assistance to modernisation, I spent this morning writing out a list of the ways in which the Budget would assist immediately. I show the Committee the piece of paper—it is completely blank. [Laughter.] In no way is the Budget the answer to that problem. On all these counts, on costs, on competitiveness, on exports, on modernisation this Budget fails.

I also have had the pleasure this morning of rereading the preface to "The New Britain", which says: The world wants it and would welcome it. The British people want it and deserve it and urgently need it. Very well, who on reading these words could possibly have dreamt what was coming to them in thirty days in new taxes? Did any member of the Government, did the right hon. Gentleman, or any of his Liberal friends, say that they would be voting in favour of an additional petrol tax and increased Income Tax within thirty days of Parliament meeting? No, they did not.

Mr. Eric Lubbock (Orpington)

rose—

The Chairman

If the hon. Gentleman does not give way, the hon. Member for Orpington must resume his seat.

Mr. Lubbock

The hon. Gentleman has said that the Liberals voted in favour of the increase in the petrol tax.

Mr. du Cann

I do not think that I said that, but if I did I withdraw. If I said it, I apologise to the whole of the Liberal Party and to the hon. Member for Orpington in particular.

One final sentence. I am sorry not to have got it out half a minute earlier. The Labour Party came to office, we believe, on a false prospectus, and it is seeking to remain in office by misrepresenting the national situation today.

9.30 p.m.

The Chief Secretary to the Treasury (Mr. John Diamond)

Having regard to the way in which the General Election was conducted and the lack of information available on which to vote, I should have thought that it lay least in the mouth of the hon. Member for Taunton (Mr. du Cann) to say what he did in his closing remarks about a lack of information from this side. But we do not want at this stage to engage in yet a further pre-election debate.

I thought that it might be useful to the Committee if I were to reply, first, to the debate, including the speech of the hon. Member for Taunton and that of his right hon. Friend the Member for Barnet (Mr. Maudling), and then, if there is time left, we can descend to some of the pleasantries across the Floor which, apparently, the hon. Gentleman enjoys so much. However, so far as I and my right hon. and hon. Friends are concerned, we are here to get on with the job.

Before I go further, it is my very pleasant task to congratulate all the maiden speakers who contributed so well and so pleasantly to our debates. The hon. Member for Taunton has referred to them individually, so I should be detaining the Committee if I were to go over that process again in detail, but I wish to refer to just two maiden speakers for the reasons which I shall explain and with, I hope, the indulgence of the Committee in so doing.

First, I mention the maiden speech of the youngest hon. Member on our side, my hon. Friend the Member for Manchester, Blackley (Mr. Rose), a constituency which I had the proud privilege to represent from 1945 to 1951. It gives me very great pleasure to congratulate my hon. Friend not only having made an excellent maiden speech, but on being able to do what I failed to do in 1951.

Next, all right hon. and hon. Members will, I am sure, wish me to pay special attention to the maiden speech of my hon. Friend the Member for Halifax (Dr. Summerskill), the only lady maiden speaker today. She spoke with great charm and freshness, and, on behalf of all male Members of the Committee, I must say that there is something especially attractive about a maiden speech when it comes from a maiden.

Before I plunge into the essence of the Budget, I wish to reciprocate the courtesies which the right hon. Member for Barnet and the hon. Member for Taunton paid to my right hon. Friend the Chancellor. He has asked me, on his behalf, to reciprocate and to express the hope that both hon. Gentlemen will enjoy a very long and successful career in their "shadow" positions. I hope that the right hon. Member for Barnet will understand that I am referring not to his physical stature, but to his fiscal stature, when I say that I hope that his shadow will never grow less.

It will, perhaps, be of assistance to the Committee if I deal with the replies to the debate in the course of a speech which attempts to relate the detail to the major principle. In so doing, I shall, so far as I can, give all the information which hon. and right hon. Members have asked for, and, in particular, give the figures which, I think, will be helpful to the right hon. Member for Barnet.

The deficit, as we know—it has been referred to so many times—on current and capital account in our balance of payments was estimated to be between £700 million and £800 million. There is no reason for anybody on either side of the Committee to attempt to dress up those figures. They do not need any dressing up on our side. They speak for themselves. They do not need any dressing up, or worse than that, from right hon. and hon. Gentlemen opposite.

The hon. Member for Taunton attempted to say that because an element in these figures was capital, therefore one did not have to pay for it—that if it was capital, somehow or other it provided itself. So far as the balance of payments is concerned, our difficulties arise whether these are capital payments or current payments. If they are capital payments, the money has to be found to make the investment. If they are capital payments, one runs up debts just as much as though they are current payments. The hon. Gentleman can test this for himself immediately. It does not matter in what form the money comes in, whether it is borrowed for current purposes or capital purposes, it has to be borrowed, and once we borrow money we have to repay it. The situation is simply that we had this difficulty.

Nor does it help the Committee for the hon. Gentleman to take the first half year when there was a disproportionate amount of capital payments, to subtract the capital payments and then to double the rest and say that that is, in effect, the current figure. It is quite wrong, and it is far better for the Committee to face up to the real facts.

The facts as we know them, and as right hon. Gentlemen opposite in the last Administration know them, are that the best estimate we could have was the expectation, when we came in, that there would be a deficit on capital and current account—nobody wants to gloss over any part of it—of £700 million to £800 million. That is a situation which requires immediate action. It requires immediate action by a Government who want to put the economy in order. It may be that a sluggish Administration which is 13 years tired may not feel it necessary to take any steps and may prefer to let the position go from bad to worse, especially as polling day is advancing. That may be the case. So far as we are concerned, it was a situation which had to be dealt with immediately.

Let me put it in its context. This figure compares reasonably with a deficit of £446 million for 1960. It is nearly double that figure. [Interruption.] On the one hand, it was £446 million, and on the other it is £700 million to £800 million. There is no need to make the comparison. It was that figure in 1960 which led the previous Government to take all the steps which we familiarly described as a stop in the stop/go process. That led to the disastrous delaying of the economy. It was that which led to the unemployment. It is that figure, £466 million, which one should compare with a figure of between £700 million and £800 million. I hope I have put the matter in perspective and that we need not go over these figures time and time again.

Mr. Ridley

After all that, will the hon. Gentleman give us the split-up for which we have been asking and tell us what the balancing item will be and give us all the other figures for which he has been asked?

Mr. Diamond

I am sorry that the hon. Gentleman should have asked me for that, because it shows that everything I have been saying hitherto has gone right over his head, or that he prefers not to listen to it. The figures for the first half year have been published. I have not got them with me, but they were quoted by the hon. Gentleman's hon. Friend only five minutes ago, and he might have listened to his hon. Friend. The simple point is that, whether one spends capital or current money, it is money and it has to be found.

One suggestion that has been made is "Yes, admittedly, the situation had to be dealt with, but one might have dealt with it by borrowing." I want to say, with the reserve which is implicit in my function—and which the hon. Member for Taunton fully understands—that that course was not open to Her Majesty's Government because of the expected deficit for the following year. As my right hon. Friend has said, the estimated deficit for the following year was likely to be such a figure as to be wholly unacceptable. [HON. MEMBERS: "How much?"] Only someone with no sense of responsibility for this country in relation to other countries would ask me to disclose that.

Mr. William Clark (Nottingham, South)

rose—

Mr. Diamond

I repeat that we could not deal with this problem by borrowing because we would have to borrow a further substantial sum in the following year—and whether people are prepared to lend one more money if one is overspending at a spend-thrift rate is another question.

We had to take action and that action has been described. I shall not go over it again. I want to deal with the main criticism from the benches opposite that the action we took was inflationary, as I understood the hon. Member for Taunton to say. I apologise for troubling the Committee with figures, but it is helpful to have them. [Interruption.]

The Chairman

Order. I do not think that Parliament is helped if hon. Members, from a sitting position, hurl remarks across the Floor.

Mr. Diamond

I am grateful, Dr. King, to my hon. Friends for their support, but I hope that it will not be quite as vociferous as it has been from time to time. Can therefore, with apologies for burdening the Committee with some figures, try to explain this in the way in which the hon. Gentleman attempted to address himself to the subject?

First, let us deal with the effect of what we have been doing for the current year. I am giving the figures at the annual rate. I do not think that they differ from the figures he gave, but as neither of us can see HANSARD just yet I am not precisely aware of them.

As far as revenue is concerned, there is the import surcharge running at £200 million and the additional tax on petrol at £93 million. The export rebate, on the other hand, is £75 million, leaving a difference of approximately £220 million. Thus, the effect of our actions immediately is, at the annual rate, £220 million net coming in.

There will be a certain amount of destocking. No one can put a precise figure on that. We estimate that the £220 million plus the destocking are just about right to cover the import saving. This import saving is the action we were compelled to take in order to deal with the situation I have described.

Given that one inherits that situation, given that one must do something about it, and given that one must save approximately £300 million in imports, and that one saves it, one must take countervailing action to deal with what otherwise would be resulting inflation. We have dealt with that partly by £220 million in the revenue items and we estimate destocking to cover the balance.

Sir Douglas Glover (Ormskirk)

rose—

Mr. Diamond

With all deference to the hon. Gentleman, I think that this argument is best deployed fully. Then I can answer questions.

The action we are taking arises directly out of the position we inherited—out of the deficit on our capital and current account. That action is being taken merely to correct what would otherwise have been the inflationary effects of the savings on imports. That is the first stage in the argument.

We now come to the further things we have done. They have resulted in approximately £350 million at an annual rate of expenditure. I imagine that it would be reasonable to add to that savings offsets. We will put it the other way round. Against this £350 million there is an income coming in of approximately £400 million. It is necessary to provide more income than expenditure because it is to be expected that if taxation and contributions are raised, up to a point there is some reduction in saving. Therefore, if account is taken of that reduction in saving, it will be found that these two sides balance again. The two sides balance with the additional expenditure which we are incurring and the additional income which we are raising to meet that expenditure.

I want to repeat this very shortly. To meet the current account deficit, the balance of payments deficit, we have had to take certain action, as we have done, and we have countered the possible inflationary effect in the way I have described, that is, import surcharge, petrol and the export rebate set against it.

Then—and there is no need to try to baulk this or run away from it—we have done two things, the first directly attributable to our heritage and the second not. The second thing we did was to raise Income Tax and contributions in order to pay pensions. Let us have it quite clearly that that is what we did and we did it deliberately and to have effect from the start of the following year.

That is what the taxation is about, taxation to which right hon. and hon. Gentlemen opposite object. It was to pay for the pensions which right hon. and hon. Gentlemen want. They want the pensions, but they do not want the tax. I ask the hon. Member for Taunton if, as he and his right hon. Friend the Member for Barnet say, it is right to pay these pension increases as from the beginning of the next financial year, where does he intend to get the revenue?

Mr. du Cann

I will certainly answer that. The fact is that we were able five times to increase pensions, we were able to increase National Assistance rates eight times and we were able to mitigate the earnings rule five times, without any general increase in taxation.

Mr. Diamond

The hon. Gentleman has referred to the past. It is not a very straightforward answer to my question. I am prepared to give way to the hon. Gentleman again if his right hon. Friend the Member for Bexley (Mr. Heath) will permit him to rise to his feet, which I gather he will not. The question is: what is to be done in this situation?

Mr. du Cann

I will only say, because we want to hear the hon. Gentleman tell us more, that I have always regarded the past as a very good precedent for the future.

Mr. Diamond

We cannot waste the time of the Committee too much, because I want to reply to detailed questions.

We are left with this situation obsolutely lucidly clear in the minds of all hon. Members: we did certain things to cope with our heritage, which is one aspect, and we did other things to provide for pensions, which is another aspect. We raised taxation to provide for pensions now because we thought that pension increases now were due and overdue. Right hon. Gentlemen opposite agree with the pensions and then vote against the taxation.

Mr. R. J. Maxwell-Hyslop (Tiverton)

rose—

The Chairman

The hon. Member for Tiverton (Mr. Maxwell-Hyslop) knows that if the hon. Gentleman the Chief Secretary does not give way, the hon. Gentleman must resume his seat.

Mr. Diamond

I hope that the Committee will agree that I have given way more than is normal. I have many questions to answer in the time available, and I hope that I will be allowed to do so straight away.

The right hon. Member for Barnet asked me whether this rate of 15 per cent. was high. The answer is, "Yes, very high, but it had to be very high to deal with a very difficult problem."

The hon. Members for Manchester, Withington (Sir R. Cary) and King's Lynn (Mr. Derek Page) asked about the question of coverage, which is important. I hope that I will be excused for reading out a precise answer. I am referring to the coverage of the imports charge. The phrase "basic raw materials" in the White Paper of 26th October was intended in a generally descriptive sense. All would agree that terms such as "basic" and "raw ", "essential" and "inessential" are incapable of precise definition.

There will be many opinions on the stage of processing at which a material ceases to be raw and what is essential. The broad basis which we have adopted as a guide is that raw materials which have undergone only elementary processing should be exempted. Even this is difficult to apply in a wholly consistent way over the many and varied materials and we are conscious that the list we have prepared may well contain anomalies. When we review the list we shall try to remove any anomalies which may be causing serious hardship, bearing in mind, of course, that the scheme as a whole is a temporary one.

On the other hand, we have not attempted to select materials or manufactures for exemption on any basis of availability or non-availability in the United Kingdom. Apart from the fact that it would be impracticable to apply the criteria of availability, to attempt to do so would introduce a deliberately protective character which is alien to the purpose of the charge and which we believe would make it wholly unacceptable to other countries.

Mr. Edward Heath (Bexley)

I am grateful to the hon. Gentleman for giving way and for the explanation which he has just made. Could he help us by giving an assurance that when the list of exemptions is embodied in the Finance Bill it will be in such a form that the House can amend it if it so decides?

Mr. Diamond

It is not for me to attempt to anticipate what Amendments the Chair will or will not select. Subject to that, there is no desire to prevent Amendments from being moved which will have the effect which I think the right hon. Gentleman has in mind.

I have been asked by the hon. Members for Chippenham (Mr. Awdry) and Bodmin (Mr. Bessell) a difficult question about goods in transit. The answer to it is that we cannot see our way to granting alleviation of any kind. First, this is the normal and almost universal practice for dealing with the situation. Secondly, it is admitted that as a result of dealing with it in this way the import charges have immediate effect, but it was the policy of Her Majesty's Government that they should have immediate effect. Thirdly, there is such a variation in the times of transit and different methods of transportation that it would be impossible to define any satisfactory method other than the time of arrival.

Finally—[Interruption.] I hope that the hon. Member for Ormskirk (Sir D. Glover) will contain himself and allow me to answer the question. I can understand how unhappy he is sitting on those benches. He can take it from me, from experience, that one gets used to it. May I say to the hon. Gentleman, without wishing to be personal, that it is the same with marriage: the first six years are the worst.

I am sorry that I cannot answer all the questions, but I will do the best I can. I have been asked about the effect of the petrol and oil duty on the cost of living and whether steps are being taken to deal with the problem of fares, a point to which the hon. Member for Withington referred. The immediate increase in the cost of living is one-fifth of a point. The final increase in the cost of living resulting from this duty, when it goes right the way througfh the economy to its final stages, is estimated to be, all told, well below half a point. [HON. MEMBERS: "Oh."] On the related point, may I say that representatives of the bus operators have been invited to a meeting with my right hon. Friend the Minister of Transport tomorrow. I hope that this indicates the speed with which we try to deal with these problems.

I have been asked about the likely effect of a capital gains tax, to which my right hon. Friend referred in his Budget speech, with regard to a house in which a taxpayer may be living. I should like to say rather carefully that it is not possible to enter into details of the tax at this stage, but that one thing which can be made clear is that the Government do not propose to bring into charge a house which the taxpayer owns and in which he lives as his only or main place of residence.

My hon. Friend the Member for Penistone (Mr. Mendelson) has raised a question which I am glad he asked, because it is in all our minds: whether we could possibly bring forward the date of payment of the increased pensions. I assure my hon. Friend that if it were possible it would have been done. There is nothing that has stopped us doing it except the sheer administrative impossibility of doing it earlier.

Dame Irene Ward (Tynemouth)

The party opposite would not take that explanation from us.

Mr. Diamond

The difficulty is that the machine is such as it is, and we inherited that machine from the party opposite.

Mr. Heath

We inherited it, too.

Mr. Diamond

The right hon. Gentleman says that his party inherited it. What did they do about it in 13 years?

Mr. Heath

We improved it.

Mr. Diamond

We have gone into this fully and thoroughly. With the best of good will in the world, I cannot hold out any hope of bringing forward the date of payment. I assure my hon. Friend—because we are all interested in the same point—that had it been possible to do it, we would have done it by now. We do not need to be reminded about it.

Mr. Arthur Lewis

rose—

Mr. Diamond

I apologise to my hon. Friend for not giving way, but there are difficulties and the time is not all that great.

I have also been asked, in relation to bringing forward the date of pensions, whether it is possible to do something in its place. The answer is that we are doing what we can via the National Assistance Board to help pensioners during this winter. I cannot say precisely the amount or form that this will take, but we are doing the best we possibly can.

I hope that the Committee will accept that I have done the best I can in the time available to answer the many questions. I have tried to put the debate in its proper framework and to give right hon. and hon. Members opposite all the figures so that they could make their own judgment. I could have wished that, during the election, right hon. Members opposite had given us all the figures so that we could have made our judgment. I hope that my right hon. Friend's Budget will be accepted.

Question put and agreed to.

Resolution to be reported.

Report to be received Tomorrow; Committee to sit again Tomorrow.