BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 07 April 1965 vol 710 cc490-625

3.45 p.m.

Mr. Edward Heath (Bexley)

rose—

Mr. Robert Maxwell (Buckingham)

On a point of order. I was in possession of the Committee last night when the Committee rose. Following long-established precedent, am I not entitled to continue, Dr. King?

The Chairman

The hon. Member for Buckingham (Mr. Maxwell) concluded his speech when the Committee closed its meeting, reported Progress and asked leave to sit again. If the hon. Member wants a precedent he will find that my predecessor, Mr. Chairman Whitley, on 21st April, 1920, ruling on another hon. Gentleman, on a similar occasion said: The hon. and gallant Member closured himself at eleven o'clock last night"— [OFFICIAL REPORT, 21st April, 1920; Vol. 128, c. 431.] The hon. Member for Buckingham closured himself at ten o'clock last night.

Mr. Heath

Yesterday, the Chancellor of the Exchequer gave the Committee what I think may well be described as a mammoth Budget statement. The right hon. Gentleman received many congratulations, quite rightly, upon it—on his physical performance and triumph of endurance and also on the lucidity with which he explained many technical matters. Perhaps the right hon. Gentleman will allow me to felicitate him, also, on that.

I would not claim that the Committee was able to understand all the complicated details of some of the taxes as he went along. Discussion of these may not be entirely appropriate to a Budget debate, but we shall have time, on the Finance Bill, to consider these matters in detail. Perhaps the right hon. Gentleman will allow me, however, to look at some of the major items in his statement perhaps in a rather different light from the way in which he presented it to the Committee.

I should like to start by looking at the Budget from the point of view of the citizen. The Budget was, from the point of view of the citizen, the worst Budget since the last Socialist Chancellor in 1951. The right hon. Gentleman imposed £167 million worth of additional taxation, amounting to £217 million worth in a full year. The Budget in 1951, which was that of the right hon. Gentleman's worst predecessor, amounted to £388 million of additional taxation.

Mr. Emrys Hughes (South Ayrshire)

The Korean war.

Mr. Heath

That has already been beaten by the present Chancellor's own two Budgets. Last November, he imposed £275 million worth of additional taxation in a full year and now he has imposed £217 million worth.

Mr. Sydney Silverman (Nelson and Colne)

Should he not have done that?

Mr. Heath

This is a total of £492 million in the last six months. These figures are worse than at any time since the darkest years of the last war. [HON. MEMBERS: "Why?"]. There is plenty of time to analyse the Budget, and I shall do it, and the circumstances behind it, but let us, first, look at the Budget from the point of view of the citizen, as hon. Members will have to do when they meet their constituents.

This is the first increase in Income Tax since 1951. It is the biggest increase on cigarettes and tobacco since April, 1947. It is the biggest increase on spirits since November, 1947.

The Chancellor has said, "We are changing direction". We certainly are changing direction. Over 13 years, we on this side reduced taxation by £1,300 million in the rates of taxation and in less than six months he has increased it by £500 million. This is a typical Socialist Budget. It soaks the rich and it also soaks the poor. Perhaps one might adapt Thomas Hobbes' words and say to the Chancellor that his Budget, for the citizen, is nasty, brutish and long.

It is not a Budget which should be looked at in isolation. Not only is there a ld on beer, but there is a 1d. on the postage stamp as well. Not only is there 6d. on cigarettes, but there is 6d. on Income Tax, something which the Chancellor did not emphasise very much yesterday. Not only is there more on car licences, but there is 6d. on petrol as well. Not only is it a deflationary Budget, but there is the 7 per cent. Bank Rate which we have had now for almost the longest time since the war, and a credit squeeze. Not only are there higher taxes, but there are higher rates and higher mortgage interest rates as well.

No one can say that we were not warned. The Prime Minister, whose absence again today for the reason we know we all regret, has been in the habit of following league tables. My right hon. Friend the Member for Barnet (Mr. Maudling) produced one on 13th October, 1964, and the Committee would do well to follow this league table. My right hon. Friend forecast, with remarkable prescience, what has come about in the turn of events.

The First Secretary of State and Secretary of State for Economic Affairs (Mr. George Brown)

He knew.

Mr. Heath

He knew the situation into which the Government would get themselves. That is what my right hon. Friend knew. This Government are rapidly climbing up the league table which he set out. My right hon. Friend said that petrol would be 6d. up. That is already done. He said that beer would go up ld., and that we have just got. He said that insurance would go up 6s. on the contribution. We have got 5s. 3d. and by the changes which the Chancellor announced yesterday and certain other matters we shall have the few extra pence.

My right hon. Friend said that Income Tax would be 9d. up. At least, we have flat quite got there. He said that spirits would be 3s. up, and the Chancellor is well ahead of him with 4s. Two-thirds of the reduction which came about as a result of the removal of resale price maintenance has already been lost. What an incentive to reduce prices!

My right hon. Friend said that cigarettes would be up by 4d. for 20, but the Chancellor has done better than that, with 6d. Finally, my right hon. Friend said that Purchase Tax would be up one-fifth all round. Perhaps the Chancellor is keeping this for an autumn Budget, or some other occasion.

What did the right hon. Gentleman say about all this? In Cardiff, on 14th October, he said: These figures are infant school stuff, nursery school stuff, hardly worth serious attention. These figures are getting screwier and screwier". Who is getting screwier now?—the Chancellor himself.

All this has come about since the Chancellor's right hon. Friend, the First Secretary of State, said in his White Paper, on 26th October, 1964: … there is no undue pressure on resources calling for action. That was the judgment of right hon. and hon. Members opposite when they got back into power and saw what the situation was, that there was no undue pressure on resources calling for action", yet since that time we have had nearly £500 million worth of additional taxes imposed, a larger imposition than by any of the Chancellor's predecessors.

While I am dealing with the Chancellor's past history, what about his objectives in all this? He has based his Budget impositions very largely on consumer taxes. Why?—in order to deal with the balance of payments problem which he described to us yesterday. This has really been the core of his Budget, looked at from the point of view of additional effective taxes. Yet, if we go back only a year to last year's Budget, what did the right hon. Gentleman himself say: The tax on beer and cigarettes is basically irrelevant to the balance of payments problem".—[OFFICIAL REPORT, 15th April, 1964; Vol. 693, c. 431–2.] The right hon. Gentleman's right hon. Friend the Chancellor of the Duchy of Lancaster said: Taxes on alcohol and tobacco equal, if they do not exceed, the total yield from the whole of P.A.Y.E. That is wholly disproportionate."—[OFFICIAL REPORT, 20th April, 1964; Vol. 693, c. 888.] What obstacles he must have overcome on his own Front Bench in order to reverse his own position and somehow discover that the tax on beer and cigarettes is relevant to the balance of payments problem.

The Chancellor stated his intentions very clearly at the beginning of his speech, and I wish to come straight away to my general comments on his Budget. This is the first Budget introduced by a Chancellor with no responsibilities whatever for the state of the economy. This is the first time it has happened in the whole of British history. The position was very obvious yesterday. In the more than two hours which the right hon. Gentleman took for his Budget statement, he spent only a few minutes discussing the state of the economy as a whole. He looked only to the future, and he made apologies to his right hon. Friend for doing it. So we have to wait until this afternoon to hear what the First Secretary has to say about the state of the economy.

There is no doubt whose policy is really dominating the economy. The Chancellor may not have responsibility for it, but what has happened is that the Treasury machine has proved stronger than the First Secretary's public relations outfit. All this was to be combined in one splendid national plan. The Chancellor made a fleeting reference to that as well yesterday, but what has happened to the national plan? The First Secretary of State was to present it to us in outline form on 1st April, not an entirely inappropriate day, but he has had to withdraw it, and we now have the Chancellor's Budget without any national plan, outline or otherwise. This really points the whole fatuity of the arrangement which right hon. Members opposite have created among themselves.

This has been a tough Budget. It is tougher than it need have been if the Labour Government had been able to retain the confidence of the rest of the world. This is one of the issues which I shall discuss in detail in a few minutes. The other feature of the Chancellor's statement was that he gave no account of his own stewardship of our overseas financial affairs. I do not believe that the word "sterling" or "pound" was mentioned in the whole of his statement. What an astonishing performance! Whatever responsibilities may have been taken from him, this is a responsibility which the Chancellor certainly has, and it is astonishing that he was able to deliver his whole statement without any reference to his stewardship of the state of the £ sterling since last October.

The right hon. Gentleman started by saying: … we need a pattern of taxation serving the requirements of a modern and dynamic economic policy."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 245.] That is all we heard of it in two hours—nothing more. My main criticism of the Budget is that it does absolutely nothing to secure a pattern of taxation which will serve the requirements of a modern and dynamic economic policy. The right hon. Gentleman devoted over an hour to two new taxes. The purpose of the Capital Gains Tax and the Corporation Tax is not to make industry dynamic, or even to reform the tax system with the object of achieving greater simplicity.

As we go further into it, past the Chancellor's first statement, then past his Budget statement yesterday and into the Finance Bill, we find how complicated the whole thing is. The more he tries to make detailed provision for necessary and good things, the more complicated it becomes. So this is not the purpose of those two taxes.

The first real purpose of both taxes is to secure a redistribution of income. That is the Chancellor's object, and he should say it plainly. It is not the purpose to achieve a dynamic economy. The other real purpose of the Corporation Tax is to deter overseas investment and not only to deter but to damage existing overseas investment. That is its other purpose, and that will certainly be its effect.

We all know the background and what has been so often written about the Corporation Tax, in the Report of the Royal Commission, and so on. My final conclusion about both these taxes is that they are irrelevant to our situation at this moment, a situation for which the Chancellor is responsible so far as sterling is concerned. There is no attempt in the Budget to meet problems by increasing enterprise and developing overseas markets.

The Chancellor said that he will make room for exports. It is not only a question of making room for exports. The problem is to get the exports sold in world markets. The whole approach of the Budget has been to clamp down. One can feel the clammy hand of the Chancellor throughout the Budget. It is clamping down on overseas activity. It is depressing people at home. This is quite unlike the methods adopted by President Johnson to deal with the American situation of the overseas balance of payments, and the American problem of overseas loans and overseas capital investment. The Chancellor is damaging existing investment as well as clamping down on the rest.

To sum up the Budget, there is nothing to produce incentives, nothing to increase efficiency and exports, nothing to excite and nothing to inspire—absolutely nothing. What has happened is that the "little Englanders" have won again. [Interruption.] The right hon. Member for Easington (Mr. Shinwell) must be careful what he says about the Common Market. He has only to look at what his right hon. Friend has been saying in Paris.

I want to look at the Chancellor's taxes in a little more detail. He has two new taxes. I hope that he will get the returns from them. I notice that he has been involved in a slight dispute with those who have the job of organising the taxes. I saw in a statement last week that the general secretary of the Inland Revenue staff said: If he doesn't settle this problem before the Budget next Tuesday, he will have to whistle for his new taxes. No good will exists towards him in the Inland Revenue. I hope for the right hon. Gentleman's sake that he has been able to deal with that little episode.

The Chancellor of the Exchequer (Mr. James Callaghan)

Perhaps I might add that on the following Friday the Federation announced that it was making me an honorary life member, in view of my services.

Mr. Heath

The Chancellor may still have to whistle for his taxes.

First of all, I turn to the Corporation Tax. We all welcome the White Papers which will be produced before the Finance Bill, but might it not have saved the Chancellor a large amount of what was read out yesterday—that test of endurance—if it had been produced in White Papers beforehand? It would greatly have assisted those who have to study this matter.

My first objection to the Corporation Tax is that it is intended to increase the amount of profits which are, as the Chancellor says, ploughed back into firms. I believe that there is a genuine difference of view here between the two sides of the Committee. The right hon. Gentleman and his colleagues believe that all that is necessary to get investment, and to get investment in the right places, is for profits to be ploughed back. At the same time, the right hon. Gentleman objects to dividends being distributed. I and, I believe, my right hon. and hon. Friends believe that this is an entirely fallacious thesis, and that if one is to have a dynamic and growth economy one does not get it by allowing firms which have money just to refuse to pay it out in dividends and then sit on it. This does not produce the system of the survival of the fittest. It produces the system of the survival of the fattest.

If we may pursue the argument, the new growth firm which wants to develop is a firm which has to get resources from more than its own profits, and to do this it must be able to go to the market and get the capital that it wants. This applies to all growth firms and industries. If they are to do that, then, in our view, much the better system, which has been demonstrated in the countries which have achieved rapid growth, is that encouragement should be given for dividends to be paid out, for the money to be saved and reinvested, and for the dynamic and growth firms to be able to attract this capital and investment. That is a fundamental difference between the two sides of the Committee.

The Royal Commission was against the right hon. Gentleman, and he admitted so yesterday. This, I believe, is a fundamental weakness in the Corporation Tax as the right hon. Gentleman proposes to institute it.

Mr. Eric Lubbock (Orpington)

If the right hon. Gentleman's argument is correct, why is it that yields are so much lower on the other side of the Atlantic?

Mr. Heath

I dispute that entirely. However, if the hon. Gentleman wants to take other examples, let us take some of the European countries with a high rate of growth—Germany, for example —where exactly the opposite is the case.

The Financial Secretary to the Treasury argued last week, in a debate on an Order, that taking this action was bringing our own system nearer to the European system. I entirely disagree with him. What he said was: Hon. Members will realise that as a result of the long period of government by the party opposite the Germans have got rather ahead of us in the modernisation of their taxation system. They have, and have had for some time, a corporation tax."—[OFFICIAL REPORT, 1st April, 1965; Vol. 709, c. 1984.] Later, he said: these new taxes… will bring our tax system into closer approximation with theirs."—[OFFICIAL REPORT, 1st April, 1965; Vol. 709, c. 1993.] Hon. Members should examine the Report of the Neumark Committee for the Common Market. It came to the reverse conclusion. It said that In the system applied in the Federal Republic of Germany and Belgium as well as in the Dutch projected legislation company tax levied on the gross dividend is lower than that which is levied on gross reserves. In Great Britain this system has already been in existence for a long while.… The German discrimination in a singular manner approaches that of Great Britain. The plain fact is that, however one describes these two systems, we in our present situation are closer to the system in practice in the growth countries of Europe than we shall be when the Chancellor has changed us over to the Corporation Tax.

My second point is that this is double taxation in so far as profits are distributed. The Chancellor made a distinction between shareholders and firms. I always thought that the Labour Party was trying to impress on us the fact that shareholders and firms were one and the same thing, that shareholders should take a greater interest in their firms. But the Chancellor had to come on with the Capital Gains Tax to take account of the fact that when a company is wound up or goes into liquidation, he has to take account of the fact that shareholders and companies are the same thing. Otherwise, they might get these resources without paying his tax. So he has instituted the Capital Gains Tax. In this respect, he is saying that they are the same thing, and that he will make certain that they do pay. I do not believe that this is a valid distinction.

The third point is that this will do great harm to our overseas companies. The Chancellor dealt with this very lightly yesterday. What he is doing, briefly—this is a technical matter, which we can deal with later—is to put another 41¼ per cent. of the dividend as a burden on the companies if they pay at the standard rate. The impact of this on these great companies will, as the Chancellor has been told and knows, be very great indeed.

When we look at the sort of companies affected, they are I.C.I., Shell, Unilever, the cement companies, Dunlop, Metal Box, Courtauld, Schweppes, the insurance companies, Hawker Siddeley and other great companies of that kind. They are the ones which will be changed by the Chancellor. What does the Chancellor do? He says, "These proposals might create hardship", and so these great foreign exchange earners are to be given some form of transitional relief which he describes to us. But this is not building up the future of this country, or looking to the new term. What the right hon. Gentleman has allowed himself to do is to be so attracted by this new tax that he is completely disregarding the fundamental issue of the long-term future of the country. That is what he is doing in dealing with these companies.

Apart from this, it will affect the developing countries very much indeed. Yet, the Government and the Labour Party have always impressed upon us the absolute priority of helping the developing countries. When the Conservative Government were in power, they gave a lead at the Geneva conference in order to help the developing countries What the Chancellor is doing is damaging the firms which can best help the developing countries. What is more, he is now killing overseas trading corporations. Is it a great asset, a great achievement, of the new tax to damage the existing companies that we have and to kill off the existing overseas trading corporations? It is a deplorable act by the Chancellor.

Then the Chancellor turned to investment allowances. This is my next point about the tax. What the right hon. Gentleman is doing is excusing this on purely technical grounds and saying that he will look at the problem of allowances a little later. Does not he realise the uncertainty that he is causing throughout the rest of the financial year? First, no company knows what its investment allowances will be worth. Secondly, he may at the end say that he will change the system as well as the whole structure of the Corporation Tax. These are the objections I have to this tax in the way it has been put forward by the right hon. Gentleman and the impact it will have.

My greatest objection in the situation that the right hon. Gentleman has been describing is that we in this Committee will now spend days and possibly nights on the Finance Bill arguing about the technicalities, while board rooms will spend their energies examining the tax, looking at the capital structures of their companies and readjusting those structures so as to deal with the tax. Accountants will be fully occupied. All of us in the Committee and those in companies outside will be occupied in this way instead of dealing with the fundamental problems of today. We will all be preoccupied with a change of taxation which can achieve nothing for the economy as a whole.

Now I turn to the Capital Gains Tax. The Chancellor has put this at a level which is high, especially compared with that in the United States. It is much more embracing than the U.S. tax. The maximum in the United States is 25 per cent. and the average is very low—about 8 per cent. and 9 per cent. From the point of view of the operation of such a tax in other countries, the level fixed by the Chancellor is high.

The tax will produce some problems for him. I believe that, at this level, it will damage the mobility of capital. As he takes no account of inflation it will do damage in this respect and it is at a level which will also be unfair to the individual. It will mean, as a consequence, a reduction in the real capital of any individual. It is part of the Chancellor's purpose—and, indeed, part of the purpose of right hon. and hon. Members opposite—to make a deliberate redistribution of wealth and not to deal with so many of the things which, they said, produced an attitude of unfairness in that some people are able to make specific gains.

But this tax does not deal with specific gains. It taxes wealth and deliberately redistributes it. The right hon. Gentleman had better not hide behind the idea that he is dealing with passing unfairnesses. As my right hon. Friend the Leader of the Opposition said yesterday, this, together with the Estate Duty and the levels of Surtax and tax, produces a combination of taxation which is very high indeed. Indeed, some might describe it as penal.

I am sorry that the hon. Member for Buckingham (Mr. Maxwell), who has not been able to speak, has left the Chamber, because he might describe it as penal. I discovered an interesting advertisement in the Bookseller on 6th March. It read: Are you the owner of a publishing company wishing to…Realise some of your capital? Protect your Company from the effects of penal taxation?

Mr. George Brown

My hon. Friend the Member for Buckingham (Mr. Maxwell) is not here.

Mr. Heath

I expected him to be here, like other right hon. and hon. Gentlemen. The advertisement went on: Then write now, in confidence, to: The Chairman, Pergamon Press Ltd… There is one point that I want to put to the Chancellor about the arrangements for Government stock.

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

Read the whole advertisement.

Mr. Heath

I will. It read: Are you the owner of a publishing company wishing to obtain access to world-wide promotion, distribution and production facilities but continue to run your business in your own way? Realise some of your capital? Protect your Company from the effects of penal taxation? Secure a source of finance for further growth? Write now, in confidence, to: The Chairman, Pergamon Press Ltd…. The Chancellor of the Exchequer has refused to exempt Government stock from these provisions. In the coming year we will have to borrow more than twice as much as was borrowed last year. Does he really think that it is in the best interests of the management of Government finance and of his own borrowing in this and future years that he should refuse to take this action on Government stock? I ask him seriously to consider this in his own interests and those of the state of the economy and of the nation.

The final point about the Capital Gains Tax is that we have reached the position in which football pools and bingo are all exempt from any form of taxation.

Mr. Callaghan

They pay heavy tax.

Mr. Heath

The recipients of football pool and bingo winnings pay no tax. Thus, if a person saves up and puts his capital somewhere where it fructifies because he invests it and helps industry, he pays a Capital Gains Tax.

Mr. Peter Shore (Stepney)

Were gains from football winnings also exempted from the speculative gains tax introduced by the right hon. Member for Barnet (Mr. Maudling)?

Mr. Heath

It is true that they were. But the present Chancellor is not dealing with speculative gains, as did my right hon. Friend the Member for Barnet, nor with even the inflationary gains of capital. He is dealing with all gains on capital, in an all-embracing way. To use the phrase of the Prime Minister—who is supporting the candy floss society now?

Now I turn to the question of overseas portfolio investment. I hope that the Secretary of State for Economic Affairs will answer all these questions in his speech. As I understand, according to what the Chancellor announced yesterday, if one holds an overseas portfolio investment and sells so as to gain overseas currency one must repatriate a quarter of the proceeds. This was a most technical and difficult part of the Budget statement. The Chancellor at one stage said that all he was asking was that one should turn a quarter of them into dollars bill at parity rates.

It is difficult to reconcile these statements. What will be the impact on a person who sells his securities if he wants to invest in another stock overseas? Will he be at liberty to do so in the entire amount?

Mr. Archie Manuel (Central Ayrshire)

My hon. Friend the Member for Buckingham (Mr. Maxwell) has returned. The right hon. Member for Bexley (Mr. Heath) should ask him now.

Mr. Maxwell

On a point of order, Dr. King. Is it not customary, even for right hon. Members opposite, to give notice to an hon. Member when it is intended to raise issues of a personal nature?

Mr. Ronald Bell (Buckinghamshire, South)

Further to that point of order—

Mr. Manuel

Order.

The Chairman

Order. I shall be grateful if the hon. Member for Central Ayrshire (Mr. Manuel) will let the Chair conduct the debate.

Mr. Ronald Bell

Further to that point of order, Dr. King. In dealing with the submission of the hon. Member for Buckingham (Mr. Maxwell), will you consider whether it has ever been the custom of the Committee that one must give notice to the previous speaker in the same debate of the fact that one will reply to him?

The Chairman

Neither of the matters raised by the hon. Member for Buckingham (Mr. Maxwell) and the hon. Member for Buckinghamshire, South (Mr. Ronald Bell) is a point of order for me.

Mr. Heath

When the hon. Member for Buckingham reads HANSARD tomorrow, he will find that I have in no way attacked him, or made personal remarks about him. I have, indeed, given him excellent publicity for his firm.

Mr. Maxwell

I accept your Ruling, Dr. King, that I did not have the right to finish the speech which I was making yesterday, but would it not be a point of decency for the right hon. Member for Bexley to give me the opportunity to answer?

The Chairman

If the Chair had to rule on points of decency and courtesy, it would never finish its work.

Sir Arthur Vere Harvey (Macclesfield)

On a point of order. Has it not been the custom that when an hon. Member has spoken he waits to hear the following speech in case he is referred to? That the hon. Gentleman did not do.

The Chairman

I do not intend to start ruling on matters of courtesy.

Mr. Heath

I was about to ask the Chancellor of the Exchequer what is to happen about the Government holding of overseas investments. In this situation, where he is taking action which will damage private investment in the great companies of this country, what is he to do about the overseas holdings of Government investments in foreign stocks and portfolios which, as we know, amount to something over 1 billion dollars?

Mr. Callaghan

I should not like there to be any misunderstanding. The repatriation of assets on the sale of portfolio securities is a voluntary act. When people decide to sell, a proportion of the sale will be surrendered to the reserves at the official rate. If the investor wants to swap his investment and buy a new one, he can still buy the complete amount by paying the premium in the investment currency market to make up the quarter which he has lost.

Mr. Heath

In other words, this is a rather subtle means of getting a rake-off from any exchange. The Chancellor has carefully explained what his purpose is.

I now come to the 50 per cent. increase in motor duty for commercial vehicles. We understood that the criterion for an increase in indirect taxation was whether it affected industrial costs. This increase undoubtedly does. This is a 50 per cent. increase compared with a sixth on private vehicles. The Chancellor said that this meant only 2 to 4 per cent. on the capacity ton mile, the operating ton mile. But these 2 to 4 per cents. all add up and the Chancellor has already added burdens to industrial costs, and this further addition is not wise. It also means another charge on industrial and farm tractors of front £2 10s. to £2 15s., which affects the small man particularly at a time when a very small amount of these costs are to be recouped in the farm review.

The measure on business expenses was the one measure in the whole of the two hours which got a full-throated cheer from all the Chancellor's supporters. Of course, the Chancellor knows that the Inland Revenue has full power to stop any abuse of business expenses. Abuses ought to be stopped, but the Chancellor himself said that good firms, who were the great majority, did not abuse these expenses. He was perfectly fair about that and I believe that he was right. What he was doing was giving a sop to his supporters, and, heaven knows, they will need it in the constituencies.

Mr. Maxwell

rose—

Mr. Heath

What the right hon. Gentleman did was to dress up this proposal in emotive terms by talking about penthouses, yachts and grouse moors. He knows perfectly well that very little of these expenses are spent in that way. If he has found abuses, why has he not got tile Inland Revenue to stop them? To deal with what he described as abuses, he has wiped out the whole thing.

The people who will suffer from this will be the small man and the growing firms. The bigger firms, as the Chancellor himself said, will be able to do it on their own resources, but the smaller man and those who ought to be encouraged will suffer. To cure abuses, the Chancellor has wiped out the whole thing, and the same applies to the allowance for business cars.

What is most interesting in this is the attitude of the Chancellor compared with that of the First Secretary. The First Secretary was reported in an article in the journal of the Institute of Directors, on Monday, an article entitled "Inner thoughts of Mr. Brown", as saying: … businessmen have more hope of making money or making progress, of building themselves up, whatever their aims, are under"— this Labour Government. "Mr. Brown, the businessman's friend".

Whatever the First Secretary's inner thoughts are, it is the Chancellor's actions which govern the businessman, and the Chancellor is proving to be the businessman's scourge. We get the back-scratching by the First Secretary of every businessman he meets, and then some form of back-kicking by the Chancellor of the Exchequer. What is important in this is that the interests of exporters should be safeguarded, and I hope that the Chancellor and other Treasury Ministers will see that this is done, whether the exporters are in this country or overseas.

I want to refer to the TSR2 and the Chancellor's own part in it. This was included in his Budget statement and was an important balance in his Budget. I do not blame the Chancellor of the Exchequer in any way for what happened last night. He, naturally, wanted to take account of this factor in the Budget. That I fully understand and that is why he forced a decision last week. He went to a midnight Cabinet meeting and the Prime Minister had to change his plans for visiting the President of France. It was a somewhat humiliating position to have to postpone arrangements for meeting the President of France because of a Cabinet squabble, but there it was. The decision having been taken —

Mr. George Brown

In view of that remark, can we just have it made quite plain that the reason why the Cabinet did not meet earlier that day was that the Prime Minister did the Opposition the compliment of staying here all day to listen to what they had to say in the foreign affairs debate?

Mr. Heath

The right hon. Gentleman, the Prime Minister and the rest of the Government have had about five months to deal with this matter and were not dependent on the timing of one debate.

The statement on the TSR2 should have been made to the House on Monday, when we would have had an opportunity of putting full questions on both the defence and financial aspects. We are now limited. I can discuss only the financial aspect and we shall not have the opportunity of putting Questions to the Secretary of State for Defence within a reasonable time. In the Motion of censure debate it will not be possible to cross-question the right hon. Gentleman. The right hon. Gentleman does not appear at the top of the list of Questions until Wednesday, 2nd June.

Mr. Sydney Silverman

On a point of order. The right hon. Gentleman has just said that it would be out of order for him to ask questions about or deal with the TSR2 statement by the Secretary of State for Defence yesterday. This is a debate on the Budget Resolutions. As far as my experience goes, nothing is out of order in such a debate. Or is it?

The Chairman

The hon. Member for Nelson and Colne (Mr. Sydney Silverman) is not quite correct. Not everything is in order on the Budget debate. What is in order is the financial implications of any aspect of policy, which is what the right hon. Gentleman has rightly said.

Mr. Heath

That is what I propose to deal with. The Post Office charges statement was made beforehand and the Chancellor took credit for it in the Budget. I do not understand why, from the financial point of view, the TSR2 statement could not have been made in exactly the same way, and we would then all have been in a much better position.

The Chancellor took credit for a reduction in costs on the TSR2, but I should like to ask him and the First Secretary for the details of the Chancellor's calculations. We were given an overall figure with no breakdown. How much was allowed for the TSR2 in this year's Defence Estimates? The Chancellor said that the cancellation costs had been allowed for, but I understand that they have not yet been settled and still have to be negotiated. How much has been allowed in this sum for cancellation costs, which is very important from the point of view of the balance of the Budget? The figure mentioned for the cancellation costs has been £70 million or greater. This would have a major impact. In the figures given yesterday, did the Chancellor take account of tax changes in the companies' tax and in individual tax?

But again the Chancellor of the Exchequer did not deal with the question of the impact on the balance of payments, and I ask the First Secretary of State to deal with this in his speech. What we have been having is the usual double-talk. The Chancellor of the Exchequer made no mention of the balance of payments aspect. The Secretary of State for Defence tried to give the impression that the balance of payments aspect was very vague and very remote.

This is not the impression given in Washington by Mr. McNamara, the American Secretary of State. According to a report in The Times today, from its Washington correspondent, Officials in the Defence Department were high in praise for what was described as the great political courage demonstrated by the British Government in deciding to scrap the expensive TSR 2. They can afford to be magnanimous". The correspondent went on: Mr. McNamara was clearly elated by today's agreement". What exactly was he elated about? Of course, he sees this as a grave blow to the production of military aircraft in this country but, as far as exports are concerned, it is also a blow to civil aircraft because of the impact on the costs of civil aircraft. Has he any other reasons for elation? Is there more in this optional agreement than the Secretary of State for Defence told us last night, because Mr. McNamara is not the sort of person who gets elated without due cause? I should like the First Secretary of State to be explicit as to what sort of undertakings have been given.

I said that this was a tougher Budget than it need have been if the Government had kept the confidence of the world. The need to regain confidence has dominated this Budget. That has been the dominating influence on the Chancellor of the Exchequer. He may well be right. But we must not avoid the fact that, although, naturally, he would not like to say it, it is this which has dominated his actions. He has made a Budget judgment—he has had £250 million; actually, it came to £234 million —within the brackets which most commentators have suggested. Everybody in this Committee, however much we oppose taxation and dislike it, must hope that the right hon. Gentleman has made a judgment which will restore strength in the £ sterling.

But there is the question which the right hon. Gentleman raised earlier, about how the Government ever got into this position at all. [HON. MEMBERS: "Oh."] I will deal with the matter in detail. In 1963, my right hon. Friend the Member for Barnet produced an expansionary Budget. The present Chancellor of the Exchequer said that it should have been a much more expansionary Budget. In 1963, he wanted a much greater injection of consumption power into the economy. Then, in 1964, my right hon. Friend took £100 million out of consumption in the Budget. The present Chancellor of the Exchequer did not challenge that. My right hon. Friend also put Bank Rate up to 5 per cent. in February. Both these things were done to stabilise the economy. We recognised that he was pursuing a policy of expansion and of stabilising the economy.

In 1963, we had a 6 per cent. growth and, according to the Chancellor of he Exchequer's own Yellow Book, in 1964 we got close to a 4 per cent. growth. Therefore, in those two years, with an expanding economy under the guidance of my right hon. Friend, we were getting the growth at which we were aiming. We knew full well about the trade problems which were likely to emerge.

I want to quote what the Prime Minister said in Swansea on 25th January last year, when he was absolutely clear about this point. There was no difference between the two sides of the Committee. He said: If balance of payments difficulties arise in the next few months we must meet them—as the Government"— that is, my right hon. and hon. Friends— has always said that they must be mett— by using reserves". He went on: … we should not be afraid … to use our very substantial drawing rights under the International Monetary Fund, to say nothing of other sources which can be mobilised in case of need. The right hon. Gentleman went on to say that he would use short-term interest rates to staunch any flow of capital—in other words, Bank Rate. This was the policy. There was no difference between the two sides of the Committee on this. It was a perfectly serious policy. But where did it go wrong?

It went wrong in the Norwich speech, in the middle of the election, on 30th September. There, instead of talking in the serious economic terms which the right hon. Gentleman used to describe his policy, he used emotive terms to the effect that we were getting our prosperity on the slate. He went on to say that we were being "put in pawn economically", having said that we were Not content with crawling to the Americans". He went on to say, about borrowing: … you have no independence of action economically, in social policy or in foreign policy. The right hon. Gentleman used emotive terms to get votes instead of making a serious economic analysis. This is the position into which right hon. Gentlemen opposite have got themselves. The Chancellor of the Exchequer has been dominated by this in the whole of his Budget arrangements.

One could say that the events of last autumn were not matters to be raised during the election. What happened was that this was continued after the election, very largely by the First Secretary of State. We saw panic-stricken actions. By the way, the Chancellor of the Exchequer, last night on television, said that when he got to the Treasury he expected to find that the trading account perfectly balanced. Had not he read his right hon. Friend's speech as Swansea? Had not he even read the balance of payments White Paper published on 1st October? The right hon. Gentleman cannot be as simple as that.

Then we had the dramatisation of the position by the First Secretary of State. We had the hastily improvised surcharge and the autumn Budget with heavy Government expenditure and higher taxation. We had the fateful E.F.T.A. meeting to which the President of the Board of Trade, shorn of his powers, was sent as a front runner to explain away what the Government were doing to our E.F.T.A. partners. When it came to the question of taking 5 per cent. off, it was the First Secretary of State himself who went to see our E.F.T.A. partners. Then we had the panic Bank Rate—up to 7 per cent. —and then the standby.

We had two statements by the Prime Minister about confidence. I wish to refer to these, although the right hon. Gentleman is not here. However, I know that he will read the report of my speech. On 23rd November last year the right hon. Gentleman said: The fact is … that so far as the trade gap is concerned, whatever the trade gap or the payments gap—whatever has been estimated as having to be met—there were reserves and borrowings more than adequate to meet this, but in the course of the past week that is, 16th to 23rd November— there has been this new development arising from confidence factors, and it was decided that we must take these measures decisively and at the right possible moment."—[OFFICIAL REPORT, 23rd November, 1964; Vol. 702, c. 933.] The confidence factors could only have been lack of confidence in the Government during the week of 16th November.

The Prime Minister tried to deny this to my right hon. Friend the Member for Barnet on 16th March. He said: … I would first inform the right hon. Gentleman, as he can look up for himself, that in November I said nothing of the kind, even though the right hon. Gentleman went on television and completely misrepresented what I said."—[OFFICIAL REPORT, 16th March. 1965; Vol. 708, c. 1066.] I have read out the full account in HANSARD of 23rd November, 1964. The Prime Minister said that the reason for the attack on sterling and the need for the Bank Rate increase and then for the standby was lack of confidence in the preceding week; and it was lack of confidence in the Government and the Prime Minister.

The handling of these affairs was the biggest blunder which the Government have ever made. The First Secretary of State knows it, and how much he must regret it. By far the best thing for him to do would be to get out of this blunder in the most gentlemanly way he can. I do not blame the Chancellor of the Exchequer. All that I blame him for is the fact that he was too weak to be able to stop the First Secretary of State.

However, I blame the Chancellor of the Exchequer for one thing, and I wish to deal with this in the last part of my speech. It is the responsibility of the right hon. Gentleman to deal with the question of sterling. I do not believe that since the standby he has done enough publicly to deal with this question. I hope that in the period which is to come he will perhaps consider these matters.

Mr. Callaghan

The right hon. Gentleman has not done anything.

Mr. Heath

I will deal with the Chancellor of the Exchequer. The responsibility for dealing with sterling must be that of the Government. The Opposition will always support sterling in the national interest. We have always done so. But it is not enough to deal with words.

Mr. E. Shinwell (Easington)

Hear, hear.

Mr. Heath

There must be action by the Government to deal with the position. Nothing was done after the standby. Nothing was done until this Budget. Nothing was done on the Vote on Account. Nothing was done to deal with Government expenditure overseas. There has been no intelligent discussion by the Government of these problems. They were being discussed everywhere else in the world. The one place where they have never been discussed is in the House of Commons.

The only person who has made any contribution whatever was the Prime Minister, who, in Paris last week, according to Press reports, used the significant word "nuts". That was his sole contribution to the discussion of sterling. It is a rather passé mid-1930s word, but it is the word which the Prime Minister used.

There are very few occasions on which these matters can be discussed, certainly by an Opposition, although they can be discussed by the Government. They ought to be discussed responsibly, because there have been dangers in the past, which I hope have now been surmounted, or are being surmounted, as a result of what is being done. The right hon. Gentleman is always embarrassed that those behind him think that everything is due to a strange plot, to people who are almost Wagnerian characters, giants in Wall Street or gnomes in Zurich, not realising that a great trading nation has people all over the world who have their own intense personal interest, for trading purposes, in the parity of sterling. This has been the main consideration in these last few weeks.

I do not think that the right hon. Gentleman realised, concerning the surcharges, that what worried people across the world was that surcharges had never been imposed anywhere—either in France or in Canada, for example—without a degree of devaluation following. That is why it was so important, although right hon. Gentlemen opposite could not see or know any of the results of imposing them, that the surcharges should start to come off. This is a demonstration that the Government will not protect sterling— [Interruption.] I said that what worried people in Europe was that surcharges had not been used elsewhere without some degree of devaluation. Everybody knows this. That was why it was so important for the Government to take that action.

What the Government must do is to make plain, continually and by actions, that they will maintain the strength of sterling, because that is all-important in the interest of this country, and they will get every support from the Opposition in doing so. [Interruption.] Can the right hon. Gentleman not take part in any sort of debate about this, in which the whole of the rest of the world is taking part? He ought to consider these matters seriously and debate them properly.

Mr. Callaghan

When the £ has been under attack in the past, Opposition spokesmen from the party on this side or the Committee have said quite clearly that they thought that there was no case for devaluation of the £ and that its parity value should be restored. Do I take it that the meaning of what the right hon. Gentleman has said this afternoon is that he believes that there is no case for devaluation and that the parity of the £ should be maintained?

Mr. Heath

I will tell the hon. Gentleman exactly what I believe and what I have said on every occasion in public and in private. I have said that I believe that the present Government are determined to do everything they can to maintain the parity of the £. I have said that I believe that they are determined to do so, first of all—and this is an effective argument—because it is politically, in their own interests, essential to do so. This is obsolutely true in my view.

Secondly, I believe that the Government are determined to maintain the parity of the £ because any sort of devaluation is no answer whatever to our present problems. The prices of our goods in international markets are, on the whole, not out of gear with other prices and there is, therefore, no justifica- tion for any sort of change in the parity of the £.

Therefore, for these two reasons, I have always said that I believe that the Government now in power, for their own reasons, and for national reasons, will do everything they can to maintain the parity of the £, and they are right to do so.

Mr. J. J. Mendelson (Penistone)

Why bring it up now?

Mr. Heath

Because these things should be said. The whole of the rest of the world discusses a subject which the House of Commons never even mentions. That is completely unjustifiable. If we now have the position straight, it is a very good thing.

I come now to the last part of my speech. Although the Chancellor has been dominated by these questions, these are not the whole of the picture and the important considerations are also the long-term ones about the future of the economy. What I have regretted is that in this Budget the Chancellor has not—we may hear something from the First Secretary; I do not know—done anything which will increase efficiency and improve enterprise or secure exports. I believe that the First Secretary is relying almost entirely on the incomes policy. We shall be interested to hear anything he has to say about the incomes policy. What we are having is a tribute to the necessity of private enterprise while, at the same time, not giving the mainspring of private enterprise any initiative to give it a fresh dynamic.

The outstanding characteristics of the economy are that we ought to make much better use of all the skill and energies of our manpower and of our woman-power. Too much of it today is hampered in its work by out-of-date practices, from the training of apprentices onwards. In the economy, we must aim at a high efficiency economy which pays high wages but, because of its high efficiency, achieves low costs. That must be the object of our economic policy. Again, however, there is nothing in the Budget to deal with it.

We must, first, get the highest quality of management. This means more professionalism and less amateurism, at all levels of management. We want people who will look each day for new ways of cutting down unit costs of production, who are better trained and who indulge in a much freer exchange of ideas and techniques. The N.E.D.C., which my right hon. Friend created, helps in this, but it is not enough. We want a climate in which people feel impelled to increase efficiency and production. We want more incentives, more competition and more co-operation in using equipment and exchanging ideas. We need more fundamental emphasis on the place of marketing in society and not only on the place of production in society.

Secondly, we need an outlook in the unions and those concerned with them so that they can organise themselves into a suitable medium to get a high-wage and low-cost economy. The two must go together. That is what we want to see. It can be achieved by people in a plant sitting down together and producing the answer. We have just had the example of Mobil making its own arrangement—a very successful one. This needs to be encouraged, because it can lead to the sort of economy which we want to see.

Have we really got to wait two or three years for the Royal Commission on the trade unions before we can make progress? Even if the right hon. Gentleman waits for that, the country does not have the time to wait three years before it is done. [Interruption.] Indeed not. We on this side made considerable progress in many of these things. We want better retraining and wage-related benefits, which the Government do not have in their programme. We need changes in the structure of industry. The President of the Board of Trade is haunted by the idea of mergers. At the same time, our competitors in France and the Common Market are giving taxation incentives to bring about mergers to get a better structure of industry.

The need for the reform of company law which we have proposed, is urgent. This is necessary for the efficiency of the economy. We need greater competition. We need more development in regional affairs, not only in advisory councils. The Chancellor's help to them from the Public Works Loan Board goes part of the way, but there are heavy interest charges for an area like the North-East to meet. I know the problem of what it means to them in trying to build their share of the infrastructure in having interest charges of 7 per cent.

The Chancellor said last night on television that all the regions are booming. I am delighted to hear it. It is not due to the last five months. It is due to the investment which was put in and which is pouring in because of our incentives in the North-East and in Central Scotland. There is more to be done.

One thing which I suggest to the First Secretary is that legislation needs to be changed quickly to be able to establish growth zones and points outside the actual development districts. This we could not do. The legislation needs changing. The right hon. Gentleman, however, rejected the whole idea of growth zones and points when we debated it. Does his right hon. Friend still reject it? What we really need is to deal with growth zones and points throughout the country in the regions. This could be some solution to the problems of depopulation in certain areas. We need, too, measures which will get a clearance of the derelict sites and improve amenities on a far wider scale than we have at the moment with the existing legislation.

We need all these things, but I hope that the right hon. Gentleman will also consider tariff policy. We have been inhibited because of the Kennedy Round. We should be inhibited no longer. Where we can use it to deal with particular industries we need to get ready to use it. We should have incentives to companies and individuals through the tariff system.

When I talk about the Kennedy Round I wish to say a word about the international situation. The right hon. Gentleman touched on it only at the end of his speech. He said that he had every confidence that measures would be taken to deal with the future of international liquidity. I wish that I could have the same confidence as he has. I wish I could. The plain fact is that the postwar arrangements in international liquidity are rapidly breaking down. There is a process going on of redressing the balance between Europe and North America in the industrial sphere. This means that there will have to be a solution of tariffs through the Kennedy Round and a much more realistic attitude towards striking a bargain upon it. Two years have gone by on the Kennedy Round and it has not even got off the ground. We need a new, realistic approach to it.

Secondly, this process is also redressing the balance in agriculture between the two sides of the Atlantic. The countries of Europe want to take full advantage of fertilisers and machinery and to be able to supply a greater part of their needs. This also affects the solution of the Kennedy Round.

Thirdly, there is the financial problem. I know that this is a matter which the Prime Minister said that he had not understood. It seemed to have been behind a smokescreen. I hope that after his visit to Paris he understands it very much more clearly. This is a political as well as a financial matter, because it is the people of Europe, with European currencies, who are supporting the Anglo-Saxon currencies which are very overstrained in carrying out overseas commitments. Some of these currencies have been used for purposes which the supporting countries did not approve. This is the argument, and it is an argument which has got to be faced realistically. There have got to be arrangements whereby the United Kingdom itself is in a position to take the lead in these matters. We have got to get an arrangement in monetary matters which is realistic in the world of 1965.

We need to use our taxation resources to achieve the economy which we want to achieve. We want to reverse this attitude of ploughing everything back. We need collective savings. We need re-organisation of much of the City machinery to get savings, and to assist those who are closely engaged in the growth areas of the country.

We want to look, from the point of view of taxation, at incentives for those who are going to provide the mainspring in the economy, the skilled workers, the managers, the technicians. All of them need an incentive through taxation. Although the Daily Mirror has said that our total taxation is not among the highest in the world, our direct taxation is one of the highest, and our direct taxation is one of the steepest in progression. Taxation is one of the things which need looking at from the point of view of the mainspring of the economy.

We need more savings, and the Post Office Savings Bank proposal is helpful. My right hon. Friend the Member for Barnet himself announced something very like this when he was Chancellor of the Exchequer. We ourselves put forward the idea of contractual saving which, I think, is a good idea, which might be followed up. The Chancellor of the Exchequer has proposed 5 per cent. interest. Yes, but what is it to be if he cuts down Bank Rate? Will it be the same? Will there be the same sort of incentive to saving which he says he wants to get? We need to reorganise, as my right hon. Friend said, the whole complex of taxation.

On the question of exports, I believe that the President of the Board of Trade should look again at the question of the documentation of exports and also their financing. We made great progress in the long-term financing. There has recently been progress in the middle-term financing, although it has not got very far, and I believe that it could be still further improved. There is no reason why we should not learn from the French system, where the bank rediscounts at 3 per cent. The trader goes to the bank and the banks go to the Bank of France, which rediscounts at 3.9 per cent. It is a remarkably straightforward, simple system. I have not been able to check up whether this is against any of our commitments, but it is certainly being done by the French who are, of course, in the G.A.T.T.

We must also put economic priorities first from the point of view of exports—and as to colour television, whatever decision is made should not be made on the basis of our domestic convenience. All of us at present wish it to be made on the basis which will give us the widest export market and we need to adapt our requirements to that. I believe that it is essential that exports of electronics should be extended.

In conclusion, the Chancellor of the Exchequer has emphasised that the Budget is a redistribution of wealth and a withdrawal of resources. I believe that the emphasis ought to be on the need for the creation of greater wealth. Let us concentrate on removing obstacles to growth and to devoting our energies to achieve that sort of economy which we want. Let us encourage those who are to respond. Especially let us do so in the field of taxation. Our fellow citizens do not understand taking £250 million out of consumption—it is an enormous load of additional taxation—to make room for exports. This is a concept which eludes the ordinary individual.

The concept which ought to be given to him is one which gives him the inspiration through leadership to still greater output, more efficient output, so that he himself and his family can have better amenities and a better life. Right hon. and hon. Gentlemen have scorned that because it involves saving. They have poured scorn on it and sneered at it. What we ought to do is to give the ordinary citizen the objective of a better life for himself and his family. If we can do that we shall lead him and the country to greater wealth. That is a challenge which the Budget has done nothing to achieve.

4.58 p.m.

The First Secretary of State and Secretary of State for Economic Affairs (Mr. George Brown)

We have just listened for 72 minutes to a speech by the right hon. Gentleman the Member for Bexley (Mr. Heath) which we were told by the mid-day papers was going to be a hard-hitting speech, but we did not get it even after 72 minutes. The first 70 minutes was wholly destructive. [HON. MEMBERS: "Nonsense."] The last two minutes consisted of a recital of the things which the right hon. Gentleman might have done in the thirteen years he and his right hon. Friends were in office. They did not in fact do them. It was not only I who felt that way. The right hon. Gentleman should have seen the look on the face of his right hon. Friend the Member for Barnet (Mr. Maudling) and on the face of the right hon. and learned Gentleman the Member for St. Marylebone (Mr. Hogg), who actually took his face in his hands and dug it open in sheer fury at what was going on.

Mr. Quintin Hogg (St. Marylebone)

May I assure the right hon. Gentleman that though my head is bloody it is unbowed?

Mr. Brown

The fact is that he bloodied it.

I felt some real sympathy with the right hon. Gentleman in his attempt to play with "emotive" words—he said—in order to get votes. I can think of no better summing up than that.

The speech to which we have just listened offered nothing new, though it was the less destructive of the two speeches we have had from the Opposition Front Bench today and yesterday. My own judgment, for what it is worth—[HON. MEMBERS: "Yes."]—was that whereas during the speech by the right hon. Gentleman the Leader of the Opposition yesterday I felt that, for all his rough words, like "scurvy" and "funk", which he tried to import—strong words in some people's mouths give different impressions from those which are intended when they use them—but for all the strong words I could not help feeling that the Leader of the Opposition could not hide the fact that basically he is a decent fellow, whereas having listened to the right hon. Gentleman the Member for Bexley I could not help feeling that he could not hide the fact that basically he is not. [An HON. MEMBER: "Which are you?"] Let the hon. Member choose.

Many of the questions which have been raised I shall be dealing with as I go along. Others will be taken up by my hon. Friend the Minister of State and also by other Ministers who speak.

I want to look straight away at the taxation changes which formed a portion of the right hon. Gentleman's speech, and to look at them before I go into a discussion about the economic strategy against which they ought to be judged.

In framing his judgment, both on the total amount of the taxes to be raised, and on the nature of those taxes and where they should be put, contrary to what was suggested by the right hon. Gentleman, my right hon. Friend made full allowance for the needs of economic expansion, and of the long-term plan on which at last this country is now embarked. But this plan for expansion cannot succeed unless we can quickly restore our international solvency, which the party opposite lost. To do this we have to relate the growth of demand at home to the need to devote more of our increasing output to sales abroad and to replacing imports. Raising taxes to this end need not mean stopping the growth of production. On the contrary, we cannot possibly get sustained growth unless we pay our way in the world, nor can we do that without maintaining a steady expansion here at home.

The tax changes proposed by my right hon. Friend are not only, in our view, of the right magnitude to get our international accounts back into balance; they are designed to foster the expansion that we need and a competitive economy. The right hon. Gentleman occupied himself for a long time with the magnitude of these taxes. I was not clear at the end whether he thought the magnitude was riot enough or too much, and I think that before we get this debate over somebody on the Opposition Front Bench ought to say which of those two criticisms he is really running.

The taxes that we have imposed do not hit industrial costs. The effects of the vehicle duty, which is the only one on which the right hon. Gentleman could put his finger, will be very small indeed, and, of course, it will be rebated as far as exports are concerned. Secondly, great care has been taken not to penalise the industrial investment on which our future growth and our competitive position depend.

I believe that everyone will welcome in addition the proposal that redundancy payments under the Bill introduced by my right hon. Friend the Minister of Labour will be freed from tax. Some people will have to change their jobs if we are to get a dynamic economy. Last night, when I heard hon. Gentlemen opposite bellowing out because they thought they saw a chance of gaining a bit of cheap political popularity in espousing the fact that people should not be asked to change their jobs, I wondered just how low one could get, even in this political game of ours. Some people will have to change their jobs—I have no hesitation in saying so, nor have I ever—if we are to get a dynamic economy, and they must be adequately protected in the process.

It is also essential to give assistance, as my right hon. Friend is doing, to local authorities in the less prosperous regions who will from here on be able to get 50 per cent. of their long-term borrowing needs from the Public Works Loan Board. The improvement—and the right hon. Gentleman might have mentioned this, because he as much as anybody on the benches opposite knows about this—of the social infra-structure in those areas is a vital part of any sensible regional policy, which in turn is a vital part of any development plan for the nation.

Contrary to what the right hon. Gentleman said, and with the greatest of confidence as a result of what I saw last night, and what I read in the papers this morning, I say that the shape of the Budget will be accepted by the country because of its sense of priorities and its evident sense of fairness. Without this we can never have a successful policy for productivity, prices, and incomes, and without that we cannot succeed. The right hon. Gentleman has never hidden his view that I pay too much attention to this. He would not have thought that if he had been able to succeed in this matter himself. So long as the electorate are persuaded of a sense of the right priorities, and a sense of fairness, none of us need fear going back to meet them, and I have no fear of meeting my constituents, nor of meeting the right hon. Gentlemen's either.

It is true that we are asking motorists and smokers for a bit more, but we are taking steps to do the thing which the right hon. Gentleman hated so much. He was right. He put his finger smack on it. We are taking steps to get a reasonable contribution from those who have hitherto avoided tax through capital gains, deeds of covenant, business entertainment, and generous allowances for motor cars. As the right hon. Gentleman said, this amounts to a redistribution. There is nothing basically wrong in a redistribution in a society in which, up to now, things have been unfairly and improperly distributed. If the right hon. Gentleman believes that that is an issue on which to fight an election, he can go ahead with it. All this amounts to a major social change, and the right hon. Gentleman hated the sound of it. For my part, I am confident that it will be widely accepted outside.

As my right hon. Friend said, this is not an attack on profits. On the contrary, we believe in profits as one of the motivating forces in our mixed economy. Unlike the experience of the last 13 years, and unlike the situation which right hon. Gentlemen opposite want to retain, our reforms will mean that from here on profits must be earned by enterprise and efficiency in production, service and salesmanship. The days when easy gains could be made at the expense of the ordinary taxpayer by speculation and tax dodges are coming to an end. In all these ways the Budget introduced by my right hon. Friend is closely geared to the growth plan which we are preparing, and is an essential part of it.

Let me now turn to the TSR2, and in doing so may I express my personal regret at the deplorable exhibition which right hon. and hon. Gentlemen gave yesterday when my right hon. Friend was trying to give them the information which they said they wanted. In making our decision about the TSR2, we had to bear in mind two main issues. First, the cost to our resources, and therefore to the economy, of producing an aircraft with these capabilities. I am referring to the cost not only over the last eight years, but also the cost from here on. Secondly, we had to bear in mind the requirements of our political and military strategy. Without going into the latter in detail, which clearly would be ruled out of order, may I in passing say that it is not necessarily true that those two issues are in conflict.

Our conclusion at the end of a most detailed and comprehensive examination of all the aspects, using all the material which right hon. Gentlemen opposite left behind them, as well as what we could find out since, was that to complete the development of this aeroplane and go into production would, at £750 million and 20,000 or more people, have been prohibitively expensive for what we should get and what, on the revised estimates, we should need at the end of the operation. Even now, after all this time, and after the expenditure of £120 million, the manufacturers still cannot give a firm price for the aeroplane at the end of the day.

No Government—and no Opposition wanting to be a Government—could just toss all that aside because they feared to tell some of their constituents that they might have to change their jobs. We have therefore been reconsidering the military requirement and alternative ways of meeting it. If anybody opposite believes that the military requirement has not changed since this aircraft was born as a thing called the OR3578 years ago he should have another look at the world and what has been going on in the meantime.

The military requirement is bound up with the defence review of our worldwide commitments, which, as my right hon. Friend said yesterday, is still going on. The best choice from the point of view of our resources and our economy would be to meet our essential defence needs, as they emerge from the current review, with a less expensive aircraft developed at home. We shall examine every possible means of doing that, but at this stage we cannot be sure that it will be possible to meet our needs in that way.

As my right hon. Friend tried to explain yesterday, when right hon. Gentlemen on the Opposition Front Bench were so determined not to listen, we have therefore secured, by agreement with the United States Government, a fully satisfactory option, without a commitment to buy, on the F111A, which, if we need to take it up, would meet our needs and would do so at a very great saving in total resources. That provides us not with what the party opposite is so determined to believe; it provides us with an insurance while we are conducting an examination of other means of doing it and deciding what the final requirement is. Nobody would expect that the party opposite would be so mad as to refuse to take an insurance premium out in those circumstances.

These are the economic reasons for our decision. The blunt fact—which the party opposite would not face when they were the Government and will not face now—is that we cannot allow the defence programme to overstrain the economy without endangering our competitive position in world trade. The very heavy costs of the TSR2 and the other aircraft that we have cancelled mean resources—including highly skilled people—spending more and more of their valuable time on development problems of these very sophisticated machines. Beyond a certain point we simply cannot afford this. To some extent we must reallocate this effort and skill so as to secure wider benefits to our industries. If that means taking a long and cool look at the defence programme, and alternative ways of meeting it, we must do it.

Sir Alec Douglas-Home (Kinross and West Perthshire)

Can the right hon. Gentleman say something about the cost if the option is exercised, and how it is calculated? How does he know the cost of the American aircraft?

Mr. Brown

We have taken an insurance. I think that we know the cost of the American aircraft. We were able to get much harder figures on that than we were on the other. The Opposition have given notice of a censure debate. We welcome it. The whole case will be deployed in it. What we tried to do yesterday, if the right hon. Gentleman had behaved himself and had held his followers in check, was to give him some advance information on which to deploy his case. I shall not deploy the entire case now. We will have to look at it the censure debate.

The cancellation of the TSR2 will have immediate economic advantages.

Mr. Eric Lubbock (Orpington)

Can the right hon. Gentleman say whether, in these calculations, account has been taken of any increases in costs that will fall on the Concord programme, since the Concord was to use the civil version of the engine used in the TSR2?

Mr. Brown

Yes—and this cuts both ways, because some components from other aircraft were going into this one. This we will go into in the censure debate. These calculations over the last six months were carefully balanced before we made our serious decision.

As a result of this decision skilled manpower will be released from other industries which are essential to the growth of our economy and which are short of this skilled manpower. These men are scarce, and are highly concentrated in the aircraft industry—much more so than in electrical engineering and electronics. We are satisfied that these economic advantages can be gained without unacceptable social consequences. In most parts of the country there is a high level of demand for most kinds of labour, and especially for skilled labour. Most workers who have to leave their existing jobs should be able to find other work without difficulty, and the Ministry of Labour is making special arrangements to help them, including, where necessary, establishing special teams of employment officers at the factories.

Arrangements on these lines have already been made to deal with the redundancies which have occurred as a result of earlier cancellations of military aircraft, and good and satisfactory progress has been made. The squeal which went up from hon. Members opposite on that issue has proved to be a pretty wet business.

We have already started discussions with the companies concerned and with the unions about the problems of redeployment arising out of this cancellation. My right hon. Friends and I met the companies and the unions yesterday. The companies have agreed to discuss with the Government the timing of the redundancies and the factories which will be affected. We shall see that the social as well as economic consequences of change are fully taken into account. We are determined to do everything in our power to ensure that the process of redeployment goes as smoothly as possible, and we will accept our share of responsibility for ensuring that redundant workers are generously treated in the matter of severance pay in this case, even though the Bill is not yet through. I say this because people are worried and those who are meeting tomorrow will need to know it.

Experience with the redundancies which have so far taken place has shown that the facilities for training and retraining have been sufficient to meet the needs. It is expected that in the great majority of cases alternative employment will be found without the need for elaborate retraining. Where more is needed, the facilities of the Government training centres will be available, and we are already considering what other special facilities for retraining need to be created.

I am asking the regional planning bodies to give immediate and particular attention to the economic consequences within their regions caused by redeployment. They will do this as soon as we know the extent and nature of the problem and on what basis the redeployment is required. Their experience of industry in the regions will be invaluable as a means of ensuring that redeployment is carried out with the least possible hardship to individuals and the greatest benefit for economic growth within the regions. Perhaps, for once, the party opposite will be pleased and happy to know that these bodies now exist to do the job.

For reasons which I have just given I shall not now go into the other side's record and responsibility for what one newspaper this morning calls this ghastly and costly policy. They have given notice of a censure debate, and that will be the time to go into the record. When they censure us they should beware. The record is against them on this, and the story, through successive Ministers of Defence opposite, is a pretty horrible one. If they want it deployed, we are ready.

Mr. Eldon Griffiths: (Bury St. Edmunds)

Can the right hon. Gentleman assure the Committee that before deciding to take the American aircraft in preference to the TSR2 he will consider not only the possibility of a British aircraft being manufactured but also, perhaps, an Anglo-French aircraft, or something carried out in collaboration with our allies in Europe?

Mr. Brown

All factors will be taken into account.

I now turn to the economic background. I will not waste time on the old arguments, but as right hon. Gentlemen opposite both yesterday and today have continued to claim that they left the economy in a fundamentally good shape, and that it only went wrong with us, let me say emphatically that this is absolute rubbish—and they know it. They had evidence long before their defeat to show that the prospect was of a balance of payments deficit in 1964 of at least £600 million. As a result, following the decision not to have a Spring Election, they abdicated all Government responsibility, and the thing grew steadily and rapidly worse. That is why the Chancellor at that time wanted a Spring Election.

When we came into office we were presented with overseas accounts critically in the red, nearly £800 million, and with the cash running out of the till. We took the action which they shirked. As the right hon. Member for Barnet said in his first and, unhappily, only genuine reaction after we imposed the surcharge, so heavily attacked today by his right hon. Friend the Member for Bexley—"They have chosen my remedy." How right the right hon. Gentleman was.

Mr. Reginald Maudling (Barnet)

rose—

Mr. Brown

One moment, I have something else I want to say, and perhaps the right hon. Gentleman may reply to everything at one go.

I want to go on to say that last night, as I am told by the newspapers this morning, the right hon. Gentleman said, "I told you so", referring to the impositions of taxation which my right hon. Friend the Chancellor of the Exchequer has had to make and the other measures that we have taken. When the right hon. Gentleman said, "They have inherited my remedies", he knew that it was not only the remedy to deal with imports which we found on the table. We found lots of other proposals on the table. The right hon. Gentleman knew what he wanted to do before the election and what he would have had to do after the election.

Mr. Maudling

The right hon. Gentleman is talking absolute nonsense—not for the first time. Surely even he cannot begin to claim that the improvement in the balance of payments in the last few months had anything whatever to do with his Government?

Mr. Brown

That is a jolly good way out. I had not even got to that yet. I am coming to that one in a minute. The fact that the right hon. Gentleman dashed on so fast must be the best evidence that what I was saying was not so far from the truth. He knows this, only he has been able to slide off the hook, whereas his right hon. Friend the Member for Bexley cannot. They know what was there, and there are a lot of people around who know. They know what is happening to their reputation at the moment by the position they are currently taking up.

There is another thing I want to say, perhaps even more importantly. The year 1964 cannot be written off as a uniquely bad year. It was a very bad year, due to the action of Ministers who just gave up. The situation was far from new. This was only the last and the most dangerous of a similar series of crises that they had presided over for many years before. Troughs in our balance of payments were getting steadily deeper and longer and the peaks were getting steadily flatter. Making every allowance for unrecorded receipts and other special factors, Britain's overseas accounts were in the red by an average of nearly £200 million every year for the last four years, before the party opposite were defeated and thrown out. They sat there and watched this happening, and it got steadily worse and worse. Of course, in the end it reached nearly £800 million before the country had a chance to get rid of them.

We are all extremely heartened by the increases in production and exports over the last six months—

Mr. William Shepherd (Cheadle)

rose—

Mr. Brown

Let me finish—and these figures suggest that British industry has greater potential for sound growth than the professional pessimists suppose—I grant the right hon. Gentleman that. But nothing in the figures can possibly suggest that the underlying overseas deficit would have disappeared without action which the right hon. Gentleman wanted to take and which we have since taken, or by sole reliance on budgetary and monetary policy. Since it is part of their case that all that has gone wrong has happened only after November, they can hardly Claim that all that has gone right since November, is due to something which happened before.

Mr. Shepherd

Will the right hon. Gentleman tell the Committee what he is saying? Is he saying that for the previous four years we had a deficit on current account of £200 million a year? Or is he saying that we have had a credit account on current account and we have invested widely overseas?

Mr. Brown

I do not want to take too long. [Laughter.] Hon. Members should not giggle like that. If they ask me every time to repeat what I say it will take a long time, but I am quite happy to stay here. There is a good case to deploy and I am rather glad of the chance to deploy it.

What I said was that the balance of payments—our "overseas account" was the phrase I used—had been "in the red" to the tune of the figure I gave. It involves not only trading, but other things as well, and that is why my right hon. Friend made other proposals which I shall come to in a minute.

The basis of the Government's economic strategy is a firm belief that the economic policy must not start and finish with the manipulation of short-term demand through the Budget. The Budget is part of an attack on the country's economic problems on many fronts. It had inevitably to deal with the distortion of the economy resulting from the previous Government's mismanagement. But it signals the end of the weary recourse to stop-go measures—[HON. MEMBERS: "Oh."]—which were the inevitable routine of successive Conservative Chancellors when their pre-election sprees were over. This time—[Interruption.] If the right hon. Gentleman will listen it will help him. It may even help Kleinwort Benson—this time—[HON. MEMBERS: "Cheap."] This time the Budget—[HON. MEMBERS: "Cheap."]—so far as I can gather cheap sneers at us are all right, but if we hit back that is wrong. I am like the elephant. I am a dangerous animal. I hit back when attacked.

This time the Budget is accompanied by, and is part of, a series of steps to deal with the deeper-seated causes of disequilibrium, in which—unlike in this Committee—we have the full co-operation of both sides of industry outside. Prices and incomes policy; the work of the "little Neddies" an active labour market policy; policies for promoting new technologies and the thorough review we are making of Government spending in order to get priorities right—these are all examples of the way in which an enduring improvement in our economic efficiency is being brought about. If the right hon. Member for Flint, West (Mr. Birch) does not know what an active labour market policy is, it is time he found out. Among other things, it means seeing that the labour is in the right place at the right time and that the work is in the right place.

We are, therefore, in a position to ensure that the resources set free by the reduction of domestic purchasing power will be switched this time to the export drive and to import saving, and that they will not run to waste in excessive unemployment and unused capacity. The challenge, so long avoided by hon. Members opposite, to effect the necessary change in the structure of our economic society, while maintaining the essential momentum, is now accepted. We believe that it can be met. Provided only that both sides of industry co-operate (a) with each other, and (b) with the Government, and at national, regional and shop-floor levels.

I should like to look for a moment at the essentials of a long-term plan. We have embarked on a wide range of studies of the policies essential for improving industrial efficiency, and thus trying to ensure that expansion no longer means that, as an almost automatic corollary, a balance of payments deficit follows. Our purpose is to prepare an overall economic strategy for the period ahead, so that policies are mutually supporting and are not taken, as they have been in the past, on a piecemeal and often contradictory basis, and to identify the areas for immediate decisions. The Government's decision and the resulting objectives of policy will be brought together in a plan to be published later in the year, after the fullest consultations with N.E.D.C., which contains all sides of industry, commerce and other aspects of our economic life.

As part of the planning process, information has been requested from nearly 50 different sections of private and public industry, through the N.E.D. office, through the "little Neddies" and through Government Departments, asking them for their plans up to 1970. This information simply does not exist. This is why the Leader of the Opposition said yesterday that he preferred to rely on his matches. They were all he had to rely on. The information was not there. As the information comes in from this, the most detailed inquiry ever undertaken, it will show us industry's expectations of output, its investment programmes, its export potential, its manpower use and its manpower possibilities. We shall get it broken down wherever we can on a regional basis. The results of this inquiry will be used to spotlight the difficulties, and help us to resolve them by mutual discussion and action.

The inquiry will show us what the right hon. Gentleman's Government did not know, how far the export estimates of our industries are adequate for the balance of payments problems facing us. It will show us whether manpower demands match up with the likely supply, and stop us over-committing ourselves. It will show us whether the plans of different industries are in balance with each other and try to prevent the kind of ridiculous bidding up which went on under the last Government. The inquiry will provide important information on the likely pressure of demand on the engineering and construction industries, and how this can be met. This is a subject which they appear never to have faced up to at all.

It will show the extent to which the prospective expansion will be adequate to our needs for more investment and exports. The plan is not a once-for-all exercise. It will be reviewed from time to time and adjustments made against the changes both in supply and demand. The success of the plan, in my view, will be measured in the terms of the changes which it brings about in the investment, the modernisation, the productivity, and the competitive power of our economy, rather than, as in the past, by detailed projections for particular industries.

Sir Cyril Osborne (Louth)

I think that this inquiry could do nothing but good for industry, but the First Secretary has not said whether, in his inquiries, he will see what the sales markets are like. It is no good producing efficiency without sales.

Mr. Brown

If one conducts an investigation into export potential, one does take into account the markets and how they will increase at home and abroad. If the hon. Member would like to see details of the kind of inquiry which we have in mind, I will show them to him.

Behind any plan for economic expansion there lies one simple thought, that if we are to get and maintain a faster rate of growth in the circumstances of this country, we must be more successful, both in selling goods abroad and competing in markets at home. Our manufacturers, therefore, must be competitive in prices, delivery dates and designs. First, we need stable prices for that. We also need them so that increased incomes at home really buy more and are not frittered away by inflation. I accept that the Government has a real obligation to establish the basis for action. These general truths are not new. They were put forward for several years by right hon. Gentlemen opposite. The only trouble was that they failed to achieve them. We can judge, from their reaction to what we are trying to do, how much of a guilt complex their failure has left them.

What is new and dramatic is that in the short space of six months we have reached agreement with both sides of industry on the intent, on the machinery, and on the criteria to be applied. There is now a prices and incomes policy in existence. It is a practical policy, it is an agreed policy and it is a fair policy. It marks the end of the old negative concept of wage restraint. Are right hon. Gentlemen opposite still sneering? It is a policy for increasing real incomes instead of paper increases cancelled out by rising prices. [HON. MEMBERS: "Oh."] Hon. Members will find that I will follow it through and deal with the difficulties in a minute. If hon. Members on the other side were not so keen to sneer because there are still difficulties ahead, they could have shared in the achievement.

It is also a policy for accelerating increases in productivity, so that we can afford a faster growth of real incomes. On 16th December I informed the House that we had reached agreement on that day with both sides of industry on a Joint Statement of Intent on Productivity, Prices and Incomes, which hon. Members opposite much derided. On 11th February I announced agreement on the machinery to make effective the general policy decided upon. This was still derided, but a little less so.

Tomorrow, I shall be able to present to the House a White Paper establishing the third stage, criteria, figures, the norm and all. This will be an agreed memorandum setting out the considerations which should be taken into account not only by the National Board for Prices and Incomes, but by everyone who has to take decisions on these questions.

Mr. Terence L. Higgins (Worthing)

Will the right hon. Gentleman give the House an assurance that the White Paper to be published tomorrow will include provision for publishing figures for wages drift, broken down by industries and by regions? Without these figures, it is impossible for us to tell whether his incomes policy is being successful or not.

Mr. Brown

I was about to deal with that in the next question. Hon. Gentlemen are always in such a hurry to point out the problems ahead. The problem of wage drift is ahead, but if we can get stability into the basic bargaining, we are on the way to being able to tackle wage drift for the first time.

The next question, which is probably what the hon. Member is so keen to ask me about, is, will the policy work? That is the next question for me, but it cannot be the next question for hon. Members opposite, because they could not even get that far.

Mr. Heath

Is the right hon. Gentleman aware that the trade unions, supported by his right hon. Friends, refused to co-operate with my right hon. Friend the Member for Barnet (Mr. Maudling) a year ago?

Mr. Brown

This is the kind of remark which I was hoping that the right hon. Gentleman would make and it is in total accord with his general behaviour.

Mr. Heath

Answer the question.

Mr. Brown

In my own way. This is why the industrialists outside the House of Commons are so embarrassed by the right hon. Gentleman.

What the right hon. Member for Barnet tried to do was the same as his predecessors, to institute a negative restraint on wages. The right hon. Gentleman should look at all the figures and at the terms of reference of the N.I.C. When I come in tomorrow to present the White Paper, let him have the terms of reference of the N.I.C. and we shall compare them. What we had from the previous Government was a post hoc inquest on wage advances. This is a positive policy for productivity, prices and incomes, which is a totally different thing. That is why this will succeed where theirs failed.

Mr. Maudling

Will the right hon. Gentleman be kind enough to study all the documents and statements made about the National Incomes Commission? Will he further be kind enough to study the record of N.E.D.C., to which I imagine he has access? He will find that what my right hon. Friend said is 100 per cent. true.

Mr. Brown

If the right hon. Gentleman wishes to discuss this matter tomorrow, when I am laying the White Paper, I will bring anything he wants me to bring. I shall be here at his disposal. There is a whole world of difference between us. If he does not yet understand it, it shows that he could never have got a prices, profits and incomes policy if he had been there as long as Methuselah, because he did not understand what it was all about.

Will the policy work? Those of us who have struggled together to get this policy on its way are not so starry-eyed as to think that we shall have complete success straight away, or anything like it. Let me pay tribute to the leaders not only of the T.U.C. but of the Federation of British Industries and the British Employers' Confederation, in particular, for the tremendous work and patience which they have shown over the last few months when, at any moment, this could have broken down and failed on the kind of points now being raised.

We shall try to make it work. That is all we can say in a democracy. We have arrived there far sooner than anybody else in the world, even sooner than Sweden. If we could make it work in one-third of the time it took Sweden, it would still be a very good thing. I hope to make it work a good deal sooner than that. But any success at all must improve progressively our international competitive position. Its effects may show themselves only very gradually, but, once started, I believe that they will gather a strong momentum. The question is not, "Will it work?" The question is, "What can I or we do to make it work?"

That is the question which must be asked by everybody in industry on the management side and, with great respect, by politicians, too. The possible return is immense. If British costs could be reduced in relation to those of our competitors by even as little as 1 per cent. per annum, the effect on our balance of trade in a few years' time would be worth several hundred million pounds.

The next question is, "How will it work?" The new National Board for Prices and Incomes may well prove to be the critical factor. As it makes decisions, it should build up a body of case law which will determine the practical application of the policy in individual cases. It will be for the Government to determine which cases go to the new Board. This is essential. In any case, quite clearly the Board cannot try to look at every case which may arise. It will have to concentrate on the more important cases. I accept that a great responsibility therefore lies on the Government, especially in the early days of the new machinery.

There are some prices which play an outstanding part in manufacturing or export costs. Others have an important influence on the cost of living. There are very strong arguments for the Board starting work with key prices of this kind. Successful work on prices will provide a firm basis for proceeding to deal with incomes. This is the difference between the two concepts. It is my firm view, as it was not the right hon. Gentleman's view, that the only point at which the endless circle of inflation can be broken is at the point of prices.

May I turn to a related problem—productivity and restrictive practices. It is now clearly recognised that productivity is the key to economic growth, and it was for this reason that we included in the Statement of Intent on Productivity, Prices and Incomes a passage in which all the parties undertook to encourage and lead a sustained attack on the obstacles to efficiency, whether on the part of management or of workers … In the subsequent discussion on prices and incomes, this sentence, in my view, has not attracted as much attention as it deserves. It underlines that both sides of industry have declared themselves ready to attack those practices which are now holding us back, however justified they may have been in the circumstances of the past.

There is a new spirit abroad, and it is a co-operative spirit. There is more recognition everywhere that the rewards must be fairly shared. But we must now apply the pressure to make the changes, and we must take the whole issue not merely globally to industries and nationally to unions and overall to N.E.D.C.; we must take the issue to individual trade union executives, right the way down to trade union branch levels, and we must take it to individual industries, down to factory level.

I am happy to tell the Committee that I have been invited to meet the full meeting of trade union executives which will be considering this on 30th April, in London, and that my colleagues and I are embarking, by invitation, on a series of meetings with trade union governing bodies, shop stewards and industrial establishments throughout the country. Anybody who read the excellent report by Mr. Goodman, in the Sun last week, must see how crystal clear it is that this is the urgent stage on which we must now embark, and this is what the Government are doing.

Even though I am continuing at some length, perhaps it would be for the convenience of the Committee if I turned to regional policy, which must also be part of the economic plan and of the attack on the problems, in which the Budget plays its part. All that we have been talking about will provide the climate for the greater industrial activity which we need. This, in turn, will stimulate new investment and new productive capacity, which will be made easier by the measures which my right hon. Friend announced yesterday improving the attractiveness of investment at home by taking a more rational look at the consequences of investment abroad.

The question then arises, "Where can this new development take place?" Left to itself on the old basis, we should merely add to the imbalance between the regions of the country, and the existing overheating in the South-East and the Midlands would help to strangle the new industrial development, while resources elsewhere would continue to be wasted. But it is not merely a question of attracting work elsewhere, nor can it any longer be just a question of ambulance work for some particularly hard-hit spots.

Our whole attitude to the regional development of our country must change. The neglected parts of the country must have large parts of their fabric—physical cultural and social—renewed if they are to provide attraction to all kinds of people on the basis of which alone can we prevent the pull away from them. We shall not build up those areas simply on the basis of providing jobs for manual workers. Many other things must happen there, too.

The present situation gives us acute labour shortages in some parts of the country, especially the great conurbations of London and the Midlands, and all the consequences of that which hon. Members know—overcrowding, under-housing and physical congestion. Such conditions are neither economically efficient nor socially tolerable, and the cost of trying to ameliorate them is financially crushing both for central and for local government. The other extreme of under-employment, depopulation and social decay is equally intolerable and costly.

We are now acting both to prevent conditions from getting worse in the overheated parts of the country and to increase the positive attractions of the less-prosperous regions. This will take time. In addition to the measures of help which my right hon. Friend mentioned yesterday for these areas, we are discussing other measures and hope to be able to announce them in the near future.

The Committee will also remember—not often mentioned in our favour now —that we have already introduced the control of office building, a long overdue measure to be applied with special stringency in the London metropolitan region, and my right hon. Friend the President of the Board of Trade is now operating a much tougher policy in issuing industrial development certificates in the over-heated areas. We shall continue to keep the situation in these areas under close review in order to restrain the further expansion of employment in the wrong places. But such restrictions are not an end in themselves. They are only one of the means. The positive parts of our policies will help to ensure that more employment growth and more production take place in the less prosperous regions where there is both more capacity to grow and more need of it.

If our plans for securing a better regional balance are to be successful, the people affected up and down the country must play a part in drawing them up. If we try to do everything from Whitehall, and neglect the knowledge of the men on the spot, we shall fail. That is why I attach so much importance to the regional economic planning machinery we have established, the greater part of which is now in being. I have myself been to some meetings of the councils, and my colleagues have been to meetings of others. We are all impressed by the expertise and enthusiasm there. I believe that they will have a vital rôle to play, not only in general planning matters but in the special matters which we have already referred to them, such as the question of transport decisions and questions arising out of the aircraft decision I have just announced.

I should like to speak briefly about technological advance. As this regional balance is improved, and industrial investment grows, we must turn our attention more and more to the rate of technological advance. It is a regrettable position—almost a recipe for disaster—that so many enterprises in Britain have been by-passed by the second industrial revolution which is going so fast in the world, and do not realise how rapidly we must advance our techniques merely to keep pace with our competitors. There is always a nice balance between telling ourselves unpalatable facts and giving our competitors "knocking copy". So do not let us overdo it.

We have, of course, been advancing There has been an increase in our total expenditure on research and development. We have gone up very largely in exports, by value, of chemicals and machinery—both of them industries based on science and technology. We have made notable advances, and other examples could be given.

But the fact is, and we must face it, that we are not advancing fast enough. For example, where we had 660 computers at the end of 1963, there were about 1,000 installed in West Germany. Imports of electronic equipment have been increasing a great deal faster than exports. Far too much of industry's requirements of advanced types of machine tools and machinery is being imported. And these requirements will rapidly grow as our policies for modernisation of British industry take effect.

There are understandable reasons why the pace of technological advance in Britain has not been faster. Industry needs confidence in the future to invest in the latest equipment. The policy of "stop-go" sapped all confidence. It encouraged caution in investment, and it produce spasmodically conditions of under-use of labour which made many companies less conscious than they might have been of the necessity of technological advance.

There have been other problems. The expense and novelty of technically advanced equipment and machinery has made some firms cautious about investing in it. We must develop—and this the Minister of Technology is trying to do—new means by which firms can lease equipment of this kind for a trial period. Another problem has been the failure of many of our industries to examine good methods of investment appraisal. I should like to recommend if I may, not only industries but, particularly, the accountants who advise firms, the importance of reading the Report of the N.E.D.C. on "Investment Appraisal", and the kind of help it can give to companies who decide to use their investments to the best advantage.

I should like to turn for a moment to the question of national economic objectives. The policies I have been describing should enable us to attain our objective of an increase of 25 per cent. in national output over the whole period 1964–70. This means that output in 1970 would be £8,000 million higher, in today's money values, than that in 1964. It is this long-term objective rather than year-to-year fluctuations which, I believe, should guide industry's forward planning, and which has guided ours. Our objective involves achieving and maintaining a 4 per cent. annual average rate of growth of output long before the end of the period.

How fast we can grow between now and then depends on two factors: the increase in our labour forces and the growth of output per person. The increase in the labour force—and it is no use trying to argue this away—is likely to be smaller than it has been in the last few years. It will average, on present trends, only about one quarter of 1 per cent. a year in the period about which we are talking. This makes our plans for making fuller use of the available labour in the less prosperous regions all the more important.

But the main source of faster growth in the period that lies ahead must be a more rapid increase in output per man. Our present national objective involves an average annual increase in output per man of nearly 3½ per cent. in the period to 1970. That compares with the current underlying figure of a little less than 3 per cent., and one of little more than 2 per cent. in the recent past. It can be done, but it will not come about automatically. It requires sustained efforts and fresh thinking from all sections, and the deliberate and conscious dropping of prejudices and fears which are a hangover from a very different society in very different circumstances.

Over all this hangs the Damoclesian sword of our balance of payments. On this the Government have already acted, and is continuing to act. As the Committee knows, we have taken action about imports. Right hon. Gentlemen opposite disliked it, but any method was disagreeable. We have also acted to improve export incentives. We have provided rebates—the party opposite never mention this in debates—of indirect taxation to exporters worth £80 million a year. The Government are prepared to bear part of the cost of overseas market research, and we are contributing an increased amount to the financing of trade fairs.

Consultations have been in progress with industry to explore all practicable ways of increasing exports. We have all the problems imposed by the G.A.T.T. and the G.A.T.T. restrictions. Nevertheless, my right hon. Friend the President of the Board of Trade is in close consultation with industry and will, I believe, outline further measures when he takes part in our debate tomorrow.

But measures taken by the Government are not enough. They need to be supplemented by action on the part of those actively engaged in business, upon whom important responsibilities for decision rest. I want to tell the Committee, if I may, that after consultation with the Prime Minister, the Chancellor of the Exchequer and the President of the Board of Trade, I am writing to about 300 of the leading companies to ask them to make their full contribution to the campaign to strengthen the balance of payments. During the next day or so I shall be sending a letter to the chairmen of these companies setting out the principal ways in which it seems to us they could assist to improve the balance of payments by their own activities. My right hon. Friends and I look forward to their response with confidence.

For the most part, so far, I have talked about the private sector in our mixed economy, but the publicly-owned industries and services, too, will also need to undertake more investment. For under the previous Administration they, being the only plannable section, have been grievously starved both of opportunities and of investment, yet this is the basic sector, without which the others cannot succeed. We must provide in our allocation of resources for much of this overdue development now.

As I said in an interview the other day—the interview from which the right hon. Gentleman was good enough earlier to quote a selected passage—there will be a mixed economy as far ahead as we can see, and the boundaries of the public sector will undoubtedly move forward from time to time. But whatever the relative sizes—and, as the Daily Telegraph obviously now understands, different bases of calculation give different figures for the same situation—the essential point is that both sectors in a mixed economy must improve and expand. There must be no more nonsense—and under us there will be no more of this nonsense—of restricting what the publicly-owned enterprises can undertake just because they are publicly owned. That is why my right hon. Friend has already announced, amongst other things, the lifting of the restrictions on the railway workshops, and so on.

I have given the Committee an outline—I am sorry that it has taken so long, but I felt it better to give a constructive explanation of the whole economic strategy of which my right hon. Friend's Budget forms part—within which to view the Budget. I submit that it is the first time for a very long time that we have had a comprehensive and coherent economic strategy. Its constituent parts mutually reinforce each other. We are now deliberately setting up to build an economy which is based on steady expansion as the foundation for a society distinguished by social justice and an awareness that moral values and personal responsibility are indispensable to a decent way of life.

6.0 p.m.

Mr. J. Grimond (Orkney and Shetland)

I was glad to hear what the First Secretary of State said about regional development. However, I could have wished that more was done about this in the Budget itself. For instance, I should like there to have been more than a Government announcement that local authorities in certain areas would be allowed to borrow rather more cheaply. I should like to see some further tax incentives to industries to go to these areas.

The right hon. Gentleman said, further, that the people in these areas must be associated with their development. I agree. I do not blame the right hon. Gentleman so far for appointing bodies to achieve this association. However, I hope that it will not be too long before there is an elected element in this regional development.

The First Secretary of State touched on transport costs. These are vital. I know that the right hon. Gentleman is waiting for certain inquiries to end. In the meantime, transport costs are rising. They will rise again as a result of the Budget. It is most depressing to many areas to be told that there is to be regional development when every few months they see extra transport costs.

One further point about regional development is that there is a great problem now over scale. There are certain areas in which the height of unemployment is, on the face of it, serious and the height of depopulation much more serious; but the number of people who can be got together in any one spot for a development on the scale of modern industry is possibly not very great. I know of two cases which have occurred lately in the north of Scotland where, although we would have welcomed new firms which were willing to come up there, it would have been a considerable exercise to have accumulated the various skills and the sheer quantity of labour which they required, in spite of the fact that, taking the area as a whole, we have a high rate of unemployment.

I turn to the incomes policy. I have no desire to sabotage the incomes policy in any way. Whatever one may think of its eventual chances of success, I cannot believe that anyone wants it to fail. If I make certain criticisms of it and ask certain questions about it, this is because I think that these are pertinent questions. The First Secretary of State spoke about an agreement which I understand he has to get rid of restrictive practices. I am delighted to hear that the right hon. Gentleman has this agreement. I hope that this applies to restrictive practices in the professions and in other sectors of life, as well as in the unions. Indeed, the House of Commons, the Government and all of us might look at the restrictive practices which we impose upon our own work. Until there is leadership from the top, it is no good people going round wringing their hands at the trade unions about this. They should put their own houses in order first.

The First Secretary of State then spoke about what he referred to as case law being built up. I hope that the new body for incomes will establish certain lines for the development of incomes on a fair basis. One of our troubles in the past, as every politician knows, is that constantly one body, whether it be a union, or the farmers, or a profession, or, indeed, politicians themselves, says that it must have an increase in reward because somebody else has had one already. It is these across-the-board increases which have bedevilled the economy in the last ten or fifteen years. I hope that when the First Secretary of State talks of case law he does not simply mean that if a precedent is established for giving an increase to one body it will necessarily be a precedent for giving it to another.

I believe that the great danger in this incomes policy is that there may be another factor slowing up change. The sort of incomes policy I should like to see is one on the Fawley model, as it is called, in which extra work and the abolition of restrictive practices are rewarded by higher pay. When the First Secretary of State makes his statement tomorrow, will he tell us how many claims there are in the pipeline and say whether he thinks this is a build-up to get in before the clamp down and how it compares with previous years?

As to the Budget, I take off my hat to the Chancellor of the Exchequer for two things, anyway—first, for a physical performance, a performance absolutely Gladstonian in length, if not in content.

Mr. Nigel Birch (Flint, West)

Gladstone took five hours.

Mr. Grimond

This Budget was a step in that direction.

The Chancellor of the Exchequer began his Budget statement with a few announcements about the important things he was setting out to achieve, instead of the dreary rattling off of an immense mass of figures which I know hon. Members are supposed to understand, but which three-quarters of them do not.

I recommend to the Chancellor of the Exchequer that in future years he might go further and consider the whole form of the Budget statement; whether we should have this very disturbing buildup towards the great day when the Chancellor of the Exchequer comes here with tonic water, or whatever it may be; whether, indeed, the working of our economy is not a continuing process; and whether we should not get away from this dramatic announcement of all sorts of changes in a particular Tuesday some time in the spring.

The second point on which I want to congratulate the Chancellor of the Exchequer is that he has succeeded in bringing in some drastic changes. Up to now we have always been told that it was impossible to change this country's tax system. To every suggestion there has been the reply, "This is very difficult. Certainly we could not do it this year". We have now broken the long jam. However bad the present system of taxation may be, I cannot think that the old system was all that better.

Since the Chancellor of the Exchequer spoke, we have had speeches from Conservative Members. We know that now that the Conservative Party is united over its leader, and has a clear policy, it is raring to have a General Election. Possibly the Conservative Party considers that it may become the Government. It is, therefore, important to know what the Tories intend to do. I understand, first, that they intend to reduce taxation. They constantly criticise the Budget for the increase in taxation. I know of no Conservative economist who is not, in fact, suggesting that far heavier taxation than the Chancellor of the Exchequer has imposed was necessary. It would be interesting to know who the Conservatives' economic adviser is. Who is the Kaldor now of the Conservative Party who tells the Tories that it is wicked to take £250 million in extra taxation?

When they are pressed about this they say, "If we had been in office, there would not have been any necessity for this." I do not know about that. They were in office for 13 years. They left a deficit of £745 million. Apparently this is quite all right and, if only they had continued in office, they need have done nothing about it. This is alarming. Apparently, just as the Conservative Government did nothing in 1964, so they would have done nothing in 1965.

The other line of argument is that the Labour Government have done all sorts of wicked things. Far be it from me to defend the Labour Party, but I think that we should be told what wicked things it has done. As The Times rightly asks, what are the Conservatives going to conserve? Are they going to conserve the increase in old-age pensions? Are they going to conserve the Corporation Tax? Are they going to conserve regional development? Or are all these things wrong? I do not ask the Tories to tell us what positive measures they would take, but they should tell us what parts of the Labour Government's programme they would change.

Further, I notice a tendency now on the Opposition Front Bench for right hon. Gentlemen to work themselves up into a great fury about the Labour Party and to say that the Budget will be opposed on every possible opportunity. I take it that the Tories will turn out better in the Division Lobbies than they have done so far. We must be told what action the Tories would take. They attach great importance to sterling. Do they not think that it was necessary to take some purchasing power out of the economy for the sake of sterling, if for no other reason?

This afternoon the right hon. Member for Bexley (Mr. Heath) said that the Tories attach great importance to professionalism. Shall we see resignations from boardrooms in the City by ex-Ministers who have gone there since the General Election, or do we understand that, while they are professional City men, they are amateur politicians? Where is professionalism to start?

I turn to the main proposals in the Budget. First, there is the Capital Gains Tax. I do not object to this. So long as capital gains are being made, I do not think that many other people object to it, either. I think that the country will have a justifiable objection to it when there are no capital gains. If the First Secretary of State is right in saying that there is to be this expansion, I should have thought that we can look forward to rising prosperity and, if this is so, I do not believe that people will mind paying a certain amount of Capital Gains Tax.

The Chancellor at any rate distinguished between the short-term and the long-term rate. I thought that the long-term rate was a bit high, but I make no great complaint about that. But the overall effect of this, with the Corporation Tax and other measures, may be to impose some brake on mobility of capital, which is just as important as the mobility of labour. I think that it will be agreed that the Corporation Tax, although justifiable, will, if it is at a level of 40 per cent, or over, encourage companies to plough back an immense part of their profits, whether they are used profitably or not. The Chancellor was well aware of this danger in some parts of his Budget, but not in others. One of the faults in the economy has been that companies have been able to plough back so much rather than having to go to the market to make a case for raising fresh capital and invest it possibly in new processes.

As for the extra taxes, we have our old friends tobacco and drink again. No one can be very enthusiastic about these taxes. I had a relation who gave up drinking whisky when it was 12s. 6d. a bottle. What he must be thinking, looking down on us when the price is 48s. 6d., I just do not know. But the saving point about all this is that as soon as the Revenue begins to feel the effect of the extra taxes on whisky and tobacco they will be brought down, because no Chancellor can afford to kill this goose which lays so many golden eggs.

I would have preferred that the Chancellor should have used the regulator. I accept the need for this taxation this year but, in my opinion, it would have been more appropriate to have used the regulator and possibly take it off again if there was some danger of unused resources. I accept the Chancellor's views that there had to be a diminution of home demand and a slight move towards exports.

I have no objection to steps being taken to deal with expense accounts. People who say that expense accounts are totally unimportant should take a look round central London, because either people are very much richer than we have thought they were, or there is a great deal of expense account expenditure in central London. The Budget proposals, as I understand, apply to cars and entertainments. Companies will not be in a different position in the matter of supplying other expenses to their own directors. This is how I understood the Chancellor's statement. There is another matter in this connection, which I hesitate to mention in an assembly which is full of lawyers, but I think that a Chancellor might some time look again at the position of people who retire from the Bar.

Am I to understand that the Post Office savings scheme is unlimited. Is there to be no limit to what people can put into it? At the moment, the building societies are in some difficulty about raising funds, but I was not sure from what the Chancellor said whether this scheme would have an unlimited possibility or would have a ceiling.

On the question of the TSR2, I understand that £200 million has been already spent on it and that, on Mr. McNamara's figures, the F111A will cost £357 million. A decision on this will very much depend on the likelihood of our needing the F111A. I agree with the Government that there may well be no possible point in going on with the TSR2 if there is no military requirement for it. It has a very small export potential, but if we are to spend immense sums of money on replacing it this would put the matter in a different context. One of the most important things about the TSR2 is the equipment which it carries. This is one of the most sophisticated parts of the aircraft. I hope that either now or in a later debate we shall be told what the effect of cancellation may be—not so much on the aircraft itself as on its equipment.

The question of international liquidity is one of the most important matters facing us. I do not think that any Budget can ignore entirely the need for increasing the whole credit basis of the world. The most important part of the Budget, though no doubt the part which has made the least impression on the public, is the Chancellor's measures to deal with overseas investments. I agree that there is a case for limiting overseas investment in the short term. The trouble is that nearly all changes in fiscal measures brought into operation in this country in the short term become permanent. I ask the Government what their real view may be about these measures. It could be argued that this country should give up trying to support great international oil companies, mining companies, and so forth. But if this were to be so it would be a very serious change for the British people.

It would be a curious change for the Government as well, because in the past they have always argued against those who want to go into Europe that the real rôle of Britain lay in the world at large and that there were immense possibilities of developing the Commonwealth. I imagine that many people in the Commonwealth are extremely concerned about measures now being taken, not so much about their immediate effect but whether they signalise a changed attitude on the part of this country. It may be that companies like Shell, and the mining companies, and so on, have had some tax advantage in the past, but if removal of this tax advantage might make them think of moving their domicile overseas, for instance, this would cause immense concern, because they spend a great deal on ships and equipment in this country.

This provides all the more reason for going into the Common Market, because we come back again to the scale of industry and its need for a big market. I am surprised at the good reception which has been given to the Prime Minister's visit to Paris. I do not think that it is any good moving parallel with the Common Market. I do not believe that agreements with the French about technical developments, good though they may be, are any substitute for going into the Common Market. It will be increasingly difficult to get into the Common Market and we should not be bemused by noises made about technical agreements. I hope that more consideration will be given to the real rôle of this country in relation to these worldwide companies and the Common Market, but if we are to cut down on our investment overseas—and as a short-term measure there may be something to be said for it—the necessity for having a bigger home market will be greater than ever.

To summarise—and I do not want to take as long as have some other speakers—I think that the Budget falls short on three heads. I do not think that there is much incentive in it. I do not see anything in it to make anyone take risks or work harder, but it may be that parallel measures which the Government are taking could possibly affect that. I think that there is in it a danger of slowing down the mobility of capital. I do not see why the Government could not have enforced some sort of capital gains tax on betting if they are to enforce it on the gilt-edged market.

It may be difficult, but it is illogical that one can make uncovenanted gains by bingo or gambling and the Government should say that they cannot do anything about it. Nor have I any use for the sophisticated argument that one can levy the tax on the gilt-edged market because it is an asset and one cannot on betting because it is not.

Mr. Tam Dalyell (West Lothian)

Is not the right hon. Gentleman under an obligation to state what he would have done to bring about the incentives which he mentions?

Mr. Grimond

I have been trying to keep my speech short, but I will certainly tell the hon. Member. I would have hoped that there would have been coupled with a tax on capital gains some diminution of direct taxation. In my view, this is the main way to give incentives, and it is what I should like to see.

Mr. Dalyell

rose—

Mr. Grimond

I have given an answer which should satisfy the hon. Gentleman. It was comparatively short, comparatively clear, and comparatively concise, not hedged about with "ifs" and "buts". That is something which I look for in the House of Commons and I do not want to spoil it.

One of the great drawbacks in the running of the economy at present is that far too few people really feel that they have any direct interest in it. My party would like to see a greater spread of wealth and a greater spread of ownership. We should like to see the unions brought in to take a more direct responsibility, not only for protecting their own members but for the running of industry. I dare say that the First Secretary's measures may achieve this. I can only hope that they will.

One of the crucial points to realise about this country, whatever one's political views, is that for the foreseeable future—I believe, for all time—it will make the great bulk of its wealth by private enterprise. This means that we have to accept the profit motive and competition. The Chancellor went some way to accept this yesterday, but I still believe that there is a widespread feeling that, although the Labour Party does not really believe in Socialism, it is not wholeheartedly committed to private enterprise.

I have no objection to the Labour Party committing itself to the view that a large number of services and a proportion of industry should be run under nationalisation. What I want right hon. and hon. Members opposite to do is to say absolutely plainly, "We recognise that the production of wealth is the main thing. We have to interest the whole nation in this, and we recognise that it will be done by the free enterprise system".

6.21 p.m.

Mr. E. Shinwell (Easington)

I am glad to relieve the right hon. Gentleman the Leader of the Liberal Party of the responsibility of defending the Labour Party. We can rely on the facilities and resources available to us, imperfect though they may be regarded by right hon. and hon. Members opposite. I found nothing derogatory in what the right hon. Gentleman said. On the whole, he seemed to regard the Budget as fair, objective and realistic. Of course, he offered some objections, but he did something rather more important than offer objections and indulge in criticism; he tried to be constructive. In this, his speech is to be contrasted with that of the right hon. Member for Bexley (Mr. Heath).

Mr. W. A. Wilkins (Bristol, South)

A shocking speech.

Mr. Shinwell

Yes. It was petty, malevolent, spiteful, splenetic, and thoroughly disgraceful. My only regret is that the right hon. Member for Bexley is not present to hear what I have to say. If I am accused of not notifying the right hon. Gentleman, he should remember that it is his duty to be present after making a speech of that character, particularly as, during the course of it, I warned him that I should have something to say about it. Anyway, he can read the OFFICIAL REPORT in the morning, but, of course, it is not quite the same thing. The atmosphere will be lacking.

Listening to the right hon. Member for Bexley, one would have thought that, on 16th October, 1964, this country emerged from a paradise. Everything in the garden was lovely, according to him. But was it? Let us have the facts. Between 1952 and 1964, the National Debt increased from £26,000 million to over £30,000 million. Do the Tories want to boast about that? Have they not some responsibility for that substantial increase in the National Debt during the period when they were in office? Moreover, interest and management expenses on the National Debt increased from about £500 million to over £600 million during that period. What an achievement. The right hon. Member for Bexley had nothing to say about that.

Perhaps the right hon. Member for Flint, West (Mr. Birch), who is straining at the leash to indulge, perhaps, in a more venomous speech than the one delivered by the right hon. Member for Bexley, will justify the increase in the National Debt and in the amount of interest this country had to pay during the 12 years when his Government were in office.

That is not all. It is only a beginning. As is well known, I hardly ever use a note in the House or in Committee, but, for the purpose of accuracy, I have obtained several documents. They happen to be quite factual. Let us begin with fluctuations in the Bank Rate over the 12 years of Tory government. I mention this matter en passant—if I may use an expresion familiar to hon. and right hon. Members opposite—because so frequently in the past few months, and in our Budget debate so far, there have been references to the Labour Government's decision to raise the Bank Rate to 7 per cent.

From the criticisms made of the Government in that respect, one would think that an increase in the Bank Rate was unique. Far from it being unique, the statistics I have show that, since 1952, until October last year, the Bank Rate went up ten times, and on two occasions it went up to 7 per cent. Apparently, it was not such a lovely paradise after all. Frequently, it went up to 5½ per cent., 6 per cent., or 6½ per cent. There must have been something wrong. But the Labour Party did not have responsibility during that period.

I come now to the rather thorny and vexatious problem of the balance of payments, the problem which appears almost insoluble. In no year since 1952, with the exception of 1958, did we pay our way. In 1958, we were on the right side to the extent of £47 million. In no other year did we pay our way, except, of course—I want to be fair—by what we received from invisible exports, but even those receipts enabled us to do no more than wash our face, to cry even. In fact, throughout the years when we sat on the benches opposite and the Tories were in this side, vested with power and authority, able to do as they pleased and living in the wonderful paradise they now talk about, we hardly ever paid our way.

Mr. Frank Taylor (Manchester, Moss Side):

Rubbish.

Mr. Shinwell

No. I am about to develop the point.

Mr. Shepherd

rose—

Mr. Shinwell

If only hon. Members will give me an opportunity, I will continue my explanation.

Mr. R. Gresham Cooke (Twickenham)

rose—

Mr. Shinwell

I do not know that I am physically or mentally able to tackle all these intellectuals opposite.

Let us take exports. Right hon. and hon. Gentlemen have frequently said that we must boost our exports. I recall the speech of the right hon. Member for Bexley. There was not a single constructive suggestion throughout his speech, and at the end there was a lot of meaningless rhetoric, saying that we had to do this and that. We had no idea what he was talking about.

In any event, what about exports? Taking the basis as 100 in 1961, in 1952 our export prices were 96, and in 1963 they were 104. That was an advance. But it is an inescapable fact that the United Kingdom share of world exports was reduced from 21.5 per cent. in 1952 to 15 per cent. in 1964. Let the Tories put that in their pipes and smoke it, even in view of the increased price of tobacco.

The right hon. Member for Bexley talked as if we had emerged from a paradise. Hon. Members who were in the House before the last election will recall the frequent and amazing speeches made by the right hon. Gentleman about the need to enter the Common Market. I will not discuss the merits of entering the Common Market or staying outside. This is not the occasion; we can do it at some other time. It is not an immediate issue.

But what was the basis of the right hon. Gentleman's case when he was advocating that we should enter the Common Market? It was that we were becoming economically decadent, that Britain was gradually becoming less important in the commerce of the world. Hon. Members should recall what was said about Commonwealth trade declining. At that time all the arguments were adduced for entering the Common Market because we were almost down and out. Indeed, that was the main reason advanced. Yet right hon. and hon. Gentlemen opposite talk as though we lived in a paradise throughout those years.

I will not waste any more time on the right hon. Gentleman, except to say one further word. One would have thought from his observations that yesterday, inspired by the Leader of the Opposition, hon. Gentlemen opposite would have voted against the Budget Resolutions. But on not a single Resolution did they make critical comment. [HON. MEMBERS: "Wait and see."] We will wait and see. But if hon. Gentlemen opposite had any guts at all they would have voted against some of the Resolutions yesterday. But perhaps they did not understand them. Perhaps they were not sure what they ought to do.

I will now give the Committee something constructive. [Interruption.] The right hon. Member for Flint, West can answer the question if he likes. I should be delighted to hear what he has to say about this. Yesterday, the Chancellor was on a vital point which cannot be ignored by anybody in the Committee or anybody outside. It is the need to reduce our overseas military expenditure. The other day The Times had a leading article in the course of which it made an observation about the need for considering the possibility of reducing defence expenditure. I was interested in the matter, and I wrote to The Times, and it published my letter last Saturday.

In that letter I asked The Times to be more specific. After all, if an important and reputable newspaper like The Times makes a suggestion of this kind we are entitled to ask what it actually means. The Times responded in its leading article this morning, saying quite definitely that this country must consider reducing overseas military expenditure in Germany, the Middle East or the Far East What does this overseas military expenditure imply in financial terms? It amounts to between £300 million and £400 million annually. It is sometimes said that if we brought our troops home—this has been said in regard to the suggestion about bringing some of our troops home from the Rhine—we should still have to meet the same expenditure. But there is a great difference between spending money on the Armed Forces in the United Kingdom and spending money overseas, because it affects our balance of payments in the measure in which we spend vast sums on military forces overseas. If we spend the money at home, it has not the same deleterious effect. Therefore, we must face up as soon as possible to the need to reduce our overseas military expenditure.

The Chancellor said yesterday—it has been repeated today by the First Secretary of State—that the Government are undertaking a defence review. Perhaps I might relate my experience in matters of this sort. In 1950 and 1951, when we were faced with high tension in Europe and the possibility of an escalation of the Korean War, there were very grave apprehensions about these matters. We had to face the possibility of increasing our military expenditure. I called the Chiefs of Staff together and asked them to go into all the calculated risks and inform me what they required to meet our military needs. They gave me a figure of £6,000 million.

I did not appoint a committee. I did not have any defence review. I struck out item after item and brought the amount down to a figure of much less than £5,000 million. The Chiefs of Staff did not like it a bit. We do not want a defence review which entails protracted consideration and long arguments. I know these generals, admirals, air marshals and the rest. They are very resistant, and also very persistent in making their demands.

It is very difficult for a Minister sometimes to stand up to them. But in the interests of the country we must stand up to them. We must be tough and make it quite clear to them and to the country and, in particular, to hon. Members on both sides of the House of Commons, that this country can no longer afford to indulge in luxuries of this kind. We cannot afford it. It is difficult enough to pay our way without excessive expenditure of this sort.

If I am asked—hon. Members would be entitled to ask me this—from which theatre I would withdraw troops, I would say at once that there ought to be an immediate inquiry—not a protracted one —into the needs for deploying such large forces in Malaysia.

The Deputy-Chairman (Sir Samuel Storey)

Order. The right hon. Gentleman can refer to expenditure, but must not discuss it in detail.

Mr. Shinwell

You are quite right, of course, Sir Samuel. I am merely passing over this point. I am just indicating what I think ought to be done by the Government in the interests of the country because of our financial and economic situation, which, I believe, is still precarious and will remain precarious for some time to come. I therefore suggest that there ought to be an immediate inquiry into the possibility of withdrawing forces in large measure from some of the theatres to which The Times referred. I endorse what The Times said.

I would also refer to the question of productivity. Yesterday, a Question was asked of the Minister of Power about absenteeism. This is related to the Budget, Sir Samuel, as you will see in a moment. One of my hon. Friends dealt with it effectively. It is a remarkable thing, but it is only in the nationalised industries that we are getting effective productivity. I challenge hon. Members opposite on this issue. The coal industry, for instance, has the highest productivity of any industry in the country.

Mr. Peter Bessell (Bodmin)

Would not the right hon. Gentleman agree that the farming industry has very high productivity?

Mr. Shinwell

I would not deny it for one moment. I would give the farming community 1,000 marks, if that is adequate. It is far more efficient than in the past and it deserves every praise. But, on the other hand, the farming community must understand the national need. Sometimes it tends to forget about it and to ask for more, rather like Oliver Twist, and it cannot always get as much as it wants. It should be content with what it is getting. On the whole, it will manage. I know that it is on "national assistance", but it does very well.

I repeat—and this is something which should often be repeated with emphasis that the coal industry, a nationalised concern I will call it a Socialist industry if that will satisfy hon. Members opposite, because that is how they regard it their more bitter moments—has the highest productivity of any industry in the country. Who are responsible for than? The National Coal Board—responsible for modernisation and mechanisation—and the miners. It does not lie in the mouths of some Tory Members to complain about absenteeism in the mines.

We cannot get prices down unless we increase productivity. Of course, one could do so by reducing profits but I understand that the Government think that we have to continue the profit system for some time to come. That fills me with grave apprehension. I entered Parliament a long time ago as a Socialist. I am still a Socialist—if you like, an old-fashioned Socialist—and I do not care very much about the profit motive.

I would rather have a Socialist system, conducted on rational lines, serving the community and entering into effective relations with other countries for the purpose of promoting peace and prosperity, but if it so happens that we must content ourselves with a mixed economy for some time to come, I suppose that we shall have to put up with it.

For my part, however, I want to see an advancement of national ownership of essential industries. I do not want it at once, naturally. I am a politician—which is more than can be said for some hon. Members opposite, who are only Parliamentarians. I have to take account of the electoral position, of the fact that the Government have only a majority of three, although occasionally, when members of the Liberal Party conduct themselves in a rational fashion, that majority increases and they make a contribution to progress.

I see that the Leader of the Liberal Party appears to have crossed the Floor. Perhaps that is a good omen. But it can only be on condition that he accepts our policy. I am glad that the Government are to revive the idea of a concept of public ownership. At the same time, we have to adjust our priorities and I am content to remain for some time in eager expectancy waiting for this public ownership concept to be properly advanced.

I congratulate the Chancellor on his Budget. It is a first-class Budget. I must confess that I do not much care about the increase in the price of tobacco. It means that I shall have to pay for my tobacco nearly 16s. for 2 oz. I will also have to pay quite a lot more for my whisky. But I give him my assurance that this will not mean a reduction of the revenue so far as I am concerned. I shall go on smoking the best tobacco and drinking the best whisky while I can afford them. Nevertheless, it is very hard.

I am delighted that the Government are to stop the nonsense of business expenses. The right hon. Member for Bexley talked about survival of the fattest. I think that he was being critical of this side of the Committee. I would have thought, however, that his remark applied much more to right hon. and hon. Members opposite.

I would like to see this provision about business expenses also applied to Government hospitality. Every day in The Times and the Daily Telegraph and other reputable newspapers I notice announcements of lunches and dinners provided by the Government. I am never invited, so perhaps that is why I object, but we should consider whether Government hospitality should go as far as it does. I leave it at that.

All these, however, are minor objections. The Budget is realistic and worth while. Despite what was said by the right hon. Member for Bexley, in his very foolish speech, I am satisfied that the great bulk of the electors will regard it in the same light as I do and as do other right hon. and hon. Members on this side of the Committee.

6.45 p.m.

Mr. Nigel Birch (Flint, West)

I find it difficult to relate many parts of the speech of the right hon. Member for Easington (Mr. Shinwell) to the Budget. I would be glad to write a letter to the Prime Minister encouraging him to ask the right hon. Gentleman to some of his parties. I could do that as a kindness. I also agree with the right hon. Gentleman about military expenditure east of Suez. I wish that he would use his influence on the Prime Minister about this, for the Prime Minister is a great enthusiast for military expenditure east of Suez. I entirely agree with the view of the right hon. Member for Easington about it.

I want to speak about the balance of payments. This has been the dominating problem of our economy since the war. It is the dominating problem now and will remain so for many years. We have heard a great deal about last year's large deficit. Some of that deficit was due to temporary causes. It certainly was a very large deficit indeed and it is no good denying it. But why was it so large?

I believe that Professor Paish is right in saying that probably a too easy Budget in 1963 caused the deficit to be so large. That was the Budget which the present Chancellor of the Exchequer, then in opposition, said was grossly overcautious. As a result of that Budget we had a situation, as so often happens in this country, in which wages and prices and costs were going up very rapidly. As a result, exports were sluggish and imports were being sucked in.

If right hon. Members opposite had made that criticism of my right hon. Friends they would have had a lot of justice on their side. But that was not their criticism. As my right hon. Friend the Member for Bexley (Mr. Heath) has pointed out, the Government's own White Paper, issued when they had seen all the figures after assuming office, made the definite satement … there is no undue pressure on resources calling for action. That completely let us off the hook.

The White Paper went on to say: Moreover, the Government reject any policy based on a return to stop-go economics. The first part of that passage was nonsense and the second part proved in a matter of days to be a lie because the Government went straight back to stop-go economics. They organised, as my right hon. Friend rightly said, the panic and one of the ways to do it was to have the surcharge which, again as he rightly said, was looked on abroad as a prelude to devaluation. I objected to it not only for that reason, but because it meant breaking nine treaty obligations —and I am old-fashioned enough to object to breaking treaty obligations. Anyway, that started things off and after that we had the stop measures, but they were dribbled out.

The right hon. Member for Easington will remember from his military days that one talked about "wet hand" tactics. By wet hand tactics was meant sending inadequate forces to take an objective, having it defeated in detail and then sending another inadequate force and having it defeated in detail, and so on, until one lost all one's reserves and did not gain the objective.

That is exactly what has happened in the Government's efforts to deal with the balance of payments position: first, there was the 6d. on Income Tax; then there was 6d. on petrol; then the 7 per cent. Bank Rate; then the announcement of the squeeze; then the postal charges; and now as strongly suspect, some phasing back in the capital expenditure on hospitals and schools. I do not doubt that that has happened, although it has not been published. We are now having a guiding light, which we know will be more or less 3 to 3½ per cent., but not accompanied by the implied threat which the First Secretary made earlier, when he said that if he did not get his way he would increase deflation in the economy.

Now we have the TSR2 affair. My only comment about the TSR2 affair is that even by the present Government's standards this is a pretty slimy business, because they had decided long before they came in to "scrub" the TSR2. The only man in the Government who makes up his mind and gets his way and does not alter his mind is the Paymaster-General, and he had decided, perfectly clearly, to "scrub" the TSR2. The Government did not have the nerve to do it at once, so they went on with it for six months and I suppose that they must have wasted another £30 million by doing so and increased compensation charges. That was another bit of the wet hand tactics and now we have had drink and tobacco.

What would have happened if, instead of acting like this, they had done everything at once, if they had done what we did in 1957 and 1961 when there was a run on the £ and if they had rolled all these into one package and had announced all these measures, together with the credits? It is anybody's guess what would have happened, but my own feeling is that we would have succeeded and that the Bank Rate would now be down to 6 per cent. and that local authorities would not be having to pay 9⅜ per cent. for weekly money, and though mortgage rates might still be the same at least it would be possible to get a mortgage. The worst thing of all for some wretched person trying to buy a house is not to be able to get a mortgage. It is a great deal worse than having to pay a high rate.

Why were the wet hand tactics employed? Overwhelmingly, the reason was the splitting of the Treasury. This devalued the office of the Chancellor of the Exchequer, and what we have seen each time is not a man dealing with a situation, but a series of hard-fought committee decisions dribbling out over the months.

The Chancellor of the Exchequer said that his new dispatch box signalised a new era. If my memory serves me right, this is the 101st new era which I have heard announced since I have been in the House. But there was an odious piece of subservient symbolism in that this box was brown. What has been happening is that the First Secretary has been interfering left, right and centre. It was Napoleon who said that shuffling half-measures lose everything in war; and we are fighting a battle for the £ and the Chancellor of the Exchequer cannot have someone breathing down his neck all the time.

I hope that the Department of Economic Affairs will be abolished. I do not mind what job the First Secretary gets. I shall be happy for him to become Chancellor of the Exchequer and even happier for him to be Prime Minister, but somebody has to scrap that Ministry and I hope that someone in the Treasury will have the spirit to throw that wretched box out of the window and under a bus.

The consequences of allowing the panic, or positively encouraging the panic, as the Government have, have been pretty serious. We do not know what our reserves now are, but it can be deduced from the last figures issued by the Bank of England and relating to December that, after subtracting the I.M.F. drawings, the iron rations as it were, and the credits from the central banks, our free reserves are sufficient to pay for only about three weeks' imports. That takes no account of the very large sterling balances many of which are withdrawable at sight. We are in a pretty tough position, but we must hope that the Budget will do the trick. From the bottom of my heart I pray to God that it will.

There are difficulties and they have been increased by what the Government have done. The first thing to note when we hear so much about a wages policy is that over the last six months wages, earnings and the wage drift have been rising more rapidly than ever. I suppose that they are rising faster than 8 per cent. per annum and in many cases a great deal faster. By their nature, these rises are irreversible.

Secondly, although he did not say so in public, the Chancellor has budgeted for an overall deficit of £724 million, much larger than the realised deficit last year. This amount has to be raised by borrowing in the gilt-edged market. The right hon. Gentleman has deliberately spiked the mechanism of the gilt-edged market by applying a Capital Gains Tax to it. There is no doubt that Mr. Kaldor will have faithfully told him that this is a fraudulent thing to do. It is breaking the contracts under which the loans were issued. If contracts are broken, the efficiency of the mechanism of the gilt-edged market is broken, and that is very serious if this colossal sum has to be borrowed.

However, I do not believe that the position is irremedial. It can be put right, but there are three things which we must do if we are to get our situation right. First, in our planning—and we are told that we are soon to have a six-year plan—the assumptions must be realistic. Secondly, we must act in ways which make economic sense. Thirdly, we must have the will to resist inflation, a will which is so weak in the country at the moment.

On the question of realistic planning, one of the troubles which we have been up against in the last four or five years has been that practically every financial journalist and many economists, who write the most frequently in the papers and learned journals, have been "boom or bust" men who say that whatever happens we must have growth first. That accounts for much of the venomous and ill-informed abuse of my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) who, like his successor at the Treasury, was constantly urged to go forward and to go faster and faster.

Fortunately, quite a lot of these people, of whom I would never have thought it, changed their minds, particularly the journalists. Betwixt the stirrup and the ground Mercy I asked. I very much hope that they will find it. The poor old Economist has not changed, of course, but the Economist openly admitted that it did not know that there was a boom at the end of last year and it thought that the interim Budget would be highly deflationary. If it is such a pathetically bad guesser as that, it has something coming to it. I very much hope that the new editor will realise that his paper has a reputation to regain rather than one to retain.

I very much recommend to both the Chancellor of the Exchequer and the First Secretary a publication which came out last week. This is a P.E.P. broadsheet called "Planning for Growth" by Geoffrey Denton and it is extremely intelligent. He makes the point that if we make unrealistic estimates about rates of growth, we land ourselves in the gravest difficulty, first, because the balance of payments goes wrong, and, secondly, because if the estimate of the rate of growth is unrealistic and expenditure ahead is planned on an unrealistic growth rate, then the percentage of the gross national product taken by taxation may rise very sharply. That in itself will be highly inflationary.

Mr. Walter Monslow (Barrow-in-Furness)

The right hon. Gentleman has spoken about inflation. He referred to wages going up by 8 per cent. Would he say what the trend should be in regard to the inflationary price of land?

Mr. Birch

I am not talking about land.

Mr. Monslow

The right hon. Gentleman is talking about inflation.

Mr. Birch

I am sure that the hon. Gentleman will make a perfectly admirable speech about land—a great many times.

This question of realism also applies to an incomes policy. In the plan, it is essential that we should not assume that the incomes policy will have a greater impact than it is likely to have. I was slightly reassured by some of the things which the First Secretary of State said today. He said that he thought that it would be some time before he made any impact and that the impact might not be very great.

The only thing which slightly worried me was that he thought that he would have a bigger impact on prices than he would have on wages. If we can keep prices steady and wages rise only in line with productivity that is the absolute ideal. But if wages go zooming up and prices are kept down, imports will be sucked in. That is exactly why the Chancellor of the Exchequer has been putting up the prices of various articles in his Budget. There is a certain danger there.

I understand the reason for the Minister's strategy. Other people have dived in and said, "We must stop this business. The guiding light is 3 or 3½ per cent., or whatever it is. I will deflate more unless somebody pays attention." The Minister has tried to tee everything up and to get agreement gradually. He h as spent six months in doing it and he has worked very hard. But during those six months there has been a very rapid rise in wages. This has had a great effect on our balance of payments.

The right hon. Gentleman keeps on talking about Sweden. He says that he will get on much quicker than the Swedes and that he will be able to achieve a policy much quicker. So he may. I wish him luck. But what he keeps on implying is that the Swedish wage system works. Taking the seven years from 1957 to 1964, prices in Sweden went up by 26 per cent. while in these benighted islands they went up by only 20 per cent. To assume that we can rely on the Swedish system to put everything right seems to me wrong. Nor do I think that the right hon. Gentleman will have any success with his policy unless the Budget really bites, as I hope it will.

Several interesting accounts were published last week about the state of employment in the Midlands. One story was about a factory in Stoke. The manager offered a bonus of £5 to any man who could bring in another worker to work in that factory. Another manager in the Midlands said, "If I think that somebody will offer my fitter £4 more a week, I offer him £4 a week more first." When this sort of thing goes on, I do not think that any number of committee meetings or declarations or inspired speeches by my friend Mr. Aubrey Jones will make very much difference. We have to get the pressure down before we can do anything. So much for realistic assumptions on the rate of growth and incomes policy. On the subject of making economic sense. may I say a few words on the Royal Commission on Trade Unions and Employers' Organisations? During the election the Prime Minister said that to have a Royal Commission was an exercise in procrastination. After that, we knew that he would appoint one. But the trouble about this Royal Commission is that the people on both sides who should be in the witness box are on the Commission. We know what will happen. Two or three years will be very pleasantly spent, and an anodyne report will be made at the end about which nothing will happen.

I looked through the list of members of the Royal Commission to see whether I could see anyone who might produce a minority report which made sense. The only person I had hopes for was the headmistress of Kidbrooke. I do not know the distinguished lady, but I believe that she would make a very good report. However, she would do it just as well now without waiting three years.

I want to say something about the railways. I was intensely depressed when the Minister of Transport announced that major rail closures would be held up until reports arrived from the regions. I can tell him exactly what the reports from the regions will say. They will say that it will take a year or two to consider the position in the region and then, when that has been done, they will say, "It is essential that this railway line should not be closed", because people will look at the matter parochially and not nationally.

What is happening about liner trains? This is one of the hopes which might have been fulfilled. The introduction of liner trains has been held up for months and months. Why do not the Government tell Beeching to go ahead with them and damn the consequences? They would get them through all right.

Mr. Monslow

As one who is engaged in that industry, may I tell the right hon. Gentleman that he had better take a course in industrial human relations so that he might understand the problem that he is talking about?

Mr. Birch

All I can say is that the First Secretary of State and the Minister of Transport think that this is a good scheme and have tried to persuade the unions to accept it. It seems to me logical and right for them to do that, and I do not think that it is in the national interest that the unions should refuse to do it. If they refuse to do it, and everybody believes that it is not in the national interest that they should refuse to do it, I do not think that they would succeed if the Government persisted. We should have some purposive action about this.

The next thing is the abolition of the prescription charges. This was a desperate piece of buffoonery. The last Ministry of Labour survey on family incomes showed that the average family had an income of £22 or more. Now the figure would be considerably higher. Is it impossible for a family earning £22 a week or more to afford an occasional 2s. for a prescription? This is barking mad. We cannot get any sort of order into things unless people pay something for what they get. People who cannot afford to pay should be helped, as they have been. I should be prepared to go further and say that everybody with a pension book should have free prescriptions.

Suppose that we had £25 million to spend on the National Health Service. What could we have done with it? We could have refurbished the surgery of every general practitioner in this country. We could have paid him more. We could have done the necessary work on all the substandard operating theatres and still had a lot of money left over. Can any man in full possession of his reason think that this was a rational way to allocate our resources? Does anybody think that this has benefited the health of the nation?

The Joint Under-Secretary of State for the Home Department (Mr. George Thomas)

indicated assent.

Mr. Birch

The hon. Gentleman must have lost his reason.

Lastly, I turn to the wretched Rent Bill. This Bill will restrict the amount of accommodation, freeze rents at uneconomic prices and place the whole burden of putting that right on to Government-financed housing at a time of extreme economic strain. Professor Alan Day made an admirable comment on the Bill in the Observer last Sunday. The article is headed, "Mr. Crossman's Housing Boob". He said: The Bill contains more economic nonsense and is likely to lead eventually to more undesirable social consequences than any measure which has been before Parliament for a very long time". That I believe to be profoundly true.

The last point that I want to make is this. Have we the will to pull ourselves together and to stop inflation? Ever since I have been in Parliament we have suffered from inflation, and I have minded very much about it. This is where I ended my political career. The canker is eating deeper all the time. Even a few years ago it would have been thought almost impossible for teachers, doctors and farmers to take direct action. They are all victims of inflation. It was Lenin who said, "If you want to destroy a country, you must first debauch its currency.

I believe that this country is in great danger. It is no good the Prime Minister going round the world trying to make our influence felt. He is only tittered at. We must pull ourselves together. What did France count for before de Gaulle made the franc strong? Nothing of any sort whatever. Therefore, we must get right. We must pull ourselves together. Will these men opposite do it? No.

7.10 p.m.

Mr. Iorwerth Thomas (Rhondda, West)

I listened with great delight to the speech of the right hon. Member for Flint, West (Mr. Birch). In the context of his disagreement, to which he referred, with the Government of which he was a member, from which, with his right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), he resigned because of the growing expenditure to which the last Administration had committed itself, the right hon. Member might have directed a great deal of his criticism to his colleagues on his side of the Committee, because we are, and have been, in this grave financial position as a result of the accumulated maladministration by the Government of which he was at one time a member. If the right hon. Member wants to assist the nation in the dilemma that we face with the balance of payments, he should be frank about it and apportion a great deal of the blame to his own party.

During the past two days, we have heard a great deal from my right hon. Friend the Chancellor of the Exchequer and my right hon. Friend the First Secretary of State and Secretary of State for Economic Affairs about the Government's objectives during the next five years. They have outlined to the Committee certain proposals which, they think, when adopted by Parliament, will lead to greater stability in our economy and bring about the necessary growth to achieve this end. They have willed the end and to a certain extent they have also willed the means.

The Chancellor of the Exchequer has put forward certain financial proposals to attain that objective. The First Secretary of State has been more concerned from the administrative angle in building up the necessary machinery to give effect to the Government's policy. I was encouraged during my right hon. Friend's speech to note his references to the areas in the North-East, South Wales and elsewhere which are suffering from underemployment. He indicated clearly that it is the Government's intention to adopt policies that will bring about a regeneration of industrial activity in those areas which are suffering from underemployment.

Whilst recognising the benefits that will be derived from the Government's general proposals, I wish to call the attention of my right hon. Friend the First Secretary of State to what I consider to be an important matter in the administrative sense. If we are to get this regeneration of industrial activity in the under-developed area, if we are to harness the resources that now lie idle in those areas, the Government must adopt extra powers to enable them to achieve this objective. From my experience in dealing with the present administration in the Board of Trade, I am convinced that unless there is a radical change and an amendment of the Local Employment Act, the possibilities of the Government attaining their objectives in these areas of under-employment are not very great.

I congratulate my right hon. Friend the First Secretary of State upon the manner in which he has thrown his thrust, energy and dynamism into building up this vast superstructure in the regions, but something more than that is required. Having accomplished this great task in the provinces and in the regions, holding, as he does at this juncture, a key position in the Administration, he is left powerless and impotent in directing, persuading or influencing new industries to go into these underdeveloped areas.

If the Government want to achieve these ends, they must be prepared to assume the power in order to do it. As things stand, the power and authority that decide whether industries shall go into our under-developed areas rest entirely outside the administration. No Ministerial Department in the administration is responsible. We had a similar experience under the former Administration. The power and authority that have to make the vital decisions concerning industrial regeneration in the under-developed parts of the country rest entirely outside the Administration.

The power to decide whether an industrialist who applies to go into an under-developed part of the country shall have the necessary grants, loans and concessions that are available under the Local Employment Act lies entirely in the hands of a part-time committee of outsiders who devote only 30 hours a month to these applications. It works out at about an hour and half each day. That is the time that this part-time committee of outsiders devotes to the consideration of these applications and to deciding whether we can harness the resources of the country in these special areas to contribute to the industrial expansion and growth that is required.

It is a Gilbertian situation that once that committee of outside part-timers, having devoted such little time to the problem, decides to reject an industrialist's application, no member of the Government, as was the case with the previous Government, has any power or authority to ask that outside committee for a reason or explanation of why an application has been rejected. That is the situation. The President of the Board of Trade, the Secretary of State for Economic Affairs and the Chancellor of the Exchequer are primarily concerned with this question of growth and expansion, but even the Chancellor himself has no right to ask this body of outsiders, "Why did you reject the applications of the industrialists to come into this area?"

We in the Rhondda are still a development district. There is manpower lying idle there waiting to be harnessed in the interests of the nation, awaiting the opportunity to make their contribution to the industrial growth which is required. We have had experience of this committee I have referred to. It turned down an application by industrialists to come to this development district where the unemployment figure was 4 per cent. That application was turned down. What is more important, those industrialists belong to a firm which could contribute vitally to the growth of the prosperity of this country. It is a firm concerned with tool making. That firm was turned down, despite the fact that it had sent 12 apprentices to the technical school, and taken them to the firm's parent factory at Worcester to give them the necessary practical experience.

Had that firm come into the valley it would have provided employment for between 300 and 400 men who could have made a vital contribution to a key industry, the tool machine industry of this country to which the Minister of Technology is making a contribution and with which he is deeply concerned. But that firm was turned down. It may have been said that it was non-viable—I am speaking of a time two or three years ago—but since then, and this is the point of which I want to convince the Committee and the Ministers concerned, because there is a need for administrative change if we are to obtain our objectives, and we put this same point—

The Deputy-Chairman

The hon. Member is going into too great detail at the moment.

Mr. Thomas

The Chancellor of the Exchequer and the Secretary of State for Economic Affairs, throughout their speeches, have stressed the necessity of organising all our resources, and I was only attempting by an example to demonstrate to the Committee how the resources of the people in my valley, wanting to make a contribution to industrial growth, have not been harnessed to that end. It was because of a decision of that outside committee.

Mr. Dan Jones (Burnley)

Would my hon. Friend tell the Committee whether the committee he has in mind is called B.O.T.A.C.?

Mr. Thomas

Yes, it is B.O.T.A.C. For new Members perhaps not acquainted with the abbreviation, it is the Board of Trade Advisory Committee, appointed by the President of the Board of Trade, but the President of the Board of Trade has no control over it at all. In fact, the committee controls the Board of Trade. It is called an advisory committee, but it is not an advisory committee: it is a committee with executive power which makes decisions and rejects applications. This is the important thing, that in three years that committee rejected 300 applications made by industrialists.

That firm of which I was speaking, since it was turned down by that committee has increased its turnover, increased its profits, is exporting 60 per cent. of its products, and has acquired two other firms. And this firm was turned down.

Who knows—nobody knows—why the 300 firms I have referred to have been turned down? Nobody knows. As I say, no Government Department has a right to ask the committee. If hon. Members read the evidence given to the Estimates Committee, which examined this question, they will see that the representative of the Board of Trade, a top man in the administration dealing with the distribution of industries, when the question was put to him, replied that once B.O.T.A.C. has made a decision that is the end of the matter and the Board of Trade cannot do anything about it.

What I want to impress upon the present Administration is what we tried to impress upon the previous Administration, my hon. Friend the Member for Rhondda, East (Mr. G. Elfed Davies) and I. We confronted two Ministers in the last Government. They had to confess to us that they could not do anything about it. I believe that if we are to be dynamic in our approach, if we are to bring about the regeneration of these under-developed areas, if we are to harness the resources which are there but lying idle and dormant, there must be a change within the administration, and this outside committee of part-timers, devoting only a little of their time to these problems, should be scrapped, and it should be the Government themselves who should build into the administration an inter-Departmental committee representing the Treasury, the Board of Trade, the Ministry of Labour and the Ministry of Economic Affairs, so that the vital decisions which have to be made, which are decisions which will determine not only the future of the men in the valley but, to an extent, the future pace and degree of industrial growth in this country, will be decisions of the Government.

I hope, therefore, that the present Government—for the previous Government refused to do anything about it—will give very serious consideration to this point. We can have all the fertility of ideas which the Ministers concerned with industry are showing, but it is no good having fertility of ideas if they are impotent in administration. I conclude by repeating that at the present time no Minister, no Government Department, not even the Cabinet itself, under the present constitution of the powers vested in that part-time committee, has the right to ask that committee for an explanation why it has rejected an application, or, once it has rejected an application, the power to reverse it. I hope, therefore, that the Government will take opportunity to alter this constitution, to give areas like the Rhondda a chance to make their contribution to expansion.

The Rhondda has been a developing district for over thirty years. For thirty years it has been a depressed area and a special district and a development area. We are still on the list. If we a re to be taken off the list it can be only by decisions taken inside the Government who are responsible to the House of Commons. Till that is done I cannot see much prospect of the Rhondda coming off the list.

Mr. Dan Jones

Nor Scotland, either.

Mr. Thomas

Nor Scotland, nor the north-east of England. I am not speaking, only for the Rhondda.

I hope that we shall give opportunity to these districts to make their contribution to harnessing our resources to make sure that this Government's policies and programmes will be carried out effectively during the next five years.

7.28 p.m.

Sir Cyril Osborne (Louth)

I believe that the present economic situation is too serious, and the sterling position too dicey, to be made a plaything of party politics, though that does not prohibit us from having honestly held differences of opinion as to how to put things right. I am sorry to say, though, that I do not believe that the Budget will achieve the Chancellor's objectives, which I understand to be three.

First, he wants permanently to restore foreigners' confidence in sterling, which is a most important objective; secondly, to make the nation live within its income; thirdly. to restore sound money and to stop rising prices. Really, the three things go together.

I wonder whether the hon. and learned Member would be good enough to ask the Chancellor of the Exchequer to answer one or two fundamental questions which I should like to put to him. First, has the Chancellor abandoned all hope of conquering inflation? If so, what degree of inflation does he consider to be acceptable? As I understand the situation, the Chancellor is faced with a cruel choice. He has to accept either some unemployment or more inflation. It seems to me that he has chosen to have more inflation rather than some unemployment. I am not disagreeing with his choice at the moment, but I want the Committee to face the consequence of choosing inflation rather than unemployment.

I consider inflation to be the easy and coward's way out. It swindles thrifty people of the value of their savings. It is the greatest economic curse of our age, just as in the 'twenties and the 'thirties unemployment and poverty were the curses. It hits the very best of our people—thrifty, careful, responsible people. It swindles them and robs them of their savings. My investigations show that the £ of 1935, that is 30 years ago, is now worth about 5s. 6d. It is scandalous that we allow decent, honest, hardworking people to deny themselves of temporary pleasures to put money on one side, knowing full well that, as a matter of policy, we are going to swindle them. This is what I am protesting against.

The Chancellor rightly said yesterday that Lord Mackintosh had done a wonderful job of work for the National Savings Movement, but is it fair to ask our workpeople to buy National Savings Certificates, knowing full well that, as a matter of Government policy, within 30 years we shall swindle them of three-quarters of the money they have saved? I think that this is scandalous. It is the greatest problem facing us today.

If we are honest to our people we should say to them, as the Church Commissioners have done, as municipal corporations are doing, and as the trade unions are doing with their pension funds, "Take your money out of the banks, out of the Post Office Savings Bank, out of municipal loans, sell Government stocks, sell everything in terms of money, and buy land or property, or equities, and so safeguard yourselves against inflation." Inflation is the great curse of the modern age, and I think that we ought to do more than we are doing to protect the decent folk who save money, and I should like to know whether the Chancellor can do something along these lines.

Secondly, does the Chancellor think that his colleague, the First Secretary of State, will succeed in getting his incomes policy to work? Today we had a most eloquent plea from the First Secretary of State for the policy which he is outlining, and to which he has given his heart. If the right hon. Gentleman succeeds with his income and prices policy, he will deserve the greatest honour which the Crown can bestow upon him. There is nothing so important as achieving an incomes policy and stability of prices, but I am not sure that will work—I hope that it will, and in my small way in my industrial life I shall do my best to make it work, just as I am certain all businessmen will, not only because it is in their interests that it should, but because it is a matter of national necessity—because the ever-increasing labour costs, the unofficial strikes that hit us occasionally, and the restrictive practices on both sides of industry, are the biggest stumbling blocks to the achievement of such a policy.

Perhaps I might remind the Committee of what has happened in this sphere in the first five months of the Government's tenure of office. I am not blaming the Government for this state of affairs, I am merely stating the case. During the five months from 1st November to 31st March, 320 wage increases were granted covering 5¼million workers, costing the nation £130 million per annum, for no more production. That is inflation. There were 21 salary increases covering 692,000 workers, and the Minister of Labour told me that he could not give the exact figure, but it must have cost scores of millions of pounds.

That is not all. I understand that the Leader of the Liberal Party asked for this figure. I did not wish to prolong his speech, so I did not give it when he was speaking but I have it here, having obtained it from a Question answered on Monday. At the moment there are in the pipeline 32 wage claims covering 1,365,000 workers, and 27 salary claims covering 1,450,000 workers. If these are granted for no more productivity, the right hon. Gentleman's policy of wage and price stability must fail.

Cannot the Chancellor of the Exchequer, with all the authority that he has, say that this process must stop? This is what Cripps said in 1948 and 1949, and said in no uncertain terms to both sides of industry. Will the present Chancellor follow the Crippsian policy on this issue? If he does not, the cost of living will rise sharply again, and, unhappily, whether we like it or not, sterling will again be weakened. It is not party politics which cause the foreigner to lose confidence in sterling. It is the fact that we are paying ourselves more and more for doing less and less work, which means that our paper money is worth less and they trust it less. It is these recent big wage and salary increases, coupled with the industrial disputes with which we are faced, which make me wonder whether a national incomes policy is possible.

Looking at the matter from an employer's point of view, would the Chancellor of the Exchequer advise employers to refuse and resist unreasonable wage demands which were not backed by responsible trade union leaders? Secondly, if they did that, would the Chancellor encourage such, employers, if necessary, to face a strike to enforce what I consider to be a sensible policy, and a policy that is in the national interest? Unless there is discipline in these matters, all the eloquence of the First Secretary will produce nothing. Thirdly, will the Chancellor consider reducing the Bank Rate at once from 7 per cent. to 4 per cent.? I ask this because the high Bank Rate is not attracting to the London capital markets any foreign money at all. Does my right hon. Friend want to say something?

Sir Edward Boyle (Birmingham, Handsworth)indicated dissent.

Sir C. Osborne

Apparently my right hon. Friend does not agree. I should like to know why. As I understand from my friends in the financial world, practically no volume of new capital has come to London as a result of the 7 per cent. Bank Rate, for the simple reason that the foreigner, who controls the money, is still frightened of devaluation. One of the main functions of a high Bank Rate is to attract funds to London in order to help the country over its difficulties.

It is not reducing the home demand, because in February the hire-purchase debt increased by £10 million. It stood at a record figure of £1,123 million, or £151 million more than a year ago. I would hazard a guess that for the month of March the hire-purchase debt will be up again, by more than £10 million. Therefore a high Bank Rate is not performing its traditional functions.

Furthermore, as far as I understand it, in big business and industry it is not causing the great combines to reduce their expenditure. It is hitting the little business men and those who wish to build houses. It is anti-social. Since it is no longer effective, I ask the Chancellor whether it would not be better to face realities and go in for cheap money, quickly.

Next, will not the Chancellor consider drastically reducing direct taxation? Income Tax and Surtax at 18s. 3d. in the £ must discourage enterprise. I believe that the Chancellor would get much greater production amongst the smaller units of industry if he halved Income Tax and Surtax. It is ridiculous to expect men to work for 1s. 9d. in the £. There is no encouragement at all. The system is based on a misconception. If we want more wealth we should encourage men to work harder, take more risks, and be more enterprising. We should not tax earnings so much; we should tax spending more. I beg the Chancellor to consider the possibility of reducing the ridiculously high rate of Income Tax and Surtax to which we have become accustomed.

I would remind the Government that these high rates of Income Tax and Surtax were imposed upon the nation in time of war. Prior to the war we had no rates like this. It was the intense patriotism of the time, coupled with the fear of invasion, that caused our people to accept such high rates. In the mixed economy in which we live and work, where 80 per cent. of the economy is run on the private side, the profit motive is the mainspring. That is what makes things go. If direct taxation reaches too high a level it must weaken the effect of that mainspring. Hon. Members opposite have not yet found an alternative mainspring to the profit motive. If they had done so it would be another matter, but so far they have not. Human nature has defeated them in this. I therefore beg the Chancellor to restore what the Economist referred to some years ago as the "carrot-and-stick" policy.

Lastly, will not the Chancellor cut local and Government expenditure heavily? This is the real nigger in the economic woodpile. Government expenditure, at both local and central levels, should be cut. It is here that the Budget proposals have mostly failed. This is why the foreigners still distrust sterling. Yesterday the Chancellor said that he was budgeting for a total expenditure of £8,482 million. This is a colossal amount of money. Furthermore, it is £690 million more than the previous year. Yet we have said that we are hard-up. It is a rake's progress.

I would like to see the Chancellor take a very firm line, as Cripps did years ago, and say, "No more Supplementary Estimates in the current year," to every spending Department, and also say. "There will be a 10 per cent. cut in every spending Department, and Ministers shall decide, according to their own policies, where those cuts shall operate."

Mr. Ioan L. Evans (Birmingham, Yardley)

The hon. Gentleman is talking about cutting national spending. Is he referring to the TSR2 project?

Sir C. Osborne

That is a stupid intervention. I am trying to make a very serious, non-party speech. That is about the most stupid remark that I have heard.

If the Chancellor were to say to each spending Department, "You must be responsible for your own economies, in terms of your own policy", we might get somewhere. We must get better value for the public money that is being spent.

I am reinforced in this argument, on a non-party basis, by the double warning given in front of the Chancellor by the Governor of the Bank of England. Twice in the Chancellor's presence he said that there would have to be a marked cut in public expenditure to prevent another sterling crisis. The Governor was the man who arranged the huge loan that rescued us some months ago, and it will be his task to arrange further loans. If he tells us that as a condition of getting further help we must cut public expenditure I would regard it as not unreasonable to ask the Chancellor to take account of that sound request.

The Committee may like to know that between 1954 and 1964 Civil Estimates rose from £4,304 million to £7,388 million. This is fantastic. Yet we say we are hard-up, broke, and unable to meet our obligations. We must go with the begging bowl to the financial centres of the world—we, in London, which for 100 years was the centre of international finance. It is a disgrace to have to go begging for help. The only thing to do is to cut our coat according to our cloth. If we are to get anywhere near solvency. the Government must set the example, because they are the biggest spenders in the nation.

We are spending on eating, drinking, smoking, gambling, sport and amusement far more than we can afford or earn. It must stop. It is no good asking the individual—the taxpayer or the industrialist—to cut his coat according to his cloth if the Government go on acting so extravagantly. I suggest that they should set an example.

I finish with a short quotation from the Daily Telegraph on 2nd February, concerning the advice given by the Governor of the Bank of England to the Chancellor on this most vital issue. It stated: At Guildhall last night Lord Cromer removed all ideas that as Governor of the Bank of England he now feels any inhibitions about speaking his mind on the broad issues of financial policy. Before an audience which included the Chancellor of the Exchequer, Mr. Pierre Paul Schweitzer, executive head of the International Monetary Fund,"— the sort of man to whom we shall have to go to borrow money again to bail us out— and a representative array of overseas bankers, he pulled no punches in a vigorous onslaught on excessive spending in the public sector of the British economy. Too often, he reminded them, severe monetary measures have been brought into play to curb activity in the private sector, while public spending continued at an extravagant level. The result was a curtailment of the very activities which are basic to true economic growth and a viable economy, and excessive fostering of amenities which he could only describe as 'marginal'. As the banker primarily responsible for raising the 3,000 million dollar credits which rescued the pound last November the hank Governor was leading from strength. If there was a weakness in the very fine speech made by the Chancellor of the Exchequer yesterday—it was a wonderful speech and well put over—it was that he failed to tackle the problem of public expenditure. I beg the right hon. Gentleman to do that, because unless he does there will never be a recovery of confidence in sterling abroad and we shall never live within our income.

7.52 p.m.

Mr. James Hamilton (Bothwell)

Before the Chancellor made his Budget speech yesterday, I was reading a Scottish newspaper which said: This is Budget Day and nobody expects the Chancellor to be anything other than what he must be—realistic. He is the man who at the end of the day must make sense out of the country's finances. He has to find the ways and means to make the books balance. The country's books. Our books. If he feels that in the country's interests, we must pay more for goods, like spirits, tobacco and beer, and cut down on home spending, then we must pay more and we must cut down. How right were those words. Many of us, knowing our balance of payments difficulties when this Government took office, were very much concerned, and it was with fear and perturbation that we awaited the Budget speech of my right hon. Friend. Realising that we had a Labour Government made it more tolerable for hon. Members on this side of the Committee. For instance, we knew that we should not get a Budget like the one presented to us in 1961 by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). Then the wheels of industry were slowly run down, investments were cut, local authorities were frustrated and consequently, in Scotland, we had 126,000 unemployed.

The right hon. Member for Flint, West (Mr. Birch) said that in Stoke industrialists were giving their employees £5 to try to bring another worker into the factory. This is not the case in Scotland. There it is the reverse. Workers are inclined to pay £5 to get a job. We still have close on 70,000 unemployed. I hope that with the assistance of this Budget we shall soon have the full employment which is enjoyed in England.

What has the Budget done for industry, because this is vitally important to my constituents, to north Lanarkshire and to Scotland? Industrialists now realise that they can go forward and, if a Corporation Tax has been applied, surely the opportunity is now afforded to them to modernise their factories by purchasing the latest machines which will give better performances and provide the increased production which is so vitally essential.

I am sure that the trade unionists will react more favourably to the incomes policy of my right hon. Friend the First Secretary of State. May I also refer to the statement made by an hon. Member opposite that the trade unionists were now prepared to co-operate with the present Government but were not prepared to co-operate with the previous Administration. Let us examine that and put it in its proper perspective. In 1961 the then Government through the Budget which I have mentioned introduced the now famous, or infamous, wages pause. From that day onwards the fear was inculcated in the minds of the trade unionists that there was no possible chance of working with that Administration on a co-operative basis. In the same Budget that Government gave the Surtax payers £80 million. That has not happened in this Budget.

As an active trade unionist at national level and, incidentally, unpaid, I feel that I can speak with a certain degree of authority about how the trade union movement as a whole is reacting to the performance of this Government. I have no doubt at all that, from national to regional and down to branch level, trade unionists will give 100 per cent. co-operation to the Government. I am sure that the trade unionists will react more favourably to an incomes policy.

Mr. Gresham Cooke

It is obvious that they will react more favourably. An incomes policy at the moment is hardly working. As was said by my right hon. Friend the Member for Flint, West (Mr. Birch), there is an increase in earnings of about 8 per cent. over last year, and whatever may be said against my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), the result of the pay pause was—

Hon. Members

Speech.

The Deputy-Chairman (Sir Samuel Storey)

Order. The hon. Member is making a speech and not an intervention.

Mr. Hamilton

I can answer that easily. In many of the industries of this country it is interesting to note that wages have gone up but manpower has been drastically reduced.

It is good to know that at long last we are attempting to get to grips with the question of expense accounts. I found it very difficult to accept, on many occasions when we were fighting for an increase in wages for our members, sometimes as little as 2d. an hour, and could not get it, that industry could not afford it. Yet at the same time, money was spent lavishly under the guise of expenses. Industry seemed always to be able to afford this. How could one expect workers to accept a policy propounded by a Government which was prepared to recognise that state of affairs?

I am also pleased that we have put an end to the TSR2 project, which has so far cost us £125 million, a cost which is mounting fast every week. Granted, we must be concerned about the 20,000 people who will become redundant, but I am sure that they will recognise that other work of more importance to the economy is there for them. Let me give an example. In my own constituency in Newhouse in Lanarkshire, a firm called Honeywell Controls is producing computers. They are the only company producing them in Scotland, and their order book is full to capacity. With my right hon. Friend the Secretary of State for Scotland, I met the managing director, who told us that he just could not get skilled labour. If and when he does get it, he will employ another 800 people. His present labour force is 3,000. With the necessary expected expansion by 1968, they will have a labour force of 5,000.

Many aircraft workers left Scotland during our many years of depression. Now is the time for them to come back. With this sort of approach, I have no doubt that they will all soon be in other and probably more lucrative jobs.

It is gratifying to know that the National Federation of Old Age Pensioners has sent a telegram to the Chancellor congratulating him on the Budget. The measures which he has taken to increase the allowance for single and married old folks have long been overdue and will certainly be of great assistance to many of them. We must at all times realise that we must do all we can for the retired workers. They played their part; we must now play ours. This Government readily recognises that fact.

Since 1959, the money spent to keep our troops in Western Germany, the Middle East and the Far East has risen from £175 million to £300 million, including defence aid. These payments across the exchanges constitute a serious strain on our balance of payments position. Now that we have all the modern and fast means of transport, could we not cut down drastically and use the money for the schools or the hospitals which are urgently needed, or on existing hospitals which are antiquated and unfit for modern surgical requirements. We should not forget that money is needed to give our people the decent houses which many do not have at present.

Local authorities, fortunately, have fared well in the Budget. Many will have increases in their equalisation grants and this will certainly be helpful to them in carrying out many projects which are now awating the necessary money. The fact that we are now allowing them to borrow more from the Public Works Loans Board is in line with the points of view which many of us have expressed for many years. I know that, as a member of a local authority, I was always very conscious of the crippling interest charges which local authorities have to pay to give their people the services, the roads, the sewers, the houses and many other amenities—all very much needed—to give them a true social service.

My mild criticism is in relation to the increase in the spirit tax and the tobacco tax. As one who does not drink himself, I readily recognise that hardship will fall heavily on the shoulders of the men and women who keep the wheels of production moving. I have always subscribed to the view that if a man works hard he is entitled to be paid for his work and, if he feels so minded, to at least one visit to his local. With the increase, there is a distinct possibility that many of them, conscious of their responsibilities to their wives and families, will not now visit these locals. Something which to them is a luxury will be denied them.

The point of view will also put forward that, with the increase in the tobacco tax, there will be a distinct possibility that many people will refrain from smoking. Many of us hope that that will be the case, because it has been stated quite clearly—though not officially—that lung cancer is caused in the main by the smoking of cigarettes. I do not believe that the increase will operate in that direction. Furthermore, the Chancellor said that the increases would become effective as from today. Many hoteliers, publicans and, of course, shopkeepers, will make more from the increases which have been imposed than the legitimate trade profit which they normally enjoy when they sell these commodities.

This is a very mild criticism, because the workers realise that they have a responsibility. I am sure that they are prepared to measure up to their responsibilities. I am sure that they are prepared to face up to the hardships which this Budget has imposed upon them. At the same time, we also realise that each and every one of us has a very important part to play in the country's affairs. We do not or should not have a sectional interest. We are all in this together.

We know that it is absolutely essential that the country should flourish, and I am positive that this Budget, which is coming to a successful conclusion, will solve many of our immediate problems. I am fully convinced that the Chancellor deserves our congratulations for presenting such a Budget. The yardstick I always like to use is this, that the Press have been denuded of any ideas of attempting to criticise it. Therefore, we must assume, on that basis, that we have had a good Budget.

I support the Budget 100 per cent. My criticisms have been levelled in a constructive fashion. I only hope that with this Budget and with the approach of this Government, the economic ills of this country will be cured.

8.10 p.m.

Mr. Frank Taylor (Manchester, Moss Side)

May I, first, express my complete agreement with two points made by my hon. Friend the Member for Louth (Sir C. Osborne). The first concerned the situation of those on fixed incomes, whether pensions or investment incomes. Both parties should seriously think of doing something to help them in their plight. Their position has been bad under Conservative Governments for the last 13 years, but it was many times worse under the Labour Party in 1945–51, when the cost of living rose so fast—and the same thing will happen again. Both parties should start thinking about helping them in some way.

I also agree with my hon. Friend's suggestion that Income Tax should be reduced rather than increased. We all know the law of diminishing returns, and I am sure that it applies here from the point of view of lack of incentive under penalising taxation. In a speech in the Budget debate in 1962 I gave some calculated details of what the effect would be if tax were reduced by 10 per cent. and if there were a consequent uplift of 10 per cent. in production. It showed that one could reduce taxation and that, if the expected uplift in production resulted, one could get greater revenue rather than less. I believe that this policy of penalising by increased taxation people who work harder will fail in the long run.

The First Secretary spoke for an hour, but his speech was to me more like a lecture at the London School of Economics than the speech which I wanted to hear. He generalised on almost everything and seldom got down to details. Even when he did, he was very vulnerable. I should like to draw attention to his derogatory reference to the total of investments in this country. The investment total is parallel with the savings total, and during the last two or three years this has been rising from £1,500 million to £2,000 million a year. The right hon. Gentleman might not like to be reminded that during the five to six years of a Labour Government they saved only £1,000 million in the whole period. When the Conservatives were in power we saved more than double that every year. If he thinks that the present level of saving is bad, let him cast his mind back to what it was when the Labour Party were last in power and contemplate what it will be in a few years' time.

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

Would it surprise the hon. Member to know that savings as a percentage of personal income have continued to rise during the last few months under a Labour Government?

Mr. Taylor

People have not yet paid the extra 6d. Income Tax and the extra 6d. on petrol has not come home to roost in rising prices. The hon. Member must wait until next autumn and see.

Mr. John Biffen (Oswestry)

Is my hon. Friend aware that the increase to which the hon. Member referred is from 8.3 per cent. to 8.4 per cent.?

Mr. Taylor

Yesterday, the Chancellor said that the people to be encouraged are those who earn high rewards through skill and enterprise. But where is there a word in the Budget which will reward people who work harder and who earn higher rewards through skill and enterprise? I have failed to find one word. The Budget is a Socialist measure from start to finish, designed on Socialist principles, and it will give no incentive to people to work harder. The results will emerge as the months go by.

The Labour Party surely forget the immense value of big overseas investments. There was only brief reference yesterday to the £11,000 million of investment abroad, which brings in an enormous income. Continued investment abroad is closely coupled with obtaining orders abroad, and we ought not to ignore it completely as the Labour Party does. In many cases when a firm in this country tries to obtain orders abroad it has to couple them with some investment, even if it is only by way of long-term credits. To cut down investment abroad as the Chancellor intends and to recover to some extent that which is already invested abroad will hit our foreign trade and exports and will not encourage them.

I do not believe that the Chancellor's proposal to abolish taxation allowances on entertainment expenses will achieve the object which he has in mind. First, I do not think that he has any idea how much is involved. Secondly, those who are unscrupulous about entertainment expenses—and I freely admit that there are some—will work hard to find other means of doing the same thing. The people who will be hit are the smaller men, such as travellers, who have to buy two or three beers for a man to whom they are selling goods. It might be said that they ought to achieve the sale without the beer, but the fact is that trade will be prejudiced in that respect.

Where the proposals are most harmful is that although the Chancellor states that entertainment expenses may be charged to tax in respect of foreign buyers, he says nothing about foreign sellers. People who come to this country to sell foreign goods in our markets have full authority to spend as much as they like and to charge it to tax in their own country. They will be competing with sellers in our country who cannot do that. This point has not been mentioned by anybody, and it is an important point which should be considered.

I have said that this is a Socialist Budget, and I have done some calculation of the extra taxes. I suppose that one can say roughly that half-a-pint of beer is equivalent to a single whisky. Under the Socialist principle, the classes who may vote Socialist mostly drink beer, while the plutocrats drink whisky. Yet beer has gone up by½d. a pint and whisky by 1⅔d. for a nip—about three-and-a-half times as much. This is class discrimination if ever it existed.

The Chancellor was in difficulties in presenting his Budget because he had to face the complications which had developed over the last six months under a Socialist Administration. The Labour Party set up a howl about the state of our economy when it came into power and was somewhat surprised to find that some other countries believed that what it said was true. As a result, it has talked itself into a crisis, because it shouted stinking fish and other countries believed what it said. Our prestige has been reduced as a result. It is a sad fact that no other Government in the world trusts the Labour Party. That has been so through the years and is still so, and the more we see them in operation the more we understand why those Governments feel that way.

We are witnessing today a repeat performance of 1945–51. In those years the Labour Government went to America and borrowed £1,000 million. The Conservative Party had to service the debt and to pay it back when it came into power. Now the Labour Party has had to do the same thing with the bankers on the Continent—and the sum is the same, 3,000 million dollars. They have had to obtain this credit. It seems odd that, having maligned the City of London and the bankers and everything to do with big business and finance, they have then had to go cap in hand to the bankers of London and the world in order to be preserved from bankruptcy.

The Chancellor was torn because of the great division in the Labour Party, the rift between Right and Left. He was not free to present an economic Budget without coercion. He had to take all this into account, otherwise the paper covering the cracks in the Labour facet would have burst adrift, showing the two parts—as will happen in due course; it is just a matter of when, not whether.

The Chancellor had another impediment in the preparation of his Budget—the trade unions. He had to take a good deal of notice of what they thought. We should never forget that the unions really own the Labour Party, from all practical points of view. They own it, they control it and they direct it. Of hon. Members opposite, 120 are sponsored by the trade unions; they are nominated by them, and in many cases they are part-paid by them. The trade unions pay largely towards the cost of running their constituencies. They do not do that for love—

Mr. Diamond

Would it be in order, in due course, Sir Harry, for my hon. Friend, if he catches your eye, to reply, in this debate on the Budget, to what the hon. Gentleman is saying about the Labour Party, how it runs its affairs, and so on?

The Temporary Chairman (Sir Harry Legge-Bourke)

I was listening very closely to what the hon. Member for Manchester, Moss Side (Mr. Frank Taylor) was saying. I hoped that he was flaking a passing reference, but the passing is taking rather a long time.

Mr. Taylor

Thank you, Sir Harry. I was trying to show that the Budget was dictated from without the House of Commons. It was decided on by other factors, and the minions here have to do what they are told. That is why the Budget is such an odd one.

The Chancellor had to recognise these things when he prepared it, and one cannot overlook the fact that recognising the dictates of the unions on what the Labour Party does here reflects in the Budget. We have to remember that some unions have openly stated that they are not interested in the well-being of the economy of the country, but only interested in getting more money for their members and fewer hours of work. That does not augur well for the incomes policy which the Chancellor, quite rightly, wants to put through the House.

Will the Chancellor never recognise that the biggest operative force is incentive? It is the biggest force, and the only one that really will produce efficiency in productivity. We shall not get efficiency and productivity by trying to force people to do things—especially in England. There is an underlying streak in Labour thinking that it is immoral, improper and quite wrong to encourage people to work harder, or do anything of that sort. The feeling, quite clearly, is that to be possessed of capital is wrong and that to be an employer is wrong; and it reflects in the Budget. All the way through the Budget is designed from political motives.

The extra 6d. on Income Tax from the November Budget, together with the provisions of this one, will help to kill incentive or seriously impede it, though incentive is the one thing we want to encourage. During 13 years of Conservative Government we progressively reduced all facets of taxation. We put right what the Labour Government had put wrong, and we put the country on a very good line of advance. In the very few months the Labour Party has sought to reverse that policy and take us back to where we were in 1951.

The depressing thing is that we Conservatives will have to come in to clear up the mess again, and repair the damage now being done. We are prepared to do that, but it is so disappointing to find the productive work of 13 years being dissipated in this way. If the Labour Party has any really honest motive, instead of, by hook or by crook, remaining in power, will it now remember that we have to encourage people to work? We will not get them to work harder by trying to force them; it is encouragement and incentives that will produce results.

Can hon. Members opposite not just for once put the interest of the country's economic position before the dictates of Keir Hardie? Will they not, even at this late stage, consider this and announce an amendment to the Budget which will make it a practical Budget? Otherwise, it is quite certain that the cost of living will continue to go up month by month, and the result will be that we shall be in a very bad mess before next year.

8.28 p.m.

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

If I may say so, discussion of the Budget is not assisted by the emotionally charged language employed by the hon. Member for Manchester, Moss Side (Mr. Frank Taylor). His remarks were outrageously partisan, and I was sorry to see some of his hon. Friends—notably the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid)—indicating their support. That was not true, I am glad to say, of all his hon. Friends, particularly the hon. Member for Oswestry (Mr. Biffen)— although I thought that his intervention was not altogether fair.

I will not follow the hon. Member for Moss Side, if he will forgive me, though I should like to take him up on his statement that the Budget was dictated by outside interests—the trade unions in particular. I would say, as modestly as I can, that I think that the Budget has been dictated by an objective situation which the Government inherited, and over which they have no control. I think that the opening paragraph of the Economic Review pretty well sums up the position, though I shall not read it as time is getting on.

There can be little doubt in the minds of most hon. Members—except, perhaps, for the last speaker—that the shadow of the balance of payments completely dominated all thinking in recent weeks in the making of the Budget, and before we can begin to assess the Budget we have to be quite clear about the nature of the balance of payments. The right hon. Member for Flint, West (Mr. Birch) said this earlier, and I was most interested to hear him. I thought, "Here is a conversion from his old-fashioned thinking about the way in which demand dominates the economy". However, the right hon. Gentleman soon fell back into his old ways, and though he is not now present I am sure that he will not mind my saying that his remarks were quite mischievous.

What has gone wrong in the last year? Is it really, as the right hon. Member for Flint, West eventually decided, over-full employment which has been pushing up wages and demand and in this way sucking in imports and further pushing up prices, while output has been at capacity? This is a diagnosis on which many hon. Members have fallen back again and again in recent years and notably—I say this not in any partisan way—right hon. and hon. Members opposite and not merely the right hon. Member for Flint, West. Or is it because of our industrial structure being old-fashioned and not sufficiently export-orientated in a situation where home demand is rising and imports of raw materials are necessary to maintain the expansion?

I shall not come down on either side as yet. I think that the answer is to be found in part of the Economic Report, which is available to all hon. Members. I looked very carefully yesterday afternoon at both sides of the Committee, but very quickly decided that it did not call for an exhaustive and scrupulous count to realise that more right hon. and hon. Members opposite were sporting this Yellow Book than were hon. Members on this side. This does not mean that they have all accepted the diagnosis that if offers, much less the prescription that I shall advance on the basis of that diagnosis.

Nevertheless, I think that the answer can be found by studying the balance of payments, and especially, again, as the right hon. Gentleman for Flint, West said, by studying the balance of trade. In other words, what has happened in the last year to imports? What has happened to exports? I know that these seem obvious questions to ask, but the fact remains that no one has asked them as yet. We know that their relationship has been responsible for a steady deterioration of the balance of our trade since the summer of 1963, but we have had little information as to where the imports are coming from, for what reasons, and why the exports were slow in going out to counter-balance them.

We know that this deterioration, coupled with the relative smallness of our gold and foreign exchange reserves, was enough to make the situation on capital account extremely delicate right throughout last year. The hon. Member for Moss Side must know that at the beginning of every month last year when the House of Commons was in Session, and again during the middle days of those months, when the gold reserve figures and the trade figures were available to us on the tapes, those figures were topics of conversation amongst all hon. Members. Hon. Members took every chance of bringing them into Questions. My right hon. Friend the Prime Minister, when he got the chance at the Dispatch Box, took every available opportunity of putting those figures before the Leader of the Opposition. So we all knew last year that our balance of trade was very serious and that something was drastically wrong.

Again I do not wish to be partisan here. What I am going to say now is perfectly factual. It is widely believed—not merely in the House of Commons; according to public opinion polls it is believed by 9 out of 10 people outside the House of Commons—that a failure on the part of right hon. Members opposite to take corrective action soon enough last year, in face of stagnant production, in face of disappointing exports, in face of soaring imports, in face of a growing trade deficit, in face of an abandoned growth target, and in face of a commitment to a level of public expenditure which bore no relationship to our resources, produced a situation by the autumn whereby the economy was virtually unmanageable.

We did not have to be told later in the year that the balance was out and that in fact the deficit was as high as £700 million to £800 million, subsequently confirmed at £745 million. We did not need this kind of confirmation last autumn. I say that perfectly factually, and if it has struck some hon. Members opposite as being partisan I assure them that it is the last partisan note I shall strike.

I want to have a look at the balance of trade, because I think that this is central to a proper assessment of our economic situation, because only in this way can we discover just how excessive our imports were, for what reason, and how sluggish our exports are. What, incidentally—this is the first question of several I want to ask—accounted for our extra imports? In recent weeks I have looked very closely at the accounts relating to Trade and Navigation of the United Kingdom for 1964. No one will he surprised to hear that excessive imports were the main cause of the crisis. No one will be surprised to hear that, but the hon. Member for Moss Side did not say so. He looked in all manner of directions for the explanation but this one. He came up with some odd explanations, but not with this one.

I tell the hon. Gentleman, in case he does not know—perhaps he does not want to know—that imports were pulled in between 1963 and 1964 for five main reasons. Worsening terms of trade accounted for 20 per cent. of our extra imports; short-run bottlenecks in supply accounted for about 25 per cent.; full domestic capacity accounted for 10 per cent.; uncompetitiveness accounted for 15 per cent.; and special factors—incidentally, none of the special factors even closely resembled those put forward by the hon. Member for Moss Side—accounted for 8 per cent. The remainder of the increase in imports was the result of normal domestic growth.

It has been interesting to read today, according to a news letter issued yesterday by the Economic Development Committee for the Engineering Industry, that imports as a percentage of exports in the mechanical engineering market have grown from 18 per cent. over the past ten years to 39 per cent.

Here we are beginning to get near the explanations. Again we can see how just irrelevant was the offering of the hon. Member for Moss Side.

Mr. Frank Taylor

Would the hon. Member not agree that in the last three of the years which he has been talking about the cost-of-living rose six points, that is two points a year? That does not seem quite in conformity with these dismal tales that he is unfolding now about the terrible things that were happening to our imports and exports.

Mr. Daffy

That is not a fair assessment of the position, because the rise in the cost-of-living spurted only in the last of the three years that the hon. Member has in mind. The reason, as he might have expected from my diagnosis, was that the economy was coming under a strain.

If the diagnosis is correct, several steps need to be taken to put right our trading difficulties. The first and obvious one is to increase exports, if we are to pay for essential foodstuffs and raw materials. They have become more expensive in the last year. The short-run bottlenecks in supply have been caused by an increase in demand which has exceeded the speed with which existing unused production facilities can be put into operation. There is need either to slow down demand in these sectors where the bottlenecks occur, or to improve the flow of production.

Thirdly, full domestic capacity, especially in the engineering industry, presents a more serious problem and suggests that industry is not sufficiently viable to serve the economy as a whole when demand rises beyond a certain rate. Bottlenecks in engineering not only have an adverse effect on our export trade but they have an effect on the economy as a whole by delaying the supply of engineering products which are required as factors of production elsewhere than in the export trade.

The first remedy is to spotlight the bottlenecks. In this, and especially in the case of the short-run bottleneck, the work of the little "Neddies" will be indispensable. I was glad to hear my right hon. Friend the Secretary State refer to the importance of the "Neddies" and relate them further to the national plans which are now in process of being drawn up. I was specially interested in my right hon. Friend's announcement that inquiries are taking place. Here we are beginning to get at the facts which we all need, not the kind of analysis that was offered to us by the hon. Member for Moss Side.

Mr. Peter Mills (Torrington)

Does the hon. Member not think it true to say that we all bear responsibility for this problem? We cannot pick out one section of the community. Is it that we are not prepared to work hard enough and that if we want the good things of life productivity must rise among all of us? We all bear responsibility for the last two or three years.

Mr. Duffey

I said exactly that two or three minutes ago, but I am interested to hear the hon. Member say it, because it is a quite defensive attitude which he is now adopting in contrast with this attitude a few minutes ago when he appeared to be entirely in support of the remarks made by the hon. Member for Moss Side.

The little "Neddies" should not scruple to probe as far own as individual product lines to isolate the difficulties and make recommendations for the elimination of bottlenecks as far as they possibly can. My right hon. Friend said this this afternoon and therefore he is way ahead of me. Clearly, with over 80 per cent. of the worsening import bill caused by factors other than the uncompetitiveness of our products, deflation does not seem to be the right way of tackling these problems. Nor would exports greatly improve, in so far as the disappointing performance in engineering products, which account for 25 per cent. of all manufactured exports, was due to domestic bottlenecks. Any reduction in home demand would, of course, remove some of the pressure from the overworked sections of industry, but it would not remove the structural defects in industry which are mainly the cause of these sections being overworked. When we look closely at the ability of our industry now not merely to provide exports in the volume we need to offset imports but also to provide import substitutes, we see how irrelevant is the concern expressed by the right hon. Member for Flint, West for a return to prescription charges, a call echoed by many of his hon. Friends. Prescription charges are quite irrelevant to our real problems.

Mr. J. Bruce-Gardyne (South Angus)

rose—

Mr. Duffy

If the hon. Gentleman will forgive me, I have not time to give way again. Perhaps he will be fortunate enough to catch the eye of the Chair and be the next to speak.

Moreover, the investment and adaptation needed to improve capacity in these areas is more likely to originate when we are not embarking on a deflationary course, in other words, when industry is doing well, rather than in times of deflation when output and productivity is low.

In applying my analysis to the situation, I return once again to the arguments advanced by the right hon. Member for Flint, West. Incidentally, it was interesting to note how he almost filled the Chamber, how so many of his hon. Friends gathered to hear him. I cannot believe that they all came in to be amused by him, amusing though he is. It was clear to me that many of them came because they thought that he would say the sort of things they wanted to hear or thought they might be unlikely to have the chance to say themselves. I am not just picking on the right hon. Gentleman now. I believe that I am, in fact, picking on an attitude which is not uncommon on the benches opposite.

However, before applying my own analysis to the situation, I wish to raise what I regard as the important questions in this connection. First, how far has the Budget satisfied overseas confidence and, therefore, facilitated the new loans which must be negotiated almost at once from the I.M.F.? I think that one can say that it has gone some way in this direction, and at the cost of only a moderate deflation, which is very welcome. General deflation would set at risk our plans for social, educational and housing programmes. Britain cannot afford such economies if she is to become a modern and efficient nation.

The second question which needs to be raised, especially in view of the comments made not long ago, is: how far does the Budget help exports? Undoubtedly, some goods are uncompetitive abroad. Rarely, however, is this observable in industry as a whole. Rather, it is within an industry that lack of competition is apparent in certain product lines, not so much between industries as within an industry. Some firms in the same industry have a good export performance while others have a poor one. Some products sell well a broad and others sell badly. Here the remedy seems to lie not in the hands of the trade unions necessarily, not in the hands of the workmen or the Labour Party, but in the hands of individual manufacturers, industrial designers, export marketing men and maintenance engineers, long before one can point the finger at the poor man at the work bench.

A more general deflation would certainly not contribute towards greater efficiency, yet, because of the continuing bouyancy on the economy as well as other trends, the pressure of wages and prices, the low level of unemployment, the recent wage awards and wage drift generally, the economy is bound to be sensitive to inflation. I see the hon. Member for Worthing (Mr. Higgins) in his place, and I should like to point out to him that wage drift may be due to many things, but it is due in part to the inability of management to use labour more productively, to make better use of labour in industry. Here again, the responsibility is on management rather than on the shoulders of the workmen. The final factor is the high level of Government spending, especially overseas. Both sides of the Committee have expressed concern about this today.

Because of all these trends, there is bound to be a considerable sensitivity to inflation, and I fear that there may be pressure on the Chancellor this year. Because there are certain monetary taps which the Chancellor can turn on and turn off this year without another Budget, I am concerned that he should not yield too easily to this pressure. In the use which he makes of any of these monetary taps, I hope that he will bear in mind that there are deflationary influences with an opposing tendency at work in our economy, the deflationary impact of the Budget itself, the 7 per cent. Bank Rate and its effect on investment intentions, the high level of savings, and the further likely rise in production.

I think I have said enough to leave the House in no doubt that I am an unrepentant expansionist. Hence my concern that global control of demand should be regarded as no longer appropriate to Britain's economic difficulties. We must get away from the thinking of the right hon. Member for Flint, West, with all due respect to him. In our present situation the well known arguments about the uncompetitiveness of British industry, the need for general deflation, the pressure of total demand—I have heard the right hon. Gentleman use that kind of language again and again since I have been in the House—rarely get to the root of the problem and rarely identify the actual industries or products which cause our economy to falter. The need is to pick out the bottlenecks and act upon them. This calls for selective development.

I was pleased to hear the Chancellor say yesterday that he will give special assistance to local authorities in the less prosperous areas and make it possible for them to obtain a higher percentage of the money they require from the Public Works Loan Board. My right hon. Friend must not expect such applications to come only from the development area. They will come from areas with just as much unemployment and just as heavy a burden of heavy industrialism in terms of old roads, houses and schools, areas where social problems are just as acute as in the development areas. I am thinking of my constituency and the Colne Valley Industrial Council, which I have no doubt will make early applications.

Our situation calls for the encouragement of the growth of industry of the kind that my right hon. Friend announced this afternoon, as well as the switching of resources into other lines. That is why the decision on the TSR2 is very welcome. The overall need is to stimulate the underlying growth of the economy where our long-term salvation lies, which requires capital formation and investment, and, beyond that, hard savings, none of which, if I may say so in a mildly critical fashion, received the attention in the Budget that they will require. However, as my right hon. Friend said yesterday, he cannot do everything in one Budget. No doubt he will attend to this in his next Budget. Indeed, he has already laid the foundations and shown the direction in which his mind is working.

The last question that I want to ask about the Budget is how far it provides the right environment and climate of opinion in which all this is possible, in which, in other words, my right hon. Friend the Minister of State for Economic Affairs, as well as his right hon. and hon. Friends at the Ministry, will be enabled to do their job, on which the long-term salvation of our economy depends. To put it another way, how far does the Budget promise to remedy the structural defects of British industry? How far is it likely to make for increased competitiveness?

My right hon. Friend has already made a start by setting up economic planning machinery which can channel investment in the brightest growth prospects, while an incomes policy will try to limit the rate of increase in wages and profits to the level which is compatible with the growth of output and long-term price stability.

Short-term economic solvency clearly lies in the direction of greater exports. This means price stability if we are to get the competitiveness of exports that we need. It is necessary to frame another Budget that would establish the right climate of opinion for an incomes policy and a price review body. We got this in the first Budget last November, and I think that we have got it again this week. This is something that a fair and just Budget will almost certainly succeed in doing. Thus, it will further the work of those who are concerned at the Ministry of Economic Affairs for the longer-term measures that are required to remedy the underlying weaknesses of the economy.

The Corporation Tax and the Capital Gains Tax can play a positive role in an incomes policy because they can assure trade unionists that a larger share of the national cake will not go to profits compared with wages and salaries. For these reasons, they are not, as the right hon. Member for Bexley said, irrelevant.

In conclusion—I am delighted that the Chancellor is present to hear me say this—I think that altogether this is the best Budget statement since the days of Cripps. It recaptures some of the character and honesty of that economic visionary.

Faced with the urgent need for short-term measures, my right hon. Friend has also taken steps in the direction of far-reaching reform. This, as Liberal Members have said—I am sorry that they are not here—is a "wind of change" Budget. That is a good description. It is a Budget that can reconcile, as my right hon. Friend claims, fast economic growth with a satisfactory balance of payments. But if the Chancellor was to achieve his stated aim of reassuring foreign confidence and strengthening the £, then he had to claw back at least £250 million of purchasing power in a way that would not prejudice the work of the Department of Economic Affairs, which has been so successful so far in fashioning an incomes policy. In the event, my right hon. Friend has surpassed the expectations of his right hon. and hon. Friends and also those of right hon. and hon. Members opposite if only they are frank. The Chancellor has produced a fair as well as a forward-looking Budget.

My right hon. Friend has done the right thing by the economy, but he has not taken it out of the working man. There is not a wage earner who can put his hand on his heart and say that he has been unavoidably hit by the Budget. There is not a businessman who can do likewise and assert that he has been unfairly penalised. There is not a pensioner on whom Labour's first two Budgets have not conferred substantial benefits. There is not a holder of sterling who cannot but feel reassured. There is not an hon. Member opposite who cannot but feel inwardly gratified that, at long last, steps are being taken in the management of our economy that are long overdue. To have gone so far in the satisfaction of such disparate claims is the achievement of my right hon. Friend.

8.52 p.m.

Mr. Rafton Pounder (Belfast, South)

While I wish to concentrate my few remarks on the two new taxes outlined in the Budget I would like to make one or two introductory observations. The Chancellor of the Exchequer gave the impression yesterday of appreciating the need to encourage investment in development areas, but it was regrettable that, while he mentioned the north-east of England and Scotland, he did not mention Northern Ireland in that context.

Would he be prepared to consider some form of tax structure for these areas whereby firms going to development areas were encouraged while those contemplating development in overcrowded areas were discouraged? I am not wedded to any form of discouragement, but something like a payroll tax would be fairly easy to implement and is perhaps worth considering.

Both inside and outside the Committee—no doubt we shall hear a great deal more about it—the initial reaction of anyone connected with the aircraft industry is that the cancellation of the TSR2 sounds like the death knell of the aircraft industry. If so, that marks a disaster of unparalleled magnitude.

I want to draw attention to what, to me, is the most severe individual increase in tax contained in the Budget—the increase of 50 per cent. in the road tax on goods vehicles. This must be seen together with the 6d. increase in the petrol tax barely six months ago and is bound to strike very hard at those areas which are at the end of a long transport line and which are vulnerable in the extreme to increases in freight costs.

Just as my hon. Friends representing West Country and Scottish constituencies have drawn attention to these factors, I must draw attention to the severe effect that this could well have upon the developing economy of Northern Ireland. No doubt, when we reach Committee stage of the Finance Bill, my colleagues will have a number of things to say about it.

Before dealing with the two new taxes, I give my welcome to the increase in the age exemption allowance. This is very much a credit item. But why has the Chancellor only now told us that White Papers are to be prepared for the Corporation and Capital Gains Taxes? Could these not reasonably have been given to the Committee in advance of the Budget statement, or at least with it? There are many companies which have already started the first basis year of the next tax and which are still in the dark as to how decisions which they may take will affect their tax liability. This is particularly unfair and unfortunate.

I recall that in his autumn Budget speech the Chancellor stressed three points—the modernisation of the tax system, the removal of anomalies and the provision of incentives to dynamic companies to develop at a rapid pace and to use their ploughed back profits. Those are very laudable aims, but does he seriously imagine that the Corporation Tax will remove anomalies or modernise our tax structure?

It appears that while there are many countries in Western Europe which have adopted a form of corporation tax, nevertheless their rates of personal tax in these countries are very much lower than those prevailing in the United Kingdom. If my information is correct, and I believe that it is, in Western Germany retained profits are charged at 51 per cent. whereas distributed profits pay only 15 per cent. One got the impression from the Chancellor that he was thinking in terms of a tax with a ceiling not greater than 40 per cent. This does not give any encouragement to firms to plough back undistributed profits.

I was not in the House when the Chancellor of the Exchequer of the late Government removed the two-tier structure of Profits Tax. If I had been, I would have profoundly disagreed with him and I hope that one day we can get back to some form of tax incentive for those companies which do not distribute their profits.

We all acknowledge that there are anomalies in the tax structure and that no one would wish to perpetuate them, but can we be certain that we are not running a grave danger of creating a whole host of new anomalies by the creation of a new tax? Surely the way in which to get rid of anomalies is within the existing tax structure and not dreaming up a completely new one.

To revert once again indirectly to the industrial development of my own part of the United Kingdom, Northern Ireland—and this applies to Scotland and the North-East is well—we have been fortunate in attracting a good deal of foreign investment in recent years. I can speak only for Northern Ireland in this, but without this investment we would not have been able to make the substantial strides which we have made. Many of these overseas companies have come to developing areas because of tax advantages, such as investment allowances and so on, and it would be extremely unfortunate if because of the new tax they felt any sense of having been misled because they subsequently found that they could not have the tax advantages for which they had hoped. This would be desperately unfortunate.

Mr. Callaghan

It would be so unfortunate that the impression should be corrected straight away. I am sure that the hon. Gentleman understands that the changes in taxation which are being made will have the effect of encouraging foreign investment in places like Northern Ireland, because there will be substantial tax benefits to be derived from them.

Mr. Pounder

I am delighted that the Chancellor of the Exchequer should have intervened. I am very pleased to hear what he has said and I am sure that everyone hopes that his words will lead to a substantial reduction of the unemployment level in Northern Ireland.

There are one or two points on the Capital Gains Tax which I do not fully understand. This particularly concerns small businesses. Very often, a small business has to be sold on the death of the proprietor. Is that sale to result in the payment of Estate Duty plus a Capital Gains Tax on some of the assets within the business?

Again, I am thinking particularly of Northern Ireland, where we are a community very largely of small businesses. It is one thing for businesses to be amalgamated in the form of ordinary competition. It is another thing when that business, unfortunately, succumbs through something in the nature of a Capital Gains Tax heaped on to Estate Duty. In the United States the transfer on death is not counted as a realisation for the taxation of capital gains.

One thing which is not altogether clear is whether these new taxes, particularly the Corporation Tax, will place an unnecessary premium on caution in the coming year or two. Times without number during this debate, both yesterday and today, Members on both sides have rightly placed considerable emphasis on the importance of encouraging industrial expansion. It would be sad if a premium were thereby to be placed on this expan- sion merely by virtue of the fact—I come back yet again to this point—that we have not been given full particulars of the Corporation Tax. I do not know whether the Chancellor of the Exchequer can tell us how soon before the Second Reading of the Finance Bill we will see the White Paper on this very important tax.

I am not thinking as an accountant, although I appreciate that the Budget, depending on how one looks at it, could be an accountant's bonanza or an accountant's nightmare. I notice a fellow member of my profession beaming on the benches opposite. Whatever may be the upshot for members of my profession—and this is their business—one must be very concerned with the position as it will affect industry. I am not, I admit, as concerned about capital gains as I am about the Corporation Tax, because I think that no one on either side will dispute for one moment that those people who indulge in speculation should be compelled to make a fair contribution to the economy.

To my mind, it is monstrous that people who work hard and who are solely dependent on earned income, and are taxed under P.A.Y.E. and have no fringe benefits should be taxed to the hilt while those who can avoid paying some of their share of taxation have been able to escape. To that extent, I welcome the broad principle of the Capital Gains Tax.

9.3 p.m.

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

My hon. Friend the Member for Belfast, South (Mr. Pounder) has made a very valuable contribution to the debate. It was no less valuable for being so succinct.

The experience of any hon. Member speaking at this Box for the first time must be not unlike that of the pioneers of the iron ship who, as their vessel slid off the slips, were in some doubt about whether it might go straight to the bottom of the sea. On consulting the "Encyclopaedia Britannica", I found that a ship called "Great Britain" did this and remained aground for 11 months. However, she was subsequently got off and repaired and afterwards did good service. I suppose that I can take comfort from that.

My hon. and learned Friend the Member for Northwich (Sir J. Foster), on coming to the Dispatch Box in similar circumstances 10 years ago, said that he looked in his diary and saw the phrase "wind up". I share his feelings.

Before I come to the main part of my speech, I should like to ask the Chancellor of the Exchequer to look at something which perhaps could be corrected before the Finance Bill is drafted. In column 270 of HANSARD for yesterday he referred to accruals being caught by the new regulations and no longer being transferable into investment dollars but into official dollars. He will remember that we have had a number of battles over the years in connection with German restitution payments and remittances. Rather against the best judgment of the Treasury and the Exchequer, the House agreed that these payments should be freed of British Income Tax, and the recipients, none of whom was a person of large means, have benefited from the remittances being made to them at the premium rate, which meant perhaps an increase of as much as something over 10 per cent.

I wonder whether this might not be an occasion when the Chancellor could show his appreciation of these matters by freeing these remittances, which we have already agreed should not be taxed here, and allowing them to be transmitted at the old investment rate. I leave it at that in the hope that it may occur to him to make an alteration before the Second Reading of the Finance Bill.

This is really the great annual financial debate of the House of Commons, when we range very widely. It is an occasion when we should look seriously at the main principles in which we are involved. Today, there are two outstanding issues. One is sterling and the other is the incomes policy. These are, in some respects, sacred cows. They are ju-jus. We believe in them implicitly.

It has been said that when everything is rotten, it is man's duty to cry stinking fish. The corollary of that is that one should not cry stinking fish unless one is satisfied that everything is rotten. In examining seriously these two highly important concepts, I do not wish to give the impression that I am crying stinking fish, because I do not believe that things are rotten. Nevertheless, they bear investigation.

My right hon. Friend the Member for Flint, West (Mr. Birch), in the course of a speech which, I think, gained admiration on both sides of the Committee, even on the side of the hon. Member for Colne Valley (Mr. Duffy), dealt fully with the assumptions on which the incomes policy is based and I do not wish to go further into it now. Being, however, what the Leader of the Liberal Party has described as an amateur politician, but also being a professional banker, I feel perhaps qualified to speak about sterling and to speak about it in a professional way.

I have the experience day after day of trying to maintain the liquidity of my bank, trying to maintain its assets at a time when money is being withdrawn at very short notice. These movements of foreign deposits are painful in their effects and difficult to deal with. I am bound to say, however, that the assistance of the Bank of England in trying to smooth out these problems is invaluable.

Basically, the position of sterling is a question of confidence. It is no more than that. I would say to the Chancellor, to use the old words, that fine words butter no parspnips. Today, after the right hon. Gentleman's speech yesterday, there was an early improvement in rates, but they were not held and conditions in the short loan market are no better today then they were yesterday. This is a disappointment to me. It would make my life much easier if they were better. But I still think, taking, perhaps, a parochial view, that one of the ways to encourage foreign confidence in the £ is to take steps to encourage earnings abroad and also to reduce indebtedness. In both those respects, this Budget simply will not do.

As to earnings abroad, I remind the Chancellor that last year, taking the figures from Table 14 in Command Paper 2629, our invisible earnings were £435 million for interest, profits and dividends, making, with other services of £239, a total of £674 million—and this does not in any way include anything for transport.

Now, £674 million is an enormously important contribution to our balance of payments, and I would have thought two things about it, first of all, that we would not wish to see it diminished in any way, and secondly, that we would do all we could to encourage it, because I think that one of the merits of invisible earnings is that they do not need export of physical goods from this country to produce them. I cannot see in the right hon. Gentleman's Corporation Tax proposals anything but a discouragement to foreign investment.

I think that I would agree with his analysis, that probably we had, over the years, over-invested abroad. I am not at all put out by his suggestion that we should try to reduce the investment dollar pool in the method he suggested. It is more important that we could have over-extended it, and it may be sensible to reduce it, and I would not quarrel with that, but I do say that on the fiscal side he ought to think very hard before discouraging by tax these foreign investments. It will not take much of an invitation from the Chancellor for various important companies with earnings abroad to move themselves abroad, too, and, though he is right to prevent it, it produces the sort of situation in which no Chancellor wishes to find himself.

We should like clarification whether, perhaps, when he deals with the renegotiation of double taxation agreements, which is so important, he will continue to extend to the Union of South Africa the benefits of being in the Commonwealth area. As he well knows, the Union enjoys those benefits now, but our return in interest from our investments in the Union was in 1963—I have not the figures for 1964, and I take the 1963 figures from the Board of Trade Journal, page 734—our return in interest was no less than £213 million. This is a very, very large proportion of our invisible earnings, and I hope that before he gives way to any political feelings on this subject he will consider the effects on our balance of payments if this very large contribution were substantially reduced.

So much, if I may say so, for investments abroad. I think that, in the light of what has been said about the Corporation Tax, there is no sense in my continuing that argument any further, and I come to the other side of the question, which is diminished borrowings. This is a question in which I think the Chancellor, too, has a very real interest, but I feel bound to say that this interest is somehow or another not one which seems to be shared by all of his colleagues, and particularly the Secretary of State for Economic Affairs.

From Cmnd. Paper 2629, Table 2, I see that private savings are estimated in 1964 at £1,887 million, from which is deducted £66 million for stock depreciation, leaving a net figure of £1,821 million. Out of this there is private expenditure on housing amounting to £694 million, leaving £1,127 million, in all, available for investment in the private sector. I have left company savings out of this account because, whatever else companies do, they do not expect to lend to the Government.

Against this the right hon. Gentleman has a borrowing requirement of £1,267 million, of which the nationalised industries and shipbuilding credits are taking £743 million and the local authorities and other public bodies £525 million. What is staggering is the rise between the expenditure under these heads in the past year and in the coming year. In the past year the nationalised industries borrowed £560 million, so their borrowing was up by 30 per cent. The local authorities borrowed £218 million, so their borrowings were up by nearly 100 per cent.

On the other hand, this is the first year in which estimated savings in the private sector do not cover these amounts that have to be raised. In 1964–65, we had private savings of £1,137 million against a borrowing requirement of £852 million, and in 1963–64 private savings of £1,098 million, against borrowings of £526 million. It seems, therefore, that this year we are to rely to a greater extent than ever before on borrowings abroad to meet our internal requirements.

Turning to the nationalised industries —and I know that over the years the Minister of State, Department of Economic Affairs, has developed a close knowledge of this matter—I would refer to the White Paper Cmnd. No.1377, on the Financial and Economic Obligation of the Nationalised Industries, which was published in April, 1961, and reprinted in April, 1963, as I imagine this still governs the relations between these industries and the Ministries concerned.

The striking fact about the nationalised industries is not only the large increase in their Exchequer drawings, but the greatly reduced proportion of their capital requirements which they are now prepared to generate for themselves. For example, the National Coal Board, which, in previous years, has been making repayments to the Exchequer, in 1964–65 borrowed £29 million from the Exchequer out of a total investment of £105 million. In 1565–66, it proposes to borrow £53 million out of a total investment of £93 million. Thus, the Exchequer contribution to the Coal Board expansion has risen from roughly 28 per cent. last year, to 55 per cent. in the present year.

The Gas Council, which took £49.8 million from the Exchequer in 1964–65, proposes in 1965–66 to take £67 million, and this is now nearly 60 per cent. of its requirement. London Transport intends to borrow £16 million, as against £13 million, and this means that the Exchequer's contribution rises from 62 per cent. to 70 per cent. Even the Electricity Council, with its fine record, is taking £48 million more from the Exchequer in 1965–66. The Exchequer's contribution to its capital investment programme stayed at 60 per cent. instead of reducing to 50 per cent., as the Board once hoped, and as I think the Minister of State will confirm we heard in evidence.

How has this come about? In paragraph 24 of Cmnd. 1337 there is a note on how the discussions concerning investment and borrowing are regulated, which shows that the Government will each year fix an upper limit of the amounts to be spent by investment by the undertaking during the two years ahead. In paragraph 25 it is unequivocally stated: These requirements flow from the Government's responsibility to keep public sector investment generally within the nation's resources … I must ask the right hon. Gentleman whether, in his estimation, this is a year when the nation's resources are so abundant that we can afford an increase of 30 per cent. in the Exchequer lending to the nationalised industries especially when the proportion of the expenditure generated by the industries themselves is decreasing?

I referred earlier to the figure of £1,137 million as being the amount of private savings available for investment in 1964. So, giving the Chancellor an increase of 5 per cent. in 1965, he will have about £1,200 million available on this basis. In case the Minister of State is concerned about this, I must tell him that I am deducting private houses from the figures of savings, on the basis that I have heard no plan to curtail private housing. The right hon. Gentleman therefore has £1,200 million savings, against which he has a borrowing requirement of £1,300 million. He has a Budget surplus of about £500 million. I am not including the £35 million on the TSR2 as a real saving. The Chancellor, therefore, has to compete with private industry for £800 million—two-thirds of the public savings which can be expected. Even if the savings movement brings about £300 million, this leaves £500 million to find.

I propose now to take up a point made by my right hon. Friend the Member for Flint, West, whether this is a sensible moment to start upsetting the machinery of the gilt-edged market as the proposed Corporation Tax is doing at the moment with this amount of borrowing. It would not be proper to comment upon the relations between the First Secretary of State and the Chancellor, but nobody could have listened to their speeches without noticing certain discrepancies. One got the impression, perhaps wrongly, that whereas the First Secretary was captain of the cricket club the Chancellor had been demoted to the rôle of treasurer. When we are discussing tactics on the cricket field the treasurer has little to say. He is more important when the team goes back to the pavilion. At the moment, it does not seem that he has been fully consulted in these matters.

There were one or two points in the two speeches where there seemed to be flat contradictions. First, on the question of investment allowances, the Chancellor said that by and large he did not feel called upon to provide a general additional benefit to industry by increasing the rate of allowances".—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 257.] He corrected my hon. Friend the Member for Belfast, South and said, as I understood it, that investment allowances would be available—

Mr. Callaghan

Overseas investment allowances.

Sir H. d'Avigdor-Goldsmid

I see. Yet it seemed that one of the burdens of the speech of the First Secretary was that we should encourage investment by every possible means, presumably including investment allowances. He referred particularly to computers.

I am not going to criticise the Chancellor for the taxes that he has imposed on beer, cigarettes and whisky, but they seem to conflict with the demand for an incomes policy, because it is not right to pretend that every worker engaged in industry is a teetotaller and nonsmoker. These increases will certainly have an effect on the expenses of the workers, and it is reasonable to suppose that they will, therefore, ask for greater remuneration, especially as the First Secretary referred specifically to the need to increase amenities and attractions in regions where he expected particular activity.

The right hon. Gentleman also said that he thought that the nationalised industries should expand themselves and increase their borrowings. All these things seemed to be matters in respect of which there was a conflict between what the First Secretary told us today and what the Chancellor told us yesterday. Whereas the Chancellor has rightly put sterling first, the First Secretary has other views, and has to some extent given the impression that the currency will look after itself.

I am very grateful to the Chancellor for coming here this evening. I have made the last speech of the evening in these debates for some years now and the right hon. Gentleman has always been busy on television. I congratulate him on his attendances at his seminar. I thought that his speech was one of the best essays on taxation that I have heard. I am sure that his tutors were very delighted with him. He was so pleased with his speech himself that it took him a long time to get to the Budget itself. He spent about an hour and a half dealing with taxation matters of great interest. They were well exposed. The Daily Mirror gave him credit for a tenor voice. We had a very fascinating and entertaining speech, but we did not get the sort of Budget that the country needs at the moment.

I have tried to give clearly and decisively the reasons why it does not meet the requirements from the point of view of sterling. There is plenty of time for the Chancellor of the Exchequer to change his mind. If he does not, I think that we shall find ourselves in a very difficult position. In my opinion, there is always time to do the right thing and I think that the right thing at the moment is to reduce borrowings when we can and encourage earnings where that can be done without dislocation to the economy. Those are the two major points which, I think, the Budget does not meet.

On a rather similar occasion there was a Member of the Upper House called "Lord Lundy". He was summoned by his grandfather, who said to him: We had intended you to be The next Prime Minister but three. The stocks were sold, the Press was squared, The middle-class was quite prepared. But as it is my language fails, Go out and govern New South Wales.

9.26 p.m.

The Minister of State, Economic Affairs (Mr. Austen Albu)

The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) certainly brought this debate to a close on a quieter note than that on which it started. That is not unusual on the second day of the debate. He also compared himself to a previous first appearer at the Dispatch Box who found in his diary the entry "wind up". This is the first occasion on which I have appeared at the Box on this side of the House, except in a rather stormy Question session. I am in the fortunate position of having my diary kept by my secretary, and I do not know whether "wind up" is written in it or not.

Mr. Birch

"Courage".

Mr. Albu

I thank the right hon. Gentleman. I mention this only in order to tell the hon. Member for Walsall, South that I feel in the same position as himself in this matter.

Perhaps I may deal briefly with the remarks about borrowing concessions for local authorities in the development areas and also what the hon. Gentleman had to say about the borrowings of nationalised industries. Of course, the concessions for the local authorities does not alter the total demand. It is merely a transfer from the general market to the Public Works Loan Board. Both savings have to be provided in the economy though I admit by different machinery. As to the nationalised industries, I can assure hon. Members that they are being held to the returns on capital fixed by the previous Administration. In fact, as the hon. Member for Walsall, South will know, one semi-nationalised industry—the Post Office—has recently put up its charges in order to ensure that it shall be able to maintain this. We were forced to do so, as the hon. Gentleman will know, because this matter of ensuring that the Post Office is able to meet its commitments had been overlooked by the previous Administration.

Regarding the electricity industry, as he points out, it has been borrowing rather more than originally had been thought. We discovered that the electricity industry had been investing too little in the recent past and would have to raise its rate of investment if it was to keep up with the demand, and therefore the amount raised on borrowing would have to go up. Probably we had some difference of opinion on this. I never held the view that it was right to fix the proportion of self-investment for an industry. One should fix a reasonable return on capital and if expansion is faster than can be dealt with by the earnings of the industry, it should have to borrow.

Except for the violent reaction of some hon. Members opposite to the Budget, the rather synthetic reaction in particular of the right hon. Member for Bexley (Mr. Heath), and the reaction from those industries directly affected by the tax changes, the Budget has been very well received. This certainly seems to me the general view in industry. In spite of what hon. Members continually say, I should have thought that, on the whole, the Press reception in the serious newspapers was good. It is certainly true that the reception overseas has been good. I am practically certain that the situation in the markets to which the hon. Gentleman referred will shortly be restored. At least, it should be, if the statements made by those overseas who are most concerned mean what they say.

The hon. Member for Manchester, Moss Side (Mr. Frank Taylor), in a typically unpatriotic speech, said that other countries were hostile to a Labour Government. That does not seem to have been the experience of my right hon. Friend the Prime Minister in his visits to Bonn and Paris. When I was in the United States recently at the American Bankers Association Conference, I found considerable friendliness among American bankers, as well as a considerable admiration for the way in which the Government were tackling the problem, an admiration in particular for the courage of my right hon. Friend's first Budget.

Mr. Frank Taylor

rose—

Mr. Albu

No, I had better get on—

Mr. Taylor

The hon. Gentleman made a mistake.

Mr. Albu

If I may give two examples from industry— there are many others which many of us know about privately —the first is the comment of Mr. Frank Kearton, chairman of Courtaulds, who said: In view of the national situation, Mr. Callaghan has taken a very sensible, constructive approach. The proposals relating to the corporation and capital gains taxes are no more than one would have expected. My other example is the comment of Mr. Donald Stokes, managing director of Leyland Motor Corporation: Considering the difficult economic circumstances of the country at the present time, I think this is a fair and equitable Budget, and a good platform from which to launch Mr. Brown's incomes policy. Most people would agree that the Budget should allow for the rate of growth which we have planned and for an increase in exports, particularly in the engineering industry, in which the orders for exports are very strong and in which it is necessary, of course, to make room.

No one pretends that the figures used in this exercise are other than the best judgment of the experts, but this is not the end of the exercise. My right hon. Friend retains many weapons to deal with the situation if steady expansion starts to flag, or, as hon. Gentlemen opposite like to put it, if the expansion becomes too heated. He can reduce the Bank Rate, he can deal with credit control and, perhaps most important of all, he retains the use of the regulator either way.

If there has been any criticism of the Budget, it is that we have not gone far enough in restricting overseas expenditure and in providing direct incentives to productive investment. On overseas expenditure, it would hardly have been possible for a Government which has been in office for such a short period to have completed a review of commitments entered into by a Government which was in office for 13 years, and which never faced up to the deteriorating position of our balance of payments. As the Committee has been told, these overseas commitments are all under stringent review at present. As to the direct incentives to expansion, to which my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) made a very interesting reference last night, this criticism overlooks the very substantial steps which are being taken to make the structural changes in our industry which are the essential accompaniment to my right hon. Friend's measures to maintain the economy in balance.

The right hon. Member for Flint, West (Mr. Birch), in a typically witty, aggressive and reactionary speech, tried, as one of his hon. Friends did, to drive a wedge between my two right hon. Friends, between the Treasury and the Department of Economic Affairs. I do not think that they were very successful. I think that the point came out very clearly in the two speeches of my right hon. Friends. My right hon. Friend the Chancellor of the Exchequer is dealing, as is proper and right, with the situation as he finds it at present and with the strength of sterling. My right hon. Friend and myself in our Department are dealing with the structural changes needed in the economy if we are to maintain a situation over a long period of years in which we are no longer one of the world's most serious debtors.

We were asked why the White Papers on taxation were not published before the debate. They will be published three weeks before the Committee stage of the Finance Bill.

The Corporation Tax will encourage productive investment. It favours the ploughing back of profits and will have the effect of increasing the marginal profit on investment so that firms are encouraged to undertake some projects which they would not otherwise have been prepared to undertake. As my right hon. Friend said, we intend to look further at this problem. The investment allowance, of which so much was expected, has not had the effect which was intended largely because of the unsophisticated manner in which many businessmen calculate the return on their investments, and it may be that we ought to look at other means of encouraging investment in the most technically advanced industries, in particular.

One of the main objects of the plan which we are preparing and to which my right hon. Friend the First Secretary referred is to bring about the changes which are necessary in our economy. We are fully aware that in a mixed economy, operating within a world market, many aspects of a plan projected into the future must be subject to continuous correction, but it does form a framework within which, first of all, decisions on Government expenditure and investment which are coherent can be undertaken—and to some extent that is the answer to hon. Gentlemen who tried to drive a wedge between my right hon. Friends; and, secondly, it serves as both a guide and stimulus to the investment decisions of industry. In trying to do this we have found very strong support from industry. They are providing us with information so that we in turn can provide them with information on which they can make more rational decisions.

The main areas of decision must be concerned with the strategy for a more effective use of our domestic resources and for curing our continuing balance of payments crises. All aspects of policy which affect the balance of payments are under stringent examination, including, in addition to Government expenditure and overseas investment, agricultural and energy policies, the effect of public sector purchasing policy on our export capacity, and methods to make industry more efficient and export conscious. We are working closely with the little "Neddies", which are beginning to be a valuable part of our planning. Some of the results of the preliminary work on our plan are to be seen in the measures which my right hon. Friend the Chancellor introduced, particularly in the external field. Others may be less direct and immediate in their effect.

It is in the context of this economic plan and in the changes in use of our resources which will be involved that the cancellation of TSR2 must be considered. Apart altogether from the defence argument, there is no case on economic grounds for maintaining vast expenditure and use of resources which the development of this aircraft entailed. This aircraft would earn us no foreign exchange and, apart from the doubtful value of technological fall-out, it would bring us no economic advantage. I see that Dr. Hooker, a brilliant engineer in aero-engines, of Bristol Siddeley, has tried to maintain that there are some great economic export advantages with this aircraft because of the very high conversion ratio involved in its manufacture. It would be of no advantage because in fact there were no exports to be obtained from it.

We must await the Report of the Plow-den Committee before we can decide finally what the future of the aircraft industry is, but it should not be for hon. Members opposite to suggest that nothing ought to be done about an industry which was absorbing such very large amounts of pubic money. In the debate on B.O.A.C. on 22nd July last year I asked the then Chancellor of the Exchequer, the right hon. Member for Barnet (Mr. Maudling), whether he ought not to take an, interest in the matter and, as reported, at column 615, he said: Of course, we have to study very carefully where we are going in the aircraft industry). in this country. The hon. Member for Edmonton (Mr. Albu) referred to the very large resources going into the aircraft industry. Frankly, as Chancellor of the Exchequer, I cannot disguise my concern sometimes at the way that these sums seem to mount up."—[OFFICIAL REPORT, 22nd July, 1964; Vol. 699, c. 615.] I should have thought, therefore, that if hon. and right hon. Members opposite had remained in office they, too, would have had to take a pretty cold look at this expenditure.

That is not to say that we do not wish to maintain, and will not maintain, a substantial aircraft industry. The number of those who will be rendered redundant by this cancellation is quite a small proportion of the total numbers employed, and it should not be assumed, either by our friends or our competitors, that the decision to cancel this military aircraft means that the Government do not mean to maintain in Britain a healthy and viable industry. There is a lot of military work, particularly in the engine branch of the industry, and there are a lot of new projects some of which, of course, we shall start in conjunction with the French.

The Government have a very keen and direct interest in the success of current civil aircraft development, to which they have contributed substantial sums, and I think that the overseas airlines which are considering renewing their fleets with some of our new aircraft can have every confidence that our industry will meet its contractual obligations both now and in the long term, with regard to the supply of these aircraft and the associated spares, and in this the Government have a vested interest in ensuring that this will be the case.

Mr. Shepherd

Will the hon. Gentleman tell us the Government's view on the size of the aircraft industry? Have they reached any conclusion on that matter, because this is the important decision the industry wants to know?

Mr. Albu

As the hon. Gentleman knows, that is exactly the question on which the Plowden Committee was asked to report.

If, as many economists now think, economic growth in a mature economy is dependent on the continuous introduction of new vintages of equipment and machinery incorporating research and development and promoting the production of new products, then the dissemination of highly developed skills at present employed on this project on a wider level through the engineering and electronic industries will accelerate the process, and cannot fail to provide an improvement in our export performance.

I agree that some workers may need retraining, and some very highly qualified scientists and engineers may need to undergo courses of retraining at universities or colleges of technology. The Government, through the Department of Scientific and Industrial Research, are prepared to help by grants. There are a number of courses in which this can be done. There are the post-graduate studentships. Although the great majority are awarded immediately after graduation, they also include provision for men in their twenties. The award amounts to between £500 and £1,000, dependent upon experience and personal circumstances. Nevertheless, the Department would be prepared to waive its normal rules about the upper age limit if any redundant engineers were willing to accept grants of this size.

There are also the new industrial fellowships just inaugurated by the D.S.I.R., mainly for men of 25 to 35 wishing to do research or an instructional course. These facilities are open to professional engineers or qualified scientists and engineers who have been working in the industry and who feel that they would like to make a contribution to other branches of the industry.

A very important part of our policy relates to the new drive to develop regions which have consistently for many years been unable to reach the level of economic activity that has been reached particularly in London and the South-East, and the Midlands industrial area. I am very glad, as my right hon. Friend said, that the new regional boards are getting off to a good start. I attended the West Midlands organisation recently, and it is a very active and worth-while body. Apart from my right hon. Friend's assistance to local authorities and the very active policy of my right hon. Friend the President of the Board of Trade, we are urgently examining what further we can do to encourage industry to develop within these regions.

I am not surprised that there has been some—though not, perhaps, as much as I expected—opposition from hon. and right hon. Members opposite, to the measures taken by my right hon. Friend to restrict overseas investment, or to encourage the repatriation of overseas earnings. I think that this illustrates their failure to face the true position of the country in the world. Overseas investments brings a very valuable return. I would myself very much like to buy shares at present. If I did, in spite of my right hon. Friend's capital gains tax, I am sure that I would get a very handsome return from them in the future. But at present I have little money, and there are limits to the overdraft that the bank manager will allow me. It seems to be that this is the position as regards our national resources. We simply cannot as a nation go on borrowing short to invest long.

The attitude of hon. Members, it seems to me, represents an out-dated view of Britain's position in the world. Some of them cannot reconcile themselves to the truth of our present financial and military power. For instance, the hon. Members, led by the hon. Member for Banbury (Mr. Marten) and one other ex-Minister, who are the signatories to a very foolish Motion on the cancellation of the TSR2, display, in my opinion, an extraordinary degree of shallow-mindedness in matters of defence and economic policy.

The declining position of Britain in the world has been long hidden by the accumulation of overseas assets during the 19th century. The result was that before the war 28 per cent. of our imports were paid for by net invisibles and 70 per cent. of our trade gap, but even so during the three years before the war we ran a balance of payments deficit. Today, even after the build-up of our overseas assets, to which hon. Members on both sides have referred, only 3½per cent. of our imports are paid by for by net invisibles and only 32 per cent. of the trade gap. The rest now has to be paid by physical export of goods. It is the failure to face up to this position and the relative prestige of work in the City compared with work in industry which has hindered the modernisation on industry in this country on which we are now going to depend. I think that this change is now beginning to take place, but we need to accelerate it and this requires a steady expansion of our domestic economy.

The rate of overseas expenditure and investment since the war and the decline of our reserves in relation to the trade which is done in them have been the major cause of the recurring balance of payments crises, in spite of the fact that we have generally achieved substantial surplus on private current account transactions. This situation has led to stop-go policies which have prevented expansion and modernisation at the rate needed to improve our export performance.

The Leader of the Opposition criticised the measures which my right hon. Friend is taking to restrain overseas investment, on the ground that they will reduce the help that we give to developing countries. Let us have a look at what the real situation is in regard to this investment in so far as it affects developing countries. From 1959 to 1963 two-thirds of United Kingdom direct investment was in developed countries. This figure was rising rapidly. I think that in 1963 it had reached 80 per cent. In the sterling area alone, 60 per cent. was in countries not normally regarded as under-developed, mainly Australia, New Zealand and South Africa. The hon. Member for Walsall, South referred in fact to the very high level of United Kingdom investment in South Africa—not, I would have thought, in the context in which we are discussing it, an under-developed country. In the non-sterling area, the largest part of our investment has taken place in North America—in the United States and in Canada.

It is our policy, which we have stated for a long time and to which we adhere, to give more aid to developing countries. This should be done as a result of positive action taken as a result of Government policy when we have discovered what forms of aid are of most use to these countries' economies. A good deal of the investment which has been taking place in the developing countries has not, I believe, been to their entire advantage. If hon. Members want us to fit the level of our overseas expenditure and our overseas investment within the resources which are available internally, they surely cannot object to us trying to separate what we are doing for aid purposes and what is being done for investment for our own benefit.

We are fully aware of the part played in exports by the building of factories overseas for assembly or part manufacture, which very often leads to the continuing exports of parts or spares or perhaps "know-how". It is an unfortunate fact that this type of investment overseas has recently been made more necessary by the increasing trade division which is growing up in Europe; but these cases will continue to be treated more severely, and the decisions will be made, as my right hon. Friend has said, on the return which they make to the balance of payments and to our trade position in a reasonable time. What is quite unreasonable is that we should continue to make investments out of money which we have not got, the return for which will very often be very long-term indeed.

I turn now to the social effects of the Budget. There is no doubt that this Budget has been well received, by my hon. Friends, by the Trades Union Congress, according to Mr. George Woodcock, at any rate—

Mr. Birch

Of course.

Mr. Albu

I am interested that the right hon. Gentleman should say, "Of course", because one of the burdens of speeches by some hon. and right hon. Members opposite was that the Budget was somehow a terrible attack on ordinary men and women. I am not sure which line is being taken. The hon. Member for Moss Side said that policy was being dictated by the trade unions. I do not think he has ever been inside a working men's club or a labour club if he thinks that a penny increase on a pint of beer, let alone 4s. on a bottle of whisky, will be popular in those quarters.

Mr. Frank Taylor

I have.

Mr. Albu

Perhaps the hon. Member would like to ask trade union members of the clubs to which he belongs whether they dictated to my right hon. Friend the Chancellor an increase in the price of cigarettes, beer or whisky. I do not think that it can ever be said that this Budget is a Budget made to acquire popularity with the trade union movement.

On the other hand, I believe that ordinary men and women have a rather better understanding of the economic facts of life than sometimes we politicians give them credit for, and when they are faced with these problems they are prepared to accept the consequences. A recent Gallup Poll was interesting on the subject, because when a sample were asked whether, if it were necessary in order to improve the social services, such as those to which my right hon. Friend the First Secretary referred today, the hospitals, schools and so forth, they would be prepared for higher taxation, 60 per cent. of them said that they would be and a very small proportion said that they would not. Therefore, there is a real basis for an understanding of this Budget. This is the reason, certainly from my experience, why ordinary men and women who understand the position in which we are placed have accepted it.

Parts of the Budget to which hon. and right hon. Members opposite have largely objected are intended to secure greater social justice. The Capital Gains Tax and the abolition of Surtax relief on co-venants are long overdue measures to restore social justice in our tax system. As for the abolition of expense accounts relief, I agree with the anonymous industrialist who, writing in The Times said: I should be the most unpopular man in my trade association if I went into print supporting any move to curb business entertainment, but for years this has been one of the millstones around the neck of many business men. It has become so much a part of our life that we are expected to take each other out to luncheon on a reciprocal basis. And of course it is a matter of honour to outdo eath other with the lavishness of the meal. Usually after such a luncheon both parties are more fitted for an afternoon snooze than to cope with business. If the only result of this move is to introduce more frugal business luncheons then I am all for it. In our heart of hearts we know that this is absolutely true. The truth is that giving people drinks before lunch and during lunch has become completely competitive. It is equally true that no one can drink two or three cocktails before lunch and a bottle of wine during it and go back to his office and do any more work.

Sir Tatton Brinton (Kidderminster)

I have been in business as a manufacturer ever since the war and I say that that is a completely distorted view of the way we conduct our business, in the provinces or anywhere else. The Minister must be perfectly well aware that this is exaggerating the vices of a very small number of people in order to castigate all the rest.

Mr. Albu

I do not think that it is. I think that it is a habit—not a wicked habit, not something which people have done out of any sort of wickedness—which has grown up in our business life. Judging by what this industrialist says, there will be many businessmen very pleased that they now have the excuse for not doing it.

Sir T. Brinton

He did not put his name to it.

Mr. Albu

As my hon. Friend the Member for Bothwell (Mr. James Hamilton) said, one of the reasons why we have been able to get our prices and incomes policy accepted by the unions is that the unions look at it in the context of our whole fiscal policy and the economic plan. One of the reasons why the previous Administration were unable to do this was that they had no economic plan and they had no just fiscal policy.

Sir C. Osborne

May I ask a question?

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Robert Mellish)

It will not be an intelligent one.

Sir C. Osborne

It is an intelligent question, of course.

The Chairman

Order. I have asked many times that the Committee refrain from the habit of making wise-cracks across the Floor, and I hope that the Front Benchers will set the back benchers an example.

Sir C. Osborne

I was about to ask a serious question. There are only five minutes or so to go. Before he finishes, will the hon. Gentleman say something about the advice which the Governor of the Bank of England gave to his right hon. Friend, and why it has been ignored?

Mr. Albu

It has not been ignored. In any case, I cannot say anything about it because I do not know about it since, as the hon. Gentleman knows, I was not present at the conversations which took place between my right hon. Friend and the Governor of the Bank of England. I should have thought that the hon. Gentleman would have realised, from the reaction of bankers throughout the world, that it is highly likely that the policies my right hon. Friend has adopted are pretty acceptable to the Governor of the Bank of England.

I was referring to the fact that we have been able to get our policies accepted, particularly the prices and incomes policy, because the ordinary workers look upon these things in the context of our total policy. The right hon. Member for Flint, West gave us his usual stimulating performance as a "gnome of Zurich". For him, as for them, economic growth is a sin, but it is not a sin for the ordinary people of this country.

I do not know how the right hon. Gentleman can believe that it is possible to maintain a democratic system of society in this country if we do not have continuous economic growth and expansion. His only remedy for dealing with the problems of inflation is to have no growth at all. But, if we have no growth, or if we have constant restrictions on growth, with ups and downs, what we get is a nasty sort of society, with group against group, class against class, racialism and xenophobia, because we cannot do the things which other countries are doing, because we are not able to re-create our cities, build better hospitals, better schools and so on. We cannot run a society like ours on that basis. It is not materialism alone which makes it necessary for us to maintain economic growth. Because we want a just, generous and humane society, we must have economic growth.

The right hon. Gentleman puts the dangers of inflation before the needs of economic growth. Here lies our task, the task to which we have now set our hand and in which we shall, I believe, succeed, the task of combining the prevention of inflation with economic growth and providing for our people the things to which they are entitled.

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

Committee report Progress: to sit again Tomorrow.