§ The Chancellor of the Exchequer (Mr. James Callaghan)
When the Government announced the introduction of the import charge on 26th October, 1964, we made it clear that this was a temporary measure needed to restrain imports while other steps were taken to strengthen the economy and the balance of payments. It was our intention to keep the charge under review.
We have now decided that enough progress is being made to enable us to reduce the charge after it has been in operation for six months. The rate will accordingly be reduced from 15 per cent. to 10 per cent. on all the goods subject to the charge entered with the Customs on or after 27th April.
The Government believe that this notice of a reduction next April will remove uncertainty and will confirm that it is not our policy to rely on the charge as a permanent feature of our economic arrangements. We have been in close touch with Commonwealth and other Governments affected both bilaterally and in international organisations.
§ Mr. Heath
Is the Chancellor aware that the announcement of a 5 per cent. reduction in the surcharge will, of course, give satisfaction to our trading partners in the Commonwealth, E.F.T.A., and elsewhere?
The right hon. Gentleman says that enough progress is being made to enable us to reduce the surcharge after it has been in operation for six months, which indicates a remarkable degree of foresight which has not been characteristic of the Government so far. As the Board of Trade, in its last statement, said that the great reduction in imports was due to raw materials and foodstuffs and not the surcharge, what evidence is there that it is having an effect?
Following from that, what is the point of delaying the reduction until April, 32 which, if the Chancellor is still hoping to reduce imports by then, gives a clear indication to both exporters and importers that they should wait until that date, and then we shall have imports rushing in? What is the point of having such a date? The Chanceller says that this is being done while other steps are being taken to strengthen the economy and the balance of payments.
So far, we have had very little indication of the other steps to strengthen the economy in the longer term, although I realise that he will be making another statement about that in a moment. Welcome as the 5 per cent. reduction is, does it not bear all the marks of a very unhappy compromise as a result of the internal differences of the Government?
§ Mr. Callaghan
The right hon. Gentleman asked what evidence there is of the effect of the charge on imports. If he will look at the trade statistics he will see that in the November to January quarter imports of finished manufactures were less by 4 per cent. than in the previous quarter, semi-manufactures were less by 7 per cent. and chemicals less by 9 per cent. I give those as illustrations of the trend. The right hon. Gentleman will also have noticed, if he has looked at the figures, that exports are 2.3 per cent. up on the previous quarter. In our view, that is sufficient indication of the way in which things are moving to enable us to say to our Commonwealth, E.F.T.A. and other trading allies that we think we should be in a position by April to put this reduction into effect without adverse effects on our balance of payments.
However, I must tell the House, and I hope that this will be clearly understood, that no one should assume that our balance of payments is yet in a satisfactory position. It is not. It will be a long haul before we overtake the £800 million deficit that we inherited.
The right hon. Gentleman asked about the reasons for the delay. Through the time needed for consultation, there has been a great deal of speculation, and we thought it best, in all the circumstances, to make an advance notification so as to lay that speculation to rest.
As to the differences in the Government, I can assure the right hon. Gentleman that they are nothing like the differences which exist between the candidates for the Tory leadership.
§ Mr. Michael Foot
Can my right hon. Friend confirm that the imposition of the original surcharge of 15 per cent. was one of the solutions which he inherited from the right hon. Member for Barnet (Mr. Maudling)? Can he say whether in the plans that were left by the right hon. Member for Barnet for imposing the surcharge there was any estimate of the length of period for which the imposition would have to be carried on?
§ Mr. Callaghan
There is always a scrupulous adherence to the view that the incoming Administration does not see the activities of its predecessor. Perhaps that was just as well in this case. I can only rely upon the speech of the right hon. Member for Barnet (Mr. Maudling), and I assume that it was because of that that he has now been removed to the sphere of foreign affairs.
§ Mr. Grimond
First, while we greatly welcome the reduction, and hope that it will lead fairly soon to the abolition of the import charge altogether, may I ask the right hon. Gentleman whether he can give an assurance that the effect of the announcement now to take effect some time ahead will not be that imports are postponed and will pour into the country later? Secondly, he says that the trend is satisfactory, but is he satisfied that if the import charge is reduced no other measures need be taken to restore the balance of payments position?
§ Mr. Callaghan
We have considered the first point very carefully, naturally. On balance, I think that the trends that we have seen provide evidence that there will be only a little change in the general trend as a result of the advance announcement. If I had thought that it would be substantial, I should not have made the announcement now. However, I think that when one analyses the various factors, the effect is likely to be small. I do not think that the reduction to 10 per cent. from 15 per cent. will adversely affect the position; but I must say that we shall need to reinforce the situation in regard to the balance of payments before we can hope to be in the clear.
§ Mr. William Clark
In view of the marginal advantages that we may have got from the imposition of the surcharge, does the right hon. Gentleman think that it is worth the loss of confidence 34 that we have suffered because we have broken an international agreement? Could the right hon. Gentleman go further in answering my right hon. Friend the Member for Bexley (Mr. Heath)? Will there not be an upsurge in imports in April now that the right hon. Gentleman has announced the date for the reduction? If he does not think there will be, why does he not cancel the 5 per cent. now?
§ Mr. Callaghan
I do not think that there will be an upsurge. I said that we had looked at this as carefully as we could, and I think that there will be some small adjustments. But the charge was never intended to be anything more than marginal in the first place. What we hoped to save over a whole year was only about £240 million worth of imports in relation to a total import bill of £5,000 million, so it is wrong to talk about upsurges in this context.
I have every reason to believe that my announcement will be greeted with a great deal of satisfaction by those who felt that they had not been adequately consulted in the first place, and I hope that right hon. and hon. Members opposite will go out of their way, when talking to their friends abroad, to make it clear that it was a very difficult decision that we had to take, and that we have tried to do our best to consult everyone's interests, including those of our own people.
§ Sir F. Bennett
Does the Chancellor think that none of us has read what has been said overseas by our E.F.T.A. partners? We all know that one spokesman after another has said that if some such change as this is not made E.F.T.A. will break up. The right hon. Gentleman will have to make another humiliating statement in a few months' time, or E.F.T.A. will break up then.
§ Mr. Callaghan
That is, of course, a very helpful supplementary question! What we are trying to do is to bring the charge down as we see our balance of payments moving nearer to a balance. That has always been our intention from the first. I hope that our effort to salvage the situation that existed will not be described as a humiliating experience, because, if so, I know who is responsible for it.
Mr. loan Evans
Will my right hon. Friend consider making representations to those trading organisations which increased their prices when the charge was imposed to reduce prices when the charge is reduced?
§ Mr. Callaghan
I have examined this carefully. In fact, a very large number of people absorbed the charge and did not pass it on. I am grateful to them for doing so. I hope that the remainder, who did not do so, will take my hon. Friend's words to heart and reduce their prices as swiftly as they put them up.