TEMPORARY IMPORT CHARGE

HC Deb 29 November 1965 vol 721 cc1008-144

3.42 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

I beg to move, That the Temporary Charges on Imports (Continuation) Order 1965, a draft of which was laid before this House on 1st November, in the last Session of Parliament, be approved. It is a year since the temporary charge on imports was produced, and at that time we considered that it would be appropriate, as it was a temporary measure, that the House should have an opportunity of reconsidering it at the end of twelve months to decide whether it should be continued or not. I therefore think that this debate will meet with general satisfaction. As the laying of the present Order shows, it is the Government's intention to ask for a continuation of the charge, and I hope that the House will approve it.

The charge applies broadly to all imports except food and feeding stuffs, fuels, unmanufactured raw materials and materials which have undergone at most only elementary processing. It covers manufactures and semi-manufactures generally, but there are exceptions for books and periodicals in accordance with a U.N.E.S.C.O. agreement and for large ships and large aircraft, because they are mainly engaged in international trade. There are, as the House knows, relief provisions for goods imported for re-export or used as materials in manufacturing goods which are exported. There is relief for goods used in shipyards, for building or repairing large aircraft, for scientific research, and educational requirements, again in accordance with U.N.E.S.C.O. agreement, and for certain other minor uses.

The Order was laid on 1st November, and I should like to say at the outset that the Government have throughout made it abundantly clear that the import charge, a new device in our fiscal system, was introduced and maintained as a temporary device to help us tide over a period of intense balance of payments strain. The strain, I am glad to say, is now much less than it was a year ago. Nevertheless we shall need to restrain the growth in our import bill in 1966 and to do so directly through the import charge in order to continue to hold the position while the underlying imbalance is being corrected.

The import charge is one of the battery of instruments which we have introduced during the last 12 months. There is a comprehensive and coherent programme of measures, both short-term and long-term, which are intended to remedy the weaknesses in the economy. As the House knows, these measures fall broadly into three categories. There are the measures bearing directly on the balance of payments—the export rebate, the Exchange control regulations and the fiscal measures aimed at reducing the net outflow of private capital. That is the first range. Secondly, there are the measures designed to curtail the pressure of home demand and so make available resources for righting the balance of payments. These measures comprise an increase in direct and indirect taxation, the tightening of hire-purchase restrictions, the pruning of Government expenditure, and the restriction of bank credit.

It suits the book of propagandists in the country to claim that increases in taxation are due to a number of other causes, but I do not suppose that in this debate we shall hear much about that, because in this atmosphere it is well known that the increase in taxation was designed—difficult though it may be to get some of one's constituents to understand this, and I appreciate the difficulties of hon. Members opposite in this regard—to reduce the pressure on demand, and that it has nothing to do with the wicked Socialists. If hon. Gentlemen opposite continue to educate their constituents in this matter, as I am sure they diligently do, they will get their constituents to see that these measures are necessary to reduce the pressure of demand. I am sure that hon. Gentlemen opposite are anxious to do justice in this matter, and I am grateful to them for all the help I have received from them in explaining this to constituents.

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

The right hon. Gentleman is wrong on the facts.

Several Hon. Members

Give way.

Mr. Callaghan

That does not mean that I have to give way. If the hon. Gentleman catches Mr. Speaker's eye, he will have the opportunity to put them right.

Thirdly, there are the measures for bringing about basic structural reforms in the economy over the long term and setting an effective prices and incomes policy in motion. These measures have had a substantial effect. Exports are increasing in an encouraging fashion. The private capital outflow has diminished. The pressure of home demand has been contained, to the indirect benefit of the balance of payments. My right hon. Friend the First Secretary has recently explained the progress which we have made and the further steps which we intend to take in respect of structural reforms and incomes policy.

I have already told the House that there has been a marked improvement in our balance of payments by comparison with the situation which we found when we took office. I am sure the House is pleased about that, and exporters deserve to be congratulated on their performance this year. Over the ten months to October, 1965, exports have averaged 5½ per cent. higher than in 1964 as a whole and 6½ per cent. higher than in the first ten months of that year. There is need to continue this into 1966, as the House knows, and I shall have more to say about that later.

Industry also has played its part in reducing the balance of payments deficit by stepping up the output of products previously imported. It is not possible to be precise about the extent of import substitution, but the House will be interested to hear that total imports of goods subject to the temporary charge had fallen by nearly 3½ per cent. between April and September this year compared with the same period last year, whereas industrial production over the same period showed a rise of 2½ per cent. I should make quite clear at once, of course, before someone else points its out, that a substantial part of the impact of the charge has probably fallen on imports for stocks rather than for immediate use, but from now on the effect is likely to be concentrated on imports for immediate use.

Now another word about our balance of payments. Anyone who suggests, as I understand it is the intention to suggest, that the Order should be rejected today if the Government do not withdraw it—I assure the House that the Government have no intention of withdrawing it— ought to consider the effect of a vote against the Order on the balance of payments. The House knows that the last 12 months have seen this marked improvement. In the first half of this year there was a marked change for the better in the trade balance. Exports, as I have said, were substantially above their average level in 1964. Imports, in contrast to their previous strong growth, showed a slight fall. Seasonally adjusted, the deficit on visible trade for the first six months was little more than half the rate in 1964. The net surplus on invisible transactions showed some recovery from the low figures of 1964. So, with the improvements on both visible and invisible transactions, the seasonally adjusted deficit on current account in the first half of the year was less than half of the rate of deficit in 1964. The net outflow on long-term capital transactions was also much reduced, partly in consequence of the measures which I announced to the House in my April Budget.

The outturn for the balance of payments as a whole, that is, the deficit on current and long-term capital accounts together, amounted to about £100 million compared with over £300 million in the first half of 1964. We do not yet have a full tally of what has happened since the end of June. We have the trade figures, of course, and, on a seasonally adjusted basis, these show, if anything, a slight reduction in the trade deficit compared with the first half of this year. The monthly rate of trade deficit in the first half was just over £26 million. In the third quarter it was £25 million a month, and in October it was £18 million. These figures are seasonally adjusted; but, of course, the third quarter is always known to be unfavourable for the balance of payments, not only on visible trade but also on invisible transactions, especially in such matters as travel and official capital items.

For these reasons, we expect, and are basing our estimates on, a considerable deficit on the balance of payments as a whole in the third quarter, contrasting with the small surplus in the second for which I have claimed credit. The larger part of this deterioration between the two quarters is seasonal, and our estimates for the fourth quarter show a considerable improvement. We have also had some abnormally heavy oil payments to make in the current half year, for tax and other reasons. Nevertheless, for 1965 as a whole there will be a substantial improvement of several hundreds of millions of pounds over 1964. But I repeat—I never weary of repeating it—there will be a considerable deficit this year.

Because of the size of the deficit, we set ourselves a two-year pattern for reducing it to zero, and it looks as though we are half way there at the end of 12 months. So we have to continue next year along the lines which we have been following so far, or, as I would prefer, to improve on what we have done so far. The Government have accordingly decided that the import charge must continue in force at the current rate of 10 per cent. To reduce it at present or, as I understand is to be argued, to remove it, would hamper our recovery and delay the improvement in our balance of payments.

Mr. Iain Macleod (Enfield, West)

There is an important point here. In fairness, the right hon. Gentleman will recognise that, owing to our Parliamentary procedure, the Opposition are not in a position to suggest a reduction in the charge. We either have to take the whole Order or reject it.

Mr. Callaghan

Yes, I follow that, and I am obliged to the right hon. Gentleman for that intervention. I had it in mind to ask whether the Opposition were opposed to this in principle and want to take the charge off altogether. If the argument is that it should be reduced, I understand that that is at least an arguable case, though I should myself feel that this is not the right moment to do it. Moreover, as we discovered last time, if one announces in advance that one intends to reduce the charge, one gets the worst of all worlds, and we got a certain amount of that—[HON. MEMBERS: "Hear, hear."] Hon. Members opposite were not backward in pressing us to make the announcement, and what happened last time was that, because of pressure—I do not say from hon. Members opposite, but from E.F.T.A. and other countries—we gave an advance date. We foresaw the consequences. Imports were held up, and they then piled up when the reduction took place. This was an occasion when politics and economics were in contradiction to each other. However, if the right hon. Gentleman proposes to argue that the charge should be reduced, I beg him to argue that it should be reduced forthwith and not that we should give assurances that we shall reduce it later on.

I should make clear to the right hon. Gentleman and to others who think like him, if I have interpreted his mind aright, that the decision to continue the charge does not carry with it any implications about the further length of time for which it may be required. The draft Order, because of our Parliamentary form, provides for the charge to continue till the the end of November, 1966. That is the date required by the wording of the Act. But, of course, the Government have power to reduce or to remove the charge at any earlier time if our circumstances should permit. What I am arguing is that our circumstances certainly do not permit this when, despite our encouraging start, we are still half way from our goal at half-time.

It has been argued contrariwise in some quarters that the import charge has not had a significant effect on our import bill and is therefore not worth continuing. I do not know whether we shall hear that argument, but I think that I should try to anticipate it by setting out the way I see it. It is not possible to say with precision how far imports have been reduced below what they would have been if the charge had not been imposed and if no steps had been taken to moderate excess demand. The whole nature of the problem would have changed had we not imposed the charge a year ago, since to secure the necessary reduction in imports we should have had to impose a much more severe deflation, and I have not found too much support in the House for measures of greater deflation. But I estimate that, allowing for the reduction in the rate of charge last April from 15 per cent. to 10 per cent. and for some increase in imports of goods not subject to the charge in replacement of those which are subject to it—there has been a certain amount of that—the net effect on imports this year is likely to be a reduction in the range of £150 million to £200 million. This is a valuable con- tribution to the balance of payments. Anyone who suggests that the charge should be removed—and I understand that that is formally the way in which it will be done—or that it should be reduced will have to argue about that £150 million to £200 million deficit on our balance of payments.

Mr. Eric Lubbock (Orpington)

The figures which the Chancellor has given are based on 15 per cent. for part of the year and 10 per cent. for the rest. Will he tell us what his estimate for the year would have been or what it will be for the forthcoming year if 10 per cent. were applied throughout?

Mr. Callaghan

I have endeavoured to make some estimates. I said at the beginning of last year that I originally gave a figure of £300 million, as the hon. Gentleman will remember. That was a purely speculative estimate. I made a number of qualifications and it is a little difficult to know. Making as fair a guess as I can, I would say that it would be rather less than the £150 million to £200 million range, because it would now be impinging directly on stocks which are for immediate use. I would expect it to be rather less, but still very considerable.

When I go scratching round trying to save £5 million here and £3 million there and £2 million somewhere else on the balance of payments, I could not contemplate with equanimity the loss of this particular sum, whether it would be £150 million or something a little less. Certainly I could not lightly contemplate that.

In continuation of the view I have expressed, I would like to give the House some further details of this import charge. There is quite a bit to say in making a comparison of the way in which imports have moved. They have been only slightly higher than the average level in 1964. Imports of basic materials have remained fairly low; imports of semi-manufactures, which include some which are not subject to the temporary import charge, have been on average about 3 per cent. more so far this year compared with the first ten months of 1964. Some hon. Gentlemen opposite have jumped to the conclusion that they are more than they were last year and that the charge must have failed.

If one is going to look at the situation one has to look at what they were over a run of earlier years. Take the preceding year, 1963–64, I have said that the imports of semi-manufactures, have been 3 per cent. up on last year. If one looks at imports of goods of this type in 1963–64, the increase was not 3 per cent., it was 29 per cent. Take imports of semi-manufactures, subject to the charge. These have fallen by 5 per cent., compared with a rise of 26 per cent. between 1963–64. Imports of finished manufactures have been swayed by a number of influences, including the United States dock strike, the effects of which, statistically, have lingered on long after the cause of the strike has been forgotten. So far this year the imports of finished manufactures are 4 per cent. greater than they were in the corresponding period of last year.

That does not mean to say that the charge has failed, because if we look back a further 12 months they increased in that period by 28½ per cent. The total import of goods subject to the charge has fallen by 1 per cent. compared with the first ten months of 1964, and compared with a rise of 27 per cent. between 1963 and 1964. It is not therefore enough to say that some imports have risen to prove that the charge is not worth anything. One has to look at what might have been. I cannot prove what might have been any more than any one else can. What I can say is that given the level of industrial activity, which has been maintained at least as high this year as it was last year, given the figures that I have shown for the increase in imports of these particular ranges over the previous year, I am at least if not more entitled than any one else to claim that it has had a very substantial effect.

Mr. Raymond Gower (Barry)

The Chancellor said a minute ago that he would find it difficult to do without this sum of money and that he could not lightly sacrifice such a large sum. Is it not possible that, as time goes on, he will tend to regard this sum of money with even fonder attachment, and so will those sections of the economy which are enjoying the protection by reason of this subvention?

Mr. Callaghan

I have never regarded this sum with any form of liking since it was first introduced. So far as I am concerned it is a mule without a pride of ancestry or hope of posterity. I would like to see it got rid of, but I will come back to that later. I am well aware of the concern felt by other countries, partially on the grounds which the hon. Gentleman the Member for Barry (Mr. Gower) has now given. They have an anxiety that the import charge should be reduced or removed at the earliest possible date.

I would like to make three points. First—and this is a point which has gained greater recognition than it did a year ago—our balance of payments simply could not have sustained a continuing growth in imports at the rate at which we found it. I think this must be generally agreed. It would have absolutely run away with us. I do not want to raise the temperature and talk about why, but this is a simple statement of fact. Action had to be taken, one way or another, to restrain it, and action to restrain it must continue until we are in balance. As I have already said—and I point this out to the hon. Gentleman the Member for Barry—we have taken a series of other long-term measures to restore the balance of payments, and this is what we are relying on to do the trick.

I do not believe that other countries, any more than we ourselves, would have been better off, had we sought to contain our import bill through deflationary action which had the effect of bringing our own economic growth to a stop or even causing a turn down. Part of their complaint against us was that we were inflicting the burden on them instead of taking deflationary action. This argument was often used, although not quite in this direct form. I do not think that anyone abroad can really claim that that was so and certainly no one on the other side of the House would claim that that was so.

The complaint against me is that I have introduced too many of these measures, to the dislike of the constituents of hon. Gentlemen opposite. I do not think that I can be accused of that. I would like to say how much I appreciate the understanding which a great many countries, particularly the Commonwealth and the United States, have shown of our position. For this we are very grateful. It is perfectly understandable that some other countries, the free trade area countries, for example, should have raised objections. Their anxiety was and is to see the charge further reduced and then abolished, and this was expressed in the communiqué of the most recent E.F.T.A. ministerial meeting attended by my right hon. Friend. I hope that E F.T.A. and other countries will accept the words of the I.M.F. report, made to G.A.T.T. in October: …the general level of the import charge does not go beyond the extent necessary at the present time to safeguard the United Kingdom's financial position. The hon. Gentleman the Member for Barry suggested that this charge might become built into our economy and cost structure. This is certainly not the Government's intention. When I introduced it I warned industry that the import charge was not a protective measure; and our frequently re-affirmed intention to reduce and then remove it as progress on the balance of payments warrants it will be carried out without regard to protective considerations. I recognise that the continuation of the charge creates some difficulty for United Kingdom industry. Hon. Gentlemen have been energetic in representing the difficulties of their constituents in this matter, and in the Treasury and the Board of Trade we have given very careful consideration to what has been said. During the passage of the 1964 Act and, subsequently, hon. Members have asked me to remove the charge from various categories of imports, for example from imports of semi-manufactured materials on which particular industries depend, or from imports of productive machinery. I recognise that there is validity in a lot of these requests, but we need to continue to restrain our imports on semi-manufactures and machinery generally, no less than our imports of consumer goods.

Any action to select particular products for exclusion, besides having inequitable effects as between one user and another, would be bound to be cumulative and narrow the coverage of the charge to such an extent as to postpone the time when our objective of a general reduction and removal can be achieved. Therefore the Government remain of the view that the right procedure is not to make piecemeal reductions in the coverage of the charge but to go all out to secure that improvement in the balance of payments, which will enable the charge to be reduced generally and eventually to be eliminated at the earliest possible date.

There is also the important question of drawback and the charge in respect of exports. We have been particularly concerned to see that the import charge put no avoidable obstacles in the way of our export trade and I believe we can justifiably claim that this object has been fulfilled. So far, £3 million of the charge levied has been repaid through the drawback arrangements and the charge has not been levied at all on about £30 million worth of goods intended for use in the export trade.

Drawback, which by definition calls for a certain amount of Customs control, represents relief from taxes or duties and, therefore, there must be some control. Criticism was to be expected. I should, however, like to pay a tribute—and I hope that the House will join me—to the way in which the Customs administration has handled these arrangements. The amount of criticism has been extremely small.

When I read the article in the Financial Times the other day entitled "Drawback without Tears" and the tributes that it paid to the Customs and Excise, I began to wonder whether they were not paying out public money a little too easily. Knowing them, however, I am sure that that is not true.

Before I conclude, I should like to say a word about prices and wages. One of the satisfactory features of the present situation is the comparative steadiness of prices. This, of course, if coupled with an equivalent steadiness in wages, would help us towards our objective of balancing our payments much more quickly than anything else, except an increase in productivity. [Interruption.] I am grateful for all the help which I get from hon. Members opposite in preaching this doctrine.

The retail price index has been fairly stable since May. Over the three months August to October, it averaged only 0.4 per cent. higher than in the preceding three months, and seasonal influences mainly accounted for this. Even excluding seasonal factors, however, the rise has been on the slow side, certainly in relation to what has been happening in labour costs as well as to import prices. Both have had their effect, import prices as well as labour costs.

When I turn, however, to wages, I see that the hourly wage rates index continues to climb steeply. In the first quarter it was high, as it was in the second quarter and again in the third. Among the reasons for the rise are a shortening of the average interval between settlements and reduction of normal hours of work in many industries from 42 to 40 without loss of pay.

Mr. Speaker

Order. I hesitate to interrupt the right hon. Gentleman, but I hope that he will link what he says on this subject with the Order which is before us. Otherwise, we shall have a very wide debate.

Mr. Nigel Birch (Flint, West)

If I may say so, Mr. Speaker, the right hon. Gentleman's argument is extremely relevant.

Mr. Callaghan

I have a feeling that that helpful interruption was not altogether disinterested. I will not pursue the matter, Mr. Speaker, because I was conscious when I drafted this part of my speech that I was, perhaps, straying rather beyond the nature of the Order. In deference to your Ruling, I will cut out what I was going to say about it.

I think, however, that I should be in order if I were to say that at a time when the paramount need is to reinforce and to secure improvement in our balance of payments, any significant increase in our costs must be a matter for concern. The Government's measures have not produced, nor were they intended to produce, a sharp, old-fashioned deflation. It is true to say that the pressure of demand has been easing.

I think that I can also say, and be in order, that the measures which I took in the Budget have caused a check to the growth of consumer spending. This was in accord with the Government's policy, which was designed to give priority to investment and the rectification of the balance of payments and, therefore, to get rid——

Mr. Speaker

Order. I do not want to handicap the right hon. Gentleman. He will be in order as long as he links what he wishes to say with the Order.

Mr. Callaghan

Very well, Mr. Speaker. I will merely put it this way, and I think that I will be in order. I hope to have the indulgence of the House as well as being in order. [An HON. MEMBER: "Have a try at it."] I am having a very good try. We shall be able to get rid of the temporary import charge, at least at an earlier date, provided that we can attain the Government's target of external equilibrium during the year. Therefore, if during the course of next year I thought that getting rid of the temporary import charge through the achievement of equilibrium in our balance of payments was likely to be threatened by the rise of money incomes, I would not hesitate to take action on the demand side to offset it. I hope that that keeps me in order and enables me to say what I want to say on this matter, which is of importance.

I should like the Opposition to define their attitude on this matter. The right hon. Member for Enfield, West (Mr. Iain Macleod) was good enough to intervene a short time ago, but I did not get clear from his question whether he was opposed to the Order in principle or whether he thinks that there should be a reduction in the charge. Have the Opposition considered the likely effect on the balance of payments of either reducing or removing the surcharge at this moment? Do they think that it would be right to interfere with this progress towards balancing our payments by the end of 1966 by giving a jolt of this character to the progress that we are making? Do they think that removing or reducing the charge would increase our import bill? I take it that they cannot think that it would reduce it, and I suppose that all sensible men would agree that it would increase it. In that case, if they would either reduce or remove it, do they think that anything else would be substituted?

Should we, for example, have further deflation to offset the increased imports that would otherwise come in? What would right hon. Gentlemen opposite do about the worsening in the balance of payments that removal or reduction at this moment would be bound to cause? Do they want higher taxation to offset it? I have never noticed much enthusiasm in that direction. Do they want a higher level of unemployment? The answer to that, I am sure, is "No". That is why the right hon. Member for Barnet (Mr. Maudling) 12 months ago considered this as a device and a means of ensuring that the economy continued to move at a high level without the unemployment that no one, on either side of the House, wants to see.

If the Opposition vote against the Order, on the ground either that they oppose it in principle or that they want to remove or to reduce it, we are entitled to know what they would do and what they consider to be the alternative remedies. If the Order were defeated tonight, it would confront the Government and the country as a whole with a substantial jolt in our progress. I therefore recommend it to the House and hope that the House will give us the Order.

4.19 p.m.

Mr. Peter Walker (Worcester)

One always finds the manner of the right hon. Gentleman when debating at the Dispatch Box one of convincing style, and this afternoon's performance was no exception. His pleasant, conversational style at the Dispatch Box, his homely chats, are always enjoyed and appreciated, but I confess that I was surprised at the degree of satisfaction which he expressed with the working of this particular instrument.

I wondered if the Chancellor is more frank at breakfast time than he is in the afternoons, because a month ago he was interviewed by the Daily Mirror at No. 11 Downing Street and at the start of the interview, it is reported: Just a spoonful of sugar puffs helps the medicine go down. He ended the interview by saying, I was surprised that imports are still so high. I cannot help thinking that this afternoon the Chancellor has given us sugar puffs rather than a frank statement on the import situation.

The basis of our argument is that, firstly, the original argument upon which the surcharge was introduced was based upon a wrong premise; secondly, we would argue that the Government's economic policy has countered the favourable effects of the surcharge; thirdly, this type of measure has effects adverse to our exports and injurious to our trading relationships throughout the world.

Therefore, I should like to start off by examining the validity of the original argument for introducing the surcharge. This was stated in the now notorious White Paper of 26th October, 1964. The circumstances of that White Paper are well known to the House. It was presented ten days after the Government came to power, and it endeavoured to set out the economic situation which they had inherited, and the theme of the argument contained in the White Paper was that the economic situation was a desperately bad one and that the way to remedy it was to impose this surcharge. I think, on reflection, that now the true facts in 1964 are known it will be realised that this White Paper, by giving the wrong impression that it did, in fact caused more harm to the position of sterling than any other Government publication. Basically the argument was that the prospect of an £800 million deficit was a shock to the Government, but we now know that seven weeks before the election the Prime Minister in a speech to the T.U.C.——

Mr. Raphael Tuck (Watford)

Is this in order?

Mr. Walker

This is certainly in order, because the whole basis for imposing the surcharge was the £800 million argument, and whilst I can understand the lack of wish on the part of the Chancellor that this particular subject should now be raised, he is certainly going to have it raised this afternoon.

The Prime Minister himself seven weeks before the election predicted that the adverse balance of payments on current account would be £100 million worse than it turned out to be. So far as the current account is concerned, when the Government came to power they found the situation was £100 million better than they had anticipated. Yet throughout their election campaign they persisted with their promises and made no mention of an import surcharge or of a need to take such action.

The significant passage of the White Paper upon which the whole of the import surcharge argument was based was paragraph 4, which stated: It is expected that, when the accounts for 1964 as a whole are available, they will show a deficit on the balance of payments, taking current and long-term capital account together, which is most unlikely to be below £700 million and may well reach £800 million. Throughout all the White Paper there was no explanation at all of why that deficit was to be attained. There was no explanation why it was on capital account. There was no explanation of the stockpiling which had taken place and that it had entered into the calculation of this £800 million figure.

When the surcharge was announced, immediately there was an outcry throughout the world and among our trading partners, and the President of the Board of Trade had to go over to a special meeting at Geneva of the Council of Ministers of E.F.T.A.

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

It was not a special meeting. It was the normal, routine meeting of E.F.T.A.

Mr. Walker

It was certainly a very special meeting in the manner of the meeting, because the President was very unpopular with his colleagues at that meeting, and the President of the Board of Trade was under attack at that meeting, for the method of announcing the imposition of the import surcharge, and he had of necessity to make out the case that it was due to the appalling state of the economy. It is very unlikely that at that E.F.T.A. meeting he brought in any of the arguments how the £800 million had occurred; he tended to throw, as the First Secretary had done in the White Paper, the worst possible light on the state of our economy. Therefore, it was not surprising that within 24 hours of that meeting of E.F.T.A. there was a run on sterling, and it was not at all surprising that the rest of the world judged that the proposals made in the White Paper were not sufficient for the state of the economy which the right hon. Gentleman had described at Geneva.

But by March the Government's position had altered. They had started a sterling crisis. They wanted to regain confidence in sterling. So suddenly in March we got nearer a true interpretation of the state of the British economy. The Prime Minister went to New York, and there his case was the general strength of sterling. He paraded all the defences which sterling enjoyed. He made a great issue of the £11,000 million worth of overseas investments—most of which had been built up during the 13 years of Conservative Government. There was no mention in the White Paper of 26th October of the £11,000 million worth of overseas investments.

Then, of course, the First Secretary, too, by that time was realising the importance of regaining confidence in sterling, so his Department came out with its March bulletin report which under the heading "Rise in Imports", gave an analysis of what the true position was in 1964. The analysis was a startling one, because the analysis first of all pointed out that of the increase in our imports in 1964, £385 million, was due to stockbuilding by industry—£385 million. What a difference it would have made if that had been put in the White Paper in October, 1964.

Sir Douglas Glover (Ormskirk)

Why was it not?

Mr. Walker

It further went on to say that a further £220 million of the increase was due to the increase in import prices during 1964.

Therefore, if the Government had endeavoured in their White Paper to give the true position of the state of the economy in October, 1964, they could with justification and with truth have stated that, "There is an adverse balance of £745 million, of which £385 million is due to stockpiling, £220 million is due to the increase in import prices, and £145 million is due to the increase in our private investment abroad, investment which will remain assets of this country". These three factors alone amount to £750 million. In fact, these three factors explain the whole of the adverse balance of payments during 1964.

I believe that this Government stand condemned for having stated a false interpretation in the White Paper for justifying the imposition of the surcharge, and I would suggest that if the President of the Board of Trade had gone to Geneva in November, 1964, and given the facts I have just given to the House they would never have tolerated the imposition of this surcharge. Therefore, our first argument is that the premise was a bad one.

Our second argument is, of course, that, so far as the successful working of the surcharge goes, it has been more than adversely affected by the economic actions of the Government, and this is shown, of course, by looking at the facts. The Chancellor of the Exchequer argued that the rate of increase this year was a much lower rate of increase than last year as a result of the imposition of the surcharge, but if last year there was stock-building to the extent of £385 million one would certainly expect a substantial reduction in our imports this year, and this has nothing to do with the import surcharge. It is due to the very heavy stockbuilding that took place last year.

This year, unlike last year, import prices have not risen. So last year, whereas there was a substantial increase in import prices, whereas there was substantial stockbuilding, and those were two factors which were to the advantage of the Government, as far as this year's figures are concerned, in spite of there being no increase in import prices, in spite of the benefits of stockbuilding during 1964 and in spite of the imposition of the surcharge, our imports are considerably higher than last year.

The right hon. Gentleman the Chancellor will know that the rise in manufactured goods has been greater than the rise in raw materials and non-manufactured goods, and it is very surprising that that should be the case with the surcharge on that particular section.

There is a simple explanation. If the economy is running in such a way that production remains static throughout the year while incomes rise by 7 per cent., the only two possible results are a rise in prices or an increase in imports. No other explanation can be given. The Chancellor, quite rightly, expresses publicly his concern at the rise in incomes as related to the lack of rise in production. He knows full well that the considerable gap that had taken place between these two during the first nine months of the year has more than made up for any favourable effects that the import surcharge may have had.

Our third argument concerns the manner in which the measure was introduced because it was introduced in a manner which caused considerable harm to our relationships with our partners in E.F.T.A. and our trading partners throughout the world. The Chancellor quoted the report of the International Monetary Fund. I hope that the Chancellor has also read the annual report of the European Free Trade Association, because these words form part of it: The attitude of the other E.F.T.A. countries, however, was to see the surcharge as a fundamental infringement of the Stockholm Convention. Such action by a member country without prior consultation with its partners struck at the very foundation of E.F.T.A. co-operation. That is their analysis of the effects of and the manner in which right hon. Gentlement opposite imposed the surcharge.

There was lack of consultation and failure to put to our partners the alternative. If the Government considered it necessary to put on import restrictions, the President of the Board of Trade knew full well that various systems of import quotas were valid under our E.F.T.A. agreement. He decided, probably quite rightly, that the surcharge was a more acceptable method to them. But surely the right method of consultation is to go to them and say: "This is legal, and this is illegal, but would you not prefer us to take the illegal action?" It is not right just to impose it and then to try to explain it thereafter.

Then there is the damage it has done to our exports. The Chancellor of the Exchequer guessed at the figures of the improvement that had taken place in our imports. He gave no estimate of the deterioration that had taken place in our exports as a result of the surcharge.

Mr. Callaghan

Negligible.

Mr. Walker

The Chancellor says "negligible". There is a lot of evidence against it. There is, first of all, the evidence of the previous Chairman of the F.B.I., who certainly reported that he was very concerned at the effect that it was having on our exports. There is the report of the Chairman of I.C.I., Paul Chambers, who stated that he considered that it would have as much effect if not more on exports than it was likely to have on imports. We know the story of Volkswagen cutting out their purchases from British component manufacturers due to the manner in which the surcharge was imposed. There is hardly a Member of Parliament who represents an industrial constituency who has not been inundated with stories of the effect of the surcharge on the relationship between businessmen and their clients, and I am shocked and surprised that the Chancellor should treat this matter so complacently as he obviously does. It has caused bad will throughout the markets of the world.

Therefore, we have a situation where it has been introduced badly. It has some adverse effects on our exports, and the effect of it has been completely undermined by the Government's own policies. We on this side state that the premise upon which the surcharge was based was a false and a wrong one, and that the manner in which it was imposed was a clumsy and thoroughly bad one. The manner in which it has worked has been undermined by the Government's own attitude, and what is needed to reach a position of a favourable balance of payments for the country is not this type of measure, which goes against all the progress in international trade that was made in the previous 13 years. What is needed is a sensible economic policy that will get us higher production related with earnings.

Mr. Callaghan

If the hon. Gentleman is about to finish, I take it that he is going to tell us whether he thinks the charge should be withdrawn altogether or reduced, as he intends to vote against its renewal.

Mr. Walker

As far as that is concerned, the specific questions that were asked by the Chancellor will certainly be answered by my right hon. Friend in the wind-up. The case that I am making perfectly clearly is that if the Chancellor had been successful in running an economic policy where production had been related to earnings, there would be no necessity to renew the charge at all. It is because of our condemnation of the Government's policy in this affair that we are certainly critical of the whole extension of the surcharge.

4.35 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

I was very interested in the historical references of the hon. Member for Worcester (Mr. Peter Walker) in his attempt to justify the £800 million deficit last year. Sophisticated criminals do not usually return to the scene of their crime. The fact is that the hon. Gentlemen opposite failed miserably to manage the economy, and the crucial question is whether, faced with a similar situtation, not at the time of an election but at the beginning of a period in office, would they have permitted the same to have happened again? I rather doubt it.

The surcharge was introduced under conditions of extreme difficulty. In the declining months of the last Conservative Administration, various measures were prepared by the then Chancellor of the Exchequer to deal with the economic problems which he knew that he would face after the election. The import surcharge was one of them.

It was one of the means used by my right hon. Friend to slow down the flood of imports then coming into the country. At that time, faced with that emergency, there was little that could be done in the way of other long-term alternatives. The Government were, therefore, right to do what they did at that time and introduce the surcharge. The problem was serious and urgent, and measures had to be taken quickly, and had to have immediate effect. Other measures which would have required more administrative preparation were therefore ruled out. One of the measures so ruled out because of the need for immediate effect was the use of import quotas.

As the Chancellor said in the debate on 24th November, last year: …to have introduced quantitative restrictions would have involved unacceptable delays in bringing them into effect. While the apparatus was building up, the inflow of imports would have gone unstemmed."—[OFFICIAL REPORT, 24th November, 1964; Vol. 702, c. 1091.] The import surcharge has served its purpose adequately. The exceptional flow was controlled, but the high level of imports remains with us.

Now is the time to examine the alternatives. What is required here is a measure that is permissible under our treaty obligations, variable in its effect upon categories of imports, and certain also in its effect upon the balance of payments.

All these advantages are obtained by quotas. Quotas are allowed under G.A.T.T. in the way that surcharges are not, and it is not true to say that quotas distort more than the surcharge. Under the surcharge certain imports have been hardly affected at all, whereas others have completely ceased. To exporters all over the world, the effort to establish oneself in a market is a very costly business, and exporters of goods with low profit margins can find their business virtually obliterated.

Quotas, on the other hand, permit a foothold to be retained for all exporters while they wait for better times to come. As an example of this, imports of steel from Australia in the nine months to September, 1964, were over £1½ million, whereas over a comparable period a year later they had declined to £140,000 and these totals conceal the virtual cessation of some exports from Australia to this country. To take another example, the import of semi-conductor devices has increased rapidly despite the surcharge. The surcharge for certain kinds of article has virtually meant the end of an investment by an exporter in this country, whereas quotas permit some form of holding operation. This is why surcharges are prohibited by Article 12 of the G.A.T.T. Agreement, and it is right that we should understand the anger of some countries when we say that the end result of both surcharges and quotas is the same. The overall result may be the same, but the impact on individual firms and countries can be widely different.

Any measure that is used to control imports needs to be variable in its effect so as to discriminate between categories of goods. In theory this is possible under the surcharge, but in practice to introduce an element of discrimination around an average of 10 per cent. surcharge can be very difficult, because some goods will have to be surcharged above and some below. Below the 10 per cent. surcharge the deterrent effect falls rapidly. For example, at 5 per cent. surcharge, it is generally accepted in industry and also by many hon. Members that the deterrent effect would be substantially removed and there would be little point in having a surcharge as small as that. On the other hand, an import surcharge of above 10 per cent. would have a deterrent effect which would inflame still further our trade relations with countries abroad, and particularly those whose industries were surcharged so heavily. The surcharge is no more capable of discriminating than is an electric light switch. It can be either on or off and no sophistication is possible.

On the other hand, quotas can be fixed for varying quantities, dependent on the desirability of importing certain articles. They can be varied because of the ability to manufacture those goods in this country. They can be varied because certain overseas products might be cheaper or technically superior to those that we can produce or because there may happen to be a shortage of capacity here. They can be varied so as to bring an element of overseas competition into an uncompetitive industry. They can be varied to provide a breathing space for an industry in the midst of reorganisation or even to effect broader improvements in industry and the economy generally.

Quotas can range from a strict limitation on gaming machines to open quotas for certain capital equipment, and intermediate positions are all possible. By changes in the level of various quotas, account can be taken of changing conditions, and a degree of flexibility can be introduced.

But the most important argument about quotas is the certainty that they can introduce into our balance of payments equation. In the import-export relationship attention has rightly been concentrated on exports, but the difficulty here is that the measures which are open to the Government only affect exports indirectly, and rarely with a convincing degree of certainty. Export rebates may be given, trade fairs may be held in major cities, and even the modernisation of the docks finally undertaken, yet no one can say with sufficient assurance that the level of exports over imports will definitely rise, and with less confidence can one predict the extent of that rise.

In the midst, then, of so much that is uncertain, not the least value of import quotas is that they bring some measure of certainty into our balance of payment position. With a flexible quota system our import bill can be estimated, and the exports necessary to sustain that can then be evaluated. Success in exports, when it comes, can then lead to changes in due course in the quota system. What we buy can then be closely aligned with what we earn. Imports can then keep in step with exports, and improvements in the one should be a necessary prelude to improvements in the other.

The time has come when we should all turn our minds to the great imperative of our economic conditions, the imperative to end the long record of our economic weakness, and to put right our balance of payments. At the present time I believe that this means the compulsion of a closer alignment between exports and imports. Hopes and aspirations and economic forecasts are no longer enough. We must now act directly on the problem, and quotas are one way of so acting.

4.46 p.m.

Mr. Nigel Birch (Flint, West)

I do not want to follow the hon. Member for Ashton-under-Lyne (Mr. Sheldon) into his eloquent and intricate argument on the subject of quotas. I do not agree with him. The only thing I would point out is that if he is to have quotas he has to get rid of the surcharge, so I hope that he will vote with us tonight.

My position with regard to the surcharge has always been clear and unequivocal. I thought that it was wrong. I thought that it would lead to wrong, and I thought that it was a blunder. I want it abolished at once, and no nonsense about it.

It was wrong because we broke no less than nine treaties and agreements when we imposed it. Nobody seems to bother about that sort of thing nowadays, but it is rather odd when one realises that hon. Gentlemen opposite, who spend most of their lives shouting "Up the rebels," and now spit out the word "illegal" as though illegal action was beyond any possibility evil, yet here they are breaking the law nine times in cheerful ungodliness.

I thought that the surcharge would lead to evil. After all the stuff about a "matter of months", we are now putting it on for a second year. As a trading nation we depend upon our reputation and commercial integrity. What we have done over this has damaged that reputation, and it will take time for the damage to be made good.

It was a blunder for a number of reasons. First, because I am convinced that it had a great deal to do with starting the run on sterling. If we put on a sur- charge and subsidise our exports, we are doing something more or less equivalent to a devaluation. In Continental countries similar movements have often been the prelude to formal devaluation, and I think it was because foreign countries thought that what we did was a prelude to devaluation, as it had been in other countries, that the run started.

It was a blunder, too, because it took our minds and our attention off the real cause of our difficulties here. The real cause of our difficulties here is the overstrain in our economy, existing to a certain extent when the Government got in, but now positively worse, and the surcharge was used as a reason for not dealing with this situation.

The Government have taken a great many deflationary measures, and massive ones at that. If they had been taken quickly and firmly, and the Government had said what they were trying to do, the measures would have worked, but as they have been dribbled out over this long period they have not worked, and meanwhile costs have risen and the irreversible rise in our costs is continuing.

I propose now to say a word about the current balance, about which the Chancellor had several things to say. As the right hon. Gentleman said, exports are not altogether unencouraging. They have not risen by as much in volume as the National Plan demands, but they have gone up. There is one point that we should remember. Exports—especially exports of capital goods and engineering products—take a long time getting through the pipeline, and the great mass of the exports that we are now selling were contracted for when costs were far lower than they are today.

The Chancellor has said that imports have been fairly steady. Nobody can know what the effect of the surcharge on imports has been. The Chancellor produced some subtle arguments, but it is not possible really to say what the effect has been. It must have had some effect on our imports, but there are other more important factors. One is that there was a considerable change in the terms of trade in our favour—something that was not mentioned by the Chancellor. The terms of trade are very difficult to predict. The National Plan has predicted a very favourable trend in the terms of trade up to 1970. This is the difficulty. The First Secretary thought of a number, and all the other figures must be jockeyed round in order to add up to the number that he first thought of. The terms of trade were one of the factors that he had to include.

The other important consideration was the question of stockbuilding, which is most difficult to predict. Imports have not increased very much; they have remained stable, but high. But industrial production is not increasing, whereas last year it was increasing rapidly. If production starts increasing again stock-building will have to rise again also, very rapidly.

I come back to the basic fact. A very good speech, lasting one and a half minutes, was made by Lord Salter the other day in another place. He said that everything depended on whether we could keep our costs competitive with America. What has gone wrong is that our costs are rising with enormous rapidity, and there is no doubt that the surcharge has contributed to this by adding to the pressure on our own economy and upon wages.

There was a very gentlemanly controversy between the Chancellor and the First Secretary about how much earnings had gone up in the first eight months of this year. The Chancellor said that they had risen by 8 per cent., which is equivalent to 12 per cent, per annum, but the First Secretary thought that it was not so much——

Mr. Callaghan

With respect, I did not say that. I said that they had gone up by 8 per cent. per annum.

Mr. Birch

The right hon. Gentleman said 8 per cent. in eight months.

Mr. Callaghan

Yes. Perhaps I may have my accurate figure correctly reported. What I said was—and detailed notes were not taken at the meeting—that they had gone up at the rate of 8 per cent. in the first eight months. It looks as if the figure should be between 7 per cent. and 8 per cent.

Mr. Birch

Of course, I accept that. The two right hon. Gentlemen ended their quarrel by the statesmanlike device of their saying that neither knew what the answer was.

There is other evidence. Some hon. Members may have seen an account of a speech delivered on the 24th of this month by the Chairman of the Thorneycroft Shipbuilding Company, of Southampton. He was speaking at the launching of a frigate and was talking about the difficulty of giving fixed price tenders when ships have to be delivered two or three years later. He said that the wage creep had been turned into a smart walk, and that over the last 18 months wage costs had gone up by no less than 18 per cent. To him it was 8 per cent. in eight months and 12 per cent. per annum. That was the rate at which his wage costs were rising. We all know that they are rising with immense rapidity and that they will go on doing so while the pressure on our economy is so great.

I beg the Chancellor not to talk as if there were nothing between mass unemployment and what we have now. What we have now is a situation in which the unfilled vacancies far exceed the number of unemployed. There is no doubt that the figures of unemployed include many people who are not employable, or who are not seeking employment, whereas the figures of unfilled vacancies are an underestimate of the true position. If we produce a situation in which the whole economy is out of balance it is quite impossible for any wages policy to work. The laws of supply and demand are bound to take over——

Mr. Deputy Speaker (Sir Samuel Storey)

Order. The right hon. Member is getting away from the import charge, which we are discussing this afternoon.

Mr. Birch

I am, as ever, at your feet, Mr. Deputy Speaker, but these subjects have been extensively touched upon. I am coming to the end of this point. I was simply saying that the surcharge has increased the pressure on our economy, and with pressure as high as it is at the moment nothing will work.

The other day the Chancellor was attacking one of my hon. Friends for his doubts about the effectiveness of the wages policy. The right hon. Gentleman said, "What will you put in its place?" That involved the idea that the wages policy is in place. In fact earnings have risen almost exactly in accordance with the predictions made by Professor Phillips as to what would happen with unemployment at this level. But I do not altogether reject a wages policy. At the margins we can sometimes do something about it. It is worth having the present set-up, but it cannot work with the present pressure.

Mr. Deputy Speaker

Order. The right hon. Gentleman is getting away from the import surcharge. We cannot discuss the incomes policy.

Mr. Birch

I will return to the question of the surcharge and a remark made yesterday by the Chief Secretary, which was taken up by the Chancellor himself. The Chancellor pointed out that prices have been stable over the past few months, whereas wages have risen. This is the whole point. Wages have risen not because prices have risen but because of the supply and demand position. The Chancellor talked about educating our constituents. I wish he would educate the First Secretary. That desperately needs to be done.

We cannot get things right unless we can get a proper relationship between supply and demand on the wages front, and we cannot throw everything into Mr. Aubrey Jones' lap. What is the good of Mr. Aubrey Jones examining coal prices——

Mr. Deputy Speaker

This does not arise on the import surcharge that we are discussing.

Mr. Birch

I am sorry. I will not pursue that. Nor will I pursue the question of Forces pay, upon which it would be dishonourable for Mr. Aubrey Jones to pronounce.

I end under your stern eye, Mr. Deputy Speaker, by saying that I do not think that we can ever get our economy in balance if we do not stop talking and thinking nonsense, and we will not stop talking and thinking nonsense until ridiculous measures like this surcharge is thrown out of the window, as I hope it will be today.

4.58 p.m.

Mr. Edmund Dell (Birkenhead)

I was glad to be in the Chamber to hear the right hon. Member for Flint, West (Mr. Birch) because, as a new Member, I need his education on how to find my way round the Rulings of the Chair. I only hope that I will not need to use the experi- ence that I have just gained. I hope that I shall be able to keep far more within the terms of the subjects that we are discussing than the right hon. Gentleman did.

Unfortunately, I was absent from the Chamber for a few minutes during the speech of the hon. Member for Worcester (Mr. Peter Walker). Therefore, I must apologise for not being clear whether the Opposition are voting against the Order simply because they have no choice, or as a matter of principle. I am not sure, in other words, whether they would be prepared merely to see it reduced or whether they are against the whole thing.

Mr. Callaghan

My hon. Friend would not have been much wiser if he had heard the speech of the hon. Member for Worcester (Mr. Peter Walker).

Mr. Dell

I thank my right hon. Friend for that intervention. I am now clear on the fact that the Opposition are taking the same sort of attitude on these matters as they usually do. They give no guidance to the House or to the country as to what exactly they think should be done by the Government in this situation.

I take a fairly generous attitude towards the Opposition in this matter. The last Conservative Government had a very great and grave responsibility for the economic difficulties which we now face. They were utterly irresponsible during 1964. They allowed the deficit to increase far beyond anything which could possibly be justified. They knew it was increasing and took no action: instead, they delayed the election and did not meet the developing crisis which the country was facing.

Having said that, I would add that I do not think that the responsibility is theirs alone. There has been a long-term deterioration in this country's overall balance of payments. The National Plan refers to the way in which this country's underlying balance of payments has been getting worse. We have a long-term structural defect in our economy, in that our imports always too greatly exceed our exports. We have become used to living on a large invisible income which is less and less able to cover such matters as our trade deficit, Government overseas expenditure and the large continuing outflow of private capital——

Mr. Cooper

The hon. Member must try to be correct in his statements. In 1964, on our trade position as opposed to capital, this country earned a surplus of £57 million on visible and invisible account.

Mr. Dell

I think that the figures are sufficiently well-known. This country ended that year with the largest deficit in the whole of its history—the largest by a long way. If hon. Gentlemen opposite are going to start this argument by denying the fundamental fact about our economy, that our underlying balance of payments has been getting worse, they will then refuse to face up to the measures which are necessary to put the situation right.

The Government which was elected in October, 1964, put on the import surcharge in a moment of great crisis. It was one of a number of measures which they took to act directly on the balance of payments. Another was the control introduced in various ways on the outflow of private capital. I believe that it was put on by the Government very reluctantly, because there was clearly a number of serious arguments against it.

To begin with, it was said that it would cut competition in the home market. There is a long tradition in this country of believing, possibly correctly, that protection promotes industrial complacency and laziness, that it leads people to rely on the home market and not go out for exports. In passing, I would point out that three of our main and most successful industrial competitors, the United States of America, Germany and Japan, built up their considerable export capacity behind high protective barriers. However, this is a view which has for a long time been taken in this country—that industrial protection leads to industrial inefficiency and laziness.

Another argument which the Government undoubtedly considered as being against the import surcharge was the fear of retaliation by the countries who took our exports. There was a great deal of talk about retaliation in the months following the introduction of the surcharge. Nevertheless, I believe that, essentially, the surcharge has done what was expected of it. Imports have fallen— they are cer- tainly a great deal lower than they would have been without the surcharge—and the surcharge has not prevented exports from rising substantially. They have not risen as much as German and Japanese exports, but they are higher than the trend of export increase indicated in the National Plan.

There is another thing which can be said in favour of the surcharge. One of the interesting facts about this last year is that, despite the credit squeeze, we have succeeded in sustaining the level of industrial investment and employment. Why has the level of industrial investment been maintained during the last year? Many reasons have been advanced for this. One is that industrialists today have confidence in the possibility of continuous economic growth inspired by central planning. Another is that business men have learned the lesson. They have found in the past, each time they met a downturn in the economy by cutting investment, that when the upturn came they were short of capacity to meet the demands of the home market and exports. It is suggested that now at last some at least have learned the lesson and realised that it is important to maintain the level of industrial investment even during a downturn in the economy.

There is much in these two reasons to explain the maintenance of industrial investment, but the surcharge is also part of the answer. I believe that it has had the effect of sustaining home demand at a higher level than it would have reached if it had not been imposed. As we know, investment depends enormously on the level of current demand. The existence of the import surcharge, by tending to maintain the level of home demand, has had another important effect, that of sustaining the level of investment. At the very least the level of investment has been encouraged by the willingness of the Government to use such a method as the import surcharge, by this very considerable departure from the previous methods of conducting our economic affairs.

Therefore, taking all this into consideration, the import surcharge can be said to have been a success. But it is temporary and we have to look to the future. We should consider, right now, whether the surcharge is the total answer to the kinds of problems with which it was imposed to deal. In 1966, we plan to have our balance of payments in balance. But in 1967, there must be an upturn in economic activity if we are to fulfil the Plan. The fundamental question which the Government have to face is, what will happen to imports immediately they loosen the reins on the economy with a view to producing this upturn in economic activity?

We must understand that we cannot again permit, as was permitted in 1964, a large deterioration in our balance of payments with its effect on the reserves. We can never permit that again. We can certainly not permit it in the sort of situation we have today, when there is round our necks the burden of about £900-£1,000 million worth of short-term debts. The Government will have to face the problem of what they will do about imports when the upturn in the economy begins. They will have to consider—and should be considering now, alongside the import surcharge—whether they have this problem under control.

The Government are doing many things in this respect—the Economic Development Committees, the announcement which I hope will not now be long delayed about investment incentives and all the various export aids which have been introduced by my right hon. Friend the President of the Board of Trade. I hope that we may be told, today or in the near future, what the Government intend to do following the publication by N.E.D.C. of their important report on imported manufactures.

Nevertheless, the Government have to consider whether this will be enough, if only to produce, in the short period of one more year, a sufficient switch in the export-import relationship to enable us, with confidence, to remove the reins on the economy and allow this upturn to take place. Can we, during this next year, produce sufficient new industrial capacity to produce the change in the balance between imports and exports which will enable us with a feeling of security to allow the upturn to commence?

Will some other form of import control be needed, either alongside the import surcharge or after 1966? If so, should we not be thinking of it now? At the very least the Government should be preparing, to have ready to hand, certain additional weapons of import control. But I do not believe that the imposition of such weapons as imports control should be unconditional. I do not think that the Government should introduce measures of import protection which would be unconditionally offered to our industry. These should be weapons which could be used in a discriminatory fashion to make sure that we can control the flow of imports once the upturn in our economy starts.

Mr. John Hall (Wycombe)

Would the hon. Member tell us how his proposals would be likely to affect the continued negotiations on the Kennedy Round?

Mr. Dell

I had intended to mention that later in my speech and, if the hon. Member will permit me, I will leave it until then, subject to your Ruling, Mr. Deputy Speaker, that such remarks are in order.

I was about to give an example of the way in which the Government should be prepared to introduce some sort of control over imports if necessary and if the other measures which they have introduced have not in time produced the overall results which they want. For example, I should like to take an interesting instance given in the N.E.D.C. report on imported manufactures in respect of the plastics industry. The chemical industry has been complaining for some years that the imports of plastics during times of world surplus are very high because there is dumping in this country owing to the relatively low level of tariffs imposed on plastics in this country compared, for example, with the United States. They want the Government to be prepared to protect them from such dumping, and I believe that they should be given that protection.

Mr. Deputy Speaker

Order. The hon. Member for Birkenhead (Mr. Dell) is going very wide. All we are discussing today is the import charge and its workability and whether it should be continued for another year.

Mr. Dell

I am suggesting that certain forms of import control are justifiable depending on the way in which they are operated. I hope that my remarks are in order.

Mr. Deputy Speaker

We cannot discuss other forms of imports control today. We are discussing this particular form.

Mr. Jay

Further to that point of order, I suppose that hon. Members on both sides of the House would be entitled to argue either that this charge was justified or that it was not justified on the ground that there are possible alternative methods. Within those limits, would not that be in order?

Mr. Deputy Speaker

Yes. But it is not in order to discuss the alternatives in detail.

Mr. George Y. Mackie (Caithness and Sutherland)

On a point of order. Mr. Speaker specifically allowed the Chancellor of the Exchequer to put to the Opposition the question what they would do instead of these import charges.

Mr. Deputy Speaker

It is not in order to go into the alternatives in detail. All that the House can discuss today is the working of these import charges and whether they should be extended for a further year.

Mr. Dell

I will try to keep within your Ruling, Mr. Deputy Speaker. All I attempted to say was that any form of industrial protection such as an import charge should be conditional on individual industries and firms being prepared to meet certain targets and, in the case of the chemical industry, being prepared to make the necessary investment in order to achieve a better export-import balance.

I am aware of the great objections which there are to measures of import control such as I was attempting to suggest, or to these charges. There is the objection that they reverse the trend towards freer world trade which has taken place since the war. The hon. Member for Wycombe (Mr. John Hall) asked what effect my proposals would have on negotiations for the Kennedy Round. I hope very much that those negotiations are successful. If they were rapidly successful they would ease the path in getting rid of these additional forms of import control. But the fact of the matter is that the Kennedy negotiations are not making great progress, and we have to face the possibility that the trend towards freer world trade is not making further progress at the moment.

Although I wish to see this country taking part in all attempts to create freer world trade and to increase the flow of goods, in the last resort we have to make sure that our own country's situation is under control. In introducing the Order the Chancellor of the Exchequer said that the level of world trade would be likely to be higher if we controlled imports by methods such as the import charges rather than by means of a credit squeeze alone. He said that the latter is far more likely to reduce the level of our own contribution to world trade. This is true. In this country we have had a policy since the war of controlling imports by means of generally controlling the level of demand, by credit squeezes and by general economic measures, and it cannot be said that this country's contribution to world trade has been remarkably great since the war. If we were prepared to experiment with this new method we might in the long run make a much greater contribution to world trade than we have made in the past.

I accept the argument about the danger arising from cutting out the spur of competition, but the use of the import charges or any similar methods of imports control could be made conditional on firms taking a much more active part in exports. The competition which they will find in exports is much tougher and more educational in many ways than the competition at home. We could make any protection given to an industry in this country conditional on their promoting exports. If they failed, I should be happy to remove any import barrier by which they were being protected.

One of our difficulties at the moment is that we are not in a position to give firms this additional incentive to increase exports because of our balance of payments situation. If the balance of payments were more under control, we should be in a much better position to say to firms which were not going sufficiently into exports, "If you do not fulfil the plan or meet a reasonable target in respect of exports, we shall remove the import barriers which are protecting your home market."

There are many other arguments which could be used in connection with industrial protection and import control, but at the end of the day the Government must balance the arguments, and in this case the balance of the argument is in favour of giving industry, in co-operation with the Government, a period in which the structure can be changed so that the relationship between exports and imports may be drastically changed, too, once and for all. This must be done so that we do not continually face the problem that every time we take the lid off the economy and permit the rate of economic development to increase, we immediately face a balance-of-payments crisis.

Whether we like it or not, the problem of imports is, next to the problem of overseas military expenditure, the greatest immediate economic problem facing this country. The Government must face the fact that additional import controls may be required longer than they at first imagined. The Government must prepare themselves to ensure that if there is a need for such additional measures they can introduce them in ways which reduce to the minimum the harm to the national economy arising from the kind of defects in principle of import controls which I have indicated while outlining the main theme of my argument.

I hope that everything the Government are doing will have the effect sufficiently rapidly of avoiding the need for a continuation of special import controls beyond the period of the import surcharge. I also hope that the Kennedy Round negotiations as well as those to increase international liquidity will achieve success, as will, I hope, the various export aids which the Government are introducing. I am sure that these efforts will help to make the problems which I have advanced more easily soluble. However, if they are not solved before this temporary Measure expires—if, at the end of 1966, we still face the same sort of problems which we faced in 1964—then the Government must be ready to deal with them rapidly by having to hand continuing methods of import control.

5.21 p.m.

Colonel Sir Harwood Harrison (Eye)

We have just listened to two very interesting speeches from the back benches opposite. Perhaps that of the hon. Member for Ashton-under-Lyne (Mr. Sheldon) was somewhat more critical of his Front Bench, but there is no great harm in that.

I have always taken the view during my years in Parliament that we have been trying to move towards rather freer trade. I recall Motions urging reductions in quotas against foreign countries and increased imports from those countries.

We always enjoy listening to the Chancellor. We enjoyed his speeches when he sat on this side of the House. However, I do not think that he felt particularly pleased today with the task before him, particularly since there can be no doubt that the House as a whole does not want the surcharge. The difference between the two sides rests on the question; should it continue for a further period or should it come to an end now?

The Chancellor presented us with a number of statistics which rather beguiled us as to the paucity of his case. I felt that while he was trying to act as though he and the Government had been rather good because they had reduced the surcharge from 15 per cent. to 10 per cent., it was almost like saying to an infantry soldier who had been marching for many miles carrying a pack weighing 50 lbs., "I have reduced your pack to 35 lbs., so it must feel lighter than if you had started with almost no load at all." This is a bad surcharge and there can be no doubt that it has acted unfairly on industry.

It is all very well to laugh off the bad effects of it on our customers because we have a fairly full export book, but no one can say how many exports we may have lost because of the surcharge. In other words, the amount of reduced imports may have been less than we have lost in terms of exports. We have fairly full export books, but it is in difficult times that one needs the goodwill which one has established over many years with one's customers. Many of these, particularly in the E.F.T.A. countries, have been shaken in their belief in the integrity of Her Majesty's Government. Just at a time when the general direction was towards freer trade, we, by this imposition, complicated the issue—and it seems from the Chancellor's speech that there is no intention on the part of the Government to remit it at an early stage. In other words, in a year's time it will come up for renewal.

I wish to take up three trade matters which have specifically been brought to my notice of how the surcharge acts against industry. First, there is a firm in my constituency, named Munton & Fison, which manufactures malt and malt products. This firm has a first-class record in the export trade. It has a lively, energetic board of young directors, and it is still a private company. The firm decided to expand from Stowmarket and two or three years ago it joined with an associate company at Bridlington in Yorkshire. With some difficulty, planning permission was finally obtained.

In December, 1963, the firm ordered through its main contractors two driers from Sweden. I understand that they were driers of a type which were not available in this country. They were supposed to have a capacity to pass 12 tons of barley per hour and reduce the moisture content from 19 per cent. to 12 per cent. In April, 1964, these two driers were imported and Customs duty at the then existing ad valorem rate of 7 per cent. was paid amounting to £1,153 18s. 8d.

In August 1964, the plant was started up, but owing to the exceptionally dry and fine summer the moisture content of the barley was low—not as high as 19 per cent.—and it was, therefore, not possible to test the driers to see if they were fulfilling their rated capacity. This test could not be made until the following December when, with the arrival of damper grain, tests were able to be carried out which showed that the driers could work to only 75 per cent. of their capacity.

The Swedish firm of Messrs. Kamas agreed to replace the driers at the same price. The duty against E.F.T.A. countries had by then been reduced to 5¼ per cent. from 7 per cent., but there was a 10 per cent. surcharge and the total amount paid was £2,470. The two replacement driers having arrived in the April, the two original driers were re-exported to Sweden and a claim to Her Majesty's Customs, reclaiming relief from the 10 per cent. surcharge on the grounds that these were replacements free under a guarantee, was made.

Customs would not agree. I took the matter up with the Chancellor and I have had a courteous reply. It is usually the case that the more courteous the reply from a Minister the less likely he may be expected to act on behalf of one's con- stituent. However, in this case I understand that there is a possibility that the Customs may be able to grant a refund on the ad valorem 7 per cent., but that under no circumstances can the import surcharge of 10 per cent. be altered. Are the Swedes expected to pay this? The Swedish company acted in a very generous way in replacing this machinery and is all this not likely to cause bad feeling? Or will this charge have to be paid by my constituents involved in this case? I gather that this is not a unique case but that there have been a number of similar ones. The mere fact that there have been more does not make this one any less important or worrying to industry.

I turn to another aspect of our export trade and in this, my second example, I am quoting the case of a firm with which I am connected and in which no constituents of mine are involved. In this case small articles are despatched and the example I have in mind is of hurricane lanterns which have a glass element and which, naturally, must be well packed. These lanterns are packed in cardboard cartons using Kraft Union paper and corrugated flutes. This method of packing has proved very successful for many years.

The firm which makes these cartons, not only for us but for many other firms, made very strong protests when the original 15 per cent. surcharge was imposed in that this type of paper was made subject to the charge since it is not produced in this country. As a result of the surcharge, the suppliers passed on to export firms the increased carton price of 6½ per cent. This increase is the importers' recovery of the surcharge on total cost and charge-out figures.

To facilitate the claim procedure, my firm, named Chalwyns Ltd. of Poole, arranged with its suppliers for all cartons using surcharge material to be marked "T.C.I." so that strict stock control was operated from receipt at the factory to exportation at the docks. It is also maintaining a record showing the number of these marked cartons exported, cross-referenced to shipping notes and invoices. This all involves a good deal of clerical work.

The carton manufacturer experienced a great deal of difficulty with the Customs officer at the point of entry over reclaiming the 6½ per cent. for its customers. In May, 1965, after tedious negotiations, the firm concerned reached an agreement with the Customs and Excise on the procedure to enable it to make claims for remission on behalf of its customers which re-exported "T.C.J." marked cartons. This complicated method involved extra records and valuable clerical time, but in view of the large sums involved—some hundreds of £s—the firm carried out this necessary work.

The matter was complicated again by the Government reducing the charge from 15 per cent. to 10 per cent., when the manufacturers reduced their 6½ per cent. to 4 per cent. That action, though welcome, made even more work. Here I would put in a plea to the Chancellor that, when he reviews the surcharge, he should not have another 5 per cent. step-down but should get rid of it altogether. I hope that this surcharge will be brought to an end.

A third instance brought to my notice is that of a company importing transistor radios and photographic equipment. Much of this comes into this country, and is held at the docks. The customers abroad often want a token delivery in order to decide whether they will buy a large quantity, and want them from the London docks, instead of their being routed direct. These items are therefore often re-exported. As I understand it, as each article is valued at less than 25s. the surcharge rebate will not be paid. As many thousands of these small articles can be sold together at a good price there is a loss to the export trade and to the re-exporters.

Turning to a general point, this surcharge is operating also against high-quality goods coming to this country, which may be small in volume. The whole consignment may not be wanted at once and so comes by ship, but a token amount may be wanted, and that is sent by air. This is a modern form of transport of goods which this House would be wise to recognise. The cost of freight by air is greater than that by sea, but the surcharge operates on the increased freight as well. If the sea freight is £20 an article, 10 per cent. means £2. If the air freight is £25, the percentage comes out at £2 10s.—in addition to the surcharge on the article itself. Surely there might have been some way of standardising the surcharge on the freight. It might have been done on a c.i.f. basis, or if the articles were sent by air it could have been arranged that it would be no more than the surcharge on the sea freight.

I have listed four cases of difficulties that have come to my notice but I have heard of others, as I know that other hon. Members have. It adds great point to the enormous amount of time and energy that is being wasted by firms up and down the country, all of which could be put to better use. As a result, they are not producing the extra effort to which the Government pays so much lip service.

Her Majesty's Government's actions are still resented in those E.F.T.A. countries with whom we are in association, and this has been reflected in the amount they buy from us. The particular firm with which I am associated which sells hurricane lamps, at one time exported over 90 per cent. of its products, but got little active thanks, even from Conservative Governments, except to be told, "You are very good boys." Today, wisely, it has diversified its activities and does more in the home market.

I have made a strong plea, though I know that the Chancellor has said otherwise, that goods from the E.F.T.A. countries might not be subjected to the surcharge. I put that in my speech before I heard the Chancellor, and it was very clear to me that the right hon. Gentleman's view was that he could make no exception for any part of the world, and that when the surcharge comes to an end it will come to an end altogether. All the same, I make a plea on behalf of the E.F.T.A. countries with whom we are so closely associated. The President of the Board of Trade is not now with us, but I saw that he wrote in the Daily Telegraph a very useful foreword on what is being done to bring life to the export trade. We do not have such as large representation in the E.F.T.A. countries as elsewhere but to the former we are selling a higher proportion of our goods.

The surcharge makes this Government appear to me once again to be a Government of theorists who do not understand the complications of business and the great difficulties put in the way of business people by various Government Departments. That being so, how can they expect the response they are demanding? Actions in other countries show that decrease in taxation, not increase, is the right approach to release ingenuity and endeavour, and produce the higher standard of living and the higher export trade that we all so much desire.

5.35 p.m.

Mr. Joel Barnett (Heywood and Royton)

Listening to speeches from the other side of the Chamber, one feels that one has been here before. The arguments are just the same as those put forward last year, and those of the hon. and gallant Member for Eye (Sir H. Harrison) were no exception. Although 13 months have gone by, we still have the same niggling criticisms and no constructive element, apart from the suggestion that in certain cases the surcharge might be removed—

Sir H. Harrison

The hon. Member is crediting me with a speech I did not make.

Mr. Barnett

The hon. and gallant Gentleman will know best, when he reads the OFFICIAL REPORT, which speech he delivered.

The arguments I have heard today from the Opposition Front Bench have been dishonest, irrelevant and irresponsible. It is not the form of words used at a particular time by this Government or by that which matters, but their actions, and the direction in which those actions are channelled. It is disappointing that in our economic debates we have only party political arguments, particularly from the other side, and the hon. Member for Worcester (Mr. Peter Walker) was no exception. Indeed, his rehash of last year's speech did him no credit.

When the surcharge was introduced last year there was no practicable alternative and the Opposition know it. The question is whether or not we should extend it for one year. What we are seeking to do today is to extend it for one year, and if any further period is wanted we shall need new legislation——

Notice taken that 40 Members were not present;

House counted, and, 40 Members being present—

5.36 p.m.

Mr. Barnett

It is not necessary from these benches to argue the need for a sound balance of payments in our economy. The only argument is as to how best we can achieve it. It can be summed up by saying that we need to reduce imports, we need to increase exports, and we need to produce goods which will be the import-saving type. We can reduce imports by measures of control, and/or by increasing production of the import-saving type of goods, or we can increase exports by the various methods that have been suggested in this House and outside it.

The methods have been discussed at very great length, but the trouble is that there is here a sort of vicious circle. We can only increase production of the import-saving type of goods and generally get an increased rate of growth if we have a sound balance of payments, and so avoid the intermittent recessions we have had over the last 20 years; the type of recession that makes boards of directors uncertain as to the future, and therefore uncertain as to whether to make the expansionist type of plans we need as a nation. It is against this type of background that we have to decide whether we should continue the surcharge.

One does not need to be a pessimist nor a fortune teller to see from the evidence available before us at present that we are not going to be able to solve the economic problems in the context of balance of payments in one year. Even if we had some Government which hon. and right hon. Members opposite would perhaps like to see, I do not for a moment believe that anyone in this House or elsewhere would argue that we could solve this aspect of our economic problems in one year. Therefore, as it is not a temporary problem, we need something more than a temporary solution. It is no use hon. and right hon. Members making pious statements about the need to increase exports and to reduce imports. This, of course, is self-evident.

For some years we are likely to need some kind of control of imports. The question is simply how best to do it while causing the least possible harm. On reflection, I believe the basic answer that gets to the crux of the problem is that, with all its imperfections, we have to have some form of quota system which will be both flexible and selective in its impact. For example, we have at present plant and machinery which needs to be imported to this country and there is a surcharge on it. The surcharge does not prevent that plant and machinery coming in, for the plant and machinery is very much required. It would be no use having a quota on machinery that we very badly needed. We would have to have a highly selective form of quota system. Apart from the certainty of a selective quota system, it could be a very useful bargaining weapon in negotiations with industry——

Mr. Deputy Speaker

Order. The hon. Member is not in order in discussing alternative import charges or the control of imports. All that we are discussing is the working of and whether we should continue the import charge.

Mr. John Hall

On a point of order, Mr. Deputy Speaker. I find myself in difficulty, and I ask for your guidance. When one is opposing an import surcharge there is a natural reaction to ask what one would put in its place. It is for that reason that we would suggest something else. This leads to an amount of detail.

Mr. Deputy Speaker

I am afraid that in this debate it is not in order to go into detail of alternative means of controlling imports.

Mr. Sheldon

Further to that point of order, Mr. Deputy Speaker. My contribution to the debate was on an alternative. I spoke of nothing other than the suggestion that the import quota should be replaced. Had I been ruled out of order I should have resumed my seat.

Mr. Deputy Speaker

I may have allowed the hon. Member for Ashton-under-Lyne (Mr. Sheldon) to go too far, but I cannot allow this debate to go from its proper course.

Sir D. Glover

When the hon. Member for Ashton-under-Lyne (Mr. Sheldon) concluded his speech I had every intention of intervening in the debate to ask questions on what he had said. According to a recent Ruling, however, everything that he said was out of order.

Mr. Deputy Speaker

That may be so, but what is in order in this debate is the working of the present import charge and whether it should be extended.

Mr. Barnett

I bow to your Ruling, Mr. Deputy Speaker, and I am grateful for the assistance that I have been getting.

Perhaps the least harmful point about having a form of selective and flexible quota system would be that it would not prevent a steadily increasing rate of growth. In this context perhaps I shall not stray too far if I refer to an article in the Financial Times on 15th November by Lombard. That was a very interesting article on the whole question of a quota system which, in view of your Ruling, Mr. Deputy Speaker, I cannot discuss now in the way I should like. The main point was that speedy action on imports is more likely to maintain rate of growth than to hinder the growth of world trade.

I am aware of the serious administrative difficulties involved in having any alternative to an import surcharge by way of a selective charge of the kind I have suggested. I do not believe, however, that there would be insuperable difficulties, particularly if the alternative is, as I believe, regular deflation every few years. This would happen if we had the surcharge for two years, then removed it and put nothing in its place. My hon. Friend the Member for Birkenhead (Mr. Dell) made the point very well that if we have to have the surcharge now we should at least look ahead to the underlying problems facing the nation in the whole problem of the balance of payments.

Perhaps the most serious criticism of my alternative is the charge of Protectionism. The answer to this lies in having the sort of highly flexible and selective form of quotas such as I have suggested. I wish to refer to another aspect of this question of whether or not we should deal with the balance of payments problem by some form of import control. I wish to refer to the other matter which seems to be affecting the minds of my right hon. Friend the Chancellor and others. It is an attitude of mind in the context of the whole balance of payments system which suggests that we should never be in debt as a nation, that we should try to get out of debt and never to have a debt again at all. That view has been expressed as if it is patently wrong to hold a contrary view. I certainly do not go along with the idea of never borrowing to get our economy in order.

Most efficient companies in this country are, and rightly, very heavily geared. There is a very strong argument for the nation too to be heavily geared. I suggest that long before 1970 we shall need to fund some of the debts we have at present.

Mr. Deputy Speaker

Order. This has nothing to do with the import charge which we are discussing today.

Mr. Will Griffiths (Manchester, Exchange)

I am sorry to inflict another point of order on you, Mr. Deputy Speaker, but although I have not been in the House for more than a few minutes recently, I listened to the whole of the Chancellor's speech. As I understood, the Chancellor was recommending the continuance of this import surcharge because of its effect on sterling, on strengthening of the economy in general and on balance of payments in particular. Surely my hon. Friend the Member for Heywood and Royton (Mr. Barnett) is in order in referring to matters in a wider context?

Mr. Deputy Speaker

I understand that the Chancellor was called to order because he wandered too wide.

Mr. Barnett

Thank you, Mr. Deputy Speaker. I was about to say that in the context of the import surcharge, taking the comparison of companies borrowing money to balance their payments, it is important that if we, as a nation, are borrowing money it should be adequately covered both as to assets and as to yield. Of course it is equally important that money so borrowed should be put to good use. It is crazy to borrow to invest abroard on an inadequate return, as the previous Government had been doing and as apparently hon. and right hon. Members opposite are prepared to continue to do. But because they have been wrong in the past, there is no reason that we should now go too far the other way and assume that all borrowing is bad.

Mr. Deputy Speaker

Order. I must ask the hon. Member to come back to the order we are discussing this afternoon.

Mr. Barnett

I am sorry, Mr. Deputy Speaker. I am trying very hard to deal specifically with the import surcharge and its relation to the balance of payments problem. The import surcharge is very closely related to balance of payments and it is difficult not to refer to balance of payments when talking about the import surcharge but I shall do my very best. I was saying that what is needed is a flexible approach. It is wrong to use the old saying—"Never a borrower or a lender be". A Chancellor of the Exchequer should not subscribe to this maxim. In our present balance of payments position the national cannot afford such inflexibility. A flexible approach here combined with a carefully handled selective quota system could give us the steady and sustained rate of growth we all want.

It may be necessary to continue the surcharge at the moment because we do not have an alternative readily to hand and because we cannot allow a situation to exist in which we have no control over our imports. However, I hope, for the reasons I have outlined and the argument I have attempted to deploy, that before the next 12 months are over we shall be able to replace it by a system very much more flexible and selective in its use by way of quotas.

5.50 p.m.

Mr. John Peel (Leicester, South-East)

It is very interesting indeed to hear hon. Members opposite getting out of order, not in their rather feeble defence of this temporary surcharge but in suggesting ways of substituting something better for it. There is one aspect of this temporary surcharge which I have never yet heard answered by the Government, and I very much hope that we shall get a defence and an explanation, if there is one, from them today. As one of the British Parliamentary delegates to the Council of Europe, I was in Strasbourg just after the temporary surcharge was introduced and I heard, and had a great deal of sympathy with, the righteous anger and indignation of our friends and associates in E.F.T.A. Not only was I impressed by their anger at our action but especially, too, by the remarks of the Secretary-General of E.F.T.A. who, as a very able and oustanding Briton, was absolutely categorical in his condemnation of this measure, and he made it perfectly clear that it was in breach of a solemn treaty entered into by Britain. I have never yet heard any justification for what can only be described as a thoroughly immoral international act.

One of the things that I deplore more than any other from the Government benches is the feeble and cowardly excuse which they put forward that, because a departmental inquiry had been set afoot in an election year into all possible ways of overcoming the long-term problem of balance of payments difficulties, the Conservative Government must have approved it. This is certainly one of the feeblest and most cowardly excuses I have ever heard. It is an attempt to evade the Government's responsibilities for their own decisions and actions. What is more, I simply do not believe that a Conservative Government, if they had had to take action on this question, would have handled it in anything like the way that the present Government handled it.

If studies had shown that an import surcharge was really far and away better than any other method for controlling the balance of payments difficulties, since it was clearly completely contrary to our treaty obligations we must have had to consult our friends and associates. If it is argued that that was absolutely impracticable, I do not think that we ought to have introduced it at all and if necessary we should have introduced something which, though the Government may have considered it less suitable, was nevertheless within the terms of our treaty obligations.

The fact of the matter is that the Government were determined to create a false crisis for political reasons and in doing so they dragged Great Britain's good name in the dirt. This was very apparent to anybody who was in Europe at that time. I go regularly to the Continent to attend the Council of Europe, and I know that that bad name for that action is continuing. I am absolutely convinced that there is no hope of redemption and no hope of re-establishing real confidence abroad, upon which this country depends so much, until we have removed this illegal surcharge completely.

Mr. Jay

The hon. Gentleman uses all this rather "phoney" strong language, but he has to explain the fact that the right hon. Member for Barnet (Mr. Maudling) says that he also would have introduced the surcharge.

Mr. Peel

I happen to know that my right hon. Friend never said that at any time. The only thing that my right hon. Friend said was that departmental studies into ways and means of dealing with the balance of payments problem had been set on foot and this was one of the ways of overcoming it that they had looked into. He certainly never said that he would have introduced it. That is quite wrong.

Mr. Jay

He said that these schemes had been worked out by the previous Government and that of these various schemes the surcharge seemed to him the most promising.

Mr. Peel

No. If it was considered that this method was so much superior to all others, the very least we could have done was to talk to our friends and associates before making the treaty. As I said earlier, I am absolutely convinced that my right hon. Friends would have acted honourably in this matter.

Mr. Cyril Bence (Dunbartonshire, East)

On a point of order. Is it in order for an hon. Gentleman to say that had the Opposition been in power they would have acted honourably? Is not that impugning the Government by implying that they acted dishonourably in 1964?

Mr. Deputy Speaker

Not necessarily.

Mr. Peel

Quite apart from the moral aspect, I should like to know a little about the practical aspect. The Government seem to think they know that the surcharge is having a very beneficial effect by reducing imports. What we have not yet heard is how much damage they think it is doing to our exports. I am convinced that it caused so much annoyance and anger to our friends and associates abroad that they have taken it out of us in our exports to quite a considerable extent. Further, I should like to know what assessment the Government have made of the undesirable protection that is being given to home industries because that, too, should be taken into account when assessing whether the surcharge should be renewed.

The fact of the matter is that these charges have done us great harm abroad. We need look no further, though we might well do so, for the explanation of the sudden lack of confidence in Britain when this happened. The Prime Minister talked about a crisis of confidence, and it is not surprising that there was that crisis of confidence in us when a country like ours, the most important and biggest in E.F.T.A., the country that took an initiative in forming E.F.T.A., so seriously broke both the letter and the spirit of the treaty. Unfortunately, as long as we keep on these charges the blot upon our good name will continue and confidence in Britain will not be fully restored until they are removed. For those reasons, I shall vote against this Order tonight.

6.0 p.m.

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

I note that the hon. Member for Leicester, South.East (Mr. Peel) will vote against the Motion. In listening to him I wondered whether we were debating the original Order of a year ago. If the hon. Member spoke in that debate no doubt he has been using his notes of his speech then for this occasion. All that he said, in so far as it was appropriate to any occasion, could have been said a year ago, but surely not today when we have the advantage of hindsight and can look back and decide whether or not the Order was a success. The question which must be asked now, and has been asked all the year long, is whether the Order has been successful; that is to say, what effect it has had on imports. We should also ask whether, if we are not too happy about the surcharge after a year's experience, what should be put in its place, though I am aware that it would be out of order to do that now in this debate.

Mr. Peel

In view of what the hon. Member said about my remarks, would he be good enough to tell us what advantages have flowed from the Order?

Mr. Duffy

I will certainly do that, and that I think will be the purpose of everyone who speaks from this side of the House. I regret that because of another engagement I have not had the opportunity of hearing all the speeches and in particular that of the hon. Member for Worcester (Mr. Peter Walker).

Mr. John Biffen (Oswestry)

If it is any encouragement to the hon. Member, I would point out that the three preceding speakers from the benches opposite devoted their entire speeches to saying that a quota would be preferable to the present form of import surcharge.

Mr. Duffy

I have already said that after a year it is quite proper to ask ourselves if there is a case for something else in place of the surcharge, particularly because some people think that the surcharge was essentially a short-term measure. It may not be possible to do that now in this debate, but hon. Members outside the Chamber are entitled to speculate in this direction. There is nothing inconsistent about doing that. One has not thought about this problem unless one's mind has gone in that direction. The speech of the hon. Member for Leicester, South-East has not helped at all. To use strong language about a Government-formed crisis and to say that Government dragged Britain's name in the mud does not help.

I am trying to be objective and I hope that whoever winds up the debate for the Opposition will take me up on the points I make. I have no doubt that if he has the opportunity the hon. Member for Oswestry (Mr. Biffen) will not hesitate to do so. We must look into the pattern of imports in the post-war period. We should look at the years 1951, 1955 and 1960. One need only do this to be impressed with the elasticity of imports in relation to British G.N.P. and to know that we simply had to do something drastic in 1964. It sticks out a mile. There was no question of creating a false crisis.

As I have said, the real question that needs to be raised after a year of the working of the surcharge is what kind of success it has had. To arrive at that decision we must be quite clear about the goods which are affected by it. Many people are not clear on this point. They appear to believe that all imports are affected whereas in fact goods subject to the surcharge account for only about 30 per cent. of our imports, and about half of them are semi-manufactured goods and a third capital goods. The remainder are consumer products.

We had the advantage in September of the publication of the N.E.D.C. Report which showed us that the imports in these first two categories are largely responsible for the staggering import bill in the last year or so. It also needs to be said, before one attempts to measure the effects of the surcharge, that, as my right hon. Friend the Chancellor of the Exchequer mentioned, it is not easy to measure it. We may all come up with different answers. I say this because I do not want hon. Members opposite to accuse us of inconsistency. Because of the New York dock strike, recent deflationary measures and the reduction of the surcharge to 10 per cent. it is difficult to come up with the same answers. Nevertheless, if we take the period from July to October, 1964, as a base and trace the trend of imports, there is no doubt whatsoever that the goods subject to the surcharge have behaved differently to the totality of imports.

A N.E.D.C. Report published in September made a serious attempt for the first time to find out why British customers buy foreign goods. The Report is of great interest. It shows that British industry spent £290 million more on plant and machinery in 1964 than in 1963, and £101 million of that increase was spent on foreign equipment. Imports of machinery in 1958 were only just over 10 per cent. of gross investment in plant and machinery, whereas last year they amounted to 18.7 per cent. These figures speak for themselves. It is true that the marginal import content of capital investments in equipment is much higher than the average proportion of machinery bought from abroad. This needs to be borne in mind. It is true also that the import content of new machinery has increased in other advanced industrial countries as well as our own. Nevertheless, the British proportion is higher than that of Germany and several times higher than that of the United States. This is disturbing, even though it is part of the worldwide trend. Moreover, when Britain characteristically gets a low return in extra output from investment, a boom in business investment is inevitably hard on our balance of payments.

I mention another couple of sets of figures because they throw further light on that category of semi-manufactured goods which is largely responsible for our import difficulties. Mechanical and electrical engineering was responsible for an increase in imports of 31 per cent. over the previous year and chemicals of 45 per cent. over the previous two years.

It is also interesting to note the reasons given by business men responsible for these imports to the authors of the N.E.D.C. Report. Availability and performance rather than price reasons were put forward on behalf of the large import of machinery, and availability was put forward largely in the case of the high chemical imports.

I wonder how many hon. Gentlemen have not made inquiries along these lines in their own constituencies and have not encountered evidence of local manufacturerers importing foreign machinery in preference to British machinery. In my constituency there is a firm of advanced and progressive manufacturers who are really moving with the times. I have noticed recently that they have bought imported machinery when only a few miles away similar machinery has been traditionally made for many years. The local makers were once responsible for a world-famous product, yet now some of their neighbours are going abroad for their machinery, even though they are having to pay twice as much. There is a moral in this, and it is not merely that these manufacturers were not put off by the surcharge.

I have mentioned that world trade in manufactures has been rising much faster than world manufacturing output over the last ten years. I have suggested that this has largely been because of increased activity between advanced industrial countries and not between advanced industrial countries and primary producing countries. I welcome this trend towards greater national specialisation. I am not one who supports import substitution as a policy. In the short term, perhaps, yes, but in the long term, no. In the long term, I am a free trader.

Mr. George Y. Mackie

Hear, hear.

Mr. Duffy

The hon. Gentleman will be glad to hear that I have agreed with him once again. We should regard with the utmost suspicion any serious attempts at import substitution.

Mr. Peter Emery (Reading)

I have listened with interest to the hon. Gentleman's argument and his suggestion that the use of imported capital goods in the form of machinery is continuing extensively for the re-equipment of British industry. He tells us that he thinks this will go on. If that is so, why limit British firms by requiring them to pay an extra 10 per cent. when they will buy this machinery anyway? All one does in respect of these classifications is to put up manufacturing costs and capital coats, which we on this side would like to see reduced.

Mr. Duffy

I said that, as a matter of policy, I should not support import substitution. In the short-term, I can see the case for a brake on imports. But in the long term, we need settled investment programmes and therefore increased capacity. The Report published in September, for example, gives as one of the reasons for the difficulties of the chemical industry and its high import bill the uncertainty of investment in recent years. That, of course, is another reference to "stop-go". I hope that hon. Members will agree—I am just coming back to the import charges Order, Mr. Deputy Speaker—

Mr. Deputy Speaker (Sir Samuel Storey)

Order. I hope that the hon. Gentleman will.

Mr. Duffy

One object of the import charge was to help us to maintain a higher volume of investment now and take some of the effect of deflationary policies away from investment. If we could give industries such as the chemical and capital goods industries that necessary capacity, it would enable them to meet home demand, and do it for perfectly proper reasons and without the protection which would shelter the high cost unit.

In the light of what I have said, the House will understand why, a year ago, I regretted the need to introduce the import charge. Nevertheless, as my hon. Friend the Member for Heywood and Royton (Mr. Barnett) has said, our balance of payments required some such action and, now, as a result of the charge, an impressive improvement on our current balance of payments account can be shown to have taken place. But, again, to use the sort of language which the Chancellor used today, if we are to have equilibrium we must have a surplus to cover the deficit on long-term capital items, and this means that we must look well ahead into 1966. This is a year in which we simply cannot take risks, first, because of the extent to which international financial collaboration facilities have been strained—we cannot expect to he able to borrow much more than we have already been able to borrow—and, second, because of the continuing high level of investment in 1966 in conjunction with what I have already described as the elasticity of imports, which will maintain a high import bill. Thus, there is a case for continuing the charge or a high level of exports.

How far can we rely on greater exports? British and American efforts to reduce their trade deficits are bound to affect world demand. The rapid rate of growth has slackened off in the Common Market. The downturn of prices of foodstuffs and primary materials is reducing the purchasing power of the Commonwealth countries. It is hard to see how far this trend will go. Nevertheless, in my view, we should be very cautious about setting too much store by an ever-increasing volume of exports.

There is the other factor of continued inflationary pressure at home. The pressure of demand in our own economy at a time when production may be easing will tend to make for imports, and this would certainly put back the time when we could ease current restraints on consumption. Thus, some control of imports may be required for a further period. It is at this point that I ask the question whether the import charge is the appropriate instrument of policy.

Having established to my own satisfaction that we need some restraint on imports, I ask whether, after a year's experience of the charge and in the light of what I have said about its nature as a short-term instrument of policy, and whether, at the present level of 10 per cent., it is having any "bite", it ought now properly to be replaced by another instrument. I should not argue for a quota system, but I should certainly argue for a form of restraint. I would come down on the side of monetary policy, and on another occasion I should be glad to describe what I regard as the advantages of the prior deposit system.

Captain Walter Elliot (Carshalton)rose——

Mr. Duffy

I think that if I were to speak any longer about the prior deposit system as an instrument of policy, the Chair would quite properly call me to order in this debate. I conclude by saying that I have no doubt that we still need to restrain imports. We have had no choice but to use the import charge as an instrument of policy, but, in the light of the past year's working of it, I should like to suggest that it be replaced by another form of restraint, although that is something which I cannot properly discuss on this occasion.

6.17 p.m.

Mr. John Biffen (Oswestry)

I have listened to the debate with great interest, and it has struck me that of all the orphans of the storm the import charge seems to be the most deprived. The wretched child has had only one person prepared to say much in its favour, and that was the Chancellor himself. Other hon. Members opposite, the hon. Members for Ashton-under-Lyne (Mr. Sheldon), for Birkenhead (Mr. Dell) and for Heywood and Royton (Mr. Barnett), all felt that the charge, albeit that it had to be continued, suffered the serious defect that it lacked selective application. One appreciates that, for all their misgivings, they will support the Government tonight because we know that, on this occasion, the Asquithian relic will be voting with the Conservative Party. [HON. MEMBERS: "Oh."] One hopes so. I admit to having assumed that, if the residual elements of the Liberal Party cannot be dragged into the Lobby on an issue of world free trade, there must be very few issues left—[Interruption.] If I am wrong, I shall be only too delighted to deploy my conclusions on another more suitable occasion.

Mr. Lubbock

The hon. Gentleman must wait and see.

Mr. Biffen

That is very good advice to anyone who tries to follow the attitudes and behaviour of the Liberal Party.

Mr. George Y. Mackie

This accusation comes ill from a party which has been consistently protectionist since the war.

Mr. Speaker

Order. The hon. Member must address the Chair. I shall then be able to hear him and know whether he is out of order or not.

Mr. Mackie

He was, Mr. Speaker.

Mr. Biffen

With all respect to the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie), I believe that I am the only decent honest-to-goodness free trader on this bench at the moment, though what conclusions one should draw from that I would not like to say.

There are two points to be made about this Order. Both refer to a great deal of equivocation and misunderstanding on the part of the Government and right hon. and hon. Members opposite, and they must both be weighed very carefully when we consider the evidence on which we shall be voting tonight.

The first is the actual value of the surcharge. We have been told, in very calm and measured terms, by the Chancellor that he thought that the value of the surcharge was of the order of £150 million to £200 million on the balance of payments. That incidentally was the conclusion of, I suppose, an independent commentator, Mr. M. H. Fisher, writing in the Financial Times a short while ago. I agree that this is one of the most imponderable and difficult questions to answer and I will not cavil violently with that conclusion. Undoubtedly the import surcharge has had some effect and no one would wish to deny it. It would be very unfair to do so.

What I do suggest is that the calmness of the Chancellor this afternoon will be weighed against the lurid language of the First Secretary speaking in this House a few days ago. The conflict and difference between the First Secretary and the Chancellor is one of the reasons why so many foreign commentators, watching the behaviour of the British Government and the British economy, are confused and doubting. Their confusion and doubt about the import surcharge, and so much else is at the heart of a great deal of our weakness, because we are vulnerable to their opinions. On 17th November the First Secretary said, when the question of the surcharge arose, and referring to remarks made by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod): On the question of the surcharge which the right hon. Gentleman mentioned, may I put this thought to him? If imports had continued to rise at the rate at which they were rising under our predecessors, the gap this year would not be £800 million. It would be £450 million more."—[OFFICIAL REPORT, 17th November, 1965; Vol. 720, c. 1168.] If this was meant to convey anything it was meant to convey that the surcharge had had a beneficial effect on the balance of payments of the order of £450 million.

Hon. Members opposite may object, but he was not saying that the credit restraints might be responsible for this. He was speaking in the context of the surcharge, and if hon. Members opposite do not believe me they are wecome, unless they find the whole prospect too frightening, to refresh their memory with the full text of the First Secretary's speech. What the First Secretary was ignoring were the points of difference between 1964 and the current year. He was ignoring the differences in the trends of stock-building; he was ignoring the very considerable political uncertainties which are bound to affect business in a year in which it is known that a General Election will take place; he was ignoring the fact that in 1964 there was a veritable rise in industrial production, whereas, as my hon. Friend the Member for Worcester (Mr. Peter Walker), pointed out, the index for industrial production has pretty well stuck for this year. Finally he was ignoring the terms of trade.

Those are all decent human failings which any of us may make and which the First Secretary did make. The difference between my making them and the First Secretary making them is that people abroad read his words but mercifully do not read mine.

Mr. Jay

That may be so, but the hon. Gentleman is now making another mistake. He forgets that industrial production on average this year has been 3 per cent. higher than 1964. That is the relevant point.

Mr. Biffen

I concede that. None the less, the point that is still valid is that in 1964 industrial production was on a rising plane and this year it is static. This undoubtedly is connected with the other arguments I am deploying which concern stock-building.

The second point I wish to make is whether or not the surcharge which we are being asked to renew this year is protective, either by accident or by design. That it is protective by accident is unchallengeable I think. It has provided a significant measure of protection for a number of industries. The question which remains in the minds of so many of our overseas trading partners is whether or not it is protective by design.

I fully accept that at all times when discussing the surcharge all right hon. and hon. Gentlemen opposite, with the exception, I think, of one intervention from the hon. Member for Buckingham (Mr. Maxwell) which, in fairness to hon. Members opposite I will discount, no attempt has ever been made to present the virtues of the surcharge in the light that it would provide some protective framework for British industry. But the language of protection riddles the thoughts and the arguments of hon. Members opposite. Even today when we are discussing the continuation of the surcharge, many of the speeches from the benches opposite have talked about selectivity. Selectivity is the language of protection because one is assuming that in certain areas selectivity in import behaviour is required to produce a desired pattern for the balance of payments. It is just as selective in intent as were the McKenna duties, which envisaged the reintroduction of protection into this country after the First World War. [An HON. MEMBER: "Did you oppose them?"] I was not here at the time, and, therefore, I am excused on that point. The point I am making is valid and if hon. Members opposite do not think so then I fear that they misconstrue outside opinion on what is the behaviour and intention of the Labour Government.

Mr. F. J. Bellenger (Bassetlaw)

The hon. Gentleman referred to the McKenna duties. Was it not the case that they were introduced to protect certain industries?

Mr. Biffen

Exactly. My whole argument has been that once one begins to talk the language of selectivity when one is discussing import surcharges, or what might be the alternative, one is talking exactly the language of the McKenna duties. One is saying, "Here there are certain parts of the economy where we must take selective action because they show a remarkable propensity to weaken our balance of payments because of a high level of imports."

What was said by hon. Members, particularly the trio whom I quoted at the outset of my remarks—and I absolve the hon. Member for Colne Valley (Mr. Duffy) from this and I hope that he will be gracious and generous to me on this point—flowed perfectly from what was said by the Prime Minister when speaking at Swansea in January, 1964. Then he talked about the problem of imports and going through the Board of Trade returns to find out what was imported in times of a boom and how this could be cut. When one talks that language and then applies an import surcharge, when one forms a Government, one inevitably arouses suspicions.

When this matter was put before the House and before the world, on the evening of 26th October the Prime Minister went on television to explain why he had taken the range of actions that he had, including the import surcharge. He also commented in the same speech, that the Department of Economic Affairs was preparing a development plan to emphasise, and here I quote: Those industries which can do the most to substitute British manufactures for the imports we have been only too ready to rely on. That kind of language frightens people overseas because they believe it is the language of a protectionist Government. Until that language is clearly and unequivocally rejected by hon. Members opposite, then the charge is likely to stick. One has to discern just where and how the import surcharge has bit. It has bit in one place which I believe should worry the President of the Board of Trade. I believe that the low-cost textiles may well have been adversely affected by this surcharge.

It may be that I am wrong and it may be that there are other quota arrangements which invalidate the point I am seeking to make. But from the evidence I can obtain from the Board of Trade's published figures up to September of this year, current exports, from what I would call the low cost Asiatic countries of India, Pakistan and Hong Kong, aggregate for the nine months to the end of September £32 million compared with the figure for the corresponding period of last year of £38,300,000. That, I think, is a reduction which makes a mockery of all protestations to be on the side of encouraging relations and trade between developed and underdeveloped countries. When taken alongside the proposals which the hon. Members have reported in their National Plan for future overseas aid, it is sinister indeed.

It will be a perfectly valid argument by the President of the Board of Trade when he answers the debate tonight to say that one cannot discuss the Order in a vacuum and that if one wants to see it scrapped, one must be prepared in broad terms to suggest an alternative I accept the challenge. I want to see the Order scrapped. I want it to go now. I believe it to be totally alien to the long-term interests of the country.

The alternative may well be unpleasant, but it must be faced—it must be faced in any event—and that is further restraint at home. One must argue this fearlessly and not be intimidated by the kind of language that the alternative means mass deflation, a return to anarchy and all the other adjectives and descriptions which I normally associate with the First Secretary and which I heard today from the Chancellor of the Exchequer.

Mr. Stanley Orme (Salford, West)

Unemployment.

Mr. Biffen

The hon. Member speaks of unemployment. If he believes that any Chancellor would go through the next few months believing that the economy can sustain its present very low rate of unemployment, he is an optimist indeed.

Mr. Duffy

Would not the hon. Member agree—I am sure that he has read the N.E.D.C. Report published in September—that the deflationary policies which he envisages would merely emphasise the difficulties of the chemical industry, militate against increased investment and, therefore, capacity, and generally make for a high import bill?

Mr. Biffen

That may be so. A whole number of arguments could be produced to point to the imperfections of the course which I suggest, but if anybody believes that he has hit upon a magnificent touchstone which would solve all our problems without difficulty, it has yet to be revealed to the House.

The alternative, to which, I believe, right hon. Members opposite will drift in any event but in driblets, professing all the time that they never intended to do this, is an alternative which, if grasped now and in its reality, would be far more desirable. For that reason, I am delighted that we shall be voting tonight against the Order and I very much hope that with the aid of the Liberal Party the Government will be soundly defeated.

6.32 p.m.

Mr. Derek Page (King's Lynn)

I should like to begin by refreshing a few memories, which appears to me to be necessary, and by referring to The Times of 26th November last year, when it said that unless memories are refreshed, a Conservative myth will grow up that Sir Alec Douglas-Home and Mr. Maudling left behind them a sound, well-based economy which Labour promptly ruined … This is not so. The latest crisis was building up before the election. Action was delayed … The return of the Conservatives to power would solve nothing. They had thirteen years to produce the answer and did not do so. There we have an authoritative statement of the crisis which existed and yet, in spite of that, we get these repeated assertions that the crisis was created by the Labour Government. Such a suggestion does not bear examination.

I have the most heartfelt gratitude to my right hon. Friend the Chancellor of the Exchequer because he had the guts to tackle the deficit by a new method. I am very touched by the tenderness by which so many hon. Members opposite have spoken of the feelings of other countries, and these must be taken into account. At a time, however, when the crisis had built up to such dimensions, the main thing was to consider the position of Britain. This was what the Chancellor had the guts to do. Other methods that have been used to tackle a similar situation in previous years always resulted in unemployment.

I congratulate the hon. Member for Oswestry (Mr. Biffen) on his courage. He has a perfectly valid standpoint and one for which a case can be made, but one with which everybody on this side disagrees wholeheartedly. The use of the surcharge has its disadvantages, but it had the tremendous advantage of saving us from unemployment, which would have to have been upwards of 2 million to cancel out the deficit had we relied upon the methods used in the past by hon. Members opposite.

The surcharge has been blamed for a number of things, some rightly, some wrongly. In one of my local papers, it has been blamed for the drop in trade in the port of King's Lynn during the past year. This is not so. I am, naturally, frequently in the area, and I am concerned at this situation, but it is important to have the right answer to why the drop in trade has occurred.

Since the import bill for the whole country has risen by only a fraction, the drop in trade at any one port cannot be explained simply on the basis of the surcharge, particularly when it is remembered that some of the biggest items to suffer a reduction were timber and food, on which no surcharge was levied. We must, therefore, avoid using the surcharge as a convenient whipping boy.

Mr. Peter Walker

I follow the first argument about the surcharge being successful in reducing our import bill. Now, the hon. Member appears to be arguing that it has not been successful in reducing imports into the port of King's Lynn.

Mr. Page

The answer is obvious. It has been successful in reducing the deficit. Hon. Members opposite must get past the elementary stage in economics. The surcharge has reduced the deficit by stabilising the import bill while our exports have increased. This was what the hon. Members opposite failed to do for so many years. Therefore, since the import bill was stabilised and did not go down, reductions in trade at individual ports cannot be blamed upon the surcharge.

Captain W. Elliot

May I ask a question?

Mr. Page

No, I am sorry, I have given way already.

One must ask what effect the surcharge has had on the balance of payments. I for one am prepared to accept the figure given by my right hon. Friend the Chancellor of the Exchequer of between £150 million and £200 million. I have heard a number of estimates by eminent economists to this effect. Undoubtedly, some of the improvement in the balance of payments was due to other factors.

Having spoken in favour of this method, however, one must ask the Chancellor to look into his crystal ball and see what will be the effect in future of asking us to renew the surcharge and whether it will be necessary and adequate. The surcharge has still left us with a deficit of £300 million which has to be closed. How is this to be done? Certainly, the improvement in exports, if continued over the next year at the same rate as during the last year, will close £250 million of this gap. It is, however, doubtful whether the import bill will stay down if exports and industrial production in general rise.

The true gap which we are likely to have to face will probably be between £450 million and £500 million rather than £300 milion. I cannot see the surcharge alone, or the increase in industrial output and exports, covering this extra gap which is bound to arise as the result of increased industrial activity.

I should, therefore, like my right hon. Friend the Chancellor to gaze into the crystal ball and tell us whether he believes that the surcharge alone will be adequate. I have my doubts. At the risk of being out of order, I should like to add my voice in support of my hon. Friends who have spoken of the need to consider urgently a system of quantitative controls.

6.38 p.m.

Mr. George Y. Mackie (Caithness and Sutherland)

I will not go into past history about who is to blame for the balance of payment position which led to the imposition of the surcharge. I enjoyed both the sound velocity of the hon. Member for Worcester (Mr. Peter Walker) and the extremely smooth efficiency of the right hon. Member for Flint, West (Mr. Birch) in their speeches attacking the surcharge. What we are concerned about and why we are opposing the Motion is simply that we differ from hon Members opposite in what is a temporary surcharge.

This surcharge has been on for a whole year now. A year may be nothing in the sight of the Psalmist who says that in the sight of God a thousand years are but as a day, but a year is a long time in the middle of the sort of crisis we appear to have been in, on and off, stop and go, for the past thirteen years. Without doubt the surcharge and also the other measures which have been taken, are due to the inability of British industry to hold its own in the world. Although our exports have gone up—we have all seen the figures—our share of world trade has declined from 13.8 per cent. to 13.1 per cent. in the last year. This means that we are no further on.

Hon. Gentlemen opposite have sincere doubts whether we shall get any further on with this continual fostering and bolstering of incompetent home industry. The hon. Member for Oswestry (Mr. Biffen) gave figures which agree with mine. The imports which have been cut include those of the textile industries. One would have thought that in a competent society like ours we ought to be encouraging textiles and getting on with the more expensive manufactures.

The import surcharge at the present moment appears to be helping to correct the long-term imbalance. The Times Review of Industry and Technology had a very interesting article which is relevant to this matter. The writer gave four reasons for the improvement in the balance of payments, and one of the reasons given was the surcharge. He said it quite well, but he says also that the continued expansion in world trade has been of enormous help to our exports. Hon. Gentlemen opposite kept reiterating—a very dangerous thing to do—that we must wait for times to get better, we must wait for the terms of trade to improve. However, we are right in the middle of this crisis now and we are totally unable to take advantage of that. Along with the expansion of world trade the writer gives due credit to the surcharge and along with that, the good harvest in 1964—a welcome tribute to the industry of the farmers. Fourthly, he says that income from Britain's overseas investments has offset the effect of a high Bank Rate. Here is another temporary measure, which, I agree reluctantly, had to be taken when restrictions on overseas investments were put on.

But our long-term position must be tackled. There is no doubt at all in our minds that it is perfectly straightforward and simple. The Chancellor himself said today—I do not know why it has not been taken up before—that if we cannot reduce the surcharge, cannot abolish it, of course he will look at deflation. He said, "Of course I will not hesitate to take further steps." He said this in his speech, that he cannot reduce the surcharge. We are not prepared to accept this sort of assurance. If he is going to do it when he cannot reduce the surcharge, then surely the time to do it is now. If we cannot take a risk, if we have always to wait, to restrict the economy, to restrict our imports, protect our most inefficient industries till they are out of their short-term position, then we shall never get out of the crisis.

I do not think I need say any more. I t is as simple as that. We have to be competitive in industry. We have got to be. We cannot go on fiddling about from short-term measure to short-term measure, for if we do, industry will never have that competitive efficiency the Government say they want it to have.

6.44 p.m.

Mr. William Hamling (Woolwich, West)

I am very pleased to follow the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie). At least he has some pretensions to consistency in a free trade attitude, but I should like to pursue the logic of one or two of his arguments further in relation to this Order. When he spoke about this surcharge being temporary, he seemed to imply that 12 months was a very long time for it to be temporary. But would not his alternative proposals be even longer in term than 12 months? After all, in this measure we are fighting still to overcome a balance of payments problem which is barely 12 months old so far as this Government are concerned, and I would suggest that 12 months in that respect is not by any means a long time.

We have succeeded so far in re-establishing British credit abroad, in spite of what the hon. Member for Oswestry (Mr. Biffen) may have said about other countries. I shall come back to him later. We have secured from that point of view a significant breathing space, and this measure, taken with the other measures of my right hon. Friends, has succeeded in reforming and restoring the credit of British industry in the world.

It has been said that this Order bolsters inefficient home industry. This may be an argument suitable to come from the Liberal benches. How significant or how appropriate it is coming from the Conservative benches we shall come to later. But should we have done nothing to stem the huge excess of imports we faced when we came to power in October of last year? The logic of the hon. Gentleman's argument that we should have done nothing, that we should have let it go on; either that, or, perhaps, applied deflation—cruel, harsh deflation, leading to considerable unemployment, opening British industry to the rude winds of international competition even more. Would that have produced an expanding economy in this country? The answer is, no. It would have produced great restriction it would have been far more restrictive and produced far more general and widespread restrictions than the policy of my right hon. Friends. This, no doubt, is a legitimate point of view for one section of the Opposition to put forward, that we should have adopted this widespread deflation and restrictive policy, but it is not one which has been put at all clearly from the Opposition Front Bench.

In any case, the hon. Gentleman, in putting forward this point of view, was saying that my right hon. Friend's policy was wrong in that we expected in this respite to wait till certain reforms, certain changes, had come about in our import-export position. It is quite obvious that even with the hon. Gentleman's proposals we should have had to wait till unemployment had done its work, till the bankruptcy court had done its work and driven all those inefficient British industrialists out of business. If he thinks that in the twentieth century unemployment and bankruptcy are good medicine—well, all right; but is that that party's policy?

Mr. George Y. Mackie

If the hon. Member would look at the effects of entry into the Common Market he would see that countries like France, very backward competitively at one time, by the sheer stimulation of competition have improved their position. No one on this bench has advocated massive doses of deflation. Without any deflation, what would be the prospects of employment if industry did not export?

Mr. Speaker

I think that when the Common Market comes into it it is about time to remind hon. Members to get back to the measure we are discussing.

Mr. Hamling

I much regret your Ruling, Mr. Speaker. I should like very much to have followed up that point, and particularly to have invited the hon. Gentleman to make a similar speech in relation to the Bill that we shall be considering tomorrow.

The argument that has been put forward is that the alternative to my right hon. Friend's Order is a policy which would have produced better results. I must be very careful in pursuing that argument, in case my remarks produce another intervention which is as equally out of order as the last one. I would therefore like to turn to the speech of the hon. Gentleman the Member for Oswestry, who is a free-trader in a curious coat.

He was concerned for overseas opinion, and no doubt it is legitimate to be concerned for overseas opinion. It is equally legitimate to be concerned for British industry, it is equally important to be concerned for opinion here, and perhaps it is equally of concern to be worried about certain other opinions overseas, apart from the people the importance of whom the hon. Gentleman was concerned about. He regard the Order as a significant measure of protection, and he went on in his speech to talk about the McKenna duties as being protective. It was not my right hon. Friends who were in power when the McKenna duties were introduced. It was the hon. Gentleman's own party.

Mr. Biffen

Surely the difference is that my colleagues and I evolve our thinking. Hon. Gentlemen opposite remain static in adhering to the attitudes they maintained in the days of the McKenna duties.

Mr. Hamling

Not at all. I am unfolding my arguments on this particular point. I was going on to say that protection of British industries is still the policy of the Conservative Party. They still believe in Imperial Preference and they still believe in protecting British industries. I suggest that for them to argue against protection in this context is a little illegitimate, to say the least. It is out of context for the hon. Gentleman's party to do that. It is out of context for his Front Bench to do it. After all, the way that they got us out of the 1931 crisis was again by a system of protection. He should look at the history of his own party. All the protectionists were there.

In any case, it is his argument that the measures were introduced by my right hon. Friend as a protectionist point. He was defining selectivity in terms of protection. My right hon. Friend has never done so. He has defined selectivity in the terms that there are certain things being imported which we ought to be making here, and it is very good Tory doctrine, I would have thought, to suggest that one way of compelling British manufacturers to produce certain things is to make the alternative source dearer. That is exactly the argument that was used by hon. Gentlemen opposite in relation to steel a few years ago, and it is perfectly good Tory doctrine. I am surprised that the hon. Gentleman did not get up and congratulate my right hon. Friend on his conversion.

Mr. Biffen

All that the hon. Gentleman is saying convinces me that he regards discarded Tory doctrines of 30 years ago as contemporary Socialism. That may be a reflection on contemporary Socialism and may be a reflection on Tory doctrines of 30 years ago, but it is not relevant to what we are discussing here.

Mr. Hamling

I was pointing out that, in relation to steel, only two years ago he and his party were saying that. That is not 30 years ago.

Mr. Speaker

Order. I would ask the hon. Gentleman now to come to the Order that we are discussing.

Mr. Hamling

I beg your pardon, Mr. Speaker. My enthusiasm sometimes takes me away from order. I was dealing with the Order in its selective aspects, and I hope in doing that that I shall keep within the rules of order.

What does "selectivity" mean? It means that we cut down certain imports, and that is the purpose of the Order. I would have thought that that was a highly desirable thing to do in the context of the balance of payments problem that we inherited from hon. and right hon. Gentlemen opposite.

What is wrong with selecting certain imports and saying that it is right and proper to cut them down? What is wrong with saying that British industry ought to be producing these things rather than importing them from overseas? The hon. Gentleman says that what is wrong is that it frightens people in overseas countries. I should have thought that it would have frightened people here far more if my right hon. Friend had not done something on these lines to cut down the huge excess of imports that we had in the fall of 1964.

He mentioned low-cost Asian textiles. Far be it from me to attack the import of low-cost Asian textiles in the context of some of the speeches on the point from hon. Gentlemen opposite representing Lancashire constituencies in recent months. They have been complaining far more than my right hon. Friend.

It is legitimate to ask, if the Order is being opposed by right hon. and hon. Gentlemen on the opposite benches, if they intend to vote upon it, what would have been their policy in the situation in which these Orders were introduced? Would it have been the selective cutting down of imports, as was implied by the right hon. Member for Barnet (Mr. Maudling) in November, 1964? [Interruption.] It was. Look at the speeches on the first Finance Bill introduced in the fall of 1964: These were measures which we would have introduced.

Mr. Iain Macleod

He did not say that.

Mr. Hamling

If he did not say it, he came as near to it as my reading of the English language would ever permit me to understand.

Mr. Iain Macleod

With respect, my right hon. Friend the Member for Barnet (Mr. Maudling) never said anything remotely like that. He said that the Government had inherited the problems and his remedies, and that means, as happens in all cases, that every single possibility should be examined. But the hon. Gentleman cannot produce a single quotation to justify what he has said of my right hon. Friend.

Mr. Jay

I quoted what the right hon. Member for Barnet in fact said when the right hon. Member for Enfield, West (Mr. Iain Macleod) was not in the Chamber. He said very much more than that.

Mr. Cooper

The right hon. Gentleman quoted what he thought he said.

Mr. Hamling

It would be wrong for me, an Irishman, to interfere in a fight between the two Front Benches. However, one can say quite legitimately that that is the policy that my right hon. Friend is introducing. Right hon. and hon. Gentlemen opposite are going to vote against it, and we are therefore entitled to ask what was their policy and whether their policy would have produced the desired result more effectively than the policy of my right hon. Friend.

If people overseas are frightened of that policy, why is sterling so strong today? Why have we overcome the lack of confidence in sterling which was produced by the legacy of the right hon. Gentlemen opposite? We have overcome it. From time to time we have had fresh indications of renewed confidence in the policy of Her Majesty's Government, and the present Order is an integral part of that policy.

7.0 p.m.

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

If the hon. Member for Woolwich, West (Mr. Hamling) really believes the last two or three sentences of his speech, he will go on believing anything. What is the position of sterling today? It is bolstered by more than £1,000 million of extra debts saddled on this country by the right hon. Gentleman and his hon. Friends. What has really happened is that the Chancellor has gone to his bank and said, "Look, I have an overdraft of £800 million. Unless something is done I shall not be able to meet my debts, and I shall go bankrupt", and so his friends, who do not want him to go bankrupt because he happens to control a large share of the world's trade, have said, "All right, we will loan you £1,100 million to tide you over until 1970". The right hon. Gentleman then says, "This is first-class. We are now strong economically. We can look the world in the face, unashamed of our past", but the day of reckoning must come, and it must come long before 1970, and I assert that, far from strengthening the economy of this country, the Prime Minister and his hon. Friends have weakened us to a point worse that at any time in our history, in the last 50 years particularly.

It does nobody any good to delude himself that the measures taken so far by the Government have had any material effect whatsoever on the improvement in our balance of payment position this year. As I have asserted in this House on more than half a dozen occasions—and it has never been denied by the Chancellor who has often heard me say this—the improvement that we shall get this year will be due principally to two main factors, both of which are non-recurring—the very substantial item of stockpiling which we have heard variously described as between £300 million and £400 million, and the larger non-recurring item of capital items for the big oil companies which last year totalled about £150 million. We shall improve our balance of payments position this year by about £400 million, and it will be due entirely to those two factors.

Mr. Eric S. Heffer (Liverpool, Walton)

Would the hon. Gentleman perhaps elaborate upon that a little? Would not he agree that the position is better than it was, and that when the Conservative Government were in power there was a continually rising deficit in the balance of payments position? Will the hon. Gentleman explain why there was that continual rise in the deficit, and also explain in great detail how it is that the Government's policy has nothing to do with the improvement in the deficit?

Mr. Speaker

Order. Before the hon. Member replies, I must tell him that he can elaborate in detail only as far as this Order is concerned.

Mr. Cooper

Mr. Speaker, that is what I had hoped you would say, because most of the speeches and the interventions that we have heard from the other side have been either irrelevant, or out of order, whereas on this side of the House——

Mr. Speaker

Order. I hope that the hon. Gentleman will withdraw that remark, which is a reflection on the Chair. The Chair is in charge of order, and when hon. Members are out of order, as most of them know to their cost, they are called to order.

Mr. Cooper

I unreservedly withdraw, Mr. Speaker. I meant no disregard to you whatsoever, as you know.

I regard this Order as about as big and shabby a piece of political chicanery that I can imagine even this devious Government bringing forward to the House. It is highly improbable that the present surcharge has any serious effect on the volume of imports now, because, in terms of cost, the surcharge of 10 per cent. is a relatively small item, and it has been absorbed already. In the main the goods covered by the surcharge are goods which are required by this country, and they will now come in automatically. The reduction to which the Chancellor referred this afternoon is being brought about this year because, primarily, the stockpiling of 1964 is largely being eaten into, and I would not have thought that at the present time the 10 per cent. represented any barrier on imports. Its sole effect is to put up prices, which of course is harmful to our general level of costs.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

Is not the hon. Gentleman aware that the 15 per cent., or the 10 per cent. surcharge has been completely liquidated by people abroad reducing their prices, and not by putting them up?

Mr. Cooper

I am engaged in the chemical industry, and I have found no evidence to support the right hon. Gentleman's view.

A large percentage of the imports affected are materials which are required by industry, and they will continue to come into this country irrespective of the surcharge. Increased prices have been absorbed into costs, and the only effect of the elimination of the surcharge would be to ease prices in this country, with its consequent effect on the cost of living, a situation which I would have thought the right hon. Gentleman would have liked to see.

The only reason for this Order is revenue, £170 million of it in one year, and in his speech this afternoon the Chancellor lifted the veil a little. He said to my right hon. and hon. Friends, "If you are going to withdraw the surcharge, if it is your policy to do away with the surcharge, what will you put in its place—increased taxation? I find no support for such measures in this House". Those were the Chancellor's words.

What the right hon. Gentleman really means is that very quietly, and without anybody really knowing about it, particularly the people who tend to vote for the Labour Party in the course of an election, he is getting £170 million, a nice quiet revenue. That is what he is going to get. If the surcharge were removed, new taxes would have to be raised to offset this, and, of course, politically this would be a disastrous thing for the Labour Party. It would show up the profligacy of the Government who quite happily eliminated the prescription charge which they said was going to cost £23 million.

Mr. Speaker

Order. The hon. Gentleman must now correct himself and call himself to order. He must get back to the Order we are discussing.

Mr. Cooper

If the Government did not have this revenue of £170 million which this surcharge brings in, they would be forced to introduce taxation on consumer goods, or to increase direct taxation, and this I believe is the real reason why they have brought forward this Order.

The Chancellor of the Exchequer claims credit for the improvement in our balance of payments position, but I have already shown that this is not so, that credit is not due to him but to the situation, which would have occurred automatically, irrespective of which party was in power. In fact, if one were permitted to develop an argument of this sort, it could be shown that on the long-term view, particularly of capital investment overseas, the Government are harming the future prospects of this country.

The Government will require new taxes this year. It is difficult at this stage to judge just what they will be, but they will probably amount to about £400 million, and this £170 million will make a fantastic contribution to that sum. I should like the right hon. Gentleman and his hon. friends to be honest with the country for a change. In spite of what the hon. Member for Woolwich, West may say, this surcharge has done us a great deal of harm overseas. I can cite cases of orders which my company has lost, especially in E.F.T.A. countries, who have said quite clearly that they will not trade with us until the surcharge is withdrawn.

The hon. Member for Colne Valley (Mr. Duffy), talking about the chemical industry—the industry in which I earn my living—said that we should be producing much more in this country than we are at present, and that the surcharge was encouraging us to do that. That is absolute nonsense. Hon. Members should remember that we have only one raw material in this country—coal—and that we have to build all the chemical industry that we have fundamentally on this one raw material.

The reason why we bring in raw materials from the Continent and the United States—and from all the world for that matter—for the chemical industry is not that we cannot buy comparable goods here but simply that the basic raw materials are not produced here. The very goods which are fundamental to our industry are now surcharged. Does this make any sort of economic sense to the President of the Board of Trade?

This is an Order which has to be beaten tonight, and it will be the most sensible thing that the House of Commons has done in the last 12 years if we are successful in throwing it out.

7.2 p.m.

Mr. Geoffrey Rhodes (Newcastle-upon-Tyne, East)

The hon. Member for Ilford, South (Mr. Cooper) said that borrowing money on the international markets was the only reason why sterling had revived. One would imagine that he was saying that the import surcharge, the check on imports coming into the country and the export programme had nothing to do with it. He cannot seriously expect the House to accept that argument. There has been a considerable revival of confidence, both at home and abroad, in the capacity of this country to meet the situation that it was facing a year ago. To argue that this is entirely a matter of borrowing money is to misunderstand the situation.

In any case, unless there had been a degree of international confidence in the state of our economy we would never have been able to borrow that amount of money. I am reminded of a business friend of mine who once said that his company was £1 million in debt. I said, "How tragic", but he said, "On the contrary; only a company in which there is a fair degree of business confidence could have an overdraft of that kind." The hon. Member was overstating his case.

He said that if this year we were £400 million better off than we were last year in our balance of payments this was entirely because of the money we have borrowed from abroad. The logic and mathematics of that are that had we not borrowed any money we would have had the same deficit.

Mr. Cooper

I did not say anything like that. I said that if we improved our balance of payments by £400 million this year it would be due to two factors, namely, the elimination of stockpiling—about £300 million—and about £100 million plus in respect of the oil companies.

Mr. Rhodes

I am sorry if I got the trend of the hon. Member's argument wrong. I thought that he was saying that we were surviving economically today, and reducing a difficult balance of payments situation, only because we had been running around borrowing money right, left and centre. If I misunderstood what he said, I withdraw my comments, but there was a hint in what he said that that was what he expected us to understand.

If I am wrong about that, I wrote down what he said on another occasion, namely, that the state of our economy today was very bad—as bad as it had ever been in 50 years. That is a fantastic statement because the balance of payments deficit in the present year is only half what it was last year. If he wants to persist in arguing that the state of the economy is as bad today as it has ever been in the last 50 years he should come to Tyneside and talk to the workers in the shipyards. Unemployment on the North-East Coast at present is lower than it has been in this month of the year for the last seven years. If he told the industrialists on the North-East Coast that the Government have allowed the economy of the North-East to deteriorate to a state that it has not been in for the last 50 years he would be laughed out of court.

The import surcharge was introduced in a time of crisis. There has been some argument this evening as to whose was the responsibility for the crisis; whether the measure taken was the right one, and whether this is the right time to abandon it. Throughout last year there was an accelerated deficit of our balance of payments. Overall, it was about £746 million for the year. In the period immediately before the General Election the deficit was running at a much higher rate.

This was a critical situation, and it completely belies the statement made by the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home) earlier that our economy had seldom, if ever, been stronger. The fact is that our situation was deteriorating. I concede that it deteriorated further after the General Election. I do not know whether any of my hon. Friends have said so, but I believe it to be so simply because there was an indecisive result in the General Election and there was considerable doubt whether the Government could survive for long. This was well known in the House. Furthermore, there was some lack of confidence in industry as to the policies likely to be pursued by the Labour Government. This had some effect on confidence at home. But I assert that the political and economic situation has been transformed during the last 12 months.

It would be out of order for me to elaborate on the degree of confidence that the country has in the capacity of the Government to survive for many years, but it is not out of order to suggest that the increasing confidence of industry in the Government has been partly conditioned by the kind of measures that we took to deal with the critical situation with which we were faced. Of those measures, the principal one was the attempt to check imports by the imposition of the import surcharge. There were debates in the House and elsewhere as to whether this was the right method of dealing with the problem. There was also an argument as to whether or not we should have warned people abroad before we introduced this measure.

There was a tremendous argument amongst economists. As a former teacher on the subject I have always been inclined to believe that if all the economists in the country were laid end to end they still would not reach a conclusion. When one is in power one has to take a decision, whatever the risks involved in doing so, knowing that there are formidable arguments as to alternative measures and formidable arguments against those that one is taking. Nevertheless, I believe that the proof of the pudding is in the eating, and that the evidence since the measure was taken has shown that it was the correct decision to take and that the risks involved did not come home to roost.

Mr. John Hall

The hon. Member said earlier that the action taken by the Government had encouraged confidence on the part of other countries. Can he tell me any country that believes, even now, that the action taken in imposing this surcharge was the right one?

Mr. Rhodes

There is overwhelming evidence that the overall measures taken by the Government to check imports by means of the surcharge, to boost exports and to put our trading balance into a more healthy state than it was a year ago have had a great deal to do with the increasing confidence of businessmen at home and abroad in the capacity of this country to overcome its difficulties in the future. If the hon. Member will not accept that, he is welcome to his own point of view, but my experience of the feeling in the business community—which may not be the same as his—leads me to this conclusion.

Economists and experts are concerned tonight as to the exact effect of the surcharge on our import bill during the past year. It has been suggested that the figure involved is between £150 million and £200 million. I am convinced that whether or not this is a measurable factor, had there not been a measure of this kind to check our imports our import bill would have been markedly higher than it is at present and our balance of payments situation markedly worse.

I am speaking from memory, but I believe that the average deficit of our balance of payments during the first 10 months of this year was about £29 million, compared with £46 million in the equivalent period last year. I argue that there is considerable evidence that it was the import charge along with other measures which helped to create this situation. There is, of course, a danger in an import charge. I agree with the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie), to a point, that if we pursue a policy of import charges too long, if we take a stance which looks like a long-term stance of protectionism, we will, in the long run, defeat our original object.

We all know that measures taken to block imports may lead to a frustration of exports in the long run. I would go a long way with the hon. Member for Caithness and Sutherland when he pleads the case of free trade to discipline our economy to meet the competitive situation with which it is faced in the second half of the twentieth century. But I doubt very much whether, in the particular emergency faced by this Government 12 months ago, he or his party, if they were in power, would have used a long-term free trade solution to solve the immediate crisis facing the Government——

Mr. George Y. Mackie

That was 12 months ago.

Mr. Rhodes

I am coming on to this point. Hon. Members on the Liberal benches must restrain themselves a little.

I would not argue that this is a measure which intrinsically and basically, I like. I should be surprised if there were many hon. Members on this side of the House who, in their basic approach to international economics and trading, would advocate a long-term protectionist policy. Therefore, we come to timing and to the question of whether this is the right time to take the charge off. I do not know: I should have thought that we are only half way there. The deficit on our balance of payments for this year will be about half what it was when the previous Administration was in power.

A number of very competent economists are forecasting—I am not at the moment thinking of politicians, whose forecasts are sometimes conditioned by their political desires: I do not complain of that—who argue that our balance of payments a year from now will be virtually balanced, certainly very near it. Some time in the next 12 months—and nearer 12 months from now than the present moment—would be a more appropriate moment for the complete abolition of the charge.

There is another argument, about whether or not we should abandon it because it does not work, that some other drastic measure is needed to solve the problem. However, there is no evidence that this barrier on imports is not working and there is some evidence that it is. But if it was found in the future that it did not go on working, other more drastic measures would be used. It is the responsibility of hon. Members opposite to suggest how they would have dealt with this situation.

As I see it, the alternative to the import charge is some drastic deflation of the economy, a drastic return to stop-go policies. I can speak only for the North-East coast: I would remind the House that the measures taken by the previous Government in dealing with similar situations to this—which did not involve the solution which we are discussing this evening and which they are opposing—resulted, in my area and in the region of which it is the centre, in unemployment figures which varied from time to time between 50,000 and 80,000 people.

Unemployment in that area has now been reduced to such a level that we are getting near the point at which the only people unemployed are the unemployables. This situation is one which I would fight vigorously to defend. The alternatives to the import charge which might have to be used would constitute a severe threat to the security of employment and the prospects of economic expansion in the region, which I know my right hon. Friend has very much at heart because he has taken many measures to help us in this problem. However, that is not the subject of the debate.

The case is that there is a greater degree of confidence because the political crisis is past and there is a greater degree of political confidence in this Government. There is a greater degree of confidence on the economic and commercial front, largely because, as I said, the proof of the pudding is in the eating. The deficit on the balance of payments has been halved.

It sometimes distresses me, when good economic news of this kind is announced from this side of the House, that some hon. Members opposite seem displeased with the news. That is not good enough. It is in the national interest that this problem should be solved and it is not in the national interest that the charge should be taken off now. The economic problem is not solved yet, but we are nearer to a solution than we were a year ago and are far more likely to solve the problems of our economy in the next 13 years than we were in the last 13 years.

7.16 p.m.

Mr. Michael Alison (Barkston Ash)

I think we all welcomed the comment of the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes)—it seemed to have a ring of bipartisan truth about it which has not always been evident on both sides of the House—that the crisis in 1964 was not an economic crisis in the sense that the British economy was fundamentally weak, but a crisis of confidence. If that is the case, the logical conclusion one draws is that one of the measures taken by the Government in the light of this crisis of confidence, the import charge, has to be renewed now because confidence is still lacking. The main consideration is not that the economy which they inherited is weak, but that they created the situation in which confidence was destroyed and did nothing to restore it—

Mr. Rhodes

I hope that I did not give the impression that I thought that the situation last November was entirely due to the change in the political situation. In fairness, I should point out that I said that this added to the severe economic position which we found as early as October.

Mr. Alison

The chink of the light of truth which the hon. Member shed on the situation showed that the curtain could be opened much wider than he opened it.

Like my hon. Friends who have spoken tonight, I consider that the Chancellor had a poor case for imposing the charge and has made an even worse one for continuing it. I am sceptical about his figure of the savings for the balance of payments of between £150–£200 million. This seems to be based on a comparison of the present time with a period in which there were exceptional circumstances at work, particularly the volume of stock building and the adverse trend in the terms of trade, which affected the value of imports in 1964. It is not demonstrable by the Chancellor that the savings figure is anything like as high as he claims; it may be very much less.

I want to put forward what I consider to be the really fundamental objection both to the imposition and, especially, to the continuance of the charge, and that is the way in which it applies in a particularly crucial sector of the economy—that related to machinery and capital goods for modernising British industry—where the impact of the charge seems to me, to use a Biblical phrase, to have been "neither hot nor cold but lukewarm". It is for that reason, to continue the analogy, that I believe it should be "spewed forth".

I will illustrate this by showing that, for machinery and capital goods equipment, it has had so little effect on the volume of imports that it might well not have been imposed at all. Looking ahead to the future, one sees that it might have the effect of promoting or encouraging a downturn in investment in manufacturing industry. If that is the case, it should certainly be abolished now.

If one looks at the overall figures for the imports of manufactures and semi-manufactures in the first nine months of 1965, one finds the results disappointing enough from the point of view of the Chancellor, as they have gone up by about 3.3 per cent. Although this may be nothing like as much as the rise in exports, which is one figure the right hon. Gentleman quoted to give a favourable impression, when one considers that some non-chargeable items like foodstuffs have gone down by as much as 5 per cent. the increase of 3 per cent. in manufactures and semi-manufactures is not a very good achievement in the light of the imposition of the surcharge.

When this is considered in detail, one discovers how ineffective the charge has been in its effect on manufactured goods and similar goods for investment in capifirst nine months of 1965 compared with tal industry. In machinery other than electrical the percentage increase in the 1964 was as high as 11 per cent., which is very much higher than the average of 3 per cent. The figure for electrical machinery, which is a critical factor in British manufacturing industry, has risen in the first nine months of 1965 by nearly 7 per cent. These are very large percentage increases over the top of the dam, as it were.

An important point which has been made in a number of economic journals, although it struck me particularly when I read it in the London and Cambridge Bulletin, is that the reason for the continuance of these imports of special kinds of machinery for investment in British industry is not so much that their prices before the import charges were very attractive as that the quality of the goods which we were importing could not be matched in this country. In many cases they were articles for which there was no substitute. A typical example is the components for computers, some of which cannot be produced in this country. Others are imported because the quality is superior. It is desirable that this kind of import should continue.

Where the reason for importing a particular article is that its quality cannot be matched in this country or that there is no substitute for it, can there be any economic justification for throttling this kind of import? Some hon. Members may argue that one of the effects of these charges will be to encourage British industry to produce substitutes. The snag is that British industry is already fully stretched and that is not the moment to look for these fundamental changes and for the improvement in capital investment which would produce changes in quality. It is simple to illustrate this point. There is a factory in my constituency making chemicals. In the light of the demand for their product, all that they can do to increase production is to duplicate existing capital equipment. They have no chance of standing back during some slack in their demand in order to make these fundamental changes in their methods of production. All that they can do is to duplicate existing machinery. This is not the economic climate in which fundamental changes are made. There is too great a pressure on industry. In any case, the impact of the fiscal measures which we have had recently, such as the Capital Gains Tax and the Corporation Tax, is on the whole to discourage innovation—and innovation tends to come from newcomers to an industry rather than from existing firms.

One reason why we have to be particularly careful at present not to discourage the import of machinery and other capital equipment vital to British industry, which is what these charges try to do, although not very effectively, is that the export performance of this country, which in a competitive world is based not only on cost but on quality, is, in spite of what the Chancellor said, very disappointing. He gave a figure of 5½ per cent. increase in exports this year compared with the equivalent period last year.

Captain W. Elliot

On a point of order. Am I in order in pointing out that in this important debate there is no member of the Government present on the Front Bench who is concerned with the Board of Trade or with economic affairs? Nor is the Chancellor of the Exchequer present. Would it be in order to adjourn the debate until we have here a representative of the Government?

Mr. Speaker

The hon. and gallant Member is an old Parliamentarian. He knows that the point which he has raised is in no way a point of order.

Mr. Alison

Even if my comments fall on deaf ears, I hope that they will not fall on blind eyes. Perhaps I might point out that the improvement in the export figures for the first nine months of the year, for which the Chancellor claimed some credit, is in no sense a performance of which we can be proud. If we set this increase in exports alongside the world increase in the demand for manufactures, which is the economic climate in which we operate, we find that the United Kingdom share in the export of manufactured goods in the first few months of 1965 has taken an appreciable fall. It was 13.8 per cent. of world manufactures during 1964 and it is down to 13.1 per cent. now. Relatively we are losing ground. The economic climate is favourable to us, but we are not doing particularly well and there are no grounds for complacency.

Not only must we keep costs steady, as my right hon. Friend the Member for Flint, West (Mr. Birch) said—which in itself requires that these charges should be removed—but we must do everything we can to improve the quality of the goods which we export. This surely means that we must be ready to import without any let or hindrance the special items of capital investment for British industry which are sought because of their quality and their indispensability in that they are not otherwise available here. These are very good grounds for suggesting that these charges are not stopping the inflow of machinery and goods which British industry seeks from overseas because of their quality or because they simply cannot be produced in this country.

I have a feeling that the maintenance of these charges will have some very undesirable effects on manufacturing capacity in the months to come The snag is that all the economic indicators at present suggest that investment in British manufacturing industry has at best reached a plateau and is likely to take a dip down in 1966. The reason for this dip down is not very far too see. It is not only the tendency for labour costs to rise while enforced price stability makes it very difficult for manufacturers to make a profit. It is not only that the tax measures are making capital more immobile and tending to make it impossible for small firms to get the capital which they want for investment. All these items add to a decline in business confidence which these imports charges go only to reinforce and which is bound to have precisely the opposite effect to that which we need.

I therefore underline the point that these charges are not having the effect of preventing the import of vital capital equipment for British industry, and nor should they have that effect. For that reason they should never have been introduced. Moreover, they are liable to reinforce a trend in declining manufacturing investment in the coming months.

May I conclude by reference to the wider political repercussions of these imports charges? There has been nothing more fatuous than the fact that within 36 hours, looking backwards in time, of the Government bringing forward this Order, the Foreign Secretary has been making a public speech urging once more what he calls the continuance of "the process of bridge building". Could anything be more fatuous than for the Foreign Secretary to go round the country urging the continuance of bridge building in these circumstances? He has the effrontery to talk about bridge building in economic terms. He said we must also try to work with Europe for a reduction in tariffs, and we should make the fullest use of organisations like the Council cif Europe and the Western Union. These things help to create the right atmosphere for the bringing together of E.F.T.A. and the European Economic Community towards wider European unity … For him to talk in those terms at the precise moment that the Government bring forward a Measure to erect yet another tariff barrier between E.F.T.A. and E.D.C. or within E.F.T.A., when already we find that trade between E.F.T.A. countries apart from Britain, and the Community of the Six is expanding, and for him to talk about the need to negotiate on a bilateral basis for tariff reductions, is the most ham-handed double talk and political schizophrenia we have had for many months. I hope that the Foreign Secretary's spirit of collaboration between E.F.T.A. and the other nations of Europe will gain the day and that the Chancellor's proposals for continuing these irrelevant and indeed damaging imports charges will be beaten tonight.

7.40 p.m.

Mr. Forbes Hendry (Aberdeenshire, West)

Over the centuries Britain built up a reputation of being not only a great trading nation but a nation whose word was its bond. It seems that the integrity which we built up over many years of hard and honest trading virtually disappeared a year ago with the imposition of this monstrous surcharge.

One need only go abroad and speak with people who have been our customers for many years to realise just how monstrous is this imposition. I had the opportunity last summer of visiting several countries and speaking with many business men. I found that they were shocked by the surcharge, not so much because of the damage it might do to their interests but because of their feeling that it represented a denial of the integrity which they had formed of Britain and our trading methods.

Without any warning the surcharge was imposed on all manufactured goods coming here. In certain quarters that might have seemed a comparatively small thing, but to a great many countries, such as our partners in E.F.T.A., it represented a severe blow, particularly when for some of them this country represents the main customer for their exports.

Today we are asked to decide whether or not to renew the surcharge. When it was first imposed it was stated that it was a temporary measure. The promise that it was temporary was repeated time and again—yet now we are solemnly considering the continuation of this blot on our fair name as a trading nation. For many years we discussed, with our E.F.T.A. partners and others, methods of reducing impositions of this kind. We talked of reducing tariffs, of free trade areas, the Kennedy Round and so on. Then, suddenly, the Labour Government showed so little regard for the good name of this country that they brought in what they called a temporary surcharge—and now they are asking us to renew it.

What does this all mean to the trading nations of the world? It means that those countries with whom we have traded for many years and on whom our prosperity depends will simply say that we are a perfidious people that we are not to be trusted. As a result, our trade and our prosperity is liable to diminish further.

The Chancellor tells us that the surcharge has resulted in a reduction of imports. Figures like £150 million to £200 million are glibly used in this connection, but I would like to know how these statistics are made up. It could be that, as a result of the other bad policies of the Labour Government, our imports have indeed gone down, but we have not heard a word from the Treasury Ministers about the corresponding effect on our exports. I believe, from my experience and from what I have learned when visiting other countries, that our exports have gone down much more in proportion to the reduction in imports. We must remember that our exports had been doing reasonably well and that there was no reason to think that they would not continue to rise much faster than in the past year.

I will give two instances of what I have in mind. Not long ago I spoke to business men in certain E.F.T.A. countries about the effect of the surcharge on them. I was assured by them that the day after the surcharge was imposed there was a flood of German commercial travellers in the Scandinavian countries booking orders which would otherwise have come to Britain.

Captain W. Elliot

Has my hon. Friend noticed that a Board of Trade Minister has finally taken his place on the Government Front Bench? Should my hon. Friend not repeat the important points he made at the beginning of his speech?

Mr. Speaker

Order. I never interfere in political warfare, but I must remind the hon. Member that if he takes the advice of his hon. Friend and puts again the points he made at the commencement of his remarks he will be depriving some of his hon. Friends of the opportunity of taking part in the debate.

Mr. Hendry

I agree, Mr. Speaker, and I will not repeat what I said earlier. However, I hope that the Minister representing the Board of Trade will take the trouble of reading in the OFFICIAL REPORT what I said. He should at least do that, even if he is not prepared to come to the House to hear my comments.

I was pointing out that these businessmen deliberately did not give their orders to this country after the surcharge was imposed because they lost faith in us. It was not so much a question of the money involved or because they might lose as a result of the surcharge because, in many cases, they were not exporters but importers. As I say, their orders went to Germany and elsewhere.

I have personal knowledge of the second example I wish to give. It concerns Scotch refractories, a commodity of great importance. A large order was being negotiated with one of the Scandinavian countries before the surcharge was imposed and that order went to Poland because the merchants who were in a position to place the order were so disgusted with the action of Her Majesty's Government in this imposition—this monstrous duty in complete denial of the declared policy of the British Government—that the order was placed elsewhere.

Are we to continue to risk a further denial of our good name or are we to make it clear to the world that, as in the past, Britain is not perfidious, that we are honest and possessed of integrity, that we will honour our obligations and carry on the trade on which our prosperity has been built up over the centuries.

I urge the Government to abolish this monstrous imposition which is unworthy of this country. In doing so I wish to make it clear that it is not for me to suggest alternative remedies. I have explained how the surcharge is viewed by business men abroad. You would stop me if I were to discuss any alternatives in detail, Mr. Speaker, and, in any case, it is the duty of the Government to suggest other measures. I urge them to get rid of the surcharge and show the world that our good name and integrity still means what it has for centuries.

7.48 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

I wish to concentrate my remarks on the arguments adduced by the hon. Member for Barkston Ash (Mr. Alison) in his interesting and thoughtful speech. I do not intend to be bipartisan, because this is such an important matter that we would be wise to keep as low a temperature as possible and consider it objectively.

The hon. Member for Barkston Ash made a number of telling points, the most important of which was that the surcharge is not having a great effect on the import of capital equipment—that we still require this sort of machinery because we are not able to produce such machinery of the required quality. We should take note of that important point, because in my constituency I have had experience, from visiting factories, of this and have seen how some large concerns have been forced to import machinery which, quality apart, just was not available or was not being manufactured in Britain.

When I visited a factory of the Dunlop Rubber Company I was intrigued by one piece of machinery which, I was told, the company had attempted to purchase in Britain but had found that it was not being manufactured here. It had the choice of purchasing the machinery from either Italy or Germany. It eventually settled on the German machine. The Company imported it because it was absolutely essential for the development of their new production processes. But that important point is not an argument for reducing the surcharge but for undertaking a very close investigation into our own industries that failed to produce a type of machinery they should have produced. It is a sad commentary on British industry, but it is not an argument for bringing down the surcharge.

There is no question at all that the surcharge had serious political repercussions. It was unfortunate that the British Government were forced to introduce it when they did, and it certainly had an unfortunate effect on our E.F.T.A. partners. Many of us in this House want to see a wider Europe, and closer ties, not only between Britain and her E.F.T.A. partners, but equally between E.F.T.A., including Britain, and the Common Market countries.

Anything that creates difficulties in the achievement of a wider Europe is regrettable, and something that we want to see ended as soon as possible. Nevertheless, we must remember that the original surcharge was one of 15 per cent., and that at the earliest possible moment the Government reduced it by 5 per cent., so that we are now talking in terms of 10 per cent. It is true that this Order continues the 10 per cent. rate, but if the situation gets better and there is a further improvement in our balance of payments, is it not possible—and possible within a reasonably short time—to have a further reduction of the surcharge?

When he introduced the surcharge last November, my right hon. Friend said: We believe that the import charges are the least objectionable—the Committee will notice the terms I use—of all the methods that lay open to us. To have imposed quotas would have been more rigid, required more elaborate machinery, would have interfered more with the normal flow and pattern of trade and might well have been construed as being more of a permanent feature."—[OFFICIAL REPORT, 11th November, 1964; Vol. 701, c. 1027.] The point to emphasise there is that certain objectionable steps had to be taken to solve the problem, and the surcharge was the least objectionable. It is true that it had an unfortunate effect on our E.F.T.A. partners, but no matter what we had done it would have had an effect them. The surcharge was not entered into lightly, but because the Government had no real alternative unless they were to solve the problem in the traditional way.

My hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Rhodes) made the very clear point that the way in which such a problem had been solved in the past had been to increase unemployment, but added at the present moment the unemployment figure in his constituency was the lowest since 1951. That is not only true of the North-East Coast. Before I became a Member of Parliament I came on demonstrations to this House to discuss with Liverpool Members the rise and fall in unemployment that we had had over the years. Increased unemployment occurred whenever there was an economic crisis, because of the methods adopted by Governments then.

On Merseyside, too, we now have less unemployment than at any time since 1951. We have maintained full employment, and although our position is not as good as that on the North-East Coast, we are now reaching a position in which only the unemployables are likely to remain unemployed. That is a very important factor, because the Government were faced with the choice of either introducing a surcharge or pursuing a policy leading to unemployment throughout the country——

Mr. Robert Cooke (Bristol, West)

The hon. Member has used the word "unemployables". I am sure that the House would be most grateful if he would give some indication of the total number of those people who fall into this category of unemployable so that we can have a more realistic view of the unemployment problem.

Mr. Heffer

People become unemployable through being unemployed for a long period of time. They then lose their ability to find employment and, in some cases, having obtained employment cannot keep it because, by being out of work for three, four or five years, they have lost their dignity and their ability to work. Unfortunately, because of policies pursued by the Conservative Governments in the past, there have been too many people on the Merseyside who have got into that situation.

Mr. Deputy Speaker (Mr. Roderic Bowen)

Order. If the hon. Gentleman pursued this topic any further, he would be out of order.

Mr. Heffer

I apologise, Mr. Deputy Speaker, but I was attempting to answer the hon. Member for Bristol, West (Mr. Robert Cooke). Regretfully, I have to leave the point for the time being, but perhaps it may be possible on another occasion to pursue the subject in depth with the hon. Member. I assure the House that to do so would give me the greatest pleasure.

It has been suggested from the other side that the surcharge was introduced purely because the Government wanted to avoid extra taxation in other directions. Undoubtedly—and I will be very careful in what I say here—that suggestion has a certain amount of truth in it because, again, we had to solve the problem in one way or another. We either solved it by putting a direct burden on the people, or sought other means. The Government have attempted to solve it by introducing the surcharge.

I think everyone in this House will agree that we do not want the surcharge to continue any longer than is absolutely essential. But we have to be quite honest about it. It was not a good thing, but an unfortunate step which the Government were forced to take. I hope that within the next year—between now and the next time such an Order comes before the House—there will be a reduction at least from 10 per cent. We hope that by next year we shall not have a debate of this kind. Although these are my hopes, I say quite frankly that the Government were right to introduce the surcharge and they are right now to ask for this Order to be supported so that the surcharge can be continued.

8.1 p.m.

Captain Walter Elliot (Carshalton)

I enjoyed the speech of the hon. Member for Liverpool, Walton (Mr. Heffer). Usually when he makes a speech I find myself in considerable disagreement, but tonight that was not entirely the case. However, I take issue with him on one or two points. At the beginning of his speech he took up a very interesting point raised by my hon. Friend the Member for Barkston Ash (Mr. Alison) about the importation of machines from abroad. In his argument the hon. Member for Walton appeared to be pursuing the line that it was very desirable that we should make those machines ourselves. I do not think we should take that argument too far. If this country ever plumps for self-sufficiency it is this country which will suffer in the end.

Many hon. Members opposite, including the hon. Member for Walton, have endeavoured to point to what they call the success of the surcharge in reducing imports. I shall examine that further, but at this stage all I say is that although from a broad view the object of the import surcharge was to reduce imports, in fact finer distinctions ought to be made. It was part of a package to get the balance of payments right. It must be looked at as part of the whole picture.

I was glad that the hon. Member for Walton recognised—I think he was the first hon. Member opposite to do so in this debate—the blow to confidence, particularly in the E.F.T.A. countries, which this imposition caused. The effects should not be judged only in relation to the balance of payments because the question of confidence which has been one of the oustanding problems of the last year has also to be considered. In September I was fortunate enough to go on an all-party delegation to Sweden. My hon. Friend the Member for Aberdeenshire, West (Mr. Hendry) was another member of the delegation and there were several hon. Members opposite on it.

Although Sweden was not particularly worried about the effect of the surcharge on its exports—I got the impression that she thought the surcharge would not affect her exports very much—there is no doubt that the imposition had a real psychological impact there. The Swedes thought when the E.F.T.A. agreement was signed that the bad old days of restriction of trade internationally were gone. Then suddenly out of the blue came these surcharges. That was a step backwards. The hon. Member for Walton said that the Government were forced to apply these surcharges. I am not in a position to argue whether they were so forced, not being in possession of the full facts and figures. Our main criticism is the manner in which the surcharges were applied. It was that which gave such a shock to countries like Sweden. I say in passing for the benefit of the Minister of State, Board of Trade that, if quotas were applied, for Sweden that would be the end. The Swedes are dead against quotas.

Mr. A. P. Costain (Folkestone and Hythe)

In Sweden did my hon. and gallant Friend find resistance to importing English materials because of the surcharges? What was his experience among buyers as a result of the surcharges?

Captain W. Elliot

What I gathered about that I must confess was from hearsay and I should not like to say anything definite about it. In Sweden as a whole, as I am sure the Minister of State must know, there was a very strong desire to increase trade and lower tariffs between our two countries.

The effect of this surcharge must be looked on not only as an effect on imports but on the balance of trade generally, and that, of course, includes exports. It was put on for the purpose of limiting imports and, of course, the imposition caused pressure on resources in this country and rising prices. Although we are given figures for exports, which are going up, everyone must have noticed that the increase is largely in value rather than in volume. That is rather significant. It is a very easy assumption to make that the surcharge has reduced imports, but we must thank the National Plan for pointing out what very heavy stock-building there was in 1964. During the last year industry has stagnated, or made very little progress. I suppose it is reasonable to assume that in that situation stockbuilding is at a low level if there is any at all.

It is very doubtful, in spite of the figures in the categories we have been given, to say how great the effect of the surcharge has been. I am prepared to admit that it was necessary to reduce imports, but there are two ways of doing that. The first way, in theory, is to put up prices so that home buyers cannot afford to buy goods from abroad. That virtually is what the surcharge was aimed at. We heard earlier from the hon. Member for Colne Valley (Mr. Duffy) that he knew of firms of engineers which were still buying machinery from abroad. It has been mentioned by a number of hon. Members that much of the machinery we buy abroad has to be bought from abroad and that it is the quality and type, not the price, that covers that question. Therefore, the effect of the surcharge is to raise prices at home.

The second way—this is the only other way I know—is to reduce the demand. The Chancellor of the Exchequer has done a great deal to bring this about. He has been impeded to a certain extent by the imposition of the surcharge, because this has stimulated home production. My hon. Friend the Member for Oswestry (Mr. Biffen) spoke about reducing demand still further. He was interrupted rather severely for doing so. However, that is exactly what the Chancellor of the Exchequer is trying to do.

Whatever hon. Members opposite may say, I do not believe that they really think that when we say that demand must be reduced at home we would tolerate mass unemployment, any more than they would. For all political parties, that is out. I do not believe that a further reduction in demand should or will lead to anything like that. At the moment the Board of Trade is pushing up prices by the surcharge. The Chancellor of the Exchequer is trying to hold them down by the squeeze. He is fighting a losing battle. I believe that is a reason why we have got what my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) described as "stagflation". In fact, the Chancellor of the Exchequer cannot afford to lose. Unless we can get such things as the surcharge off, the Chancellor of the Exchequer will have to squeeze harder. If the result is that idle resources become excessive, it is the policy of the Government which will have caused it.

8.12 p.m.

Mr. Arthur Blenkinsop (South Shields)

I intervene briefly and wish to follow up one or two points made by the hon. and gallant Member for Carshalton (Captain W. Elliot) and one or two of those who spoke before him. I am sorry to see the hon. Member for Aberdeenshire, West (Mr. Hendry) leaving the Chamber after his interesting and lively contribution. It is important that we clear our minds on this issue. The hon. and gallant Gentleman said that he agreed that something had to be done to limit imports. What he did not say was what alternative action he would have proposed for the Government to have taken at that time other than the surcharge.

Mr. Deputy Speaker

Order. The hon. and gallant Gentleman would have been out of order if he had done so.

Mr. Blenkinsop

I am grateful to you, Mr. Deputy Speaker, for reminding me of that. As we are discussing whether the Order should be approved and the surcharge continued, it is reasonable for us to follow the point the hon. and gallant Gentleman made. He made it clear that in his view there would have been very strong opposition to any suggestion of a quota scheme, which is one of the alternatives which has been discussed. I do not want to develop this theme beyond saying that this is one of the alternatives and I rather understood from the hon. and gallant Gentleman that he would clearly have ruled it out.

Therefore, I am not clear as to what his view would have been about any other action the Government could have taken, because he does agree that some action to limit imports was necessary. It has been said that neither side of the House wishes to see any return to mass unemployment. I accept that this is so. Therefore, does the hon. and gallant Gentleman suggest that other fiscal means should be adopted which would result, if not in mass unemployment, at any rate in what is euphemistically called some flexibility in the market position, some increase at any rate in unemployment, which would in my view be very damaging to our economy?

Initially a great deal of anxiety was expressed about the surcharge by many firms in my own constituency and elsewhere. These firms were fearful of the effect it would have upon their working. In particular, they wondered whether they would be able to import certain essential machinery. They have discovered that their fears were unjustified. They have been able to get essential imports, although hon. Members are right to point out that this has added, sometimes marginally, to their costs. The initial anxieties expressed by many firms have proved to be unfounded, in the sense that they have not been in any way impeded in the operation of their plants and factories.

The hon. Member for Aberdeenshire, West used some rather extravagant language. That is not surprising, because one rarely listens to the hon. Member speaking without hearing some very generalised extravagant language. In particular, he said that the Order was a mon- strous one. At the same time, it was irrelevant. He used many other expressions to describe it. One wondered as the hon. Gentleman went along how he reconciled one comment on the Order with another. I suppose the hon. Gentleman's mind travels so fast that he forgets from one moment to another what he has said. The hon. Gentleman must face the fact that at the time of its introduction the surcharge was essential to meet the nation's needs. There is no evidence to suggest that it has crippled industry or had the kind of damaging effect that many feared at the time of its introduction.

It is true, as some of my hon. Friends have pointed out, that it is very much in this country's interests to limit the operation of the Order as far as we can. I accept the point made by some hon. Members, including the hon. Member for Barkston Ash (Mr. Alison), that there are fields in which the Order can be damaging. It has undoubtedly had some effect in raising the prices of goods we have to import. We accept that damaging factor.

Yet no one has been able to suggest any less damaging action which could have been taken to meet the critical situation we were in and which, to some extent, we are still in. It is extraordinary that some hon. Members suggest that this was an action that no country should have been allowed to take since this action, or comparable action, in which I include action by means of quota systems, has been adopted by many countries in difficulty from time to time.

Mr. J. Bruce-Gardyne (South Angus)

Can the hon. Gentleman cite a single example of a member of E.F.T.A. or of the Common Market or any organisation with such a governing treaty which has imposed tariff restrictions in contravention of such a treaty?

Mr. Blenkinsop

I was not talking about tariff restrictions. I was talking about the quota system, which I agree is permitted officially under the treaty, although, as the hon. and gallant Member for Carshalton said, it might be very much more objected to than the surcharge. One can quote a number of countries which in recent years have felt obliged to impose quota restrictions. Many of us have objected when these measures have been taken by other countries, including members of the Commonwealth. This illustrates the point whether we do not feel that the Government's action in imposing the surcharge, even though it was against the treaty, nevertheless bore less harshly on the various partners in the organisation and on other countries, within the Commonwealth and elsewhere, than if we had adopted measures which were open to us officially under a quota system, which in any case would have taken a long time to introduce.

Nevertheless, I join my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) in hoping that the Government spokesman, in reply to the debate, will be able to suggest that we shall seize any opportunity we can, if not to get rid of it altogether then at least to reduce the surcharge a long time before the matter arises again for any debate in the House. I support hon. Members on both sides of the House who have pointed to the dangers that flow from it, dangers which have been regarded as some form of permanent protection at a time when we want to encourage industry to be as vigorous and enterprising as possible. We appreciate these dangers, but we are entitled to ask hon. Members opposite 10 suggest alternative action which can be taken to protect the country at a time when we still have not overcome fully the difficulties which we faced on coming to office.

8.21 p.m.

Mr. Robert Maxwell (Buckingham)

I should like to comment on the earlier remarks of the hon. and gallant Member for Carshalton (Captain W. Elliot). He appeared to be confusing the problems which arise from running a heavy deficit on balance of payments with the action taken by the Chancellor of the Exchequer to damp down demand at home to halt a dangerous rise in the cost of living. It is astonishing that hon. Members opposite, including the hon. and gallant Member, should be able to say that they do not Know or are not sure whether the introduction of the import charge was necessary. Can it really be said that the hon. and gallant Member has forgotten that the former Administration had brought about a deficit of about £800 million in our balance of payments? Has he and his hon. Friend forgotten that it was the former Chancellor of the Exchequer, the right hon. Member for Barnet (Mr. Maud-ling), who boasted that the measures taken by his Administration were designed to the same end? If we had had that misfortune and the hon. and gallant Gentleman had been on this side of the House, would not he have been defending Conservative action in bringing in this very surcharge?

I am disappointed that hon. Members opposite should be playing politics on this issue. There is absolutely no justification for opposing this Order. We are well on the way to bringing our balance of payments problems under control. The imposition of the import surcharge has helped immensely in doing so. One of the complaints of hon. Members opposite is that it has upset our partners in E.F.T.A. and elsewhere. Of course it has, but I remind the House that even the Swedes would have preferred the import surcharges to not getting paid for their exports to Great Britain. There is no possible justification for permitting this country to continue to suck in imports at an ever-increasing rate for which we cannot pay. There was, therefore, no alternative to the setting up of the import surcharge and there is every justification for continuing this.

Captain W. Elliot

I should like to correct the hon. Gentleman when he said that I was misunderstanding or confusing what the Chancellor was doing in controlling the rise in the cost of living. The hon. Member has just used the expression "suck in imports". Surely he agrees that it is well-known that if pressure is too high at home imports will be sucked in.

Mr. Maxwell

All the better reason why we should bring about a halt to the rise in imports, having regard to the fact that we cannot pay for them.

I support the maintenance of the surcharge, but I hope that my right hon. Friend the President of the Board of Trade will be willing and able to give an assurance to the House that it is not intended to continue this Order beyond April next. Our E.F.T.A. partners have been very patient in understanding and in helping us to get out of our balance of payments difficulties. Many of our trading partners who have been hit by the imposition of the surcharge have rallied massively behind the front for maintaining the parity of sterling. We need their help to fund our long-term debts. We need their help if we are to bring about a rapprochement between us and the Common Market countries. Our country will find itself dangerously isolated in many international trading affairs if Her Majesty's Government find it necessary to continue to maintain this surcharge beyond April.

If exports continue to be as viable as they appear to be now, and there is every expectation that they will, Britain's balance of payments position by the spring should enable us to cancel this charge. It would be a splendid statement of confidence in the future of sterling and the ability of our country to pay its way. I hope that the President of the Board of Trade will be able and willing to take this step and, if at all possible, to say this evening that he will be willing to cancel this surcharge before April next instead of allowing it to run on for a full year.

Mr. Patrick Jenkin (Wanstead and Woodford)

No doubt the hon. Member will recollect the request made by the Chancellor of the Exchequer that nobody in the House today should ask for a date to be put to when the surcharge would be reduced or abolished.

Mr. Maxwell

I recollect it, but I cannot forgo the opportunity of putting in a plea to the Government. To suggest that no one should ask for a date when it should be abolished to be named does not mean that businessmen and others interested in trade with Britain should not be concerned about it. The Government cannot do themselves any harm if they imply that, subject to our exports continuing at the present rate between now and the spring, they should be able to repeal it. The Government are being pressed by our E.F.T.A. partners to name a date. Our E.F.T.A. partners are justified in asking us to tell them, because it could help their balance-of-payments problems as well. I hope that the Government are doing something about this.

Businessmen in this country cannot understand why Her Majesty's Opposition should take a whole day to oppose this Order. We need to maintain the import charge. Surely, this is an issue in which politics need not be played. Sterling is still in danger and at risk. No good purpose is served by making statements of the kind which hon. and right hon. Members opposite have made in the debate. I am sure that this is one of the reasons why the party opposite is held in contempt by industrialists, because of its attitude and the way it treats serious national matters as subjects for party politics when there is absolutely no call to do so.

I fully support the Order and the continuance of the charge, but I hope that the Minister, when he replies to the debate, will be able to give an indication that, subject to exports continuing at their present rate, the Government will be willing to consider reducing or abolishing the charge within six months.

8.30 p.m.

Mr. J. Bruce-Gardyne (South Angus)

As always, I listened to the remarks of the hon. Member for Buckingham (Mr. Maxwell) with interest. I hope that, in spite of what the Chancellor said earlier today, we may have some sort of assurance about the termination of the charge, although it seems highly improbable that we shall.

The whole tenor of the speeches from hon. and right hon. Members opposite has been that the Government were, in effect, faced by a choice on taking office between producing a substantial increase in unemployment or imposing the import charges. I have always regarded this dilemma as one of the Government's own devising. If the hon. Member for Buckingham had been present earlier, he would have heard my hon. Friend the Member for Worcester (Mr. Peter Walker) explain the three basic elements in the deficit which faced the Government when they took office, those elements being stockbuilding, investment overseas and an adverse movement of import prices. I have always believed that the real reason for the imposition of the import charge was very different from the one stated by the Government, and rather more sinister. On the morning of 16th October, 1964, the Government found themselves with a majority which they realised could not last for very long. Therefore, they decided to impose the import charge in order to insulate the economy while they injected an additional dose of inflation which they believed would provide the right climate for an early election in the spring.

Mr. Ted Leadbitter (The Hartlepools)

The hon. Gentleman has referred to 16th October. Will he now say what his Front Bench has refused to say, that import charges schemes were in the Board of Trade prior to that date, when his Administration were still in office?

Mr. Bruce-Gardyne

If the hon. Gentleman had been here a little earlier, he would have heard precisely that point discussed by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). Of course, it was right that my right hon. Friends should prepare for all sorts of situations which might well develop if the country's affairs fell into the tender hands of right hon. and hon. Members opposite after the election.

Mr. Leadbitter

Will the hon. Gentleman now agree, having accepted our allegation that surcharge proposals were in the Board of Trade prior to 15th October, that nothing very much could have happened in the 24 hours between 15th and 16th October to justify what he has said?

Mr. Bruce-Gardyne

No, I do not accept that at all. Clearly, my right hon. Friend was absolutely right to investigate various possibilities against the danger of the return of the party opposite to power. [Laughter.] This is no laughing matter.

Mr. Leadbitter

Just one point——

Mr. Bruce-Gardyne

No, I shall not give way again. There were various schemes which could have been considered. This one was selected by right hon. Gentlemen opposite, as I have said, in order to provide the right climate for an early election. We know that things went wrong, but they went wrong precisely because of this measure. [Laughter.] It is no laughing matter. Hon. and right hon. Members opposite have taken the attitude of our E.F.T.A. partners fairly light-heartedly throughout this year.

The fact of the matter is, as some of my right hon. Friends have already pointed out, the imposition of the surcharge, without any attempt at consultation except with one country, the United States of America, with whom we had no such obligations as we have to our partners in E.F.T.A., did untold damage to E.F.T.A. and E.F.T.A. has still not recovered from that damage. It was in order to attempt to calm the very considerable irritation, indeed fury, of our E.F.T.A. partners, that the right. hon. Gentleman the President of the Board of Trade had to go to E.F.T.A. meetings and exaggerate the state of the balance of payments problem which was facing the Government.

Mr. Maxwell rose——

Mr. Bruce-Gardyne

I cannot give way at present. The result of this was that the Government were faced by the consequential measures, the 7 per cent. Bank Rate and the rest, and of course the climate was by no means propitious for the early General Election which they had been expecting.

We are now considering whether this surcharge should be renewed for a further year. I accept, as the Chancellor claimed earlier, that the surcharge has had a certain effect. I would agree with other speakers who have argued that the extent of this effect is very difficult to judge. Clearly there was a considerable degree of intelligent anticipation of the sort of measures which a Labour Government might propose if they came into power. Consequently the slackening-off of the rate of increase in manufactures and semi-manufactures to which the import surcharge applies was likely to have occurred in any case this year. On the other hand, I believe that the import surcharge has played its part in producing what my right hon. Friend the Member for Enfield, West referred to as "stagflation", of delaying the impact of the measures of restraint which the Chancellor has applied so that he has had to apply the dose again and again in greater severity.

We have been warned that he envisages the possibility of having to apply it yet again in still greater severity. I suggest to the Government that they are heading for another application of what has been called "sunshades in October", and that we shall once again be seeing the full impact of measures of deflation coming into effect, perhaps next summer or next autumn when the economy is already sharply on the downturn. The other effect of the import surcharge has been that the United Kingdom has been, in effect, on probation in E.F.T.A. The right hon. Gentleman the President of the Board of Trade and his right hon. Friends have had to go off at regular intervals to give a good conduct report to our partners in E.F.T.A. I make no complaint about that. It followed from the imposition of this surcharge. But it seems that in trying to ward off the very understandable wrath of their partners, right hon. Gentlemen have been driven to make some rather dubious concessions.

For instance, there is the concession which appears to have been offered on the export rebate to E.F.T.A. It seems to have been suggested by Her Majesty's Government that British exporters to E.F.T.A. will not be able to claim both the rebate and the E.F.T.A. tariff preference. This is a concession which appears to have been offered in order to excuse the Government's inability to reduce the import surcharge before the last E.F.T.A. meeting. Yet this is not, as even the Government say the import surcharge is, a temporary measure. This is a permanent concession and one which is going to vastly devalue the worth of E.F.T.A. to British exporters. I would further suggest to the right hon. Gentleman that it could well land him in serious difficulties with G.A.T.T.

Mr. Jay

The hon. Member does not have this quite right. This is part of a general settlement which includes drawback as well as the export rebate and applies equally to all members of E.F.T.A. as well as to ourselves.

Mr. Bruce-Gardyne

I am well aware that it includes drawback, but I think I am right in saying that the specific concession on the export rebate was offered by the United Kingdom Government as such. It seems to me to be inevitable that it will create countervailing demands for similar concessions from other members of G.A.T.T.

Mr. Patrick Jenkin

Would not my hon. Friend recognise that there is all the difference in the world between a drawback of an import duty and a rebate of an Excise duty? The point which he is making is perfectly valid.

Mr. Bruce-Gardyne

I am grateful to my hon. Friend. That is precisely the point.

Mr. Jay

If I may join in this two-cornered argument on the benches opposite, this is an arrangement that applies only by definition within a free trade area and, therefore, could not be applied outside.

Mr. Bruce-Gardyne

I take it from that intervention that the President of the Board of Trade means that he is not anticipating similar demands from other members of G.A.T.T. I only hope that he is right. I would not be as sure as he is.

If we had to give a concession to placate the understandable indignation of our partners at the continuation of the surcharge, I ask the right hon. Gentleman whether it would not have been possible to select a fairly narrow range of imports which come within the application of the surcharge but the level of imports of which would not be affected by the surcharge either way. I think of such items as certain timber manufactures from Finland and Sweden, certain special steels and various types of machinery which were referred to by my hon. Friend the Member for Barkston Ash (Mr. Alison).

If we wanted, as we naturally did, to placate the indignation of our E.F.T.A. partners, why did we not consider eliminating the import surcharge on items of that sort in the case of which it could not affect the level of imports on a most-favoured-nation basis, so that we could have given satisfaction to our partners without surrendering anything which would have been of long-term value to ourselves?

There is another aspect on which I should like to ask the President of the Board of Trade a question. His hon. Friend the Member for Buckingham expressed the hope that we should have an announcement of the abolition of the surcharge in, say, six months' time. I must point out to the President of the Board of Trade that Article 19, paragraph 2, of the Stockholm Convention states that if balance of payments difficulties perisist for more than 18 months in one of the member countries and the measures applied seriously disturb the operation of the Association, the Council may, by majority decision, devise special procedures to attenuate or compensate for the effect of such measures. In other words, the Council may decide at the end of 18 months that there is a legitimate case for retaliation. Is this not a rea1 danger that faces Her Majesty's Government if the surcharge is maintained much beyond another six months?

I assure the President of the Board of Trade that when I and some of my hon. Friends, as well as hon. Members opposite, were in Sweden in the autumn, our attention was specifically drawn to that Article of the Stockholm Convention. There was a clear inference that if the surcharge were maintained beyond 18 months, there would be trouble in the E.F.T. A. Council.

Mr. Julius Silverman (Birmingham, Aston)

Does not that Article apply to the question of a continuing balance of payments deficit? The surcharge is an attempt to remove the balance of payments deficit. Surely that Article would apply if the Government had done nothing about the deficit and had not introduced the surcharge.

Mr. Bruce-Gardyne

I think the hon. Gentleman should study the clause. What it is saying is that if the balance of payments deficit continues——

Mr. Silverman

Yes.

Mr. Bruce-Gardyne

—and also if the measures which are designed to deal with it are continuing, despite the fact that the balance of payments difficulty is still there, the Council is entitled to meet and possibly to decide on retaliation. That is the point. The fact that the balance of payments deficit has not been eliminated does not obviate the particular country from very special surveillance by the Council at the 18 months date and at that point it is clearly envisaged that the right of retaliation can be invoked. I should say that this clause applies to quantitative restrictions, but then, of course, there is no provision in the Stockholm Convention for admitting application of an imports surcharge such as the Government have applied. Therefore, one would have thought that the purport of this clause in the Stockholm Convention would apply with all the greater force.

Now to my mind one of the more distressing aspects of this debate which we have had here today is the reiterated call from hon. Gentlemen opposite for the possibility of further and more extended application of tariff or quota protection. My hon. Friend the Member for Oswestry (Mr. Biffen) accused them of indulging in intense protectionism. I am not, I think, such a pure-blooded free trader as my hon. Friend, but, nevertheless, I have always believed that we cannot expect to maintain a tolerable expansion in our export effort or to achieve a tolerable level of rate of progress in productivity if we wrap our economy round with a cocoon of high tariffs. I further believe that the level of tariffs which this country maintained even before the import surcharge was substantially too high.

I have always myself believed that if the parity level of imports and exports can only be maintained by the application of such artificial stays and supports as import surcharges and export rebates then it is time that the parity rate were reexamined. I do not myself believe that the Government were facing that position when they came into office. I do not believe they are facing that position today, but I have no doubt—I have never had—that if the only way we can maintain our parity is by wrapping ourselves rouund with this excessively high level of protection then it is the parity which should be examined, and the level of protection should be brought down.

8.48 p.m.

Mr. Ted Leadbitter (The Hartlepools)

Towards the end of his speech the hon. Member for South Angus (Mr. Bruce-Gardyne) certainly improved very much on what he had to say earlier. In my opinion he produced a far better speech than at the beginning I thought he would, judging by his general attitude.

On the question of the Order before us, we have to ask ourselves the obvious, simple question: are there any more arguments beyond what we had a year ago, or any arguments different from those we had a year ago, about the imposition of the surcharge, to persuade us at this point of time to withdraw it completely? I should have thought that all the evidence before us shows that the continuance of the surcharge arising out of the effectiveness that it has had on the economy is something which we should pursue. I bear in mind what the hon. Gentleman said about the clause of the Convention referring to what steps might be taken by the other partners in E.F.T.A. should the surcharge continue for a period of more than 18 months. But the point that he was trying to make—and I thought that he was trying to make it following on the remarks of the hon. Member for Buckingham (Mr. Maxwell)—was that a date ought to be declared, and I should have thought that that would have defeated the object of the surcharge.

To announce a date would be to defeat its purpose entirely, and I think that the President of the Board of Trade dealt with the matter adequately a year ago. That was the reason why we did not announce it then, and I believe that the House accepted the logic of the argument.

Mr. Bruce-Gardyne

I apologise for interrupting the hon. Gentleman's remarks, but is it not a fact that we did announce the intention to reduce the surcharge from 15 per cent. to 10 per cent. three months ago?

Mr. Leadbitter

That is an entirely different matter. [Laughter.] The apostles of the new confidence are not in a position to laugh, and we have only a few minutes before the summing-up. Your record is no laughing matter.

Mr. Deputy Speaker

Order. Will the hon. Member please address the Chair?

Mr. Leadbitter

The first thing that I ought to do, Mr. Deputy Speaker, is to apologise to you and say that right hon. Members opposite are not in a position to laugh. Their record over many years has provided sufficient evidence of that.

What is the problem that we were and, in my opinion, are still faced with? It is the imbalance which exists between our imports and our exports and, in particular, our physical trading balance. That is the problem.

The Financial Times of 15th March, 1961, had this to say: Between 1958 and 1960 the value of our exports rose by 11.3 per cent., while imports c.i.f. of food, basic materials and fuel rose by 9.7 per cent.… But … manufactured imports c.i.f. rose by 58.6 per cent. That is the problem. The sharp increase of manufactured imports had created that kind of imbalance which in itself was the responsible element in the balance of payments deficit of £800 million. The Chancellor of the Exchequer has dealt with it, and speakers in the House have dealt with it. It seems quite impossible for hon. Members opposite to learn the simple lesson that not only did we inherit the problem, because, according to their own spokesman, the right hon. Member for Barnet (Mr. Maudling), we inherited his diagnosis of it.

Sir D. Glover

Oh, no.

Mr. Leadbitter

That is what he said.

Sir D. Glover

No he did not.

Mr. Leadbitter

No one else said it. The right hon. Member for Barnet has a reputation for being particularly honest, and he has not withdrawn it.

Mr. Peter Walker

The hon. Gentleman has completely misquoted my right hon. Friend. My right hon. Friend has stated on a number of occasions that when he was Chancellor of the Exchequer he had prepared by the Treasury its suggestions as to all the various methods that could be used if the position was reached where some action had to be taken about imports. It was one of the many methods that were so listed. He never at any time chose to use that particular method.

Mr. Leadbitter

I remember exactly the words of the right hon. Member for Barnet. He said that we, the Members on this side—

Sir D. Glover

Quote.

Mr. Leadbitter

I am quoting.

Sir D. Glover

The hon. Gentleman is not quoting.

Mr. Leadbitter

If the hon. Gentleman will allow me to come to a comma, I will quote. The right hon. Member for Barnet said that we on this side inherited his solution and his diagnosis. Those were his words.

It is reported again by one called Sir Roy Harrod that The trouble … with our balance of payments … is due to the fact that the cumulative effect of our successive derestrictions of imports has been to produce a bulge in manufactured imports of so great a size that we could not reasonably expect a bulge in exports to match it, however efficient we were in the export field. I have had to listen today to one or two hon. Gentlemen making some remarks about the solution to this problem. The hon. Member for Aberdeenshire, West (Mr. Hendry) referred to us as a great trading nation, and, of course, he is correct in saying that, but then he said about this so-called great nation that the surcharges were monstrous, yet it has not been denied that before 16th October, 1964 his own Government had plans to impose surcharges. Hon. Gentlemen opposite have tried to qualify that since by saying that they had other plans, that they may have considered different ways and means of applying these plans, but in my opinion that is only hedging. We knew what they would have had to do if they had had the support of the electorate on 15th October, 1964. The right hon. Member for Barnet knew it. The right hon. Member for Bexley (Mr. Heath) still knows it, but will not say so.

The hon. Member for Aberdeenshire, West went on to refer to the surcharge as a blot on our fair name as traders, and this was followed by one of his hon. Friends saying what has been mentioned in this House many times, merely because the Labour Party is in control of the nation's affairs, that the Conservatives have talked from time to time about the blow to our confidence abroad. The £ is strong. The visible trade figures are healthier now than they were last year. The surcharge is effective and I see no evidence of a lack of confidence.

The real breach of confidence took place many years before 1964. It started in 1951, and in not one of the years following 1951 did we match the export potential of this country. Our share of world markets fell every year, and in 1958 we lost out completely. Indeed, when the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd)—[An HON. MEMBER: "Where is he?"] He is not here, but he has had a lot to say about this on many occasions. The right hon. and learned Gentleman attempted to back two horses, and I should like to conclude by referring to what my right hon. Friend the Chancellor said about him. He said: The policy of the right hon. and learned Member for Wirral was based on the premise that home demand must be held down so that we should get"—

Sir D. Glover

On a point of order. May we be told from which document the hon. Gentleman is quoting?

Mr. Leadbitter

I am quoting from HANSARD of 4th April, 1963.

Sir D. Glover

Further to that point of order. It is well understood in this House that when an hon. Member quotes from a document he should declare what that document is.

Mr. Deputy Speaker

The hon. Member has indicated the document to which he was referring.

Mr. Leadbitter

I have done so. [HON. MEMBERS: "Answer."] Perhaps the hon. Member for Ormskirk (Sir D. Glover) would have more reason to intervene if he had been here much longer.

Mr. John Hall

I am sorry to interrupt the hon. Member. I am following him with great interest, and I want to be able to follow him also with intelligence. It would be helpful if he would tell us again the name of the document from which he is quoting, because I did not hear it the first time.

Mr. Leadbitter

I was referring to the right hon. and learned Member for Wirral. I have said that he backed two horses and I was indicating that he was trying to deal with the same kind of problem that we have had over the past year, but that whereas we have been consistent, not only have the right hon. and learned Gentleman and his colleagues been persistent in their inconsistencies but their indecision was the basic cause of bringing about the loss of confidence which has been referred to. Therefore, I referred to the document.

Mr. John Hall

What document?

Mr. Geoffrey Wilson (Truro)

Give us the date.

Mr. Leadbitter

I will read it, and hon. Members will have to listen. It was stated in the debate in the House of Commons on 4th April, 1963, by the present Chancellor of the Exchequer——

Sir D. Glover

On a point of order. It is a long-standing tradition of this House that when an hon. Members quotes from a document he names that document.

Mr. Deputy Speaker

The hon. Member should be allowed to proceed a little longer. According to him he is about to reveal the identity of the document.

Mr. Leadbifter

I am entitled to read it in my own time. I would welcome some more interventions. I have answers for them. I now refer to the document. It is dated 4th April, 1963, and refers to a speech made by the present Chancellor of the Exchequer referring to the several matters that I have now related.

Mr. Deputy Speaker

Order. The hon. Member should not keep the House in suspense any longer.

Mr. Leadbitter

After tonight I may be nominated for any future filibusters that might go on. The document is HANSARD. [Interruption.] It is not HANSARD that I have here.

Sir Knox Cunningham (Antrim, South)

The hon. Member has quoted from a document which refers to something that was said in the House of Commons. This cannot be HANSARD. Will he now come clean and say what the document is?

Mr. Leadbitter

I am quoting an extract from HANSARD. Right hon. and hon. Members opposite will have to control their impatience, because I am going to quote, and if they want to cause any further interruptions they will have to choose another minor point. I now quote: The policy of the right hon. and learned Member for Wirral was based upon the premise that home demand must be held down so that we should get exports first. The Chancellor said yesterday that we must have growth at home to stimulate exports as soon as possible. Hon. Members opposite cheered both statements."— some right hon. and hon. Members were there— The right hon. and learned Member for Wirral based his Budget on the need to safeguard the £ abroad, which, he said, meant restricting demand at home. That was the whole case for the pay pause. Yesterday, however"— [Laughter.] I cannot understand why hon. Members——

Sir D. Glover

On a point of order. The hon. Member has just quoted and says he has quoted from HANSARD, and used the words "Hon. Members opposite cheered". Will the hon. Member ever state when, in his knowledge, it has ever been reported in HANSARD that "Hon. Members opposite cheered". This is obviously not from HANSARD.

Mr. Deputy Speaker

That is not a point of order.

Mr. Leadbitter

Mr. Deputy Speaker—[HON. MEMBERS: "It is wrong."]—in order that the hon. Member for Ormskirk (Sir D. Glover) may follow simply what I am saying, perhaps he would bear in mind that I am quoting what the present Chancellor of the Exchequer said on that date. I have no inclination to upset the hon. Member. If he interrupts, I will, wait, but I will still get to the end of this extract: Yesterday, however, the Chancellor told us that a healthy expansion of home demand and a strong £ go hand in hand. Hon. Members opposite managed to support both these statements at different times."—[OFFICIAL REPORT, 4th April, 1963; vol. 675; c. 636–7.] The whole thing is rather interesting, because hon. Members opposite for far too long have been backing too many horses at different times. They have not an argument today about the Order. Not one new word has been spoken about the principle of charges. All we have had from hon. Members opposite is a spot of wishful thinking. When we go into the Division Lobbies tonight—if they dare try it—they know full well what we have been talking about in the corridors——

Sir Edward Brown (Bath)

On a point of order. Tomorrow's HANSARD will quote the hon. Member as quoting from HANSARD. It has been clearly established tonight that the quotation is not from HANSARD. In order to protect the record tomorrow, Mr. Deputy Speaker, would you not rule that the name of the document from which the hon. Member is quoting should be given?

Mr. Deputy Speaker

The hon. Member has maintained that his quotation was from HANSARD. He should give the specific reference from HANSARD, if he is in a position to do so, and should have armed himself with that information before making the quotation.

Mr. Leadbitter

I said that I was reading an extract from HANSARD dated 4th April, 1963. When hon. and right hon. Members read HANSARD, they will be satisfied that it is a faithful report of the extract——

Sir E. Brown

Further to that point of order. The hon. Member has read a quotation in which it says, "Members of the Opposition cheered". Those words will not be found in any HANSARD and I feel tint the record ought to be put right, and the name of the document from which the hon. Member is quoting in full, including these words, should be published in HANSARD tomorrow.

Mr. Deputy Speaker

If the hon. Member had been paying attention he would have realised that I had ruled three minutes ago that that was not a point of order.

Mr. Leadbitter

I think that it is now reasonable after listening to what I think are silly, puerile interventions by hon. Members opposite, to say that these interventions are a measure of their case today. I challenge right hon. and hon. Members opposite who have spent the whole of the day—few in numbers until now, I notice—discussing a matter which they felt was of serious national import to come into the Division Lobby. Hon. and right hon. Members should go into that Lobby and exercise their professed convictions.

Sir D. Glover

On a point of order. Before the hon. Member for The Hartle-pools (Mr. Leadbitter) concludes and passes into history with his speech, I must remind you, Mr. Deputy Speaker, that he said that he was quoting from HANSARD. He made it quite clear that all he was saying was a quotation from HANSARD. In that quotation which he read is a statement that the Opposition cheered. You, Mr. Deputy Speaker, have been a Member of the House for many years and you know that that sort of language never appears in HANSARD. The hon. Member, therefore, was not quoting from HANSARD. It should not appear in tomorrow's HANSARD as being a direct quotation from the OFFICIAL REPORT. The hon. Member should state that, in fact, he was not quoting from HANSARD but from some other, probably very reliable, document. Otherwise we shall have a very wrong impression of what happens in the OFFICIAL REPORT.

Mr. Callaghan

Further to that point of order. I am grateful to my hon. Friend the Member for The Hartlepools (Mr. Leadbitter) for reminding me of the words which I used when I stood at the Opposition Dispatch Box two years ago. He has read from HANSARD faithfully what I said on that occasion when I referred to hon. Members opposite cheering two contradictory statements. If only hon. Members opposite had listened more carefully they would have heard the context in which my hon. Friend was speaking. Without being offensive, I hope that we can get on with the debate.

Sir Knox Cunningham

On a point of order. Earlier, Mr. Deputy Speaker, you said that the hon. Member for The Hartle-pools (Mr. Leadbitter) would reveal the document in his own good time. I ask you to rule that he should reveal the document. It is clearly not HANSARD and it must be some other document. Would it not save us all trouble if he were to say what the document is?

Mr. Deputy Speaker

The hon. Member for The Hartlepools (Mr. Leadbitter) did reveal the document as being HANSARD. He revealed the date, and he would certainly have been more helpful if he had also revealed the column number. But that is not a point of order.

9.11 p.m.

Mr. Edward M. Taylor (Glasgow, Cathcart)

The hon. Member for The Hartlepools (Mr. Leadbitter) and my hon. Friends who intervened in his speech have left me four minutes in which to get through what I had hoped would be a longer speech. I should like to mention briefly two points which have influenced the Government in deciding not to go ahead with this Order. First, I must say how grateful and unworthy I feel at making this short speech in the presence of the President of the Board of Trade and the Chancellor of the Exchequer. Some of my hon. Friends who have made very notable contributions today have done so in the absence of any representative of the Board of Trade or of the Exchequer.

We should have an indication of what precisely the intention of these charges is. On 26th October the Chancellor indicated that they would be temporary. On 3rd November, however, only a few days later, at the Lord Mayor's Banquet, he said, We aim to reduce it as soon as possible—as soon as our position shows an unmistakeable improvement. That was over one year ago, and the only conclusion we can reach is that there has been no unmistakeable improvement in the economy despite more than a year of his policies. On 11th November he stated that these charges were doing real damage to the long-term needs of the economy by providing extra protection. But we have had over one full year of this policy.

I suggest that the main reason for stopping these charges now is that by retaining them we are undermining our bargaining position with E.F.T.A. and the Common Market on some major items on which we must negotiate. For example, we hope for very substantial benefits from the E.F.T.A. alliances for our motor industry. In fact, in every country except one of the E.F.T.A. alliance obstacles have been put in the way of expanding our exports. Only Sweden of all the E.F.T.A. countries is giving us the advantage to which we should be entitled. I suggest that by continuing these import charges we are making it impossible for us to go ahead to get these benefits.

In the same way, we have at present before the European Common Market Executive proposals to give a 15 per cent. subsidy for all new shipbuilding. I suggest that if we are to negotiate to get rid of these special arrangements or to stop them from being introduced, then it is essential that we should create a measure of good will The same argument can apply to the more general question of going into the Common Market.

Finally, in the last minute remaining to me for my speech, these imports charges were put forward as a means of getting away from a policy of stop-go, which was certainly a change for the Labour Party, who had consistently maintained over the years that the way to get away from stop-go was to accelerate out of deflation and to accelerate out of difficulties in the economy. We have had a major change here which is doing a great deal of damage to the economy. Indeed, I suggest that the only constructive, practical advantage which has stemmed from the surcharge of £170 million of the £860 million in extra taxation which the Labour Government have brought to this country this year. That has, in fact, come from the surcharge. It will, in effect, add to the taxation burden, create unnecessary protection for industry and bring long-term bitterness to other nations in Europe.

9.15 p.m.

Mr. Iain Macleod (Enfield, West)

With the exception of a somewhat confused interlude a few moments ago, we have had both a good and cool debate. That is right for a subject which is at the same time complex yet simple, on which the House will take a decision in a short time.

The hon. Member of Liverpool, Walton (Mr. Heffer) thought it right—and he acknowledged the force of some of the comments made by hon. Members on this side of the House—that this should be a debate with a comparatively low temperature. There is a great deal to be said for that. I am bound to say that throughout the day the balance of argument has gone overwhelmingly against the Government—and that includes a substantial number of speeches from the benches opposite which, if they meant anything, meant that in order to find the way towards whatever solution they thought desirable the import surcharge should go.

For a very long period—and this was not treating the House with the courtesy to which we are entitled—no Minister at all was on the Government Front Bench—no one except a junior Whip, no one from the Treasury, the Department of Economic Affairs or the Board of Trade—until, eventually, Ministers were dragooned in from Ministeries which have very little to do with this debate.

There is a procedural point which we all know is connected with this debate; which I made and which the Chancellor acknowledged. It is the very real one that it is not possible to put down a Motion seeking a reduction in the period or in the amount of the surcharge, which is at present 10 per cent. It is not possible, equally, to put down a reasoned Amendment. We must argue this case—and this creates some difficulty for the House—on the basis of all or nothing at all. Whatever the procedural arguments may be, I am content to take it on that basis, and overwelmingly from this side and from the Liberal benches the feeling is that the right thing to do for the House would be to reject the Order and to deny the Government the authority they seek.

I start with three propositions which I like to think are non-controversial. They are certainly not meant to be controversial. It is with these in mind that we should study what our course should be. The first is that we angered by our action, and still anger, our partners now in E.F.T.A. and those whom we—certainly my hon. Friends and I—hope one day will be our partners in the E.E.C. Therefore, it would be excellent if we could put that right. Secondly, we broke no less than nine treaties, and we propose to continue the breach. It would be excellent if we could bring ourselves in order with those treaties. Thirdly, of all countries in the world, we are the most vulnerable to retaliation in this sphere and we have more to gain than any other country by lowering the barriers on trade.

The Chancellor will, I am sure, agree with those propositions. It follows from them that the onus of proof is not only on the Government, it is on the Government to such an extent that unless they can produce a case which answers all the points made from this side of the House tonight the House should not agree to the Order which is now before us.

We know the story. A year ago, on a little less than 30 per cent. of our imports, the surcharge was levied at the rate of 15 per cent., which from 27th April was dropped to 10 per cent. Now we are asked to renew this charge for at least another year. I emphasise the term "at least". How long is "temporary"? Schedule 1 of The Economic Situation of 26th October last year goes out of its way over and over again to emphasise this. The Chancellor will remember. Schedule 1 is headed "Temporary Import Charges". It starts: A scheme for temporary charges will be introduced immediately … and so on. In the next paragraph we read: The purpose of the temporary import charges … Again: The charge is essentially temporary, and will be reduced as soon as the balance of payments situation permits and it will be abolished at the earliest opportunity". It was on the word "temporary" that agreement, silent agreement, was given a year ago.

It was on that understanding—and the undertakings of the Government are in- volved in this—that the E.F.T.A. countries even went as far as they did towards agreeing, under protest, to this measure. Perhaps I may quote from what was said about a year ago by the Danish Foreign Minister just after he had been having talks with Ministers in this country. He said: Denmark and other E.F.T.A. countries were talking 'in months, not in half years', towards the date of removal of the surcharge … He went on: Rather than demand compensation"— he was thinking of an increased bacon quota: We must demand that the surcharge must be temporary. We don't sell our demand that it should be temporary. Two half-years have gone since that statement was made, and we are now asked to add another two half-years to the term.

Nor can we get any comfort from the Chancellor's explanation on 29th October—and I am quoting now from HANSARD, not from the Labour Party speakers' handbook. This is what he said in c. 498. He had been asked by my hon. Friend the Member for Reading (Mr. Peter Emery) to define "temporary". The right hon. Gentleman gave this remarkable definition: It is in the hands of the House, and to that extent it' is clearly a temporary matter. He went on: As regards the legislation itself, this expires 12 months from now, and therefore the meaning of the word 'temporary'—the hon. Member can take what definition he likes—must be that it cannot go on beyond a year from now unless fresh legislation is introduced."—[OFFICIAL REPORT, 29th October 1965; Vol. 718, c. 498.] Where are we now about "temporary"? As I have quoted from the Danish Foreign Minister, this word was understood in this Parliament and throughout the Continent to mean that it would be only a short time—in months and not in half-years even—before this charge was removed.

Tonight we are asked to trust the Government with another year, on the understanding, of course, that at some time during the year this charge could be reviewed, reduced or abolished, but the meaning that the Chancellor of the Exchequer gave, and has given tonight, to the word "temporary" means that we simply cannot take for granted the assurances that he sought to give this afternoon. What he is offering is Humpty Dumpty's definition, which he will know: When I use a word, Humpty Dumpty said in a rather scornful tone 'it means just what I choose it to mean—neither more nor less! That is the definition of "temporary" which the right hon. Gentleman invites us to accept.

The other point of which the Chancellor of the Exchequer made some play on 29th October last, and again this afternoon, was that the charge would be removed as our progress warrants it; that is to say, … when we have corrected the imbalance of the economy and in our external payments."—[OFFICIAL REPORT, 29th October, 1965; Vol. 718, c. 497.] The second quarter of this year was in balance, and one does not know from what the right hon. Gentleman said how long he feels that the situation has to be balanced before he can come to the House and offer either a reductions or abolition.

On this question of reduction or abolition, he and his hon. Friends said that long before this Order expired and without any question of new legislation, it should be abolished. The Chancellor's words this afternoon—I took them down—were that it would be reduced and then eliminated. If his thinking is along those lines, I beg him—perhaps the President of the Board of Trade will deal with this point—to think again. If he wins this vote tonight in the Lobby—I hope he does not, but that is what we shall see presently—I hope that when the time comes for him to review it, and it is under constant review, obviously, he will not contemplate a reduction to 5 per cent. and then an elimination of 5 per cent., because to take two stages to abolish a surcharge of 10 per cent. would be a pointless exercise. If he comes to the moment when he feels that he can change it, the only logical proposition to put to the House would be to abolish it entirely.

The question of what effect this has had is one which we have all discussed. The Chancellor said very fairly, "I cannot prove what might have been." It is impossible to judge exactly what the effect has been. That there has been some effect I would not for a moment seek to dispute. Originally the Chancellor said that there should be a saving on imports of £300 million. Naturally the reduction from 15 per cent. to 10 per cent. would reduce that estimate, but by not very much because the reduction came in on 27th April.

I think there is no doubt at all that that estimate of the Chancellor was exaggerated and over-stated the position. I very much doubt if the figure is as high, or perhaps anything like as high as even the lower figure of £150 million that the Chancellor gave in the House this afternoon. There is a great deal that the House must weigh in the scales against whatever it decides may be the effect, and, of course, there is an effect, of this import surcharge. I find it amazing that the Chancellor this afternoon should have said—and he was repeating something he said before in this House—that so far as he knows the effect upon exports is negligible. That is a phrase he used this afternoon. I cannot believe that, if not in his Ministerial capacity then in his capacity as Member of Parliament for Cardiff, South-East, he has not received overwhelming evidence in his post-bag, as have we all, of the effect this has had upon exports. [HON. MEMBERS: "No."] I have a file which I shall show any hon. Member in the House.

I will quote from what the Chairman of I.C.I., then Mr. Paul Chambers, said as reported on 6th January this year. I am quoting from the Daily Telegraph: Mr. Paul Chambers … said yesterday his guess was that the 15 per cent. surcharge had cut down exports more than imports. Hon. Members can challenge that if they like, but there is a great deal of evidence that what Mr. Paul Chambers said is true and it simply cannot be argued by the Chancellor of the Exchequer.

Mr. Dell

How can he possibly know whether that is true or not when he has admitted that the exports of his own company were kept down by lack of capacity?

Mr. Macleod

I should have thought that the Chairman of Imperial Chemical Industries is probably in a better position than any hon. Member of this House from the information available to him to know what the effect of an import surcharge is both on exports and imports, and I have read his judgment to the House.

Of course, the figures we try to compare from last year with this year are difficult to compare because of the stockpiling on the one hand and the improved position in the Board of Trade which, as my hon. Friend the Member for Worcester (Mr. Peter Walker) clearly pointed out, have affected the position so much that the estimates that the Chancellor put before the House are simply unacceptable. There can be no question of the harm that has been done. Of course, there are some industries—no doubt this is true—which welcome an import surcharge. Of course, they can be called in evidence for 10 per cent., 20 per cent., 40 per cent., or any other figure. However, the fact is that a protected economy in time becomes an uncompetitive economy.

The Chancellor of the Exchequer would not disagree with that. Indeed, a year ago he went out of his way to emphasise it. He was stressing once more the temporary nature of this charge—this was in November, 1964—because he regarded the protective element as a serious disadvantage. The right hon. Gentleman will remember that he said so. I agree that it as so. This adds to the point that, unless the President of the Board of Trade can produce new arguments, which we have not heard from the Chancellor of the Exchequer, nor from any other hon. Member who has spoken, in our view it would be wrong to grant this period.

The Government are asking for this for a year. They say, "We may not use the whole of that time". They say, as I have quoted from the Chancellor of the Exchequer, "Conceivably we may take more". They are in the position of an alcoholic who comes with a bottle of brandy and who says, "I want all of this. I may take only one nip or I may take two nips, but I want it all". When asked, "What happens then?", he answers, "I may require another bottle". This is not an extension which we should give the Government.

The Government are left with only one argument. I propose to deal with it. I was asked to deal with it, and I am glad to do so. It was the only argument which was advanced by hon. Members opposite. It was to ask us what substitute we would put in place of this. That is an argument which I have used in my day. Every time I have used it I have been conscious that I have used it only because I had a thoroughly weak case. It is always true when the Government Front Bench uses this argument to the Opposition that their own argument will not stand the test of examination by others.

This particular point was answered by my hon. Friend the Member for Worcester, by my right hon. Friend the Member for Flint, West (Mr. Birch), by the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie), by my hon. Friends the Members for Ilford, South (Mr. Cooper) and Barkston Ash (Mr. Alison), and by a number of other hon. Members.

I summarise it in this way. First, the surcharge has added to the pressure on wages, and therefore to our problems. There can be little doubt of that. Secondly, the surcharge has damaged our commercial integrity and our relation with other countries. There can be no doubt about that. Thirdly, it weakens our bargaining position in G.A.T.T. and all the other international forums, and all the negotiations on which we have embarked are in peril by the fact that we are going into a second year of this unpopular import surcharge. It is harmful to exports and, as my hon. Friend the Member for Barkston Ash, in an excellent speech, showed, it is harmful also to manufacturing investment.

The harm it does is manifest. The good it does, if any, is unproven. We have tonight to decide all or nothing. That is the way that this question has to be put to the House. On the balance of the argument as we have heard it today, for the sake of our future economy and our relations with other countries, I advise my right hon. and hon. Friends to divide the House against the Motion.

9.35 p.m.

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

Some people in this debate have argued that this import charge has had little or no effect at all. Some have argued that it has cut down trade and seriously damaged our relations with other countries. Both of these arguments might be wrong, but they cannot both be right at the same time.

The hon. Member for Worcester (Mr. Peter Walker) seemed to me to be advancing first one argument and then the other, but having listened to both speeches from the Front Bench opposite tonight I find the Opposition's attitude to this charge throughout the past year a little hard to follow. The Opposition have told us that when they were in power, before the election, they prepared this charge. The right hon. Member for Bexley (Mr. Heath) then attacked it. The right hon. Member for Barnet (Mr. Maudling), and I quote his exact words, thought it "the most promising alternative". Tonight, apparently, the Opposition are going to vote against it, and when at the end of his speech the right hon. Member for Enfield, West (Mr. Iain Macleod) asked himself what his party's alternative was, he was not able to tell us by the time he finished speaking. I intend to remain strictly in order this evening, and therefore I propose to ask myself the question which many people have asked themselves today—what has been the effect of the import charge in the last 12 months?

I have no doubt that it has had a substantial effect in holding our imports down and in quickly reducing the balance-of-payments deficit and so enabling us to maintain both full employment and a strong £ at the same time. By how much—and we must estimate this—would United Kingdom imports have risen in 1965 if this charge had not been imposed? In 1964 they actually rose by 15 per cent., or £700 million, and that was what contributed to the disastrous situation in which we found ourselves. A similar percentage rise this year would, of course, have undermined our whole economic situation and the position of sterling.

The hon. Member for Worcester said that import prices went up in 1964. This is no doubt true, but it does not make any difference to the fact that imports have to be paid for whether the rise is due to an increase in value or an increase in volume. The hon. Member also tried to blame a major part of the rise in imports last year on the rise in stocks, but he ignores the fact that at the end of last year the ratio of stocks to output was rather below the long-term average and there has been a further large rise in stocks this year.

Nevertheless, it may be reasonably argued that since world trade is not rising as fast this year as in 1964 imports without the charge would no doubt have risen by less than £700 million. I give the hon. Member that point. But in 1964 world trade rose by 13 per cent. and United Kingdom imports by 15 per cent. In the first half of this year world trade rose by about 7 per cent. If United Kingdom imports had risen this year at the same rate as world trade we would still have had a rise of about £400 million. In fact the rise has been virtually nil, or about £25 million at the rate at which it is now running.

Mr. Peter Walker

Would the right hon. Gentleman explain how it is that the goods on which there has not been a surcharge have gone up by 3.4 per cent. in the first nine months of this year? If the goods with surcharge had gone up at the same rate as the goods without surcharge, it would have made a difference of £35 million and not £100 million.

Mr. Jay

I assure the hon. Gentleman that I am coming to that.

If we look back a little further at this line of argument, we find that United Kingdom imports in recent years—not only in 1964—have tended to rise approximately as fast as world trade. In 1963 world trade rose 9 per cent. higher and United Kingdom imports 7 per cent. If our imports this year had risen at the average rate of the rise in world trade over the last ten years they would still have risen by £285 million. Therefore, I believe that however it is estimated there is no doubt that the import charge and the Government's other measures of restraint have together prevented a further rise of several hundred million in our imports this year.

I am following the hon. Member's line of argument. How, as between these measures, has this saving of several hundred million £s in imports been achieved, which has contributed so much to our recovery? No doubt, it is not wholly due to the import charge because, despite the rise in world trade, other measures of restraint have been at work. But the figures I shall now give show, to my mind, that a substantial part of it must have been due to the charge.

To test this, let us look closely at the actual record. Imports as a whole, as I have said, would have risen by several hundred million pounds this year, in all probability, if they had risen at the rate of world trade generally. In fact, they have not risen at all. But only about 30 per cent. of our imports are covered by the charge, and since—this, again, the hon. Member for Worcester forgets—industrial production this year has been, on average, 3 per cent. above last year, which is the relevant point, one would have expected a rise in those of our imports which do not bear the charge, including materials and semi-manufactures, and such a rise has, in fact, occurred. But in the case of imports which do bear the charge, the facts are as follows, and this is the answer to the hon. Gentleman.

In 1964, before the charge was imposed, those imports which bear the charge now were rising at about 25 per cent. a year. Since the charge was introduced, they have actually fallen absolutely. The best test here is probably to compare the six months before the charge was introduced, April to September, 1964, with the ten months January to October, 1965, by which time the charge had become effective. Between those two periods goods subject to the charge, which had risen 25 per cent. in the previous year, had risen, incidentally, by about 10 per cent. annually during the previous 10 years, actually fell by 3 per cent. This is an abrupt change of trend which seems to me rather sharper than one might reasonably have expected from a charge which stood at no more than 10 per cent., in the second half of the period.

Mr. Alison

Can the right hon. Gentleman give the figure for machinery, electrical machinery in particular?

Mr. Jay

I am coming to that, too. It will be quicker if I am allowed to get on.

Some of the types of imports bearing the charge have been sharply reduced. Semi-manufactures other than chemicals, for instance, are down by 12 per cent. in the first 10 months of this year although they were previously rising strongly. Imports of paper have been 9 per cent. lower, and textiles, yarns and cloth 17 per cent. lower. Imports of consumer goods, the rapid increase in which has, of course, contributed very much to our difficulties in recent years, were 8 per cent. down in the first ten months of this year. Clothing and footwear imports were down by nearly a quarter, and drink by 13 per cent.

I come now to machinery and capital goods. Imports of capital goods still continued to rise, but that is what one would have expected and, indeed, wished to see, because industrial investment, fortunately, is at a high level.

The fact is, as the figures show, that we have succeeded in selectively limiting the growth of our imports this year. We have held in check those imports in respect of which we could do without a further increase for the moment, and this, I should have thought, is what we all would have wished to see.

From all this, it seems reasonable to infer, although I agree with the right hon. Gentleman that it cannot be absolutely proved, that a major part of the saving of several hundred millions of pounds in imports this year must have been due to the import charge. It can be argued whether it is £150 million, £200 million or even £250 million, but, whichever figure one takes, the saving has plainly made an essential contribution to the cut in the visible trade deficit, which in 1964 was running at £550 million a year.

We have also managed to correct the deficit in a way which has inflicted the least possible harm on other countries. [HON. MEMBERS: "Oh."] The only other alternative we have had suggested in the debate is internal deflation. If we had adopted severe internal deflation, the only alternative, not merely would it have done us great harm but it would have reduced outright our imports from other countries. Consider the instructive case of Italy which adopted the Opposition's alternative.

Italy imposed severe deflation of this kind in 1963–64. As a result, her imports fell by 20 per cent. in one year. Our own exports to Italy were cut in 1964 as a result of her deflation by about 20 per cent. In contrast our imports this year have not fallen at all. They have risen fractionally in our year of readjustment and recovery. During our year of readjustment, United Kingdom imports from Italy in the past 10 months have risen by 7 per cent. I know that there were very understandable fears in the case of the E.F.T.A. countries that the charge might cut down their exports to this country. These fears tended to ignore that when all is said and done, 70 per cent. of our imports were exempt from the charge altogether. In the case of Denmark, which has just been quoted, the figure was 80 per cent. What has happened? All the remarks made today about E.F.T.A. totally ignored the fact that our imports from the rest of the E.F.T.A. countries this year have not fallen at all. They have risen by a further 4 per cent. and are now 82 per cent. higher than in 1960, the year when the Stockholm Treaty was signed.

Sir Harmar Nicholls (Peterborough)

The right hon. Gentleman is making such a strong case for the surcharge, are we to understand that the temporary nature is now to end and it is to become permanent?

Mr. Jay

I am coming to that, but I thank the hon. Gentleman for giving me a rest. I have found, in constant conversation with E.F.T.A. Ministers, that although like all of us, including the Government, they would like to see this charge go, they understand the realities of the situation very much better than some hon. Gentlemen who have spoken from the benches opposite. They do not want to see the United Kingdom economic situation or the strength of sterling undermined, and they have constantly said so. I wish to pay tribute today to their patience and understanding on this matter.

The exemption of all food and raw materials from the charge has also been of the utmost benefit to the Commonwealth, particularly to the less developed countries because so high a proportion of their exports to us are of this nature. There is no doubt that the method we chose for achieving the inevitable restraint of imports has done the least damage possible to the outside world, and much less than by the deflation of 1961 when our imports fell as they have not done this year. It has also enabled us to go ahead with the planning of our long-term recovery. We can reasonably congratulate ourselves that the major improvement in our visible trade balance this year has been wholly achieved by an increased in exports and not by any absolute drop in imports.

The best way to get rid of this charge is to advance the export promotion campaign which British industry, with some help from my Department, has been pursuing this year, better export credits, export rebates, new Government grants, for missions, organisation of fairs, exhibitions and all the rest. If there were more time and I were in order I would pursue that line of order further. I do not think that anyone would deny that industry has responded strongly to the export campaign, to the new services incentives and facilities that have been offered. As a result we have had in the first 10 months of this year a 6½ per cent. increase in value over the same 10 months last year—in a year when world trade was increasing more slowly. The figures are highly instructive. In 1964 when world trade was increasing at 13 per cent. United Kingdom exports rose by 5 per cent. In 1965 with world trade increasing so far by about 7 per cent. United Kingdom exports have risen 6½ per cent.

That is the real measure of the export effort which this country has made this year. Thanks to this and to the restraint exerted by this charge on imports the balance of payments outlook is now immeasurably better. Last week I was able to tell O.E.C.D.—and let us remember that there are other countries of worth in O.E.C.D. besides E.F.T.A. countries, important as E.F.T.A. is—that the United Kingdom's visible trade balance has been halved since a year ago. The deficit on current account altogether, visible and invisible in the first half of this year was less than half of the deficit in the first half of 1964. Indeed, it was only one-third of the deficit in the second half of 1964. Even better—thanks also to the measures taken by my right hon. Friend the Chancellor of the Exchequer to correct the capital items—the overall deficit on current and long-term capital account together fell from £300 million in the first half of 1964 to only £100 million in the first half of 1965. That is why sterling is now strong, confidence is so much greater and the situation has been transformed.

It is even more encouraging that we have achieved this remarkable recovery by restraint of excessive demand but without any creation of unemployment or outright deflation such as has been practised elsewhere, and here also—and do we rot know it—in former crises.

It was striking today that the only positive alternative policy that was put forward was by the hon. Member for Oswestry (Mr. Biffen), who frankly and bluntly called for deflation as a remedy for the situation. Far from doing that, we have contrived simultaneously, by making these restraints selective, to steer an increasing share of new work during this period into the under-employed areas and to concentrate the restrictions on the areas of congestion and overheating. Again, if it were in order, I should have some interesting figures to give to prove that.

However, while we can all be genuinely—and I hope that hon. Members opposite, too, are genuinely—and directly thankful that we have so heavily reduced the payments deficit of a year ago, and clone it without the creation of unemployment, we must, even now, not underrate the stubbornness of the task which is still ahead of us. We are still in deficit even on current account. We are not earning any surplus for the repayment of debt, for aid to poorer countries or for investment overseas which we ought to be able to afford.

We are still relying on this charge, if only at 10 per cent., to restrain our imports. This country, I fully agree, clearly owes an obligation to our friends, our allies and our partners in E.F.T.A. and G.A.T.T. to earn the surplus which will enable us to get rid of the charge as soon as possible.

It should not be assumed—I think that the right hon. Member for Enfield, West recognised this—that because we are tonight taking powers to levy the charge up to the end of November, 1966, we therefore intend to do so at its present level until then. We are determined as a Government to get rid of the charge at the earliest moment that the balance of payments permits.

Nevertheless, although I fully understand the right hon. Gentleman's procedural point that the Opposition tonight can only challenge the charge as such and cannot suggest any amendment or qualification, I must make it clear to the House that if the Order were not approved tonight, we should not have time to complete our present encouraging recovery or take the essential long-term measures to make that recovery complete. This is another compelling reason why we must seek to overcome the remaining deficit in the course of 1966.

To achieve this, we must press on relentlessly, first, with the export promotion campaign, because an increase in exports is far the best way out of the dilemma. Secondly, there is, in our view, no hope of getting rid of this charge quickly unless we stick, with the determination that my right hon. Friend the First Secretary is showing, to our present incomes and prices policy. In the past six months there has been practically no further increase in prices and the cost of living, but if we let prices get out of hand again it would be goodbye to any hope of an early balance of payments surplus and of an end to the import charge as soon as we would wish. Far and away the best way, therefore, to get rid of the charge would be an even steeper rise in exports than we have yet achieved That is why I take more encouragement from the 6½ per cent. increase in exports this year than from anything else.

Indeed, there are some people, I think, both at home and abroad, who underestimate the export achievement of British industry at the present time. The United Kingdom, incidentally, is already exporting 16 per cent. of its gross national output compared with 9 per cent. in the case of Japan and with 4 per cent. in the case of the United States. We are, indeed, now exporting per head of our employed population twice as much as the United States and four times as much as Japan, and naturally, when exports are as high as that, it is harder for us to achieve in the short term as dramatic a percentage increase as some other countries, starting from nearer scratch, can show.

Nevertheless, hard as it is it has got to be done if we are to achieve national solvency, honour our obligations, and get rid of this import charge at the earliest possible moment, but the success we have achieved already in one short year encourages me to believe that as long as the need is understood and the past year's efforts are maintained we shall wipe out the rest of the gap in the year immediately ahead of us

Question put:—

The House divided: Ayes 279, Noes 276.

Division No. 3.]	AYES	[9.57 p.m.
Abse, Leo	Fletcher, Raymond (Ilkeston)	McInnes, James
Albu, Austen	Floud, Bernard	McKay, Mrs. Margaret
Allaun, Frank (Salford, E.)	Foley, Maurice	Mackenzie, Gregor (Rutherglen)
Alldritt, Walter	Foot, Sir Dingle (Ipswich)	Mackie, John (Enfield, E.)
Allen, Scholefield (Crewe)	Foot, Michael (Ebbw Vale)	McLeavy, Frank
Armstrong, Ernest	Fraser, Rt. Hn. Tom (Hamilton)	MacPherson, Malcolm
Atkinson, Norman	Freeson, Reginald	Mahon, Peter (Preston, S.)
Bacon, Miss Alice	Galpern, Sir Myer	Mahon, Simon (Bootle)
Bagier, Gordon A. T.	Garrett, W. E.	Mallalieu, E. L. (Brigg)
Barnett, Joel	Garrow, A.	Mallalieu, J.P.W.(Huddersfield, E.)
Beaney, Alan	Ginsburg, David	Manuel, Archie
Bellenger, Rt. Hn. F. J.	Greenwood, Rt. Hn. Anthony	Mapp, Charles
Bence, Cyril	Gregory, Arnold	Marsh, Richard
Benn, Rt. Hn. Anthony Wedgwood	Grey, Charles	Mason, Roy
Bennett, J. (Glasgow, Bridgeton)	Griffiths, Rt. Hn. James (Llanelly)	Maxwell, Robert
Binns, John	Griffiths, Will (M'chester, Exchange)	Mayhew, Christopher
Bishop, E. S.	Gunter, Rt. Hn. R. J.	Mendelson, J. J.
Blackburn, F.	Hale, Leslie	Mikardo, Ian
Blenkinsop, Arthur	Hamilton, James (Bothwell)	Millan, Bruce
Boardman, H.	Hamilton, William (West Fife)	Miller, Dr. M. S.
Boston, Terence	Hamling, William (Woolwich, W.)	Milne, Edward (Blyth)
Bottomley, Rt. Hn. Arthur	Hannan, William	Molloy, William
Bowden, Rt. Hn. H. W. (Leics S.W.)	Harper, Joseph	Monslow, Walter
Boyden, James	Harrison, Walter (Wakefield)	Morris, Alfred (Wythenshawe)
Braddock, Mrs. E. M.	Hart, Mrs. Judith	Morris, Charles (Openshaw)
Bradley, Tom	Hattersley, Roy	Morris, John (Aberavon)
Bray, Dr. Jeremy	Hazell, Bert	Mulley, Rt. Hn. Frederick(SheffieldPk)
Brown, Rt. Hn. George (Belper)	Healey, Rt. Hn. Denis	Murray, Albert
Brown, Hugh D. (Glasgow, Provan)	Heffer, Eric S.	Neal, Harold
Brown, R. W. (Shoreditch & Fbury)	Herbison, Rt. Hn. Margaret	Newens, Stan
Buchan, Norman (Renfrewshire, W.)	Hobden, Dennis (Brighton, K'town)	Noel-Baker, Rt. Hn. Philip(Derby, S.)
Butler, Herbert (Hackney, C.)	Horner, John	Norwood, Christopher
Butler, Mrs. Joyce (Wood Green)	Houghton, Rt. Hn. Douglas	Oakes, Gordon
Callaghan, Rt. Hn. James	Howarth, Harry (Wellingborough)	Ogden, Eric
Carmichael, Neil	Howie, W.	O'Malley, Brian
Carter-Jones, Lewis	Hoy, James	Oram, Albert E. (E. Ham, S.)
Castle, Rt. Hn. Barbara	Hughes, Cledwyn (Anglesey)	Orbach, Maurice
Chapman, Donald	Hughes, Emrys (S. Ayrshire)	Orme, Stanley
Coleman, Donald	Hughes, Hector (Aberdeen, N.)	Oswald, Thomas
Conlan, Bernard	Hunter, Adam (Dunfermline)	Owen, Will
Corbet, Mrs. Freda	Hunter, A. E. (Feltham)	Padley, Walter
Cousins, Rt. Hn. Frank	Hynd, H. (Accrington)	Page, Derek (King's Lynn)
Craddock, George (Bradford, S.)	Hynd, John (Attercliffe)	Paget, R. T.
Crawshaw, Richard	Irvine, A. J. (Edge Hill)	Palmer, Arthur
Cronin, John	Jackson, Colin	Pannell, Rt. Hn. Charles
Crosland, Rt. Hn. Anthony	Janner, Sir Barnett	Park, Trevor (Derbyshire, S.E.)
Crossman, Rt. Hn. R. H. S.	Jay, Rt. Hn. Douglas	Pavitt, Laurence
Cullen, Mrs. Alice	Jeger, Mrs. Lena(H'b'n & St.P'cras, S.)	Pearson, Arthur (Pontypridd)
Dalyell, Tam	Jenkins, Hugh (Putney)	Peart, Rt. Hn. Fred
Darling, George	Jenkins, Rt. Hn. Roy (Stechford)	Pentland, Norman
Davies, G. Elfed (Rhondda, E.)	Johnson, Carol (Lewisham, S.)	Perry, Ernest G.
Davies, Harold (Leek)	Johnson, James(K'ston-on-Hull, W.)	Popplewell, Ernest
Davies, Ifor (Gower)	Jones, Dan (Burnley)	Prentice, R. E.
Davies, S. O. (Merthyr)	Jones, Rt. Hn. SirElwyn(W. Ham, S.)	Prior, J. T. (Westhoughton)
de Freitas, Sir Geoffrey	Jones, J. Idwal (Wrexham)	Probert, Arthur
Delargy, Hugh	Jones, T. W. (Merioneth)	Pursey, Cmdr. Harry
Dell, Edmund	Kelley, Richard	Randall, Harry
Dempsey, James	Kenyon, Clifford	Rankin, John
Diamond, Rt. Hn. John	Kerr, Mrs. Anne (R'ter & Chatham)	Redhead, Edward
Doig, Peter	Kerr, Dr. David (W'worth, Central)	Rees, Merlyn
Donnelly, Desmond	Lawson, George	Reynolds, G. W.
Driberg, Tom	Leadbitter, Ted	Rhodes, Geoffrey
Duffy, Dr. A. E. P.	Lee, Rt. Hn. Frederick (Newton)	Richard, Ivor
Dunn, James A.	Lee, Miss Jennie (Cannock)	Roberts, Albert (Normanton)
Dunnett, Jack	Lever, Harold (Cheetham)	Roberts, Goronwy (Caernarvon)
Edelman, Maurice	Lever, L. M. (Ardwick)	Robertson, John (Paisley)
English, Michael	Lewis, Arthur (West Ham, N.)	Robinson, Rt. Hn. K.(St. Pancras, N.)
Ennals, David	Lewis, Ron (Carlisle)	Rodgers, William (Stockton)
Ensor, David	Lipton, Marcus	Rose, Paul B.
Evans, Albert (Islington, S. W.)	Lomas, Kenneth	Ross, Rt. Hn. William
Evans, Ioan (Birmingham, Yardley)	Loughlin, Charles	Rowland, Christopher
Fernyhough, E.	Mabon, Dr. J. Dickson	Sheldon, Robert
Finch, Harold (Bedwellty)	McBride, Neil	Shore, Peter (Stepney)
Fitch, Alan (Wigan)	MacColl, James	Short, Rt. Hn. E.(N'c'tle-on-Tyne, C.)
Fletcher, Sir Eric (Islington, E.)	MacDermot, Niall	Short, Mrs. Renée (W'hampton, N.E.)
Fletcher, Ted (Darlington)	McGuire, Michael	Silkin, John (Deptford)
Silkin, S. C. (Camberwell, Dulwich)	Thomas, George (Cardiff, W.)	Whitlock, William
Silverman, Julius (Aston)	Thomas, Iorwerth (Rhondda, W.)	Wigg, Rt. Hn. George
Skeffington, Arthur	Thomson, George (Dundee, E.)	Wilkins, W. A.
Slater, Mrs. Harriet (Stoke, N.)	Thornton, Ernest	Willey, Rt. Hn. Frederick
Slater, Joseph (Sedgefield)	Tinn, James	Williams, Alan (Swansea, W.)
Small, William	Tomney, Frank	Williams, Clifford (Abertillery)
Snow, Julian	Tuck, Raphael	Williams, Mrs. Shirley (Hitchin)
Soskice, Rt. Hn. Sir Frank	Urwin, T. W.	Williams, W. T. (Warrington)
Spriggs, Leslie	Varley, Eric G.	Willis, George (Edinburgh, E.)
Stonehouse, John	Wainwright, Edwin	Wilson, Rt. Hn. Harold (Huyton)
Stones, William	Walden, Brian (All Saints)	Winterbottom, R. E.
Strauss, Rt. Hn. C. R. (Vauxhall)	Walker, Harold (Doncaster)	Woodburn, Rt. Hn. A.
Summerskill, Hn. Dr. Shirley	Warbey, William	Wyatt, Woodrow
Swain, Thomas	Watkins, Tudor	Yates, Victor (Ladywood)
Swingler, Stephen	Weitzman, David	Zilliacus, K.
Symonds, J. B.	Wellbeloved, James
Taverne, Dick	Wells, William (Walsall, N.)	TELLERS FOR THE AYES:
Taylor, Bernard (Mansfield)	White, Mrs. Eirene	Mr. Harry Gourlay and
		Mr. John McCann.
NOES
Agnew, Commander Sir Peter	Currie, G. B. H.	Hobson, Rt. Hn. Sir John
Alison, Michael (Barkston Ash)	Dance, James	Hogg, Rt. Hn. Quintin
Allan, Robert (Paddington, S.)	Davies, Dr. Wyndham (Perry Barr)	Hooson, H. E.
Allason, James (Hemel Hempstead)	d'Avigdor-Goldsmid, Sir Henry	Hopkins, Alan
Amery, Rt. Hn. Julian	Dean, Paul	Hornby, Richard
Anstruther-Gray, Rt. Hn. Sir W.	Deedes, Rt. Hn. W. F.	Hornsby-Smith, Rt. Hn. Dame P.
Astor, John	Digby, Simon Wingfield	Howard, Hn. G. R. (St. Ives)
Atkins, Humphrey	Dodds-Parker, Douglas	Howe, Geoffrey (Bebington)
Awdry, Daniel	Doughty, Charles	Hunt, John (Bromley)
Baker, W. H. K.	Douglas-Home, Rt. Hn. Sir Alec	Hutchison, Michael Clark
Balniel, Lord	Drayson, G. B.	Iremonger, T. L.
Barlow, Sir John	du Cann, Rt. Hn. Edward	Irvine, Bryant Godman (Rye)
Batsford, Brian	Eden, Sir John	Jenkin, Patrick (Woodford)
Beamish, Col. Sir Tufton	Elliot, Capt. Walter (Carshalton)	Johnson Smith, G. (East Grinstead)
Bell, Ronald	Elliott, R. W.(N'c'tle-upon-Tyne, N.)	Jones, Arthur (Northants, S.)
Bennett, Sir Frederic (Torquay)	Emery, Peter	Jopling, Michael
Bennett, Dr. Reginald (Gos. & Fhm)	Errington, Sir Eric	Joseph, Rt. Hn. Sir Keith
Berkeley, Humphry	Eyre, Reginald	Kaberry, Sir Donald
Berry, Hn. Anthony	Farr, John	Kerby, Cant. Henry
Biffen, John	Fell, Anthony	Kerr, Sir Hamilton (Cambridge)
Biggs-Davison, John	Fisher, Nigel	Kershaw, Anthony
Bingham, R. M.	Fletcher-Cooke, Charles (Darwen)	Kilfedder, James A.
Birch, Rt. Hn. Nigel	Forrest, George	Kimball, Marcus
Black, Sir Cyril	Foster, Sir John	King, Evelyn (Dorset, S.)
Blaker, Peter	Fraser, Rt. Hn. Hugh(St'fford&Stone)	Kirk, Peter
Bossom, Hn. Clive	Fraser, Ian (Plymouth, Sutton)	Kitson, Timothy
Box, Donald	Gammans, Lady	Lagden, Godfrey
Boyd-Carpenter, Rt. Hn. J.	Gardner, Edward	Lambton, Viscount
Boyle, Rt. Hn. Sir Edward	Gibson-Watt, David	Lancaster, Col. C. G.
Brewis, John	Giles, Rear-Admiral Morgan	Langford-Holt, Sir John
Brinton, Sir Tatton	Gilmour, Ian (Norfolk, Central)	Legge-Bourke, Sir Harry
Bromley-Davenport, Lt.-Col. Sir Walter	Gilmour Sir John (East Fife)	Lewis, Kenneth (Rutland)
Brown, Sir Edward (Bath)	Glover, Sir Douglas	Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)
Bruce-Gardyne, J.	Glyn, Sir Richard	Lloyd, Ian (P'tsm'th, Langstone)
Bryan, Paul	Godber, Rt. Hn. J. B.	Longbottom, Charles
Buchanan-Smith, Alick	Goodhart, Philip	Longden, Gilbert
Buck, Antony	Gower, Raymond	Loveys, Walter H.
Bullus, Sir Eric	Grant, Anthony	Lubbock, Eric
Burden, F. A.	Grant-Ferris, R.	Lucas, Sir Jocelyn
Butcher, Sir Herbert	Gresham Cooke, R.	McAdden, Sir Stephen
Buxton, Ronald	Grieve, Percy	Mac Arthur, Ian
Campbell, Gordon	Griffiths, Eldon (Bury St. Edmunds)	Mackenzie, Alasdair (Ross & Crom'ty)
Carlisle, Mark	Griffiths, Peter (Smethwick)	Mackie, George Y. (C'ness & S'land)
Carr, Rt. Hn. Robert	Grimond, Rt. Hn. J.	Maclean, Sir Fitzroy
Cary, Sir Robert	Gurden, Harold	Macleod, Rt. Hn. Iain
Channon, H. P. G.	Hall, John (Wycombe)	McMaster, Stanley
Chataway, Christopher	Hall-Davis, A. G. F.	McNair-Wilson, Patrick
Chichester-Clark, R.	Hamilton, Marquess of (Fermanagh)	Maddan, W. F. M.
Clark, Henry (Antrim, N.)	Hamilton, M. (Salisbury)	Maginnis, John E.
Clarke, Brig. Terence (Portsmth, W.)	Harris, Frederic (Croydon, N.W.)	Maitland, Sir John
Cole, Norman	Harris, Reader (Heston)	Maude, Angus
Cooke, Robert	Harrison, Brian (Maldon)	Maudling, Rt. Hn. Reginald
Cooper, A. E.	Harrison, Col. Sir Harwood (Eye)	Mawby, Ray
Corfield, F. V.	Harvey, Sir Arthur Vere (Macclesf'd)	Maxwell-Hyslop, R. J.
Costain, A. P.	Harvey, John (Walthamstow, E.)	Meyer, Sir Anthony
Courtney, Cdr. Anthony	Hastings, Stephen	Mills, Stratton (Belfast, N.)
Craddock, Sir Beresford (Spelthorne)	Hawkins, Paul	Miscampbell, Norman
Crawley, Aidan	Heald, Rt. Hn. Sir Lionel	Mitchell, David
Crosthwaite-Eyre, Col. Sir Oliver	Heath, Rt. Hn. Edward	Monro, Hector
Crowder, F. P.	Hendry, Forbes	More, Jasper
Cunningham, Sir Knox	Higgins, Terence L.	Morgan, W. G.
Cumin, Charles	Hiley, Joseph	Mott-Radclyffe, Sir Charles

Munro-Lucas-Tooth, Sir Hugh	Ridsdale, Julian	Thomas, Sir Leslie (Canterbury)
Murton, Oscar	Roberts, Sir Peter (Heeley)	Thomas, Rt. Hn. Peter (Conway)
Neave, Airey	Robson Brown, Sir William	Thompson, Sir Richard (Croydon, S.)
Nicholls, Sir Harmar	Rodgers, Sir John (Sevenoaks)	Thorneycroft, Rt. Hn. Peter
Nicholson, Sir Godfrey	Roots, William	Thorpe, Jeremy
Noble, Rt. Hn. Michael	Royle, Anthony	Turton, Rt. Hn. R. H.
Nugent, Rt. Hn. Sir Richard	Russell, Sir Ronald	Tweedsmuir, Lady
Onslow, Cranley	St. John-Stevas, Norman	Vaughan-Morgan, Rt. Hn. Sir John
Orr, Capt. L. P. S.	Sandys, Rt. Hn. D.	Walder, David (High Peak)
Orr-Ewing, Sir Ian	Scott-Hopkins, James	Walker, Peter (Worcester)
Osborn, John (Hallam)	Sharples, Richard	Walker-Smith, Rt. Hn. Sir Derek
Page John (Harrow, W.)	Shepherd, William	Wall, Patrick
Page, R. Graham (Crosby)	Smith, Dudley (Br'ntf'd & Chiswick)	Walters, Dennis
Pearson, Sir Frank (Clitheroe)	Smith, John	Weatherill, Bernard
Peel, John	Smyth, Rt. Hn. Brig. Sir John	Webster, David
Percival, Ian	Soames, Rt. Hn. Christopher	Wells, John (Maidstone)
Peyton, John	Spearman, Sir Alexander	Whitelaw, William
Pickthorn, Rt. Hn. Sir Kenneth	Stainton, Keith	Williams, Sir Rolf Dudley (Exeter)
Pike, Miss Mervyn	Stanley, Hn. Richard	Wills, Sir Gerald (Bridgwater)
Pitt, Dame Edith	Steel, David (Roxburgh)	Wilson, Geoffrey (Truro)
Pounder, Rafton	Stodart, Anthony	Wise, A. R.
Powell, Rt. Hn. J. Enoch	Stoddart-Scott, Col. Sir Malcolm	Wolrige-Gordon, Patrick
Price, David (Eastleigh)	Studholme, Sir Henry	Wood, Rt. Hn. Richard
Prior, J. M. L.	Summers, Sir Spencer	Woodhouse, Hn. Christopher
Quennell, Miss J. M.	Talbot, John E.	Woodnutt, Mark
Ramsden, Rt. Hn. James	Taylor, Sir Charles (Eastbourne)	Wylie, N. R.
Rawlinson, Rt. Hn. Sir Peter	Taylor, Edward M. (G'gow, Cathcart)	Yates, William (The Wrekin)
Redmayne, Rt. Hn. Sir Martin	Taylor, Frank (Moss Side)	Younger, Hn. George
Rees-Davies, W. R.	Teeling, Sir William
Renton, Rt. Hn. Sir David	Temple, John M.	TELLERS FOR THE NOES:
Ridley, Hn. Nicholas	Thatcher, Mrs. Margaret	Mr. Martin McLaren and
		Mr. Francis Pym.

Resolved, That the Temporary Charges on Imports (Continuation) Order 1965, a draft of which was laid before this House on 1st November, in the last Session of Parliament, be approved.

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1. BUSINESS OF THE HOUSE 28 words