CUSTOMS (IMPORT DEPOSITS) BILL

HC Deb 28 November 1968 vol 774 cc749-864

Order for Second Reading read.

Mr. Speaker

May I announce that I have selected the Amendment standing in the names of the Leader of the Opposition and his right hon. and hon. Friends: That this House declines to give a Second Reading to a Bill which requires importers to make interest free loans to Her Majesty's Government at a time when the amount of our resources taken by public expenditure is not being reduced. This will not limit the debate in any way.

4.22 p.m.

The Financial Secretary to the Treasury (Mr. Harold Lever)

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

I hope, Mr. Speaker, that it will be for the convenience of the House if we merge the two debates which are due to follow the one after the other, one on the Bill and the other on the Motion for the Order bringing into effect the regulator: That the Surcharge on Revenue Duties Order, 1968 (S.I., 1968, No. 1845). dated 22nd November, 1968. a copy of which was laid before this House on that date, be approved. I think that this arrangement would meet the general convenience of the House, although, of course, separate Divisions could, presumably, be taken on the Bill and on the regulator, and also, since you have selected it, Mr. Speaker, on the Opposition Amendment.

Mr. Speaker

I understand the hon. Gentleman's suggestion to be that we take the Bill and the Order together. If the Opposition have no objection, I am agreeable.

Mr. William Whitelaw (Penrith and The Border) indicated assent.

Mr. Speaker

So be it.

Mr. Lever

The Bill embodies the import deposits scheme announced by my right hon. Friend the Chancellor of the Exchequer on 22nd November. The scheme applies, generally speaking, to imports of all goods other than basic food, feeding stuffs, fuel and raw materials, and certain other categories of goods imported mainly from developing countries. Just over one-third of our total imports are covered by the scheme—that is to say, goods valued at just under £3,000 million.

The effect of the scheme is to compel an importer, before obtaining release of his goods, to provide a deposit in cash of 50 per cent. of the cost of the goods. I will deal briefly with some of the Clauses of the Bill before coming to the general argument upon it.

Clause 1 is the main provision setting out the framework of the scheme with various ancillary technicalities which are needed to ensure that the deposit fits correctly into the existing system of Customs charges upon imported goods.

Clause 2 deals with exemptions and reliefs. We relieve consignments of £50 or less and there is relief for personal effects of travellers entering this country, which, I think, will be welcomed by most people as a convenient exemption.

The two Schedules contain other proposed exemptions and reliefs. Schedule 1 contains a list of goods exempted by reason of their description and Schedule 2 outlines a system of reliefs which will apply to goods of any description if they are imported in the circumstances set out in various paragraphs of the Schedule. Schedule 1 fulfils the Chancellor's undertaking that the deposits will not apply to basic foods, feedingstuffs, fuel or raw materials, or to certain categories of goods that we import mainly from developing countries.

I shall leave the details of the Bill for more consideration as the debate develops and, no doubt, my hon. and learned Friend the Minister of State, who will be replying to the debate, will go into those details if they are matters of concern at this stage to hon. Members.

Hon. Members will bear in mind that there is no possibility of reducing the exemptions by reason of the Ways and Means Order that we discussed the other day. It will, however, be open to hon. Members to table Amendments which would extend exemptions. That, however. I suggest, is a matter more for Committee than for Second Reading.

The Bill is intended to bring a selective pressure on liquidity affecting importers and to produce an immediate if marginal effect upon the total of our imports, at a time when the measures which we have taken are being worked through the economy, that will result in an overall balance of payments surplus. They are temporary in impact and in intention, the idea being to make a sharp immediate assistance to our export-import ratio, to give time for the major strategy, which is to bring our exports and imports into balance—and, indeed, into surplus—to take effect. It in no way derogates from that strategy. It is in no way a substitute for that strategy. It is a measure timed to ensure that imports do not get out of hand and tend to come down while that strategy is working.

It will, of course, be said that people can borrow to cover the deposits that are required and that they may borrow at home and abroad. This was perfectly well taken into account and foreseen by the Government. If people borrow at home, they will be mopping up liquidity which would otherwise be available to finance other consumption or other expenditures. Therefore, the position at home is that we have a credit ceiling which largely impacts upon the banks themselves, although indirectly it may affect the general use of liquidity.

What is lacking is some means of bringing under even broader control other sources of liquidity than the banks. One of the virtues of the scheme is that in so far as the imports remain at a high level, there will be an automatic pressure upon the general extra bank liquidity that will tend to take the heat off other expenditures to make room for the expenditure that is in certain circumstances necessary for imports.

To the extent that it reduces imports, there will be a corresponding reduction in the pressure on the extra bank liquidity resulting from the deposits that will be required. It is not, therefore, a defect of the scheme that it will be possible to finance to some extent at home or abroad, with which I will deal presently, the deposits that are required.

The whole point of the scheme is to have a marginal effect. It is not an embargo on the imports covered by the scheme. It is a scheme intended to apply a selective liquidity pressure, to some extent self-regulating and operating particularly on the non-bank sources of liquidity.

Mr. Peter Emery (Honiton)

Will the hon. Gentleman answer this question? This applies with greatest hardship to the most efficient. The inefficient firm which has spare liquidity and is not using its money to the best advantage as the Government are encouraging it to, will be able to meet these deposits, but the efficient firm without liquidity and using its money to the full will be hardest hit.

Mr. Lever

I do not accept the hon. Member's assumption that there is a direct and inevitable correlation between liquidity of companies or individuals and the efficiency of those companies or individuals. I think that there is often a proposition in the reverse argument and I do not think that much weight need be attached to that.

Sir Cyril Osborne (Louth)

These duties will bite on £3,000 million worth of imports. To help the House to decide, will the hon. Gentleman say roughly how many imports will be excluded by the operation? What is about the size of this operation? How many imports will be cut out?

Mr. Lever

I would imagine something approaching £6,000 million will be excluded—[Interruption.] The hon. Member is asking me, as he so often shrewdly does, to commit myself to charlatan predictions about the unknowable. I am bound to tell the hon. Member that the very interesting reading material with which those replies would have provided him, had I been foolish enough to answer those questions, must be denied to him on this occasion.

I do not know exactly, or even within a wide range, what the effect will be, but I do know that the less effect on reducing imports the more is the effect on reducing extra bank liquidity and the corresponding reduction in other forms of consumption. I am hoping that there will be a significant and marginal effect in terms of imports themselves. I shall be very surprised if there is not such a marginal effect, but the exact amount of it obviously no one can know.

So far as borrowing abroad is concerned, I can tell hon. Members that, of course, some people may borrow abroad in one form or another. This, again, depends to some extent upon the extent to which this facility is used. Although a number of possible sources of finance have been put forward, it is by no means clear that the volume of funds available from overseas for this purpose will in practice be very large.

Exchange control is, of course, required for borrowing from non-sterling sources and it has been directed that applications for borrowing from non-sterling sources to finance import deposits mist be submitted to the Bank of England. This will enable us not only to ensure that each application is considered on its merits, but also to know how much business of this kind is done. To the extent that borrowing from abroad does occur, there will be a marginal advantage to the reserves, which is not a bad thing, but to some extent the cash payment which is very normally made in the present circumstances and the withholding of credit which tends to occur, not because of the unreliability of the customer but because of the currency uncertainties of this period—which is not a bad thing—means that some marginal corrective of that tendency is also one of the likely consequences of this scheme.

Mr. Edward Heath (Bexley)

As far as borrowing abroad is concerned, presumably if a supplier overseas is prepared to grant a British importer a 50 per cent. credit for six months, that automatically does not need reference to the Bank of England. or anything like that?

Mr. Lever

That is entirely right, and to the extent to which they are prepared to do so over and above existing facilities two things will happen. One is that the scheme will not bite on that particular import and reserves will benefit correspondingly—[HON. MEMBERS: "Temporarily."] Yes, the whole scheme is intended to have a temporary effect and to cover the period until the strategy which has been so clearly and often outlined to the House enables us to come into surplus. That strategy is working. That strategy has reduced the visible deficit between May and the last figures in October—taking a three-monthly average as the Chancellor pointed out—from £88 million to £42 million.

If we take invisible exports from it, we have a more startling improvement. If we take £30 million a month for invisible exports, there was a reduction between May and October from £58 million actual deficit on current account to a mere £12 million deficit on current account. That is done by taking three-month averages rather than looking at the one-monthly oscillating figures. So it is working. What we are sure of is that something with an immediate bite will make a marginal improvement in the inflow of imports which will be useful at this stage.

I want to say a word about the E.F.T.A. and G.A.T.T. situation. I am entirely wedded to the belief that the move to free world trade from restrictions initiated in the G.A.T.T., E.F.T.A. and other efforts we have been making, such as the Kennedy Round, is vital for the prosperity of the world, and to no country is it more vital than our own which is so dependent upon world trade. I should like to take the opportunity of refuting, from whichever side these arguments have come, the notion that there is something unholy in imports and that other people's exports are bad, whereas our exports to other countries are wholesome, desirable, delightful and to be admired in every way. That one-sided attitude leads straight to restrictionism which would threaten the long-term future of world prosperity and threaten more vitally our own country than any other of the major trading countries.

We have not, by bringing in this scheme, in the slightest degree moved away from our adherence to the principle of liberalising world trade and to our treaty obligations under the G.A.T.T. and E.F.T.A. It has been asked: is this scheme legal under E.F.T.A.? I think that there is some confusion of thought on this. Whether or not this scheme is legal under E.F.T.A. is a matter for the E.F.T.A. Ministers to decide. That has not yet been fully considered by them. I should not have thought it appropriate to have discussion in this House on this matter when the tribunal appropriate to decide it has not yet pronounced upon it.

Mr. John Pardoe (Cornwall, North)

If we pass the Bill today and in Committee and then, a week or two later, E.F.T.A. decides that it is against the E.F.T.A. agreement, what happens to all our decisions?

Mr. Lever

I suggest that we cross that bridge if and when we come to it. At the moment, as the House has heard, the President of the Board of Trade has informed the E.F.T.A. Ministers and they have so far received this proposal with a great deal of sympathy and understanding, so I do not have the apprehensions which the hon. Member has entertained. On the other hand, I do not want to let any words fall which appear to prejudge the completely free discussion and decision of this matter by the E.F.T.A. Ministers themselves.

Sir Gerald Nabarro (Worcestershire, South)

Will not the hon. Gentleman admit the fact that on the day that this unique scheme was announced at least one responsible E.F.T.A. Minister referred to it as a second breach of faith on the part of the United Kingdom Government the first being the import surcharge scheme of 1964? "Second breach of faith". Are not those very strong words?

Mr. Lever

Strong as they may be, they have not yet reached my ears. I am aware that the hon. Member has said this and that he believes, as is rather unusual, that there is some authority to corroborate his view, but the point is that I have not heard this and I would want proof of it before I could make a useful comment on it.

I now turn to the Opposition Amendment, which reads: That this House declines to give a Second Reading to a Bill which requires importers to make interest free loans to Her Majesty's Government at a time when the amount of our resources taken by public expenditure is not being reduced. I pause when I read that Amendment to reflect that not one single penny piece will be added to or taken away from public expenditure by reason of these import deposits. I assume that anyone in the House who is not financially and economically illiterate will know that that is a cold statement of fact. One must ask why the Opposition think fit to drag in by the hair, as it were, public expenditure. It has nothing whatever to do with the Bill, which happens to be, rightly or wrongly, a Measure intended to help to bring our balance of payments into balance in the short term while the long-term strategy is working.

Why is the House troubled with this irrelevance? We all know that many right hon. and hon. Members opposite have urged that this scheme be considered. They have urged it in the newspapers and on television. When the Ways and Means Resolution came before the House, there were hon. Members opposite who wanted the scheme extended and there were those who wanted it reduced.

I can see the difficulties of the party opposite in this schizophrenic mood. We have the commitment of their leaders, through every channel of communication. They have incited newspapers to demand such a scheme, and they have hon. Members on their side who like it so much that they want more of it. They have others, like the hon. Member for Oswestry (Mr. Biffen) and the hon. Member for Worcestershire, South (Sir G. Nabarro), who are doughty champions of the cause of no restriction of any kind such as the Bill proposes. How to reconcile the tangled threads of contrary opinion in the Conservative Party? The answer was clearly to drag in public expenditure. Whatever other differences hon. Members opposite have, when it comes to civilised public expenditure and vague and generalised attacks on it, there is a uniting point for the Conservative Party.

Sir G. Nabarro rose——

Mr. Peter Blaker (Blackpool, South) rose——

Mr. R. Gresham Cooke (Twickenham)

Does the hon. Gentleman agree that we are discussing the Purchase Tax measure at the same time? The Government are to take £250 million, and we know that when the Supplementary Estimates are introduced, in two months' time, the £250 million will be used for public expenditure.

Mr. Lever

With my characteristic indiscretion, I shall tell the hon. Gentleman that I advised my right hon. Friend the Government Chief Whip not to take the two together, because of the transparent manoeuvre that would be involved. I said that the idiocy of the Amendment could be glossed over by what would be relevant, the regulator, only if the two measures were taken together. I advised against taking them together so that the Amendment could stand up. stark and naked in its idiocy, to be examined by the House.

Unhappily, the Chief Whip, who is more concerned with seeing public business proceed, agreed to allow the Opposion a fig leaf. I cannot repudiate what my right hon. Friend has done, and 1 concede that some sort of tattered fig leaf is available to the Opposition by reason of the regulator. But I was dealing with the Amendment to the Bill, and had not even begun to talk about the regulator——

Mr. Blaker rose——

Sir G. Nabarro

Will the hon. Gentleman——

Mr. Deputy Speaker (Mr. Harry Gourlay)

Order. I understood that the hen. Gentleman was giving way to the hon. Member for Blackpool, South (Mr. Blaker)

Sir G. Nabarro

I cannot see behind me.

Mt. Blaker

If the Financial Secretary has not noticed all reports in the newspapers, has he at least noticed that General de Gaulle seems to think that public expenditure and its level have something to do with his troubles?

Mr. Lever

For those who want the General as an example in all domestic and international matters, that remark will have considerable weight. But we shall not carry the debate very far by extending it along those lines.

We have this extraordinary Amendment before us——

Mr. Heath

Is it not characteristic of the hon. Gentleman's economic idiocy that he believes, and is now arguing, that imports and exports can be treated quite separately from any other aspects of the economy, including indirect taxation, Purchase Tax and Government expenditure? That stands out as being ridicule us.

Mr. Lever

I follow the argument. It is a remarkably thin one. What I want from the party opposite is a pronouncement on whether, in the actual circumstances of our country—not the blithe, happy circumstances which we are led to suppose we should have enjoyed under a Conservative Administration, they find this a useful, serious and desirable Measure. It is precisely this question that they find themselves very reluctant to answer, because of their leaders are committed to approving it and have suggested it. Many of their supporters would like to extend it. On the other hand, quite a number of their party would like to oppose it. But all their party are united in wanting, if possible. the drag in public expenditure as the excuse for not passing the Measure.

Mr. Maurice Macmillan (Farnham)

The Financial Secretary said that the only point of the Measure was to allow the long-term strategy to work. Is he implying that the reduction of public expenditure is not part of his long-term strategy?

Mr. Lever

I cannot see the relevance of that question. The Bill will deal with the 12 months ahead of us. The public expenditure of the 12 months ahead of us is fixed now, and will not be changed in any circumstances. It could not be changed conveniently and substantially. Therefore, we are dealing with the immediate months ahead. It is dishonest to pretend that the import problems of the months ahead can be dealt with by some extraordinary acrobatics on public expenditure, the kind of absurd extemporisation of the Leader of the Opposition to which we were treated the other day.

Mr. F. A. Burden (Gillingham)

We appreciate that Government expenditure has already been set for a year ahead. But that also applies to the imports of many of those who will suffer as a result of the Measure, and they are contractually bound.

Mr. Lever

A brute implacability from which the Opposition cannot escape is that this is a Measure to deal with imports as they are now and in the months ahead. Any sensible, rational public expenditure Measure, up or down, will be dealing with a period of at least 12 months ahead. Therefore, the total irrelevance of the Opposition argument, except for the reasons I have given, is obvious to the House.

The Conservative leaders and many of their back-bench followers have argued in support of this sort of proposal. But when we introduce it they are not prepared to support it or to deal honestly with its merits. They remind me of a very old story of the time of the food shortages after the war. There were 1,000 cases of tinned salmon being passed from hand to hand among the merchants, starting at £1 a case and moving up to £5, with satisfactory profits in between, until a West End restaurateur bought a consignment. He rang up his supplier and said, "Every single case of salmon is bad." "What?" said the shocked merchant. "You opened them? They were not for eating. They were for buying and selling."

It is the same with the Conservative Party's proposals when they are in opposition. They are not for eating, they are for political horse trading, for buying and selling. When they are opened, the best thing hon. Members opposite can say is, "What we have been offering is stinking fish." They say that it is not for them to warn the buyer, but for the buyer to use his nose.

This proposal seems to me to be one of the few put forward by the Opposition to have some reason of merit behind it.

Mr. Joseph Hiley (Pudsey)

Will the hon. Gentleman give way?

Mr. Lever

No. I must make progress, because I have to come to interesting aspects of the debate.

I invite my hon. Friends to reject the Amendment on the simple ground that it is an irrelevant attempt to harness disparate grievances. The Opposition want to fan the indignation of those who will be inconvenienced by the Measure and whose money will lie with the Government, interest-free, for six months. But that is essential for the scheme. I say to those importers that I deeply regret that the necessities of our situation temporarily require us to place some such impediment in the way of their free dealing. I hope that it will not be long before that impediment is removed. It does not do a great public service to fan the flames of ill-feeling that must result from any form of restricting imports, whichever we take. We have taken the lightest possible measure.

As the right hon. Member for Barnet (Mr. Maudling) has explicitly said, of all the import restriction measures, this is the lightest, the one least likely to provoke retaliation, and the one that can be most readily brought to an end. It is one which fits in most with the specific need we have for a temporary intervention by the Government in this situation of over-liquidity, which it is undoubtedly necessary to reduce in the centres outside the banks while, at the same time, offering the possibility of reductions in the import bill.

Mr. Hector Monro (Dumfries)

The hon. Gentleman is treating this matter lightheartedly, yet it will affect small businesses very seriously. What happens to the small businessman who has a large amount of machinery coming from abroad and to whom the bank will not provide an overdraft for the import deposits?

Mr. Lever

I assure the hon. Gentleman that I do take the matter most seriously. My lightheartedness only arose when I turned to the Amendment. The hon. Gentleman cannot expect that to be treated with seriousness. Of course, there are grave issues, as I have said. I have every sympathy with those importers who are affected, but we must do something in the overall national need to make a marginal restraint upon our liquidity.

But the hon. Gentleman will find that there will be no one who cannot find the money. We live in a country with the most developed financial mechanism in the world. The man does not pay his deposit in a form which means that it is lost for ever or postponed for an indefinite period. He has a gilt-edged security with a six months' date on it. The most that will happen here, and what is intended to happen, is that a man who really must have the import will go to the inconvenience and modest expense required to obtain finance.

There will be a marginal advantage, however, in that unnecessary imports and the tendency to over-buy or advance buy will be mitigated or moderated, since such importers will also have to go through the procedures to obtain the necessary finance. Thus, the hon. Gentleman's fears are, by the nature of the scheme, not justified.

I turn now to the regulator. It is a device which, in present circumstances, will increase revenue by about £250 million in a full year. I want to say why I believe it to be justified. The resources of our country have to be disposed broadly in three ways. We can have domestic private consumption; we can have domestic public consumption; and we can have the seed corn investment necessary to ensure future productivity—that is, capital investment.

The public investment for this year has been settled. What remains is the competing claims of capital investment and private consumption. Private consumption, in the nature of things, is only regulatable by some such method. The Conservative Government acknowledged that. They did not bring in the regulator as a means of getting money when they suddenly went short of cash. They did not treat it as a method by which they could lay their hands on cash. They wanted the power to bring in tax changes between Budgets in order to have an economic effect; and I make no apology for using the regulator for its only sensible purpose, which is economic to regulate private consumption.

Public expenditure over the year ahead is now fixed. The question now remains whether we are to allow private consumption to pre-empt the resources required for capital investment. If we do, shall have two effects. One will prejudice our future because our capital investment will not be adequate, and the second will be a tendency also to bring in excessive imports and disturb our prospects of a balance of payments surplus.

There is no escaping these elementary facts. One cannot try to escape, as the Opposition try to do, by saying, "You need not cut private consumption because, in a generalised and always unspecified way, you can cut public consumption." I notice, however, that the Leader of the Opposition did elaborate a remarkable and bizarre scheme for dealing with agricultural support in a hurry.

What the Opposition are saying is that we can avoid the self-discipline involved in curbing private domestic consumption without prejudice to our capital investment if only we will make some unspecified cuts in public expenditure. Some of my hon. Friends, too, have the feeling that we can avoid the always disagreeable necessity of curbing private consumption. But they, I am glad to say, do not carry this to the point of wanting to cut desirable public expenditure, and if they did they would at least specify, I am sure, which items they were thinking of.

But I must tell my hon. Friends, as well as the Opposition, that there is no avoiding the self-discipline. If one wills a particular level of public expenditure, one must accept that, in a particular period, private consumption must not run at a level which prejudices capital investment, for otherwise one merely runs into balance of payments deficits.

Mr. Michael Foot (Ebbw Vale)

I am glad that my hon. Friend admits that we on this side specify what we want to cut. We specified, for example, a cut in the burden of the British Army of the Rhine and got a pledge from the Government that a cut would take place. It has not taken place and the Germans are exploiting the situation. We will continue to specify these matters in trying to persuade the Government to follow up their pledges in the matter.

Mr. Lever

I will not try to turn this into a defence debate, but I cannot accept the detailed accuracy of what my hon. Friend has said, although I do accept his general purport. We are taking steps to tailor defence expenditure to our resources, and my hon. Friend and the Government know that that cannot be effective for a considerable period. We are dealing now with the immediate present and the next 12 months. The regulator is for a period of only months. This is what we all have to face. There is no escaping the self-discipline. Unless one wants to prejudice the balance of payments, one must accept it.

Since I have stated this view on the level of public expenditure, I do not want anyone to suppose that, because I am relying on the fact that public expenditure has now been determined for this year and cannot be changed, I regret this level. It would be shameful if, in a country such as ours, with our antiquated hospitals, inadequate schools and inadequate research institutions, and with the need to enlarge educational opportunity, improve health standards and all the host of things done in our social services, we did not prefer to do these things to the miscellany of non-essentials which will be affected by the Bill.

I make it plain that I do not apologise for this view of public expenditure. But, in addition to the social services expenditure, many other aspects of public expenditure are vital for the satisfactory infrastructure of industry—roads, Government activity in helping exports, and the like. The attitude of the Opposition towards this matter seems to me a great sadness, because I do not really think that compassion or good sense in relation to the country's infrastructure are the monopoly of one party.

Mr. James Dickens (Lewisham, West)

Those of us on this side who are critical want to see the national productive resources mobilised to the fullest extent to protect the country against short-term balance of payments crises by going for rapid economic expansion and full employment.

Mr. Lever

These are all generalisations. I am concerned with their accomplishment. What is immediately necessary for their accomplishment is that excessive domestic consumption must be, to a mild extent, moderated so as to allow precisely the development of production in vital areas of exports and the capital investment that are necessary.

There will be no help from selling portfolios, or substituting in terms of offsetting capital investment abroad, or any of those matters. None of these fantasies can lead us away from the essential need to apply self-discipline. I can only say to my hon. Friends, as they know in the friendliest manner, that it may be true that he who pays the piper calls the tune, but he who calls the tune should be ready to pay the piper. I like the tune which was called, as I have said, with unavowed firmness, but I do not altogether welcome the fact that there is sometimes a reluctance to pay the piper and a tendency to retreat into fantasies of alternative and painless solutions, whereas what is required is the self-discipline which is embodied in the regulator.

Mr. John Mendelson (Penistone)

My hon. Friend will be aware that it is not only some of his hon. Friends who are now putting forward these proposals, but the T.U.C., which has just decided on a statement, with whom his senior colleagues will have to deal in the next fortnight. When he tells us, as other members of the Government have told us, that the expeniture on B.A.O.R. could not have an immediate effect, that is the same intellectual sleight of hand which we have had before. We demanded a reduction two or three years ago, and if the Government had followed that policy then it would be bearing fruit today.

Mr. Lever

That may be an entirely legitimate criticism of the past, but, alas, I am standing in the present and I have to produce success for our country and the economy by maintaining our public expenditure, which I applaud and defend, by protecting the future of our people by capital investment and by honourably paying our way in the world. That is what I am concerned with now.

The Government may or may not have adequately reacted to the satisfaction of my hon. Friends in time, but the fact is that they have reacted and, to the extent that they have reacted, assistance will accrue and beyond that, certainly within the limited period ahead, which is what the regulator deals with, it will not accrue.

I am content to appeal to the people in their more reflective mood, in their more compassionate mood, in their more understanding mood. I can regret it if the Conservative Party seeks to harness the unthinking of the malcontent, or those who cannot see through this problem facing the people. [HON. MEMBERS: "There are a lot of them."] I said that hon. Members opposite may get their support in their unreflective mood and may win many Gallup polls, but it remains to be seen whether they will win an election when people will be in their reflective mood.

Sir C. Osborne

Have an election!

Mr. Lever

I cannot deal with indefensible interjections which invite Governments to submit themselves to an election at any moment of time convenient to the Opposition. Not even the hon. Gentleman, with all his influence and cogency, can change the quinquennial act by the stroke of an intervention from the back benches. Our political and constitutional system is well established and well understood by our people.

We are quite content to stand by what we have done in public expenditure, but we cannot stand by it unless we are equally prepared to take harsh and unpopular measures if necessary, although this is not especially harsh, to ensure that private consumption is adequately sacrificed to allow both public expenditure and capital investment to play their part in achieving first a balance of payments surplus and, secondly, a satisfactory and permanent prosperity for the people.

5.4 p.m.

Sir Keith Joseph (Leeds, North-East)

I beg to move, to leave out from "That" to the end of the Question and to add instead thereof this House declines to give a Second Reading to a Bill which requires importers to make interest free loans to Her Majesty's Government at a time when the amount of our resources taken by public expenditure is not being reduced. Although this afternoon I shall be criticising Government policies and some mistakes for which the Chancellor of the Exchequer must now be bitterly blaming himself—-[HON. MEMBERS: "Where is he?"]—he was here for a long time and I do not think that he can be criticised for discourtesy—I am not for a moment suggesting that any Chancellor of the Exchequer of this country has an easy job.

It is now common ground to both sides of the House that devaluation was a defeat for the country, but, being a defeat, it also gave the Government an opportunity to make a fresh start. There was a psychological moment when much could have been done and the theme which we embody in our Amendment and which many of us will enlarge in our speeches is that the Government have missed an opportunity to cut public expenditure and cut it effectively.

It is said that public expenditure cannot be efficiently cut quickly, and that we know. We know that if an efficient cut is to be made it takes two or three years to be brought into effect. But the Government do not hesitate in an emergency to impose brutal and sudden cuts on private enterprise, as they may well do through the Bill. Why must businesses in the normal commerce of the market be forced, as many are, quickly to cut their costs if they are to remain in operation and Governments and Government activities be exempt?

Surely it is common ground—and the Financial Secretary and his colleagues must acknowledge this—that one of the main components of the problems facing the country is that both parties have allowed many people who could afford to pay reasonable charges for basic necessities to be subsidised The Government's own policy in allowing rents to rise, although perhaps in some cases not as much as would have been sensible. recognises this basic truth. Because we have over-subsidised people who do not need subsidies, we are stifling by heavy taxes the initiative of many who could create wealth at all levels of income.

The Financial Secretary asked us to recognise reality, but in our turn we ask him to recognise verbally what the Government bit by bit and laboriously have come to recognise, but only inadequately, in their own policies. Is it impossible to cut public expenditure? Are we to be told that by a Government which, perhaps painfully, have cut £1,000 million of public expenditure in the last three years? It is true that the same Government has added back £1,100 million, but that is not the point. They gave way to pressures to increase public expenditure, but they have cut it and shown that it can be done. We therefore reject entirely the argument that it is not possible to cut public expenditure.

Mr. John Fraser (Norwood)

This is a very important matter. Is the right hon. Gentleman saying that it is an instrument of Conservative economic policy that some of the country's economic difficulties will be cured by increasing rents?

Sir K. Joseph

We have said time and again that we think that many people in this country need more help than they are getting and that many people need less help than they are getting. If the Government do not recognise this basic psychological fact, they will continue to stifle enterprise and growth.

Mr. Roy Roebuck (Harrow, East)

That may well be so, but will the right hon. Gentleman move from psychology to economics? As I understand it, he is saying that some people in need of help are not getting it and that some who do not need it are getting too much, so his party proposes to transfer one to the other. Will he explain how that will cut public expenditure?

Sir K. Joseph

It will cut taxation and the need to levy taxation at the margin of earnings which is the crucial point if people are to work better.

My second point about public expenditure is the excuse of the Chief Secretary and of the Chancellor of the Exchequer that all is well because we are "on target". In the words of a highly respected financial journalist, may I "take Mr. Diamond gently by the hand" and remind him that the target of which he is so proud is a target of public expenditure which was proclaimed at the time of the National Plan, a target which may have made sense in the context of a 25 per cent. expected growth in the gross national product over the years 1964 to 1970, but which makes utter nonsense in the present stagnant economy which the Government have created. Surely the Government must recognise that if they allow public expenditure to rise at the originally planned rate of 4¼ per cent. a year at a time when the gross national product is rising on average 2 per cent. a year, then the growth of public expenditure eats into the balance of payments, private investment and consumption. That is why we are blaming them so severely in our Amendment.

Does the Financial Secretary, in his ingenious or, may I say, disingenuous defence of public expenditure, not recognise that public expenditure is just as productive of imports and consumption as any other sort of expenditure? Why should public expenditure not make its contribution to the balance of payments? It does not do so at the moment under the Government's proposals, and that is why we condemn them in this Amendment.

Mr. Austen Alban (Edmonton)

Is not a good deal of public expenditure in support of industry in the form of relief of taxation? Is not the true increase of public expenditure very much lower than the right hon. Gentleman mentioned, in fact about 1 per cent. a year?

Sir K. Joseph

I did not take the entire point. [Interruption.] I just did not hear. I see no difference, when it comes to public expenditure, whether it is relief of tax by way of investment allowance, the payment out of money by investment grants or R.E.P., for instance, which is being poured out of the taxpayers' pockets to firms of substance, like Fords and Vauxhall on Merseyside, who certainly do not need help from the taxpayer.

Mr. Joel Barnett (Heywood and Roy-ton)

Is the right hon. Gentleman really arguing that, economically, which is presumably what he is talking about, there is a considerable difference in economic terms between the old investment allowance and the investment grants?

Sir K. Joseph

Yes, I would say that the investment allowance was infinitely more sensible, since it backed a viable enterprise. Surely the Government benches will recognise that the growth of public expenditure is at twice the rate of the growth of the national economy. That is why we criticise them. They have cut public expenditure—admittedly they have reimposed all that they cut—but they could do it again. They failed to do it adequately and the Bill and the regulator are the results.

Are the Government achieving the purposes of devaluation? Are they getting within sight of a surplus? The National Institute report today gives the impression that if nothing had been done last Friday there would have been no surplus in 1969, or its calculations. Admittedly its calculations have fluctuated wildly, but now it says that last Friday's proposals will make all the difference and put the country into surplus next year.

I would only ask my hon. Friends to beware of the pseudo-scientific jargon of the three-monthly moving average which the Chancellor has used. Unless the November deficit or surplus is better than the August deficit on visible trade of £28 million, the next three-monthly moving average will not show us as improving, as the Chancellor proclaimed, but as deteriorating. The country's position, alas, has not responded as quickly or as sharply to devaluation as we wished. Foreign exchange earnings from exports are only just back to where we were before devaluation, and imports have soared in volume and thus in the cost of foreign exchange.

What is our attitude to this package of the Bill and the regulator? First, we say none of this punishment is deserved by the British people but that it is the fault of the Government. Secondly, we say, and this may seem a blinding glimpse of the obvious, that we are not the Government and if we were, with all our faults, the country would not be in the trans into which this Government have landed us. We are against these measures. Above all we are against the general philosophy and approach of the Government. These measures treat the symptoms and not the disease.

What is the disease? The disease is wild spending, balanced by wild taxation, much of it violently regressive. The disease is nationalisation, interference, bureaucracy, a fetish for giant firms and indifference to competition. Under this Government, prices policy undermines wages policy, nationalised industry finance undermines the Budget, and the confidence factor undermines everything. I venture to suggest to my hon. and right hon. Friends that within the present strategy there may be no individual change that this Government can produce which will rescue the country. The only solution is to adopt a different approach, to encourage efficiency and enterprise by tax reform, by competition, by trade union law reform, by shrinking the public sector and by better control of public expenditure.

Because, if all this were being done, while the measures were working, there might be a case for some restraint on importers' credit, I ask my hon. Friends to support the reasoned Amendment on the Customs (Import Deposits) Bill while voting solidly against the Government's general policies resulting in the use of the regulator.

I come now to the regulator. The Government have been forced to use this because they have not cut public expenditure effectively and sufficiently. They have been forced to use it because they have not increased savings. The Financial Secretary has given me my first point. In his attack on the reasoned Amendment, he conceded that public expenditure was highly relevant to the use of the regulator. But I wish to join issue with the argument employed on public expenditure by the Chief Secretary and the Financial Secretary. They argued that it was sacrosanct because it served individuals such as pensioners. That was the peroration of the Chief Secretary on Monday evening.

Of course pensioners have had increases, and we welcome that, but who pays for them? Our argument is that the pensioners themselves are paying for part of those increases, through indirect taxes. The stagnation brought about by the Government has done more harm to the low wage earners and their families than to anyone else, because the low wage earners, indeed all wage earners, have had to meet—the word "regressive" was always used by lion. Gentlemen on this—higher indirect taxes, higher National Insurance contributions, the effect of S.E.T. and now this regulator. We cannot be told that public sector expenditure is sacrosanct because it is effectively compassionate. It ignores, it has allowed many of the people, particularly low wage earners, to suffer badly——

Mr. John Mendelson (Penistone) rose——

Sir K. Joseph

I have given way a great deal.

Mr. Deputy Speaker (Mr. Harry Gourlay)

Order. If the right hon. Gentleman does not give way the hon. Gentleman must resume his seat.

Sir K. Joseph

Savings——

Mr. Mendelson rose——

Hon. Members

Sit down.

Mr. Mendelson

The right hon. Gentleman is afraid.

Sir K. Joseph

I am not afraid of the hon. Gentleman.

Mr. Deputy Speaker

Order. I have already asked the hon. Gentleman to resume his seat.

Sir K. Joseph

The Government have failed to foster savings. Does the House recognise that savings were 8.4 per cent. of personal disposal incomes in 1964 but have fallen now to just over 7 per cent. in the latest quarter, a drop of over £200 million a year, equivalent, or very nearly so, to the yield from the regulator? If the Government had acted on savings earlier, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has urged time and again, that would have been another way of avoiding the use of this regulator.

I hope that when the Minister of State comes to reply he will assure us that there is to be no double talk about prices in connection with the use of the regulator. I hope that the Secretary of State for Employment and Productivity will accept that the purpose of the Chancellor of the Exchequer in imposing the regulator is to increase prices and that no firm will be criticised if it does that.

I come to the Bill. As my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) said during business questions, it has been in the hands of hon. Members for under 48 hours, and I hope that the Chair will accept that starred Amendments will be necessary if we are to represent our constituents in Committee.

I was going to argue that this is a straightforward protectionist Bill which will hurt the small businessman savagely. But after hearing the Financial Secretary say that the credit system is so perfect that no small businessman need be without the deposit, I accept that, in the Government's view, the Bill will have an absolutely marginal effect on imports. That is what the Financial Secretary suggested. He nods his head. The Government have allowed the newspapers—and, of course, they do not control the newspapers—to present the case for this Bill as if it is the turning point in the balance of payments campaign, as if it will solve all the balance of payments problems. But I am glad that the Financial Secretary recognises that its main purpose evidently is selective liquidity pressure on importers with, it is expected by the Government, only a marginal impact on imports.

It is important that I should distinguish between this Bill and the Italian scheme, which has no forced loan to the Government in it. All that the Italians did was to say that importers should pay their suppliers within 30 or 90 days of receiving the goods. There is no question of a forced loan interest free to the Government. When my right hon. Friends the Members for Barnet (Mr. Maudling) and Enfield, West commended some form of discouragement of credit for importers, and no more, for the Government's consideration, clearly they had in mind the Italian scheme. The Government, perfectly within their rights, then pointed out in another place that the Italian scheme would make the current balance of payments position marginally worse by accelerating payments across the monetary borders. That was an answer to my right hon. Friends. Now the Government bring in a completely different scheme and therefore cannot rest themselves on the commendation of the quite different scheme used in Italy.

What is the purpose of this Bill? Small businessmen will find it very difficult indeed to raise the credit which they need to pay the deposits. Small businessmen are sophisticated in many things but not necessarily in the network of finance. The Bill may bring many small businessmen to bankruptcy. The Financial Secretary says that all this is in aid of a marginal benefit to the balance of payments. Are we to believe that the Government will brutally extinguish a large number of small businesses for virtually no benefit to the balance of payments?

Mr. Harold Lever

The right hon. Gentleman should not quote me partially. I said that it will have a marginal effect, but equally I repudiated the possibility of its bringing many businesses, small, medium or large, to bankruptcy. That is why the consequences will be marginal.

Sir K. Joseph

One thing which is pretty certain is that the sophisticated large and medium businesses will be able to raise the money either from their suppliers or from the credit network of this country. The people who will be in grave danger are the small businessmen who contribute least to the imports bill. The hon. Gentleman is trying to have it both ways.

Mr. Hiley rose——

Sir K. Joseph

I have refused to give way to hon. Members opposite. I hate disappointing my hon. Friend, but I stood firm in face of the battering ram from Penistone.

If the purpose of the Bill is to discourage imports, as the Government clearly intend, it is a tragedy for this country to be reducing competition. It is a tragedy for this country, of all countries, to be contributing to a cut in world trade.

I cannot accept that the Bill has any part in the strategy which the Financial Secretary declared. The strategy of devaluation is to make exports marginally more profitable than the home trade, but inasmuch as this protection makes the home trade marginally more profitable for some businesses, it cuts sheer across the devaluation strategy. We therefore feel obliged to oppose it.

A few industries, such as the textile, paper and domestic appliance industries, have, for their own understandable reasons, given the Bill a qualified welcome. But in general there has been a chorus of dismay from large and small firms. The telegrams, letters and telephone calls are pouring in to hon. Members and we shall have to try to ventilate them in Committee.

Will the Bill achieve its object? We see in the newspapers stories of suppliers' credit being extended. We read about Ireland officially making £25 million available though its banks. We read of Hong Kong doing the same. The ingenuity and energy of businessmen, which should be devoted to the pursuit of the service of the public for profit, is to be diverted and distracted to the sterile pursuit of credit for deposits—all, says the Financial Secretary, for a marginal benefit to the balance of payments. Therefore, it will be primarily a restriction on credit.

But is it sensible for this country to indulge in temporary artificial relief? If the Bill defers marginally some imports because of the difficulty of finding deposits, if it defers imports till the Bill, we hope, is dropped, the benefit to the balance of payments will be like the artificial short-lived benefit given by cosmetics. This is a cosmetic Bill at best. It does not touch the real problem. The Financial Secretary said time and again that it is temporary and modest. The general result of the Bill may well be that any marginal benefit will have to come to an end just at a time when world trade is turning down, when imports are ready to flood in and when our exports may be doing less well because of world trade.

The general thesis of the Opposition on the Bill is that import deposits may be simultaneously damaging to the national interest and ineffective—damaging to the national interest because the big and medium firms, faced with the need to find deposits in a credit squeeze, will almost certainly raid funds which they have earmarked for investment; damaging to the public interest because it will featherbed home producers and bankrupt small businessmen through no fault of their own; damaging to the national interest because it will inflate costs. After all that damage, it may be ineffective because deposit money will be found in one way or another for all but a few of the imports concerned. [Interruption.] That is what the Financial Secretary said. I proposed to denounce the Bill as featherbedding our own producers and therefore damaging in the short and middle term to exporters, but I have had to alter my notes to take account of the claim that it will scarcely cut imports at all.

The purpose is to decrease liquidity. One would have thought that there were less brutal and more subtle ways of making it possible. The Bill will make the businessmen of this country despair. But for the vigilance of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and my hon. Friend the Member for Crosby (Mr. Graham Page) and, be it said to his credit, the quick response of the Financial Secretary, the Government yesterday would have imposed a tax without authority.

There are several immediate issues which I can deal with very quickly. In Committee we shall demand that serious attention is given to the problem of businesses whose goods are in transit. After all, for them this is retrospective legislation. We shall ask that attention is given to the exemption list, which needs amending to give proper treatment to, for example, chemical intermediates, plywood and to export components. We shall look into the bureaucratic implications of the export relief provisions.

Everything that this Government touch seems to turn not into gold but into civil servants. We want to know how many civil servants will be employed or transferred to handle the relief provisions and administration of the Bill. We also want to make sure that the Government co-operate with industry in this to make the whole thing as simple as possible. We want to be told clearly about the position in regard to E.F.T.A. and what legal advice the Government have had about the legality or otherwise of what they have done.

We want to know what effect the Government expect this will have on the balance of payments prospects for 1969—the effect of the whole package announced on Friday and immediately after Bassetlaw, when the hire-purchase restrictions were imposed. In other words, what is the new forecast for 1969 in the light of all this?

My hon. Friends find the two measures in the light of the failure of the Government to cut the growth of public expenditure at least back to the rate of growth of the economy, repugnant and, probably, self-defeating. The Bill provides a temporary, partial devaluation which the Government say they will reverse soon. We hope that they will. We fear, however, that they are only buying time which Ministers continue to waste without tackling the real problems of the economy.

Businessmen and people throughout Britain are punch drunk from the battering they have had from the Government. I urge my hon. Friends to vote against the Government tonight.

5.32 p.m.

Mr. Joel Barnett (Heywood and Royton)

While one would not expect statesmanship from the Opposition at this time, one would have expected a little less cynicism and dishonesty. [Interruption.] The article by Peter Jay in The Times this morning exposed the absurdity of the Opposition case absolutely clearly.

When the right hon. Member for Leeds, North-East (Sir K. Joseph) talks about public expenditure, he should at least be honest and say that the sort of real and effective cuts he has in mind—indeed intends—are cuts in private consumption. If not, they would not be effective. He should, therefore, let the country be aware that when the Opposition talk about cutting public expenditure by increasing rents, food prices and so on——

Sir K. Joseph indicated dissent.

Mr. Barnett

That is the sort of expenditure they would cut. The right hon. Member for Enfield, West (Mr. lain Macleod) was honest enough to say—[An HON. MEMBER: "What about wages?"]—wages do not come into this—that the sort of cuts hon. Gentlemen opposite have in mind are those I have mentioned. The right hon. Member for Leeds, North-East should make it clear that he wants to cut private consumption and, even worse, that he wants to cut the private consumption of the worst-off sections of the community.

Sir C. Osborne rose——

Mr. Barnett

I trust that the hon. Gentleman will allow me to get into my stride before intervening.

When I use the word "dishonesty" I intend to spell it out in that sense. The right hon. Member for Leeds, North-East showed equal dishonesty when replying to an earlier intervention in which he was asked about investment grants as opposed to investment allowances. He knows only too well that, economically, they are effectively the same thing.

Sir K. Joseph

I entirely agree. I did not understand the question.

Mr. Barnett

As long as the right hon. Gentleman now agrees that these sort of transfer payments are not increases in public expenditure, then he should revise the attacks he has made in this direction. In that sense he has been dishonest, but as he has conceded the point I am grateful to him.

Sir C. Osborne

When the hon. Gentleman accuses the Opposition of not facing the fact that cuts in public expenditure mean cuts in personal consumption, is he aware that that is precisely what the Prime Minister said in his famous broadcast, in which he said that prices must go up? That is Government policy today, and that is precisely what the hon. Gentleman is accusing us of supporting.

Mr. Barnett

It is rather confusing to know in which direction the hon. Gentleman's mind is working. I agree that the effect of Government policy is to increase prices. I have never denied that. Nor have the Government. However, what the Opposition have claimed is that they would out public expenditure instead, when the two are really the same—when real cuts in public expenditure mean cuts in private consumption. I am glad that hon. Gentlemen opposite now accept this, because it is time that the public were aware of it.

It may be true that continued cuts in private expenditure, private consumption, in the way we have seen them will prove ineffective. It may be true, as the Leader of the Opposition said on Monday, that there is a sort of consumers' revolt going on because people are not prepared to cut their standard of living if they can help it.

Hon. Gentlemen opposite are really saying that because we cannot persuade people to cut their private consumption by this method we should cut it for them by cutting public expenditure, which would directly affect the poorest the most and have a disastrous effect in the longterm on the state of the economy.

Sir K. Joseph

How can the hon. Gentleman say that when what we are proposing in connection with, for example, rents is that the better-off should pay what they can afford so that there will be more to help those who cannot afford a decent rent?

Mr. Barnett

The right hon. Gentleman is obviously disturbed about the position.

Sir K. Joseph

Answer my question.

Mr. Barnett

The right hon. Gentleman is really saying that he wishes to help the very lowest-paid whose rents he would otherwise increase. I am not clear how he would distinguish between those who are at present receiving Social Security benefits and the others—or would he give this help across the board, remembering that many millions of council house tenants would be affected by his proposals but given no relief whatever? I hope that it is clear to the country just what the Opposition are after.

In coming to the question of the import deposit scheme, perhaps I should declare my interest as one who professionally advises a number of companies which import a variety of goods. I detest any artificial restriction on trade, but I was delighted once again to hear my right hon. Friend give a transparently honest and realistic assessment of what the scheme is likely to do.

It seems to me that its greatest effect will be deflationary, but I wonder whether the maximum disturbance and anomalies involved will necessarily be sufficient a reason to go ahead with a scheme of this kind? Hon. Gentlemen opposite need not exaggerate the position of the small businessman. I sometimes think that, in common with the C.B.I., they have little knowledge of how small companies really work.

Mr. Frederic Harris (Croydon, North-West)

That is not fair.

Mr. Barnett

It is fair because one can only judge from the statements that are made by the people concerned. I was speaking to the director of a small company yesterday. This is a really small firm whose imports are about £100,000 a year. I trust that that is small enough an example for hon. Gentlemen opposite.

Sir K. Joseph indicated dissent.

Mr. Barnett

At first sight of this scheme, he told me he thought that it was terrible. But then he began to think of the many ways in which money could be raised. I suggest to hon. Gentlemen opposite that if a small businessman inserted an advertisement in the Financial Times saying, "Importer seeks loan. Security, money temporarily on loan to Her Majesty's Customs and Excise" it would be surprising indeed if, with that degree of risk, he was not able to raise as much as he needed. I am not suggesting that small importers should do that, but it is an interesting thought.

Mr. R. Gresham Cooke (Twickenham)

That is no doubt true, but what rate of interest would have to be paid 12 per cent.?

Mr. Barnett

The hon. Gentleman has anticipated the point to which I was coming, although I am grateful to him for accepting my argument. As I explained, I believe that the result will be deflationary and will not have much effect on imports because most importers will be able to raise the necessary cash.

That is the point I was making, and when hon. Gentlemen opposite shake their heads they really should understand that when one goes to borrow money a lot depends on whether the money is available, admittedly—[Laughter]—but then much more depends on security—and if one goes, for example, to someone who has funds available, then in purely commercial terms he will prefer to lend to a company on the security of money which will be repaid with certainty in six months than on any other kind of security. Of course, interest enters into this and I shall come to that in a moment, too, but this is one way in which small, medium, large-sized companies will be able to raise funds even under the import deposits scheme. Of course, in the short-term period there will be problems and difficulties and anomalies which will arise along the lines we heard about in the debate the other day, but those will be temporary, and the effect eventually on imports will, in my view, be very small.

It is already becoming clear that foreign banks will also be prepared to help, as we have heard, by making funds available to their exporters in their countries. So funds will be available in that way. There will be some marginal, short-term effects on the balance of payments in so far as foreign funds go to the Customs.

Then again, importers will be able to get some assistance by receiving money quicker from customers wanting goods, and by getting extended credit from suppliers.

Mr. Kenneth Baker (Acton)

if foreign banks put up the money for companies in their own countries selling to this country it is probable there will be a short-term advantage to the balance of payments, but after six months all that money will go back, together with very high interest rates which importers in this country will have to pay, and so, in effect, the balance of payments on the invisible account will be worse off.

Mr. Barnett

The hon. Member is anticipating my speech. I was coming to that.

I have been speaking in the last day or two to some companies, and my impression is that not only will they not be made bankrupt by this scheme but will be increasing their profits. My hon. Friend may be surprised to hear that this is so.

Sir C. Osborne

So am I.

Mr. Barnett

The hon. Member opposite may be surprised, too, to hear this, but, in fact, they have been allowed to pass on some of the interest charges already to customers who have agreed to pay them, and they have got allowances from their suppliers against interest they are going to have to pay. This is not an impossible thing. I am surprised to hear hon. Members opposite expressing astonishment.

Mr. Harold Lever

This is a very interesting possibility. Could we apply the same principle to the regulator to show its interest and attractions for people—that a wholesaler may get an allowance from his importer on the one hand, because of the higher prices at which he will ultimately have to sell goods—[Interruption.] I was asking whether we could apply the same principle to the regulator and in other interesting fields, because people talk about the Government putting on a burden involving an increase in prices. Is it not possible, according to this argument, that the burden, far from adding to the business burden, if we are to apply this logic, will actually encourage business, because it will not only recoup the burden but get a total aggregate of advantage for its profits? Is that what my hon. Friend is saying?

Mr. Barnett

I would never accuse my hon. Friend of being naïve. That is the last thing in the world I would have thought of accusing him of, but one must understand that the regulator will not be affecting the wholesaler, for it is the retailer who pays the charge to Purchase Tax. If my hon. Friend is assuming that retailers subject to Purchase Tax have not for one single moment thought of adding a little bit of profit even to the additional tax, I am very surprised. In my experience, it has happened.

The point I wanted to make was that I am not at all sure, because of the ease by which, I think, money will be made available, that the impact will be as selective as has been suggested, because importers will find it easier to borrow money because they are borrowing against money.

It will have the deflationary effect my hon. Friend referred to because it will be squeezing the money supply by restricting the amount of money available from banks, and thereby it will have a much greater deflationary effect, but not necessarily selectively, on imports. This is the point I was making, and my hon. Friend was implying that it would be far more selective than I think it will be.

As to a reflationary effect, there would be, it is argued, import substitution. It would increase employment in certain sectors against an increase in unemployment by virtue of the deflationary effects, but it seems to me that that will be slight, too, because import substitution will be very slight. When one is having a scheme of this sort for 12 months it would be surprising indeed if exporters would he prepared to lose their markets for 12 months when all they have to do is to borrow money and the cost is a very small one. So it seems to me that import substitution will be very small.

Textile mill owners in my area are delighted with the scheme because they believe it will reduce the amount of imported textiles. I shall be surprised if it really reduces the amount of imports of textiles. I know some of the people who import textiles and I shall he very surprised if they are prepared to forgo the margin of profit they get on their imports. Indeed, I have already heard that there have been price increases on imported yarns which will more than compensate them for interest they will have to pay on money they will have to borrow.

The clothing manufacturer knows that if he seeks replacement of imported yarn or imported designed cloth he will never be able to get it because either the design is not available or the delivery date is much too late.

There are some serious problems, for example, in the case of clothing manufacturers who have ordered cloth and who have committed themselves to take imported cloth, but they will find the money and will do so. Equally, there is the case of large items of plant which have been ordered, some many months or a year in advance. I can think of one company which has ordered from abroad large items of plant for delivery in the middle or towards the end of 1969, not because they are not patriotic, but simply because they could not get the type of machinery they wanted, and it will find the money to pay for the machine which it needs. It is not a case of the company saying, "We will not buy British", nor is it likely to happen that such a company will, by this method, say, "We will not now buy that foreign machine, we will buy British".

These are reasons why any reflationary impact of the scheme will be very slight.

As to the effect on the balance of payments, the National Institute this morning gave us a figure, an estimate "guesstimate" would be a better description—of between £50 million and £125 million. The original import surcharge was 15 per cent., reducing to 10 per cent., and it was reckoned it had reduced imports by perhaps £200 million, but little is known of the accuracy of this, and by the very nature of things one cannot say, but I am not at all sure that it will be anything even remotely like that figure, and the trouble is that whatever the figure it is a distortion of the underlying economic and import situation. That is the trouble with this sort of thing. The Chancellor of the Exchequer has argued for some time that what he needs is a steady, constant balance of payments surplus of about £500 million a year. I have never gone along with that, and I do not think we need anything remotely like it; nevertheless, this has been his target. He is now trying to achieve a bigger surplus in 1969, which will inevitably reduce in 1970 because of the distortion. The extended foreign credit and the bank loans will inevitably have to be repaid in 1970. The reduction in stocks which might help the 1969 balance of payments situation will be reversed in 1970; equally, the delays in delivery will be reversed in 1970; so there is a distorted effect on the balance of payments.

I can see the benefit of trying to get into surplus as quickly as possible, and I accept that this might help the balance of payments quickly in the next six months. For that reason I am prepared to go along with him as long as it is recognised just how little is the real benefit. The trouble is that we have gone on for too long imagining that all the people abroad who are looking at our economy will be satisfied with a simple, short-term answer that solves something for a few months and then after that it will be all right.

Mr. Charles Fletcher-Cooke (Darwen)

All that the hon. Gentleman is saying, which is so good, implies that he believes that this imposition is for only a year. Has not the hon. Gentleman had some experience from this Government of measures that have been imposed for only a year?

Mr. Barnett

I do not know how the hon. Gentleman assumes that I believe that; it would be far from stating my feeling on this matter. My view is that it should have been for a longer period, and that it is likely to be. The hon. Gentleman looks surprised, but I'm sure he will not mind if I express an opinion.

I feel that this has a distorting effect; and import quotas, which have been suggested recently by many of my hon. Friends, and by me back in October, 1964, might have been all right then but would not be all right today for similar reasons. Equally, import quotas can have only short-term effects; they can be imposed only for 12 to 18 months; so that the surplus is boosted artificially and the underlying malaise is not cured.

World trade at the present time is in a state of flux. With the in-coming American President and new Finance and Economic Ministers, one does not know how the state of world trade will go. At such a stage, even if it is only a marginal risk, the risk of import quotas restricting trade is too great to take. It is certainly too big a risk to take in order to boost the balance of payments surplus for just one year. So I am not in favour either of the alternative of import quotas.

If I may turn to the details of the Bill, there are some points that need answers, if possible, today. There are anomalies and difficulties which face importers, and they need an answer as quickly as possible. It is easy to make fun of the list of exemptions, as was done on Monday night, but it is most serious to the people involved.

For example, there is a reference in Clause 1(1) to 50 per cent. of the value. Is the value intended to be net of cash discount, or is it the gross figure? In other words, if an exporter abroad gives a cash discount, does the importer pay 50 per cent. of the cost after deducting the cash discount? On the other hand, if, for example, an importer has an agreement with his customers that he will pass on to them, say, 2½ per cent. surcharge, which will account for the interest that they would be paying in order to obtain the goods, will that be allowed after Purchase Tax has been charged on the goods, or will Purchase Tax be charged also on the surcharge?

I understood my hon. Friend to say the other day that he would be concerned to give relief for people who import goods which will then be made up and re-exported. I would like to know how it is proposed to do that. I know of one man who is within the next few days expecting a delivery of cloth, part of which is for a large export order and part of which is for a home trade order. I would be interested to know how that man can obtain the relief which was spoken of.

Mr. Burden

I am grateful to the hon. Gentleman for giving way. He raises an important point to which the Minister should apply himself. If a customer receives a large quantity of goods, some for export, and he has to impose on those goods for export part of the cost of the extra financing, in many instances he might be put out of the markets. thus reducing our export returns.

Mr. Barnett

I hope to hear this evening from my hon. Friend an answer to that and the points I have raised.

Where a foreign hank pays the deposit on behalf of an importer and receives a repayment from H.M. Customs and Excise six months later, I take it that the importer will be allowed to pay in foreign exchange the interest accruing to the foreign bank? In other words, I assume that it will not have to be done in a roundabout way by the foreign bank charging the exporter, who will then add it to the price. I shall be interested to hear from my hon. Friend the answer to that and the other questions I have raised.

It will be clear that my support for the Bill is somewhat half-hearted. I think that it will have some immediate effect, and for that reason I am prepared to go along with it, although I am not sure that it is worth the trouble of the distortion, administrative problems and anomalies that it creates. On the other hand, I am not too happy about it because I believe that it does not solve anything. It may be, as I said earlier, that deflation, cutting private consumption, is not the answer to our economic problem. We have had with successive Governments, not just this Government but the previous Government, for many years, one piece of deflation after another. It would be surprising if somebody were not to ask one day: as it has not worked for so many years, maybe there is another way in which we could run the economy? Or must we have these constant successive deflations indefinitely, each of them having a lesser and lesser effect?

I would go along with the right hon. Gentleman that it may be that the only way in which consumption can be cut is by cutting public expenditure, but what he and the Opposition are advocating is not cutting public expenditure but cutting private consumption. Let the hon. Gentleman be quite clear; I want to cut public expenditure, but not in the way he suggests. I think we need to take a much closer look, yet again, at defence expenditure. Had we taken decisions to cut defence expenditure back in October, 1964, we might not today be in this position. I know it will be said by some hon. Gentlemen that this will weaken our security, but I sometimes wonder what sort of security it is when it depends on the sort of economy that we have had in recent years. I do not accept this argument.

If the cuts in public expenditure along the lines suggested by the Opposition are the only way out—cuts that will affect the people we on this side represent, cuts that will affect the whole breadth of the economy, not just in this year but for years ahead, in social services, education and so on—I wonder what sort of security it is that we are defending. I am much concerned that the way in which we have been dealing with constant deflation is not the answer.

Mr. Peter Mahon (Preston, South)

The hon. Gentleman wonders what sort of security it is that we as a country are seeking. Is it not the sort of security that Czechoslovakia would be glad to have?

Mr. Barnett

I do not dispute that. I am not saying that we should not have any security. That is a complete distortion of what I said. However, if we are to defend our security, what sort of price are we prepared to pay? We must ask ourselves that question if we are likely to finish up with an economy and society which is not much better than the Czechoslovakian one.

For those reasons, I am far from happy about the way in which the Government have handled the economy, with one deflationary measure after another over recent years. I would like to think that, having got this Bill and dealt in the very short term and on the margin with the balance of payments, they will begin at the very least to question whether these constant measures of deflation are the best way of dealing with our economic problems.

6.0 p.m.

Mr. Frederic Harris (Croydon, North-West)

If I understood the hon. Member for Heywood and Royton (Mr. Bartlett), rightly, I think in truth that he is opposed to this Measure. However, he appeared to sit on several fences at the same time and, as he is an accountant, I was somewhat surprised at a number of the questions which he asked the Minister. Then again, he kept referring to this as a deflationary measure, whereas I would have thought that it was inflationary in its effect.

Like other hon. Members, I ought to declare my interest in the matter, because my businesses will be affected considerably.

I am strongly against the Bill for the following reasons. I deplore the present trend of the Government, with S.E.T. and now with this Bill, of demanding from business houses and, to some extent, individuals, compulsory lending to the Government free of interest. Here is yet another case of substantial sums of money having to be found to give to the Government for six months with no interest. Although Ministers have been at pains to say that they have no wish to interfere with business generally, by the Bill they are doing so drastically.

Irrespective of the references which have been made today to the ease of finding money, I would contradict that and say that money is difficult to find, especially for some borrowers, and a 50 per cent. deposit for as long as six months is a fantastic burden to put on anyone's shoulders. The interest costs have to be covered, which, in turn, must mean higher prices. While, somehow or other, larger businesses will find ways of raising money, it will hit small businessmen very hard.

Ever since this Government have been in power they have been delivering virtual knockout blows to some businesses, and the time is coming when they can no longer be absorbed. With this kind of legislation, and the ever-increasing mergers which concern so many these days, tragically the general view is that the days of small businesses are coming to an end. This is a tremendous set back, not only to those involved in such businesses but to the country itself which, in the past, was very proud to claim that its commercial activities were both competitive and progressive.

What we have been doing lately is putting power in the hands of a few. especially the Government, through nationalisation and their other business ventures, thereby creating, regrettably, dictatorial conditions which are bad for all and not least for the consumer, who is the last person to be considered these days.

Business houses give enough money to the Government in various ways, most of all through the exorbitant and very complicated taxation systems. But why should they now be expected to give this amount of money to the Government, in whom in the main they have not the slightest confidence, even to look after their money? It is beyond understanding. Furthermore, it will be interesting to know what will be the value of the money when it is returned to them six months later. We all know that it will be worth much less.

What do the Government intend to do with the money when they get it? Why should business houses take additional knocks of devalued money, as well as meeting the losses arising from having to pay interest on the deposits?

The effect of this Bill must be to disrupt trade, including exports. As was obvious earlier this week, there has been no careful thought about every detail of the Bill. Exports will be frustrated, because many of the goods which will suffer under this penalty are themselves, in one form or another, reexported subsequently. To have to stand the interest costs and find the considerable deposits resulting from this Bill will represent an added burden.

With the Bill and their other Measures, the Government make it ever more difficult for commerce to continue. Small concerns are going to the wall, and business people find that their enterprises are so interfered with on all counts that many of them, regrettably, turn to seek other interests abroad. The country cannot stand this interference, and this Bill is yet another deplorable case of it. That is why I am so strongly opposed to it. While the Government continue to bring forward measures which affect individual people and the commercial houses, they are doing nothing to cut down their own fantastic expenditure or reduce the Civil Service, which again will be increased substantially from business personnel who will be taken out of production to carry out the work created by the Bill. More civil servants are bound to have to be employed. Can we be told if any estimate has been made of how many are expected to be required?

In the time that right hon. and hon. Gentlemen opposite have been in office, we have had eight Budgets. Now we have this Bill. With these and other moves, the Government are almost doing a yo-yo in economics. There is no stability nowadays, and that makes it impossible for businesses to plan ahead. We get constant serious interruptions, of which this Bill is a typical example. Why cannot the Government get down to some kind of stable planning and leave the business world in peace, at least for a little time ahead?

Following this last crisis, we have been told by the Government that they expect bank overdrafts to be cut. With the references today to banks loaning the money for the proposed deposits, I would remind the House that the original announcement asked that banks should not be called upon to come to the rescue. The clear effect of the Bill will be to cause overdrafts to rise. How else can the problem be tackled? How else can the demands be met, unless the Government want commercial concerns to go out of business, or unless they want much needed finance intended for other ventures or tied up in exports to be diverted to this purpose?

As with all rushed legislation, as we have witnessed so often in the last few years, again we have a very muddled Bill. Parliament is churning out legislation which has not been thought out properly. Dealing with the repayment of the deposits, the Bill says that the repayment must go back to the person who makes the payment.

In businesses like this there are many agents at the ports of entry acting for business houses. They make the payments, being financed by the companies for whom they act. If the money is to go back to those agents and anybody goes bankruptcy en route, business houses will lose their money.

The Bill is full of anomalies. In its effect on some trades it will be unworkable and, therefore, bad law. The confusion which has been created for all concerned is unbelievable. The banks were not consulted before this move was made. Therefore, they did not know how they were to act. They certainly had the impression that they were not supposed to help in the first place.

The Customs and Excise people did not know what they were doing. Goods were not being released unless cash was provided. We were told the other day that cash would not be required at the outset, but the Customs and Excise would not release goods unless cash was forthcoming. I spoke to the Customs and Excise on this point yesterday. It was admitted that cash was flowing in very fast and goods were not released except for cash.

Business people have been given an almost impossible task to resolve with the confusion and lack of knowledge, which is lamentable, but sadly typical of the present Government.

6.12 p.m.

Mr. Michael Foot (Ebbw Vale)

The hon. Member for Croydon, North-West (Mr. Frederic Harris) has illustrated a fact which was evident in the debate before: that the Amendment put down by the Opposition has made this debate as wide as the oceans. We could have had a debate on import control—whether it would be effective and whether we wanted it—along the lines that the hon. Gentleman has outlined, but the Opposition, far their own reasons, have put down an Amendment which introduces the whole gamut of economic policy.

I understand that I might be out of order if I tried to discuss population statistics in outer Mongolia, or Tottenham's prospects in the Cup. Apart from that, I think that everything else is in order. As a result of the Opposition Amendment, we are able to have a renewed debate on the whole economic policy of the Government and the country.

We are in a most extraordinary situation about import control. Many of us have argued for years that there ought to be some sort of import control. Now that we have extracted this modest measure from the 20th-century Richard Cobden who presides over the Board of Trade, we are faced with the Conservative Party, which has been the advocate of protection in one form or another through the centuries, denouncing the Government almost as if it proposed to reintroduce the corn laws.

A topsy-turvey caricature of the situation has been created. But some people, including many experts outside, believe that import control should have been considered and applied long ago. Looking at the problem which the country has had to face, not merely over the last two or three years but over the last decade or more, the question of how we are to control the massive quantities of imports becomes greater and greater. When I or my hon. Friends say that, it does not mean that we are in favour of establishing an autarchy or fierce forms of protection.

We want a fair deal for this country. We are the biggest importer in the world. Even if we were to impose some restrictions—particularly these rather marginal restrictions proposed in the Bill—we will still remain proportionately the biggest importer in the world. With the possible exception of Belgium and one or two other countries, we import per head of population probably more than any other major industrial country. Therefore, when we seek to take measures to keep these imports under some form of planned control, it does not lie in the mouths of many of the countries which make their industry and maintain their livelihood by exporting to us on such a scale to complain. We have a right to control imports. Therefore, I hope that no one will say, when some of us urge that there should be stricter control over imports, that we are insular and autarchic in proposing action which could be injurious to world trade.

I agree that it is in our interests to expand the total of world trade, but it is not in our interests to allow great waves of imports to come in a way which destroys our capacity to deal with our balance of payments. That has been the position over many years. That is why many of us regarded it as one of the most fatal steps taken since the war when the Conservative Administration, in 1956 and 1957, lifted exchange controls, removed controls over imports, and opened up the path towards the situation that we now face.

Eminent economists, headed by Sir Roy Harrod, have long argued that the central feature wrong with our economic position is that we have allowed imports to get out of proportion and that, therefore, we have not been able to deal with one major aspect in our balance of payments. We have thereby imposed on ourselves too heavy a burden in the demand for increased exports.

Our export record since the end of the war is remarkable. The expansion of exports is bigger than many could have foretold in 1946 when, looking to the future, we were wondering how to deal with our economic problems. But no one who looks at our economy over the past 20 years could deny that the way to deal with the flood of imports was, of course, not to stop it altogether, but to get it in manageable proportions. That is a major issue. I hope that the Government are forced to the position of acknowledging this fact, even in this diffident modest Bill we have before us.

As I listened to the debate it became ever more modest. First, my hon. Friend the Financial Secretary made his speech with his customary wit and customary wisdom. The first part of that sentence is meant as a compliment, but I am not sure about the second part. At any rate, he made it gracefully and with as full a command of the English language as we always expect from him. He did not take long to persuade us that the Bill was a marginal Bill.

The right hon. Member for Leeds, North-East (Sir K. Joseph) had to tear up his speech because he discovered that the Bill was so modest. My hon. Friend the Member for Heywood and Royton (Mr. Barnett) came along and made it more diminutive still. The only Member who thinks that it is a devastating Bill is the hon. Member for Croydon, North-West. However, we do not know whether he is an authority to be accorded the same weight as others who have spoken.

This is a minor attempt to deal with the major problem of how we are to plan the country's import bill. I should have thought that the Official Opposition would have been prepared to deal with that matter in a way which took some account of our general economic position. They have not done so. They have tried to sabotage the debate by the introduction of this ridiculous Amendment. We all know why they have had to do it. Many hon. Gentlemen opposite, headed by the right hon. Member for Barnet (Mr. Maudling), know that the measure is sensible. They have indeed argued for such a measure. Therefore, they were in the dilemma whether they should honestly say that they approved of it. They found that difficult, so they patched their difficulties by trying to transform the debate into one about public expenditure.

Mr. Blaker

Is not the hon. Gentleman aware that there is a fundamental difference between the Italian scheme, about which my right hon. Friend was talking, and the scheme proposed by the Government? Has the hon. Gentleman studied the fundamental difference between the two?

Mr. Foot

I cannot claim to be an expert on the Italian scheme, but it is still a credit restriction scheme of one form or another. The fact that hon. Gentlemen felt that they wanted some form of scheme, but did not like this one, is not a reason for putting down a reasoned Amendment on another subject against the Bill. That is all the more reason for discussing how this country should control its imports and whether this particular Bill will do the job.

The Opposition, instead of discharging that duty, for their own reasons, have gone ahead with the Amendment. I am sorry for the right hon. Member for Barnet. He has had a rather distressing week. We all feel much sympathy for him. If he is to sustain his position in the higher reaches of the Conservative Party he must overcome his habit of blurting out the truth. He must really have some regard for the susceptibilities of his colleagues. He might take some lessons from the right hon. Member for Enfield, West (Mr. Iain Macleod), or some other hon. Members opposite in how he should restrain himself.

Confusion has existed on the Opposition Front Bench ever since 1964 on this subject. When the Government first introduced the surcharge the right hon. Member for Barnet said that the Government was quite right to do so. He said that they had to take measures directly affecting the balance of payments. He blurted that out. But within a day or so he had been repudiated by the present Leader of the Opposition who, at that time, was not in the high place that he now occupies. At that time they were all under the benign and insensible leadership of the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home), with competition going on between the others as to who should succeed as the leader of the Conservative Party.

At that time the right hon. Member for Bexley (Mr. Heath) was not the man in possession; he was the ardent suitor. He repudiated the whole conception of the right hon. Member for Barnet. The same confusion exists between them four years later.

Sir C. Osborne

This debate deals with our economic position. If we are to talk about leaders quarrelling, the hon. Gentleman should remember how Mr. Gaitskell and the present Prime Minister quarrelled in Scarborough over defence.

Mr. Speaker

Order. The hon. Member for Louth (Sir C. Osborne) must not tempt the hon. Member for Ebbw Vale (Mr. Michael Foot) to get out of order.

Mr. Foot

If the hon. Member for Louth (Sir C. Osborne) is suggesting that there have been quarrels in other parties, I fully acknowledge that fact. Perhaps there will be a further quarrel on this side of the House a little later in my speech, if the hon. Member cares to stay to hear it—if I may offer him that incitement.

I shall deal with the exact wording of the Amendment and with why there was such confusion among hon. Members opposite about it. There is confusion, because from 1964 until today the right hon. Member for Barnet has taken the view that it is right for the Government to take certain measures to deal with imports directly, whereas the Leader of the Opposition takes an alternative view; indeed, he takes the extraordinary view about this Measure that instead of the Government's introducing it they should have gone to all the E.F.T.A. countries and asked whether they agreed.

I do not suppose that the E.F.T.A. Ministers would have favoured the Government's taking that course. If the Government had said to the E.F.T.A. Ministers, "Would you mind a Measure like this being introduced, or would you object?" the E.F.T.A. Ministers would say, "We do not like it. We do object." Then if the Government still went ahead and brought in the Measure the E.F.T.A. Ministers, reporting back to their own countries, would be in a much greater difficulty. They would be asked. "To what extent did you object? Did you lay down the law and say, 'You cannot do it?'"

The idea of the right hon. Member for Bexley that these matters should have been proceeded with only after the agreement of the E.F.T.A. countries had been obtained would have meant that no agreement would have been reached, and that would have caused far greater objection among our allies. The fact that an ex-President of the Board of Trade should advocate such a course indicates that he is not taking the matter seriously.

Sir Douglas Glover (Ormskirk)

When we have a treaty with certain nations which involves free trade, have not those nations the right to be consulted before we increase our protective measures?

Mr. Foot

As I understand, the treaty does not say that. It does not lay it down that there has to be prior agreement to any such proposal.

The same charge was made against the Government at the time of the imposition of the surcharge. The hon. Member should have listened to the first part of my argument, when I pointed out that this country has a right to a fair deal on imports and to fair consideration from countries which are the greatest importers into this country. I do not think that we are getting that fair deal at the moment. It is interesting to see how eager the Opposition are to support the protests of all the other countries. They are friends of every country but their own. A leak from Bonn, a squeak from Copenhagen, or a casual word from Lisbon, or Cape Town—and they are up in arms, saying, "We must hurl that at the Government."

The Opposition should study the facts. This country is the greatest importer in the world. Even if we apply the import restrictions provided for in the Bill we shall remain the greatest importer, and even if we applied the much more stringent controls which some of us believe to be necessary we would still be the best market for many E.F.T.A. countries. It would come better from some hon. Members opposite if they could screw up their nerve occasionally to say a good word for the rights of this country in these matters instead of adopting their present attitude to the Bill, which can hardly fail to do harm to our economic position.

The more hon. Members opposite say that it is improper for the Government to introduce a Measure of this kind the more difficult they make it for the Government to get the support of the E.F.T.A. countries to carry through these proposals. That is the matter they should have sorted out in the Shadow Cabinet. The right hon. Member for Barnet should have laid down the law in the Shadow Cabinet. Perhaps he did. Perhaps that is why he has not attended this debate. Perhaps he feels ashamed of the fact that when we are discussing this matter at a critical moment in our economic history his advice has been rejected, and that instead of assisting the Government to carry through a Measure which the majority of hon. Members—not only on this side but on the benches opposite—believe to be necessary to deal with our economic situation they have tried to turn the whole matter into an attack upon the Government—an attack fortified, according to their arguments, by complaints of illegality and impropriety raked up from those who are criticising this country. The Opposition cannot be proud of their conduct in this debate.

Mr. Harold Lever

It is perhaps worth noting that hon. Members opposite are making complaints of illegality in the House long before anybody in the E.F.T.A. countries has made any such suggestion.

Mr. David Crouch (Canterbury)

The House listens with fascination to the hon. Member's destructive criticism at all times, but will he help the House and the Government Front Bench by being constructive and telling us how he thinks the Government should manage the imports situation?

Mr. Foot

I can assure the hon. Member that I would not dream of making a purely destructive speech. It is not in my nature to do anything of the sort. I will give to all who may be concerned to hear them my constructive proposals for dealing with the situation, even if I have to speak for longer than I intended.

I suggest that the Treasury should consult the Ministry of Transport. That Ministry could put into operation much more direct import controls than the country has imposed so far. All goods come into this country through the ports. We have no land frontiers, which means that we can exercise full control. Many other countries do so. We could thus ensure a swifter direct control over selected imports. We could draw up a list and ensure that there was a much more dramatic and swift effect upon the balance of payments if we took direct physical discriminating controls.

I believe that we should have done it at the beginning in 1964, like many other things which we should have done then and are doing much later. I believe that the Government will be forced around to it, because it is not possible for a great country like ours, for the next 20 or 30 years, to control our balance of payments situation while leaving imports absolutely unplanned. So, on this matter, as on east of Suez, the defence cuts and devaluation, the Government will, in the end, have to accept many of the arguments which have come from this quarter of the House and from no other——

Mr. Emery rose——

Mr. Foot

If I give way too many times, I will exclude other hon. Members.

Mr. Emery

An accusation was made, both by the hon. Member and by the Financial Secretary, that certain things are being said from these benches before they have been said overseas. Therefore, does the hon. Gentleman agree that Herr Otto Mitterer, the Austrian Minister of Commerce and chairman of the meeting, himself said at the conclusion that the legal state of this matter would have to be looked at——

Mr. Foot rose——

Mr. Speaker

Order. Interventions must be brief.

Mr. Emery

—by the whole E.F.T.A. Council?

Mr. Foot

If the hon. Member had been present at the beginning of the debate, he would have heard my hon. Friend deal with that matter——

Mr. Emery

I was here.

Mr. Foot

Then the hon. Member could not have heard as accurately as I did what my hon. Friend said. The Financial Secretary is normally most explicit and on this matter was as explicit as usual——

Mr. Emery

But it was incorrect.

Mr. Foot

I now turn to the other aspect of the debate, which should not in submerged. In one sense, it has a bigger effect on the economy. That is the operation of the regulator, on which some of us take a very different view from that which we take about import control. On the latter, we would like a real control instead of the marginal control, but on the operation of the regulator, then indeed, as the Financial Secretary explained, he is using a Tory instrument. I do not say that the instrument should never be used and I agree that there are different circumstances in which it should be used, but he was resorting to the usual deflationary method for dealing with the situation and some of us are rootedly opposed to trying to deal with the economic situation in this way for a whole series of reasons. I do not propose to elaborate them in detail, but I will indicate some of them.

One, of course, is that the operation of the regulator in these circumstances will increase unemployment. The Government do not deny it, although they do not tell us their calculation of the figure. and this when unemployment is already shockingly high. I know that, as the Prime Minister has argued, it has come down in the last few months, and we welcome that, but it has not come clown anything like fast enough. We think that the figure is far too high and when we were hoping to see it fall further, the Government seek to take £250 million out of the economy by the regulator. One of the purposes of doing that, and for this deflationary effect, is to increase unemployment.

That is one reason why I am not prepared to vote for the regulator tonight, and I hope that as many of my hon. Friends as possible will not vote for the Government on the regulator. I should like to see the Government defeated on that question. They have no case for proceeding with it in these circumstances, particularly since there are other measures which can be tried and have not been applied.

There are measures about public expenditure. Of course, questions of public expenditure are associated with the operation of the regulator. If one could cut other forms of public expenditure, one might not have to use the regulator as much. That part of the argument is accepted. I agree with what my hon. Friend said. We fully support the items of public expenditure that he listed and which the Tories wanted to cut. On that matter, we are at one and it is one of the major gulfs between the political parties.

But there are many items of highly inflationary public expenditure which a number of us on this side have been arguing for years can be cut more seriously than the Government have yet tried to do. One of the major ones, which I mentioned in an intervention and which is very relevant to this discussion, is the size of the British Army of the Rhine We had a pledge from the previous Chancellor that there would be no more payment across the exchanges for the Rhine Army. This was more than a year and a half ago, at that Dispatch Box, when the present Home Secretary was Chancellor. It has not been translated into effect. We have given way to the Germans on the matter.

We have argued for a long time that we will have to cut the amount which we are now prepared to spend in Germany. If anyone raises his hands and says that this is too outlandish a proposal, we can only refer him to the similar arguments put forward about east of Suez, which were also derided but eventually accepted by the Government.

There are other measures, also, which can be taken immediately to affect the balance of payments directly, instead of having to operate the regulator. One example is the export of capital, at present on a vast scale and——

Mr. Harold Lever indicated dissent.

Mr. Foot

My hon. Friend shakes his head, but the export of capital from this country is still on an enormous scale, to highly developed countries like Australia and South Africa, because the rate of profit is so high there. The money is still pouring out. The Government say that they cannot take any more direct measures to deal with it, and why? Because, of course, our international creditors lay down as one of their conditions that we should be careful about reimposing any exchange controls——

Mr. Lever indicated dissent.

Mr. Foot

My hon. Friend shakes his head again. He should look at Article 13 of the Letter of Intent sent by the previous Chancellor to the international bankers. It is written out plainly there.

So there is a series of other measures which could be taken. We say, also, that we could mobilise some of this country's portfolio investments—not to spend them now, but to meet some of the debts so that we should not have to accept the conditions laid down by our international creditors.

Here then, is a third policy, entirely different from what is proposed on that side and entirely different from what has been indicated by the Government during their four years of office. This policy now commands the support of the Trades Union Congress. The Government received the outline of that policy over a year ago, and this morning or yesterday, according to the newspapers, they have received an up-to-date elaboration of the T.U.C. policy on this matter, which contrasts sharply with the policies pursued by successive Governments in dealing with these problems.

Our complaint against the Government on this major issue of deflation and the use of the regulator and all these other instruments is that they are so terrifyingly orthodox. They use the same methods which have failed before. The right hon. Member for Bexley made a speech at the weekend, in his constituency, I think, in which he said that what we were suffering from at the moment was the results of four years of Socialism. But who can believe that? We have had a continuation of policy. What this country is suffering from is not four years of Socialism, but 17 years of Conservative misrule—yes, 17 years.

We have had a continuation of the policy of deflation, continued resort to these methods of deflating the economy to deal with the import problem and to deal with the balance of payments. We have had a continuation, in all essentials, of the policies pursued by right hon. and hon. Gentlemen opposite. Indeed, it is evident from the Amendment and the controversies on Monday about public expenditure that if, by any grave misfortune for the country, they were ever to be returned to power, they would be operating the same kind of Treasury and Bank of England policies on the major economic fronts as the Government have pursued.

It is not only the Government whose policies have failed during the last few weeks, but those of the Governor of the Bank of England as well. Some hon. Gentlemen opposite speak about the miscast prophecies of the Government. What about the prophecies of the Governor of the Bank of England? He was saying, only a fortnight ago, that, despite the Government's original mistakes—this in his usual patronising manner—they now had got things on the right lines, and he was going off for another meeting with bankers which would be the quietest he had ever attended. That was only just over a fortnight ago, and that is gentleman whose advice the Government have been taking. I have been urging them for years not to do so; it is exactly the same kind of advice which he gives to the party opposite. What we need is a new policy.

Several Hon. Members rose——

Mr. Speaker

Order. Interventions prolong speeches and many hon. Members wish to take part in the debate.

Mr. Foot

I want to see the Government operating a Socialist economic policy. They have adopted some of our ideas eventually, but they have not been doing it resolutely enough or speedily enough. They must also consider the advice of their supporters and when, for example, the T.U.C. produces an alternative economic policy to the one that has been so determinedly pursued by both sides, they should not treat the matter so lightly.

One might gather from the eagerness of hon. Gentlemen opposite and some of my hon. Friends to pursue the present policy that it had been a wonderful success; that everything in the garden had turned out splendidly. In fact, it has not. If we continue to think that a major settlement of our affairs can be left to the operation of laissez-faire policy, we will get nowhere. We must not go on thinking that we can carry the huge military burdens of the past, and of sterling, and, at the same time, operate in al entirely free trade world. Our affairs must be seriously planned. If we continue to follow the wrong policies the country, under either Conservative or Labour administration—under Tweedledum or Tweedledee—will never tackle our essential problems.

That is why some of us plead with the Government again to change their course. That is why some of us make up our minds about how we will vote in the House. On Monday, we voted to repel the attack of the party opposite. We were right to do so. Certainly, the attack of hon. Gentlemen opposite on public expenditure has revealed to the country what would be the nature of their policy. It would be a bitter and vindictive class attack on the great mass of working people. That would be their policy, and it has been spelled out. We therefore rightly voted to repel that onslaught.

I would willingly vote for this modest measure of import control, although I do not believe that it will achieve much. It is, however, a beginning, and I hope that the Government are at last changing their mind on this and other matters. As for the regulator, however, I urge as many of my hon. Friends as possible to refuse to vote for it, but, instead, to make the Government think again about resorting once more to the old deflationary weapons which, so far from offering a cure, are largely responsible for the difficulties in which we find ourselves.

6.47 p.m.

Mr. F. A. Burden (Gillingham)

It is always interesting to listen to the hon. Member for Ebbw Vale (Mr. Michael Foot) who, on this occasion, made some particularly interesting remarks about the extent of our imports. He might have added that we are in a very different position from a great many countries in that we are a great processing nation and that many of our imports are necessary to maintain a high export level and so earn our living. They are necessary to create the exports on which we live. As we import so much of the food we eat, the Government might now do more to encourage British farmers to produce more food.

The hon. Member for Ebbw Vale castigated and chided the Opposition for daring to oppose the Government on the import imposition. He spoke as though the Government were a pet poodle and he the loving owner. A little later in his speech he lost his temper, gave it a good kick in the behind and said that under no circumstances would he vote for the use of the regulator. The hon. Gentleman adopts a curious philosophy when he implies that it is utterly wrong for the Opposition to oppose the Government on some measures, but perfectly right for him to flay them whenever it suits him.

The 50 per cent. import deposit will probably keep out some imports, but, as the Financial Secretary said, on only a temporary basis. However, I fear that it will damage our long-term export prospects much more than the Government envisaged. The very manner in which it was imposed has created bitter resentment among certain countries with which Britain does a substantial amount of export business. It will cause many people abroad to discriminate against us. It will encourage other countries—because they will look upon it as a further indication of the unstable prices of British merchandise; they are bound to rise—to switch their purchases to, for example, Germany, where there is price stability.

Whatever the Financial Secretary may say about the apparent acceptance of the position by the E.F.T.A. countries, I believe that a chill wind is about to blow extremely harshly around the Government over these impositions. One need only consider the way in which they were introduced. Not only were there no consultations, but I understand that the first indication given to the world, including the E.F.T.A. countries, was when the Chancellor of the Exchequer stood at the Dispatch Box and announced that they were to be introduced.

Do the Government really believe that the E.F.T.A. countries will accept all this without resentment? If they are not showing it openly at present, they are bound to be wondering what might be the next step Her Majesty's Government will take. This is bound to affect our close association with the E.F.T.A. countries and the sense of reliability and confidence which at present exists among them.

The credibility of Her Majesty's Government at home has long past gone. As a result of what is happening now, in addition to what has happened—particularly since only a few weeks ago Government spokesmen clearly said, "There will be no new freeze"—the credibility of the Government will be equally derelict abroad.

Although the Chancellor went on television and honestly admitted that these measures were in hand before he went to Bonn, an extraordinary effort is being made by some hon. Gentlemen opposite to imply that what has happened in the last week—the new squeeze—has been due entirely to the international situation that has developed in the last two weeks. If so, it is extraordinary that no country with the exception of France has found it necessary to impose restrictions of this sort.

The inclusion of the deposit requirement is not only on consumer goods, but will cover a vast range of industrial equipment, much of it of very high cost. Much of it is necessary to enable firms in this country to equip their factories with modern machinery in order to compete with foreigners in export markets. Much of this equipment has been on order for a long time. Much of it is now about to come into the docks and much of it is on the high seas. Very little of it can be cancelled. These firms will now find themselves in a position in which they will not have to pay only the full cost of the article to the manufacturer but will have to find another 50 per cent. of value on these high cost capital goods.

Many small firms which might have a very high export potential and might be doing big export business with low liquidity will find this difficult, if not impossible. How are they to find this extra money? What difficulties will it cause to them?

Mr. Hiley

It will put prices up.

Mr. Burden

It will certainly put many prices up to a considerable degree.

We are told that we must have increased exports of a wide range of goods. The import deposit will make much of the home market much softer for many manufacturers. It will certainly put up the price of imports by at least 4 per cent. Is there any certainty that manufacturers in this country will not turn their eyes to the home market which is much more easily served and in which they can increase their prices? This they will be able to do because there will be less competition from abroad.

It suits the Chancellor for prices to rise. This is the whole strategy of the Government. It is complete and absolute nonsense for hon. Members opposite to say that it is not. In the debate on the Address on 5th November, the Chancellor, when speaking of the economic situation, said: Some things have gone better than we expected, some worse. Exports are better. Imports are worse. Prices are better, at least lower than was expected and consumption partly as a result is higher which in a sense means worse."—[OFFICIAL REPORT, 5th November, 1968 Vol. 772, c. 717.] If this means anything at all, it means that the prices and incomes policy of the Government has been an utter deception. The Government, on the one hand, have said they will keep prices down, but in keeping prices down, of course, we must have wage restraint and wages must be kept down. Because prices have been subjected to scrutiny by the Prices and Incomes Board, the Government have claimed that they have kept them down. They then say that they have not risen as much as the Government wanted them to do, and, therefore, have introduced the hire-purchase restrictions and these new measures to mop up consumption power. This makes it perfectly clear that the whole prices and incomes policy of the Government has been the biggest confidence trick perpetrated on the public for years. It is now coming home to roost and many hon. Members opposite know it

Many smaller firms, including general importers of which there are hundreds, will find it quite impossible to provide the extra deposit that is required. I am convinced that many of them will be forced out of business. It would be an interesting exercise if the present Government published monthly or gave in answer to Questions which we could put the number of bankruptcies.

Mr. Alex Eadie (Midlothian)

They are available in the Press.

Mr. Burden

During the month ahead, as a result of Government measures, there will be a considerable extension of the numbers of bankruptcies. Is this what they want? Many importers in the United Kingdom have firm contracts with overseas suppliers for machinery and merchandise to be delivered in the months ahead. What will happen if those importers cannot find the money necessary for the deposit? They are firm contracts entered into in a proper commercial manner. Surely the overseas suppliers will have the right to take action for damages against the firms in this country if they do not honour their contracts as a result of what the Government are doing.

What about firms which cannot import goods for which they are committed to supply retailers and others in this country? They might find themselves in a situation in which they could be put into the courts by suppliers abroad and have action taken against them also by firms in this country because of failure to honour contracts. Does the Government propose to give them any protection against the legal hazards they face, as a result of Government action? The deposit will automatically increase the cost of imports by 4 per cent. It will have an effect over the whole range of the economy because of the way in which it will restrict the import of essential machinery required for replacement and re-equipment of factories for the purpose of making them more competitive in world markets.

The use of the regulator will start to impact itself in the weeks ahead and this will mean raging inflation in prices. [Laughter.] Hon. Members opposite may laugh, but I assure them that if they go into a market place and compare prices and talk to women in the shops they will find that this is no laughing matter three months from now. They will find that there is raging inflation. This is one of the reasons why the hon. Member for Ebbw Vale is resisting the imposition of the regulator tonight. He recognises that it will very considerably increase the cost of living. If hon. Members opposite do not accept this, and laugh about it, they are living in a fool's paradise, or the completely ignorant of the economic facts of life.

The Measure will lead to further wage claims to catch up with increased prices. The Secretary of State for Employment and Productivity will be hard put to it to resist the inevitable wage demands, and if they are met we shall immediately face another round of Government action to mop up the extra purchasing power that has thus been released on to the market and prices will rise again.

We must try not to restrict trade more. If we are to remain a great exporting nation and retain our position in the world, we must encourage the liberalisation of trade. I do not use the word "liberal" in quite the way that the hon. Member for Cornwall, North (Mr. Pardoe) perhaps thinks that I should use it. It is necessary to liberalise trade. This country's prosperity relies not on cutting imports, but on expanding its exports. So far as I can see, the measures before the House will do little, even in the long term, to improve the standard of living of our people and enable them to enjoy a fair measure of imports. The merchandise we produce in our factories must compete with any in the world and expand our export trade and these proposals will not help in that.

It is a sad day today, when we find that, two years after the Labour Party promised that the standard of living of the people would be increased by 25 per cent. over the next five years, everybody admits that the steps now being taken will reduce the standard still further.

7.3 p.m.

Mr. Austen Albu (Edmonton)

I have taken part in economic debates for about 20 years, but I do not think that I have ever taken part in a debate in which I have felt that the economic situation was as serious as it is today. I cannot say that the level of the debate so far has recognised that fact. By and large, over the past 20 years the arguments that have taken place, mainly between the two Front Benches and their supporters, about economic judgment and economic measures have not had a great deal of political content.

I am not a great believer in a Socialist economic policy. The main criticisms of the Government's policy have come from my hon. Friends below the Gangway, particularly today in the very forceful speech of my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot). I do not consider his proposals to be in any way Socialist. They were useful contributions to debate, but to claim that in some way they are Socialist or more in keeping with Socialist policy is a misuse of words.

The right hon. Member for Leeds, North-East (Sir K. Joseph) made a completely misleading attack on Government expenditure. There are genuine differences of political view about the extent to which consumption should be public and the extent to which it should be private. Like all my colleagues, I am in favour of a high level of public expenditure. The right hon. Member for Leeds, North-East completely misled the House. I do not think that he even understood the case. That was clear when I and my hon. Friend the Member for Heywood and Royton (Mr. Barnett) intervened. The case against him is that the true rise of Government expenditure for the coming year will be 1 per cent.—very much below the rise of 4 per cent. in production this year—and not the figure which the right hon. Gentleman gave as being higher than the rise in production. This is because we have substituted the selective employment premium and the investment grants for what were previously taxation reliefs. These have exactly the same effect and cannot be considered as Government expenditure.

The reason for the introduction of Government expenditure into the debate has been made perfectly clear, by nobody more clearly than by my hon. Friend the Member for Ebbw Vale.

I want to turn, first, to the question of the regulator and to some of the arguments used, particularly by my hon. Friend the Member for Heywood and Royton. The regulator is not a wicked instrument. It is a means of trying to control the economy in the short term. It would be used wickedly if it were used in a violently deflationary sense to create unemployment, but it is not wickedly used if it is being used to try to keep the economy at a reasonable level.

What my hon. Friends the Members for Heywood and Royton and Ebbw Vale completely overlooked is the radical change that has been made in the situation by devaluation. It is true, as the right hon. Member for Leeds, North-East and other hon. Members have said, that we have not had any great gain to exports from devaluation, but they were never expected in the short term anyway. We have been getting advantage from the high level of world trade. Every informed commentator agrees that we are now about to get the advantages from devaluation, which inevitably take some time to work their way through the economy.

Although, I do not entirely like all the things that are being done, my right hon. Friend the Chancellor is making absolutely certain that when we get the advantage of devaluation in, first, the expansion of exports, and, second, as has been prophesised by the C.B.I. and the Board of Trade reports, the expansion of investment, there will not be an over-inflationary situation.

The statement of my hon. Friend the Member for Heywood and Royton that we have had nothing but deflationary policies since the end of the war is completely untrue. The right hon. Member for Barnet (Mr. Maudling) created a raging inflation by inflationary policies in 1963–64, and left us with a desperate balance of payments deficit when we came to office. We tried to carry on the same policy for the first year or so, unsuccessfully. It was shown, to my mind conclusively, that the policy of breaking through by violent inflation does not work in this country, or cannot work without certain other measures. What we get is a very serious balance of payments deficit. The management of the

economy is still an art and not a science, and it is a very tricky and delicate matter.

I do not think that we have had any serious attack on current Government policy from the Opposition. We can, therefore, neglect their arguments.

I should like to turn to the arguments used by my hon. Friend the Member for Ebbw Vale and many of my hon. Friends below the Gangway. These are serious arguments and proposals, which must be considered. But they are not Socialist arguments. Many businessmen would love lots of import controls. The less efficient they are, naturally the more they want it. It reduces their competition and increases their profits.

The Government, I am sorry to say, have had to introduce a measure of import control. Nobody seems to know what its effect will be. I am not surprised. I am always a little reluctant, from experience, to accept the theoretical proposals of economists. In this case, however, there has been previous experience in Italy. Although I am not a great expert on this, I cannot see that in practice and in economic terms there will be all that difference between what the Italians did and what we propose to do. I therefore have some hope that it will have an effect, but I do not know. I am, however, opposed to import controls in general.

We are facing an extremely serious international situation because of the inadequacies of the arrangements for changing the exchange rate. I am not referring to liquidity, of which too much has been made. I am referring to the larger and much more important problem of adjustment of exchange rates. We cannot continue with a situation in which these rates are kept continuously rigid. We must never again go through the sort of trauma of the last year, particularly the last few weeks, in international financial arrangements and world trade.

We must get an arrangement by which it is possible to adjust relationships between exchange rates without such crises. But what is now happening is that slowly at first, but acceleratingly, imports are being controlled by countries to save their balance of payments. This will reduce the general level of world trade, which can have no other than harmful effects for us. I am not dogmatic about the solution and perhaps we shall have to introduce further measures of import control. But the effect of that in general would be to render us less competitive, postpone the period of recovery and balance and raise the cost of living disastrously. It would generally be harmful to our economy.

The second proposal is to sell part of our overseas portfolio. One can imagine the great panic overseas, where it would be taken as a further demonstration of crisis. In any case, I am sure that the whole of what we would get would be lost in a short time unless the more fundamental changes we need were brought about. If we simply went on in the same old way, no matter how much we got by selling our overseas portfolio it would all quickly go. Of course, according to the "bursting-through" theory, one would be able to reflate at a substantial rate, which would lead to a great increase in productivity, exports and investment. I can see the case but I do not believe it.

Mr. Michael Foot

The whole purpose of the operation would be to enable us to go ahead for a number of years with a 6 per cent. increase in production, as outlined in the T.U.C. document.

Mr. Albu

It is a theory but I do not believe in it. We have had experience with that policy and it proved disastrous.

The third proposal is the political argument that we should reduce our Armed Forces in Europe. I am totally opposed to this, as I believe are the majority of my hon. and right hon. Friends. I believe that the country would be opposed to it. I could not support a Government who reduced our forces in Europe at the present time. I was very much in favour of reducing our forces east of Suez. We have done so—too late, just as we devalued too late, which is one of the reasons for our present situation, but I am opposed to reducing the defences of Europe, which are also the defences of this country. Our people would not accept a situation in which we went further than we have already done.

My hon. Friends below the Gangway and the T.U.C. refuse to recognise the facts. For some reason, both political parties have been guilty in that few Members are willing to tell the people the truth, that the British people's standard of living has risen over the last 20 years at a faster rate than they have earned. That is the reason for the mess we are in, and it is why the Government have had to try and restrain consumption, whether public or private. The Government have restricted public consumption to a real rise of 1 per cent. a year, but earnings are going up by perhaps 8 per cent. a year. We all know that this consumer boom is still going on. I was told today that in my constituency half the stock of a toy shop has already been sold for Christmas.

When some hon. Members and some trade union officials try to pretend that a terrible deflationary attack on the standards of the working class is going on, they know that they are talking nonsense and are deceiving their own members. Some of my hon. Friends below the Gangway really must get themselves out of the fantasy world in which they live and tell their people the truth.

Those who heard Mr. Hugh Scanlon, the president of my own union, last night, were deeply shocked by the complete inability he displayed to understand the storm swirling around his head. He betrayed an extraordinary lack of understanding and a completely 19th century attitude towards our problems.

Unless all hon. Members and leaders of trade unions are willing to tell the people the facts of the situation, we shall never get out of it, whatever colour the Government might be. I may add that what I am saying applies to many industrialists as well. Many of them are not pulling their weight. Many trade unionists are not pulling their weight, although very often it is not true that the trade unions themselves are involved. As we heard today, there are often individual groups of workers who strike for no real reason and against the advice and without the support of their unions.

If this sort of thing goes on, we shall not get out of our present situation especially if, at the same time, people demand increases which they are not earning.

There is a serious danger that the country is becoming economically ungovernable. We must face it—if that does occur and there is a further decline in our economic position and in people's belief in the value of money, which, at last, is beginning to lead to a serious inflationary situation of a kind we have never had before, we shall get serious, nasty and irrational political movements in this country, as I warned the House earlier this year. I say to some of my hon. Friends below the Gangway that such irrational movements are not of the Left, but of the Right—xenophobic, racialist and very horrid indeed.

I have no great economic panacea for the Government, but I say to right hon. and hon. Members on both sides that we must tell the people the truth. As long as we go on kidding them that they can have a standard of living that they have not earned for themselves, we shall remain in this situation.

7.18 p.m.

Mr. John Pardoe (Cornwall, North)

I am with the hon. Member for Edmonton (Mr. Albu) in believing that we are in the midst of an extremely serious and dangerous world economic crisis, particularly in the West. All of those who have seen the figures published in the National Institute's Economic Review must realise just how serious it is. It is becoming increasingly clear that the Government's economic strategy has, up to now at any rate, failed.

But it would not be anything like so serious for this country, and, indeed, for the West, if the policies being put forward by the likely alternative Government were serious or credible. One sees this from the article by Mr. Peter Jay in The Times today. But I prefer to go back to a few days ago, to a leader in the Evening Standard, which used the same word about Conservative policy, "naked", as the Financial Secretary used about it today. The leader said: The endless harping on public expenditure, rising prices and the evils of incomes control will just not do from a party which can only offer in return a change in farming and housing subsidies entailing higher rents, food prices and social security payments. … Indeed, on the vital question of monetary reform the Government sounded far more open-minded than the Opposition. That was the comment of a newspaper not normally associated with the policies of the Government or of the Liberal Party. it is a newspaper which, broadly speaking, is friendly to the Conservative Party.

Although I am not myself in a position sufficiently to judge exactly who is telling the truth about public expenditure, as a member of the public I am gravely affronted when I read in The Times of today that the Leader of the Oppositional debate in the House has falsified the figures of public expenditure. I should very much like to be told the truth about the public expenditure figures. The right hon. Gentleman said in Monday's debate on the economic situation that between 1963–64 and 1968–69 public expenditure had risen by 60 per cent. This morning we were told that those figures were entirely untrue and that the real figure was about 48 per cent., which compared with an increase of 47 per cent. in the last few years of the Conservative Government. This kind of debating which the Leader of the Conservative Party adopts does nothing to raise the standards of debate in he House or the standards of political honesty.

It is not insignificant that the Conservatives have only very recently decided whether to oppose the Bill, and even now they have moved an Amendment rather than oppose the Bill root and branch. In the debate on the Ways and Means Resolution earlier this week, there was no mention of the fact that Her Majesty's Opposition intended to oppose the Bill. I wonder what has made them change their minds. It may be that the C.B.I. has exerted some pressure and it may have been that the unequivocal opposition of the Liberal Party to the Bill has made them realise that they could not be left out on a limb. The Amendment is not outright opposition, but my opposition to the Bill is outright. I do not need to be told about public expenditure and interest-free loans, and if I am to be told about public expenditure I want to be told which kinds of public expenditure the Conservatives wish to cut.

I oppose the Bill because it will restrict world trade; because it will reduce competition and the competitiveness of British industry; because it will do long-term damage to the whole British economy if it works, while if it does not work, it is not worth introducing, because it will bring no long-term advantages, while even the short-term advantages are extremely doubtful; because it will adversely affect the gap between the rich and poor nations by restricting their trade with us; and because it will inevitably throw some small business men out of business.

What will be its effect on the balance of payments? What this country has most to fear is the vicious circle of world protectionism and I fear that we are already in that vicious circle, that it is not something which we are looking at in the future. We are virtually on the edge, if not over the edge already. Squeezing the economy, squeezing liquidity, is not something at which more than one or two can play. If one squeezes one's own economy and one is alone in doing so, it is possible that one can divert a certain part of one's production to the export markets. But we are not alone and many other major industrial countries are squeezing their home economies which will make our exports much harder. I do not believe that this latest squeeze will work any more than previous squeezes under the Labour and Conservative Governments and one reason why I oppose the regulator is that it takes us back to square one all over again, to the same old medicine which has not worked before, with no reason why it should work now.

Whether actions of this sort break the E.F.T.A. Agreement has often been asked. That has still not been decided, but whether it breaks the letter of the E.F.T.A. Agreement, it certainly breaks the spirit. I re-emphasise the view to which Liberals have always held fast—that there cannot be an effective free trade area, or an effective economic community, unless there is the underlying political unity to go with it, because only with political and constitutional unity behind it can a free trade area have enough sanctions to enforce the rules.

I have a query in this connection. Yesterday, I received a telephone call from a business man who imports dressed rabbit skins to make into ladies' fur coats for re-export. He buys these skins from Europe and exports them primarily to E.F.T.A. countries. He has been told by the Board of Trade and the Customs and Excise that if he re-exports these fur coats to E.F.T.A. countries he will have to pay the deposit, but that if he re-exports them to non-E.F.T.A. countries he will not have to pay the deposit. My immediate reaction to this was that we were living with Alice in Wonderland, or that he must have misinterpreted the message, or that the Board of Trade and the Customs and Excise had gone stark staring bonkers. Having checked up on this matter with the Customs and Excise this morning, I have discovered that what he said was correct, and I should like to know from the Minister of State whether he will undertake to look into this matter—I can give him further details and figures—to make sure that the Government have some method of solving this problem.

Another problem is the effect of the regulator on prices. I have no doubt that if the import deposit scheme works, it will enable British manufacturers to exploit their monopoly situation and increase prices. What do the Government intend to do to stop prices from being increased for this reason? I should like more assurance than we had about the Selective Employment Tax when we were told that its cost would not be added to our restaurant and hotel bills and so on.

The effect on small firms will be rather greater than some Labour Members have suggested. In the City Press this week there are some remarks of small City importers, small in the sense that they are not massive firms, not the sort of firms which can stand this raid on their liquidity. The consensus is undoubtedly that many of them will have to go out of business. The reason is that many of these firms have a vast turnover on extremely small capital resources and these are the people who will be very hard hit.

I should like the Minister of State to say what the deposits will total at most and how that figure compares with present total advances to industry. My calculation is that it will be a substantial chunk of total bank advances to industry, which would tend to show that firms will not be able to raise this kind of cash from that source. I do not believe that importers will be able to get credit from abroad certainly that is the opinion of those whom I have asked, and it is the opinion of the banks. One of the reasons why they will not be able to get credit from overseas suppliers is that there is still a fear abroad, incredible though it may seem to us, that sterling is not all it is cracked up to be. While foreign suppliers may well give credit for three months, many of them will jib at giving credit for longer than that, in the fear that at the end of the time the £ will be devalued by 10 or 15 per cent., or whatever it may be. I do not believe such a devaluation is likely to become necessary, but we have failed to convince foreign bankers and foreign merchants of this and they are obstinate in their beliefs.

If we could guarantee foreign merchants against that by adopting the policy which I outlined in the earlier debate this week, that of the crawling peg, we would guarantee to a certain extent that no immediate and substantial devaluation would take place. I hope that the Government are now convinced that it at any time devaluation were to become necessary—not that they think it will—they will devalue only by the crawling peg method to which I shall refer in a moment.

I want now to deal with what I regard as the only possible alternative economic strategy for this country. The hon. Member for Ebbw Vale (Mr. Michael Foot) dealt in his somewhat protectionist speech with what he called a Socialist alternative economic strategy. I do not believe that that would work, and I should like to outline what I would call the Liberal economic strategy. First, we have to be rededicated to the task of a 4 per cent. growth rate. How? The right hon. Member for Barnet (Mr. Maudling), when he was Chancellor of the Exchequer, believed that one could grow through the balance of payments crisis, and there was some evidence of this at the time. He believed that by expanding demand we would automatically increase capacity. To a certain extent this is true, because there is no doubt that by expanding demand one increases the tendency of businessmen to invest. Their feeling of security is enhanced. It is only a limited connection, and by expanding demand by say, 4 per cent., although it may be possible to expand the rates of growth of capacity from 3 per cent. to 3.2 per cent. that is still not enough and it only postpones the balance of payments crisis which will inevitably come at some time.

Is the only alternative to this doctrine of growing through the crisis, which did not work last time and which I suppose is unlikely to work again, to accept what has become known as Paishism? This doctrine says that it is impossible to expand demand more rapidly than capacity and therefore we should not try. There is some truth in both these arguments. I want to create a situation in which the helpful effects of expanding demand, the assurance for instance of continuous prosperity, creates security for investment, innovation, for new techniques and the sweeping away of restrictive practices. The only way we can get this is to accept a willingness for a certain level of unemployment, say, 1.75 per cent., certainly never more than 2 per cent.

I do not honestly regard this as a total disaster provided that within this figure of 1¾ per cent. we are continually in a state of flux, that is that no one is permanently unemployed, but that these people are moving from one industry to another. I do not think that this is socially disastrous. In a modern technological society I believe it to be inevitable and even desirable. It will also be necessary under this strategy to act directly on the balance of payments. I have already made it clear that I totally discard the way in which the Government have chosen to act upon the balance of payments.

The only feasible way to act immediately on the balance of payments is to accept the need to adjust exchange rates gradually, without the sort of crisis which one got with the French devaluation, the sort of experiences which the Germans had and which we have had. If all currencies are in equilibrium it is quite possible to go to the floating exchange rate. In the present situation of gross dis-equilibrium, the floating exchange rate would inevitably mean a very sharp re-adjustment. The mark would go up very substantially, presumably the pound, the franc, the dollar and lira, and all other points west would sink pretty abysmally. What is needed now is a scheme to bring about this equilibrium gradually.

There is nothing magical about existing rates of exchange. It is quite obvious that devaluation may have to come for any currency, or revaluation for that matter. The scheme that I am outlining, the scheme of the crawling peg, applies equally to devaluation as to revaluation. It is undesirable that any future changes needed to correct the fundamental disequilibrium are carried out suddenly and immediately. It is highly desirable that they should be carried out gradually, and we have suggested, with Professor Meade, to whom I give credit for this originally, by not more than 1/26th of one per cent. per week.

If this had been done in 1967 we should have escaped the trauma of our own sudden devaluation, France would have found devaluation very much easier to accept and even Germany might have been able to revalue without the severe political embarrassment which the German Government fear. I hope that I have made it clear that what I believe in is a fundamentally different strategy for the economy.

It is based on the acceptance that international exchange rates are not holy, sacred, something which we should stick to for all time. I do not wish to amend this Bill. I have made it clear, on the Ways and Means Resolution, that it is wrong-headed through and through. It will do more harm than good. Britain is extremely vulnerable in world trade and we live by trade. Yet we have surrounded ourselves over the years with gross protective tariffs and that is why we are uncompetitive today, that is why imports are selling so well here, because for years British industry has been feather-bedded. We need the icy winds of competition and we have kept them out for far too long. We cannot live by keeping them out. We have to buy and sell in the world market in order to live. I am in favour of import-saving, but it cannot be done by legislation of this kind. It can only be done by making our products more competitive in world markets and in our own home market. No Bill was ever passed that has enabled us to create wealth.

Government intervention in the economy, and this again will probably separate me from the Conservative and Labour parties, should be confined to creating conditions in which private enterprise can do the job. I believe that private enterprise can only work in conditions of competition. Unfortunately, the free enterprise system does tend towards monopoly and the elimination of competition. That is no reason for scrapping it. It is a reason for ensuring that the Government role is to continually increase competition, to continually ensure that the monopolistically inclined elements of the free enterprise system are kept swimming outwards rather than inwards.

The Government must continually work against the monopolising elements, against monopolies, against mergers, restrictive practices, and above all, the most restrictive practice of all, against tariffs. This is a tragic and mistaken Bill. It will add to the gathering pace of world protection. We have nothing to gain from it and everything to lose.

7.38 p.m.

Mr. Alex Eadie (Midlothian)

The hon. Member for Cornwall, North (Mr. Pardoe) is under an illusion when he imagines that there is a difference between his party and the Official Opposition. If he had only looked at the Front Bench opposite he would have noticed that when he talked about the pool of unemployment hon. Members sitting on the Front Bench opposite nodded their heads heartily in approval. Equally, when he mentioned the icy winds of competition there were hearty nods of approval. He must not deceive himself that he is independent on this policy. I will read his speech with a good deal of interest, and there will be people in Scotland who will read it with a good deal of interest. It will not spell very much good for the Liberal Party in Scotland.

During the debate we have heard about the credibility of the Government. Surely we are entitled also to talk about the credibility of the Opposition in economic policies. During the last two or three weeks, when the country has been involved in argument and discussion about economic policies, one of the important factors has been the credibility of the Opposition. It has succeeded in managing to unite this side of the House. We have had speeches from the Opposition about the regional policy, about housing policy, and about the agricultural policy, which the right hon. Gentleman the Leader of the Opposition raised in the debate on economic affairs. That brought forth one of the most devastating editorials ever written about a Leader of the Opposition.

Hon. Gentlemen opposite should be very worried indeed. Last night I had a meeting with a lifelong Conservative. He told me that he could not see his way to vote for the Conservative again because of their irresponsible attitude during the economic crisis. It is not very nice to find that the Official Opposition seem to be more concerned about what the Germans think than what the country or the British Government think. This will not do them any good. They may think that they will get some political capital out of it, but people are concerned that certain members of the Opposition are most anxious about what the Germans think than what they think.

Comment has been made about our troops in Germany. Both sides of the House had better face up to this issue. Many people in this country are asking why we should subsidise troops in Germany and why we should have an Army of the Rhine. Some people may say that it is necessary that we should have troops in Germany in the interests of defence, but we should be very foolish if we were to ignore the fact that people in this country are questioning this expenditure.

Some hon. Members talked about vested interests. Some were involved in the export business and others were economists. I am not an economist. My reason for intervening in this debate is, to some extent, to obtain clarification from the Government for the people of Scotland. I am concerned about the development areas and about Scotland. I want to know what effect these measures will have on them. There is already evidence in Scotland that unemployment is starting to recede. We hear hon. Members opposite talking about regional policies. It is ironic historically that it was about the time when we had another crisis of the Deutschmark that they introduced deflationary policies. They can be proud of what they did: at one time, we had 136,000 unemployed in Scotland as a consequence of their policies.

Unemployment in Scotland is now decreasing fairly substantially. Industry is beginning to go with a real swing. We are beginning to get the advantages of electronic and engineering industries. We have a rather Gilbertian situation in Scotland: we are advertising for miners. My hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) said that this debate was very wide. I do not want to start shovelling coal in this debate, but the reason why I say that advertising for coal miners is Gilbertian is that it will be a very expensive policy in the long run largely because of the Government's fuel and power policy. We shall have to try to buy miners into the industry towards the end of 1969 or the beginning of 1970.

We have heard many contradictory statements about what the Bill means and its effects on business and the economy. There have been many contradictory statements in the Press about the effects of the surcharge. The Financial Times of 26th November tried objectively to give a survey of what it thought the impact of the surcharge would be. It dealt with the car, engineering and paper industries, textiles and chemicals. Its objective analysis in relation to the engineering industry was that the Bill could have some effect, it would not be helpful and it was concerned about it. It adopted the same sort of line on the engineering industry. The textile industry may be in a different situation. I refer to what the Financial Times said about the textile industry because of the pessimistic attitude adopted by one of my hon. Friends: 'We look like being net gainers overall', was the fairly chirpy comment of one major textile group spokesman yesterday—and he could well have been speaking for the manufacturing side of the industry as a whole. I have a vested interest in this matter because I have some textile interests in my constituency. Some people in my constituency are dependent on the textile industry outwith it for their livelihood. What comments has my hon. Friend to make about this? Does he feel that the surcharge will have any impact on the textile industry?

The survey in the Financial Times dealt also with the paper industry. Its comments were interesting. It said: The British paper makers have been campaigning for some time for firm measures to discourage steadily climbing imports. Their spokesmen are thus expressing considerable satisfaction at the Government's import deposit move, claiming that it will give many of the manufacturers a welcome opportunity to use up surplus capacity". I have a vested interest here. Indeed, Scotland has a vested interest. We have extensive paper making interests in Scotland. I am a little concerned because there was substantial contraction in the paper industry in my constituency.

I know that the people engaged in textiles, carpet making and paper making will be very concerned and anxious about my hon. Friend's reply tonight. It is vital that he should comment on these matters. The Financial Times went on to say about the paper industry: The Chancellor's deposit move, however, could mean a price advantage of around 30s. a ton to the British manufacturer—about £75 a ton being the estimated average price paid for imported paper. 'Broadly speaking', the B.P.B.M.A. said yesterday, 'you could say this is very pleasing'". I hope that my hon. Friend will answer some of these questions. I finish as I started. My vested interest is not that I am engaged in importing or that I am an economist, but my concern about the employment prospects of my constituents and the prospects of the Scottish economy.

7.49 p.m.

Mr. Joseph Hiley (Pudsey)

It rarely happens that an hon. Member is able to bring before the House a complaint from a constituent firm before the Second Reading of a Bill. I shall not take up time discussing the relative theories of the economic proposals of one party or another or the distinctive policies between them. In my view, we have had too much of that and that is probably why we are in the mess we are in today. I am one who is used to trying to get on with the job.

I wish to put to the Minister a case which occurred only today. On Tuesday or early yesterday morning a boat arrived at Felixstowe with a cargo of goods for a firm in my constituency. The Customs man at the port demanded £750 to comply with the Bill when it is passed. I appreciate that in measures of this kind a line has to be drawn somewhere, but I suggest to the Minister that it is grossly unfair and unreasonable that any firm, never mind a small one, should be faced with an imposition of that kind when it has not had any opportunity either to provide the money, to make arrangements for its provision, or to divert the goods which it has ordered.

Instances of the case in question will probably have been multiplied in many ports today and yesterday. Clearly, the importation of the goods in this and in similar cases has not been done by firms in an attempt to evade the impact of the Bill. Therefore, the Minister should try to find a means by which firms which have genuinely ordered the goods and which have taken only a short time to arrive should be given an opportunity to find the money for them.

My constituent is particularly concerned as to the distinction between an import deposit and duty. I have not attempted to advise him on his, but I understand that the Customs officer is quoting what is contained in Clause 1(8), which refers to the 1952 Act and which clearly relates to import duty. Is the import duty the same as an import deposit?

Whatever the answer, suppose that the Customs officer insists upon payment of the money and suppose that this House, in its wisdom, decides to reject the Bill. What would be the position of my constituent's £750 if the Customs succeed in getting the money out of him?

Mr. Harold Lever

He will get his money back right away. If the House defeats the Bill, there will be no authority for retaining the deposit. I would like to point out also that as a result of the joint counsels on both sides of the House in the interval between the Ways and Means Resolution and the passing of all stages of the Bill, provided that the importer puts up a satisfactory deposit—not cash—he will get his goods released.

Mr. Hiley

I thank the Minister for that assurance. Nevertheless, it involves a lot of work by a lot of people.

That brings me to my final point, of which the Minister and the Government should take note. Everything which they do is involving a lot of people in a lot of unnecessary work, and nobody is any better off in the end. That is one of the principal reasons why we are in our present difficulty.

7.54 p.m.

Mr. A. H. Macdonald (Chislehurst)

It is rather gratifying to hear the remarks to which we have just listened from the hon. Member for Pudsey (Mr. Hiley), because they illustrate a practical instance of what is likely to happen if the Bill becomes law. I only wish that the hon. Member might have told the House exactly how his constituent firm raised the money. I assume that it managed to do so. It would have been interesting and useful to have first-hand information on the steps that were taken.

Mr. Hiley

My constituent has not yet paid the money. I think that he has sufficient confidence in my ability to persuade the Minister of the injustice of the whole thing and that a message will be able to go out from the House tonight that a few more days will be allowed to enable people to make proper arrangements.

Mr. Macdonald

I am obliged to the hon. Member. I take it that the answer given by my hon. Friend the Financial Secretary will satisfy him.

Having listened to the debate on the Bill, it has appeared to me that its importance has somehow become less and less following many of the speeches which have been made. I listened with great interest to my hon. Friend the Financial Secretary in opening the debate, when he explained, so it seemed to me, that the effect of the Bill was likely to be moderate. I was glad to hear him say that, because in thinking about the matter before I heard my hon. Friend's remarks I had been a wee bit apprehensive. I felt that the Bill would be worse if it had great effects than if it had small effects. I am rather glad to think that its effects will be quite small.

My hon. Friend suggested that the effect of the Bill might be a marginal reduction in imports or that a certain mopping up of liquidity was more likely. I wonder whether that mopping up of liquidity is likely to take place. I wonder whether it is possible that we may see, in effect, what I might call the creation of new liquidity, which will then be mopped up, rather than the mopping up of existing liquidity.

My hon. Friend the Member for Heywood and Royton (Mr. Barnett) suggested that the effect of the Bill would probably be deflationary. With respect to his skill and knowledge on this subject, I should have thought that there was a danger that it might have an inflationary effect. Is it possible that as are sult of the Bill we may see the creation of additional credit? One way of finding the funds required, in addition to the methods mentioned by my hon. Friend the Member for Heywood and Royton, is simply not to pay one's creditors and to allow them to wait a little longer. There is, naturally, a certain limit to that process, but I wonder whether I am wrong in suggesting that a study of balance sheets nowadays indicates that there has been an increase in the volume of creditors and, naturally, in the volume of debtors rather greater than might have been expected from an examination of any increase in turnover. There is, therefore, a danger that we may see the creation of credit so that it may be mopped up by the measures advanced by my hon. Friend the Financial Secretary.

Even if that be only partly true, it still remains the case, as many hon. Members have said, that there are many ways in which funds can be found. It is possible, therefore, that among the small marginal effects of the Bill will be additional competition for these funds and therefore, possibly, a small increase in interest rates. I doubt whether it would be great. I think, therefore, that the effects of the Bill are likely to be quite small and marginal. I hope that I am right in that view, because it is my opinion that if the effects of the Bill were substantial, they would in large measure be deleterious.

I have already referred to the speech of my hon. Friend the Member for Heywood and Royton—and how right he was in suggesting that if this Measure has any significance, it is purely temporary and is a temporary measure of protection. Indeed, one might say that it is a temporary case of devaluation. When the time comes, as I trust it will, when we lift off the effects of this Measure, I cannot see but that we shall simply be back to ignore one, although, possibly, slightly worse off in meeting international competition than we were at the start.

I accept the need for the measures under the regulator, but I have always looked with some distress and I have always argued against proposals to impose any kind of import control or import restraint. I have regarded those measures simply as dodging the issue, and I am glad to think that the effects of this measure are likely to be small, although I fear that, even though they are small, we are by this Bill setting a precedent for other possible methods of import control which might be substantially effective and, therefore, would be very deleterious.

I listened with some astonishment—and I shall mention him although he is not here—to the remarks of my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) when he said, as I understood him, that he is really a believer in free trade but that the measures which this country adopts to restrict imports in some way or another do not count, and that other nations can be expected to accept them without any difficulty. I wonder what kind of fantasy world my hon. Friend is living in when he says that our trade competitors will graciously let us do exactly as we like and not indulge in unreasonable retaliatory measures against us. With all respect to my hon. Friend's eloquence, to which I listened with great fascination, I cannot believe that his was a true description of the real world in which we find ourselves.

My hon. Friend the Financial Secretary, opening the debate, set out—and I agree with him—the fact that there are three ways of expanding our resources: by private expenditure, public expenditure, and investment. As I say, I accept this classification, and when he said he supported public expenditure and welcomed it I was most happy to agree with him. I also agree with him when he referred to investment—the seed corn, as he described it. These things being so, it seems to me to follow necessarily that there must be some moderate restraint on private expenditure. It is unrealistic, as my hon. Friend the Member for Edmonton (Mr. Albu) suggested, to pretend otherwise.

I do not feel it is realistic to canvass the proposal that we should "flog off" our overseas assets if we think of the danger of selling our capital to maintain our current standard of living; we should find ourselves simply in the position that selling our overseas assets to pay our existing debts would be doing nothing to modify the policy which has led us to incur those debts. I therefore do not see merit in the proposal canvassed by some of my hon. Friends that we should adopt that kind of policy.

The issue is put before us by the Amendment advanced by the Opposition. If there is to be some measure of restraint somewhere in our economy, then surely the choice, to put it crudely, is whether we are in favour of education, or whether we are in favour of beer. It was a most remarkable thing to hear the Leader of the Opposition uttering instant comments following the Chancellor's statement the other day and suggesting, once again, that this was clobbering the consumer, and that we should yet again cut back on our public expenditure. I am glad to think that we are expending considerable sums on education and hospitals, and I trust that on this side of the House we shall never apologise for this. Therefore, we really should not shrink from saying that in the interests of maintaining that level of public expenditure, there must be a very modest degree of restraint in private consumption.

There are possibly some cases where we might see a little reduction in public expenditure. I have some sympathy with those who think our defence expenditure might very well be reduced, particularly on things like Polaris, but I do not want to press the point particularly, because I feel that many people who canvass this are really dodging the issue. We must face the allocation of our resources according to the total available, and it will no longer do to pretend that we can, in some way, by going on having public expenditure and more and more private consumption, by adopting one device and another, put off the evil day.

For these reasons I shall most certainly be voting in favour of the regulator Order and I suppose that I shall find myself voting for the Bill, although, for the reasons I have outlined, I think that its effects are likely to be marginal, and that we have to some extent been wasting our time, arguing at this length of time about it.

8.5 p.m.

Mr. Peter Blaker (Blackpool, South)

The hon. Gentleman the Member for Chislehurst (Mr. Macdonald) has made a characteristically thoughtful speech. I believed, until towards the end, that I would be able to congratulate him with some warmth, but then, in effect, he repeated the line taken by everyone on his side of the House except one Member, that they do not see any connection between the level of public expenditure and the necessity which the Government find to introduce the Bill.

This was supported by the Financial Secretary, in his opening speech, when he said he did not see the connection. I thought at the time——

Mr. Harold Lever

I am sorry to interrupt the hon. Gentleman, but I really am obliged to interrupt anybody who asserts that I so said, to remind him that I said nothing of the kind. I said, if it helps the hon. Member, that the level of public expenditure in the months ahead is now established and fixed and, therefore, has no relevance to the question of dealing with imports in the next few months.

Mr. Blaker

I am very relieved to hear the statement of the Financial Secretary that he did not say what I believed he had said. Of course, I accept his correction, and I shall read with interest what HANSARD reports him as saying.

The hon. Member for Ebbw Vale (Mr. Michael Foot), in his brilliant but blinkered fashion, demonstrated that he did not really know what the Bill is about. Clearly, he identified the scheme in the Bill with the Italian import credit restriction scheme, and when that was pointed out to him he replied, in effect, "Do not confuse me with facts".

The hon. Member went on to charge that we on this side of the House were taking an unpatriotic line by supporting other countries against the Government. I should like to take up this point. The line which we on this side of the House lake is that we believe there is some merit from both the moral and the practical points of view in keeping agreements which we have signed with other countries. Moral and practical, I said; because if we get a reputation for breaking our agreements that will rebound on us in a practical way.

The hon. Member for Ebbw Vale went on to take a line which, if it were taken by an American Congressman, he would denounce as great Power chauvinism. He said, in effect, that we do not need to worry whether our actions are in breach of E.F.T.A. or not because we are a big buyer and everybody will go on having an interest in our business.

I am sorry to say—I hope that I am giving a fair rendering of what, in this case, the Financial Secretary said—that I thought that the hon. Gentleman displayed a similar, though less serious, attitude in this respect when he said, "Why are the Opposition taking up this question about the legality of our action? Why do not we just leave it till the E.F.T.A. meeting and let us sort it out there?". I think that the thought at the back of his head was that we are big boys in E.F.T.A. ——

Mr. Harold Lever

Absolute nonsense.

Mr. Blaker

This may have been an unworthy thought, but it seemed to me to be the only reason why the Financial Secretary should suggest that we could leave that question till the E.F.T.A. meeting. It is the duty of this——

Mr. Lever

The hon. Member must not impute to me attitudes of which I have given not the slightest evidence. The reason that I suggested this matter should be left for E.F.T.A. Ministers was, that they, unlike most hon. Members of the House, are deeply immersed in the details of the question whether or not this scheme is within the E.F.T.A. agreement. They are the authorities on the subject, not hon. Members.

Mr. Blaker

I will come to the E.F.T.A. Convention in a moment. I hope that the Government, if they believe that this is consistent with the E.F.T.A. Convention, will tell us why; they have so far notably failed to do so.

We have the advantage that the Mini-stet of State, who is to reply, is a distinguished lawyer. I hope that he will tell the House not simply that the advice which the Government have is that their action is consistent with the E.F.T.A. Convention, but why, and will spell out the chapter and verse, so that the House can understand. I believe, and I am sure that my hon. Friends agree, that it is the duty of the Opposition to examine whether or not the Government's action is legal. This is one of our primary duties, and it is not good enough for the Financial Secretary, whatever he may be recorded as saying in tomorrow's HANSARD, to give the impression that it is not the business of the House to examine this matter, but that it is the responsibility of the E.F.T.A. Council alone.

The Chief Secretary has said: We have taken the best advice available to us, and, on the basis of that advice, our view is that, since there is no specific prohibition in the Convention, we were entitled to take this action and that no question of illegality arises."—[OFFICIAL REPORT, 25th November, 1968; Vol. 774, c. 153.] I would like the Minister of State to say when this advice was taken. In the economic debate on Monday, the Chancellor of the Exchequer gave the impression to the House that he did not know what the answer was, and when the Financial Secretary was asked about it, he replied, in effect, that this arrangement is only temporary. That led me again to suspect either that he did not know the answer, or that he would rather not discuss it.

The Chief Secretary, in the passage I have just quoted, went on to say that he assumed that the view he had just expressed, that is to say, that there was no question of illegality, was the view of both right hon. Gentlemen on this side of the House when they put forward the scheme, as he described it, earlier. As I have pointed out, this is not the scheme which my right hon. Friends had proposed. The Italian scheme to which they referred in their earlier remarks this year and last year is a different matter altogether. It involves, as I understand it, simply the accelerated payment of the purchase price of goods. The Government's scheme involves something totally different. It involves the payment of different money, a charge of 50 per cent., and this is relevant to whether the arrangement is consistent with the E.F.T.A. Convention.

Article 3, paragraph 1, of the E.F.T.A. Convention states: Member States shall reduce and ultimately eliminate … customs duties and any other charges with equivalent effect. Article 6, paragraph 1, states: Member States shall not … apply directly or indirectly to imported goods any fiscal charges in excess of those applied directly or indirectly to like domestic goods, nor otherwise apply such charges so as to afford effective protection to like domestic goods, I would like to know in what way the Government take the view that the import deposit proposed in the Bill is outside those Articles.

Mr. Donald Chapman (Birmingham, Northfield)

The answer is fairly easy. The articles deal with measures intended to protect particular goods, but this is a broad matter which is covered by what the Chancellor told the House; that the E.F.T.A. Ministers recognised that some action by Britain was needed, and this across-the-board action for a temporary period was the best action that Britain could take. The hon. Gentleman is dealing with individual measures of protection.

Mr. Blaker

With respect to the hon. Gentleman, I am dealing with the question of the legality of the Bill, and on this I would like to have an answer from the Government. With respect to the hon. Gentleman, I do not think that he has answered my point.

The communiqué of the E.F.T.A. Ministers said nothing about being satisfied. I hope that the hon. Gentleman will read the communiqué; it did not suggest even that the members of the E.F.T.A. Council thanked the British spokesman for his statement. I see nothing to show that the E.F.T.A. Council so far has accepted that this action is legal.

The Bill describes the impost as a duty of Customs. The Financial Secretary on 26th November described the impost as a Customs charge. The Government cannot have it both ways. If it is a duty of Customs or a Customs charge it is squarely within the prohibition of the E.F.T.A. Convention. I hope that the Minister of State will explain exactly the Government's reasons for claiming that this is exempt.

On the evidence before me I believe that this is not only a breach of E.F.T.A., but also a bad proposal on its merits. It puts in an impossible position an importer who has already ordered goods for which an irrevocable letter of credit has been issued. I hope that the Government will exempt altogether from the effect of the Bill importers in that situation. Such exemption would be justice and it would not encourage any further imports than those which are already on their way.

The Bill fails to allow the exemption of goods which are essential. I have here a telegram from the Timber Trade Federation which gives an example. The telegram points out that the price of new houses, schools, factories and other buildings and of many exports will rise, and that the United Kingdom plywood manufacturing industry is capable of supplying only 4 per cent. of the country's requirements. I hope that the Government when the time comes will be willing to extend the list of exemptions. Those are some of the immediate practical difficulties, but the longer-term effects of the Bill will be bad.

The hon. Member for Chislehurst and the hon. Member for Heywood and Royton (Mr. Barnett) have made some good points, particularly about the bunching effect when this arrangement ends. There are other and even bigger disadvantages. First, I think this is simply a crutch which will delay this country's convalescence. But the biggest practical disadvantage is that the Bill will encourage retaliation. We have discussed whether it will be permanent or temporary. I think that it is likely to encourage retaliation even if it is temporary, and, if so, it has also the bad effects which hon. Gentlemen have described. It is permanent. or semi-permanent, it is certain that it will encourage retaliation.

Hon. Members on both sides of the House have described the restrictionist, protectionist tendencies which are already developing in the world. The Government, in spite of protestations that they are in favour of freer trade, in spite of repeatedly pointing out that Britain is more dependent on international trade than any other country, when they are faced with an emergency, as they so often are, show that their reflex action, as opposed to their mature action, is protectionist. We have the 15 per cent. surcharge, the £50 travel limit, and other examples.

These examples have been followed. We now have travel restrictions imposed by the United States Government, and at one time they suggested more severe restrictions than those eventually adopted by Congress. We have travel and currency limits imposed by the French. In another direction, we have the French altering the incidence of their value-added tax to give a significant advantage to their exporters and a corresponding disadvantage to importers. When such cases occur in the future, Her Majesty's Government will be disqualified from protesting. If the French find it necessary to devalue, which one hopes that they will not, and continue the emergency measures which they have adopted recently, we shall not be able to complain.

In the United States, we see a potentially dangerous development of protectionist feeling. What is to happen when this matter comes up in the United States Congress and it has to decide whether or not to proceed with further cuts under the Kennedy Round? There will be a lot of ammunition for those protectionist Congressmen who want the Kennedy Round to be stopped in its tracks, let alone these who want to stop the abolition of the American selling price for chemicals.

World trade this year has gone up by 10 per cent., which has helped the Government immensely. We should have done better with exports than we have. By how much will it go up next year? How much will it go up in the future if we develop a general protectionist atmosphere? If it develops, we shall lose more than we can hope to gain with this ill-considered Bill.

The Chancellor gave the impression that there was no better alternative. There is, and an obvious one would be for the Government to resign. That would remove at once the biggest obstacle to the recovery of confidence in Britain at home and abroad. It would also help our reserves. If, surprisingly, they are not prepared to resign, they could at least show that they are prepared to tackle the root causes of the surplus of exports. They could start by learning about the connection between excessive public expenditure and the Bill. They could show that they mean to encourage saving. They could show that they are learning how to manage the money supply. They could make a start by reforming industrial relations and our tax laws.

I understand that their proposed scheme resembles those which enjoy popularity in certain Latin-American countries. That shows the economic league in which we are currently performing. The Prime Minister used to be very fond of league tables. He is less fond of them now. However, there are two leagues in which his Administration bid fair to be near the top. The first is that of breaking faith with other countries. The second is that of countries which may endanger the future growth of world trade.

8.24 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

When I came into the Chamber, I had no intention of speaking in the de bate. I have spoken already this week on the subject, and only my great interest in the topic has made me sit here all these hours, if one discounts the wit of my hon. Friend the Financial Secretary, to whom I always enjoy listening.

I intervene because I have become increasingly worried by the fact that, in respect of import deposits, the Bill is becoming more and more a mouse which everyone applauds because it will not create any special offence and will pass through in the night unnoticed by anyone.

I want to go to the other extreme and put in a plea for it as a meaningful piece of legislation. I do not want to give offence to my hon. Friend the Member for Chislehurst (Mr. Macdonald), who is an ideological colleague and—[An HON. MEMBER: "A bank manager."] He is not my bank manager. If we are not careful, we in this country risk our reputation in the sense that we are such British gentlemen, good fellows and decent chaps that we would not like to do anything to offend anyone at all. The main gravamen of my contribution follows my hon. Friend the Member for Edmonton (Mr. Albu), who said that we face a serious situation which cannot be resolved by trying to be decent to everyone and not taking matters too seriously.

In all this talk about demand management, whether we are discussing taxes, or the matter which bemuses right hon. and hon. Gentlemen opposite, the money supply, or prior deposits, the topic is being exalted far to much in our vocabularies. For some reason, the financial management of the economy is something which is very respectable and to which the best brains in the country are devoting their attention. So important is it that the Chancellor of the Exchequer and his colleagues have an importance which, for example, a Minister of Technology has not. Yet, in the last resort, we shall succeed or fail in the degree to which we advance our technology, our efficiency and our competitiveness vis-a-vis the other nations of the world. Compound interest is terrifying when it is applied to the technological gap occurring between this country and many others in the world, because it decides in the last resort whether the nation can be viable economically.

However efficient we are, we still have to manage the economy, and there is no denying that we have an import problem. It is no good any hon. Member suggesting that the problem of imports is not one of growing seriousness for the country. We resort to the Brookings Institute, which tells us in comforting language that we are no worse off than anyone else and indicates that Britain's import performance in the 'sixties was in no sense unusual. A much more critical analysis in the current issue of Business Ratios, by a member of the National Economic Development Office, who says that he is not speaking officially, puts it very clearly. He says that our situation is declining, particularly in the sphere of sophisticated manufactured goods.

My opinion, like that of some of my colleagues and the Financial Secretary, is that if we could manage without controls, so much the better. Without doubt our balance of payments deficit is becoming more aggravated as time goes on. If this is happening, and for this year the National Institute attributes nearly all the deterioration in our situation to imports, with very little given to bad economic management, price levels and so on, we simply cannot introduce a Bill about which we argue, "It will not work, so do not take much notice of it." My plea is that the Treasury should add this, even on a relatively permanent basis, to its weapons of economic management. Why not?

Mr. Blaker

Retaliation.

Mr. Cant

Retaliation. Other countries please themselves. They impose devaluation, direct or indirect, and they adjust their border taxes whether we want them to or not.

My hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) was right in saying that we are the largest importers per head of population in the world. This should endow us with a certain amount of monopoly power. We ought not to be disregarded by people who want to sell to us.

Mr. Blaker

Is the hon. Gentleman saying that we should behave like this regardless of our international obligations?

Mr. Cant

I regard this as undue sensitiveness. If we want to get ourselves into these situations it may make life a little more difficult. But we must, as a nation, economically survive. My point is that the Treasury, looking at our import situation, had two alternatives: import quotas or this very modified, ever-diminishing, prior deposit scheme. Other countries operate such schemes. The Japanese operate one. The Italians have operated one. Ironically, although theirs is internally slightly different, it is also externally slightly different, because one important aspect of operation Carli was to forbid Italian importers from borrowing abroad to provide themselves with finance for this purpose.

There are undoubted weaknesses in the scheme. When I spoke before I suggested that we did not know what the Government would do about the deflationary impact of this Measure. Nothing is clear about that. Will they offset this deflationary impact with the injection of some increase in liquidity if the banks adopt a particular attitude in selling their gilt-edged securities? Will they allow our importers so to rely on external finance that we shall have a position where our reserves are increasing in a fascinating manner but our imports are increasing at the same time? We do not know. This is yet another example of a piece of legislation which was thought up in a hurry and has been presented in a somewhat—I always like to be charitable—ill-digested form to the House of Commons. This is a great pity, because for many years we shall be in a situation where our imports are rising more rapidly than exports—certainly until the efficiency of British industry is greater than it is.

I should like to think that, in presenting this Measure to us, the arguments had been weighed much more carefully and the administrative arrangements evolved in a more satisfactory manner.

My main point is simply that we should not apologise too much for this Measure. We should not lay it on the table as though we, as a Government and nation, had committed some sort of heinous sin of which we were terribly ashamed, and that if we could push it under the table we would do so as quickly as possible. This is a quite reasonable and legitimate Measure, by which a Government and country with a massive import bill, with all sorts of complications attached, are seeking to remedy their position.

We have evolved all sorts of techniques of economic management, and have tried to make them very sophisticated. We have probably fallen for what the Americans call the doctrine of the fine tuning of the economy. But in most advanced industrial economies fine tuning rarely works. If we had an undeveloped economy, in which the financial institutions were not very elaborate, these controls might be fairly effective, but in our sort of economy—when we are a financial centre for the world, which means that there are some extremely complex ramifications—we may have to follow the Japanese overall approach to the problem of economic management.

It might not be any more possible for this country than for America, France or Germany to change the direction of the economy by what the Americans call "a slap on the wrist." We may from time to time have to slam on the brakes, rather than doing a little here, a little there, a little now and a little later. if some component in the economy is running ahead too quickly, or imports are rising too rapidly, we may have to accept a policy of action which is decisive, ubrupt and quantitatively significant.

Do not let us apologise for this Measure; it is a respectable weapon of economic management. Do not let us permit so many exceptions to the general rules that the Measure becomes completely ineffective in practice, maximising people's irritation and producing no results.

8.39 p.m.

Sir Cyril Osborne (Louth)

It is lucky for the reputation of Parliament that this is not being televised tonight. A few moments ago there were 15 hon. Members in the Chamber. We are supposed to be discussing emergency measures to deal with an economic crisis that brought home the Chancellor from Bonn only last Friday flying the S.O.S. flag. It is incredible that the benches on both sides of the House should be nearly empty—there are more Members on the benches opposite than on this side of the House—when we are discussing a matter that affects us all.

My hon. Friend the Member for Blackpool, South (Mr. Blaker) said that the Financial Secretary had argued that there was no alternative to these proposals. He suggested rather abruptly that there was one, that the Government could resign, to which the Financial Secretary said that that would not produce imports in the next six months. I asked the Financial Secretary by how much this miserable, friendless little Bill would reduce imports and he said that he did not know. And this is a Government of planners—[AN HON. MEMBER: "But it is a free country."—but we are planning to reduce imports. That is what we are discussing. Yet the Financial Secretary with all his charm and honesty, which we all admire, could not answer the question which really matters—how far will the Bill bite, by how much will it reduce imports? He had not the vaguest idea and had the honesty to say so.

The hon. Member for Ebbw Vale (Mr. Michael Foot), in his impassioned speech, made one point with which I completely agree. He said that some import control was inevitable and that this country had a perfect right, as a sovereign Power, to control its imports. I agree, but if that is carried to its logical conclusion it means that we have to control consumer expenditure. We cannot have a policy of real, savage and serious import controls without facing the ultimate of consumer control, the ration book—[HON. MEMBERS: "Oh"—this is the logical outcome.

The hon. Member for Heywood and Royton (Mr. Barnett) followed the Financial Secretary by saying that this miserable little Bill will have very little influence on imports. If so, why go on with it? [Interruption.] Because we would like to destroy it. If this pettifogging, miserable little Bill will do so little to help exports—the Financial Secretary said that it was only temporary and would have only a marginal effect—then what is all the fuss about? Why did the Chancellor come home in such a bother and so worried? Is not this a miserable effort to get us out of our troubles?

Let me remind the Financial Secretary of what the Chancellor said on Friday. He said that the aim was to bring the balance of payments deficit to an end. It is a fraud to pretend that this miserable little Bill——

Mr. Harold Lever

The hon. Member should not beat himself into frenzy of passion on the wrong grounds. What the Chancellor said was that the effect of the totality of his current and past measures would bring the balance of payments into surplus. This is only one of a great number of measures, including the regulator, the credit squeeze and the others which have been taken.

Sir C. Osborne

I will give the hon. Gentleman the reference in a moment from HANSARD. At best, this is only a short-term stop-gap, and in the long run I believe that it could make our position much worse. The real problem is not the excess of imports. The real problem and the root of our economic evil is that we as a nation, privately and publicly, are spending roughly 6d. in the £ more than we are earning. if we could bridge that gap, if we could earn 6d. more or spend 6d. less in the £, the problem would disappear.

But the Bill and the other measures which the Government are putting before us will not cause anybody to earn a farthing more or spend a farthing less. They will not touch the problem. This all represents a miserable make-believe. The Chancellor of the Exchequer said last Friday: … we have found it essential to take this temporary Measure in order to protect our vital interests…. He went on: The Bill will continue in force for a year, but with provision for this period to be reduced, but not increased, by Statutory Instrument. It could, therefore, be smaller and smaller.

The right hon. Gentleman then said: The Bill will also provide for the rate of deposit to be reduced, but not increased, by Order. This is whittling it down until there is a shadow of nothing behind it. Finally on this point, he said: The scheme is not one which can or should be kept in being for more than a limited period. As we have high regard for the honesty of the Financial Secretary, I ask him if he thinks that 12 months will be enough to do what the Government believe is required to reduce our imports. I doubt it. When the Chancellor said that our vital interests must be protected, can they be protected in such a short time?

This is supposed to be a temporary Measure. I remember buildings being erected during the 1914–18 war that were said to be temporary. They are being used today. I am afraid that this temporary Measure will continue in the same way. Would the Chancellor give a promise that, whatever happens in the next 12 months, at the end of that time he would rather resign than continue the Bill?

Will not these restrictions create more resentment or reprisals abroad? By how much—I have asked this question before—will these cuts reduce imports into Britain? How soon do the Government expect them to be effective, for how long and from which countries will imports in the main be coming here that he is proposing to cut? The Chancellor said in his statement: Imports will be reduced directly because of the difficulty and cost of obtaining credit."—[OFFICIAL REPORT, November. 1968; Vol. 773, c. 1795.] I do not believe that. If businessmen want their imports they will find means of financing them. They always have done and always will do.

It should be remembered that the imports we receive are other countries' exports. We are lauding our manufacturers for increasing our exports. Why should it be wicked for other people to want to export their goods to us when we want to export more to them?

Has the Chancellor consulted British trade commissioners abroad about the reprisals that are likely to result from these measures? If so, what advice did they give him? If the reprisals are going to be greater in their effect than the benefit that is likely to accrue from these restrictions, is this all worthwhile?

Mr. William Baxter (West Sterlingshire)

Is the hon. Member diametrically opposed to any import control? As I understood the Leader of the Opposition, he was very much in favour of certain import controls.

Sir C. Osborne

The hon. Member for West Sterlingshire (Mr. Baxter) should have been present when I started my speech.

Mr. Baxter

I was here.

Sir C. Osborne

Then the hon. Member could not have listened carefully, for I told the hon. Member for Ebbw Vale that I entirely agreed with him that we are entitled to protect ourselves from unwanted imports. I said that quite clearly.

These restrictions are to be for one year at the outside. If they were for less than a year, would this mean that the imports would be dammed up in countries which wanted to send them to us and therefore we should take away the restrictions? Shall we not have a bigger flood then, and will not the position be worse than it is today? Has this been considered? Are we to say at the end of 12 months that more restrictions are to he put on and that these are not temporary?

Mr. Emery

Like the "temporary" surcharge.

Sir C. Osborne

I hope the Financial Secretary will get someone to answer my following questions.

Mr. Chapman

We shall be here all night.

Sir C. Osborne

This is exempted business. Hon. Members are complaining, yet they are demanding more pay. Does not the Financial Secretary think that the Chancellor has painted too rosy a picture of our present position as a background to this Bill? I remind the House of what the Chancellor said last Friday: … the events of the past week have demonstrated dramatically the urgency of our achieving and maintaining a surplus in the balance of payments of the United Kingdom. Then this important sentence: We have made considerable progress. If in recent months we have made considerable progress and the position is infinitely better, the Chancellor must have inherited an awful mess from the present Home Secretary when he took over, a much worse mess than the country realises.

It has been estimated by responsible people that the deficit this year will be £656 million. I remind the hon. Gentleman that the Chancellor promised some months ago that during this year the economy would be just in balance and next year we should have a considerable surplus. [Interruption.] Oh, please, the hon. Member for Birmingham, Northfield (Mr. Chapman) does not know.

Mr. Chapman

I do know.

Sir C. Osborne

This is being confirmed by the Financial Secretary.

Mr. Harold Lever

I am sorry to interrupt the hon. Member, but I certainly cannot confirm the accuracy of the first part of what he said, although I accept the accuracy of the second part. That is to say, I do not at all agree with his comment about what the Chancellor is supposed to have said about 1968, but I do agree that by 1969 it is the Chancellor's prediction and mine that we shall be running in substantial surplus.

Sir C. Osborne

I will look up the reference for the hon. Gentleman. He shall have it; then perhaps he will send me the appropriate note.

Mr. Lever

I will indeed.

Sir C. Osborne

The Chancellor went on to say, and this is where I accuse the Government of misleading their followers and the country: On the basis of a three-monthly moving average, the trade figures, including those for October, have shown an improvement in every month since May. This is what I call the statistician's jargon to bemuse and confuse the people. He said: The policies we have followed since devaluation are showing their results, especially in the excellent performance of our exports. If the position has improved and is improving to that extent, why are this Bill and these restrictions necessary? What is all the fuss about?

I should like to give the House what I consider to be the real facts that support the statement of the hon. Member for Stoke-on-Trent, Central (Mr. Cant) that our position is much more serious than the country realises. Official figures for the difference between the recorded values of imports and exports for the current year show this. I agree that one item is f.o.b. and the other is c.i.f. The monthly deficits were as follows: January, £191 million; February, £110 million; March, £136 million; April, £137 million; May, £194 million; June, £60 million; July, £150 million; August, £143 million; September, £100 million; and October, £180 million. That means that the deficit is running at nearly £1,700 million a year. These are official figures taken from Government papers. The Financial Secretary may consider that they are ridiculous figures, or that the argument based on them is ridiculous, but every argument which does not suit the Government Front Bench must be ridiculous to Ministers, because they cannot accept it. I understand that kind of party claptrap.

Suppose we take the hon. Gentleman's special figures, seasonally adjusted, although I should like him to tell the House what is meant by "seasonally adjusted" and how he seasonally adjusts the figures. I have found no Minister who can tell me that. No one knows what "seasonally adjusted" means. I have asked three Ministers, and each said that he did not know and asked me to see an official.

Mr. Chapman

Name them.

Sir C. Osborne

It would not be fait to them, but I will tell the hon. Gentleman the names afterwards. On seasonally adjusted figures, the deficit for the first 10 months of this year has amounted to £645 million. That is at the rate of £774 million a year. [Interruption.] If hon. Members think that that is something to giggle about, I do not. We are in a far more serious position than the Chancellor has allowed the nation to believe, or the Bill suggests. The Bill is not nearly tough enough for the problem. It does not tackle it in the right way and it will not produce the results we require. [Interruption.] This is exempted business, so we can go through the night.

The Chancellor said on Friday: but the scheme",— which is what we are discussing now— with all its possible imperfections, is preferable to any alternative way open to me of bringing the deficit in the balance of payments to an end without prejudice to the longer-term improvements which I believe are in train."—[OFFICIAL REPORT, 22nd November, 1968; Vol. 773. c. 1794–6.] I do not believe that, and I want to suggest three ways which would be better than the Government's present approach.

First, in 1965 the Government allowed wages to increase by £1,300 million, although they knew that production had increased by only about £600 million. That was the way to inflation. If the Government want to cure our economic problems, they should stop the folly of paying out a great deal more in wages, salaries, rents, dividends and other incomes than we are earning. That is one alternative that I offer to the Chancellor.

I was asked whether I agreed with the restriction of imports. It should not be broad-based and applied to every country, but should apply to those that persistently sell us far more than they buy from us. Since the war, the United States has sold our country £3,929 million-worth of goods more than she has bought from us. We should say to the Americans, "If you do not buy our goods, we are sorry, we shall not be able to buy yours." Every year, except for one, the Americans have had a substantial balance in their favour.

The situation is worse in our trade with Canada. Since the war the Canadians have sold to us £4,094 million worth of goods more than they have bought from us. This year so far our American dollar adverse balance is 130 million and with Canada 227 million. We are entitled to say to North America, "During not just one year but 25 years, you have persistently sold more to us than you have bought from us and you have even imposed tariffs against our goods of up to 40 per cent. If you do not play ball with us we shall put up big tariffs." That is an alternative way we should follow.

If the Government were to take action in a big way against selected countries which are guilty in this respect year after year against us, I am certain that it would do a great deal more for us than this miserable little Bill which, until the hon. Member for Stoke-on-Trent, Central spoke, did not have one friend in this House. Everyone had criticised it as a miserable little Bill, and I shall willingly vote against it.

9.1 p.m.

Mr. Donald Chapman (Birmingham, Northfield)

Having listened to the debate all day, I would comment that, although all of us are in danger of exaggerating in the House when seized of a particular aspect of a particular case, in its exaggerations the Opposition have excelled themselves today. But the exaggeration has been most extraordinary. There has been exaggeration of two entirely divided conceptions about the Bill.

On the one hand, the hon. Member for Croydon, North-West (Mr. Frederic Harris) and the hon. Member for Gillingham (Mr. Burden) labelled the Bill as a terrible economic disaster. I was weeping real tears about the hundreds of men being driven into Carey Street, about the vast disruption of our import trade and about the poor businessmen who are now faced with bankruptcy on a scale never dreamed of before. That was one case in a vast torrent of words from one half of the Opposition. On the other hand, the hon. Member for Louth (Sir C. Osborne) and others, said, "No, that is not what the Bill will do. It will have no effect. There will be no bankruptcies. This poor little mouse of a Bill, without support, will have no effect."

This fantastic division on the Opposition benches has been made the more derisory and ridiculous by the extreme exaggeration of two entirely opposite points of view, neither of which faces the facts. I will tell the House what I believe the Bill will do and why we should support it. What is it that we are trying to do? The Chancellor made the figures clear. We are gradually reducing the monthly deficit on the balance of payments. We have got it down to a figure, at the moment, of between £20 million and £30 million a month.

Sir C. Osborne

Seasonally adjusted?

Mr. Chapman

I am not going to follow the hon. Gentleman in his arguments.

By the time we take invisibles into account, we have the figure down to £20 million to £30 million a month. What we are trying to do is to make a quick action to get it turned round the corner as soon as possible into surplus, and for the very good reasons which my right hon. Friend the Chancellor of the Exchequer gave on Monday. He said: I would not have used measures which I believed wrong in themselves, but I was prepared to take unpleasant measures which otherwise might not have been necessary and certainly not at this stage. We had to accelerate the move into surplus and show the world we were doing it. The effect of the crisis in Europe last week, which sent Finance Ministers scurrying to Bonn and back, was that Britain, like every other country, had to show extra willing at this stage to tell the world that, although we had been in deficit for some years, we now intended to take action as quickly as possible, although the process has not been quite fast enough, once-and-for-all action for 12 months, to prevent another run on our currency, as there might have been in if more panic started in the world, even though some of it was not of our own making.

The Chancellor repeated his statement, saying: It needed no crisis to focus my mind on over-riding need to correct our balance of payments. But the crisis made it still more necessary to increase our insurance premium to get things right quickly, no matter how high the cost."—[OFFICIAL REPORT, 25th November, 1968; Vol. 774, c. 50–51.] That is why the Bill has appeared. We want this spur at this stage after the panic in world markets and because of the way in which many countries are looked at askance if they persist a little too long with a balance of payments deficit.

I believe that the Bill will work, and here I part company from the half of the Opposition who think that it is just a mouse, the half which was joined by my hon. Friend the Member for Heywood and Royton (Mr. Barnett). I believe that it will work because we are going for only a limited objective, which is to try to get a quick turn round of about a couple of hundred million pounds. That is the kind of thing at which the Bill is precisely aimed.

I believe that the Bill will work better than the import surcharge did, because this is being backed by other measures to make it work. It is being backed by a little arm twisting at home. The use of the regulator to take £250 million from the national income of £30,000 million is not very much, but there are also the credit restrictions plus the orders to the hank, and the whole package will make the Bill work in a way in which the import surcharge could not work because it was not so vigorously backed by other measures. I believe that the Bill will save us £100 million, or £150 million, or £200 million, on our balance of payments quickly, producing results within the next six months or nine months.

I do not believe that businessmen will go out of business, as the hon. Member for Croydon, North-West suggested. If a business cannot stand a year's reduction in its trade, it must be already in a "dicky" state. Businessmen will decide to lay off some importing until the year is over, saying that if there is then a turn round in our balance of payments and things look better, these restrictions will be relaxed and they will be able to begin importing again with the old speed and vigour.

When all the wild charges are being thrown around about the figures involved and the desperate mess we are in and the fantastic cuts—I am using words to repeat what has been said by hon. Members opposite—when all these exaggerations have been made, what are we discussing? We are talking about trying to get a change at the margin. In £6,000 million we want to cut out or delay £200 million.

Sir C. Osborne

Where do those figures come from?

Mr. Chapman

We are trying to get a 3 per cent. adjustment at the margin of our imports. This is no fantastic cut in importing. This is no great disruption of trade. The E.F.T.A. countries will not go sky high and start screaming at us. When their interest in British trade is going up steadily year by year, they will take the rough with the smooth. They will accept that for one year Britain has to draw in her belt a bit before the whole process can continue to go steadily up and up.

Those of us who meet E.F.T.A. Parliamentarians in other assemblies do not find them screaming at Britain. In circumstances like this they say, "So long as, over the years, our exports to Britain are going up, we are happy. We will take the rough with the smooth. You have to keep yourselves in balance, we know that". There will be no undue alarm and panic in the E.F.T.A. countries. We are trying to make this small adjustment at the margin. The same would apply if we look at the internal cuts used by the regulator. If we look at what has gone wrong and caused these extravagant, wild accusations from the other side, it is that we are 1 per cent. out in our estimate as to how national consumption would move this year.

I reminded the hon. Member for Louth when, during this speech he said that we could not always tell what the result of our actions would be, in exact numbers of millions of pounds, that this is a free country. We are free to import and to spend. All that a Government can do in a free country—and I am glad to have that freedom and to pay the price of it—is to exert pressures and sometimes to wait to see how they work, making the best judgment available.

The only alternative is undemocratic totalitarian planning, which neither he nor I want. This was to be taken as part of the country's democratic life. If one is trying to be as accurate as 1 per cent., 2 per cent., 3 per cent. at the margin of either imports or national consumption, one will make mistakes and will have to use the regulator and to use little Bills like this. I congratulate the Government. This is a very sensible Bill. It is a very sensible package of measures which ought to have just the kind of effect that the Government want, to swing us into surplus a little more quickly so that there is no danger of any further attack on our currency.

9.13 p.m.

Mr. Michael Shaw (Scarborough and Whitby)

This debate has ranged widely, and nearly every point has been ventilated. I will try to condense what I have to say. The hon. Member for Birmingham, Northfield (Mr. Chapman) made an interesting speech, because it was the first almost unqualified speech in support of Government policy. He claimed that there had been a wide spectrum of views from this side of the House. Had he listened closely to the expressions of view from his own side he would realise that they were much less varied than those from this side and were nearly all of a doubtful quality.

The hon. Member for Stoke-on-Trent, Central (Mr. Cant) seemed to come out firmly for the benefits of a "stop-go" policy. I would go some way with him, because I believe that one can be too clever when dealing with the economy and that too much tinkering can cause more harm than good. At the end of the day our attitude to this Bill and the regulator comes down to what is our confidence in the behaviour of the economy during the next 12 months.

The Purchase Tax regulator is aimed at checking consumer spending. Such spending will only be checked if confidence in the future is restored. If it is not, and I do not believe that it has been so restored, then people will continue to spend not only everything they earn but everything they have saved. The whole record of these last four years has been crisis coming after promises, coming after crisis. At every stage the man who has bought straight away instead of waiting has always found it best to do so.

The crux of the matter is: is this the last crisis that we shall suffer under this Government? If the answer in the public mind is "Yes" and we are now on the right road, there is a good chance of these measures being effective. But I do not believe that the public is convinced of this in the slightest. When we had devaluation, there was a chance to draw a line and start again. But measures have dribbled out month after month in the last year, each time increasing prices arid making people say, "Why did I not buy that last week because now the price has increased". There is no incentive to save or to hold on to savings. There is only an incentive to spend in the conviction that prices will be higher later. The Government must set their own house in order and set a ceiling and put a brake on their own spending.

Whatever the merits of the import deposits scheme in the Bill, it has been admitted by the Government that it is a temporary Measure—that is, a Measure which gives time for other things to work. The essence of the scheme is that it should be seen that when it ceases to work the economy will be in balance and beginning to move forward and once again we shall be able to pay our way in the world and to discharge some of our debts. But is this the position? Is there any hon. Member, apart from the hon. Member for Northfield, who believes that in 12 months we shall not still be here discussing another crisis?

The Evening Standard has been much quoted. I want to follow the fashion. What was David Montague's view of the future when talking to Jonathan Aitken? He said: The outlook for Britain remains very little changed as a result of the events of last week. We are likely to feel a backlash from the success achieved by de Gaulle and the refusal of the Germans to devalue. Sterling must continue weak as long as the credibility gap widens between what the Government says and does". In saying that, he spoke for the vast majority of the people of this country.

A time-bomb is built into this Measure. If, as I believe in many instances, the import deposit will be paid for either by cash from abroad or by the extension of credit by foreign importers to this country, when this Measure ceases to have effect in 1970 the payments will be made to those foreign importers. Therefore, just when we should be getting on our feet, a further drain on sterling is likely to take place. That is a curious timing for those interested in general elections.

I do not believe that in general the big companies will have difficulty in getting the money to pay these deposits. On balance, prices will go up as a result of their having to find the money. The people about whom I am worried, as I have been so often in the last four years, are the close companies, the small family companies. Not only will they have difficulty in finding money for the deposits, but the whole aim of the Bill is to make credit tighter, and the people who are always most affected in times of tight credit are the small family companies, and particularly those in the middle of rapid expansion. These are the very people we need to encourage rather than hold back if we are to make a success of the future. But they do not have the resources or the avenues of the big companies for gaining cash and they cannot twist the arms of the banks in the way that the big companies can to force them to lend them the money. There is a real danger and a hardship for those companies. I would like to see an Amendment in due course whereby companies below a certain size can claim a rebate from the deposit if they show that they are of that size.

If the Government could assure us that in the next 12 months we would have no further crises and that the Bill would give us the time that is necessary for an equilibrium in our balance of payments to be truly achieved, I would believe that there was ground for supporting it, but I and, I believe, most people do not have that confidence and believe that this latest crisis is one of a continuing series of crises that will continue until the Government go out of office.

9.21 p.m.

Mr. Ted Leadbitter (The Hartlepools)

I propose to take no longer than seven or eight minutes to accommodate the House, in spite of the fact that I have been sitting here since about half-past two. I have done so because I am very much concerned at the implications of the kinds of measures that the Government have introduced during the past few days, in addition to other measures in a serious attempt to try to solve the country's problems. Basically, I am not satisfied that either the extent of this Measure, the nature of it or, indeed, the use of the regulator is necessarily the kind of formula which will deal with the basic malaise of the country.

I noticed in the Financial Times this morning this comment when it referred to the review of the National Institute of Economic and Social Research: There is no doubt the reason for the difference"— that is the difference in the estimates of the balance of payments— lies in the behaviour of imports relative to the level of domestic demand. It is chiefly in respect of import forecasts—price and volume—that successive revisions have taken place. Thus the Institute's call for import controls earlier this year was amply justified. That is the basic problem which requires repetition and attack.

Since 1960, the increase in exports has, unfortunately, not kept pace with the increase in imports. The Bill is geared to do two things: to mop up some consumer demand, on the one hand, and marginally to reduce imports, on the other. If the principle of controlling imports by this Measure is acceptable, why do we get fixed with the notion of physical quantitative controls?

If the principle is right in this instance—and the Government have said that it is—why is the means of attacking through the principle of quantitative restrictions on imports which can be selective, which can be placed in the right directions and which can take the economy into consideration, not applied?

The answer, apparently, is that our E.F.T.A. partners would be upset, that we would upset the principles and concepts of the General Agreement on Tariffs and Trade, or that we would upset the principles laid down in the conditions of the International Monetary Fund.

I repeat that, as my hon. Friend the Member for Edmonton (Mr. Albu) said, if we are consuming more than we are earning, if we are taking from the rest of the world more than we are paying for, if, over a number of years, we cannot export to a level to meet our import consumption, we must do something about the imports. There is no point in tinkering with the problem. There is no point in introducing in a Bill of this kind another danger, because it does not follow that the level of import reductions which the Bill may achieve will be of the kind which will be in the best interests of the country. We shall gain only marginally, and even the Financial Secretary would not say what that margin would be, in terms of import reduction. We cannot pinpoint the extent of the margin of reduction. We cannot even select more than the general areas of the reduction.

Therefore, I place before the House my first objection to the nature of the Bill. It is marginal, it does not pinpoint the right type of import reduction, and it does not solve the basic problem of imports. Therefore, it encourages very little support.

There is another side to the Bill, in so far as it affects the development areas. Although I said on Tuesday that one cannot, in a debate of this kind, ask for discriminatory concessions, nevertheless the consequences of this kind of Measure are felt, possibly, far more quickly in development areas than they are elsewhere. Many small companies have gone to the development areas; they may not have the capacity to lay down the deposits required, particularly those companies which have not had time to settle, and certainly some which placed orders for imports before 27th November. Therefore, I hope that Ministers will look at this question, and try to introduce into the Bill in Committee an Amendment which will take into account the need to deal with this problem of imports in transition before 27th November, and the corollary, the small firms which order imports but cannot have delivery within the first six months. Such firms should have some special consideration on grounds of hardship.

There is an important part of the problem which may not be felt by a larger firm. It would seem to me a pity that the Bill should be implemented as it stands, across the board. If an importer cannot meet his deposit, or falls short in his business, that may be to the advantage of the larger importer dealing with the same kind of product. In other words, the Bill might create business for the large businessman to the detriment of the smaller businessman. It is proper we should ask the Chancellor to look with special care at the question of the small and medium firms.

The problem of the balance of trade, as distinct from the balance of payments, has been with us for many years. The Conservative Party had over a decade in which to solve it; it failed to do so. Indeed, during its term of office it created something which, I hope, will never be seen again, and that is the division of the country into two nations. We had in the Northern Region unemployment of the worst possible kind, and in Wales, Merseyside and Scotland. We are concerned about the solutions which our Government produce. We feel free to criticise the party opposite; not only has it lost the opportunity, but, so far as I am concerned, it has nearly lost the right.

9.31 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

I hope that those hon. Members who have not spoken, some of whom have sat throughout the day, will forgive me if I say that it is time we drew the debate to a close. I listened to this debate, and to the debate on Tuesday, on the Ways and Means Resolution, with some nostalgia, which may seem strange for one who entered the House only in October, 1964. Many of the speeches which we have heard in these two debates are echoes of the speeches which were made in the debates on the temporary charge on imports, which was a feature of the first Finance Bill in which I had the pleasure to take part.

We have had arguments about the same products and the same machinery, and also the same arguments about legality under G.A.T.T. and E.F.T.A. I hope that the Minister of State will give a clear answer to the question which was asked by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph). I am tempted to say that this is where I came in; it is not a mere figure of speech, since we are back again to square one.

The public reaction to the measures which the Chancellor announced last Friday has been one of utter dejection, summed up best perhaps in a headline last Saturday, "Weary resignation greets clampdown". What a contrast it would have been had it said, "Government's resignation greets clampdown." However total the Government's failure, however disastrous the management of our affairs, they will not resign; they will stagger on, desperately hoping for something to turn up.

In the meantime, we are again debating the forty-first instalment since October, 1964 which the Government have tried to force on to the economy. We are playing our parts in a serial story which for grim interminability makes the everlasting tale of "Peyton Place" look like a rollicking French farce. The harsh truth is that these two measures which the House is asked to approve tonight have been necessitated by the failure of the Government's post-devaluation policies. The spending spree has taken its toll not so much by sucking in a vast quantity of consumer goods that would be to misrepresent the figures —but, by causing a domestic boom at home, it has caused an upsurge of imports of raw materials, fuel and semi-processed manufactures.

If we compare the figures for the first six months of 1968 with the second and third quarters of 1967, 70 per cent. of the increased import costs is attributable to higher prices and to the increased volume of food, raw materials, fuel and semifinished manufactures, and only 18 per cent. (less than one-fifth) is due to the import of finished consumer products. More significant, of those finished products, the analysis shows that the prices rose by the full 17 per cent. margin of devaluation and the volume rose only by 4 per cent. Thus, all the talk of soaring imports of Japanese transistors, Italian fashions, and, as a letter in The Times had it the other day, of 300-guinea pigskin lined alligator skin briefcases is somewhat wide of the mark. Consumer imports have risen in volume, but only by four per cent. What emerges is that these substantially higher prices in the shops do not seem to have deterred buyers.

Turning to exports, at the time of devaluation we needed a 17 per cent. increase in earnings merely to stand still. As a result of the increases in imports, that figure has risen to 22 per cent. In fact, we have had a volume increase in exports of only 10 per cent. comparing the first half of 1968 with the second and third quarters of 1967. That compares with 12 per cent. in the export boom of 1959–60 and 11 per cent. in 1963–64, when we did not have the price advantage of devaluation. Export prices this last year have risen on average by about 6 per cent., so we have achieved a 16 per cent. improvement in export earnings compared with the 22 per cent. that we needed.

That is why the trade gap has widened since devaluation, and it demonstrates as nothing else could the sheer magnitude of the task with which we are faced as a result of devaluation. In passing, I am astonished that anyone could ever nave attempted to represent devaluation as presenting great new opportunities for the country.

Since June, imports have continued to rise faster than exports, but the gap has narrowed somewhat. However, still we are not back to the pre-devaluation situation, and we are a very long way from the £500 million surplus that the Chancellor is aiming to get as a rate for next year. I know that the hon. Member for Edmonton (Mr. Albu) hoped that we were just about to reap the advantages of devaluation. I hope very much that he is right. But he would be a rash man who claimed to be able to forecast it with certainty.

I have gone into this in some detail because it is necessary to put into context the two measures that we are discussing. If it is true that the import boom has been primarily food, raw materials and semi-processed goods and that the increase in the volume of consumer manufactures has contributed to the increase only to a small extent, where is the case for the import deposit scheme? Further, if imported consumer products have swallowed a 17 per cent. price rise already, what will be the effect of a 2 or may be a 3 per cent. price rise due to the cost of the 50 per cent. deposit?

Assuming that the credit is available —and all the evidence today has been that it will be—it is probable that the further price increases as a result of the deposit scheme will not deter any significant volume of consumer product imports. But, with food, fuel and raw materials exempt, we are left with the major slice of imports—semimanufactures, industrial components and machinery—and it is significant that those are the products about which there has been all the argument. They are the products which were described in the letter which the Chancellor received today from the C.B.I.

The question is: will the Bill curb exports in this sector? The Financial Secretary was honest enough to say that he simply does not know what the effect will be——

Mr. Harold Lever

No. I said that I simply would not predict the extent of the effect.

Mr. Jenkin

Very well; I accept his words. He simply does not know the extent of the effect. He is able to split hairs, and presumably he knows what the difference is.

In my view, the effect will be little, if at all, and, even then, only in the very short term. To take an example with which I am familiar, that of chemicals, a United Kingdom buyer will import only if he cannot get what he wants from the home market. The 2 per cent. price differential likely to operate will affect only a tiny quantity at the margin. There may be some postponements. Stocks may be run down, and in that way there may be some delay in imports.

Take the example of machine tools. There may be a marginal shift, but all the evidence shows that imported machine tools are specialist items which are not available in this country, and nor will they be as a result of the Bill. We shall find in both cases that the sum needed to be found by the importer will deplete his cash resources, and that is bound to postpone productive investment in other directions. In either event, this will do far more harm in hammering investment in new productive capacity than it will do good either by cutting imports or by diverting demand to the home trade.

We are forced to conclude—indeed, the Financial Secretary was frank enough to say this—that the primary effect of the Bill is not to restrict imports, but to restrict credit. The Chancellor, on 22nd November, when the Bill was introduced, said that it was "peculiarly appropriate." This is the point of the Amendment. But I concede that the purpose of the Bill is to put selective pressure on the liquidity of importers. When the Bill is viewed in this light—as another means of cutting the overall level of demand on the economy—we can appreciate the senseless folly of making the private sector bear the whole of this latest squeeze.

It is bad enough to raise consumer taxes yet again it is worse to impose a savage credit squeeze on productive industry, which is the principal wealth creating sector in our economy. But it is utterly monstrous to do both these things, yet to leave inviolate the vast programmes of public spending which today take so much higher a proportion of the gross national product than four years ago. That is the case that we make in our Amendment and why we will press it to a Division tonight.

The effect of the Government's spending programmes, at a time when the gross national product has been rising very slowly, is that out of every £ of extra output since October, 1964 the public sector has taken 15s., leaving only 5s. to be shared among consumer expenditure, private saving and private investment. Is it surprising that in these circumstances private investment, as a percentage of the gross national product, has fallen every year, or that savings, as a percentage of the gross national product, have fallen?

No one, except perhaps for the wild and woolly economists below the Gangway, could possibly doubt that the economy needs more saving and higher investment. We have not got this. The Government do nothing to help savings and continue to carp about the profits which are the life-blood of investment. I believe that many of the difficulties facing us stem from a basic schizophrenia which recognises that they are managing a mixed economy, yet denies the essential profit element which makes a private economy work.

Before leaving the Bill, I should like to ask the Minister of State some questions. First, the vexed question of a bond. I hope that the hon. and learned Gentleman will confirm that, until the Bill becomes law, a bond is all that the Customs can ask. Will the 180 days run from the date at which the bond was given, or from the date at which the cash can be demanded when the Bill becomes law?

Secondly, the Bill makes it clear that the reliefs and remissions that are available for goods intended for export will be available under this scheme. We must recognise that this will cover a vast range of goods which are not subject to duty and for which, therefore, no claim for relief from import duty has had to be made. Does the Minister of State, and particularly the President of the Board of Trade, recognise that there will be an enormous mass of applications for deposit exemptions in respect of goods for which no duty exemption has been required so far.

Thirdly, bank credit. The evidence is that some banks are already refusing credit to pay the deposits, even for goods which have come in since the Chancellor made his announcement on Friday. The Chancellor stated that some credit would be allowed in the early months. Will the Minister clarify what the position on bank loans to pay the deposits will be? My hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris) raised this point and it is one of great importance to those who are faced with this immediate problem.

I want, finally, to put one small question, but one of great importance, about manpower implications. When the Prime Minister spoke in the debate on the Civil Service, he stated that in future: … Bills should include forecasts of any changes, or postponment of changes, in the non-industrial and industrial staff in Government Departments which are expected to result from a Bill".—[OFFICIAL REPORT, 21st November, 1968; Vol. 773, c. 1546–7.] Here is one of the first Government Bills to come before the House after that, and there is no such statement.

In an Answer to a Question, my hon. Friend the Member for Working (Mr. Onslow) elicited that 250 extra civil servants are likely to be engaged in administering the Bill. I am bound to warn the Chancellor that I think the figure will be very much higher than that, because he has not taken account of the flood of applications for relief which will be necessary to take advantage of Section 7 of the Import Duties Act, 1958 and Section 1 of the Finance Act, 1966.

I turn now to the regulator. Here we have another turn of the screw which is bound to send prices in the shops higher. On Monday, the Chancellor was at pains to exonerate his right hon. Friend the First Secretary of any responsibility for the need to introduce the regulator, but I am bound to say that what he said rang very unconvincing. What did he mean—and my hon. Friend the Member for Gillingham (Mr. Burden) asked this—when he said in the debate on 5th November: Prices are better, at least lower than as expected, and consumption, partly as a result, is higher, which, in a sense, means worse"?—[OFFICIAL REPORT, 5th November, 1968; Vol. 772, c. 717.] That was an extraordinarily convoluted sentence.

What it boils down to is that the right hon. Lady's use of her statutory powers to delay prices increases resulted in rising demand satisfying itself in higher consumption instead of higher prices as the Chancellor had originally intended. We always said when the right hon. Lady declared war, as she said, on rising prices, that she would set about defeating the Chancellor's strategy, and that is exactly what has happened. That is why he had to tell the House last Friday that he was to use the regulator to put up prices by raising taxes.

I suppose that we may admire the right hon. Gentleman's chivalrous attitude, but it puts a new twist to the meaning of "a Treasury knight". But he fools no one, except, perhaps, the right hon. Lady, who has never understood his policy. But I suppose that he may take comfort in that he is not the first or the last knight to fall flat on his face after tripping over a lady's skirts. The unpalatable fact remains that her failure has resulted in taxes being raised by £250 million.

Some of the increases will hit industry very hard. I cannot believe that the Chancellor would have put 4s. extra on a bottle of whisky if he had had power to discriminate when he knows that the industry has not yet recovered from the effect of the 2s. 6d. increase in April.

The hydrocarbon oil tax was put up in April. In Committee on the Finance Bill, my hon. Friend the Member for Barkston Ash (Mr. Alison) said that more than half the increase in petrol duty went on commercial users, and that statement was not challenged by the Financial Secretary. It is often represented that the petrol tax is in some way a luxury tax on motoring, but, in fact, it adds severely to the costs of distribution which have already been raised by the 50 per cent. increase in Selective Employment Tax in September. This tax puts a new twist to the costs spiral.

Similarly, fuel oil for industry is hit, and that must increase energy costs at a time when at last we were coming to realise that lower energy costs are essential to the success of our industry.

These two measures, coupled with the hire-purchase curbs and the new un-precedentedly harsh squeeze on bank credit, represent yet one more attempt by the Government to regain mastery over our economic fortunes. Four weeks ago, one of our more widely read weeklies published an article which said: After four years of virtually non-stop squeeze, another turn of the screw—tighter bank credit or H.P. restrictions, or perhaps an increase in indirect tax rates—is rumoured. If it happens, it will be the last confession of bankrupt management. The writer was Mr. Roger Opie, an erstwhile Government economic adviser, and the paper was the New Statesman. I cannot improve on his language, but I cannot say the same for his forecasting, for a little later he said: This is not a plea for active reflation, which, of course, would mean import controls. Here we have both—an intensification of the squeeze and import controls. This is the forty-first package since this Administration first assumed responsibility for our affairs. What I find so utterly depressing is that in spite of failure after failure after failure Ministers seem totally unable to recognise that they have forfeited any claims to the confidence of the people.

Do not they realise that the people are sick and tired of them—of their evasions, their deceit, their sheer incompetence? These measures, by forcing industry into what will be the tightest economic straitjacket that we have ever had to endure in peace time, may help to retrieve the slither of the last 12 months: time will tell. What is absolutely certain is that they should never have been necessary. Here we have the Government, entering on their fifth year of office, not one yard nearer the goal of solvency. It is because, while they continue in office, we see neither prospects nor even hope of any end to the nation's woes, that we condemn them tonight and we shall express our condemnation in the Division Lobby.

9.52 p.m.

The Minister of State, Treasury (Mr. Dick Taverne)

I turn first to the Amendment. The right hon. Member for Leeds, North-East (Sir K. Joseph) made a brave attempt to link the Amendment to the Motion to give a Second Reading to a Bill, which is essentially concerned with an immediate problem, but his attempt was completely destroyed in an able and remarkable speech by my hon. Friend the Member for Heywood and Royton (Mr. Barnett), who pointed out that the savings for which the right hon. Gentle-roan was asking were alternative cuts in private consumption. We are discussing an immediate impact on the balance of payments position, and the suggestion that comes from the right hon. Gentleman is that this problem is to be solved by a different method of paying council house rents. It is a totally illogical proposition.

At least on this occasion the right hon. Gentleman did not put forward the argument advanced by his right hon. Friend the Leader of the Opposition, who seemed to suggest that these problems would be solved by a new system of agricultural import levies. With such a system there is no question that any immediate impact on the balance of payments could be obtained, whatever the other objections, because a change in the system would De contrary to our international obligations.It would need elaborate international negotiations, and it is inconceivable that it would have a short-term impact on our balance of payments position.

The right hon. Member for Leeds, North-East conceded that there were difficulties in cutting public expenditure. Everyone knows that. As was pointed cut as long ago as in the Plowden Report, short-term economy campaigns are damaging to the real control of public expenditure. It is totally inconsistent with rational management if plans are drastically changed from time to time in the way that the right hon Gentleman now wants to change them.

The right hon. Gentleman said that it may be unpleasant and it may be difficult, but, if necessary, it has to be done. He said that public expenditure was just as productive of imports as private expenditure. He must know that this is totally untrue. He must know that the import content of public sector spending is many times less than the import content of private sector spending.

There is only one field in which there is a direct relationship between public spending and our balance of payments, and that is defence. What is the policy of the party opposite on defence? Cuts east of Suez, which would have a direct impact on our balance of payments, are opposed by hon. Members opposite. Cuts east of Suez are to be disregarded as methods of solving our balance of payments, but a system of higher rents for council tenants will apparently solve the problem.

Indeed, the inconsistency of the Opposition's approach could not have been better illustrated than by the business which immediately preceded this debate. Then the announcement was made about the reorganisation of the Territorial Army. [HON. MEMBERS: "Shame."] Hon. Gentlemen opposite cried "Shame" then and they still cry "Shame". They were opposed to another Measure which would not only reorganise the Territorial Army but save £20 million of public expenditure.

Sir K. Joseph

My criticism was that the Chancellor and the Government did not use the psychological opportunity of devaluation to set in train a proper and efficient reduction in public expenditure which is absorbing more and more as a proportion of our national resources.

Mr. Taverne

I will come to that. In any event, the right hon. Gentleman is quite wrong. He knows that there is no connection whatever between the Amendment and the Bill. Why was the Amendment moved? As my hon. Friend the Financial Secretary pointed out, it was designed to hide the differences which exist inside the Conservative Party. [Interruption.]

Mr. Speaker

Order. A number of hon. Members who have not heard the debate seem to want to join in unofficially.

Mr. Taverne

Perhaps I might point out, for the benefit of hon. Members who were not present in large numbers during the debate, that today has been the day of the free traders. if they read the OFFICIAL REPORT Of our proceedings they will see that that has been so and that Monday and Tuesday were the days of the protectionists.

The public expenditure argument is relevant to the Order for the Regulator, and I will therefore comment on this issue. We of course accept the need for strict control on public expenditure—[Interruption.]—and in order to divert resources into exports far-reaching cuts in public expenditure were made in January of last year, when £300 million was cut from public expenditure planned for the present year and £440 million for the year 1969–70. As the Chancellor said in Monday's debate, public expenditure this year is exactly in line with the January forecast and the January White Paper. [Interruption.] Hon. Gentlemen opposite must accept this as a fact. It is exactly in line with the January White Paper. We intend, as set out in the White Paper, to keep the increase in public expenditure in the next year at 1 per cent.

Hon. Gentlemen opposite are asking that we should cut back next year—it clearly could not be done this year—and they are therefore asking us to cut back on the increase of 1 per cent. in next year's public expenditure. The right hon. Member for Leeds, North-East is totally wrong in saying that public expenditure is increasing faster than the gross national product. As the January White Paper pointed out—it is clear that the right hon. Gentleman has not read it—public expenditure is going ahead according to plan. The growth in public expenditure in the next few years will be well within the projected growth of the G.N.P.

Mr. John Smith (Cities of London and Westminster)

We have often heard that Government expenditure is in line with the estimate. Would the Minister's bank manager accept it as an excuse for his overdraft if he said that his expenditure was in line with his estimate?

Mr. Taverne

The hon. Gentleman would have a valid point if our problems were caused by public expenditure increasing by more than we had anticipated. However, as the Chancellor pointed out in Monday's debate, what has gone wrong with the forecast has not been public expenditure but private consumption. It is at private consumption that these measures are directed.

My hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) attacked the use of the regulator. He said it would increase unemployment because, he said, this was part of the standard deflationary measures he associated with the party opposite. I must remind him that these measures are being imposed at a time when the trend of production is upward, when the unemployment trend is downward, when the trend in vacancies is upward and exports are rising strongly. That is the background against which these measures have been imposed.

It being Ten o'clock, the debate stood adjourned.