§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Fitch.]
§ 4.8 p.m.
§ Mr. Julian Ridsdale (Harwich)
I am grateful to you, Mr. Speaker, for letting me have this Adjournment, because, on problems such as capital investment, I have found that at Question Time we can have only a fragmentary discussion. Even in the debate on the Queen's Speech when the question of investment in manufacturing industry was raised on 3rd November, no detailed reply was given by the Government. The Minister of Technology dealt only with some individual industries in defending the Government's weak and vulnerable position.
1718 I wish to deal with the alarming international comparisons, which show that consistently over the last ten years—and it has been far worse in the last five years —United Kingdom investment in manufacturing industry as a proportion of the g.n.p. has been running al, a rate of under half what Japanese investment has been, and that West Germany's investment in manufacturing industry has been half as much again as that of the United Kingdom over the last 10 years.
I hope that the Minister will be able to give some recent figures, as it is evident that our record of investment in manufacturing industry ha; considerably worsened, both at home and abroad, in international comparisons, particularly over the last five years. Will the Minister give his estimate of investment in manufacturing industry as a percentage of the g.n.p. at current prices for the United Kingdom, West Germany and Japan over as many years of the last decade as possible? It is this low level of industrial development which must give most cause for concern for the future.
Two weeks ago the 'Chancellor said that the underlying trend for manufacturing investment had been strongly upward for the past 18 months. But was 1719 not the reason for this that manufacturing investment rose in the last quarter of last year because the higher rate of investment grant was about to come to an end? Is it not a fact that it fell sharply the following quarter, and that if we average that quarter with the following one we see that manufacturing investment stayed flat for the three-quarters from October, 1968, to June, 1969.
Is it not a fact that the average figure was £350 million compared with £316 million 18 months ago? The facts are that in money terms manufacturing investment is no higher than it was in the second quarter of 1967, and about the same as it was in 1961. And as a percentage of the g.n.p., is it not a fact that manufacturing investment is now much lower than it was in 1961? And that in spite of the investment of £1,000 million of taxpayers' money in investment grants.
How challenging it is to think that over all the period of the 'sixties Japan's investment in manufacturing industry has been double ours, and that her growth this year and for 1970 is estimated at 13.5 per cent. As for West Germany, over the last 10 years her investment has been half as much again as ours. Is it a wonder that we find ourselves having to devalue our £ both in terms of the Deutsche mark and the yen?
I am sure that we have to take into account what is happening in international investment, and not just compare our own manufacturing industrial development with previous months or years. Every time the Chancellor produces a figure for our investment in manufacturing industry, I wish that he would at the same time produce some comparable figures for Japan and Germany.
However, let us be clear that a high level of investment is not enough in itself to guarantee growth of output and productivity. The quality of investment and its utilisation and productivity are much more important. Can the Minister say how this pattern has changed in the last ten years, and what pattern he expects in the next five years? Are not West Germany and Japan getting this selectivity which is so vital for the future by allowing free market forces to work? Because of this, is it not a fact that the flow of capital to Japan has been at least 1720 £500 million in the last six months from the European continent alone?
The challenge to each one of us is that not only is the amount of capital investment in manufacturing industry at a very low level, but so is its quality measured in terms of investment per employee and the average age of equipment. Will the Minister confirm, or deny, that in 1968 Britain had the lowest rate of capital investment per employee of any industrial country? Is it true that the number of machine tools in the United Kingdom under ten years old was 38 per cent., in Germany 50 per cent., and in Japan 64 per cent.? Worse still, we have the under-utilisation of capital investment—in particular, the latest and most glaring example, the millions of £s wasted on the container port at Tilbury. We can think of many other examples.
Alas, at the moment we have a vicious circle, where Germany and Japan have a virtuous one—success breeding success. In both Germany and Japan savings—both corporate and individual—for investment have been high because the tax burden has been low. Wisely, they have paid more attention to economics and less to Left-wing economists, for we cannot have our cake and invest it too—an elementary economic lesson which has taken this Government a long time to learn.
The Governments in those countries have made money available for further investment by low taxation, and not high. In those countries individuals have a sufficient net income, after tax, to provide an adequate flow of savings. They have not got the temptation to spend on consumer goods instead of saving because of the growing conviction that inflation will continue and that in any case if one saves a wealth tax will be devised to take it all away. They are not faced with the awkward question which has been posed to the Chancellor: when does an honest saver become a bloated capitalist, because he believes in capitalism and is doing his best to make a progressive form of capitalism work.
Both Germany and Japan have created conditions to get a proper flow of investment to manufacturing industry. They have been able to achieve a great deal of their success because profits and investment in manufacturing industry have been financed by genuine savings which 1721 have not been discouraged by excessive taxation. Profitability in industry has been encouraged. They have not got themselves imprisoned by an overkill of taxation.
§ Mr. Speaker
Order. The hon. Member is beginning to argue that taxation is the root of the trouble about which he is talking. We can amend that only by legislation, and we cannot discuss legislation on the Adjournment.
§ Mr. Ridsdale
I knew that this was going to be a delicate argument for an Adjournment debate, Mr. Speaker. But I am not arguing that this can be cured by taxation. My aim is to compare our position with that of Germany and Japan and to show that although those countries have been able to increase investment in manufacturing industry we have not been able to do so.
§ Mr. Speaker
I have followed the hon. Gentleman's argument carefully, but what I have ruled is still true.
§ Mr. Ridsdale
I therefore continue by saying that we must face the fact that today our share of world trade is down to one-tenth and the share of our industrial capacity in the free world is down to 5 per cent. Being so dependent on our export trade and with such a small share of the world's industrial capacity it is very important to concentrate on those industries which do well, so that although we need a higher level of capital investment it will be selective. It must be based on a company's proven profitability in markets both at home and abroad. That is why we must clear away the obstacles which prevent the good companies from going ahead. We must support success, not egalitarianism.
Japan and Germany have not concentrated since 1946 on the redistribution of savings; they have concentrated on encouraging savings of every kind. As a consequence they find themselves in a position of lending us money for some of our social projects and in order to get us out of our balance of payments difficulties. Japan and Germany have not attacked past savings as we have done, and made it most difficult for the managerial and professional classes to save. If we are to get more productive investment, and selectivity in that investment, we must follow the example of Japan and 1722 Germany and let capitalism work. Only then will we be in a position to pay off the vast international debts that we have incurred in the last five years and, in addition, see that we get an extra £250 million a year in investment, and selectivity in that investment, in manufacturing industry which is needed if we are to survive as a major industrial nation.
§ 4.20 p.m.
The Joint Parliamentary Secretary to the Ministry of Technology (Mr. Alan Williams)
The hon. Member for Harwich (Mr. Ridsdale) and I have crossed swords and statistics on this issue in the past. I must repeat the point which I made to him on the last occasion, that his contention that the investment record of manufacturing industry under this Government is any worse than it was under the previous Government is not substantiated by the facts if they are related to the proportion of the gross domestic products. The hon. Gentleman asks for a great many figures, some of which I gave not long ago in reply to a Question. Although I do not have the figures now, I will gladly up-date them for him if that would meet his needs.
I must make it clear that 1968 and 1969 have been the first years for a great many years in which we have seen a strong dual improvement in the balance of payments and in capital investment. The figures of manufacturing investment for the second quarter of 1969 are an all-time record, given that one discounts the bunching, to which the hon. Gentleman referred, at the end of 1568. This rather invalidates the proposition that we have been going on an uneven keel, as I hope to demonstrate with other figures later. However, I accept the point which he implied that the discussion is complicated by the distortion of the investment figures at the end of 1968 as a result of the return to the 40 and 20 per cent. investment grant.
Inevitably the fact that the 5 per cent. was to be withdrawn on 31st December led to a bringing forward of certain investment decisions which otherwise would have waited for a few months. It is difficult precisely to quantify the effect of this distortion, but from the recorded figures it is clear that there was a 6 per cent. rise in the first half of 1969 compared with the first half of 1968. If we 1723 accept that some of the investment which would have taken place in 1969 was bunched to the end of 1968, this justifies our basic premise that the probability is that over the first half of this year compared with the first half of last year the increase in manufacturing investment was probably about 10 per cent., which is a very substantial rate of increase. While the hon. Gentleman and I may disagree about figures, I think that I am right in assuming that his continuing interest in manufacturing investment, which I know he has maintained over a long period, would lead him to welcome it, given that we can prove that this was the case and that it was not just a statistical freak.
In case anyone feels that distortion was a high price to pay statistically, we should be clear about why the distortion arose. It took place because for a limited period, previously announced, an extra 5 per cent. was given on investment because in 1966, when we reached an investment peak, the prophecies were that we would move into an investment trough. Therefore, the Government consciously took the decision that if we could eliminate that trough it would be worth trying by producing an extra inducement to achieve that end. The extra 5 per cent. was added for the two-year period.
Whereas in 1966 manufacturing investment represented 4.6 per cent. of the G.D.P., in what had been prophesied to be a trough, the proportion of the G.D.P. in 1967 slipped only to 4.4 per cent. and was the same figure in 1968. Therefore, we can contend that the short-term measure with a specific end date was a contributory factor in enabling us to even out the trough. The hon. Gentleman will accept, as we do, that from industry's point of view any evening out of this investment trough is desirable, both for industry and the country.
I must contrast this with the position after 1961. The hon. Gentleman rightly said that, as a proportion of the G.D.P., manufacturing investment today is lower than it was in 1961. But so it was in 1962, 1963 and 1964 when hon. Gentlemen opposite were responsible. The hon. Gentleman took an abnormal peak from the period when his party was in office and, in extrapolating it, said that it was 1724 a standard which we should have maintained. Had hon. Gentlemen opposite maintained that peak, then by 1963 they would have invested over £300 million more than they did. But after their peak, far from evening out the trough, as we did, they allowed investment to fall by 19 per cent. in two years, by 1963, while at the same time the G.D.P. was rising by 5 per cent. The hon. Gentleman will appreciate as fully as we do that that dramatic failure to maintain an already achieved level of investment inevitably led to a dangerous inflationary situation. It led to over consumption at a time when we were not investing adequately to meet that consumption, and that resulted in overheating of the economy. As a personal proposition, I suggest that that was a highly relevant factor in contributing to the economic woes that beset the country a year later, in 1964.
Since our 1966 peak the fall has been very slight indeed, and much less marked than in the past. At present there is clear evidence of an upswing. I indicated that our interpretation of the figures for the first half of this year, compared with the first half of last year, indicate an increase of 10 per cent.
The hon. Gentleman will be glad to hear that, on the information we now have available, it looks as though in the second half of 1969 there will be an increase in investment of between 6 per cent. and 7 per cent. over the first half, even after that first half has been written up to allow for the previous bunching. In other words, if we carry forward the allowance and make it appear higher, even then the second half investment is likely to rise by 6 per cent. to 7 per cent., which is a remarkable achievement.
§ Mr. Ridsdale
I welcome the increase, but does not the hon. Gentleman recognise that it is still relatively low compared with what Japan and Germany, two of our main competitors, are achieving?
I accept that completely and I do not believe that anyone would pretend that one can make a favourable comparison between our levels of investment and theirs. One must, therefore, look at what is happening, since we cannot hope to resolve this situation in a very short period. As my right hon. Friend 1725 the Chancellor of the Exchequer has indicated, this notable change in trend is most desirable.
If this were just a current position of 12 months compared with the previous 12 months, one might say that this is a temporary situation on which one should not place too much reliance. According to the Board of Trade's survey, the prospects are good for next year as well; and the position appears to be that 1970 should see a further 10 per cent. increase in manufacturing investment over the current year. That we are in a period of rapid increase is confirmed also by the C.B.I.'s "Survey of Industrial Trends". There are, therefore, firm and clear indications of an improvement that is not just a freak of one or two sets of figures.
The hon. Gentleman and some hon. hon. Members on both sides feel that there are alternative ways to stimulate investment. One proposition which they have put forward recently is that we should accelerate investment grants as a means of improving the investment rate. If one remembers that it was only on 1st January, 1966 that investment grants came into existence and that already they have twice been accelerated—they are now paid after only 12 months—one sees that the move has been in the correct direction. In our present financial circumstances we are not able to make any promise of an acceleration in the very near future.
I would also point out that the 12 months payment on the grant compares extremely favourably with the system which, for some peculiar reason, is favoured by the Opposition, namely investment allowances, where the payment takes place 18 months afterwards. In terms of helping liquidity, our system is more advantageous to industry than the system which is put forward by hon. Members opposite. Indeed, if they feel that in the present circumstances it is important to get this accelerated payment, one is bound to ask why, in that case, since their payment was so much longer in arriving than ours, in the period after 1961 they did not take some action which would have evened out the trough, as we have done in the last two years. We should not underestimate the scale of encouragement which the investment grants represent because in 1967–68 they 1726 amounted to £265 million and in 1968–69 £372 million.
Again some people are more difficult to please, and people have said that the grants are rising too quickly. But if one follows through the logic of the increase, this in itself is symptomatic of the underlying increase that I referred to in the level of investment. The grants are going up because the investment is going up. Therefore, it seems a little harsh to say that we want more investment and at the same time to criticise increases in public expenditure on the grants side.
There is certainly no complacency in our assessment of the value of the investment grant and we feel that now is an appropriate time, after three and a half to four years operation, to have a study of their effectiveness. A study is now being undertaken and there will be a report next year some time.
It has also been argued that we should ease liquidity. This, the hon. Gentleman will recollect, was a feature during the last Question Time. So far we in the Department have been able to find no conclusive evidence that liquidity has any direct correlation with the level of manufacturing investment. Indeed, experience over the long term as well as the short term seems to discourage the thought of such a relationship. But some hon. Members have rightly pointed out, since it is their genuine belief, that it may well be that there is a selective disadvantage in a liquidity shortage and that this tends to hit at the smaller firm. If that is so, that will come to light because the Board of Trade is now undertaking an assessment of the problems of the small firms and a report should be out in 1970. However, there is little hard evidence as yet to justify the premise which has been put forward.
May I refer to one other aspect to put the record straight? There have been reports in the Press that at the recent N.E.D.C. meeting the Government rejected out of hand the recommendation from the electronics E.D.C. that the investment grant should be extended to research and development. The Press, unfortunately, have got the wrong story here. There was no rejection, and the Ministry of Technology and our Government colleagues have agreed that this, as with the other recommendations which have come about as a follow up with 1727 the Task Ahead operation, will be fully considered by the Government. There is no commitment at this stage and nothing has been rejected.
The hon. Gentleman wants free market forces, although I suspect that some of his friends in the shipbuilding industry, who may have thought of computers or may have an interest in getting smelters into the country, would be less enthusiastic about free market forces being allowed complete sway.
I am sure the hon. Gentleman will accept that the fundamental requirement is one of confidence rather than a modification of investment inducements. This is taking place now and may underlie some of the increase in manufacturing industry. If we free ourselves from the recurrent balance of payment crises, as we are doing, this enables us to free ourselves from the currency-induced stop-go cycle, which means we can have steady growth. From a businessman's point of view, steady predictable growth is highly desirable when making forward planning and investment decisions.
Certain people see a conflict of interest between the balance of payments priority and the domestic incentive, arguing that 1728 if we are exporting our capital equipment this is denying domestic industry of such equipment. This would be valid if it could be demonstrated that there was a serious shortage of capacity in the industry, which was consequently unable to meet domestic needs. I do not think that there is such evidence. The Chancellor made the point on 16th October that while we want more investment we cannot hope to make up for years of under-investment. The hon. Gentleman said over 10 years, but it is over decades.
The stress on the balance of payments is not only a matter of economic priority —it is an absolute essential for us—but it is also a psychological priority. We have now demonstrated that we can move into a period of steady growth, freeing ourselves from balance of payments constraint and therefore hope for an increase in manufacturing investment. I am sure the hon. Gentleman will agree with me that it would be highly desirable if my analysis of the figures is correct. We would then be moving into what he called a virtuous cycle and breaking away from the traditional pattern.
§ Adjourned accordingly at twenty-two minutes to Five o'clock.