AMENDMENTS OF CUSTOMS (IMPORT DEPOSITS) ACT 1968

HC Deb 26 November 1969 vol 792 cc437-516

3.48 p.m.

Mr. Michael Alison (Barkston Ash)

I beg to move Amendment No. 1, in page 1, line 16, leave out 'two years' and insert 'eighteen months'.

One of the merits of this Amendment is that it writes the word "months" into the Clause and thus restores something of the; psychological impact which the Chancellor of the Exchequer clearly sought to give to the Bill at its birth. There is no doubt at all that the original concept of the Bill was of a short, sharp shock. The shock was quite specifically to be a direct reduction in imports on account of the difficulty and cost of obtaining credit, and the time scale—and I have no doubt that the Financial Secretary appreciates this point—of the original scheme was conceived in terms of months and not of years.

I make no apology for reminding the Committee that the Chancellor himself underlined this as being a matter of months rather than years when he said, on 22nd November, 1968: The scheme is not one which can or should be kept in being for more than a limited period, but it will have powerful effects over the next few months when we most need its benefit."—[OFFICIAI REPORT, 22nd November, 1968; Vol. 773, c. 1796.] I think that the Committee will see that it is for a good reason that we seek a form of words for the duration of the Bill which emphasises a monthly rather than a year long time scale.

Whatever else may be vague or uncertain about the impact of import deposits, it is abundantly clear that the scheme has not fulfilled the original expectations, either in terms of reducing imports or of making credit more difficult to obtain. It has perhaps made credit more costly to obtain, but hardly more difficult.

I will deal, first, with the argument about the impact upon imports. I could quote a great many Board of Trade and other statistics to make the point that imports of the non-exempted category of goods, so far from going down, have actually increased, but I will confine myself to one set of figures which gives us all the material we need to prove the point we are seeking to make. The figures were given by the Financial Secretary on Second Reading: Since the scheme, imports of exempted goods have grown by 3 per cent. and those of non-exempted goods have grown by 6½per cent. Prima facie, there is a clear rate of increase of non-exempted goods of about 100 per cent. They have increased at double the rate of exempted goods in the period since the import deposits scheme came in.

The Financial Secretary then gave us a long spiel, if I may put it as crudely as that, about how, relatively, he could argue that the rate of increase behaved—

The Financial Secretary to the Treasury (Mr. Dick Taverne)

Did argue.

Mr. Alison

All right, I allow the Financial Secretary that point.

The Financial Secretary argued, and I hope to show totally ineffectively, that relatively the rate of increase of non-exempted goods over exempted goods has been marginally less in the period since the import deposits scheme came in as compared with the period between 1964 and the end of 1968, when import deposits started. But the argument which he has adduced, looked at coldly and detachedly, is a matter of pure semantics and attempted brainwashing. He said: So the difference between the rate of increase in non-exempt and exempt goods has dropped from nearly three times to just over twice."—[OFFICIAL REPORT, 17th November, 1969; Vol. 791, c. 878.] If one analyses that argument, it is like a couple of small boys aged 10, one of whom wants to pretend that he is a bit older than he is so that he can get into a cinema to see an X film, and the other wants to pretend that he is slightly younger than he is to qualify for cheap seats. The boy pretending to be older says that he is just a few months short of 11; the boy pretending to be younger says that he is only a few months over 10. They are both exactly the same age. The Financial Secretary argued that the rate of increase has dropped from nearly three times to just over twice, and this amounts to exactly the same thing, if one looks at it carefully.

Between the two periods the rate of growth of the G.N.P., which is the key, has dropped. The average in the period 1964–68 was about 2.1 per cent. to 2.2 per cent per annum, and in the period during which import deposits have applied the rate of growth has dropped by about 25 per cent., from over 2 per cent. to about 1½ per cent., that is to say, a quarter—

Mr. Joel Barnett (Heywood and Royton) rose—

Mr. Alison

The imbalance lies in the other direction. Against a reduction in the rate of growth of the G.N.P. of as much as 25 per cent. between the two periods the Financial Secretary gave us, we see that the buoyancy of non-exempt goods, which relate particularly to the products which one would look for in the context of economic growth, has barely gone down and has continued at twice the rate of the exempt goods. The Financial Secretary cannot pretend that the import deposits scheme, against the background of this severe decline in the rate of growth of G.N.P., has had a traceable effect. I believe that it has actually been perverse and has helped to make the goods buoyant.

Mr. Barnett

Is the hon. Gentleman arguing honestly? He said that this has had no effect on liquidity. He is now arguing that neither is it having any effect on the level of imports. Is he telling the Committee that it has not prevented even a marginal increase, which is all that the former Financial Secretary suggested that it would do?

Mr. Alison

The hon. Member forgets that the Chancellor of the Exchequer specifically said that there would be a direct reduction in imports. I have reminded him that exactly the opposite has happened: exports have gone up by 6½ per cent. which is twice the rate of the exempted goods.

As I sought to show on Second Reading, there is some evidence that there is a perverse factor at work, and that the effect of import deposits has been to bring forward the stocking up by industry of goods which are subject to the import deposits scheme.

I turn now to the second argument to which the Financial Secretary gave special emphasis in his speech on 17th November. The Committee will note with some amusement the emphasis given by the Financial Secretary, in contradistinction to the Chancellor of the Exchequer, to what he described as … its contribution to the successful policy of credit restraint."—[OFFICIAL REPORT, 17th November, 1969; Vol. 791, c. 872.] The more one looks at the argument of the successful policy of credit restraint that the Financial Secretary elevated to the top position of his justification for import deposits, the more bizarre the argument becomes. If credit restraint was originally adduced, and it was adduced by the Chancellor of the Exchequer as a principal factor in the direct reduction in imports, and there has been no such direct reduction in imports—on the contrary, imports of non-exempted goods have tended to go up—it can hardly be argued that there has been a successful policy of credit restraint in the non-exempted categories. If the argument is that credit restraint is indissolubly linked to the success or failure of the import level of non-exempted goods, and if the level of non-exempted goods has continued to rise in terms of value and volume of imports, the argument about credit restraint has failed.

If the Financial Secretary is still talking about the contribution to credit restraint, where is the policy of credit restraint meant to bite? Is it meant to bite, if not on the non-exempt category, on the exempt category? Is it argued that although the import deposits scheme is having no effect on the non-exempted category, in a perverse way it is having an effect on the exempted category? If it is, there is a good argument for knocking away the import deposits scheme in the hope that the non-exempted goods will behave in the same way as exempted goods. Perhaps it is argued that the effect—

Mr. Taverne

The figures show that the exempted category grew faster relatively to previous periods than the non-exempted category. How does the hon. Member reconcile this with the argument which he is advancing? I want to get his argument quite clear, so that I can answer it.

4.0 p.m.

Mr. Alison

It is simple enough to illustrate. The Financial Secretary said that they grew relatively faster. But when the figures are looked at carefully, they suggest that non-exempted goods grew at twice the rate in the period concerned as was the case with exempted goods. We are concerned with the relative rate of growth between the two categories.

I argue that the period which the hon. Gentleman adduces as that in which exempted goods grew relatively more slowly, namely, the period 1964–68, is a period in which the rate of growth of G.N.P. was much greater than the period during which import deposits have applied. Therefore, the drop in rate of growth of G.N.P. should have resulted in a very much slower rate of growth in non-exempted goods than has occurred. In a period of very low rate of growth in gross national product, one would expect there to be a much faster fall in the kinds of imports of goods which are essential for economic growth. But, on the contrary, the difference in the two periods is hardly perceptible, whereas the difference in the period with which we are concerned in regard to G.N.P. is 25 per cent. less. No doubt the Minister will deal with this matter in his reply.

I come back to credit restraint. Where is it meant to apply? It has had no effect, so far as one can see, on the rate of increase in non-exempted goods. Is the Financial Secretary arguing that credit restraint applies to the exempted category, or is he thinking in terms of the economy as a whole? His argument about credit restraint strikes me as being thoroughly "phoney" in its entirety. The lie to his argument has been given by a throw-away line in a different part of his speech, a line which was damaging to his case. First of all, in column 872, he gave a figure of liquidity of about £550 million at present held by Customs.

I am sure that the Financial Secretary would agree that it is reasonable to knock off a third as being the contribution made to those deposits by foreign suppliers. It can be said that, in round figures. some £400 million gross is tied up by the import deposits scheme. But a couple of columns later, in column 875, he casually let out that we also know that in the June quarter the company sector added substantially, by about £300 million, to its net financial assets. First, there is the allegation that credit has been massively restrained by the net effect of the import deposits scheme by something like £400 million for a period of six months, but then the Financial Secretary says that the net financial assets in the company sector have increased in the June quarter by almost the full amount. That three-month period is half the period of the lock-up of import deposits. Those financial assets had increased in the one quarter by practically the whole amount of the import deposits.

One may well inquire where is the credit restraint effect of import deposits if the monetary and fiscal environment in which they operate is such that it can almost entirely affect that credit restraint by allowing sufficient liquidity elsewhere to acquire financial assets on that scale.

The Financial Secretary is misleading the Committee if he tries to persuade it that the credit effect, which has had no effect on the scale of non-exempted imports, justifies keeping on the scheme for a further 12 months as opposed to the period of six months which is the period for which we are asking. It shows the fatuousness of the Government's fiscal and monetary policy. They cannot pretend that a net tying up of £400 million in import deposits for six months means anything, when at the same time the Chancellor of the Exchequer had budgeted for a growth in domestic credit expansion of exactly the same amount. The credit argument in this context is meaningless.

It becomes increasingly difficult to see what conceivable grounds there are for the Government wishing to keep on this totally ambiguous and almost counterproductive Bill.

Mr. J. Bruce-Gardyne (South Angus)

Would my hon. Friend not agree that the fact there was a domestic contraction in the first quarter of the financial year is a factor which suggests that the overall movement of credit has been in a contractive direction? Although I accept all that he has said about the irrelevance of the import deposits scheme within the overall picture, does the evidence not suggest that there has been a severely contractional process in operation this year?

Mr. Alison

My hon. Friend will appreciate that the D.C.E. figures fluctuate erratically on a quarterly basis and that the upturn in D.C.E. has already started. I am prepared to base myself on what the Chancellor of the Exchequer has said. He said that he saw no reason to believe that D.C.E. would not increase taking the year as a whole—and the year ends after the revenue quarter—by the figure which he originally adduced. One reason is that the private sector is to be a substantial net seller of gilts in the revenue quarter, which is the quarter in which the big D.C.E. figure will arise.

I have no doubt that the Chancellor's increase in D.C.E. completely offsets the credit restraint which the Chancellor has attempted to exercise through import deposits. Against this background of the ambiguous and perverse results of import deposits, what is clear is that our international trading partners do not like the deposits. I quote from the official communiqué issued after the E.F.T.A. Ministerial meeting on 6th and 7th November. There we read that the Ministers of other E.F.T.A. countries … while welcoming recent evidence of the improvement in the economic situation of the United Kingdom, expressed concern at the continuance of the import deposit scheme.… They might well express concern when one sees that in the third quarter of 1969 our imports from E.F.T.A. countries rose by 8 per cent. and our exports to those countries rose by nearly three times that volume, namely, by 22 per cent. If they have any wish to try to adjust the rate of growth of trade between the two blocs, does the Financial Secretary believe they will not be tempted to have recourse to the same instrument which we have used to beat them with and that they themselves will not impose import deposits? This is the reason why the period should only be extended for six months less before they themselves get into the habit.

I am happy to let the Chancellor of the Exchequer have the last word on the subject. He was in a rather defensive mood this afternoon. He attempted to suggest that he could never rely on the Opposition for any consistency. I remind the Financial Secretary of these words by the Chancellor of the Exchequer at the end of the Budget debate in April, 1963: It is extremely important that, at the outset of this period, Her Majesty's Government, of whatever party, should say, 'We are for expansion. We want to go on with expansion, and we want world monetary and trading policies which will help us. We shall not ourselves turn to restrictive measures of a monetary, tariff or restrictionist sort on imports unless we are absolutely forced to do so. We appeal to others to work with us to make this expansion possible.'"—[OFFICIAL REPORT, 8th April, 1963; Vol. 675, c. 1005.] What a background to this tawdry little Measure, introduced when the Government are achieving a rate of growth of under 2 per cent., and when, in that speech, the Chancellor of the Exchequer himself advocated a rate of growth of 8 or 9 per cent. against a background of decrying monetary, trading and fiscal restrictions on imports. The Chancellor now brings forward this tawdry little Bill, which seeks to extend the clearly ineffective 12 months' initial period by another 12 months. The least we can do is to ask the Committee to agree to cut by six months the period of extension proposed.

Mr. Donald Chapman (Birmingham, Northfield)

The hon. Member for Barkston Ash (Mr. Alison) does himself no justice at all by that kind of speech. To pretend that economic analyses are as simple, as straightforward and as easy as he has been making out is little short of puerile. The first part of his argument was that as there was slow growth in the national gross product during this period one should expect the sort of slowing down of imports that has taken place. I believe that to be a fair summary of what he said. He says that therefore, in those circumstances, the import deposits scheme cannot have any effect. However, as his hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) almost reminded him, things are a lot more complicated than that.

In fact, we have to look at all sorts of factors in the rate of growth of imports. The rate of growth of imports depends, in addition to the things about which the hon. Gentleman has been talking, on relative price movements of imports and exports. It depends on the restructuring of the economy which has been going on, during which period it is possible that, despite the low growth in the gross national product, stock building has been proceeding as a basis for future exports. It depends on credit generally.

The hon. Gentleman does not do himself justice. After all the experience we have had during the last 15 years of erratic import figures which are, so to speak, one of the national crosses we have to bear in the modern day, after years of trying to cope with erratic import figures which have continuously bedevilled our balance of payments, it is just not good enough for the hon. Gentleman to say that it is all very simple, and that none of the steps, such as this Bill, that we have taken can be having any effect—

Mr. Bruce-Gardyne

I interrupt only to say that the views the hon. Gentleman appears to be attributing to me were not expressed by me.

Mr. Chapman

The hon. Gentleman was making it clear that he was having a number of second thoughts about the simplified approach of his hon. Friend. But if he wishes to opt out of the argument, I do not need to call him in aid.

The hon. Member for Barkston Ash seems mesmerised by the statement made by the Chancellor of the Exchequer some time ago that the import deposits scheme would lead to a cut in imports. The hon. Gentleman seems to want to imply all the time that my right hon. Friend was saying that the scheme would lead to an actual physical fall in the total of imports. I do not think that my right hon. Friend was ever so stupid as to say or to imply anything of the kind. We have lived and are living in a period of rising imports, and world inflation alone will increase their cost each year even though the volume remains the same. What my right hon. Friend was saying was that the scheme would lead to a slowing down in the growth of imports, if growth were taking place, as would be the natural thing to expect in modern circumstances. I do not think for a moment that he ever wanted to imply that there would be a fall in the volume, and hence in the total value of imports.

4.15 p.m.

Mr. Alison

The hon. Gentleman must recognise that this is what the Chancellor of the Exchequer in the light of after events would have liked to have said, but what the right hon. Gentleman actually said was that the scheme would lead to a direct reduction in imports.

Mr. Chapman

We have to take the whole context of the speech, which dealt with the national problem of a general, steady and never ending growth in our import bill. I would say that any Chancellor who ever said that he expected a small Measure like this to lead to a fall in the volume, and hence a fall in the total value of imports, was off his head, and whatever else my right hon. Friend may be he is certainly not that. He was talking in the total context of a fall in growth.

We are arguing here about something much more puzzling, delicate and complicated than the hon. Gentleman made out. We are discussing how we may get together a package of measures of control over our balance of payments which makes sense in modern circumstances. That is why I put down an Amendment which would have continued the scheme for five years. I wanted to use it as a peg for a speech on the need for the Bill as part of our general armoury in fighting for balance of payments control, but I can make the same remarks on this Amendment, which seeks to reduce the period.

What is at stake in arguing about how long the scheme should operate is our view of how we regulate the balance of payments. The distressing thing about the members of the Opposition Front Bench, who seem very light-headed about a number of things, is that they seem to imply that all this is very easy; that we can cut taxation, have a free-for-all, leave the import level to take care of itself and then suddenly, miraculously, happily and all too easily there will never be any trouble with balance of payments.

The reality is that there are no soft options in economic policy, and both sides of the Committee should have learnt that by now. Pre-1964 we had a situation in which each time the balance of payments refused to come right we had a stop on production, on investment, on social spending and on full-time working, which reached a point in 1961–62, in the time of the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd), of utter disillusion in manufacturing industry, and a feeling that the ecnomy would never get right and restore confidence. In between, when this dreadful purgative medicine had had its effect, we had the alternative of a rather wild boom which we continually "kidded" ourselves could be kept in hand. When we found that it could not be kept in hand we were back to the old purgative of violent measures, destruction of confidence, and the rest. The result was an all-round lack of confidence in our economy.

I do not, and could not, claim that since 1964 we have found an easy alternative. But we have found an alternative which is working and is not having the disastrous pre-1964 effects. [Interruption.] The right hon. Member for Enfield, West (Mr. Iain Macleod) may splutter, but he should talk to his friends in manufacturing industry. There is no lack of confidence in British industry today. We are managing to cure the balance of payments deficit and to move into surplus without destruction of confidence while laying the basis for a steady acceleration of growth which will now take place in annual production.

So the option we have chosen as an alternative to a general recession of the stop-go type of 1961 is to try to get the economy in hand by using a package which has three features: a restructured economy slanted towards exports; slightly less full employment—less than I should like, but only slightly less—and a package of measures at home to hold back demand in imports. That package includes tighter money, a Budget surplus and things such as the import deposits scheme.

This scheme is part of the total package we are using in a more sophisticated way than, for example, the right hon. and learned Member for Wirral used in 1961–62, to bring right the balance of payments situation while, at the same time, not destroying confidence—and while positively laying the foundations for more acceleration in growth of our national economy. That is why I stick to my view that the Amendment is quite wrong; that the reverse is exactly what we need. We need to have this measure as part of our total permanent armoury so that, if an occasion like this arises again when unhappily we drift over the margin in the balance of payments situation, we can use this set of gentler measures, including this one, to bring the balance of payments right without total destruction of confidence which always went with the stop-go policies pre-1964.

This is why I want this measure permanently on the Statute Book and why I complain against the Government for being so timid in falteringly putting it forward year after year at present, and why they say that we ought to get rid of it. We ought to have the power, never to use it, of course, in circumstances when we do not need it, but provided for use at will when something of this kind is needed on the margin.

I come to the marginal point. The hon. Member for Barkston Ash still fails to realise the smallness of what we are trying to do. We have a total export-import Bill of about £12,000 million, £13,000 million, £14,000 million. Inside that figure we were stuck with a balance of payments deficit of about £200 million. This was the crucial figure which we could not get rid of, about 2 per cent. We were annually looking for little measures to get round the corner, as we said a year ago; and we had to do something because we had had this adverse margin for a long time. This was part of the general measures to get round that corner.

On Second Reading, I quoted something which I had said last year. Now I want to quote something more. I said: We are talking about trying to get a change at the margin. In £6,000 million"— I could have said £12,000 if we take exports as well as imports— we want to cut out or delay £200 million."—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 847.] This is marginal and that is why this measure is so important and why it is effective, because we were never looking for more than very slight effects of a small size.

I tried to deal with the point about E.F.T.A. when speaking on Second Reading, but I evidently failed to make an important point for the hon. Member for Barkston Ash, who has been so loud in his complaints about what E.F.T.A. countries were thinking. He does not realise that the E.F.T.A. Secretariat, not many months ago, produced a report—we debated this at Strasbourg—showing the fantastic success of E.F.T.A. and showing how, over the years during which E.F.T.A. has been operating, the exchange of goods between the Seven has accelerated at a phenomenal rate.

The hon. Member ought to think of the reaction of E.F.T.A. parliamentarians and Ministers. When they see a trading arrangement which is working so well, when they calculate—as they are sensible enough to do—the steady increase in exports to the United Kingdom which they have achieved year in and year out during E.F.T.A.'s existence, they are not likely to cavil fundamentally at something which restrains it within the level of what we in the United Kingrom can afford to pay for by our exports.

The hon. Member still fails to realise the point about a cut in volume and a cut in the rate of growth. If we had been physically cutting our imports from E.F.T.A. they would be shouting, but all the E.F.T.A. countries know that we are restraining the rate of growth of goods from E.F.T.A. countries and they are happy with that situation. [Laughter.] The hon. Member may laugh, but E.F.T.A. countries have memories of what happened under the Administration of hon, Members opposite. Under their Administration, there would have been not this cut but a swipe, another version of stop-go, which would have meant a much more severe cut in their sales to us than all our measures as epitomised in the Bill.

I am sorry that the Government, in introducing this Measure, are still failing to come before the House and to say, "We do not want to use this Bill any more than is necessary, but it is honestly part of a total package of the gentler kinds of restraints needed to run a modern economy". Let us have it on the Statute Book permanently. Let us have the power to use and revive it only when we need it and so that we do not need to have these annual debates when we need the power. That would be a more sensible way of doing it.

I hope that when my hon. and learned Friend replies to the debate he will deal specifically with the question why the Government will not take my view and put this Measure permanently on the Statute Book.

Mr. John Nott (St. Ives)

The hon. Member for Birmingham, Northfield (Mr. Chapman) has practised on himself an act of supreme self-deception. When the Financial Secretary to the Treasury gets up the next rung of the Treasury ladder— he is progressing very well and fast—the hon. Member will have to take his place, or the place of the Minister of State. Such acts of self-deception are badly needed on the Treasury Bench. For the hon. Member to describe the Government's total package as a mild one—I believe that that was the expression he used—is astonishing.

The Government's total package has resulted in a small surplus on the balance of payments for the first time in five years, but it has come about following devaluation of the £, higher unemployment than this country has known since pre-war times, a lower growth rate than there has been for the last 24 years, and debts of £3,000 million which this party will have to repay after the next General Election. If the hon. Member really believes that is a mild package, what would he describe as a severe one? I found his attitude very strange indeed.

To bring myself up-to-date, I took the opportunity today of speaking to one or two E.F.T.A. embassies in London. I assure the hon. Member that the feeling of distress and anger that the Government should continue this measure for a further year is very considerable among the E.F.T.A. countries. Most of them agreed when it was introduced that perhaps it was introduced force majeur. But now that the Government, who are so euphoric about the enormous success of the balance of payments, are continuing it, for reasons which we well know and to which I shall allude, I assure the hon. Gentleman that they are continuing it against the strong opposition of every E.F.T.A. country.

4.30 p.m.

I do not know why the hon. Gentleman wants such a measure to be in this country's total permanent armoury. If Britain remains, as I hope that it does, a major trading nation, it cannot be part of our total permanent armoury to have something which is, as the Government admit, liable to restrict world trade. Whatever view may be taken of an import deposit scheme, it cannot be said to be an extension of the liberalisation of world trade from which Britain will benefit more than practically any other nation.

The reason this measure has been extended was made perfectly clear in the Financial Secretary's comments on Second Reading: It is clearly, therefore, a matter of common sense"— this is the nub of the whole thing; the hon. and learned Gentleman associates common sense with the Labour Party's electoral prospects— to avoid at this particular time, in the next half-year, a monthly outflow from the reserves of £30 to £40 million which this foreign credit has represented."—[OFFICIAL REPORT, 17th November, 1969; Vol. 791, c. 876.] That is the nub of the issue.

Mr. Chapman

One of the three.

Mr. Nott

That is the major political reason for the extension of the scheme. If the Government take it off now, £30 to £40 million a month will flow out of the reserves. We all know why the Government are extending it. The Financial Secretary said so. It is no use the Government's being, on the one hand, so euphoric about their great three-month balance of payments success, which has amounted, if I calculate it aright, to a surplus of approximately £65 million over three months—I am talking about current account surplus—

Mr. Taverne

Trade surplus.

Mr. Nott

I am sorry—trade surplus over three months.

It is the trade surplus to which the Government have been directing most of their comments recently. It is not good the Government's being euphoric about that, on the one hand, and then the Financial Secretary saying, "If we took the import deposits scheme off £30 to £40 million a month would flow out of the reserves". That would more than cancel the three months' very desirable and satisfactory current account trading surplus of £65 million which we have achieved over the past three-month period.

Mr. Taverne

The hon. Gentleman surely would not underrate the importance of the invisibles.

Mr. Nott

I never underrate the importance of the invisibles. They are very important indeed. I did not, however, refer to them. The Financial Secretary thinks of this import deposits scheme rather like pot—not "impot". He may refer to it as "grass" as a result of his wide experience of this subject when he was at the Home Office. The scheme is like pot, because it is a stimulant which, once tried, is very difficult to give up because the withdrawal symptoms from the scheme are very unpleasant. This is why the Government are keeping the scheme on.

I do not want to be led into discussions now on the question of the expansion or contraction of credit. I follow the arguments advanced by my hon. Friend the Member for Barkston Ash (Mr. Alison) with interest, but I did not wholly agree with all of them. There will be other opportunities of speaking on this subject in this sparsely attended debate.

In supporting the Amendment, I want to comment on one specific industry. I take the machine tool industry as but one example. Day by day the Government talk about the importance of expanding our manufacturing capacity and of the need for further investment. We all agree that this is crucial because, as soon as the brakes come off, if we have insufficient capacity Britain will once again run into a huge balance of payments problem as a result of more imports being sucked in. The expansion of capacity, particularly of more modern plant and machinery, is absolutely crucial to our future.

I take one industry which I know something about, because I am connected with it—one portion of the engineering industry. As the Financial Secretary knows, the engineering industry is doing very well at the moment and is running very much at full capacity. The company with which I am associated—there are many similar companies in the economy—has increased its exports by about 60 per cent. in the last two years. The figure runs into many millions of pounds. It is not due to any efforts of mine. It is due to the efforts of those who are employed full time in the company.

The capacity of the company is extraordinarily short. The only way in which we can continue to meet the overseas demand for our products is by ordering the very latest, the best, the most heavy-purpose machinery in the world. We can buy the very best machinery in the world only if we are allowed to look around, check on what is the best machine tool produced by the Swiss, the Germans or the French, and buy the very best tool wherever it might be made. [Laughter.] The hon. Member for North-field laughs. He must agree that this is correct.

Mr. Chapman

I am sure that it is right, but why does not the hon. Gentleman tell this to the hon. Member for Barkston Ash (Mr. Alison), who thinks that at the moment imports should be automatically going down because there is not such a good growth in the gross national product? The hon. Gentleman is now telling the hon. Member for Barkston Ash about all the complicating factors which go to the make-up of our import bill at the moment. At the same time, he is telling us how confident and buoyant the engineering industry is despite what he thinks are the terrible things that the Labour Government have been doing.

Mr. Nott

My hon. Friend did not comment along the lines that the hon. Gentleman suggests. The hon. Gentleman completely misunderstood what my hon. Friend said. The hon. Member should not refer to the simple figures which my hon. Friend mentioned, because my hon. Friend was merely commenting on the figures which the Financial Secretary used to demonstrate his case. The Financial Secretary took the figures of imports, took the non-exempt and the exempt items, and took an extremely simpliste figure to demonstrate that perhaps this scheme was having a marginal effect on imports.

My hon. Friend was merely commenting on the simpliste figures which the Financial Secretary took to demonstrate his case on Second Reading. I do not know whether the hon. Gentleman has read the speech made by the Financial Secretary on Second Reading. The hon. Member may not have been present during the debate. The Financial Secretary took the figures to which my hon. Friend the Member for Barkston Ash referred, to demonstrate that there had been a marginal reduction in imports. Why does the hon. Member criticise my hon. Friend for referring to those figures?

I return to the question of the engineering industry, which I amdit is doing very well. I do not know if the Government attribute the engineering industry's success to some measures which they have taken. I do not know what measures those could be. For the engineering industry to do well and meet the demand for its products, it must buy the very best machine tools wherever they may be throughout the world.

This means purchasing machine tools abroad in certain cases—not in every case. Companies in Britain which are seeking to meet the demand for their products must either pay the import deposit themselves for buying the machinery or they have to pay approximately 3 per cent. more on the price of these foreign machine tools. At a time when the Government are trying to encourage foreign investment in Britain, it cannot be in the interests of our export trade to put this additional impost upon imported machine tools. I return to my original comment. We know why the Government have done it. They have done it because they have a small balance of payments surplus to crow about for the first time in four years, and they know that if they release the import deposit scheme now it will, as the Financial Secretary said, lead to an outflow from our reserves to the extent of £30 million or £40 million a month.

I come to the nub of all the Government's actions, and this is the last point that I wish to make on this Amendment, unless the Financial Secretary provokes me into a further comment on this issue. It is this. One day the import deposits scheme has got to come off, and one day the £30 or £40 million has got to go out of the reserves. When will that happen? Will it remain till after the election? The Government have put round the necks of any future Government—I believe that it will be the necks of my party—the Basle Agreements.

We also have the Deutche mark borrowing of the local authorities. Every single action that the Government have taken in the economic field in the last six months to a year has been calculated to meet the short-term balance of payments position, quite regardless of the medium and long-term effects on our economy.

The Financial Secretary in his Second Reading speech referred to comments which I made on the original Ways and Means Resolution. I do not intend to bore the Committee by commenting on it now, but I shall come back to it later. What I predicted then—contrary to what the Financial Secretary said—has come true. Among the comments I made was that the scheme would improve our balance of payments in the short term. But the Measure will do considetable medium and long-term damage if it remained, and this is the problem which we should be discussing—not the immediate short-term effect which is only beneficial to the Government in their attempts to win the next election, not to the country at large.

Mr. Bruce-Gardyne

I entirely agree with my hon. Friend the Member for St. Ives (Mr. Nott) that one of the main reasons for the Government's request to us to renew this miserable little measure is in order to continue the process of shovelling their accumulated debts and their effect on to the next Conservative Government. Of course, this is right, and it is right to draw attention to the interest of the Government in escaping from the particular consequence of what my hon. Friend aptly described as the withdrawal symptom from this import deposit drug.

The Financial Secretary held up his hands and waved three fingers when my hon. Friend referred to this as the reason. I do not agree that there are three reasons. I think that when we were discussing this matter on Second Reading I suggested there were four, but I will content myself with two this afternoon. I will come back to the second one in a moment.

First, I want to draw attention to one argument which seems to me particularly to favour this Amendment. It is an argument which has not been referred to during the debate today. The hon. Member for Birmingham, Northfield (Mr. Chapman) seemed to have no knowledge of the fact—but then, that is hardly surprising since the Financial Secretary showed no awareness of it on Second Reading—that the application of this Act, if it is to continue for a year, will run through the period when, according to the Government, we shall be opening negotiations for membership of the European Economic Community. I do not know where the hon. Member for North-field stood on this issue. I have not checked my facts, but I have no doubt that the Financial Secretary voted with the rest of the payroll vote.

If we are to have the opening of negotiations for entry into full membership of the European Economic Community I can only suggest—to use a word which was so happily used by my hon. Friend the Member for Barkston Ash (Mr. Alison)—that it will look a little bizarre for us to have this particular form of financial restraint on imports in operation. I presume that the Financial Secretary will be trotting in the wake of the Prime Minister around the capitals of Europe, and that when the Prime Minister is told, "You understand, of course, that the purpose of this organisation is to eliminate barriers to trade, and yet you have got a rather nasty little barrier still operating which is against all the rules", the Financial Secretary will be there presumably to say, "Oh, yes, but it is only a little one and it is only temporary".

4.45 p.m.

The Financial Secretary's position would be a little happier if he were to accept this Amendment. At least, he would then be able to say, "Wait till June and then we shall remove this little indiscretion which we have committed and prolonged". If the Financial Secretary does not accept this Amendment it will be up to him to explain to the Committee how he will justify the retention of this Measure during a period when what we are led to understand are vitally important negotiations are to be undertaken, being negotiations which are totally in conflict with the spirit and the letter of the Bill.

I also strongly support the Amendment because I disagree profoundly with what I regard as the second and ancillary reason for the Government's decision to seek renewal of the Customs (Import Deposits) Act. This is tied up very much with the reason to which my hon. Friend the Member for St. Ives (Mr. Nott) referred, because it is related directly to the balance of payments situation. This is the reason on which the Financial Secretary himself placed great emphasis in his Second Reading speech, namely, the restriction of domestic credit.

I agree with my hon. Friend the Member for Barkston Ash that a measure such as the import deposits scheme is, in isolation, strictly irrelevant to the overall measure of control which one applies to domestic credit. Obviously, the whole effect of retaining the import deposits scheme can be reversed simply, without any action taken officially by the Government or requiring the sanction of this House, by such a measure as, for instance, a decision to release the special deposit accompanied by a decision by the Government or by the gilt-edged broker to go into the market and buy gilts. This alone would wipe out any effect that the import deposits scheme would have in restraining domestic credit.

Equally, the Government could decide, as they are urged by the hon. Member for Heywood and Roy ton (Mr. Barnett), to advance the payments of these titbits to the unprofitable—the investment grant. This would also have a not dissimilar effect. Therefore, I entirely agree with my hon. Friend that to single out the import deposit scheme as being an essential instrument for restraining domestice credit expansion shows a lamentable inability to understand the whole theory of money supply—not that I find that in the least surprising, coming from a Chancellor who throughout has shown total ignorance of and disinterest in the whole subject, although he has been frogmarched by the Treasury into pretending to apply these disciplines which he cannot be bothered to try too understand.

What seems to be important is this—and this is my main reason, perhaps, for being only too delighted to support this Amendment in the Lobby this afternoon. I refer to the renewal of the import deposits scheme as a very sinister and specific piece of evidence of the Government's strategy.

It is doubly related to the departure of the Paymaster-General from the Treasury. If the Paymaster-General had still been at the Treasury, he would never have allowed this Bill to be renewed in flagrant contravention of undertakings given by him to the I.M.F. which he would certainly have ensured were fulfilled. He is a man of honour, and he would not have allowed the Bill to be renewed in this way.

The right hon. Gentleman would have ensured that the Bill was not renewed for another important reason. The Paymaster-General was always insistent that we should not allow the achievement of some magical, ever more impressive balance of payments surplus to become a sort of national obsession. I used to think that he was somewhat premature in that line of argument. I thought that we should be better advised to move in to surplus at least before we started to run down the size of the balance of payments surplus at which we were aiming. But at this stage it seems to me that in the absence of the Paymaster-General's guiding hand the Chancellor has become absolutely obsessed by the need for some ever more glamorous and glorious sounding balance of payments surplus, regardless of the impact which that may have on the economy.

The decision to renew the import deposits scheme should be seen in that light, as an outward and visible sign of an inward and invisible determination on the part of the Treasury to pursue a degree of severity in credit restraint designed to achieve an ever more inflated balance of payments surplus regardless of the effect on the economy at home.

We must regard the impact on domestic investments of the proposal before us against that background. I was interested, but profoundly alarmed, to read a reply by the Chief Secretary to a Question by my hon. Friend the Member for Oswestry (Mr. Biffen) yesterday, when my hon. Friend asked the Chancellor of the Exchequer, what assessment he has made of the general effects of the Government's monetary policy; and whether he will now dismantle certain selective methods of monetary restraint"—

The Deputy Chairman (Mr. Harry Gourlay)

Order. I remind the hon. Gentleman that we are not having a Second Reading debate. We are dealing with an Amendment to Clause 1, in line 16. Perhaps he will address his remarks more specifically to that Amendment.

Mr. Bruce-Gardyne

Certainly, Mr. Gourlay. The point I am seeking to make is that the effect of renewing the Bill without—

The Deputy Chairman

The point is that we are not discussing the Bill. We are discussing an Amendment. The principle of the Bill has already been established by the House.

Mr. Bruce-Gardyne

I accept that, Mr. Gourlay, but the point which I am seeking to advance is that, if we were to approve the Bill without the Amendment, the effect would be still more severely to restrain domestic credit, with the ancillary effect on manufacturing investment. I was drawing attention to the exchange between my hon. Friend the Member for Oswestry and the Chief Secretary precisely because, as I hope to show, it suggests an alarming degree of complacency in the Government about the effect of deciding to renew the import deposits scheme in all its vigour for a full year, as opposed to the restricted time suggested in the Amendment.

My hon. Friend drew attention to the fall in liquidity in British industry of about £70 million to £80 million, disclosed by the November Financial Statistics, and he asked the Chief Secretary: Is he aware that that will have considerable consequences for the level of industrial investment?". The Chief Secretary replied: There is no question of complacency."—[OFFICIAL REPORT, 25th November, 1969; Vol. 792, c. 193.] Throughout some years of watching the Chief Secretary in operation, I have always regarded him as a pillar of complacency. [HON. MEMBERS: "NO."] Yes, he used to pretend that the rate of growth in the money supply was totally irrelevant, right up to the day when the Chancellor said that it was at the basis of all his preoccupations. There has been a dangerous degree of complacency about the domestic internal effects which a continuation of this measure for another full year might have on our manufacturing investment.

To conclude, I hope that the Financial Secretary will answer a question which he was asked on Second Reading but to which he never replied. Before rejecting this Amendment, as, no doubt, he will ask us to do, we must have a reply to this question. Why did the Government decide to change their mind about the renewal of the import deposits scheme between July—and the Chancellor's Letter of Intent to the I.M.F. which he told us was based on the calculation that the import deposits scheme would not be renewed—and October, when he decided to renew it? What occurred in the interval to persuade the Government to change their mind? If we are asked to renew the scheme for a full 12 months, we should have an explanation of that last-minute change in the Government's thinking.

Mr. Ted Leadbitter (The Hartle-pools)

Having spoken on this Bill on a previous occasion, and having heard the debate today, I find it exceptionally difficult to say anything new. One of the difficulties, even with the Amendment before us, is to discover any new feature which could sway opinion on one side or the other. But there is one thing quite certain: when an Amendment of this kind is put down, reducing a period of two years to 18 months, either we accept the intent of the Amendment as sincere or we do not.

If therefore, it is the Opposition's case that the Bill is wrong, basically wrong in itself, one must question why the Amendment is there. On the other hand, there is another option. Hon. Members opposite might be split; some might believe in it, and some might not, so their Front Bench put down an Amendment. I notice that the right hon. Member for Enfield, West (Mr. lain Macleod)—I am sorry that he has left—sat there quite placid and content, and it did not seem to be a moment of great import to him. Nevertheless, he will have noticed, as I have, that hon. Members opposite, whether they like it or not, have argued sometimes in favour of the Bill and sometimes not.

When we have this kind of mix, one wonders at the small attendance in the Chamber. Apparently, for some hon. Members the Bill creates a great crisis. To others, it is a small marginal thing, as some of us would like to describe it. But, looking at the numbers at present in the Chamber, one is forced to conclude that, perhaps, the right hon. Member for Enfield, West, was wise to leave. There is one constant to be discovered even among a split, poorly-attended assembly. Hon. Members opposite are forever drivelling that when things are going right that is the result of private enterprise, and that when they are going wrong that is the Government's responsibility. They have neither grace nor common sense on this subject.

5.0 p.m.

When we think in terms of the marginal improvement from the Bill, which helps us turn the corner, against a general background of imports and exports worth well over £12,000 million, and bear in mind that we are dealing with £3,000 million of that, we find it surprising that there can be hon. Members opposite who will minimise the significance of the Government's calculated intention.

The background to the problem has confused politicians for decades. When did we last have a favourable balance of trade? I think that it has happened about seven times in the past 175 years. When did we last have a balance of payments surplus? We have to be long in the tooth to be able to look back to a balance of payments surplus which really meant anything. The country's whole dilemma has been how best to deal with the changing situation of Great Britain in the world, against the background of two world wars.

Politicians on either side would be foolish to think that from a little debate like this there could emerge the panacea whicvh has confounded the statesmen of past years. They would be much wiser to address themselves to what this little Bill really tries to do. One hon. Member opposite said that if we did not have the Bill the result would be to take £30 million out of the reserves, and he said that that was my right hon. Friend's reason for reintroducing the measure. He placed that figure against the balance of trade surplus of £65 million over the past three months, did his simple arithmetic and said that accordingly, if we did not introduce the Bill for a second period, instead of being in the black we would have been in the red over the past three months. That kind of stupid thinking is as dangerous to this country as the B.M.A. saying when it wants a salary increase, "We can stop the health service". Anyone with an irresponsible state of mind can do that sort of trick and come to the conclusion that he can hold someone to ransom.

Hon. Members opposite should have been saying that they are pleased that this country is in the black for the past three-month period for the first time. Whatever the circumstances and their political fortunes, they should be willing to be big enough to say that after many years of our trying to bring the country into a state of surplus the trend is now there, and the Government's intention to keep it ticking along in that direction must be good.

Therefore, it is unwise of them to put down an Amendment such as the one we are discussing. It exposes the Opposition to considerable criticism in the country. The hopefulness of hon. Members opposite is confused with the kind of promises they offer. I said in a Committee debate on another Bill only this week that their promises on taxation and cutting down public expenditure seemed to outbid the Magnificat. Some of the things I have heard in the debate on this Bill seem to outstrip not the Magnificat but the Sermon on the Mount.

We are dealing particularly with trading relationships, with trying to control the increase in imports. If hon. Members opposite try to get away with the suggestion that we are not dealing commercially fairly with the E.F.T.A. countries, let me tell them that this country's behaviour is a hallmark of good conduct in international trading. Only today I was told that a country receiving aid from the United Kingdom will give a contract in this country only with certain conditions attached.

Time and time again over the past year, as the Chairman of the Estimates Committee's Sub-Committee on Exports, I have had evidence brought to me of the practices of other countries. Therefore, the Sermon on the Mount philosophy of hon. Members opposite is contradictory. Never in this Chamber should an hon. Member try to place the trading practices of this country on a lower level than those of the rest of the world, though that has happened time and again.

I am grateful to have had the opportunity to intervene again in our debate on the Bill. I have been interested in the Bill, and I am concerned that this country shall continue to work more and more towards a better and increasing balance of payments surplus. I should be very sorry if the good start the Bill has had does not continue. There needs to be a continuing scrutiny of its effects, certainly on small companies. It is not a question of passing a Bill and then waiting to have some reckoning up. There must be a continuing dialogue on it. But hon. Members opposite should for once say to the country that they too are pleased that the Government, with a whole package of measures, have produced a balance of payments surplus which, for the sake of our nation, we all hope will continue.

Mr. Kenneth Baker (Acton)

What I find most objectionable in the Clause, which the Amendment does something to mitigate, is that the Government have not so far put forward a case for extending the imports deposits scheme for a day, week or month, let alone a year. That is why we seek in the Amendment to restrict the scheme to a further six months.

The argument put forward earlier was that the scheme, if it operates in the next year, is a fine economic tool. That was the argument of the hon. Member for Birmingham, Northfield (Mr. Chapman), who referred to it as a sophisticated tool of economic management. But if one does not know the precise effect of an economic tool one should not use it, and the Government do not know. If one asks any Minister, including the two in the Chamber, to what extent the scheme has inhibited imports, they will not give an answer. If one asks, "Why did you choose 40 per cent. instead of 30 or 20 per cent.?", they will not give an answer, because they do not know. They are legislating from ignorance, and that is what sticks in my gullet. To call the scheme a sophisticated economic tool is to stretch credulity to the point of complete naivety. It is not. It is a blunderbuss with very marginal effect on imports. But it has a greater effect on domestic liquidity.

On Second Reading, the Minister of State said, in effect, that he could not give facts as to why we should have the scheme and asked us to trust the Government's economic judgment. That, after five years, is a bit of a nerve. With this scheme, the Government are groping in a fog and know they are. They have no idea of the economic weather. They are trying to judge it with a sundial set the wrong way round. This means that, whenever the sun comes up, they think that it is going down, and whenever it is going down, they think that it is coming up. This is what we have had for the last five years and it is what we have in the Bill.

The major point of the Amendment is the way company liquidity is being affected by the scheme. It is the most serious point of the debate and is tied up with the time factor with which the Amendment is concerned. The Government are holding about £550 million of British industry's money under the scheme. That is a great deal of money. The November issue of Financial Statistics showed that the liquid assets of United Kingdom commercial and industrial companies over the 12 months between June, 1968, and June, 1969, fell by £80 million. Since June, 1969, they have probably fallen dramatically more. Thus the Government, with this scheme, the corporation tax increase, the S.E.T. increase and the increases in National Insurance contributions levied only this month, are taking out of industry's cash flow £550 million.

I believe that this is affecting companies in two ways. There is growing evidence that companies are reducing their investment programmes and also growing and disturbing evidence that they are cutting research and development programmes. Research and development is often one of the first casualties in a cash crisis in any company, and I believe that, if we could get the Government to repay to industry this £550 million at the end of six rather than 12 months, it would be a great boon.

I do not believe that this would have the super inflationary effect which the hon. Member for Ashton-under-Lyne (Mr. Sheldon) argued that it would on Second Reading. It certainly will have nothing like the inflationary effect that the 25 per cent. increase in wages of building workers and the 20 per cent. increase for airline workers will have.

To emphasise my argument, I give a specific example from the Press. Rolls-Royce, one of our great industrial companies has, I would estimate, a substantial amount of money paid in import deposits to the Government. Perhaps Ministers know how much and will be prepared to tell us. But it must be millions, if not tens of millions of pounds. Yet the company, in its own newspaper, explained to its workers that there is a considerable crisis and that basically it is a cash crisis.

What is extraordinary is that, to get out of this cash crisis, the company is having to go to the Industrial Reorganisation Corporation to borrow money. Thus, on the one hand, the Government, through this scheme, suck money from the company and, on the other, force it to go to the I.R.C. to borrow back its own money. That is something which even Shylock did not think of. It is almost a contravention of the Moneylenders Act, but it is what is happening.

More and more companies are being placed in this position. I believe that the Chairman of the I.R.C. has sent out a letter offering loans to British industry— the very companies which are having to pay import deposits. He is saying to them, "The Government have taken your money and have not paid a penny to you for it. They are keeping it for six months or a year. However, we will lend you some money." This is financial dishonesty and it is disgraceful that the Government should condone it.

I hope that the Government will say tonight that, whilst this scheme is going on, the I.R.C. will not offer any loans of any sort to British industry because this is trying to loan back to British industry British industry's own money.

I hope that I have made the case, which I believe to be very powerful, that the liquidity of companies is now being affected to such an extent that it is not a debating matter any longer. Management and executive meetings throughout the country are cutting research and development plans. One way the Government can help industry to expand in 1970 and 1971 is to withdraw this scheme immediately.

5.15 p.m.

Mr. Taverne

When the Customs (Import Deposits) Act was being debated last year, there was a certain amount of schizophrenia among hon. Members opposite. Some of them appeared to be protectionist and others free traders. For different reasons, there has again been a fundamental contradiction in their arguments today. One has contradicted another and, to some extent, the hon. Member for Barkston Ash (Mr. Alison) contradicted himself.

The hon. Gentleman made two main points. First, he said that the scheme had had no effect on non-exempt categories of goods. Secondly, he said that credit restraint had not been successful, that the scheme had not made credit more difficult to obtain, that, although there may be £400 million tied up at the moment in customs, with £300 million added in the June quarter, the liquidity of companies showed the fatuity of the Government's fiscal and monetary policies.

I have myself stressed the second factor, but everything the hon. Gentleman said was totally contradicted by other contributions made by his hon. Friends. The hon. Member for Acton (Mr. Kenneth Baker) has just complained of an appalling shortage of liquidity in companies which must be remedied by deposits being paid back. Yet the hon. Member for Barkston Ash says that the scheme has been a total failure and has not affected the liquidity of companies or credit restraint or made credit more difficult to obtain. The two hon. Gentlemen must argue between themselves as to which of them is right.

Mr. Alison

I will argue with the hon. and learned Gentleman because it is his arguments and not ours which are contradictory. The argument of my hon. Friend the Member for Acton (Mr. Kenneth Baker) is that companies end up by getting the money they want, but that it goes through so many different hands that they have to pay a good deal more for it. In other words, they get it at an inflated cost as a result of the extra middlemen.

Mr. Taverne

But that was not the argument which was advanced. The hon. Member for Barkston Ash advanced the case that the squeeze has not worked. The hon. Member for Acton argued that the squeeze is working too much. One cannot reconcile those two views.

Both the hon. Member for South Angus (Mr. Bruce-Gardyne) and the hon. Member for Barkston Ash made the point that it is possible, if we relax other aspects of Government policy, to offset the effect of the scheme. Of course it is. The scheme is not the sole means by which the expansion of credit is controlled, but only one of them. If we relaxed other restraints on credit, this could obviously offset the effect of the scheme.

But, as my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) explained in a speech which was a complete answer to every point made on the benches opposite, this scheme is part of a package, and plays an important part in that package. It reinforces credit restraint and the question we have to consider is whether it is having a beneficial or harmful effect, which is what the hon. Member for Acton addressed himself to.

Mr. Kenneth Baker

I am glad that at last we have had from the Government a definition of what the package is intended to do. I understand now that the package is intended to restrain domestic credit. Why, then, is a Government agency going around offering substantial loans to British industry? This must be counter-productive and against the policy of the Government. The contradiction lies in Government policy. On the one hand, they are holding back the liquidity of companies, and on the other, sending the Chairman of the I.R.C. out scattering money on loan.

Mr. Taverne

I am sorry that the hon. Member for Acton does not understand either the effect of Government policy or the intention of Government policy. What is certainly achieved is restraint of consumption. Of course, this does not mean that the I.R.C. will not continue to play its extremely useful part in encouraging expansion in those sectors of industry which are vital to our balance of payments; this is something entirely separate. But there is certainly an effect on consumption, and there was intended to be an effect on consumption.

As I outlined at the very start of my speech on Second Reading, the first justification of the continuation of the import deposits scheme is that it is a contribution to the successful policy of credit restraint which has helped to produce the results which we have seen in recent months.

The hon. Member for Barkston Ash said that the scheme had no effect whatever on the import of goods in the non-exempt category. This was answered by some of his hon. Friends, but I was surprised to find that he answered it himself. He outlined the effects on E.F.T.A. and said that E.F.T.A. had naturally expressed concern. He said, "No wonder E.F.T.A. expressed concern". He said that what had happened was that our imports from E.F.T.A. were now higher by only one third as compared with our exports to E.F.T.A. Yet he said that the scheme had had no effect whatever on imports. His hon. Friends said that E.F.T.A. was naturally showing concern because our exports to E.F.T.A. had expanded three times as fast as our imports from E.F.T.A.

The hon. Gentleman cannot have it both ways. Nor can he reconcile what he said with the view of his hon. Friend the Member for St. Ives (Mr. Nott), who said that the moment the scheme was ended we would see a great surge of imports, imports flowing in in masses.

Mr. Nott

indicated dissent.

Mr. Taverne

I am exaggerating a bit, but the hon. Member for Barkston Ash must allow me some dramatic effect when there is such an obvious and plain contradiction between everything he said and what his hon. Friends said.

Mr. Chapman

What the hon. Member for St. Ives (Mr. Nott) said was that nobody denied that the scheme had had an effect on reducing imports in the short term. Those were almost his exact words.

Mr. Taverne

I must quote him. He said that if the scheme were ended, imports would be sucked in. Those were his words and I took them down verbatim. If imports are to be sucked in when the scheme is ended, that implies that while the scheme is on, it prevents those imports from coming in. But that is a contradiction of what was said by the hon. Member for Barkston Ash.

Mr. Alison

The hon. and learned Gentleman is having fun with his vast exaggerations. The figures which he has quoted back at me in no way invalidate my argument. They show simply that exports from E.F.T.A. have risen substantially, but that E.F.T.A.'s imports from us have gone up even more and that there is, therefore, a built-in incentive for E.F.T.A. countries to see whether they cannot at any rate try a system of import deposits as the British Government have said that it has such a powerful effect.

Mr. Taverne

That is not the way in which the hon. Gentleman put it. He said that the E.F.T.A. countries were right to show concern because the scheme had had an adverse effect on their trade with us.

Let us consider the figures. I have said from the start that it is very difficult to isolate the particular effect of import deposits, and I am sure that hon. Members will recognise this, when it is part of a package of measures including, first, the delayed action effect of devaluation, secondly, the effect of the credit squeeze as a whole, thirdly, the effect of fiscal measures on the restraint of consumption itself, which has also had an effect on imports, and, fourthly, the import deposits scheme. When there are at least four different factors involved, it is clearly impossible to say that one of those factors accounts for £20 million, £40 million or £80 million worth of a reduction of imports.

The only fair test, and I challenge any hon. Member opposite to give me a fairer lest, is to say—and I repeat that it is difficult to isolate an individual influence—that there have been certain factors working on all imports while the import deposit scheme has worked on only some, so if we compare the rate of increase of imports of those goods which are exempt with the rate of increase of imports of goods subject to the scheme, we shall arrive at some sort of effect. I can see no other way of doing it.

I put these figures before the Committee very fairly. I do not claim that any figures which one may mention will show an exact influence and hon. Members must draw their own conclusions. However, the figures are not as the hon. Member for Barkston Ash described them, when he said that the difference was as though a boy described himself as being over 11 while another said that he was under 12.

Before the scheme was imposed, the annual rate of increase of goods covered was more than 13 per cent. and the annual rate for goods not covered was less than 5 per cent. I have described that quite accurately as a rate of nearly three times as much for the former. Since the import deposits scheme has been introduced, that rate has become just over twice, 6½ per cent. compared with 3 per cent. That is the only kind of independent test which I can think of, and it suggests that there has been a useful and considerable effect.

Mr. Alison

The hon. and learned Gentleman has not answered the point which we have been making, which is that the drop in this imbalance should have been very much greater, if his theory is right, taking into account the substantial drop in the rate of growth between the two periods.

Mr. Taverne

The hon. Gentleman has not followed the argument. First, he has totally understated the rate of growth and, secondly, he has not grasped the fact that if there are certain measures working on all imports, one must look to the distinguishing factors which are working selectively only on imports subject to the scheme. That is the test and the distinction which one must draw. Looking at the total effect of the measures, to which this is a contribution, that is what one would find.

One does not find, as the hon. Member for St. Ives suggested, a small surplus. He mentioned £66 million in the last quarter. He left out completely what must be current figures and he left out invisibles. Hon. Members opposite are always rightly stressing the enormous importance of invisibles to our balance of trade. Counting invisibles at the rate of £40 million a month, the picture is not one in which there is a small surplus. Counting the last three months' invisibles, we have been running at the rate of about £500 million a year in current surplus. It is perfectly true that one does not want to be dogmatic about progress in future and that is one of the reasons we are keeping the scheme on—because we are cautious. We do not want to make over-dramatic claims for the future.

Mr. Nott

You want to win the election.

Mr. Taverne

The hon. Gentleman is obsessed with party politics. He does not for a moment consider reports outside Britain. I will take not a Treasury forecast, but the forecast of O.E.C.D. for 1970. O.E.C.D. is not concerned with winning an election. It is looking at 1970 as a whole and considering the effect on the balance of payments of the current measures. I am not saying whether it is wrong, but citing an objective judgment. O.E.C.D. says that it foresees for the United Kingdom in 1970 a balance of payments surplus on current account of some £600 million.

Mr. Nott

About time, too.

Mr. Taverne

But some of the hon. Member's hon. Friends were saying that the Chancellor of the Exchequer was now obsessed with the need to have a surplus. We have been perfectly consistent all along and have said that we want to obtain a strong balance of payments surplus for a long and continuing period. There is a packet of policies directed to obtaining that surplus and at the moment those policies look likely to succeed.

The arguments on the Amendment have been exactly the arguments which were used on Second Reading. As my hon. Friend the Member for The Hartlepools (Mr. Leadbitter) said, nothing new has been said. What we are saying is that the import deposits scheme is part of a package which is working; let us not unwrap the package now.

Mr. Terence L. Higgins (Worthing)

I am sorry that the Financial Secretary seems to have inherited his predecessor's frivolous approach to some of these arguments. I found his arguments almost as difficult to follow as those of the hon. Member for Birmingham, Northfield (Mr. Chapman). It is not true that anyone on this side of the Committee has ever suggested that it was easy to manage the economy. That is not an accusation which may reasonably be levelled at the Opposition. On the other hand, there is no doubt that all the main economic indicators make it abundantly clear that in an equally difficult situation we managed it better than hon. Members opposite are suggesting.

[Sir BARNETT JANNER in the Chair]

5.30 p.m.

This was brought out very clearly by my hon. Friend the Member for St. Ives (Mr. Nott) who quoted the relevant statistics with regard to unemployment, economic growth, inflation and so on. It is not a simple problem and it is clear that we need to look at this in as sophisticated a manner as possible. Some of the questions were simple and we might have expected that we would have received reasonably straightforward answers from the Financial Secretary.

We want an answer why the Government have changed their mind. The Chancellor said quite clearly the other day that he is now on his most optimistic target figure. If that is so, why do we now have this Bill before us, when it was abundantly clear that he did not intend the scheme to run for more than a year? Secondly, we need to examine the whole question of the reserves, but perhaps that would be more appropriate on Third Reading.

I am deeply worried by the approach of a number of hon. Gentlemen opposite on Second Reading—and again today by the hon. Member for Northfield—and also by the disregard that they show for our international obligations and the need to encourage greater freedom of trade. On that point I am surprised that the Financial Secretary did not disown the suggestion that this kind of measure might become a permanent part of our economic armoury. It would be very dangerous if that point of view were to spread among our E.F.T.A. partners.

Regardless of what has been said by hon. Members opposite, the fact is that our E.F.T.A. partners are very worried about the effect that this measure is having. They are worried that it is slowing down the rate of growth which would otherwise have taken place in the imports and exports between the various E.F.T.A. countries. For that reason, I hope that my hon. and right hon. Friends will join me in voting in favour of the Amendment.

Mr. Chapman

The point that the hon. Member does not seem to realise when he talks about our foreign competitors and our friends in Europe is that they too want to experiment with more sophisticated weapons in controlling the balance of payments problem. All the countries in Europe are not prepared to have "stop-go" cycles that amount to recessions and drastic cuts in international trade through the old measures. They are all preferring one by one to grope forward with these more sophisticated weapons.

Mr. Higgins

The implication of what the hon. Gentleman has said must mean that these so-called more sophisticated measures are measures which will inevitably lead to a restraint on trade between countries. They will inevitably reduce the total of world trade. There is no country which has more to lose from this kind of policy than the United Kingdom. We therefore believe it is right and proper, while we are against the scheme as a whole, and this will be made even more clear later, that some limitation of the kind which this Amendment imposes is the right approach.

I return to the quotation of the Chancellor of the Exchequer. When he first mentioned his scheme in the House he said quite clearly:

Imports will be reduced directly because of the difficulty and cost of obtaining credit."—[OFFICIAL REPORT, 22nd November, 1968; Vol. 773, c. 1795.] That has not proved to be so. We are still without any explanation why the Government should extend this scheme. We believe that it should be limited in the way suggested by the Amendment, or better still, should not be carried forward at all. We shall continue to press that view and I hope my hon. and right hon. Friends will join me in the Division Lobby and vote for the Amendment.

Question put, That the Amendment be made: —

The Committee divided: Ayes 160, Noes 200.

Division No. 12.]	AYES	[5.35 p.m.
Alison, Michael (Barkston Ash)	Grant-Ferris, Sir Robert	Page, Graham (Crosby)
Allason, James (Hemel Hempstead)	Griffiths, Eldon (Bury St. Edmunds)	Page, John (Harrow, W.)
Baker, W. H. K. (Banff)	Gurden, Harold	Pardoe, John
Balniel, Lord	Hall-Davis, A. G. F.	Peel, John
Bell, Ronald	Hamilton, Michael (Salisbury)	Percival, Ian
Bennett, Sir Frederic (Torquay)	Harrison, Col. Sir Harwood (Eye)	Pike, Miss Mervyn
Bennett, Dr. Reginald (Gos. & Fhm)	Harvey, Sir Arthur Vere	Pounder, Rafton
Berry, Hn. Anthony	Harvie Anderson, Miss	Price, David (Eastleigh)
Bessell, Peter	Hastings, Stephen	Prior, J. M. L.
Birch, Rt. Hn. Nigel	Hawkins, Paul	Pym, Francis
Boardman, Tom (Leicester, S.W.)	Heald, Rt. Hn. Sir Lionel	Ramsden, Rt. Hn. James
Body, Richard	Heath, Rt. Hn. Edward	Rhys Williams, Sir Brandon
Boyd-Carpenter, Rt. Hn. John	Higgins, Terence L.	Rossi, Hugh (Hornsey)
Boyle, Rt. Hn. Sir Edward	Hirst, Geoffrey	Russell, Sir Ronald
Brewis, John	Hogg, Rt. Hn. Quintin	St. John-Stevas, Norman
Brornley-Davenport, Lt. -Col. Sir Walter	Holland, Philip	Scott-Hopkins, James
Brown, Sir Edward (Bath)	Hornby, Richard	Shaw, Michael (Sc'b'gh & Whitby)
Bruce-Gardyne, J.	Hunt, John	Silvester, Frederick
Buchanan-Smith, Alick (Angus, N & M)	Jenkin, Patrick (Woodford)	Sinclair, Sir George
Bullus, Sir Eric	Jennings, J. C. (Burton)	Smith, Dudley (W'wick & L'mington)
Campbell, IS. (Oldham, W.)	Johnston, Russell (Inverness)	Smith, John (London & W'minster)
Campbell, Gordon (Moray & Nairn)	Kaberry, Sir Donald	Stainton, Keith
Carlisle, Mark	King, Evelyn (Dorset, S.)	Stoddart-Scott, Col. Sir M.
Cary, Sir Robert	Kitson, Timothy	Summers, Sir Spencer
Channon, H. P. G.	Lancaster, Col. C. G.	Tapsell, Peter
Chataway, Christopher	Lane, David	Taylor, Sir Charles (Eastbourne)
Clegg, Walter	Lawler, Wallace	Taylor, Frank (Moss Side)
Cooke, Robert	Legge-Bourke, Sir Harry	Thatcher, Mrs. Margaret
Cordle, John	Lloyd, Ian (P'tsm'th, Langstone)	Thorpe, Rt. Hn. Jeremy
Corfield, F. V.	Lubbock, Eric	Turton, Rt. Hn. R. H.
Costain, A. P.	McAdden, Sir Stephen	van Straubenzee, W. R.
Craddock, Sir Beresford (Spelthorne)	MacArthur, Ian	Vaughan-Morgan, Rt. Hn. Sir John
Crowder, F. P.	Mackenzie, Alasdair(Ross & Crom'ty)	Vickers, Dame Joan
Cunningham, Sir Knox	Maclean, Sir Fitzroy	Waddington, David
Currie, G. B. H.	Macleod, Rt. Hn. Iain	Wainwright, Richard (Colne Valley)
Dalkeith, Earl of	McMaster, Stanley	Walker, Peter (Worcester)
Dance, James	McNair-Wilson, Michael	Walker-Smith, Rt. Hn. Sir Derek
Dean, Paul	Maginnis, John E.	Walters, Dennis
Deedes, Rt. Hn. W. P. (Ashford)	Marples, Rt. Hn. Ernest	Ward, Christopher (Swindon)
Dodds-Parker, Douglas	Marten, Neil	Ward, Dame Irene
Drayson, G. B.	Maudling, Rt. Hn. Reginald	Weatherill, Bernard
Eden, Sir John	Maxwell-Hyslop, R. J.	Wells, John (Maidstone)
Elliot, Capt. Walter (Carshalton)	Maydon, Lt.-Cmdr. S. L. C.	Whitelaw, Rt. Hn. William
Eyre, Reginald	Mills, Stratton (Belfast, N.)	Wiggin, A. W.
Farr, John	Mitchell, David (Basingstoke)	Williams, Donald (Dudley)
Fisher, Nigel	Monro, Hector	Wolrige-Gordon, Patrick
Fletcher-Cooke, Charles	Montgomery, Fergus	Wood, Rt. Hn. Richard
Fortescue, Tim	More, Jasper	Worsley, Marcus
Foster, Sir John	Munro-Lucas-Tooth, Sir Hugh	Wright, Esmond
Gilmour, Ian (Norfolk, C.)	Nabarro, Sir Gerald	Wylie, N. R.
Glover, Sir Douglas	Neave, Airey
Godber, Rt. Hn. J. B.	Nicholls, Sir Harmar	TELLERS FOR THE AYES:
Goodhart, Philip	Nott, John	Mr. Humphrey Atkins and
Gower, Raymond	Orr-Ewing, Sir Ian	Mr. Anthony Royle.
Grant, Anthony	Osborn, John (Hallam)
NOES
Albu, Austen	Grey, Charles (Durham)	Mikardo, Ian
Allaun, Frank (Salford, E.)	Griffiths, David (Rother Valley)	Millan, Bruce
Alldritt, Walter	Griffiths, Eddie (Brightside)	Miller, Dr. M. S.
Armstrong, Ernest	Hamilton, James (Bothwell)	Milne, Edward (Blyth)
Atkins, Ronald (Preston, N.)	Hamilton, William (Fife, W.)	Mitchell, R. C. (S'th'pton, Test)
Atkinson, Norman (Tottenham)	Hamling, William	Molloy, William
Bacon, Rt. Hn. Alice	Hannan, William	Morris, Alfred (Wythenshawe)
Baxter, William	Harper, Joseph	Morris, Charles R. (Openshaw)
Beaney, Alan	Harrison, Walter (Wakefield)	Moyle, Roland
Bence, Cyril	Haseldine, Norman	Neal, Harold
Bennett, James (G'gow, Bridgeton)	Hattersley, Roy	Newens, Stan
Binns, John	Hazell, Bert	Norwood, Christopher
Blackburn, F.	Henig, Stanley	Oakes, Gordon
Blenkinsop, Arthur	Herbison, Rt. Hn. Margaret	O'Halloran, Michael
Boardman, H. (Leigh)	Hilton, W. S.	Orbach, Maurice
Booth, Albert	Hooley, Frank	Oswald, Thomas
Boston, Terence	Horner, John	Owen, Will (Morpeth)
Bottomley, Rt. Hn. Arthur	Howell, Denis (Small Heath)	Padley, Walter
Boyden, James	Howie, W.	Page, Derek (King's Lynn)
Bradley, Tom	Hoy, Rt. Hn. James	Pannell, Rt. Hn. Charles
Brooks, Edwin	Hughes, Roy (Newport)	Park, Trevor
Broughton Sir Alfred	Hunter, Adam	Parker, John (Dagenham)
		Pavitt, Laurence
Brown, Hugh D. (G'gow, Provan)	Hynd, John	Pearson, Arthur (Pontypridd)
Brown, R. W. (Shoreditch & F'bury)	Jackson, Colin (B'h'se & Spenb'gh)	Pentland, Norman
Buchanan, Richard (G'gow, Sp'burn)	Jeger, George (Goole)	Perry, Ernest G. (Battersea, S.)
Butler, Herbert (Hackney, C.)	Jenkins, Hugh (Putney)	Perry, George H. (Nottingham, s.)
Butler, Mrs. Joyce (Wood Green)	Jenkins, Rt. Hn. Roy (Stechford)	Probert, Arthur
Callaghan, Rt. Hn. James	Johnson, Carol (Lewisham, S.)	Randall, Harry
Cant, R. B.	Johnson, James (K'ston-on-Hull, W.)	Rankin, John
Carter-Jones, Lewis	Jones, Dan (Burnley)	Richard, Ivor
Chapman, Donald	Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	Roberts, Albert (Normanton)
Coleman, Donald	Jones, J. Idwal (Wrexham)	Roberts, Rt. Hn. Goronwy
Concannon, J. D.	Jones, T. Alec (Rhondda, West)	Roberts, Gwilym (Bedfordshire, S.)
Conlan, Bernard	Judd, Frank	Robertson, John (Paisley)
Dalyell, Tam	Kelley, Richard	Rodgers, William (Stockton)
Darling, Rt. Hn. George	Kerr, Russell (Feltham)	Ross, Rt. Hn. William
Davies, G. Elfed (Rhondda, E.)	Lawson, George	Ryan, John
Davies, Rt. Hn. Harold (Leek)	Leadbitter, Ted	Shaw, Arnold (Ilford, S.)
Davies, S. O. (Merthyr)	Lee, Rt. Hn. Frederick (Newton)	Silverman, Julius
Dempsey, James	Lestor, Miss Joan	Skeffington, Arthur
Dewar, Donald	Lewis, Arthur (W. Ham, N.)	Slater, Joseph
Dickens, James	Lewis, Ron (Carlisle)	Small, William
Doig, Peter
Dunwoody Mrs. Gwyneth (Exeter)	Lipton, Marcus	Spriggs, Leslie
Dunwoody, Dr. John (F'th & C'b'e)	Lomas, Kenneth	Strauss, Rt. Hn. G. R.
Eadie, Alex	Loughlin, Charles	Swain, Thomas
Edwards, Robert (Bilston)	Luard, Evan	Taverne, Dick
Edwards, William (Merioneth)	Lyon, Alexander W. (York)	Thomas, Rt. Hn. George
English, Michael	Lyons, Edward (Bradford, E.)	Tinn, James
Ennals, David	Mabon, Dr. J. Dickson	Tuck, Raphael
Ensor, David		Urwin, T. W.
Ensor, David	McBride, Neil	Varley, Eric G.
Evans, Fred (Caerphilly)	McCann, John	Watkins, David (Consett)
Evans, Ioan L. (Birm'h'm, Yardley)	MacColl, James	Watkins, Tudor (Brecon & Radnor)
Faulds, Andrew	McElhone, Frank	Wellbeloved, James
Fernyhough, E.	McGuire, Michael	Wells, William (Walsall, N.)
Finch, Harold	Mackenzie, Gregor (Rutherglen)	White, Mrs. Eirene
Fletcher, Rt. Hn. Sir Eric (Islington, E.)	Mackie, John	Wilkins, W. A.
Fletcher, Ted (Darlington)	Mackintosh, John P.	Wiley, Rt. Hn. Frederick
Foot, Michael (Ebbw Vale)	Maclennan, Robert	Williams, Clifford (Abertillery)
Ford, Ben	McMillan, Tom (Glasgow, C.)	Willis, Rt. Hn. George
Forrester, John	McNamara, J. Kevin	Wilson, Rt. Hn. Harold (Huyton)
Fowler, Gerry	MacPherson, Malcolm	Winnick, David
Freeson, Reginald	Mahon, Simon (Bootle)	Woodburn, Rt. Hn. A.
Galpern, Sir Myer	Mallalieu, E. L. (Brigg)	Woof, Robert
Gardner, Tony	Mallalieu, J.P.W. (Huddersfield, E.)
Ginsburg, David	Mapp, Charles	TELLERS FOR THE NOES:
Golding, John	Marks, Kenneth	Mr. R. F. H. Dobson and
Gregory, Arnold	Mellish, Rt. Hn. Robert	Mr. Alan Fitch.

5.45 p.m.

Mr. Higgins

I beg to move Amendment No. 3, in page 1, line 21, leave out 'forty' and insert 'ten'.

The Temporary Chairman (Sir Barnett Janner)

With this Amendment we shall discuss the following Amendments: No. 2, page 1, line 20, after 'cent.', insert: 'of the value of the goods'. No. 4, in page 1, line 21, leave out 'forty per cent.' and insert: 'at the following percentages of the value of the goods:

As from 5th December, 1969 to 4th February, 1970

40%

As from 5th February, 1970 to 4th April, 1970	30%
As from 5th April, 1970 to 4th June, 1970	20%
As from 5th June, 1970 to 4th December, 1970	10%"

Mr. Higgins

The purpose of the Amendment is to reduce the rate of import deposits from 40 per cent. to 10 per cent. Just as we have had no explanation from the Government why the Bill has been introduced for one year in contrast to their original statements, so we have had no explanation why they have fixed the rate at 40 per cent. This afternoon we had an extraordinary spectacle when the President of the Board of Trade was answering Questions. My hon. Friend the Member for Acton (Mr. Kenneth Baker), in Question No. 22, asked the President of the Board of Trade by how much he estimates that imports will increase when the rate of import deposits is reduced from 50 to 40 per cent. It became apparent that Ministers could give no estimate at all. Indeed, in subsequent exchanges it became apparent that the Board of Trade had not even attempted to estimate what the effect would be on the level of imports.

It is true that the figure will be substantially influenced by the fact that, because they believed what the Chancellor of the Exchequer said last year—that the Bill would come to an end at the end of the year—many people have held back from importing in recent months. Following the renewal of the scheme, if the Bill is approved, we shall probably see some bulge in imports. But the fact that there has been this anticipation of the end of the scheme, and then disappointment, inevitably clouds the facts of the case That is common ground.

Nevertheless, the Government should have made some estimate both of the extent of the anticipation and of the extent to which it will subsequently be counteracted, as well as some estimate of what the effects of various changes in the rates were likely to be. Various items, such as foodstuffs and raw materials, are exempt, but from what the Chancellor said it is clear that the duty is likely to affect the imports of goods which are subject to the import deposits scheme. That being so, surely some estimate should have been made of the demands for the various products subject to the scheme and, consequently, how much a reduction of the rate from 50 per cent. to 40 per cent. was likely to affect the level of imports. As far as we have been able to establish, no such studies have even been attempted. Will the Minister of State tell us whether any such studies have been made and, if they have, will he indicate the effect which a change of this kind will have on the level of imports?

It seems to us that we ought to put down this Amendment, and I will explain why we have done so. Throughout last year and this year we have maintained that this scheme is objectionable in principle. That continues to be our view. An Amendment seeking to reduce the rate might in some ways be thought to condone the Government's action. That is not the case. We thought it right that the House should have an opportunity to examine the effect of a 40 per cent. rate against that of a somewhat lower rate in specific cases.

In many ways the Bill embodies the various approaches which the Government have adopted and which are objectionable in legislation. One of the most objectionable features, to which I have referred previously, is the way in which the Government draw Money Resolutions. They do so in such a way as to curtail debate on subjects which are legitimate subjects of discussion. There has been no other case in which the Money Resolution has been drawn as tightly as in this case. I referred to the point when we debated the Ways and Means Resolution on 10th November.

That Resolution stated that the original import deposits scheme may remain in force, subject to the like exemptions and reliefs as were provided for in the original Act. I stress the like exemptions and reliefs because businessmen and others do not, I think, understand the impact of a Money Resolution on the way in which Amendments can be framed. The beating of the Government on Money Resolutions and Amendments has been something that we have got into the habit of doing ever since the selective employment tax debates.

This, however, is quite the tightest Resolution that we have had. Without consulting experts on the subject, I was unable to find any way in which to get Amendments in order on the Paper, and, therefore, debatable, concerning specific items which, in our view, should not be subject to the import deposits scheme.

I thought originally that the expression the like exemptions and reliefs might be interpreted as being "similar exceptions and reliefs" but, unfortunately, I understand that the legal approach is somewhat different and the alleged commonsense approach is that the word means, not similar, but the same.

That is difficult to understand. Whereas the Minister of State and I might be alike in the sense that we are both human beings, it would be a wrong use of syllogisms to suggest that we were the same human beings. That, however, is apparently how these matters work. As a result, it is only on an Amendment of the kind that I have moved that we can legitimately bring to the attention of the House of Commons and the Government specific cases which should be considered concerning the impact of the import deposits scheme.

The second point, which, again, is typical of the way in which the Government have approached various pieces of legislation of this kind in recent years, concerns the use of a classification, produced for a quite different purpose, as the basis for making exemptions concerning import deposits, S.E.T., and so on. This inevitably means that the classification is precise but quite inappropriate for the new use to which it has been put. As a result of this, a number of items are subject to the import deposits scheme which on any reckoning should clearly have been excluded.

The main exemptions which were mentioned last year, and which are still subject to the full rate of duty, are food and raw materials. The main problem concerning these two items arose in two ways. First, we found that a number of items which obviously should have been excluded, even on the definition of food and raw materials, were subject to the import deposits scheme because they were hidden somewhere in the midst of the complicated classification which the Government incorporated in the original Bill.

Last week, on Second Reading, there were two references to this in particular. One was by my hon. Friend the Member for Macclesfield (Sir A. V. Harvey), who, at col. 910, referred to the use of calcium carbide and pointed out that this product was subject to the import deposits scheme even though it was entirely imported and there was no possibility of any import substitution scheme being evolved in the meantime. That inevitably meant that the effect on the importation of this item was nil and the effect on our industrial cost was quite considerable.

A similar point was made by the right hon. Member for Sheffield, Hillsborough (Mr. Darling). I am sorry not to see the right hon. Gentleman in his place, but it is abundantly clear why he is not to be seen. Although he put forward convincing arguments why, for example, silicon carbide should be excluded from the import deposits scheme because of its great importance to Sheffield in cutlery, hand tools, special steels and the abrasives industry, to which he referred at col. 906 on 17th November. Although, like my hon. Friend the Member for Macclesfield, the right hon. Gentleman would like to have seen the Bill amended, he was unable to do so—that, presumably, is why he is not here—because it was not possible to get Amendments within the rules of order. Clearly, however, there is a case for exempting those items.

The fact is that the Government have been too lazy to go into these matters and make the adjustments which, in the light of the last year's experience, they should have made. Meanwhile, however, the effect on our industrial costs has been contrary to the national interest and may positively mean that we do not sell exports as well as we otherwise would.

There is a specific point about which I wish to ask the Minister. When we debated the original Import Deposits Bill in Committee last year, the Government, perhaps persuaded by the arguments from this side or realising that they had made a mistake, put down a substantial Amendment with regard to the use of imported goods which were subsequently exported. The object, apparently, was to give discretion to enable goods which were imported and then used in exports to be exempted from the charge.

I should like the Minister to tell us to what extent that provision has been used during the last year and to what extent the deposits which have been paid have been refunded immediately rather than, probably, at the time when the goods were eventually exported, with the result that those who use these imported goods have borne the burden of the interest-free loan in the same way as anyone else. In view of the attention which the House gave this matter last year, I hope that the Minister can give us a clear answer. Those are the main points which I should like to raise in that context.

I want now to take by way of example three specific cases which I mentioned briefly in passing on Second Reading and to go into the matter in a little more detail. There appears to have emerged an absurd paradox in our institution arrangements concerning imports. The House will know that from time to time, for various reasons which have been specified in legislation and Statutory Instruments, the Board of Trade grants temporary exemptions from import duty. Usually, such proposals are put forward in the Board of Trade Journal and subsequently the Government take the necessary steps to ensure that exemptions are given for those items.

I want to take up one item in particular because it seems to be of interest. It is is referred to in the Board of Trade Journal of 29th October this year and it concerns cold reduced steel plates of iron and steel, rectangular, in coils of a width exceeding 500 mm. I understand that the Government have accepted that these items cannot be produced in this country in sufficient quantity to meet the demands of people here and, therefore, that they no longer impose the relevant duty, so that those who make household consumer durables, for example, can use the materials and not be subject to the additional cost of import duty.

As far as I can establish, however, those items and others like them, which are exempt temporarily from ifport duty, are still having to bear the import deposit. If that is so, it seems to me to be absurdly inconsistent. I may be wrong on this. It may be that the Government have already taken steps to ensure that that does not happen because, clearly, it is likely to inhibit the production of goods for export. I consider it to be right to raise this matter and I hope that the Minister will undertake that if what I have said is correct and there is an inconsistency as against the position concerning temporary exemption from import duty, the same exemptions, of the same temporary nature, will be extended to the import deposits scheme.

6.0 p.m.

I turn now to my second example and this is the effect of the import deposits scheme on plywood. I mention this not so much as an item of the kind I was describing just now which has got lost somewhere in this vast industrial classification used for the scheme, but rather because the exemptions which were given last year only extend on the one hand to food and on the other hand to raw materials of semi-manufactured products defined in an arbitrary way by the Government. Those not exempt consequently bear the brunt of the import deposits scheme and these are another case, it seems to us, where one ought to reduce the rate of duty, or preferably, as we on this side have consistently argued, eliminate it altogether, because quite a number of these items—and I take plywood as an example—are effectually the raw materials which are used and of which there is no real domestic production which can hope to fill the gap.

Therefore, the effect of the import deposits scheme is to raise costs and to have no perceptible effect on imports. I understand that less than 4 per cent. of the country's total plywood requirement is actually produced domestically; the remaining 96 per cent. is imported. Therefore, I think it is quite clear that the net effect of putting the import deposits scheme on these items must be to raise our costs and not to have any perceptible effect on imports, though that is the declared objective of the Government's scheme.

If this is so the first point which one needs to notice is the very arbitrary way in which the thing is defined, because quite clearly it is a very fine line indeed to draw a distinction between plywood on the one hand and ordinary timber on the other, because these two are very close substitutes. Timber imported and used for packing cases is actually exempt, whereas plywood is not exempt. I find it difficult to find any possible rationale for this. A number of items made of plywood—for example, packing cases, but of one kind and another—are used in exports. Therefore, the result must be to put up export costs and to have an adverse effect on our export performance. I do not suggest that this is an item which will affect the fundamental health of the British economy in a significant way such as the whole economic policy, but it is a fact none the less that the imposition of this scheme in this silly way does have an effect of discouraging exports and putting up the cost of living, rather than the reverse effect. Therefore, it is right and proper that we should look at this this afternoon and consider whether the Government ought to do something about this kind of case.

Similarly, with the export of motor cars, the export of completely knocked down components of motor cars, putting the import duty on plywood is likely to have an effect. It is true, of course, that it affects home building, home construction. So I hope that there again we shall have an explanation from the Minister about this item, which I take just as an example of one of the things which really cannot be easily produced in this country and where expansion of production is very difficult and clearly would not be worth while if the scheme is to go on for two or three years, let alone only for the forthcoming year.

The third example which I ought to take is the imports of paper and paper board. This, again, is an item in the packaging industry. I am not sure that this is one on which I can reasonably speak with expertise, but certainly in the packaging industry we have to import an enormous amount of various kinds of paper and these, again, are subject to import duty, cannot be readily produced in this country, and which may enter into exports. As I have said, I do not believe that the exemptions given last year for imports of raw materials for manufactures which go into exports have been effective. The arbitrary way in which the distinction is made is very odd indeed. Presumably, paper is reckoned a semi-manufacture and is subject to import duty, but if one imported paper pulp, as I understand it, this would be exempt. Yet presumably pulp is every bit as much a manufacture in its way. The difference is between trees and pulp and between pulp and paper. Yet the line is drawn by the Government in this arbitrary way and in a way which is clearly working against the objectives of the Government's policy and the Government's Bill and seems to us to be a very silly way of going about it.

As I say, the only conclusion one can really reach from the way the Government have drawn the Money Resolution and the way they have put forward this Bill is that we must go through these items item by item, to see which sort should be excluded in the light of experience.

I come finally to the question of importers. I dealt at some length with this on Second Reading and I shall not now refer to it at great length, but the fact is that importers are carrying out a useful function in this country, although there was some antagonism towards them from the other side on Second Reading. It seems to us that the effect on importers is likely to result in a number of them going out of business even though they are performing a perfectly reasonable function. This is another example of the penny slot machines which we debated on the Finance Bill. This is another example of the way the Government go in for annihilation taxes. Measures of this kind which the Government impose and which put people out of business ought not to be taken as something we normally accept.

So, for all these reasons, I think the Committee should accept this Amendment. As I say, this in no way reduces out total antagonism to the Bill as such, but it seems to me that if we examine just the few examples which I have quoted it is enough to show that for a number of these at any rate the rate ought to be reduced. We would hope that for quite a number it should be eliminated altogether, but, failing that, the rate should be reduced on those items which quite clearly ought not to be in cluded in the scope of the Bill.

Mr. Cyril Bence (Dunbartonshire, East)

I would agree with the hon. Gentleman the Member for Worthing (Mr. Higgins) on the point about the packaging industry. The industry in this country, and, indeed, in every country of the world, is one of the great growth industries of the modern age Housewives everywhere are demanding and getting domestic products of all kinds packaged in all sorts of ways very attractive to them. Packaging is a great selling property of a product, but it is becoming a very costly one. It is the same, as the hon. Gentleman mentioned, with the export of motor cars and what is called C.K.D.—completely knocked down. A great deal of component parts under C.K.D. are packed in corrugated paper and fibre board.

Much of this is not manufactured in this country. It is quite uneconomic to import pulp and convert it to paper rather than have it converted to paper in the timber-growing countries. Paper is an essential raw material in the whole packaging industry, and packaging enters into 90 per cent. of exports. There are several firms in this country making packaging and although packaging cannot be called an export product other people buy it from these firms, to pack the things which they export.

The import deposits scheme is driving up their cost. The cost of packaging some products is as high as that of the products inside the packages. We are trying to keep down the price of the product, but we are pushing up the price of the package in which product is put. If we could find a substitute for imported paper for making packages I would not be asking my hon. Friend to examine this matter. I can enumerate a whole string of products where the same argument applies. I have not been through such a string of products, but I do happen to know about these two, corrugated paper and paper packaging.

The motor industry is compelled to export C.K.D. because many importing firms are demanding that a proportion of products from the importing country shall be included in the assembled motor car. Nothing should be allowed to increase the cost of packaging and so increase the cost of exporting the product.

I recognise that, by eliminating one anomaly, another might be created, but I ask my hon. Friend to see whether it is possible to get over the anomalies. The hon. Member for Worthing has a very serious point in trying to deal with paper and plywood, the raw materials of packaging.

Mr. Tom Boardman (Leicester, Southwest)

The hon. Member for Dunbartonshire, East (Mr. Bence) is right in supporting the criticisms made by my hon. Friend the Member for Worthing (Mr. Higgins) of the effect of the Bill. No doubt there might be some anomalies, but I believe that they are capable of being overcome.

In the pessimistic belief that Amendment No. 3 might not be accepted by the Government, I have tabled an Amendment in a different form, the effect of which would be a phasing out of the import deposits scheme, and I have endeavoured to meet all the reasons given by the Financial Secretary on Second Reading for the retention of the scheme. The purpose of Amendment No. 4 is to phase out import deposits over a period, the main taper coming within the first six months, leaving 10 per cent. for the remainder of the year.

The Financial Secretary has told us why he cannot do away altogether with the scheme, and I would be out of order if I were to reopen that debate, but the reasons he gave are material to the Amendment. The Financial Secretary, on Second Reading, promised that this time the deposit scheme will be temporary. The Paymaster-General last time said that they would be temporary and this has been repeated from time to time, but I am prepared for the purpose of this debate to give the Government the benefit of our accumulated doubts.

The Financial Secretary gave three reasons for renewing the import deposits, all of which are relevant to the Amendment. The first was that it was necessary to control credit expansion. He said that it was a useful incentive to companies to get their hands on moneys earned by exports. I believe that exactly the reverse effect has occurred.

Those of us who have from time to time been intimately involved in exports and export finance know that it is usually a slow process to get one's hands on money from the export market. There are, of course, facilities for export credit, but the delay between getting in the raw material and receiving the cash on a sale to the export market is much greater than with sales to the home market, and the first leg of his argument is, therefore, complete nonsense.

The second reason given by the Financial Secretary under the main heading of controlling credit expansion was that the continuation of the squeeze would do no more harm than good. That, at best, is a neutral term. He coupled that with a denial that there would be any surge of bankruptcies or liquidations. I ask the Minister of State to reflect on that, and on the trends which are becoming increasingly apparent to those closely involved with industry who know that many small companies are faced with great cash problems. I only hope that the Financial Secretary is right in his optimism that there will not be a spate o. bankruptcies and liquidations, but the signs are that the trend is there.

6.15 p.m.

The Financial Secretary accepted that the import deposits scheme slowed down industrial investment. Hon. and right hon. Members who either heard or have read what my hon. Friend the Member for Harwich (Mr. Ridsdale) said in the Adjournment debate on Friday will know about the rate of our industrial investment compared with that of competing countries such as Japan and Germany, and will recognise how relevant is this point to the Amendment.

Amendment No. 4 produces a gradual easing of the control and prevents the flood of money back, yet it permits investment plans to be made. If the Amendment were accepted, industry would know that each month it would be getting back a bit more of its money, that after six months it would receive back all bar 10 per cent. and that eventually it would receive it all.

The second argument put forward by the Financial Secretary on Second Reading was that it was necessary to avoid the monthly outflow of reserves over the next six months and to phase out the payments more gradually. The Amendment does just that. It drops the rate of import deposits by 10 per cent. each two months for the next six months and then retains, albeit reluctantly, the minimum deterrent of 10 per cent. for the final six months. This precisely meets the fear of the Financial Secretary that cutting off the import deposits would mean a flood of money back at a time when the country could not stand it.

The third point made by the Financial Secretary about which I wish to make some criticism is that the scheme had a useful direct effect on imports. The figures given by the Financial Secretary were not very fairly stated. In referring to the comparison between the rate of growth of exempt and non-exempt imports as a justification for the import deposit scheme having had effect, he quoted figures, and then came to the conclusion that the difference between the rate of increase in non-exempt and exempt goods had dropped from nearly three times to just over twice.

Criticism has been made in an earlier debate today of those figures and they are misleading. The change, as near as I can calculate it, is about one-thirteenth. That is a distortion of the figure. I accept that the Financial Secretary's arithmetic may not be very good, but the figures were given on 17th November and the same argument has been repeated today.

The Financial Secretary in reply on another issue to my hon. Friend the Member for St. Ives (Mr. Nott) said that he had exaggerated a bit. I am sure that it was accepted as a lighthearted remark, but the Financial Secretary cannot bandy figures about on such a vital matter and either exaggerate a bit or produce a comparison which appears to give a different picture from that disclosed by an arithmetical analysis of the figure.

The Minister of State, Treasury (Mr. William Rodgers)

I am sure that the hon. Gentleman would not wish to mislead the Committee about what my hon. and learned Friend said. Will he not agree that the figures were given fully in HANSARD on 17th November and are there for everybody to see? Therefore, the Financial Secretary has in no way sought to mislead anybody. I hope that the hon. Gentleman is not suggesting that the figures which appear in c. 878 are inaccurate.

Mr. Boardman

The figures themselves are not inaccurate. I was referring to the way in which they were presented as a justification for the effect of the import deposits scheme. To say that it had resulted in a difference between the rate of increase in non-exempted and that for exempted goods amounting to a drop of from three times to just over twice presents a picture—I accept it may not be intentional—which does not bear mathematical examination since on my calculations the difference is about one-thirteenth.

I am glad to see the Financial Secretary now back in the Committee since I would not like to have made my criticisms in his absence. I regret that he was not able to be here when I was making my comments on his presentation of the figures.

A distortion of the figures does not help the argument. The hon. and learned Gentleman accepted that there were many differences in other respects to account for the trend. He justified his argument by saying that he took the only comparison which ignored all the other factors and which was common both to exempted and non-exempted goods. This is not in fact the case. The effect of devaluation was not constant, neither was the effect of world prices.

Exempted goods are largely concerned with foodstuffs and the like, whereas non-exempted goods are mainly industrial products. The pattern of price movement between them has been very different. The Financial Secretary will be aware that the rate of growth of the G.N.P. between the two periods showed a drop of 25 per cent. Its effect would be mainly on non-exempted goods. Marginally, the difference presented by his arithmetical calculation could be accounted for by a large variety of factors which have nothing to do with the import deposits scheme.

The argument against the Amendment that the scheme could not be dropped because it would increase the money coming back into the economy will be valid on any future occasion, if this Government are then in office. I therefore urge them to consider the Amendment which provides for a tapering off, if they are not prepared to go the whole way with a substantial reduction in the import deposits scheme.

To a Government taxes are like drugs or cigarettes to an addict. They are always something which one will give up tomorrow. I fear that if we do not have a phasing out of the imports scheme, in the same way as a smoker may discipline himself to cut down by a quarter, then by half and then drop the habit altogether, then we shall find that at this time next year, if we have the misfortune to be faced with the same Government, precisely the same arguments will be put forward.

If the encouraging balance of trade figures are maintained, and if the achievement is as the Government claim it to be, then they should now commit themselves to get rid of this heavy burden on industry. Industry has managed to carry this burden for a year at great cost both to investment and to its forward planning. Industry has carried it for long enough. I hope that it will not be required to do so for a further 12 months since it is entitled to know when it will begin to get back its money. And I would stress that it is industry's money.

[Mr. SYDNEY IRVING in the Chair]

Mr. John Page (Harrow, West)

The Government are lucky that the hon. Member for Accrington (Mr. Arthur Davidson) has not earlier than this afternoon had an opportunity to introduce his Private Member's Bill to regulate inertia selling. This Bill is a sophisticated example of inertia selling, on the same basis as the innocent housewife who is persuaded to fill in a form asking for a monthly magazine or encyclopaedia to be sent to her and, unless she takes the trouble to prevent it, it keeps on coming to her.

There was a row over this legislation last year on 3rd and 4th December, but the Bill went through. The present Bill, in a couple of quick new Clauses, provides for the scheme to be continued for a further 12 months. I support Amendment No. 3, and also what was said by the hon. Member for Leicester, Southwest (Mr. Tom Boardman) on his Amendment No. 2. However, I feel that Amendment No. 4, in which my name is joined with his, should be more attractive to the Government. It gives them a great opportunity to tail off the scheme so that people will not be embarrassed suddenly by the fact that the Government will live up to their promises and drop the scheme. Amendment No. 4 provides for a gradual tailing off, rather than a sudden moment of relaxation which might, the Government are afraid, have bad effects.

The Bill has almost come to be accepted as a fairly permanent part of our way of life. I wish to raise the point of remissions which are allowed to exporters. There are serious doubts in the minds of many importers of goods who sell through one, two or three stages of processing to a manufacturer who ultimately may re-export.

This doubt is underlined by the serious fact that, as I was informed only this afternoon, the OFFICIAL REPORT containing the Second Reading debate on this Bill is still not available from the Stationery Office. I have not checked that fact myself, but I have been informed of it by the director of an important company who wished to inform himself of the detail of that debate.

Will the Minister confirm that if these Amendments are not accepted, and the scheme is extended for a further 12 months, there will be no change in the system of rebates on import deposits in respect of imports later re-exported as covered by Schedule 2 of the 1968 Act? Let me spell this out for the benefit of the Minister of State. At present, if a processer of goods, say, can inform the importer that he expects to include in export 20 per cent. of the imported materials, when there is a 50 per cent. deposit and, as it were, a global 20 per cent. export, a remission of 20 per cent. of that 50 per cent. deposit is allowed, which means that only a 40 per cent. deposit need be made by the original importer.

What will now be the position of that same company, assuming the same 20 per cent. export potentiality? Does the system remain the same? Two companies to which I have spoken have assumed that, as they were previously paying 20 per cent. of the 50 per cent., they will now pay 10 per cent. of the 40 per cent. I see that the Minister of State nods his head: I hope that this assumption is right. My own sums have led me to a rather different conclusion, but confirmation of what I have just said will be extremely helpful to the business community.

In passing, I should like the Minister of State to hand a bouquet to the staff of the Customs and Excise for the way in which they have operated this scheme. I have taken a little trouble to inquire how the system of returning deposits is going, and I have been told that the returned deposit reaches the depositing company on the very day of the expiry of the six months' period, and sometimes even on the day before. That is an excellent performance. It is most helpful to depositors to be absolutely certain, when considering cash flow—and deposits may involve very large figures—that they will get their deposit back not later than the appropriate date.

I should like, as a second rose in the bouquet, to congratulate the Customs and Excise on the flexible manner in which local inspectors have assessed the export content of goods which are, perhaps, being processed by more than one manufacturer before they are ultimately exported, and have allowed the original importer a global remission on his initial deposit. At half-past Twelve on the morning of 4th December last year, the then Financial Secretary, discussing the then Bill, said that the extra staff and extra administration required by the Customs and Excise would be negligible; and the way in which the scheme has been operated so far confirms that view.

There is now evidence that the influence of Parkinson is entering into the attitude of the Customs and Excise. It was right that when the scheme started, the Customs and Excise staff should have been informed, "This is a temporary Measure. It will last for 12 months. Use a bit of rule of thumb, and give quick and sensible rulings on the remission of deposits." It was right, knowing that it was to last for only 12 months, the Department should not have bothered to go too deeply into the evidence required, and do too much paperwork. But evidence now brought before me shows that a lot more time, energy, paperwork and consideration are apparently being expended by the Customs and Excise and this, in turn, means a lot more paperwork by the companies involved.

I re-emphasise a point made by my hon. Friend the Member for Worthing. How much continuing consideration are the Government, the Board of Trade and the Treasury giving to adding to the exemptions list goods not previously exempted but which surely now demand it? I have here a copy of the Board of Trade Journal of 29th October listing various types of tin plate and cold rolled steel sheet. The leading explanatory paragraph states: The Board of Trade are considering applications for the temporary exemption from import duty of materials listed below on the grounds that these materials are not made in this country or the Commonwealth, or the supply available from these sources is not substantial having regard to the existing United Kingdom demand. In cases where the steel industry—

The Chairman

Order. Perhaps the hon. Member will explain how what he is saying is related to the rates under discussion. I find it difficult to follow him.

Mr. Page

I relate it to the fact that by my Amendment I would try to reduce the rates to 10 per cent. People now forced to import goods which previously could have been supplied in this country are very much inconvenienced if they have to put down a 40 per cent. deposit. If, however, it were a 10 per cent. deposit the inconvenience and expense to the company would be greatly reduced.

I also wished to make an en passant reference on behalf of an industry in which I have a personal interest, the synthetic rubber industry. I hope that on this Amendment consideration can be given to the removal from the list of imported synthetic rubber on the ground that—

The Chairman

Order. I have no doubt that now the hon. Member is out of Order.

Mr. Page

I was about to finish my sentence by saying that reclaimed synthetic rubber is already exempt and that this seems to be an anomaly.

I hope that if the Government cannot go all the way with Worthing they will at least go with Leicester and Harrow and make a sensible phasing out of the present scheme.

Mr. William Rodgers

It is very unlikely that I shall be able to go with Leicester and Harrow in this respect or with all the hon. Members opposite who have spoken in this debate.

The hon. Member for Worthing (Mr. Higgins) started by emphasising one of the contradictions which we have again seen this afternoon when he predicted some bulge in exports when the scheme eventually came to an end, whereas his hon. Friend the Member for Barkston Ash (Mr. Alison) spoke of counter-productive effects of the scheme, by which we understood that it was likely that imports had been increased over the period in which it operated rather than been reduced. He went on to complain about the Money Resolution and got on to the substantive points.

Mr. Higgins

There is absolutely no contradiction here. Clearly, the effect of the scheme may be this or that over a year, but just before the scheme is expected to end action might be taken in anticipation of that happening and there might be a second effect when that turns out to be wrong.

6.45 p.m.

Mr. Rodgers

I found the hon. Member unconvincing. The suggestion that the scheme has been an impetus to the growth of imports and that there will be a further impetus when the scheme comes to an end might be right, but it is unconvincing. The hon. Member spoke of the effect of re-exports and the case for exemption of a number of commodities on varying grounds.

I was grateful to the hon. Member for Harrow, West (Mr. John Page) for congratulating the Customs and Excise on the flexible way in which it has operated the scheme. The whole Committee will agree that, despite the misgivings a year ago and the reservations there still are about the principle or the rate that we are discussing, the scheme has worked well because of the efforts of Customs and Excise. I am sorry that the hon. Member now feels that there is some hardening of the arteries. That is not the intention. Once the Bill has been through the House, if there has been any change in mood the same first-class service will be available thereafter.

So far as I can, within the rules of order, I wish to reply to everything that has been said this afternoon about commodities which will be subject to the present level of deposits and about which it might be argued there ought to be exemptions. Of course, there are cases which can be made. In the past, we have very carefully considered representations, and we shall continue to do so. Inevitably, if more anomalies are not to be created we have to walk warily. If there were a large range of concessions, the effect of the Bill would be substantially reduced. This may be the wish of some hon. Members, but, having decided what we think the scheme ought to be, it would make nonsense of it if that happened and the purpose would not be achieved.

When my right hon. Friend announced the continuation of the scheme he made clear both what we had achieved and what we thought we might expect from the reduced 40 per cent. He took the view, which we have restated in discussions on Second Reading, that the scheme had a useful effect in a number of different fields. I ask the hon. Member for Leicester, South-West (Mr. Tom Boardman) to look again at what my hon. and learned Friend the Financial Secretary said on Second Reading. He had no wish to mislead the House and I do not believe that the detailed figures do so. They show that there has been a change in the rate of growth between exempt and non-exempt goods. The conclusion we have drawn, although, of course, it is not possible to quantify it, is that the scheme has had some desirable effects in this direction as well as in others.

As the Chancellor said, it is his view that at present, while it is desirable to retain the scheme, it is possible to reduce the effect. That is why the figure of 40 per cent. was chosen.

Mr. Tom Boardman

I do not accuse the Financial Secretary of bad faith, but I think that the hon. Gentleman will agree that the amount was one-thirteenth and the Chancellor's advocacy presented it in a rather different light.

Mr. Rodgers

If the hon. Member thinks that, I cannot argue with him further. The figures should be looked at. If the scheme were as small as one-thirteenth, which I do not accept, this makes a significant difference given the overall needs of the occasion. We are not saying, and we did not say on Second Reading, that continuing the scheme would make a very large difference, but that in all the circumstances, despite the fact that the trend on balance of payments is in the right direction, retaining the scheme at the level of 40 per cent. is about right. That is our view and for that reason I hope that the Committee will reject the Amendment.

Mr. John Page

Possibly the Minister was not able to give an off-the-cuff answer to my question about the exact percentages of rebate. Would he be kind enough to write to me later or in some other way publicise this so that it may be made available to the business community, which seriously needs this information?

Mr. Rodgers

I am sorry that I overlooked that point, which is a substantial and very fair one. The system remains the same. Whereas it was 20 per cent. and 50 per cent. it is now 20 per cent. and 40 per cent.

Mr. Higgins

We must press the Minister of State on points we made because they were perfectly in order and there is no reason why he could not give us a reply. It may be that my hon. Friend the Member for Barkston Ash (Mr. Alison) may wish to make more general comments on what the hon. Gentleman said as to the principle. We quoted some specific examples—calcium carbide, plywood and packaging materials, and a particular one of steel.

I asked whether, if a thing is exempt from import duty or is not exempt from import deposit, to what extent the provisions of last year's measure with regard to the position of imported goods which were subsequently exported had actually been employed by the Customs and Excise. I asked whether or not, if that were so, the import deposit had still to be paid by the people using those goods for exports and thereby making an interest-free loan to the Government.

On all of these points it is not unreasonable for the Committee to expect specific answers. It is unreasonable for the Minister to brush the case off in general terms. If there are any arguments as to why these items should not be exempted, other than the fact that the Government have tabled a very tight Money Resolution and are not prepared to take the trouble to examine the items on their merits, let the Minister state the arguments against doing so. He should not seek completely to avoid the issue.

Our point is that, on any understanding of what the scheme is supposed to be about, not to exempt these goods must be contrary to the country's interests, because the scheme is not doing anything other than inhibiting exports rather than encouraging them. There are a number of specific examples which should be covered. There are a number of points of general principle on which the Minister should give answers.

Therefore, as we are in Commitee, I hope that the Minister will respond and will deal both with the points of principle and with the specific examples.

Mr. William Rodgers

I had thought that I had dealt with the points of general principle. This is not the time to argue the case for or against individual exemptions. I said that we had considered all representations and that we would do so in future, but bearing in mind the necessity of preserving a scheme which made sense and which had achieved its purpose it was not our view that the items mentioned today and mentioned on Second Reading were ones for which we could consider exemptions.

I do not think that it would be possible, least of all on this Amendment, to discuss in detail all the separate arguments for and against each of the exemptions which have been mentioned. I give the hon. Gentleman the assurance, if he wishes it again, that we retain in a sense an open mind, in that we are prepared to consider cases which are put to us and to weigh in the balance whether it is right and proper in the circumstances to make a further exemption.

The hon. Gentleman asked about the question of import duty. This is a separate matter. There would be further complications, and there would be dangers of our appearing to move into a protectionist position, if we related import deposits and goods which were exempt or non-exempt directly to the use of import duties. The hon. Gentleman asked also about the question of re-exports.

Mr. Higgins

If an import is exempted from import duty on the ground that it cannot be produced in Britain and is necessary for Britain, it is clearly a non-sense at the same time to impose an import deposit. The two things are clearly on the same footing. There is absolutely no reason why, if it is exempted in one case, it should not be exempted in the other.

Mr. Rodgers

As I said—I do not want to keep on repeating this—the Bill is not designed as a protective measure. It has a different purpose. If we had this parallel between the use of import duties and an import deposits scheme, there would be legitimate international objection to using the scheme in this way as a protectionist Measure.

Sir Harmar Nicholls (Peterborough) rose—

Mr. Rodgers

As I am attempting to reply to what the hon. Member for Worthing (Mr. Higgins) asked me earlier, I think that I should have a further go at it before attempting to deal with the further questions of hon. Gentlemen.

The hon. Member for Worthing asked about the portion of goods exempted under the re-export provisions. It is 20 per cent. As the hon. Member for Harrow, West (Mr. John Page) had in mind, there is every evidence that the scheme has operated effectively and very fairly in this respect. I am not aware of any criticisms which it has not been possible to meet.

Sir Harmar Nicholls

The Minister of State said that the deposit scheme was not intended as a protection. Surely it was intended to discourage imports. If that was not the reason for its introduction, I should like to know what the reason was. Why is it desirable to discourage something which we cannot produce and which we want? It is silly and a waste of time to say that the scheme does not mean protection. The whole object of the scheme was to discourage. Does the Minister of State agree that what he is doing is discouraging the import of things that we need because we cannot produce them?

Several Hon. Members rose—

The Chairman

I do not want to discourage discussion, but we are getting on to the principle of the Bill rather than speaking to the Amendment.

Sir Harmar Nicholls

Mr. Irving, in view of the statement made by the Minister, I think that I am entitled to an answer. I asked a question arising from the Minster's statement. If the Minister's statement was in order, my question is bound to be in order.

Mr. Rodgers

The hon. Gentleman has not listened to the discussion fully otherwise he would know, as he should know also from the debate on Second Reading, that there were three principal purposes for the Bill, as my hon. and learned Friend said. Even though one of them related to checking the growth of imports, it would still remain the case that the purpose, intention and result of the Bill in that respect would not be the same as a protective measure as it is normally understood.

Mr. Nott

Are we not talking about the opposite of a protective measure? My hon. Friend the Member for Worthing (Mr. Higgins) spoke about precisely the opposite. He asked: why remove the duty on nickel sulphate and certain steel products and leave the import deposit on? We are arguing the opposite of protective duties.

Mr. Rodgers

The hon. Gentleman has not fully grasped the sophistication of the argument. My argument was that, if goods were exempted because they were not subject to import duty, we should get into the position where non-exception involved protection.

Mr. Alison

We have received a very bitty and unsatisfactory answer from the Minister of State, who has made confusion worse confounded by his series of half answers and non-answers to the questions put by my hon. Friend the Member for Worthing (Mr. Higgins) and others of my hon. Friends. One of the most significant omissions was the non-answer to the request by my hon. Friend the Member for Worthing for the Minister to quantify, not in financial terms, because that is obvious, but in terms of effect, the result of reducing the rate of import deposits from 50 to 40 per cent. The Minister made no attempt to answer that.

For the Government to come to the Committee in the matter of import deposits, whose effect in any case is agreed to be highly marginal and perhaps absolutely imperceptible and undefinable, and propose a reduction by 10 per cent., a result which is entirely unquantifiable, is a piece of hollow window-dressing which amounts almost to the frivolous. It is meant to show people that the Government are ready to show willing, even though the amount cannot be calculated and is imperceptible.

If the Government have a disposition towards reducing the rate at which import deposits are to be charged, they have got to accept a figure which makes some attempt to bite at this question and not put forward this little 10 per cent. reduction, which will have a totally imperceptible effect.

If the Government will not accept the full scale of the major Amendment, we must ask them to think seriously as an alternative about the graduated rate of reduction which my hon. Friend the Member for Leicester, South-West (Mr. Tom Boardman) put forward and which is a logical proposal.

One of our great objections to the Bill in its present form is that when it was intended that it should run for only 12 months, the Government took the trouble in Committee to see whether they could make some modifications in the Bill, namely, the exemption of certain goods which were going to be affected by export. They at least took the trouble to write into the Bill some rational and logical exemptions. Since they are asking for a second wind of an equal length, why did they not bring forward a Bill so that we could isolate the imports which were inelastic and which were coming in in the same volume as before?

7.0 p.m.

The Chairman

The hon. Member is going wide of the Amendment. It may be that the debate has covered this field before, but it is wide of the Amendment.

Mr. Alison

The only way in which we can persuade the Government to make amends for the unsatisfactory way in which the Bill has been brought forward, without any attempt to write in some of the provisos which existed in the original Measure, is by proposing a reduction of the rate—

Mr. Taverne

Surely the hon. Gentleman appreciates that there are exactly the same provisos in the previous measure.

Mr. Alison

What I am suggesting is that the Bill should have had its Money Resolution drawn in such a way that it was possible to make amendments parallel to the amendments which it was possible to make in the Act's first year of run. Obviously, as a result of 12 months' experience there are categories, such as the inelastic categories to which my hon. Friend the Member for Worthing has referred, which should have come up for reconsideration by way of exemption. Since the Bill has come to us in a way in which we cannot make the amendment, the only reasonable alternative is a reduction in the rate of duty on a scale

which might have some chance of effect—that is to say, from 40 per cent. to 10 per cent.

If the Government will not make such a reduction I can only ask my hon. Friends to divide in favour of the Amendment.

Question put, That the Amendment be made: —

The Committee divided: Ayes 128, Noes 183.

Division No. 13.]	AYES	[7.1 p.m.
Alison, Michael (Barkston Ash)	Hamilton, Michael (Salisbury)	Page, John (Harrow, W.)
Allason, James (Hemel Hempstead)	Harrison, Brian (Maldon)	Pardoe, John
Baker, W. H. K. (Banff)	Hastings, Stephen	Peel, John
Balniel, Lord	Hawkins, Paul	Percival, Ian
Bennett, dr. Reginald (Gos. & Fhm)	Heald, Rt. Hn. Sir Lionel	Pike, Miss Mervyn
Bessell, Peter	Heseltine, Michael	Pounder, Rafton
Biffen, Jhon	Higgins, Terence L.	Prior, J. M. L.
Boardman Tom (Leicester, S.W.)	Hill, J. E. B.	Pym, Francis
Body, Richard	Hirst, Geoffrey	Ramsden, Rt. Hn. James
Boyd-Carpenter, Rt. Hn. John	Holland, Philip	Rees-Davies, W. R.
Boyle, Rt. Hn. Sir Edward	Hornby, Richard	Rhys Williams, Sir Brandon
Brown, Sir Edward (Bath)	Hunt, John	Rodgers, Sir John (Sevenoaks)
Bruce-Gardyne, J.	Jenkin, Patrick (Woodford)	Rossi, Hugh (Hornsey)
Buchanan-Smith, Alick (Angus, N & M)	Jennings, J. C. (Burton)	Royle, Anthony
Bullus, Sir Eric	Johnston, Russell (Inverness)	Russell, Sir Ronald
Campbell, B. (Oldham, W.)	King, Evelyn (Dorset, S.)	St. John-Stevas, Norman
Campbell, Gordon (Moray & Nairn)	Lancaster, Col. C. G.	Scott-Hopkins, James
Carlisle, Mark	Lane, David	Shaw, Michael (Sc'b'gh & Whitby)
Cary, Sir Robert	Legge-Bourke, Sir Harry	Silvester, Frederick
Chataway, Christopher	Lubbock, Eric	Sinclair, Sir George
Clegg, Walter	McAdden, Sir Stephen	Smith, Dudley (W'wick & L'mington)
Cooke, Robert	MacArthur, Ian	Smith, John (London & W'minster)
Corfield, F. V.	Mackenzie, Alasdair (Ross & Crom'ty)	Stainton, Keith
Costain, A. P.	Maclean, Sir Fitzroy	Stoddart-Scott, Col. Sir M.
Crowder, r. P.	Macleod, Rt. Hn. Iain	Summers, Sir Spencer
Cunningham, Sir Knox	McNair-Wilson, Michael	Taylor, Sir Charles (Eastbourne)
Currie, G. B. H.	Maddan, Martin	Taylor, Frank (Moss Side)
Dalkeith, Earl of	Maginnis, John E.	Tilney, John
Dance, James	Maxwell-Hyslop, R. J.	Waddington, David
Dean, Paul	Maydon, Lt.-Cmdr. S. L. C.	Walker, Peter (Worcester)
Dodds-Parker, Douglas	Mills, Stratton (Belfast, N.)	Walker-Smith, Rt. Hn. Sir Derek
Eden, Sir John	Miscampbell, Norman	Ward, Christopher (Swindon)
Elliot, Capt. Walter (Carshalton)	Mitchell, David (Basingstoke)	Ward, Dame Irene
Eyre, Reginald	Monro, Hector	Wells, John (Maidstone)
Farr, John	Montgomery, Fergus	Whitelaw, Rt. Hn. William
Fortescue, Tim	More, Jasper	Wiggin, A. W.
Glover, Sir Douglas	Mott-Radclyffe, Sir Charles	Williams, Donald (Dudley)
Goodj\hart, Philip	Munro-Lucas-Tooth, Sir Hugh	Wolrige-Gordon, Patrick
Gower, Raymond	Nabarro, Sir Gerald	Worsley, Marcus
Grant, Anthony	Neave, Airey	Wylie, N. R.
Grant-Ferris, Sir Robert	Nicholls, Sir Harmar
Griffiths, Eldon (Bury St. Edmunds)	Nott, John	TELLERS FOR THE AYES:
Gurden, Harold	Orr-Ewing, Sir Ian	Mr. Humphrey Atkins and
Hall-Davis, A. G. F.	Page, Graham (Crosby)	Mr. Timothy Kitson.
NOES
Albu, Austen	Boyden, James	Davies, Ednyfed Hudson (Conway)
Allaun, Frank (Salford, E.)	Bradley, Tom	Davies, G. Elfed (Rhondda, E.)
Armstrong Ernest	Broughton, Sir Alfred	Davies, Rt. Hn. Harold (Leek)
Atkinson, Norman (Tottenham)	Brown, Hugh D. (G'gow, Provan)	Davies, S. O. (Merthyr)
Bacon, Rt. Hn. Alice	Buchanan, Richard (G'gow, Sp'burn)	Dempsey, James
Baxter, William	Butler, Herbert (Hackney, C.)	Dewar, Donald
Beaney, Alan	Butler, Mrs. Joyce (Wood Green)	Doig, Peter
Bence, Cyril	Cant, R. B.	Dunnett, Jack
Bennett, James (G'gow, Bridgeton)	Carmichael, Neil	Dunwoody, Mrs. Gwyneth (Exeter)
Binns, John	Carter-Jones, Lewis	Eadie, Alex
Blackburn, F.	Chapman, Donald	Edwards, Robert (Bilston)
Blenkinsop, Arthur	Coleman, Donald	Ennals, David
Boardman, H. (Leigh)	Concannon, J. D.	Ensor, David
Booth, Albert	Dalyell, Tam	Evans, Fred (Caerphilly)
Boston, Terence	Darling, Rt. Hn. George	Fernyhough, E.
Bottomley, Rt. Hn. Arthur	Davidson, Arthur (Accrington)	Finch, Harold
Fitch, Alan (Wigan)	Lawson, George	Panned, Rt. Hn. Charles
Fletcher, Raymond (Iikeston)	Leadbitter, Ted	Parker, John (Dagenham)
Fletcher, Ted (Darlington)	Lee, Rt. Hn. Jennie (Cannock)	Pavitt, Laurence
Foot, Michael (Ebbw Vale)	Lee, John (Reading)	Pearson, Arthur (Pontypridd)
Ford, Ben	Lestor, Miss Joan	Pentland, Norman
Forrester, John	Lewis, Arthur (W. Ham, N.)	Perry, Ernest G. (Battersea, S.)
Fowler, Gerry	Lewis, Ron (Carlisle)	Perry, George H. (Nottingham, s.)
Freeson, Reginald	Lomas, Kenneth	Price, Thomas (Westhoughton)
Galpern, Sir Myer	Loughlin, Charles	Probert, Arthur
Gardner, Tony	Lyons, Edward (Bradford, E.)	Rankin, John
Golding, John	Mabon, Dr. J. Dickson	Richard, Ivor
Gregory, Arnold	McBride, Neil	Roberts, Rt. Hn. Goronwy
Grey, Charles (Durham)	McCann, John	Roberts, Gwilym (Bedfordshire, S.)
Griffiths, David (Rother Valley)	MacColl, James	Rodgers, William (Stockton)
Griffiths, Eddie (Brightside)	MacDermot, Niall	Ross, Rt. Hn. William
Hamilton, James (Bothwell)	McElhone, Frank	Ryan, John
Hamilton, William (Fife, W.)	McGuire, Michael	Shaw, Arnold (Ilford, S.)
Hamling, William	Mackenzie, Gregor (Rutherglen)	Silverman, Julius
Hannan, William	Mackie, John	Slater, Joseph
Harper, Joseph	Maclennan, Robert	Small, William
Harrison, Walter (Wakefield)	McMillan, Tom (Glasgow, C.)	Spriggs, Leslie
Haseldine, Norman	McNamara, J. Kevin	Steele, Thomas (Dunbartonshire, W.)
Hattersley, Roy	MacPherson, Malcolm	Swain, Thomas
Hazell, Bert	Mahon, Simon (Bootle)	Taverne, Dick
Henig, Stanley	Mallalieu, E. L. (Brigg)	Thomas, Rt. Hn. George
Herbison, Rt. Hn. Margaret	Mallalieu, J.P.W. (Huddersfield, E.)	Tinn, James
Hilton, W. S.	Mapp, Charles	Tuck, Raphael
Hooley, Frank	Marks, Kenneth	Varley, Eric G.
Horner, John	Mellish, Rt. Hn. Robert	Wainwright, Edwin (Dearne Valley)
Howell, Denis (Small Heath)	Millan, Bruce	Walker, Harold (Doncaster)
Howie, W.	Miller, Dr. M. S.	Watkins, David (Consett)
Hoy, Rt. Hn. James	Milne, Edward (Blyth)	Watkins, Tudor (Brecon & Radnor)
Huckfield, Leslie	Mitchell, R. C. (S'th'pton, Test)	Weitzman, David
Hughes, Roy (Newport)	Molloy, William	Well beloved, James
Hunter, Adam	Morris, Alfred (Wythenshawe)	Wells, William (Walsall, N.)
Jay, Rt. Hn. Douglas	Morris, Charles R. (Openshaw)	Wilkins, W. A.
	Morris, John (Aberavon)	Willey, Rt. Hn. Frederick
Jeger, George (Goole)	Moyle, Roland	Williams, Clifford (Abertillery)
Jenkins, Hugh (Putney)	Neal, Harold	Willis, Rt. Hn. George
Jenkins, Rt. Hn. Roy (Stechford)	Newens, Stan	Wilson, Rt. Hn. Harold (Huyton)
Jones, Dan (Burnley)	Oakes, Gordon	Winnick, David
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	O'Halloran, Michael	Woodburn, Rt. Hn. A.
Jones, J. Idwal (Wrexham)	Orbach, Maurice	Woof, Robert
Jones, T. Alec (Rhondda, West)	Oswald, Thomas
Judd, Frank	Owen, Will (Morpeth)	TELLERS FOR THE NOES:
Kelley, Richard	Padley, Walter	Mr. R. F. H. Dobson and
Kerr, Russell (Feltham)	Page, Derek (King's Lynn)	Mr. Ioan L. Evans.

The CHAIRMAN, being of the opinion that the principle of the Clause and any matters arising thereon had been adequately discussed in the course of debate on the Amendments proposed thereto, forthwith put the Question, pursuant to Standing Order No. 47 (Debate on Clause or Schedule standing part), That the Clause stand part of the Bill.

Question agreed to.

Clause I ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Bill reported, without Amendment.

7.11 p.m.

Mr. Taverne

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

In Committee there was some repetition of arguments that we had heard earlier. I do not intend to go over the ground a third time, but shall make three short points.

First, there has been a slight lack of enthusiasm in pressing the opposition to this Measure. I am not casting any reflection on the quality of the speeches from the benches opposite. But if it will have a devastating effect on small companies, as the Opposition as a whole apparently thought, one would have expected larger numbers of hon. Members to take part in the onslaught against it.

Secondly, the hon. Member for Worthing (Mr. Higgins) asked whether I could make it clear that I do not necessarily hold the same view about the duration of the Measure as my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman). My hon. Friend made an excellent speech, but on that point I was not entirely with him. If he had been allowed to move that the Bill should be extended for four years, I would have felt bound to oppose that Amendment.

Mr. Speaker

Order. The hon. and learned Gentleman can discuss only what is in the Bill.

Mr. Taverne

I stressed on Second Reading that the Bill was temporary, but some Press reports at the time seemed to exaggerate the effect of some of what I said A headline in one paper suggested that I foresaw the early end of import deposits. It is important to get this point clear. Therefore, I repeat what I said at the beginning of our Second Reading debate, which I think is of some importance and would have thought puts the matter beyond doubt: I am not seeking by any hint or suggestion to indicate when or how or whether it may be possible to modify or terminate the scheme before that date."—[OFFICIAL REPORT, 17th November, 1969; Vol. 791, c. 871–2.] "That date" was 5th December, 1970.

Thirdly, I was asked by the hon. Member for Worthing, and, I believe, by the hon. Member for Barkston Ash (Mr. Alison) why there had been a change of mind since May, or since last year. The Letter of Intent of 22nd May simply stated that it was the Government's policy to abolish the import deposits scheme as soon as the balance of payments allowed. That did not say anything about a specific date. It was true that when the Measure was introduced last year we did not expect that it would be renewed. But as the end of the period came near we had to look at it again and decide whether we should allow it to run down or seek to renew it. We decided that it was safer, common sense, and more consistent with overall policy, to renew it.

It is true that there has perhaps been a change of emphasis in the arguments. That point has been made against us, and I am ready to concede it. We still use the three arguments mentioned last year, although we put a slightly different emphasis on them. It is not simply a question of disliking the withdrawal symptoms, as the hon. Member for St. Ives (Mr. Nott) suggested. He drew a parallel with "pot". Whatever his knowledge of the import deposits scheme, he did not show a profound knowledge of "pot", which does not in itself involve withdrawal symptoms. It is not the withdrawal symptoms about which we are concerned. The emphasis may have been changed, but the three basic arguments which were mentioned last year are still valid: hence the Bill.

7.15 p.m.

Mr. Higgins

The Financial Secretary has suggested that there is a lack of enthusiasm in the opposition to the Bill, and the Minister of State, in winding up the debate on Second Reading, also suggested that perhaps we were not enthusiastic about that opposition. Nothing could be further from the truth.

Our feeling throughout has been that on the point of principle the Bill is very objectionable. I think that the reason that suggestion came into the Minister of State's speech was largely that the first part of it seemed to be an Oxford Union speech for all occasions, and I can only assume that that part happened to be in his Oxford Union speech for all occasions.

Mr. William Rodgers

I never spoke at the Oxford Union. Has the hon. Gentleman noted that there is precisely one hon. Member on his back benches, which does not suggest great enthusiasm or opposition?

Mr. Higgins

I might also draw attention to the number of speeches that there have been from the hon. Gentleman's side of the House.

The debate has been severely inhibited, as I tried to point out on the last few Amendments, by the way in which the Money Resolution has deliberately been drawn very tightly. That is why we have had not had the number of Amendments raising constituency questions that we had last year. This is deplorable, because a number of constituencies and industries are affected, and the fact that the Government are not prepared to face up to criticism of this kind is no excuse. I think that that is the main reason why, in the earlier stages this afternoon, we did not have the kind of debates we had last year.

The Government would be grossly mistaken if they supposed that because that was so, and because their tactic has been successful in this sense, there is not, nevertheless, very strong feeling on the subject among small businessmen, importers and those who use imported raw materials. Therefore, for reasons which I shall explain later, I think that we shall find that the opposition to the Bill grows as the year progresses, even though at present it may not be articulated very clearly because of the rules of order.

The three main arguments advanced by the Treasury in favour of the Bill require a little more analysis than we have given them so far. I do not think that this is to be repetitious; it is a highly complex subject, and it is necessary to go into it in reasonable detail.

The priorities the Government mentioned last year for the Measure— restricting imports first and restricting credit second—have been reversed this year. The emphasis has been much more on the credit restriction than on the restriction of imports, and we have also had the additional point mentioned by the Financial Secretary on Second Reading of the effect on the reserves. Therefore, it is right to go into some of the arguments discussed, in as much as they affect the Bill as it stands, which is what we are now concerned with.

With regard to the credit policy, it is clear that the Government are taking very strong and powerful measures. I have never been against the use of monetary policy, provided that it is used sensibly. If the Government had listened to what we said earlier we should never have got into a position of the money supply being increased at a tremendous rate until quite recently. We accept that the scheme may be a useful tool, but there is grave danger, in that at present we are having a switch-round of the money supply, and the Bill adds to its impact, which is unprecedented in this country or any country, making allowances for the size of the total economy. We do not know what the effect of such a change in the money supply will be, because we have no precedent. Therefore, for this reason as well, we have doubts about the Bill.

The other point which arises here is that we do not know what the length of the lag is as far as the impact of monetary policy is concerned. It may well be that the lag is such that the big change round we have seen recently in money supply will have a traumatic effect in the coming months. But these things are complicated and difficult to foresee. Nevertheless, we are in uncharted waters here and that is another reason for our doubts.

I suggested on Second Reading that one of the reasons for the Bill was that the Government were worried about the effect of wage inflation because they had set the pace in the public sector. Nothing I have read since gives me any cause for less alarm.

Mr. Speaker

Order. The hon. Gentleman must resist the temptation to make a Second Reading speech in a Third Reading debate.

Mr. Higgins

I am seeking to do that, Mr. Speaker. Indeed, have been trying hard for some time.

The Bill as it stands is designed to have an impact on credit and one would expect this to come into conflict with increasing wage claims. The latest is the one announced in the Financial Times today of 20 per cent. for airline staff. This is quite inconsistent with the Government's incomes policy and is only the latest example. We therefore have this conflict between credit restraint, of which the Bill forms part, and wage inflation, and we shall find bankruptcies arising this winter of the kind we have complained about and are likely to see a squeeze on importers. That being so, either we have this sort of situation or prices must go up, so that we should be back to the old spiral and the Bill will have failed in its purpose.

On Second Reading, the hon. and learned Gentleman suggested that we should support the Bill and its effect on credit. He has had to persuade us, first, that the policy of credit restraint is helping economic recovery and that failure to apply it would do more harm than good. But he has to make a third point and it is one which he has not yet advanced, even now. He has to suggest that credit restraint of the kind produced by the Bill is preferable to any other measure which might produce the same degree of credit restraint. But the Government are in some difficulties because they have been unable to give us some estimate of how much effect on credit restraint this scheme has had.

Mr. Taverne

I was specific on Second Reading about that. Just before the passage to which the hon. Gentleman has referred, I cited the degree of money which would not be going back now— £90 to £100 million down to £20 million—because of the scheme. I said that this had a direct effect on credit, and it is quantified.

Mr. Higgins

I accept the point, but I have a qualification to add. If that is so, the hon. and learned Gentleman must make the point, if his case is to succeed, that this is the right way of doing it rather than by any other proposal. As we have pointed out consistently, the fact is that this Measure has a number of other objectionable features which will effectively invalidate it as a means of achieving price and credit restraint. The Government are taking many other measures in this sector. We do not accept this as the only possible method, or that it is necessary, because of technical factors such as uncertainty of monetary policy and the time lags involved.

The Bill is objectionable in principle, particularly with regard to our E.F.T.A. partners. It has brought out a number of protectionist elements opposite, despite the hon. and learned Gentleman's statement that it was not intended to encourage protectionism elsewhere. I am sure that that is right, but the danger of this kind of thing and of extending it further is something which the Government should be aware of.

The argument for the scheme has changed a little between last year and this. This year, we had a third reason. We were given as reasons not merely credit restraint or import restraint but also the question of the effect on the reserves. In that context, this is surprising because, on Second Reading last year, the then Financial Secretary, speaking of the effect of the Bill on the reserves, said: To the extent that borrowing from abroad does occur, there will be a marginal advantage to the reserves, which is not a bad thing."—[OFFICIAL REPORT, 28th November 1968; Vol. 774, c. 753.] This was a little inconsistent with his other statements at the same time about the importance of not financing the balance of payments from hot money.

The Minister has stressed that in a number of debates in the House. Yet the fact is that the effect of the Act and the effect of this Bill will be effectively to bring into this country money which clearly the Government recognise as hot. Indeed, one of the main reasons for the Bill is that the Government are worried that, if they end the scheme, this money will flow out of the country again.

Earlier, we had some discussion of the size of the current trade surplus, the level of invisible earnings, and so on. We welcome the improvement that has taken place both in invisible earnings and in current trade surpluses, but, clearly, the Government—and this is an overwhelming consideration in their mind—are still not in a position to take off this scheme and face the loss of reserves which they believe would follow.

My personal view is that, if that hot money is here and circumstances continue to improve, there is a case anyway probably for getting rid of it. On the other hand, if the situation is likely to get worse—as we all hope that it will not—even so, one would have thought, on the argument of the former Financial Secretary, that this was a dangerous thing to have happening, because it means a constant repetition of the Bill and the Government never finding themselves in the position of being able to take the scheme off. This is the worrying factor.

So our over all feeling is that the Bill is objectionable, that the Measure was originally one we should not have supported, and that we should not support its continuance. It is right, therefore, that we should oppose it on Third Reading because we believe that it will not lead to a significant improvement in our economic situation. It may, indeed, both in the fairly close future and certainly in the long run, have an adverse rather than a favourable effect on the economy. For all these reasons, I hope that my right hon. and hon. Friends will join me in voting against the Bill.

Mr. Nott

When the Ways and Means Resolution for the 1968 Act was introduced just over a year ago, I think I made one of the first speeches against the Measure. I feel that I may now make one of the last speeches against this scheme before, I hope, it is repealed by a new Tory Government. This country cannot afford to indulge in measures which in any way restrict the further liberalisation of world trade. The hon. and learned Gentleman may be a protectionist but I believe that this country has everything to gain from freer trade, since we are a major trading nation. These arguments were understood and advanced and supported by the former Financial Secretary.

7.30 p.m.

I hope that the present Financial Secretary, with his training in the law, will, in future debates on financial affairs, not misquote hon. Members on this side of the House in support of his arguments. I take two examples of comments he made earlier today in discussion of this Bill. I never said—and I have been to check this in the OFFICIAL REPORT—that imports would be sucked in if the scheme were ended. When I used the term "sucked in", I was referring specifically to what would happen when the brakes were taken off the economy generally if we had full capacity at the time. It was specifically in relation to capacity that I referred to imports and their effect upon the balance of payments.

He also commented on remarks I made a year ago, when he spoke in the Second Reading debate, and said that I had said that it would move productive capacity from exporting into domestic production. The hon. and learned Gentleman said that in fact there had been no disruption of trade and that exports had soared and that in other words my forecast had been inaccurate. What I said on that occasion was that the scheme would have immediate beneficial effects on the balance of payments—I do not doubt that—it will have highly adverse medium and long-term effects on the economy …"—[OFFICIAL REPORT, 26th November, 1968; Vol. 774, c. 208.] I hope that the hon. and learned Gentleman will not continue to attribute to hon. Members on this side of the House comments which they never made in order that he may knock them down. When he was Minister of State, his colleagues released him from his cage only to make comments on important matters such as the administration of the Decimal Currency Board. Now that he has moved up the Treasury ladder, I hope that he will keep to the same precise and detailed comments about hon. Members' speeches which his predecessor made.

I have never denied that the scheme will have some marginal effect on imports; it clearly has had. There may be slight differences of opinion among my hon. Friends about its precise effect on imports. As the Financial Secretary said, it is extremely difficult to quantify. My belief is that the effect on imports is marginal. But its major effect, quite different from that which the Government intended, has been on credit restraint.

Its effect has been strange. Many importers have been able to finance their stocks by foreign short-term borrowing and to that extent importers have managed entirely to evade the Government's credit restrictions. But domestic producers who have not been substantial importers, and may have been substantial exporters, have been subject to the full rigours of the credit squeeze and have not been able to finance their stocks by foreign borrowing. For this reason, I contend that the scheme could have been deleterious, and not beneficial even in the short term, although I recognise that it has had some marginal effect on imports.

My major objection to this type of scheme is that in the long run it must transfer capacity from export production to domestic production. If a measure of this sort remains in operation, what will happen is that the cost of importing will be higher and capacity will be taken up by British manufacturers producing goods which were previously imported. In my view some spare capacity should be kept available for exports in order to achieve what is the intention of us all, an exportled boom. Once we start restricting imports by this type of Measure, that spare capacity is taken up for domestic production in order to meet the demand for goods of the type previously coming from overseas. Its net effect will not be beneficial to our payments in spite of its restrictions upon world trade.

The major effect has been to increase the country's short-term borrowing from overseas by enabling borrowing abroad to finance the stocks of certain importers. As I said in Committee, once again there is another problem which the country will have to face in the medium term. We will have to repay what my hon. Friend the Member for Worthing (Mr. Higgins) described as hot money. I do not know that I would describe it as that, but it is money borrowed to finance British stocks and it will have to be repaid.

It is all very well for the Government to take these measures which help them in the very short and immediate term with the balance of payments, but it is high time that they showed more concern for the medium- and long-term and fundamental effects on the economy of this type of measure. We depend on more capacity and we need more capacity and more investment. We need greater liberalisation of world trade.

The whole of the import deposits scheme has been most damaging to the

country. It has helped the Government's policy of credit restraint marginally and I accept that it may have marginally cut imports, but it has put round our necks further problems which, in six months or a year's time, when the scheme ends, some Government will have to face.

Question put:—

The House divided: Ayes 172, Noes 123.

Division No. 14.]	AYES	[7.37 p.m.
Albu, Austen	Gardner, Tony	Mitchell, R. C. (S'th'pton, Test)
Allaun, Frank (Salford, E.)	Golding, John	Molloy, William
Atkins, Ronald (Preston, N.)	Gregory, Arnold	Morris, Alfred (Wythenshawe)
Atkinson, Norman (Tottenham)	Grey, Charles (Durham)	Morris, Charles R. (Openshaw)
Bacon, Rt. Hn. Alice	Griffiths, David (Rother Valley)	Morris, John (Aberavon)
Baxter, William	Griffiths, Eddie (Brightside)	Moyle, Roland
Beaney, Alan	Hamilton, James (Bothwell)	Neal, Harold
Bence, Cyril	Hamilton, William (Fife, W.)	Newens, Stan
Bennett, James (G'gow, Bridgeton)	Hannan, William	Norwood, Christopher
Binns, John	Harper, Joseph	Oakes, Gordon
Blackburn, F.	Harrison, Walter (Wakefield)	O'Halloran, Michael
Boardman, H. (Leigh)	Haseldine, Norman	Orbach, Maurice
Booth, Albert	Hazell, Bert	Oswald, Thomas
Boston, Terence	Herbison, Rt. Hn. Margaret	Owen, Will (Morpeth)
Bottomley, Rt. Hn. Arthur	Hilton, W. S.	Padley, Walter
Boyden, James	Hooley, Frank	Page, Derek (King's Lynn)
Bradley, Tom	Horner, John	Pannell, Rt. Hn. Charles
Broughton, Sir Alfred	Howell, Denis (Small Heath)	Pavitt, Laurence
Brown, Hugh D. (G'gow, Provan)	Howie, W.	Pearson, Arthur (Pontypridd)
Buchanan, Richard (G'gow, Sp'burn)	Huckfield, Leslie	Pentland, Norman
Butler, Herbert (Hackney, C.)	Hunter, Adam	Perry, George H. (Nottingham, S.)
Butler, Mrs. Joyce (Wood Green)	Jay, Rt. Hn. Douglas	Prentice, Rt. Hn. Reg.
Callaghan, Rt Hn. James	Jenkins, Hugh (Putney)	Price, Thomas (Westhoughton)
		Probert, Arthur
Cant, R. B.	Jones, Dan (Burnley)	Rankin, John
Carmichael, Neil	Jones, J. Idwal (Wrexham)	Richard, Ivor
Chapman, Donald	Jones, T. Alec (Rhondda, West)	Roberts, Rt. Hn. Goronwy
Coleman, Donald	Judd, Frank	Roberts, Gwilym (Bedfordshire, S.)
Concannon, J. D.	Kelley, Richard	Robertson, John (Paisley)
Dalyell, Tam	Kerr, Russell (Feltham)	Rodgers, William (Stockton)
Darling, Rt. Hn. George	Lawson, George	Shaw, Arnold (Ilford, S.)
Davidson, Arthur (Accrington)	Leadbitter, Ted	Silverman, Julius
Davies, Ednyfed Hudson (Conway)	Lee, Rt. Hn. Jennie (Cannock)	Slater, Joseph
Davies, G. Elfed (Rhondda, E.)	Lestor, Miss Joan	Small, William
Davies, Rt. Hn. Harold (Leek)	Lewis, Ron (Carlisle)	Spriggs, Leslie
Davies, S. O. (Merthyr)	Lomas, Kenneth	Steele, Thomas (Dunbartonshire, W.)
Dempsey, James	Lyon, Alexander W. (York)	Swain, Thomas
Dewar, Donald	Lyons, Edward (Bradford, E.)	Taverne, Dick
Dobson, Ray	Mabon, Dr. J. Dickson	Thomas, Rt. Hn. George
Doig, Peter	McBride, Neil	Tinn, James
Dunwoody, Mrs. Gwyneth (Exeter)	McCann, John	Varley, Eric G.
Eadie, Alex	MacColl, James	Wainwright, Edwin (Dearne Valley)
Edwards, Robert (Bilston)	MacDermot, Niall	Walker, Harold (Doncaster)
Edwards, William (Merioneth)	McElhone, Frank	Watkins, David (Consett)
English, Michael
Ennals, David	McGuire, Michael	Watkins, Tudor (Brecon & Radnor)
Ensor, David	Mackenzie, Gregor (Rutherglen)	Weitzman, David
Evans, Fred (Caerphilly)	Maclennan, Robert	Wellbeloved, James
Evans, Ioan L. (Birm'h'm, Yardley)	McMillan, Tom (Glasgow, C.)	Wells, William (Walsall, N.)
Fernyhough, E.	McNamara, J. Kevin	Wilkins, W. A.
Finch, Harold	MacPherson, Malcolm	Willey, Rt. Hn. Frederick
Fitch, Alan (Wigan)	Mahon, Simon (Bootle)	Williams, Clifford (Abertillery)
Fletcher, Raymond (Ilkeston)	Mallalieu, E. L. (Brigg)	Willis, Rt. Hn. George
Fletcher, Ted (Darlington)	Mallalieu, J. P. W.(Huddersfield, E.)	Winnick, David
Foot, Michael (Ebbw Vale)	Mapp, Charles	Woodburn, Rt. Hn. A.
Ford, Ben	Marks, Kenneth	Woof, Robert
Forrester, John	Mellish, Rt. Hn. Robert
Fowler, Gerry	Millan, Bruce	TELLERS FOR THE AYES:
Freeson, Reginald	Miller, Dr. M. S.	Mr. William Hamling and
Galpern, Sir Myer	Milne, Edward (Blyth)	Mr. Ernest G. Perry.
NOES
Alison, Michael (Barkston Ash)	Balniel, Lord	Boardman, Tom (Leicester, S. W.)
Allason, James (Hemel Hempstead)	Bennett, Dr. Reginald (Gos. & Fhm)	Body, Richard
Atkins, Humphrey (M't'n & M'd'n)	Bessell, Peter	Boyd-Carpenter, Rt. Hn. John
Baker, W. H. K. (Banff)	Biffen, John	Brewis, John
Brown, Sir Edward (Bath)	Heald, Rt. Hn. Sir Lionel	Nott, John
Bruce-Gardyne, J.	Heseltine, Michael	Page, Graham (Crosby)
Buchanan-Smith, Alick (Angus, N & M)	Higgins, Terence L.	Peel, John
Buck, Antony (Colchester)	Hill, J. E. B.	Percival, Ian
Bullus, Sir Eric	Holland, Philip	Pike, Miss Mervyn
Campbell, B. (Oldham, W.)	Hornby, Richard	Pounder, Rafton
Campbell, Gordon (Moray & Nairn)	Hunt, John	Prior, J. M. L.
Carlisle, Mark	Jenkin, Patrick (Woodford)	Pym, Francis
Cary, Sir Robert	Jennings, J. C. (Burton)	Ramsden, Rt. Hn. James
Chataway, Christopher	Johnston, Russell (Inverness)	Rhys Williams, Sir Brandon
Clegg, Walter	King, Evelyn (Dorset, S.)	Rodgers, Sir John (Sevenoaks)
Cooke, Robert	Lancaster, Col. C. G.	Rossi, Hugh (Hornsey)
Corfield, F. V.	Lane, David	Russell, Sir Ronald
Costain, A. P.	Lawler, Wallace	St. John-Stevas, Norman
Crowder, F. P.	Legge-Bourke, Sir Harry	Scott-Hopkins, James
Cunningham, Sir Knox	Lubbock, Eric	Shaw, Michael (Sc'b'gh & Whitby)
Currie, G. B. H.	McAdden, Sir Stephen	Silvester, Frederick
Dalkeith, Earl of	MacArthur, Ian	Sinclair, Sir George
Dance, James	Mackenzie, Alasdair (Ross & Crom'ty)	Smith, Dudley (W'wick & L'mington)
Dean, Paul	Maclean, Sir Fitzroy	Stainton, Keith
Deedes, Rt. Hn. W. F. (Ashford)	Macleod, Rt. Hn. Iain	Stoddart-Scott, Col. Sir M.
Dodds-Parker, Douglas	McMaster, Stanley	Summers, Sir Spencer
Eden, Sir John	McNair-Wilson, Michael	Taylor, Sir Charles (Eastbourne)
Elliot, Capt. Walter (Carshalton)	Maddan, Martin	Thatcher, Mrs. Margaret
Ewing, Mrs. Winifred	Maginnis, John E.	Waddington, David
Farr, John	Maxwell-Hyslop, R. J.	Walker, Peter (Worcester)
Fortescue, Tim	Maydon, Lt.-Cmdr. S. L. C.	Walker-Smith, Rt. Hn. Sir Derek
Glover, Sir Douglas	Mills, Stratton (Belfast, N.)	Ward, Christopher (Swindon)
Gower, Raymond	Miscampbell, Norman	Ward, Dame Irene
Grant, Anthony	Mitchell, David (Basingstoke)	Whitelaw, Rt. Hn. William
Grant-Ferris, Sir Robert	Monro, Hector	Wiggin, A. W.
Griffiths, Eldon (Bury St. Edmunds)	Montgomery, Fergus	Williams, Donald (Dudley)
Gurden, Harold	More, Jasper	Wolrige-Gordon, Patrick
Hall-Davis, A. G. F.	Morgan, Geraint (Denbigh)	Worsley, Marcus
Hamilton, Michael (Salisbury)	Mott-Radclyffe, Sir Charles	Wylie, N. R.
Harrison, Brian (Maldon)	Munro-Lucas-Tooth, Sir Hugh
Harrison, Col. Sir Harwood (Eye)	Nabarro, Sir Gerald	TELLERS FOR THE NOES:
Hawkins, Paul	Neave, Airey	Mr. Reginald Eyre and
		Mr. Timothy Kitson.

Bill accordingly read the Third time, and passed.