HC Deb 21 October 1969 vol 788 cc952-60
The Chancellor of the Exchequer (Mr. Roy Jenkins)

With permission, I will now answer Questions Nos. 13, 14, 28, 29 and 40, relating to the import deposit scheme and the travel allowance.

We have seen in recent months a very considerable improvement in our economic strength. As a result of the measures taken since November, 1967, the balance of payments passed into surplus in the early months of this year, and the surplus has since grown fairly steadily. Until the end of the second quarter, the main factor in this turn-round was the very healthy state of the invisible account, but in recent months the visible account has also passed into surplus. We have reason, therefore, for cautious optimism about our progress towards our economic objectives, and, in particular, towards the objectives of a £300 million surplus by April next year.

But this does not mean the time has come to relax. I have always emphasised that recovery would take at least two years, and that even then it will be necessary to ensure that it is maintained. Nevertheless, the recent run of better figures has naturally been an important factor in considering whether the import deposit scheme should be allowed to lapse when the present Act runs out on 4th December.

There is no way of quantifying the precise effect of import deposits. But there can be no doubt that the scheme has had a useful restraining effect on imports, as well as reinforcing control over domestic credit. Our trading partners, particularly in E.F.T.A. and the Irish Republic, have been most understanding in their acceptance of the scheme, though, of course, I fully understand their dislike for it and their wish that it should be brought to an end as soon as our position allows.

Our greater strength means that we can now tolerate some abatement of the scheme. But it would be foolish to reverse our policies so soon after moving into substantial surplus. The Government have, therefore, decided that the right course is to take powers to continue the scheme covering the same range of imports for a further 12 months from 5th December, 1969, but for the rate of deposit to be reduced from 50 to 40 per cent. The period of deposit—180 days—will remain unchanged.

The travel allowance has to be considered against the same background. Much as I should like to remove the restrictions, I am satisfied that they save significant sums in foreign exchange and that it would be premature to remove them now. The restrictions on foreign currency expenditure for travel—and on cash gifts—to the non-sterling area will, therefore, remain unaltered for the time being.

I shall keep the matter under continuous review, and hope to be able to abolish the restrictions before long. But it would be wrong to do so until it is quite clear that the improvement in our balance of payments is a secure one which we have a good prospect of maintaining. That is the end to which our policies over the last two years have been directed, and I do not intend to change them just as they are showing unmistakeable signs of success.

Mr. Goodhew

Is the right hon. Gentleman aware that, on the import deposits scheme, this statement is thoroughly unsatisfactory, even from this dishonest Government? May I remind him, that, on Friday, 22nd November, 1968, when announcing this measure, he told the House that the Bill would run for a year and that that period could be reduced but not increased by Statutory Instrument? How does he expect businessmen in this country to be able to manage when they are misled by such a dishonest Administration? Would it not be better to resign now?

Mr. Jenkins

Hearing the hon. Gentleman speaks always reminds me of the foolishness of weak men trying to use strong words. I made it clear that the scheme could not be renewed except by legislation. That is the position. There will be legislation.

Mr. Goodhew

Thoroughly misleading and dishonest.

Mr. Hunt

With regard to the foreign travel allowance, is the right hon. Gentleman aware that we deplore the fact that, once again, he has refused to recognise the strength of the arguments advanced on this side against this petty and pointless restriction? Is he aware that this restriction is being evaded on a very wide scale and is subjecting British tourists abroad to great humiliation? Why cannot it be scrapped?

Mr. Jenkins

No, Sir, I think that that is exaggerated, though I recognise considerable objections to the scheme in principle. I also note, if the hon. Gentleman wants a precedent, that Lord Butler was very slow to relax the travel allowance restriction after we moved into surplus in 1952 and 1953. I hope to move a little more quickly, but not prematurely.

Mr. Blaker

I will, with permission, put both my supplementaries together. First, does the Chancellor think that his statement will increase confidence in the pound sterling? Second, the Chancellor will be aware that the articles of the International Monetary Fund require that there shall be no restriction of payment for current transactions without the approval of the fund. Has he obtained that approval for his proposal for the coming year?

Mr. Jenkins

Yes. I indicated to the I.M.F., to Mr. Schweitzer, in my talks to him, the way in which my mind was moving and he raised no objections and was understanding of the position.

Answering the first part of the question, I think that all those who are concerned with the long-term health of the pound and the strength of our balance of payments will be pleased to see that we meant what we said when we said that there would be no premature relaxation.

Mr. Dickens

Does the Chancellor recall that three years ago, in the autumn of 1966, the Government removed the import surcharge and that this was followed by a massive upsurge in imports in the first part of 1967? Is he aware that, consequently, he and the Government are warmly to be congratulated on their wise and sensible decision to retain the import deposit scheme for a further period?

Mr. Jenkins

I take note of those somewhat unexpectedly warm tributes.

Mr. Maudling

Does the Chancellor recognise that his statement will be received with a certain amount of disappointment after the euphoria of the last week or two? May I ask him two questions? First, does he want the world to measure the improvement in the balance of payments by the fact that a temporary scheme designed for 12 months is to be continued at 40 per cent. rather than 50 per cent.?

Secondly, dealing with the foreign exchange restrictions, can he explain in present circumstances the logic of saying to the British citizen, "You can buy all the French products you want in London, but not in Paris"?

Mr. Jenkins

The logic of what the right hon. Gentleman suggests would be to put on import quotas, which I do not think he would advocate. That would be the case if one were to take a more restrictive view of the position. It has been the case under successive Governments that, logical or not, they have applied travel restrictions rather than import restrictions on goods.

Answering the first part of the right hon. Gentleman's question, I hope and believe that the world will measure the strength of our position by the balance of payments position, which has become strong and which I have every intention of keeping strong.

Mr. George Brown

Will the Chancellor please explain to the House what he thinks he is saving for the balance of payments by keeping on the £50 travel allowance restriction? Will he please look at what any of us who travel abroad see—that people are still spending, and, in fact, spending far more than the £50 allowance can allow them to spend? Would it not therefore be better to take away from the Germans, the French and the rest of our continental friends the argument that we are too poor to remove the restriction when we know that so many of our people are spending far more than the £50 allowance?

Mr. Jenkins

I take note of what my right hon. Friend says, but it is still my view that there is some substantial saving here. [HON. MEMBERS: "How much?"] If I had to make an estimate it would be of the order of £25 million a year. As soon as it is practicable and safe to do so, I want to see this restriction removed, but I want even more that it should be done within the framework of a continually healthy balance of payments.

Mr. Geoffrey Lloyd

Will the Chancellor explain the logic of a policy which allows anyone who can afford it to spend £10,000 worth of foreign exchange on anything he likes, who can afford, for example, to import a luxury foreign motor car or dresses for his wife or girl friend from Paris, whereas he must be careful not to spend more than £100 to get there and back?

Mr. Jenkins

That is precisely the question, although in slightly more flamboyant language, which the right hon. Member for Barnet (Mr. Maudling) put as the second part of his supplementary question. Perhaps the right hon. Gentleman did not hear his right hon. Friend. I endeavoured to reply to his right hon. Friend the Member for Barnet and I can add nothing further.

Mr. Sheldon

While accepting the need to maintain the import deposits scheme because of its small but useful effect on restraining imports, may I ask my right hon. Friend whether he is aware that there was a hope in the world of industry that there would be some easing of the credit squeeze by the ending of the scheme? Can he say in what alternative ways he intends to ease the credit squeeze?

Mr. Jenkins

The reduction to 40 per cent. in itself constitutes a slight relaxation of the credit squeeze, although it may not be in accordance with the expectations of those who thought that the scheme would be dropped completely. I will consider the development of the credit position carefully in relation to the bank figures, which are still above the ceiling, and other factors, as the autumn develops.

Mr. Richard Wainwright

Does the Chancellor agree that the reluctant toleration of each of these restrictions which obtained when this country was in persistent deficit will not prevail now that we are in surplus, and that our trading partners, who were affronted by the original import deposits scheme, will be sorely tempted to retaliate?

Mr. Jenkins

I do not think that this will happen. Our trading surplus is substantial and, I hope and believe, decisive, but it is recent. I believe that most informed opinion in countries overseas wants to see this trading surplus become permanent, as, I believe, do the great majority in the House.

Mr. Barnett

When the Chancellor gave the first figures for domestic credit expansion, did he take into account the fact that he intended to continue the import deposits scheme? If not, to what extent is the figure which he promised the I.M.F. now changed because of keeping on the import deposits scheme and has he not now a figure of domestic credit expansion very much tougher than that which he originally announced?

Mr. Jenkins

I did not take it into account because I had not decided whether to recommend to the House that we should extend the import deposits scheme. To that extent it is a factor on the stiffening side. Countering that must be the fact that the banks are very sub- stantially above the planned ceiling. But I will take these various contra factors and others into account in watching, as any Chancellor of the Exchequer should, the development of the credit position in the forthcoming months.

Mr. Boyd-Carpenter

Is it not a fact that the true value of the £50 allowance is reduced every year by inflation in this and other countries? How does the Chancellor expect confidence in sterling to be re-established when every British tourist is a walking advertisement for the fact that crisis measures are still in force in Britain?

Mr. Jenkins

It is, of course, the case that the value of the £50 allowance is less now that it was when it was introduced. It is, however, still a good deal more than the £25 which was in operation during quite a part of the period when the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was Financial Secretary to the Treasury—[HON. MEMBERS: "No."]—as well as for a short period following a year's surplus in 1952.

Mr. Frank Allaun

Is my right hon. Friend aware that the obvious disappointment of hon. Members opposite about the £50 allowance is certainly not shared by 95 per cent. of the population, to whom it does not matter at all? Is the Chancellor aware that there are far more important and worth-while things to be changed before this change is contemplated?

Mr. Jenkins

I am grateful for my hon. Friend's support, but, with respect, I do not agree with him. I think that this decision will cause disappointment to considerable numbers of the British people. But I would rather that there were some disappointment today on this issue than that there should be graver disappointment later because we have relaxed too soon.

Sir A. V. Harvey

Reference has been made to the view of our E.F.T.A. partners on extending the import deposits scheme. Will the right hon. Gentleman go back further and recollect the reaction of E.F.T.A. countries over the import surcharge? Does he realise that his decision will do infinite harm to the liberalisation of trade between this country and the E.F.T.A. countries? Does he also realise that industry has been led by hints and leaks to believe that this tax was coming off and that it will disturb many people in their efforts for the coming year?

Mr. Jenkins

I hope that it will not have that effect on the E.F.T.A. countries. I believe that Governments abroad realise that we can buy only the imports which we can afford in this country and that, broadly speaking, we have provided a very good import market both for E.F.T.A. and others. On the whole, their imports to us have grown faster than have our exports to them.

Mr. Arthur Lewis

While welcoming the excellent reports that we are now getting almost every week, may I ask the Chancellor whether he recollects that one of the remedies that he took to bring this about was the imposition of taxation on the social welfare services? Can he give an assurance that one of the first things he will do when he has the opportunity is to remove all charges on those services in preference to such things as have been suggested?

Mr. Jenkins

I do not think that that point arises directly out of the five Questions which I answered together. I cannot give any assurance.

Mr. Peyton

Does not the right hon. Gentleman think that there is something rather mortifying in having to follow up his sad little statement with the remark that Mr. Schweizer had taken no objection to the indications that he had given him of his thoughts? Will he not accept that it is about time that we in the country became masters of our own affairs and got rid of grubby, self-defeating restrictions of this kind?

Mr. Jenkins

There is no question whether or not we are masters of our own affairs. But in questions of this kind, like any other of the 113 member countries of I.M.F., we have to put the position to the I.M.F. The best way in which we can become and are becoming fully masters and in a stronger position in the I.M.F. is by building up a secure balance of payments.

Sir W. Bromley-Davenport

Will the right hon. Gentleman give a solemn undertaking to all parties in the House that he will increase the travel allowance substantially at or about the time of his "give-away" Budget next spring?

Mr. Jenkins

No, Sir, I will give no such undertaking. The undertaking that I will give is that I will endeavour to remove the restriction as soon as I believe it is safely compatible with a continuing surplus on the balance of payments.