§ Mr. Speaker
Perhaps it would be convenient for the House if I announced that I have selected two Amendments in the name of the Leader of the Opposition and his right hon. Friends, namely, tomorrow's Amendment on education—But humbly regret the policy for the organisation of secondary education envisaged in the Gracious Speech, and foreshadowed by the withdrawal, without consultation, of Circular 10/65, and believe that it will reinforce the system of eleven-plus segregation and thus perpetuate a system which is educationally indefensible, socially unjust and economically wasteful.—and Thursday's Amendment on development areas and economic planning—But humbly regret the omission from the Gracious Speech of any proposals to maintain the previous Government's policies to strengthen the development and intermediate areas, to maintain and reinforce regional economic planning and to strengthen and modernise the basic industries on which employment in those areas depends.So far, 38 hon. and right hon. Members have indicated that they would wish to speak today. Among them are 21 hon. Members who wish to make their maiden speeches. I shall not be able to call them all and, while extending all possible courtesy to new Members, I must be fair to old Members and to the balance of debate. As yesterday, if hon. Members who wish to make maiden speeches will come to the Chair once the debate has begun, I may be able to let them know 503 the likelihood of their being called. I again appeal for brief speeches.
§ 3.55 p.m.
§ The Chancellor of the Exchequer (Mr. Iain Macleod)
It is, I think, the wish of the House that we should today debate economic problems. I am very glad of the opportunity to open the debate.
Perhaps the House will forgive me if, before I turn to a new series of economic debates, I spend about 30 seconds in salute to people who are not with us today. Naturally, all politicians are delighted about every win for their party, and I was delighted that my hon. Friend the Member for Gloucester (Mrs. Oppenheim) won, but I think it right to say that Jack Diamond was a very remarkable parliamentarian and we shall miss his presence from these debates. Although he has only departed down the corridor, my noble Friend who used to sit for Flint, West, and who had a very sound judgment and an astringent wit, will I am sure be missed in our debate. I should like also to mention two more junior Members of the House. I think that Kenneth Baker made a very great impression on our discussions in a very short time. Jimmy Dickens used to lecture the Chancellor of the Exchequer and the Shadow Chancellor of the Exchequer with equal impartiality, and I have no doubt that if he had still been a Member he would have done exactly the same.
One of the subjects which has been discussed a good deal already in this Parliament is the economy as we, the new Government, find it. Last week there was some discussion about words which other people used in the election. I would prefer to use the words which I used when I was interviewed on "News at Ten" and to let the House judge whether they are a fair summary of the situation as we see it now.
I was being interviewed by Mr. George Ffitch. He asked whether Britain washeading for a serious economic crisis".My reply was:'Crisis' is a word I am reluctant to use about my country…".A little later Mr. Ffitch said:Whether you use the word crisis or severe economic difficulty, are we heading for trouble?".504 I said:Trouble. Oh yes, of that I have little doubt, and I would have thought that if you take the view, for example, of somebody who isn't a Tory, Lord Kearton, who said much the same thing on television, very recently, I think few people doubt this".Finally, Mr. Ffitch returned to the question of an economic crisis, and I replied:'Crisis' is a word that we discussed a moment ago and I said I'd prefer serious economic trouble; let's hold it if I may at that".Those are the words that I used—"serious economic trouble" facing whatever party had won the Election.
There is no doubt that by far the most serious problem that we face, not just as a Government but as a country, is inflation. As the Prime Minister said on Thursday in this debate:It is no comfort to this country to say that other countries are suffering from inflation. There may be a country here and there where the level is worse than it is in this country, but these countries have higher levels of growth than we have had and higher ratios of savings. No country is as vulnerable to inflation as we are or depends more on international trade."—[OFFICIAL REPORT, 2nd July, 1970; Vol. 803, c. 88.]We must not minimise the gravity of our sickness by proclaiming that others are also infected. The average rate of increase in wages over the past two decades was about 5 per cent. a year. It was lower—3 to 4 per cent.—in the early 1960s, and highest of all in 1951–52 following the boom in prices after the Korean War. But at present, contrary to past experience, we have the highest rate of wage increase for 20 years, although output is stagnating and unemployment remains high.
Prices have also risen much more rapidly in the last two and a half years. A long-term look at this is, I think, instructive. Between 1958 and 1964 we had an annual rate of increase in this country in consumer prices of 2.2 per cent. Between 1964 and 1967 that rose to 3.7 per cent. I will come back to those figures. Then in each of the years 1968 and 1969 they rose by 5 per cent. In the three months to May 1970, the retail price index was 5½ per cent. higher than a year earlier.
There is no single or simple answer. The facts that I have given to the House were, for the most part, known to my predecessor as Chancellor in the Budget 505 debate. It was a matter of wide and, I think, justified comment that he passed it over so lightly. But I at least, as Shadow Chancellor, said:The Chancellor, in this most grave matter, has a duty not just of exhortation but of example. The Government are the biggest employers. He ought to proclaim that he will use his influence firmly and openly on the side of non-inflationary settlements."—[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1402.]I do not see how any responsible politician of any party can dissent from those words, and I repeat them now as Chancellor. A good example by the Government is followed. Far from such a policy being an attack on the public sector, it is the best protection that public employees have in preserving their position in relation to more militant claimants.
I turn to a brighter part of the picture—the balance of payments—although we must see this in the context of our heavy external debts. As I undertook to do at Question Time, I should like to put the whole picture before the House.
We have indeed achieved a very good result in our balance of payments in the last year, although we will be watching with care and some anxiety the next few months' figures in particular as they unroll. As the Leader of the Opposition told us on Thursday, we have had a surplus on current account running at £500 million a year. But the recent improvement, welcome indeed, is an improvement from an extremely grave situation. We still have very large debts to repay. We must still, over the years, rebuild our reserves to a level which begins to be commensurate with the needs of a world trading nation. We have a very large outflow of export credit to sustain, apart from the regular flow of overseas investment, and we have substantial long-term official debts to repay. We have worldwide opportunities to earn a big surplus. But it is imperative that we keep competitive in our costs, and our customers must have confidence that we can deliver the goods, and do so on time.
This year sterling has been strong for most, although not all, of the time. There has been a surplus in the current balance of payments. Sterling area countries have been earning large seasonal surpluses and their sterling balances held in London have increased as a result.
506 We are now entering the seasonally less favourable second half of the year. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) warned in his Budget statement that there might be some temporary reversal of the flow of funds in the second half of this year. I accept that this may be so. After the large inflow earlier, it would not be surprising, because of these seasonal factors, if the reserves were seen to fall in some months between now and the end of the year, even though we continue, taking all the months together, to be comfortably in surplus on current account. If necessary, the normal central banking facilities as well as our reserves are available.
I want to put this in the context of our external debts. My predecessor announced in his last Budget that short and medium term debts reached their peak at the end of 1968 at £3,363 million—almost exactly 8 billion dollars. By the end of March 1970 they had been reduced to £1,654 million. The House is aware that there has been further progress since, and on this occasion, because I think it right that the House should know at once where we stand at the beginning of the new Administration, I will give the up-to-date figures now.
In the quarter just ended, the reduction of short and medium term debts was a further £193 million. There are, and will be for some time, pitfalls for both Government and Opposition in figures announced after a change of Government. For example, when my right hon. Friend the Prime Minister gave an indication not only of an increase in the reserves last week, but also of substantial payments, several hon. Members opposite almost burst with delight showing how marvellous was the economy that had been handed to us. A more accurate account appeared the next morning in the Times Business News which said:Britain was able to pay off £63 million of international debts in June and still show a £10 million improvement in the official reserves at the end of the month…But it was only possible because of the heavy inflow of funds into Britain immediately after the Conservative victory in the General Election.The result is that at 30th June the total outstanding short and medium term official borrowing was £1,461 million of which £992 million is due to the I.M.F.
I have given these figures now because everybody should know where we stand 507 today. In future, I propose to follow the practice of previous Conservative Governments, to which the right hon. Member for Birmingham, Stechford announced his somewhat belated conversion, in publishing the figures for outstanding drawings on central banking facilities quarterly in arrears.
The total debt still to be paid is formidable. The weight of repayment of I.M.F. debt will begin to come on us from June, 1971. We shall, of course, see to it that our obligations are fully met. But the consequences of the heavy borrowings of recent years will be with us for a considerable time.
We should also—this, again, came into the exchanges at Question Time today—note the position in relation to long term debt which we have to service twice a year in June and December. The Government, after the war, borrowed on behalf of this country, £1,545 million long term, mainly from the United States and Canada. Repayments totalling £550 million were made over the years since 1951. But the sterling total still outstanding is £1,910 million, or £365 million more than the original sum borrowed—because of two Labour devaluations in 1949 and 1967.
The economy today shows two outstanding features. On the one hand, demand and activity are rather sluggish and unemployment is high compared with the post-war average. On the other hand, there is the strongly rising trend in wages and prices. This is a combination of stagnant production and cost inflation. As Shadow Chancellor, I christened it "stagflation". I cannot believe that even hon. Gentlemen opposite, however they wish to paint this picture, can be complacent about such a situation.
During the early 'sixties, between 1959 and 1964, g.d.p. rose on average by about 3.8 per cent. a year. The average rate of increase during the years of Labour Government was 2.2 per cent. The difference between those figures comes to many thousands of millions of pounds of lost growth. But there is another point which I said I would return to, because almost the exact mirror opposite is shown in these years. In our five and a half years, compared with five and a half years of the Labour Government, our growth rate was 3.8 per cent. 508 and our price rise 2.2 per cent. Their growth rate was 2.2 per cent. and their price rise 3.7 per cent., almost the exact picture in reverse, and one does not need to look much further than that to see some of the difficulties that we are having.
After devaluation, it was hoped that we would get both a satisfactory rate of growth and an improved balance of payments. We did have reasonably rapid growth in 1968, but the real improvement in the balance of payments came in 1969, and in that year output rose by only about 2 per cent. My predecessor in his Budget, after he had made his Budget proposals, foreshadowed a rate of increase in the economy of 3½ per cent. between the first halves of 1970 and 1971. So far, as I said at Question Time, we have not been living up to that estimate, but only a comparatively small part of the financial year has gone, and unemployment remains high.
In trying to give a balanced picture I must tell the House that although that growth side so far is disappointing, there are some signs pointing the other way. Industrial production was rising at a reasonable rate in the four months to April and new export orders for engineering goods—a point which the Leader of the Opposition made—in January and April were well up on last year. I conclude, therefore, that although the recent performance of the economy has been disappointing, it would be premature at this moment to take action to stimulate demand.
There has been a good deal of speculation about an autumn Budget, whatever that may mean, and I answered that at Question Time. Perhaps I could repeat my answer for those who were not here then. In the sense of a Budget statement backed by a Finance Bill, I do not intend, and never have intended, to bring forward an autumn Budget, but I must be free, of course, like any other Chancellor, to take such action as may seem necessary at the appropriate time, and clearly it is more likely, unless the indicators change, that one will wish to stimulate demand rather than restrain it. As the House knows, a whole armoury is available to Chancellors, and some measures can be put into effect overnight. No Chancellor has ever been content to leave his own Budget untouched for a year, much less the Budget of another 509 party, and I do not expect to be an exception to that rule.
I turn briefly to monetary policy. The right hon. Gentleman in his Budget speech said that fiscal and monetary policies are more effective if each works in harmony with the other. It is no part of my quarrel with the previous Administration to question that blinding glimpse of the obvious, but the prospect before us still requires reasonably tight monetary conditions. In particular, this means that I must ask the banks and finance houses to carry on observing the guidance given to them by the Governor of the Bank of England both as to the level and the priorities of their lending. The situation continues to call for the co-operation of the banks and other institutions.
§ Sir Harmar Nicholls (Peterborough)
I agree with my right hon. Friend's general proposition, but will he bear in mind that for medium and small businesses the present squeeze combined with the levels of taxation may well bring bankruptcy queues which the country may not be able to afford?
§ Mr. Macleod
I am well aware of the anxiety in that regard, which is why I phrased my remarks in the way that I did. I said earlier that demand management, which includes the management of monetary policy, is not a matter for one day in a year but for continuous operation.
The House will want to know the present prospects for public expenditure and my broad strategy for managing that expenditure.
§ Mr. Richard Marsh (Greenwich)
On the basis of any of the figures which the right hon. Gentleman has quoted, can he say whether there was any justification for the scare about devaluation which the Prime Minister started?
§ Mr. Macleod
Devaluation under Prime Ministers of the Socialist Party is a matter of fact. [HON. MEMBERS: "Answer."] It has happened every time, and a distinguished former Minister of the right hon. Gentleman's party was the first to raise this point.
For this year and next year, 1971–72, the latest estimates show public expenditure running rather below the levels planned by the previous Administration. 510 That is to say that taking a balance of expenditure and taxation together they do not at present exert a net expansionary influence on the economy, but this balance is struck at a point where the absolute levels both of expenditure and of taxation are in my judgment much too high.
For the period further ahead, running up to 1975, the estimates show public expenditure accelerating to regain the levels previously planned by the Opposition when they were the Government. If I were to permit this to happen I would be committing an annual rate of increase in public expenditure, and in particular a rate of increase in the public sector's direct demands on resources, well above any rate of increase which we have seen in the national output as a whole for many years past. We can, and we will improve on the economic performance of the past six years, but we must not at this stage pre-empt too large a proportion of the increase for the public sector. I have to tell the House that one could not sustain an increase in public expenditure at the rate suggested by the latest estimates without having to impose further taxation. I have no intention whatever of accepting such an outcome.
The present prospect shows public expenditure in both the short-term and medium-term running at an unacceptably high level and threatening to increase at an unacceptably fast rate. It is against that prospect that I instituted, as my very first task, the radical and searching review of public expenditure mentioned by my right hon. Friend the Prime Minister in his speech last Thursday. That is the essential prerequisite to our plans for lower levels of taxation and higher levels of savings, and I shall lay the conclusions of that review before the House at an appropriate time in the autumn.
There is one more subject to which I want to refer. We find ourselves faced with a situation in which yearly price increases are either already in prospect or known to be coming forward over a large part of the nationalised industries field. One does not inquire—I do not—how much former Ministers knew of this situation. I am certain that the electorate did not know about it. We said before the election that we should scrutinise very closely all proposed price increases 511 in the public sector and that these increases would be allowed only where there was a proved case for them. We intend to carry out that promise. It is most important for the economy generally that we should take a firm grip on prices in the public sector because of the contribution that a break in the wage-price spiral can make towards the stability of the economy as a whole.
I do not intend to have what is popularly called a price freeze in the public sector. We do not believe in freezes of that sort. Nobody could be more conscious than a Chancellor of the Exchequer of the effect that deliberately holding down public sector prices can have both on the allocation of resources and on the need of the public sector to borrow from the National Loans Fund. On the other hand, we find it hard to accept that there is not considerable scope for absorbing high costs by increased efficiency rather than by the easier course of simply passing on higher costs through higher charges. So we regard a searching investigation of proposed price increases in the public sector as an essential complement to the thorough examination of Government expenditure on which we are engaged.
I do not see how anybody, even those who wish to fight the Election all over again—taking together the good features and the bad—taking the balance of payments, but putting it in the setting of most formidable international debts, both long-term and medium-term; I do not see how anybody, looking at the level of unemployment—the worst since 1940; I do not see, above all, how anybody, studying the cost inflation from which we are suffering, could conceivably claim that it is a happy heritage that we have taken over. I could easily hammer this point much further. I could bring forward the league tables in which hon. Members opposite used to delight in opposition. But only the newest Members of this House would fail to be conscious of the fact that the last time a Government changed in this country the incoming Government, after starting responsibly, went on so fiercely to proclaim the enormity of the inheritance that they had that they brought a crisis upon themselves. Because they did that in 1964 is no excuse for my doing it now in 1970.
512 The Leader of the Opposition—then the Prime Minister—had, as an explanation but not an excuse, the size of his majority. With respect, he underestimated the strength of an incoming Government. He had a majority of four, and he secured 5½ years. In 1951 we had a majority of 16, and we secured 13 years. Our majority now is 30. The mathematics are agreeable and uncomplicated; indeed, in modern political times—which date from the time when the Liberal Party, although still a contender for seats in the House of Commons, stopped being a contender for power—for all those 40 years, an incoming Government have never lost the next Election. I thought that hon. Members opposite would like to reflect on that.
In spite of the difficulties, which are very real—the worst inflation since we last took over in 1951—we are utterly confident that the methods we intend to apply to the economy are the ones which are needed. May I say, in one more digression into history, that in 1951 we made precise proposals about housing—the 300,000 houses. In his Election address the Leader of the Opposition said:The Tory housing target is an electoral trick—a cruel deception of those who are waiting for a house. They know they cannot achieve it.But we did—and we have made undertakings this time that we shall fulfil again.
In the opening main speech of this debate the Leader of the Opposition lectured us on the necessity for our keeping our electoral promises. Look who is talking!—the walking waste-paper basket himself, filled with lightly-given promises and pledges. But we take up precisely this challenge for this Parliament. We are very ready indeed, in this Parliament, to be judged by our achieving again our undertakings, and when the time comes we are very ready to be judged by the country against those undertakings.
Carefully—indeed, almost pedantically, I read—and I intend now to nail the same colours to the same mast—the key sentences from our manifesto:We will reduce taxation. We will simplify the tax system. We will concentrate on making progressive and substantial reductions in income tax and surtax. These reductions will be possible because we will cut out unnecessary Government spending and because we will 513 encourage savings. And as our national income rises, we will get a larger revenue with lower tax rates.The electorate has returned to this House a majority of Tory men and Tory women. They now expect Tory Measures, and they will get them. We have put forward our programme for the Parliament in the manifesto and for the first full session of that Parliament in the Gracious Speech. Yes, the promises are made and I repeat every one of them as Chancellor from this Box. We have put forward our manifesto. We are debating now the Gracious Speech. In principle and in substance, in concept and in detail, we will carry out every undertaking we have given.
§ 4.31 p.m.
§ Mr. Roy Jenkins (Birmingham, Stechford)
I should like to begin by congratulating the right hon. Gentleman on his accession to the Chancellorship. He did so to me just over two years and seven months ago, and I warmly reciprocate the kind sentiments which he then expressed. This did not prevent him from launching into acerbity with a good deal of rapidity and consistency, and I may occasionally have to follow him in that respect. Before I do so, I should like to join with the right hon. Gentleman in paying tribute to a former right hon. Member of this House who taught us both a lesson in never launching into acerbity, and that was Jack Diamond, whom we are all very sorry to lose on this side of the House. I welcome what the right hon. Gentleman said.
There was one difference between now and the occasion when he congratulated me two years and seven months ago. That is that I had to appear before the House approximately 18 hours after taking office. He has had 18 days of respite, but I do not notice that they have produced much in the way of detailed or precise formulation of policy.
I thought, certainly when in the earlier part of the speech he was speaking as Chancellor, that it was a somewhat chastened right hon. Gentleman whom we saw before the House. In the later part of his speech, he tried to introduce a little Conservative Party conference fervour. I have not often heard a speech from a Chancellor before in which the part that he delivered with most con- 514 viction—and indeed it sounded to me almost the most original part of his speech—was a quotation from a Conservative Party manifesto.
However, I do not necessarily criticise the right hon. Gentleman for not rushing into detailed formulation of policy. Faced as he is with problems, certainly, but with no approach to a crisis situation, he is wise to look around and consider the advice which he has been given before rushing into new measures. But it does follow from that that there is a sharp contradiction between the attitude which the Government are now taking and the views which right hon. Gentlemen put forward during the election campaign—and in two respects. I want to deal with one aspect first and with the other towards the end of my speech.
The Chancellor, I thought, seemed almost to be dissociating himself from the Prime Minister rather early in the life of a Government, when he dismissed quotations of what this or that person had said about something or other in a most disparaging way. When I asked the Prime Minister last Thursday what had happened to his national emergency, he replied that he had been quoting from my right hon. Friend the Member for Coventry, East (Mr. Crossman). He was doing no such thing, and by saying that, I am absolutely sure inadvertently, he misled the House. My right hon. Friend never used that phrase or either of the words in it: nor was he ever alleged to have done so. The phrase was the Prime Minister's own. He was responsible for it, he made it up and used it himself, and he blazoned it forth during the election campaign—the phrase, "national emergency" and his talk about crisis—
§ Mr. William Hamilton (Fife, West)
§ Mr. Jenkins
We should have a clear statement from him now as to whether he believes that there is or is not a national emergency confronting this country. Well, I see that the right hon. Gentleman accepts that he was wrong in saying that he was quoting my right hon. Friend: he does not challenge that. He must also, therefore, accept that the phrase was his own, used and blazoned throughout the country—[Interruption.] I would not go so far as to say that—
§ Mr. William Hamilton
Oh, I would.
§ Mr. Jenkins
I do not believe that the right hon. Gentleman meant to mislead the House. I think that the Prime Minister inadvertently believed that he was quoting my right hon. Friend. He was not. He used the phrase himself, he blazoned it throughout the country, it is on the record and it is not good enough for a Prime Minister to leave this uncertainty as to whether or not he regards there as being a national emergency.
§ The Prime Minister (Mr. Edward Heath)
Will the right hon. Gentleman kindly state where I said that there was a national emergency?
§ Mr. Jenkins
The Prime Minister used the pharase himself, I think I am right in saying, at Portsmouth, on the evening of 5th June. He used it—this is a very old trick—in an interrogative form. He said, "Are we heading for a national emergency?" The Prime Minister is very anxious to present himself as an honest Prime Minister and as the provider, as he calls it, of a "new style" of Government. It is not good enough to say, "I just used it in an interrogative form; I did not mean anything by it". If he wants to be clear and clean with the House and the country—is there or is there not a national emergency?
§ The Prime Minister
Throughout the election campaign—I have all the quotations here— I asked the present Leader of the Opposition, in connection with the doctors' award, whether there was or was not a national emergency, because, on the 1966 decision, they refused to pay the doctors on the grounds that there was a national emergency. On this occasion, they also refused to pay the doctors and I asked the right hon. Gentleman constantly whether there was or was not a national emergency. The former Chancellor should be more careful about his choice of words.
§ Mr. Jenkins
The Prime Minister knows that I am being complete careful and quoting precisely what he said. When he asked me to quote him, I gave him the place, the date and the quotation he asked for, as he knows quite well—
§ Mr. Jenkins
I have just given it. It the right hon. Gentleman would listen he would know that I gave it about two minutes ago. If he cannot listen, I am not going to repeat everything for him. I gave the quotation, as the Prime Minister knows, and it is clear that the Prime Minister deliberately raised the scare-mongering phrases "national emergency" and "crisis". We knew that by raising it, asking it in an interrogative form, he would get the publicity he wanted, now he runs away from facing up to it. I will in a moment give another example of this sort of technique. There is not and never has recently been the trace of an emergency; right hon. Gentlemen knew that all the time and they know it now. Nor can the Prime Minister begin to claim that he thought there might be one before the election but discovered that there was not one when he came to office Consider what he said last Thursday:No one outside the House, either at home or abroad, will be surprised, because the situation is as the economic indicators which have been published showed it to be."—[OFFICIAL REPORT, 2nd July, 1970; Vol. 803, c. 85.]Thus, the right hon. Gentleman cannot claim now—and cannot claim at any other time—that he has suddenly discovered things to be either better or worse than he expected. Nor, on his own statement, are there any alibis for the future. He knew the full position, so he said on Thursday, when he was still trumpeting his catalogue of election promises.
Then there was the Prime Minister's unprecedented, totally unwarranted and deliberately scaremongering statement about the probability of another devaluation. [Interruption.] That was the least creditable of all the episodes in the election campaign. I do not find it any the more creditable—
§ The Prime Minister
§ Mr. Jenkins
I do not find [HON. MEMBERS: "Read the quotation."] I will certainly do so, but my speech is bound to take longer. [HON. MEMBERS: "Read it."] The Prime Minister said:The danger in complacency"—he had just accused us of complacencynow is, therefore, that it will mean a further four years of austerity which, in all probability, will lead, as happened in the aftermath of the 1966 freeze and squeeze, to a further devaluation".
§ The Prime Minister
Hear, hear. [Interruption.]
§ Mr. Jenkins
It is no good hon. Gentlemen opposite thinking that merely by cheering and counter-cheering loudly they can get away from awkward phrases. I used the phrase "the probability of devaluation" and I was asked to quote the whole passage in which that phrase appeared. I have done so and that shows that I was justified in quoting that phrase and it shows that that is what the right hon. Gentleman said.
§ The Prime Minister
What the right hon. Gentleman has read out was the theme throughout the election; that it was the complacency of the present leader of the Labour Party which would lead to a further four years of indecision, which would then lead to devaluation, and that is right. [Interruption.]
§ Mr. Jenkins
As I said before, it was unprecedented, unwarranted and deliberately scaremongering for the right hon. Gentleman to have used the word "devaluation".
I do not find this incident any the more creditable in view of the most extraordinary couple of paragraphs which I read last week in the "Men and Matters" column of the Financial Times. That paper stated on 1st July:It is worth noting"—referring to this document containing the devaluation statement—that the whole matter was a mistake. What happened was that Tory Central Office decided that it ought to put out a reasoned and rather academic written statement about the economic situation to prove that it had an alternative strategy on inflation".I can see that that needed proving—and, of course, two days before polling day was a very natural time to choose for rather academic statements. I continue the quotation:But it was thought to be of such purely technical interest, especially to the political and lobby correspondents who attended Mr. Heath's Press Conference, that it was simply handed out at the end, and Mr. Heath made no reference to it.We know how academically and technically the Tory Press treated the matter. "Devaluation with Labour: That's Heath's Warning" said a Daily Mail banner headline the next morning. I am sorry for the right hon. Gentleman that 518 Lord Rothermere should have been so insensitive as to treat his academic and technical essay in such a way. The fact of the matter is that there never was and never has been a question of a national emergency, and the right hon. Gentleman knows that perfectly well.
§ The Prime Minister
As the former Chancellor of the Exchequer has made that allegation, perhaps I should clear it up. This statement was put out with my full authority after discussion with the Chancellor of the Exchequer that morning. We took full responsibility for it. It was a long statement and it is not our tradition to read out such long statements at Press conferences. It was given with full publicity and with our full authority.
§ Mr. Jenkins
I think it is right to say that most of it was read out, but the small bit relating to devaluation was not. The right hon. Gentleman rightly takes full responsibility for it, but I still say that it was an unwarranted and discreditable statement. The balance of payments position is very strong, and unless measures to dissipitate it are taken, the position will, I believe, remain so. It is, of course, far stronger than the May trade figures taken on their own indicate—although even those, without any allowance for special factors, showed us in continuing surplus.
The Chancellor of the Exchequer laid down a tight rule for himself at Brighton last October when he said:I have always refused to comment on any one month, however splendid or disastrous it may be.He was, needless to say, speaking after a figure of particular splendour. However, he did not stick to his rule. On 15th June he said:Today's trade figures explain why we are having an election now".That remark would make sense only if the May figures were the beginning of a steadily worsening trend or if the June, July, August and September figures were to be, on average, the same or less good than the May figures. If the right hon. Gentleman believes this, perhaps he will say so. We will see in the autumn. I believe that the reverse will be the case. And if I am right, then his remarks not only run directly counter to the rule he laid down, but are also, in themselves, quite unjustifiable. What he really meant 519 in October was, "I never comment on good figures under a Labour Government." No doubt in future, when the occasional, inevitable, bad months come along, he will then be able to remain silent and give a sort of spurious symmetry to his rule.
Even with these occasional bad months, the underlying trend should, I believe, remain very good. Engineering order books, a crucial sector of our exports, have recently reached record levels, which suggests that we have so far preserved our competitive position abroad pretty successfully.
The most pessimistic independent survey which I have seen recently—that in the Sunday Telegraph two days ago—foresaw a current surplus of £450 million for 1970 and £300 million for 1971. That is about as far off crisis as it is possible to imagine.
On the contrary, it is by far the best inheritance that any new Government have received in the whole of the postwar period. We will judge by how the Conservative Government use it, both in the development of the economy and in the advancement of social justice.
I come to the argument as to whether in some other way we are weaker this summer than in the summer of 1964. This, as I understand it, is based on the existence of the £1,450 million approximately—the new figures given by the right hon. Gentleman today—of short and medium-term, largely medium-term, debt. This must be seen, first, in relation to the improvement of almost exactly £2,000 million which we have now achieved in our reserve and debt position since the beginning of 1969; and, secondly, in relation to the difference between the stronger balance of payments performance and prospect of today and the staggering and mounting deficit of 1964.
Let us apply a test which the Prime Minister himself laid down last Thursday, when he said:I have found that the rest of the world knows the truth."—[OFFICIAL REPORT, 2nd July, 1970; Vol. 803, c. 77.]What is thought by the rest of the world, and particularly by those most concerned with this matter? On 4th June Dr. Emminger of the Bundesbank was quoted in The Times as saying that he 520 had no doubt that the £ was much stronger than in 1964–5. He said:Fundamentally, the British economy has found a new equilibrium and British industry especially has become sufficiently competitive abroad.Dr. Ossola of the Bank of Italy said:The pound is certainly stronger than five years ago because the British economy is certainly stronger.M. Schweitzer said a little earlier:Britain's economic position has moved to a stronger and more stable basis. The I.M.F. inspection team, which visited London in early May, had reported a very clean bill of health.
§ Mr. Peter Hordern (Horsham)
Can the right hon. Gentleman tell the House when the I.M.F. team visited the Government in 1964?
§ Mr. Jenkins
I have no idea of the relevance of this question. [Interruption.] I was quoting the direct comparison made by two of the most prominent European central bankers about the strength now and the position in 1964. I was quoting what Mr. Schweitzer said about the visit of the I.M.F. inspection team, and I should have thought that the Prime Minister, who very much wanted us to argue the people abroad always know the truth, would be very glad to have these comments, if he had not already seen them.
I therefore say to the Prime Minister, "By all means let us accept that people abroad know the truth and let us take due note of what they say." Every informed person abroad believes that as a result of the progress in the past 18 months our debts are now wholly manageable, and it will certainly not be in the interests of the country for the Government to propagate any contrary view. I am sure that the Chancellor of the Exchequer will take that very much to heart.
There is one other aspect of this on which I found the Prime Minister's argument last Thursday a little surprising. Despite the remaining medium-term debt, our total net asset position abroad on public and private sector account combined is better than it was in 1964. "Ah," the Prime Minister says, "but you cannot count the private account against debt." As the Home Secretary once said, "That's a rum one." It is a 521 particularly rum one from the Conservative Party, and it is particularly appropriate to quote the Home Secretary, because he has been telling us, year in and year out, that it was unreasonable to count capital account deficits—that they did not really count, because they were building up Britain's assets abroad. The Prime Minister cannot have it both ways.
There were other sources of weakness which the Prime Minister mentioned and, indeed, which the Chancellor of the Exchequer today strove to identify, and I want to mention one or two of them.
The Chancellor of the Exchequer mentioned, and so did the Prime Minister, the level of unemployment and the pace of industrial activity. We would all like to see the level of unemployment go down—it is too high—but the key to doing this on a healthy basis that will stick is to get a better balance between the different regions. We will judge the Government's policies in this respect as it unfolds, but all the indications so far are that their regional policy will be a great deal less determined and effective than ours.
What is the future of R.E.P. and investment grants with their significant differential in favour of development areas? And, more immediately, what is the future of Upper Clyde Shipbuilders, the yard at Jarrow, and of Cammell Laird? Is Government help there to be axed? It will not be much consolation to the workers who lose their jobs, or much help to the unemployment problem, to be told that this and similar help may be balanced in the long run by firms, if they make profits, being allowed to keep a little more in the long run. These points will be developed later this evening by my right hon. Friend the Member for Bristol, South-East (Mr. Benn), and during the debate on Thursday.
On the general level of industrial activity there is certainly room for some pick-up, but the great question is: is it already in the pipeline or not? This is always a difficult question, and one on which the Chancellor of the Exchequer will have to use delicate judgment.
The right hon. Gentleman will not forget that the Budget changes came into operation last weekend and will mean £200 million extra purchasing power from now on, with approximately £50 522 million of it, because of the backdating, in this week alone. He will also have seen the May retail sales figures which indicate, although they do not prove, because of monthly fluctuations, that consumption has already been picking up quite strongly. He will perhaps also have seen the Sunday Telegraph business forecast which was convinced two days ago that output was now rising close to the underlying productivity trend and, therefore, near to my Budget forecast. These tendencies could well accelerate in the next few months. He will have to take all this into account.
The Chancellor made a lot of price inflation. I listened to him with attention on the subject this afternoon. He was against it, but most people are against sin. But he did not give us any precise idea of how he intended to deal with it, or any precise timetable of when results might be expected. I found that one of the most surprising parts of his speech was when he quoted his own speech—he does that, as we all do—on the second day of the Budget debate just under three months ago. I found that surprising, and had he not quoted it I should have done so myself. This was when he firmly told me to take an especially tough line as Chancellor of the Exchequer with wage and salary settlements in the public sector—
§ Mr. Iain Macleod
Because this is so important, would the right hon. Gentleman use my actual words? [Interruption.] It is not an unreasonable request, with respect. What I said was that the Chancellor should use, and should be seen to use, his influence on the side of non-inflationary settlements. Does the right hon. Gentleman disagree with that?
§ Mr. Jenkins
I will do better than the right hon. Gentleman. I will use his actual words, which he did not, for the very good reason that he did not have them in front of him. I have them because, as I have said, if he had not quoted them I should have done so. The right hon. Gentleman then said:The Chancellor, in this most grave matter, has a duty not just of exhortation, but of example. The Government are the biggest employers. He ought to proclaim that he will use his influence firmly and openly on the side of non-inflationary settlements. That is a duty that will sometimes mean saying 'No' and meaning 'No'."—[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1402.]523 In other words, what he meant then—it is certainly the natural meaning of what he said then—[Interruption] I am developing an argument to the House, and I propose to develop it in my own way without help from the other side. In other words, his view then was that the Government's battle against wage claims should be joined primarily on the public sector. His words could have had no other natural meaning.
Since then there has been one, and only one, major test case in the public sector—doctors' pay. What the Labour Government agreed to is well know—30 per cent. for junior hospital doctors, 15 per cent. for the rest, and a reference of the remainder to the P.I.B. I think that that was a perfectly fair and generous settlement. If anything, it verged on the side of over-generosity. Yet the Chancellor—not of the Exchequer but of the Duchy of Lancaster—immediately became extremely excited when it was announced and denounced the decision as "wholly without justification". And the Prime Minister joined in within 24 hours. So, at the very first opportunity of a little vote-catching, the brave new tough public sector wages policy which the present Chancellor of the Exchequer had proclaimed on 15th April crumbled completely in the hands of the Conservative Party.
What has happened since? It is fairly obvious from what we have read in the Press that the P.I.B. had prepared a draft report recommending a much smaller award than did Kindersley. That does not surprise me in the least. I thought that the Kindersley Report was unconvincing and logically inconsistent. So what do the Government intend now? Do they intend to pay the full 30 per cent., or will they find a compromise? Thirty per cent. would certainly be grossly inflationary, both in itself and in its repercussions.
But, in a sense, the argument for paying less than that but more than we would have done, and more than the P.I.B. would have recommended, is even weaker. It could not even be defended on the ground, which I do not accept, that the Kindersley Report is sacrosanct, and it certainly could not be defended on the ground of being non-inflationary. The fact is that the Chancellor's policy, as stated in April, was completely undermined by the vote-hungriness of his 524 colleagues. He now has no policy here, and he wisely had nothing to say about the doctors in his speech this afternoon. If the Chancellor thinks that the doctors—one of the highest-paid groups in the public sector—can be given a very generous settlement and then he can go for an especially tough policy for other groups in the public sector, he is making a very big mistake. It will not work and should not work because it would be a thoroughly unfair policy.
I come to my last major point. Where do we stand now on the Chancellor's proposal for, indeed promises of, tax cuts? I do not mean merely from a time point of view. What is the basis on which he intends to proceed? From what he said this afternoon it appeared that they were to be balanced by public expenditure cuts. It is quite clear that for the purposes of the election campaign the Prime Minister intended no such thing. In the long statement to which we have already referred, which he handed out on 17th June, he said when dealing with the alternative to what he regarded as the evils of Labour Government policy:But there is a very real alternative which ought to be pursued immediately. That alternative is to break into the price/wage spiral by acting directly to reduce prices. This can be done by reducing those taxes which bear directly on prices and costs, such as the selective employment tax, and by taking a firm grip on public sector prices and charges such as coal, steel, gas, electricity, and transport charges and postal charges.That, he said, would "at a stroke" reduce costs and prices, increase production and reduce unemployment and he added thatit would mean accepting a reduced Exchequer surplus".I do not accept the assumptions of his argument. From the point of view of inflation itself, the general balance of the economy is, in my view, at least as important as direct impact on prices, and it is certainly crucial to the future of balance of payments. Moreover, if the public sector surplus is to be substantially reduced—and of course any artificial holding of nationalised industry prices would do this just as much as fiscal changes—what are to be the balancing items to maintain an effective monetary policy of which the Prime Minister certainly appeared to be an adherent on Thursday?
525 Is bank lending to be further restricted or are interest rates to be allowed if necessary to go higher in order to sell more gilt-edged to the public? This is what monetary policy involves, and I assure the Chancellor that he will have a most difficult task in squaring it with the expectations of the C.B.I. and the hon. Member for Peterborough (Sir Harmar Nicholls) that it will cure the liquidity problems of companies.
But what is of primary interest here are not my assumptions but the assumptions of the Prime Minister and the Government. If these are that inflation should be attacked by tax reductions within the Budget surplus, why are we waiting? Why has it not been done, in the Prime Minister's phrase, "at a stroke"? If it is right to do it at all it must be right to do it now. There is no possible argument for waiting until the autumn or even next spring to attack prices in this way. Or is it the case that as recently as the Tuesday before the election the Prime Minister was selling a false prospectus and he and the Chancellor now know that it is a prospectus which cannot be carried out?
If the proposition now is, what I understood it to be although it was put a little vaguely by the Chancellor this afternoon, that tax reductions can be made only to the extent, broadly speaking, that public expenditure is reduced, that of course is a totally different proposition. Reducing public expenditure is obviously an exercise which will take time and a lot of trouble as well. We shall want to examine very carefully where the cuts are to be made. Some of them, on housing subsidies, agricultural support, charges for various social services, if they were involved, would have exactly the opposite effect on the cost of living from the programme put forward by the Prime Minister on that Tuesday before the election. It would be a prospectus not merely abandoned but stood on its head. Other cuts could have a most damaging effect on the whole fabric of the social services. Others could be gravely injurious to the whole structure of regional policy.
I am of course in favour of public expenditure discipline. We applied it very firmly during the past few years and kept consistently within our targets, but I am most emphatically not in favour of 526 indiscriminate targets. Nothing is more illusory than the crude view that one can maintain and advance tolerable conditions of civilised living in an advanced industrial society without high and rising levels of public expenditure.
We shall therefore want to examine any Government proposals for cuts in the greatest detail, considering both their social and economic implications, and we shall want to see who is to suffer from the cuts and who is to benefit from the taxation remissions. There will of course be some remissions. Right hon. Gentlemen opposite are far too heavy with commitment to do otherwise, but I doubt if they will come up to expectations. I said at the beginning of May that what we would see if a Conservative Government were returned would be some reneging on promises, but just enough attempt to keep them to do considerable damage to the economy. I have no doubt that we will see the reneging. We are indeed already seeing it. I profoundly hope that we shall not have the damage to the economy as well.
§ 5.8 p.m.
§ Mr. Carol Mather (Esher)
It is with some trepidation that I rise to make my maiden speech following two such illustrious right hon. Gentlemen. Hon. Members will at once connect the name of Esher with that of Sir William Robson Brown, the former hon. Member for the constituency. He had friends on both sides of the House and served his full span of 20 years as a Member. He had his full share, as many other hon. Members here today have had, of personal success and personal misfortune. He liked to call himself a man of the people, and he was, indeed, a good constituency man. He looked after the interests of his constituents with great care. He was also a man of the people because he rose directly from the shop floor in the steel industry to the boardroom. Many people consider that enough for one lifetime and something of which one can be proud.
Apart from that, however, he had a second career in this House in which much of his work was done behind the scenes. He was assiduous in fostering good industrial relations, for which he worked long before it became fashionable. He worked and campaigned successfully 527 for the rights of old-age pensioners and was also a great champion of the young. I am sure that his closest friends will testify to the fact that he was a generous and warm-hearted man who had a soft spot that was not hard to reach. He was a man with the common touch. He made his own way in the world and was proud of it and his type is becoming increasingly rare, so much more the pity.
Much has changed in my constituency of Esher since the father of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) represented it. Now we have every environmental problem of the age. Our rivers, which were once a source of pleasure, are now a menace when in full flood and our common lands, once a source of recreation, are now threatened by link roads and motorways. Our schools, of which we were once proud, are now inadequate following the population explosion. Even our peace of mind is disturbed by the latest menace—the insidious menace of aircraft noise. We have many problems of this sort, but we are proud to live in Esher and we would like to keep it as it is.
The problems of the environment are among the greatest problems that we shall have to face in the coming years. There are great clashes ahead—we have seen some already in connection with the third London airport and the London ring roads—between economic requirements and ordinary human needs. This is like the meeting of the immovable object and the irresistible force. In this conundrum which we shall increasingly have to attempt to solve is enshrined the secret of the human race.
Like my predecessor, this is my second career. My first career was in the Services, in which I served 22 years in war, in peace and in cold war, in many different places, and in many different capacities. Occasionally I hope to speak for that body of men who have no constituency where they live. Their constituency is the sands of the Gulf or the jungles of Malaysia, or even the streets of Belfast. But all hon. Members will agree that their true constituency is in the hearts and minds of those particular hon. Members who have their interests at heart.
528 The main industry in my constituency is the aircraft industry—the British Aircraft Corporation at Weybridge, which employs 7,000 people. I believe I am technically correct in regretting that the Gracious Speech makes no mention of the aircraft industry. In my constituency we are proud to have the foremost and finest airframe manufacturers in the world located in our midst. In a way, it is a bit of a love-hate complex, but once the aircraft are up in the air we wish they would go away.
Looking at the present problems of the aircraft industry, we are in one of the periodic troughs which it reaches. Most of the existing projects are off the production line and the new projects have not yet started to come on to it. At the same time, our exports of aero-space materials have been rising in recent years, because of the initiatives 10–15 years ago. However, because of the lack of initiative in the past five years, plus many sad cancellations, no seed corn has been sown and there are no crops coming up in the aircraft industry. Any farmer knows that once the winter is past it is too late to put down any winter wheat and, if the spring is past, it is too late to put down spring seeds. That is the position in the aircraft industry today. There are no crops coming up. The men who are waiting to harvest these crops are being laid off because there is no work for them to do, because the land is barren.
There is of course the Concorde. This is rather slow in germination. It is certainly not a money spinner, but it is essential if we are to keep in the aero-space race. There is also the BAC 3–11 and its associated Rolls-Royce aircraft engine, about which decisions are now long overdue. The fate of the aircraft industry, both on the airframe side and on the engine side, hangs on these decisions. I hope that they will not be long delayed.
Without wishing to be controversial, when we resume our trade with South Africa dare anyone say that the sale of the Buccaneer, Nimrod and Harriers will not be a significant factor in getting the aircraft industry back on its feet again? The last five years have indeed been a sad story. There have been cancellations. The design teams have disintegrated. Technical skills have been dissipated.
529 Many people have gone to America through the brain drain. I believe that the aim of any Government towards the aircraft industry should be the export of aircraft and not the export of men.
Finally, another problem in my constituency directly arising from the aircraft industry is the problem of aircraft noise. Many petitions have been signed. Much evidence has come forward from schools, from nursing homes, from the parents of young children, and from our own ears and eyes. Official statistics say that the noise is lessening, but we who live there know that it is getting worse, so there must be something wrong somewhere.
We all know that aircraft must fly. We want our aircraft industry to prosper, but not to the absolute detriment of human condiitions. The book, "The Silent Spring", written by Miss Rachel Carson several years ago, put forward the theory that the bird population was doomed because of the increasing use of pesticides. Now we cannot even hear the birds, let alone killing them off. We cannot wait until the next generation of aircraft comes along so that we can make their engines more silent. A substantial and immediate alleviation is required. We hear much about collisions in the air and the dangers thereof. There can be collisions on the ground between people and between those who fail to realise that they are only human.
§ 5.16 p.m.
§ Mr. D. Reed (Sedgefield)
I am delighted that I have succeeded in catching the eye of the Chair so that I can make my maiden speech in this debate, because it was on the subject of the economy, particularly the policies put forward by right hon. Members opposite for handling the economy, that my constituents voted. The fact that they returned me with a majority of close on 13,000 shows what they think about those policies.
I was elected to represent Sedgefield in County Durham, a constituency which for 20 years was represented by Joe Slater, a gentleman who has gone to serve in another House, where his contribution will be just as great as the contribution he made here. Joe served this House well for 20 years. People here know him. He served the Government well during the time he was a Minister. Above all else, he served the electorate of Sedgefield 530 well, which is, I believe, why he was returned so many times.
To me, the Sedgefield constituency is part of a very special area of Britain. It is part of the south-east corner of County Durham, part of the world which I believe is the power house of Britain. It has been so for most of this century. It was on Durham coal that Britain's industrial prosperity was built. The contribution that the Durham miners and their counterparts in other parts of the country made in two world wars was every bit as great as that made by any soldier, sailor or airman.
My constituency, like that of the hon. Member for Esher (Mr. Mather), is changing. Sedgefield has seen great changes in recent years. At one time almost every member of the community looked to the mining industry for his livelihood. Now only one pit is operating. In the place of the pits, new industries, new housing estates and new industrial estates have sprung up. One of the largest chemical complexes in Europe lies within the boundaries of my constituency.
In other parts there are new housing estates and new industrial estates which were built by far-sighted local authorities which were quick to see the demands of industry and to provide the facilities in advance of their being required.
The influx of new industry into my constituency has shown a remarkable increase during the last five years. This is the result of the measures taken by the Labour Government in furtherance of their development area policies. I accept that not enough was done, because this level of spending on development areas did not go on long enough. This is why I am very concerned, on behalf of my constituents, about the attitude of the present Government towards the development areas.
The Gracious Speech refers to stimulating long-term growth in the less prosperous areas. This is fine. We need long-term growth, so long as right hon. Gentlemen opposite do not forget that we also need short-term growth. Unemployment is a question of now—not when right hon. Gentlemen opposite graciously get round to considering the future of men who are out of work.
During the election campaign the people in my constituency were given the impression that their future would be 531 taken care of on a great wave of industrial expansion which would happen when the Conservative Party took office. It is, therefore, somewhat strange that the first announcement following the election is that of a factory closure in the heart of my constituency. I refer to the closure of the Crane factory on the Aycliffe industrial estate which has thrown 150 of my constituents out of work. It is a factory which should be well known to the Prime Minister because he opened it in 1963 during his brief term of responsibility for regional development.
What is even more strange, in view of the present Government's apparent concern for the development areas, is that this closure appears to have been brought about by their election victory. In the last two months there have been rumours that this factory might close. The factory had been doing sub-contract work and not its own job of making central heating equipment. Just before the recent election, a notice went up on the factory notice board stating that the shortage of orders might be improved following the result of the General Election. Yet within a fortnight of the result came the announcement that the factory was to be closed. I do not think that is an indication of industrial confidence in the policies of right hon. Gentlemen opposite.
What concerns me is how many more firms are in a similar position. How many more firms are on the verge of profitability but are not fully committed to expanding in development areas and might pull out if the level of Government aid dropped?
I spent three years working for the North-East Development Council, where I acted as a salesman for the North-East Region. I have some experience of making Government policy work. The policy which I believe the present Government will follow will be the introduction of investment allowances, as opposed to investment grants, as a means of attracting industry. We do not know yet; there has not been a clear statement, as far as I can see. But investment allowances work only if a firm is making a profit, and that is not likely during the early years after a move into a development area. Making a move is 532 an expensive business. Profit does not come overnight, and if a firm is not making a profit there is nothing against which it can offset the allowance.
Investment allowances affect a company's profit figure as a whole. They go back to headquarters and are taken off the profit-and-loss account of the company as a whole. They are not directly related to the size and the nature of the development area factory. That is the second thing that is wrong with investment allowances.
The third is that they encourage the establishment not of the lock, stock and barrel transfers of factories, which is what we want, but of branch production units which are the most vulnerable to closing down if a firm's order book should suffer a setback. This is what seems to have happened in the case of this recent closure in my constituency.
If the proof of any policy is the effect that it actually has, I think that the current number of jobs in prospect for the Northern Region—something like 42,000 as a result of the Labour Government's direct investment grants—compares favourably with the period in which we had a system of investment allowances when the total number of jobs even in a record year reached only 15,000.
Which is the better inducement? Which is the more positive way of attracting new industry? The answer is obvious. I make this plea to the Government: whatever their policy is to be on development areas, will they please make up their minds soon and make an announcement, for any further delay will undermine industrial confidence in the whole concept of development areas. What is more important, it means that the unemployed among my constituents will have to wait while the Government graciously decide their future.
§ 5.25 p.m.
§ Mr. R. H. Turton (Thirsk and Malton)
I am very luckly to have two hon. Members to congratulate on their maiden speeches. My hon. Friend the Member for Esher (Mr. Mather), I thought, showed great promise in the choice of his phrasing when, in Conservation Year, he dealt with environment and aircraft noise. I am certain that when he takes part in later debates, no longer bound by the rules of keeping away from controversy, 533 he will be an extremely valuable addition to this House, particularly as he told us that he intends to fight the cause of the Servicemen. I am sure that he will be a very valuable recruit to that cause.
The hon. Member for Sedgefield (Mr. D. Reed), I though, was engagingly clever in skating around controversial issues with a non-controversial skill. I am sure that we shall welcome his contributions even more when he feels that he can use his controversy, as I am sure he will in the next four years, to its full capacity.
Both hon. Members will have had a good object lesson in the use of controversial debating from the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) who is probably one of the best debaters on the other side of the House and who was in very good form this afternoon. I rather regret that he did not use more of his vigour in dealing with the problems of the economy instead of trying to have a post mortem on why he and his party lost the election. It is a mistake in this debate on the Gracious Speech always to go back. We ought to look at the problem which faces my right hon. Friends in the Government and to see how, for the nation's sake, they can be put right.
The right hon. Gentleman engaged in some logic chopping whether we were facing problems or a crisis, or whether we were heading for a national emergency. This seems to me to be a battle of words. I am sure that all of us, whatever our party, are very concerned about the country's economic position. We have a stagnant rate of growth. We are at the bottom of the league table for the rate of growth in the last few years, compared with any other industrial nation. We have a very heavy toll of unemployment—far too heavy for the present day—with an inflationary spiral that was as high as 1s. 6½d. in the £ in March. This must cause discomfiture to people of all parties, and it certainly does to the nation as a whole.
On the other side of the ledger, as the right hon. Member for Stechford said, there is a balance of payments surplus of £600 million. Naturally he takes pride in that accomplishment. But let us not overlook the lessons of history. May I remind the House that there is a normal world trade cycle. Taking the last 18 534 years between 1952 and 1969, one finds that there was a deficit in trading in nine years and a surplus in the other nine, and that, while we had those nine years one way and nine the other, in each year there was a substantial surplus on our invisible trading and, except for two years, a deficit on our visible trading.
I readily admit that the measures taken by the last Government contributed to the surplus in the last year. The restriction on overseas investment and the import deposits scheme played their part. But they also weakened our international position and contributed to our lack of growth and to rising unemployment. Indeed, one could contemplate a situation of a highly protected economy resulting in an export boom and a balance of payments surplus but with high unemployment, an inflationary spiral and a completely stagnant economy.
Today, therefore, we ought to look at the overall financial position. Here again, I come back to what the right hon. Member for Stechford said when he compared—inadequately, I thought—our position in 1964 with the position in 1970. On 30th September, 1964, our first and second line reserves stood at £2,224 million. At that time, we had drawn nothing from the International Monetary Fund, and we had borrowed from the central banks £59 million, so that our reserves were £2,165 million to cover what were then short-term trading debts of £765 million.
Coming to our position at March, 1970, our first and second line reserves had fallen to £1,400 million, but our liabilities stood at £1,000 million to the International Monetary Fund and £654 million borrowed from the central banks. Thus, at the end of March, on the last figures we had before today—I shall come to those in a moment—our position was that liabilities were about £254 million more than our first and second line reserves. That is why many people, such as Lord Cromer and Lord Shawcross, were worried about the future of sterling and the future of our economy.
The position today, as given by my right hon. Friend the Chancellor, is that the amount drawn from the I.M.F. has in the three months gone down by £8 million, and the liability to the central banks has fallen to £469 million. So even today our total liabilities stand at £1,461 535 million, which is more than our first and second line reserves. This is cause for great anxiety. The Government's first task must be to restore sufficient confidence and to correct the position.
That correction will not take place without a radical change in our rate of growth and a sharp rise in the rate of industrial investment. There is no reason why Britain should not succeed in this, but, in order to succeed, three essentials must be achieved. The first is that the public sector's share of the gross domestic product should be reduced from the high figure of 51.25 per cent. at which it stood at the end of the Socialist Government's time. Second, the private sector must be made more profitable so that more profits may be invested in new capital resources. Third, new savings must be encouraged. One pound saved is the equivalent of £1 taken in taxation.
I realise that many hon. Members wish to speak, and I shall concentrate only on the third essential and make a suggestion. In the United States loans to the State are allowed free of tax. I consider that we should follow that example. At present £1,800 million is raised annually by local authoritites for their capital account. Of this sum no less than £600 million is provided by direct borrowing, the remainder being supplied by the central Government out of tax revenue, partly by way of grant and partly by long-term loans.
I ask the Chancellor to consider a scheme under which each ratepayer should be allowed to invest up to £2,000 free of tax, provided that the interest charged was no more than 5 per cent. In my view, the result would be to open a new field of savings. The advantage to the ratepayer would be that he would have a tax-free return of 5 per cent. on his money. But he would have far more than that: he would have a feeling a direct involvement in the capital programme of his local authority; he would feel that some part of the old people's hostels, the houses, the schools, the swimming pools, was there because he had invested his savings in it. The advantages to the local authority would be that it would obtain money at 5 per cent. instead of 8¾ per cent. Local authorities could plan their capital programmes guided not by direction from Whitehall but by the enthusiasm of their 536 ratepayers, which would be good for local government.
In this way, it would be possible, I believe, to reduce taxation by about £1,500 million a year, with no deterioration in the services provided, leaving only £300 million to be raised annually by the local authorities in other ways. I believe that this is a practical proposition. It has worked in the United States, and I do not see why it should not work here.
I am encouraged to believe that the Chancellor will cut down waste. Since 1964, public expenditure has increased by over £7,000 million, and even with that vast expenditure there is still considerable poverty among special classes in Britain. The time has come to see that our public expenditure is more narrowly directed to those in need and that our private sector is allowed to expand as a result of radical reductions in taxation.
I should be the last to suggest that my right hon. Friend has an easy task, but it is a task which he will approach, as he showed this afternoon, with care and prudence, not trying the sort of instant Government to which we have lately been subject. I believe that the country is ashamed of its low place in the league table of growth. It is tired of our rising cost of living and the unnecessarily high rate of unemployment. I assure my right hon. Friend that he will have the country behind him if he takes the bold steps necessary to secure expansion of the economy without inflation.
§ 5.39 p.m.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
These are very happy days for hon. Members on the back benches opposite, but it may well be that their expectations will not match the kind of fruit they may see over the next few months.
Before I come to the recommendations which I should like to offer the Chancellor of the Exchequer, I should like to refer to the speech of my hon. Friend the Member for Sedgefield (Mr. D. Reed). I much enjoyed his speech and admired the way in which he paid tribute to his predecessor, who was much liked and respected during his time in the House.
I believe that the first few months during which the Chancellor settles into his job are the crucial months that decide the whole manner of the approach which 537 he will discover suits him and the programme to which he is committed. After that period he finds not that the Treasury takes over—the matter is much more complicated than that—but that in his search for his policy, in his announcements at various stages, he is committed to narrower and narrower channels, and the room for manœuvre gets less and less, so that whereas now he has a large number of options he will find them closing upon him as day succeeds day and each policy statement succeeds another.
Therefore, right at the outset I hope that he will carry on with his commitment to growth, which we found in the Queen's Speech in a manner reminiscent to many of us of the great aims and hopes that others have had. If he is to show himself a man worthy of the position which he accepted, he must accept also that the time for growth is now. He should not accept that because wage rates and inflation is high this is not the time to start stimulating demand, because next year he will find that the Treasury arguments have even greater force than they have now. The Treasury will then argue that with a year of inflation behind it is not the time to risk a second year of inflation, and such arguments will carry much weight.
We must accept that the inflation this year—heavily overstated though I consider it to be—is very largely already decided, and that irrespective of what the Chancellor does about it he can have only a small effect upon it. If he restrains growth to keep inflation lower than he thinks it should be, he may well find that he succeeds neither in controlling inflation nor in maintaining the moderate rates of growth that may yet be possible this year. Rather should it be his policy to accept the inflation that we have already and at the same time to try to diminish the effect of the wage increases by obtaining a greater volume of production this year than perhaps might have been planned.
If that attempt is made, at least there will be no contradiction, because we all know that the rises in wages are nothing to do with demand. It is not an excessive demand that is causing the wage rises. Rather is it the strength of workers in industry; rather is it the end of the long period of squeeze, freeze, 538 and so on; rather is it the end of the incomes policy.
What the Chancellor needs to do is to say, "Look here, that element of cost increase is something that we cannot escape. It is inevitable. What we shall try to do is not to seek to stop that which is unstoppable, but to diminish its effect by producing rather more goods so that the increased wage costs can be spread out over a much greater volume of production." If those who think like me are right, that might have an effect not only this year but next year and the year after.
I believe that the Chancellor has everything to play for. He can try to make his reputation in a way that the last Conservative Chancellor tried, though he failed, because he has one or two enormous advantages that that Chancellor did not have. His right hon. Friend tried to get a break-through at the same time as we were in an impossible position with our defence commitments particularly east of Suez, spending vast sums of money on things that had no relevance to our economic situation. What the present Chancellor should be considering is the much better situation in which he finds himself, where we are spending a much lower proportion of foreign exchange by Government and where we have had the benefits of devaluation, so that he can operate the economy in a way in which his predecessor could not operate it.
Finally, the myth of the permanence of the £ at a fixed parity has been ended. I hope that a commitment to a fixed parity will not be one of those commitments into which he will enter now or at any time. If he accepts the new situation that he has inherited, with a strong balance of payments which enables him to operate in a rather different way from the previous Conservative Chancellor, much may be achieved and a reputation to which many Chancellors in the past 15 years have aspired may yet be grasped.
I do not think that the effects of expansion in industry as a whole will lead to any big price rises this year. But the Chancellor, in looking at the way in which he could promote some forms of expansion, must consider first the level of domestic credit expansion. I believe that we have been unduly restrictive here; we have 539 been obeying a theory which is not perfectly adequate for our purpose. There could be some relaxation there, and possibly also the use of the purchase tax regulator.
There is a commitment that the Chancellor must avoid. I am sorry if I seem to be lecturing the right hon. Gentleman, but he has a great opportunity and it is in the interests of us all on both sides of the House that he should grasp it well. If he does not, he will be condemned as yet one more Chancellor who failed to solve the crucial problems of this country. There is a commitment that he must avoid, and I must state my appreciation of there being no reference in the Queen's Speech to maintaining the strong £ or the balance of payments surplus at high levels. The Chancellor will be under increasing pressure over the next few months to make a commitment on this from which he will never be able to escape once he has made it. It has been the curse of previous Chancellors. All Chancellors will find themselves in difficulties at some stage, and there will be pressure upon them to come out and nail their colours to the mast on the strong £—a commitment on which they will never under any circumstances, however horrible, however unpleasant, go back. There will be pressure to say that they will never go back on their word in that respect.
This is a matter which it is easier this time to get right at the beginning, because our balance of payments situation is strong, but the Chancellor must make a firm resolve never to make that kind of commitment. If he is committed to growth, he must be committed to growth in the way in which George Brown was committed to growth. That means that he will go for growth even if it means variations in the exchange rates, even though other objectives have to yield. It is only by being committed to growth as a first priority that he gives the commitment any meaning; it is otherwise pure piety.
Unless the commitment to growth really means that, when the chips are down, when the balance of payments figures keep knocking at the door, when foreign exchange reserve figures are coming in every two hours, impelling decisions all the time, growth will be and 540 will remain the first priority, then growth will inevitably cease to be that priority and the consequence will be that in this most important respect the Chancellor of the Exchequer will have failed, and will have been seen to have failed.
The other aspect of the Queen's Speech to which I wish to refer is the relationship between the Government and industry. The Queen's Speech talks of the need to avoid "unnecessary intervention" in industry [HON. MEMBERS: "Hear, hear".] Everybody will agree that anything which is unnecessary is unnecessary, and I will not quibble about that. I am asking simply what we consider to be necessary and what the Chancellor of the Exchequer and other Ministers consider to be necessary.
Would they regard as unnecessary the subvention to shipbuilding? It is only when one gets down to cases that one can start discussing what is necessary and what unnecessary. We all know that the shipbuilding industry is far from being the ideal industry we should like it to be. We all know that if we are to keep it going, there will be many difficult decisions by which we shall have to give money to firms to which we do not want to give it in order to maintain an industry with an important present and an important future.
Although we may try to rearrange and reorganise and to bring in new managements and other things of that kind, that kind of money will still be needed. If it is argued that money for many incompetent and many grossly inefficient firms is necessary, I am not sure what "unnecessary intervention" means, because if that is necessary, clearly, even more necessary is money for companies like Rolls-Royce. It is even more necessary to have some sort of incentive, whatever it may be called, to industrial modernisation and re-equipment, to investment in plant and machinery, and that is intervention.
The Government also have to take a view on prices, and whether they take it through this or that body is not what matters very much. What is important is the actual involvement. We know that the United States Administration cannot avoid being involved in prices. It cannot avoid involving itself in the economy of the country, because, when we see the final results, it is clear that the people 541 vote for a party largely because they believe that party to be economically competent to give them the economic success which they assume that party's Government will have. [HON. MEMBERS: "Hear, hear."] Hon. Members may applaud that, but hon. Members opposite have largely been elected to provide economic success.
But what happens if they do not? They will be voted out. But before they are voted out, before facing electoral annihilation any Government will take upon themselves the direct measures of involving themselves in the economy. It does not matter what they say in their manifestos or election speeches; before voting themselves out of office by not doing what the electorate wants them to do, being successful in running the economy, they will take even further measures than we have yet discussed. These are the facts of electoral life and that is what will happen.
They are more likely to be successful the earlier they realise not only this but its implications. They say that they will leave it to industry and avoid unnecessary intervention, but what will they do if industry does not provide the answer, does not deliver the goods? They will not just sit back and say, "We are sorry, but it is not our fault; you have to blame Company A and Company B and Company C; these are the people who are responsible". It has become accepted by virtually the whole country that if Companies A, B and C are not doing what is right for economic prosperity, the blame is put on the Government. As the Government take the blame, they eventually take the action.
This is what is happening. It happened under the previous Tory Administration. It happened as a direct result of Harold Macmillan's claiming credit for the country never having had it so good. That settled it. Once he had claimed credit for success, he had to accept blame for failure. Ever since we have seen an increase in the methods by which Government have tried to get control over aspects of the economy in order to achieve success.
§ Mr. T. L. Iremonger (Ilford, North)
I am grateful to the hon. Gentleman for ceasing his flow for a moment. It is time that hon. Members stopped misquoting Mr. Macmillan. He never said anything 542 about the people never having had it so good. What he said was that many people had never had it so good, because he was asking whether we could keep it; he was not boasting.
§ Mr. Sheldon
That was an irrelevant interruption. I am sorry that the hon. Gentleman found it necessary to say that. Whether Mr. Macmillan said those words or not is not all that important. What is important is that he won that election on the basis of the prosperity of that year.
In order to obtain that kind of control over the economy, the Government will have to make use of the only instrument they have available. At the end of the day this is the officials in the Civil Service. The harsh things they say about civil servants when in opposition are converted to the nice things they say the moment they get into power. The important thing to realise is that these are the only people one can use. Of course one may bring in business men and industrialists, and they can be of great help, but they will not provide the kind of machinery or the implements that any Government will require. I have argued strongly over the years for a much greater two-way flow between the Civil Service and industry, but that has still a long way to go and we shall have to use the kind of civil servants we now have.
Andrew Schonfield once referred to the English myth of the inevitable obtuseness of government officials. We must remember that this is not a view shared all over the world. It seems to be something peculiar to the Anglo-Saxon. This is not believed in France or Japan and many other countries. In Japan they had some of the highest growth rates in recent years and there industry was formed by the Government. As a result they have been able to exercise a much greater control over various measures because government has two crucial advantages.
The first is that it is the only body that can take the overall view of industry and see what is happening, not to Company A or Company B but to the whole of industry. In a situation in which plans are made so much further ahead than they used to be made, it becomes increasingly important that these ten to 15-year projections do not conflict between firms. The only arbiter in deciding whether it is right that a multi-hundred 543 million £ project—and that is the kind of scale about which we are talking—should be run by Company A or Company B, must be Government. This is the way so many industries are moving, towards these great decisions requiring the planning of ten to 15 years ahead. Government have to be fundamentally involved and have to make their decision in the light of the available knowledge.
The other reason why Government control will be increasingly important is simply that Government purchase so much of that which is produced in the country. Their rôle as a customer impels them to have some influence over the total economy within the country. These two aspects, long-term planning and Government's rôle as a customer, mean that there will be active intervention by Government for as long ahead as we can foresee. The important consequence of this, if it is true, is that active Government intervention will continue and that we must have what we do not now have—adequate parliamentary scrutiny. We must make sure that the moneys which Government is giving to industry come before some other body for that kind of scrutiny.
It is not particularly necessary to detail the kind of scrutiny required. There have been suggestions how this can be done by impartial bodies of one kind or another. We are continuing the search unnecessarily if we fail to realise that here in Parliament we have the ideal body which can question the decisions of the executive, can send for witnesses and make sure, not necessarily that the decisions are right, but that they are argued, that the Government Department concerned has to present its case and argue its conclusions.
I am sorry that the Chancellor has just left the Chamber because I was about to quote something he said. Perhaps the Minister of State might like to make a note. On 21st January this year he said:…one really should not make speeches when in opposition. Every time one is right it will be forgotten, and otherwise it will be lovingly disinterred at an appropriate future date.I do not want to disinter anything which I think will be a great embarrassment to the right hon. Gentleman because in the same debate he went on to say: 544…my vote will go along with those who wish to reform along something like the lines proposed by the Select Committee on Procedure."—[OFFICIAL REPORT, 21st January, 1970; Vol. 794, c. 538–552.]That was the debate on the White Paper on public expenditure and the Chancellor of the Exchequer went along with the scheme proposed by the Select Committee on Procedure.
How much influence will the right hon. Gentleman now bring to bear upon the Government in setting up this Select Committee, which I believe will be one of the most important innovations of this Parliament? If we are to get that kind of dialogue, then the solution on the lines proposed by the Select Committee will be enormously valuable. Bearing in mind the cuts proposed by the Government, it will be even more important that backbenchers have their say, not upon the proposed package deal at the end of the day but in deciding whether the order of priorities is right. This House will clearly want to object to a number of aspects in any expenditure cuts and, equally, there will need to be proper examination of the details.
Finally, a word about east of Suez expenditure and its effect upon our economic future. The one simple fact which I have tried to make throughout the past few years is that over the past ten to 15 years we have seen a fundamental change in our benefits and our costs in maintaining our relationship with the Commonwealth. If we look at the situation we can see that from a position when nearly half of our exports went to the Commonwealth the figure has declined in recent years to about 20 per cent. There has been a staggering fall in the benefits obtained from the Comonwealth. The graph shows the benefits falling steadily over the years. If on the same graph we draw a line showing the cost of maintaining that Commonwealth it will be seen that Government expenditure overseas has risen from £3 million in the inter-war years to £470 million. There are these two lines, one showing the benefit declining and the other the costs increasing.
This is an absolute nonsense and we cannot operate on these lines. We have to renew the argument which we thought was won, finished and done with. If the Government try to resuscitate this argument the inexorable facts will bring them 545 to the same conclusion as that reached by the last Government. The great tragedy will be the vast expenditure involved and the delay in the understanding of our proper rôle in the world today.
§ 6.10 p.m.
§ Mr. James Hill (Southampton, Test)
May I take this occasion to congratulate you, Mr. Deputy-Speaker, on your appointment.
It is with great pride that I rise to join this debate on economic affairs. I am proud to have been elected for Southampton, Test, but doubly honoured because it is the city of my birth. I believe it is the tradition during a maiden speech to refer to one's predecessor in a laudable manner. This presents no difficulties to me as I have found Mr. Richard Mitchell a good constituency Member, quiet, thoughtful, hard working and no doubt he will be sorely missed by his colleagues opposite.
While during the election campaign eggs seemed to by flying as thick as confetti in some areas, Southampton, Test was remarkably calm. Only one egg was thrown at me and, luckily, that landed on two young Socialists nearby who were heckling me. I emphasise that my Labour and Liberal opponents conducted their very similar campaigns in an exemplary manner.
The City of Southampton is a beautiful city, with over 300 acres of park and common land in its central areas, a progressive city waiting to burst into the 1970s with tremendous vigour. One decision which I am sure Mr. Speaker, as the Member for my sister constituency, will be delighted to hear—and I have only just been informed of it—is that Southampton City Council is proceeding with a bridge, to be called the Itchen Bridge, linking the southern ends of our two constituencies. It has long been needed. In due course, the council will be approaching the Minister of Transport for the necessary grant and loan sanction.
One problem for this city of the future which will not he solved overnight is the outline transportation plan which we shall definitely need by the mid-1970s. We need roads to carry not only the normal volume of city traffic but over 1,000 container lorries per day which pour into our docks. Increasing development of the docks, with £14½ million being spent on a modernisation and con- 546 tainerisation scheme, will mean increasing loads on our roads.
A great bone of contention is planning blight—inadequate finance and high interest rates which fall very heavily on the city—and, worst of all, fringe blight.
The situation is just as devastating for someone trying to sell a property in the shadow of a motorway as it is for the owner of a property right in the path of a motorway. Perhaps the Minister could be more generous with interest rates on the finances intended for purchasing property and land ahead of requirements so that the councils, too, can be generous in their decisions on whether to purchase in fringe blight areas.
One cause for alarm in the City of Southampton is due to the city being an integral part of the study report for the South Hampshire plan. While awaiting the final outcome of the structure plan, which is not due for some years yet, there is an element of stagnation in the city centre. To quote but one example, there has not been an office development permit issued for any development in the city since office development permits were implemented in 1967. In addition, there is an extremely severe shortage of industrial development certificates.
The South Hampshire plan, as most hon. Members will know, is a series of study reports interlocking with each other to produce a complex written report, very much like a huge jigsaw: there will be no complete planning picture until the last piece has been fitted. Then the diagramatic plan will be drawn. This means that very little can be done in the way of planning until the final result is available.
This has caused a great deal of alarm in the building industry in South Hampshire. There will not be enough land for even the normal growth in the next five years. One main stumbling block to the plan is that, for many years, inadequate local finance has been available for sewerage and services. It became apparent during the period that I served on the committee of the South Hampshire plan that all members and officers of the committee realise that the local authorities will not have sufficient finance to participate fully in the plan. Therefore, a top priority for the Government will be to provide the necessary additional finance.
547 The right hon. Member for Huyton (Mr. Harold Wilson), said that he would attack the housing programme as if it were a military campaign. I fully approved of that at the time. Unfortunately, for some obscure reason, the guns were turned on his own ranks.
I now wish to sound a note of alarm by quoting the latest figures released by the National Federation of Building Trade Employers. The building industry, which employs 7 per cent. of the working population, accounts for 20 per cent. of the unemployment. The shortage of building land in the private sector, the Land Commission, betterment levy, and selective employment tax, coupled with the difficulty of obtaining funds other than at an incredibly high interest rate, have dealt the building industry a fearsome blow, especially in the South.
I have before me a cutting from the Southern Evening Echo dated 1st July announcing that one of our major building construction firms, H. Stevens and Company, a well-known and well-respected firm in Southampton, was to fall under the hammer of the Official Receiver's auctioneers this afternoon. This is but one of many firms in the Southampton area, including several which have been building council contracts. I am pleased that the Minister of Housing and Local Government is already moving in the right direction. I am confident that he sees the building industry as a sector requiring instant resuscitation and that the Chancellor of the Exchequer will look favourably on the building industry to the extent of allowing at least the same priority in borrowing at the banks as, say, the export industry and will ensure a rapid release from selective employment tax. Who in his right mind would have called the building industry a service trade?
I am sure that no one would deny that most of our welfare and social problems stem from poor housing. For the young to be reared in substandard accommodation must, in a major way, be responsible for many forms of delinquency and the general increase in lawlessness. I plead with the Chancellor of the Exchequer to ensure that bank rates and mortgage rates are tied sufficiently together so that in the time element they move closer together.
548 As I believe that, in a maiden speech, one's interests should be stated, may I state my three loves. The first two will be housing and planning, due to my years as chairman of the Southampton housing Committee and being my profession. The third will be aviation due to my 11 years' service with the British Overseas Airways Corporation as an aircrew member during which time I flew out of Southampton on the Solent flying boats and also with the United Nations Organisation, with which I served a spell in Srinagar, Kashmir.
My fear is that the aircraft industry will suffer a similar fate to that of the building industry. It has been staggering over the last few years. What glorious ideas have been condemned!—the TSR2 at Boscombe Down, the HS681, the P1154 and the Beagle. In Southampton we have had the taking-over of hovercraft by the Official Receiver. We have also had the attempted crushing of independent airlines. The TSR2 would have had a world market, the same as the Canberra. The P1154 would have had a world market, the same as the Hunter, which is still being exported. We must also remember how successful the Lightning was.
Those are the things in which I am interested and in respect of which I hope I can be an asset to the House. I thank you, Sir, and the House for giving me the courtesy of your silence.
§ 6.20 p.m.
§ Dr. John A. Cunningham (Whitehaven)
Mr. Speaker, may I begin by expressing my thanks and appreciation to my predecessor, Mr. J. B. Symonds, for the tremendous job that he did at Westminster during the last eleven years? He worked diligently for the constituency as a whole and on behalf of many individual constituents. Latterly, as many hon. Members know, he has been troubled by ill-health. I am sure that hon. Members on both sides will join me in wishing him well in his retirement. After 50 years in public service at all levels he thoroughly deserves it.
Whitehaven is in the south and west of Cumberland and is quite diverse in nature. It covers an area of 350 sq. miles comprising agricultural land with small industrial communities based mainly on coal and iron-ore mining. It has, 549 for the last six years, been almost wholly a special development area. As its representative I shall be concerned principally with scrutinising the future regional policies of Her Majesty's Government. Indeed, as a special development area it has had preferential Government aid for six years. No one will suggest that in this time the many problems of areas like Millam, Cleator Moor, Whitehaven and Frizington have been solved, but whilst we had a Labour Government the foundations for progress were effectively laid.
Many of the small industrial communities are still fighting for survival, lacking many of the basic facilities of some of the more prosperous areas of Britain. I want the Government to give a vigorous commitment to even greater assistance for areas like my constituency, because it is only through the policies of the central Government that the problems will be solved.
Last year the northern region as a whole enjoyed the fastest rate of growth in public expenditure in Britain, but still the problems remain. So it is nonsense for hon. Gentlemen opposite to suggest that we will solve regional problems by reductions in public expenditure. This just is not possible.
People might ask—I can understand this—why the regions have a right to preferential Government aid. One of the principal reasons for the present plight of various regions is that historically their natural assets—coal and steel—have been taken away in a major contribution to the last economic and industrial revolution. But—this is the important point—the money made at that time was never reinvested in the regions. There has been a total neglect for decades in terms of public and private investment.
To add insult to injury, local people have been left surrounded by industrial waste and dereliction and they are now presented with the Bill for clearing up the mess. I suggest that the Government should give a commitment to providing the whole of the cost involved in the removal of industrial dereliction.
I must also express grave concern at the apparent lack of interest instanced by the failure to provide a Minister of State for Regional Development. Apparently, there was indecision yesterday at Question Time concerning Government 550 control of industrial development certificates. We heard some equivocal replies this afternoon on investment grants. Hon. Members representing constituencies affected by regional development have pointed out that this has been one of the major reasons for new industries moving to the regions. It is obvious that the Government cannot appreciate this point, because they have virtually no representatives from the areas affected.
I should also like to see a firm commitment to the continuation of the regional employment premium. This measure has enabled industries in the regions to reduce their costs and to become more competitive. Any Government which believes in the slogan "one nation", as we understand the present Government do, will give us these commitments to help solve the regional problems not only in terms of industrial development, but also in terms of education, housing, health and urban renewal.
We ask not only for more industries and jobs, but also for a better share of the jobs which will provide higher incomes to families living in the regions. One of the major problems facing local authorities is that, because of low family incomes, there is no local impetus for the growth of amenities.
I remind the House that Government policies between 1951 and 1964 had a remarkably similar effect—in the Northern Region, at any rate—to the policies employed there by William the Conqueror. At the end of 1964 Government spending on regional policies as a whole totalled approximately £19 million. In 1969 this had risen to £285 million, but still the problems remain and many more problems need to be tackled more vigorously.
Can we believe, in view of this, that a commitment to reducing public expenditure will give us the results that we desire? To be more specific, we have not seen enlightened capitalism, about which we heard so much, rushing to help communities like Millam. They just do not want to know. It is only through a vigorous Government policy of inducements that we shall achieve industrial development in these areas.
As a scientist, I am sure that the new technologies which are coming will exacerbate these problems in the regions. Many of the difficulties that we already 551 know will get worse. A more balanced economic development will not only aid regions like West Cumberland, but will also aid Britain as a whole. It is no accident that the community problems in the South-East and the West Midlands exist because people are afraid of overcrowding and of uncontrolled urban development. It is these very problems which, on the one hand, give the South-East a kind of pot-bellied economic affluence, whilst, on the other hand, the Northern Region in particular goes through a kind of economic Biafra. We shall be looking to this Government to reverse these policies.
I believe, as has already been said this afternoon, that in a rapidly changing industrial democracy it will be essential for any Government to intervene in industrial development and to give a commitment to ensure that we have a more even development in future than we have enjoyed hitherto.
I appreciate the traditional reception of a maiden speech from both sides of the House. I look forward in future to speaking on regional matters, on education, in which I have some experience, and also on science and technology.
§ 6.30 p.m.
§ Sir Gerald Nabarro (Worcestershire, South)
It is rare for a Member of this House to rise and be afforded the opportunity of congratulating two immediately preceding speakers, both of whom were maiden speakers: first, my hon. Friend the Member for Southampton, Test (Mr. James Hill), and, second, the hon. Member for Whitehaven (Dr. Cunningham). On behalf of the whole House, I am privileged to congratulate both hon. Members on splendid maiden speeches—my hon. Friend upon the fluency when he delivered his speech; the obvious sincerity, the wealth of practical experience derived from aeronautics, from building and from property which have characterised his career during the last 30 years, and I recall with the greatest pleasure an occasion nearly four years ago now when I accompanied him on a public platform in the city of Southampton and we debated and talked of these important matters. To the hon. Member for Whitehaven, may I express the hope, as I do to my hon. Friend, that the House will listen to him on many future occasions, 552 not, I fear, in the silence with which he has been listened to today, though we shall all no doubt benefit by his long experience of scientific and technological matters.
I am sorry that neither of the principal spokesmen on economic and financial affairs is now in his place, either my right hon. Friend the Chancellor of the Exchequer, or the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), the Shadow Chancellor, for I shall wish to come at once to a few comments which I wrote down verbatim of the right hon. Member for Stechford, including his comment that my right hon. and hon. Friends in the Conservative Party at the hustings were guilty of "trumpetting the catalogue of election promises".
There are two election promises which I voiced loud and clear. They may be called trumpetting; I do not know, and I care not a jot. The overwhelming majority of the electors of Worcestershire, South take my view about these things, for they accorded me a majority larger than my wildest dreams.
§ Mr. Norman Buchan (Renfrew, West)
A bad dream.
§ Sir G. Nabarro
It may be bad in Scotland with a slender majority in an archaic constituency, tiny in geographical size, for which the hon. Gentleman sits. His and several more with it will be amalgamated before the next General Election when we put an end to the boundaries fiddle. In Worcestershire, South the overwhelming majority of electors were concerned with two issues, and to these issues I address myself today; first excessive taxation and, second the dangers of rapid inflation.
Never in a Queen's Speech in my time have a Government assuming office promised to reduce taxation. There is no precedent for it, and I was therefore delighted today to hear the Chancellor of the Exchequer say in unequivocal terms, on two occasions, first at Question Time and again during his splendid speech in opening today's debate, that the Conservative Party proposed to carry through at an early date precisely the taxation reforms and reductions that were referred to in its election manifesto, and my right hon. Friend went much further. Again in my experience I have never heard a 553 Chancellor of the Exchequer read his own party's election manifesto on taxation and say, "This is what I am going to do". He reaffirmed that today. There were a few jeers from hon. Gentlemen opposite, but they were somewhat dismayed to hear my right hon. Friend say it. I am delighted, because the reduction of taxation today is the essential precursor of economic and financial recovery. Without a reduction of taxation and reform of the preposterous taxation system under which we all suffer there can be no lasting recovery.
The right hon. Member for Stechford went on to jibe at my right hon. Friend the Prime Minister's reference to devaluation, and he referred—I doubted whether it was in order from a parliamentary point of view, but the Chair did not interrupt the right hon. Gentleman, so I accepted it—to the Prime Minister's behaviour during the election as being discreditable. That was the word he used and which I wrote down; it was discreditable because my right hon. Friend talked of devaluation.
I want to tell the House why my right hon. Friend and I talked about devaluation and the prospects of devaluation in the unhappy event of a Labour Government being again returned. I did so because of the banner headlines in the Sunday Express, 7th June, 1970, a paper of impeccable accuracy. In order to be certain that I was word-perfect I sent to the Library and caused them to copy the headlines. The Sunday Express of 7th June, 1970, said:Election Bombshell—'Economy in Peril'.by Mr. Don Perry:I can reveal that when Mr. Richard Crossman, the Social Security overlord, told the doctors he was slashing the Kindersley award, the reason he gave was that the Government had to consider the impact of the award 'in a period of extreme economic peril'.That speech was delivered to the doctors at Redditch, Worcestershire, a few hundred yards from the northern boundary of my constituency. It is not unnatural, therefore, that I should interpret "economic peril" as being a suggestion that in the event of a Labour Government securing a further term of office there was a possibility, an offside chance perhaps, that should the economic climate decline it might lead to devaluation. I said so, my right hon. Friend the Prime Minister 554 said so, and both of us were right to say so.
There was nothing whatever of a discreditable character in either my right hon. Friend the Prime Minister or myself declaring that a Labour Government was the high road to a further devaluation of our currency—
§ Mr. Eric S. Heffer (Liverpool, Walton)
What about motor taxes?
§ Sir G. Nabarro
I might talk about motor taxes in a moment. I love talking about motor taxes, but at the moment I am talking about devaluation, and the hon. Member for Liverpool, Walton (Mr. Heffer) should listen to the words of wisdom. Three times in his lifetime our nation has suffered the calamity of sterling being devalued—first in 1931 under a Labour Chancellor; second in 1949 under a Labour Chancellor; and third in 1967 under a Labour Chancellor. It has never happened under a Tory Chancellor. We manage our affairs rather better as Tories.
§ Mr. Heffer
What about the social services?
§ Sir G. Nabarro
I shall give way to the hon. Gentleman if he wishes to interrupt, but would he please refrain from bawling at me from a sedentary position?
My right hon. Friend today was absolutely right in focusing the attention of the House upon the absolute need for honouring the obligation given to the electorate and clearing S.E.T. off the Statute Book, first, because it is a ridiculous and inequitable tax, and, second, because it is the most inflationary of all imposts. The abolition of S.E.T. will do more to stabilise prices than any other tax reform, and it is futile hon. Gentlemen opposite nodding their heads in dissent because they heard it said at Question Time today that it raised retail prices by only a small margin. What they all forget is the huge administrative cost of collecting it.
§ Mr. Elystan Morgan (Cardigan)
Does the hon. Gentleman accept that the cost of collecting S.E.T. is the lowest cost for the collection of any tax?
§ Sir G. Nabarro
No, I do not, but I shall talk about that on the Finance Bill. The hon. Gentleman is utterly wrong. The lowest of all, properly 555 framed, is a value-added tax. [HON. MEMBERS: "No."] Yes. It is merely a form of general sales tax. The hon. Member who sneers at me should go away and study the value-added tax, which is a general sales tax in its purest form. He will then learn that it is far away the easiest and cheapest tax to collect. I shall not be deflected from my argument.
When the hon. Member for Ashton-under-Lyne (Mr. Sheldon) launched into his 30-minutes speech, pontificating about growth in academic terms, he failed most scrupulously, as always, to define how he would achieve the growth. He never tells us that growth is dependent upon industrial investment in the private, repeat private, sector, and that industrial investment in the private, repeat private, sector rests wholly upon the aggregation of personal and corporate savings. [Interruption.] The hon. Member laughs and sneers. He may laugh because he finds these words funny. Let him go away and ponder on what I have said once again—that the aggregation of savings is the only financial sinew for investment in the private sector; the money should never come from anywhere else—only from savings.
It is to savings that I wish to apply myself, because the word does not mean—as members of the Labour Party think it means—only National Savings Certificates. When the Tory Party came into office in 1951 personal savings were approximately £200 million a year. When the Tory Party went out in 1964 personal savings were approximately £2,100 million a year. They had multiplied ten-and-a-half times. That is the aggregation of personal savings. If we are to succeed in that policy in terms of the windy platitude delivered by the hon. Member for Ashton-under-Lyne—"a period of growth "—we have to get a comparable rate of increase in personal savings year by year, which means multiplying it in the lifetime of this Parliament by at least five or six times.
I want to tell the Chancellor approximately how I suggest he should do this. First, by increasing greatly the present limit of National Savings Certificates permitted to be held. I shall deal with public savings first. He should increase 556 the maximum level permitted for National Savings Certificate which at present is at the ridiculously low level of £1,500. It should be £5,000. Second, he should raise the much too low level of save-as-you-earn contracts—at present £10 per month or £120 a year for a maximum of five years, or £600. I say that the maximum figure should be one that will yield approximately £50 a month—a maximum of £600 a year over a savings contract of ten years, or equal to £6,000. all interest-tax-free.
Third, the Finance Act, 1956 allowed Maximum pensions for the self-employed at a tax-free investment of £750 a year. That limit should be lifted to £2,000 a year in order to adjust for the loss in value of money for the 14 years that have passed since 1956, and as further encouragement. That means amending the Finance Act of 1956.
Fourth, the Chancellor should amend the pre-war Act which provides—and this is the greatest single pool of personal savings in Britain—that the tax relief on a life endowment policy is 3s. 6d. in the £, up to a maximum of one-sixth of personal income. That is hopelessly out of date.
§ Sir Harry Legge-Bourke (Isle of Ely)
§ Sir G. Nabarro
I am glad to have the support of my hon. Friend the Member for the Isle of Ely (Sir H. Legge-Bourke). That Act was enacted 35 years ago, when money values were about one-third what they are now and taxation was about one-quarter of what it is now. To put that right and encourage the growth of life endowment policies, in my judgment, entails raising the maximum relief to 7s. 6d. in the £ up to a maximum of one-third of personal earned income annually, thus encouraging substantial investment by individual persons.
Fifth—and I consider that this probably appeals only to hon. Members on this side of the House—the Chancellor should rectify the appalling injustice done by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) in 1962, when he submitted to my blandishments for a reduction of surtax and raised the commencing level of surtax, on earned income only, to a figure of £5,000 but left what was called unearned income at a commencing level of £2,000. This 557 latter is not unearned income at all; it is invariably the income of a lifetime's savings and resultant investments.
The last Chancellor has adjusted the commencing level from £2,000 to £2,500, and I was grateful for that crumb of comfort, but I want to see both earned and unearned income subject to surtax provisions about £6,000, thereby giving an added incentive of £3,500 of income—from £2,500 to £6,000—for those who are at present paying surtax on so-called unearned income.
My sixth and final point concerns capital gains tax. That is probably the most expensive of all taxation to assess and collect. I have no personal animus against it, because it is so easily avoided. I avoid it whenever I want to. But the cost of collecting it is fabulous. I was privileged during the election campaign to deliver a speech to 700 journalists, bankers, merchant bankers, investment analysts and stockbrokers. The hon. Member for Renfrew, West (Mr. Buchan) sneers and coughs. One thing is certain; he would never address anybody on money. He does not know the difference between a threepenny stamp and a drum of oil. The conference that I was addressing was the Second Unit Trust and Money Management Conference on 9th June, 1970, at the London Hilton Hotel. I made the point—[Interruption.] It is a hotel in Park Lane, London, with accommodation for 700 people at conferences.
§ Mr. Dick Douglas (Clackmannan and East Stirlingshire)
I did not want to interject, but I am interested in the audience that was listening to the hon. Gentleman. If I could use his good offices to obtain an invitation I should be willing to speak to those people.
§ Sir G. Nabarro
Perhaps so, but I do not suppose that they would ever invite the hon. Member. I responded to an invitation; I did not go there on any other basis. I delivered a speech on legislation and investment, and I had occasion to draw attention to the fact that the aggregate investment in unit savings, all of which is private and personal savings—and this is well known to my hon. Friend the Minister of State at the Treasury, due to his activities in the Wider Share Ownership Council—£1,500 million in unit trusts, is all subject to the 558 provision of capital gains tax. So, two or three times a year a dividend warrant is sent out to all small investors. For example, my daughter, aged 15, has a few unit trust units, I looked at her dividend warrant the other day and saw beneath the amount of the dividend was expressed the amount of capital gain on those units, which was expressed, believe me, to six places of decimals of one penny. [Interruption.] There is someone outside the House cheering that statement. I am glad to see the hon. Member moving on to the benches now. It may be funny to him, but the amount of work that capital gains duty involves for accountants, lawyers and business and professional men everywhere in calculating tiny sums of money in order to yield out of £14,400 million of tax revenue this year £150 million, or 1.03 per cent. for capital gain duty, is immense. That percentage is all it is worth. I say that the Tory Party would do well to sweep away this form of taxation.
Those are my thoughts on taxation reductions. That is what the nation wants and I am sure that the nation will get it. I am equally sure that it will be very disagreeable for the Labour Party, because the Labour Party is eternally the party of increased and increasing taxation. The Tory Party is eternally the party of reduced and reducing taxation, and the Tory Party will honour its promises and secure a second term of office in the 'seventies with a much larger majority, on that account, than it has this time.
§ Mr. Speaker
Order. I again remind the House that many hon. Gentlemen wish to speak. Reasonably brief speeches will help.
§ 6.52 p.m.
§ Mr. Joel Barnett (Heywood and Royton)
Hon. Members will now understand why the hon. Member for Worcestershire, South (Sir G. Nabarro) got an invitation to the London Hilton. It is clear that they needed a comedian. Once again, in his own inimitable style, the hon. Gentleman told us how delighted he was with the tax cuts which are to be announced, he says, by the Chancellor. I wonder whether he will be quite as pleased when we have the compensating tax increases which the Chancellor did not deny when I put it to him today. I 559 said that there would be replacement of S.E.T. with an employment tax and that a value-added tax will be more inflationary, to say the least, than S.E.T.
One recalls with interest what the hon. Gentleman used to say about the anomalies of the purchase tax system. One will be interested to see how he will react to the anomalies which will inevitably arise from a value-added tax with the sort of exemptions which were suggested when the present Government were in opposition. On his other proposals, an increase in the amounts allowed for National Savings Certificates, as he suggested, could have only one result—a switch by surtax payers from one form of savings to another. To talk about this increase in life insurance as a method of getting an enormous increase in savings, by increasing the proportion from one-sixth to one-third, is absurd. One has only to imagine a man on £3,000 a year suddenly deciding to spend £1,000 a year on life insurance premiums to get increased savings. He would not have much left to live on.
As the Chancellor said, economic facts have not changed with the change of Government. Whether we have an economic crisis or not is not relevant now that the election is over and the Government have taken as much advantage as they can from the situation which they were able to exploit. The definition of the word "crisis" has now been changed by the Chancellor. He made somewhat heavy weather of it when he described it not as an economic crisis but as "serious economic trouble"—incidentally, not sufficiently serious to warrant any action now.
I certainly accept the economic facts and I am not prepared to quibble about the fact that there is not a satisfactory rate of economic growth. The first quarter has certainly been bad. My right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) is probably right that we are now moving to perhaps the level of growth for the rest of the year that he forecast in the Budget—3 per cent.—but that is still far from satisfactory.
I am equally satisfied, on another economic fact, that the level of unemployment is far too high and has been too high for far too long. I am equally satisfied on another economic fact that 560 investment is too low and has been too low for a very long time—[Laughter.]—for many years, including years when hon. Gentlemen were in government before that. I am equally satisfied that the present level of wage-price inflation is higher than it has ever been, but apart from this question of inflation, which is an international problem, all these other economic facts have been with us in varying degrees for many years.
If this is a crisis in that sense, of course we have had a permanent crisis for a very long time. It is rather silly to labour the point about whether or not we have an economic crisis. It all depends for its importance on the success that the Government will have in handling economic growth. All politicians pay lip service to economic growth when they are in opposition and before they become Ministers. This has happened for a long time and no doubt will go on.
Certainly, the present Chancellor was no exception. He will deserve the congratulations of the House and the country if he can achieve the levels of economic growth which are implied in every one of his speeches over recent years—[An HON. MEMBER: "Hear, hear."] The hon. Member says "Hear, hear," but in the past the major reason for the failure to achieve economic growth has been the priority given to the balance of payments, the need for debt repayments, the parity of the £ and short-sighted policies on investment.
The omission from the Gracious Speech of every one of those items may be significant, but speeches during the election and before the election—for years in this House before that—certainly do not give one great hope that those priorities will be changed. Indeed, much greater emphasis was placed on every one of those items by the present Chancellor even than by my right hon. Friend.
We heard again today of the enormous burden of debt repayments, with the clear implication of the need to repay them much faster. If that is not the implication, I should be glad to hear it from the Minister of State. But if it is, what effect will this have on economic growth? If there still is the same priority for the parity of the £ at all costs, again, what effect will this have on economic growth? If the Prime Minister is right 561 in what he was saying before and during the election, and only last week in the House, about the trend of balance of payments, which must be reversed, so that we get back to achieving something like a £700 million surplus, which he once referred to in this House, I am afraid that the Chancellor will not have much prospect of achieving the sort of economic growth on which alone his policy will succeed.
Again, for years before the election, the Labour Government were criticised for the restrictions which were placed on capital outflow abroad through corporation tax and other fiscal measures. We were told about the need to increase that outflow. If they continue this, what will be the effect on balance of payments, and what, again, will its effects be on further economic growth?
What would be the economic effects of the absurd policy of reversing everything that has gone on in recent years in the field of Defence, for example, by returning again to a military policy east of Suez, with the inevitable increases that that would mean in terms of costs across the exchanges?
Neither the speeches made from the Government Front Bench nor the Gracious Speech lead one to hope that the Chancellor is likely to achieve the target he has set himself for higher economic growth. Indeed, I detect already the cautious hand of the Treasury being placed on the Chancellor. When he said earlier "It is premature to take action to stimulate demand", that remark came strange after all that we have heard from the right hon. Gentleman in recent weeks and months.
I wish to make it clear that the Chancellor is, of course, right to wait and to give careful consideration before embarking on any tax reforms. Nobody expects him to come forward with tax reforms overnight. However, the right hon. Gentleman said that the economic position showed an unhappy situation and that everything that he and his hon. Friends had said about the economic position indicated that it was bad. I have agreed with him from the point of view of stagnation or "stagflation", as he called it, and on unemployment and investment. All these things are bad and we want to know why the right hon. Gentleman is not acting immediately on these issues.
562 The Chancellor need not wait to introduce a Budget next April to deal with these sort of matters. He could deal with them now. Why is he not doing so? If we do not have an economic crisis but serious economic troubles—and I agree that we have them—why is he not using the regulator? Why does he not, for example, relax hire purchase and relax domestic credit expansion? What is he waiting for—or has he already succumbed, as I fear, to the hand of the Treasury?
Is he accepting what was said in the Green Paper "The Task Ahead" about the underlying potential of productivity being between 3 per cent. and 3½ per cent. and is he therefore restricted to that? If he does not accept that, why is he not making a start to achieve the higher level of growth about which he has spoken so much?
The longer the right hon. Gentleman waits the more he must inevitably lose—the thousands of millions of £s that we have lost in recent years—in terms of lost economic growth. If he delays, he will be faced with a situation of further heartbreak for months longer of people unemployed, particularly in the development areas. My hon. Friend the Member for Whitehaven (Dr. John A. Cunningham) and my hon. Friend the Member for Sedgefield (Mr. D. Reed) spoke graphically on this subject in their maiden speeches.
The right hon. Gentleman has made many fine speeches about the level of unemployment in recent years and I have always listened to him with great respect. However, if the tears he was then shedding were not crocodile tears, then he should take the action that is open to him now to deal with these matters.
Apart from these actions, which I believe he could take now, there are two further policies he could follow, relating, first, to wages and prices, and, secondly, to investment. On wages and prices, my advice is that he should ignore the enormous amount of advice that he is getting, ranging from the O.E.C.D. to the Economist, and particularly the latter. It is easy to rehearse the statistics about the level of wage and price inflation that we have had and are experiencing now. It is less easy to show precisely how to deal with it.
563 We saw an example of this in the Chancellor's speech today. I was happy to hear that he will not try to implement legislation on wages and prices. At best, legislation on wages in recent years has held wages down by perhaps 1 per cent. and I am doubtful even of that.
It seems that the right hon. Gentleman will try to persuade the public sector to hold back its wages, though I do not know what sort of actions he has in mind. If, for example, he is proposing to tell the miners that they cannot have a wage increase and Lord Robens that he cannot have any price increases, then the effect of that on the economy would not be likely to be happy. I should have thought that the chance of any miracle occurring for success in the sphere of prices and incomes is remote. The most that the right hon. Gentleman might achieve is a small effect. He should accept with pleasure the offer made by Vic Feather to co-operate in voluntary wage restraint. This the only way of achieving even a modest degree of success on this issue.
Be that as it may, I hope that the right hon. Gentleman will take urgent action on industrial investment, because it here that we have fallen down for many years. When we talk of what Governments can do in this sphere, we are speaking of action on the margin, because, in the main, companies will invest because they think a profit will result; and anything else we do can have only a marginal effect, though an important one.
A genuine argument can be adduced about investment grants and investment allowances. Some companies prefer one to the other. But as my hon. Friend the Member for Sedgefield pointed out, in the development areas new companies often do not make large profits, if they make a profit at all, in the early years, so that investment allowances are of no use to them. The last available official report on the incentive effect of investment allowances did not lead one to conclude that they were a useful method of providing incentive. A number of people with whom I have spoken in industry say that the last thing they want is big changes in this whole sphere of investment allowances and grants.
564 I agree that the larger companies were not happy about the switch from using the Inland Revenue in dealing with allowances to the Board of Trade and there were many administrative problems. However, the change has now been completed and is working more smoothly. If we are now to have a period of perhaps six months of great uncertainty, that could have a disastrous effect on the level of industrial investment for some time.
We can no doubt in the future have a debate about investment allowances or investment grants, but for now the important thing is to have an investment allowance which is reasonable, in terms of incentive effect on the margin, and which does something about cash flow. The worst of all worlds would be to have uncertainty, and I hope that the Chancellor will take an early opportunity—I trust that he will do this before we rise for the Summer Recess—to put those concerned out of their feeling of uncertainty and let them know precisely what sort of investment policy the Government propose to pursue.
A kite has recently been flown about scrapping grants, with the idea of announcing a certain date for their abandonment, resulting in an immediate rush to buy new plant. If the Government intend to deal with their policies properly and definitely, they must agree that to implement this idea would mean government by gimmick and would represent hardly a satisfactory way of dealing with the problem.
Regular variations in rate, to which my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) has referred from time to time, may remind companies of the incentives which they frequently forget, but to cancel all incentive grants in the hope of getting a big rush to replace equipment would seem a crazy way of setting about obtaining increased investment.
To begin with, the manufacturers of machine tools could not cope with it in the few months that would be available, and there would be an enormous flood of imports of machine tools. We are getting enough being imported now, when one thinks of the incompetence of many of the machine tool manufacturers in this country.
565 Whatever happens later to the level of investment, I accept there may well be an argument for a smaller level of investment allowance later. In the United States they have had as little as 7 per cent. tax allowance and it has worked in some ways quite satisfactorily. Certainly, when it was taken off there was a tremendous outcry. But if we took it off here very quickly there would be a grave problem of cash flow unless the Chancellor intends, with all his other tax cuts, to cut corporation tax as well.
If that is his intention, it is worth while knowing what he has in mind but, for the present, I should have thought that one of the things he could do very quickly, in view of the surplus available from the cautious Budget we had, would be to bring forward the date of payment of investment grant. That would put money into the hands of the companies which have invested in the past and which are more likely to invest for the future—companies of the type that need these funds. I hope that the right hon. Gentleman will think very seriously about bringing forward that date.
In the past, Governments of all parties have nut private industrial investment very high in their speeches but low in actual priorities, because it does not bring dividends quickly enough in the election cycle. It is part of the price we have paid over many years for democracy, but the level of investment has been too low, and largely for that reason: because Governments of all kinds have wanted to do other things first.
If the Government mean what they say, and wish to be judged by actions and not by words, this is the ideal area in which action is vitally needed. Our hopes of obtaining investment-led growth should not be disappointed if we are to believe all the Chancellor's speeches, but I very much regret to say that from his speech today, and certainly from the Gracious Speech, it looks as though our hopes are likely to be dashed.
§ 7.12 p.m.
§ Mrs. Elaine Kellett (Lancaster)
I crave the indulgence of the House for any sins of omission or commission in this my first speech here. First, I pay tribute to my predecessor, Stanley Henig, who served here for four years. Among his 566 other interests, he was particularly devoted to the cause of comprehensive education.
As a Lancashire woman, I am particularly proud to have the honour to represent the ancient and historic city of Lancaster, set, as it is, in delightful and very well farmed countryside in the Lune valley. In addition to its own attractions—the ancient castle and the lovely priory—it is close to the Lake District and to Morecambe, and now, with the motorway, it is very close to London in terms of time. I commend it to all hon. Members who want a thoroughly restful holiday away from the stress and strain and the excessively hot pavements of London.
I wish to refer particularly to that passage in the Gracious Speech which speaks of the need for…a steadily growing national income…in order to improve the social services. I refer particularly to the needs of the elderly. I believe that the direction of our services for the elderly needs to be altered steadily away from the provision of residential homes to the extension of community care and the expansion of voluntary services. If this were done it would, in many cases, enable people to live happily in their own homes for perhaps ten or 15 years longer than they now can before moving towards the end of their lives into residential homes.
Some needs—for example, the provision of sheltered housing—must be met mainly by the local authority, although many other voluntary associations, such as the Abbeyfield Homes and Help the Aged, are here making a valuable and steadily increasing contribution. But some needs can best be met by voluntary organisations or by co-operation between local authorities and voluntary organisations, especially as, since the National Assistance Act, 1948 (Amendment) Act of 1962, local authorities can now give financial aid to such organisations. We need many more day centres, more meals on wheels, more home helps. Most of all, we need more information about what is needed, and who needs it.
One of the biggest problems facing local authorities and voluntary organisations trying to help the elderly is lack of knowledge of the extent of the problem or the whereabouts of those who desperately need help. Far too often, and particularly in the biggest cities, it is only when 567 an old person has become a case for hospital treatment that the need comes to the notice of those who are able to help, and by then it is all too often too late. It is an almost incredible fact that the latest national statistics available on the whereabouts of the elderly are contained in the 1961 census returns, and no one, not even the local authority welfare services or the Ministry computer knows the size of the problem. Such knowledge as we have is hopelessly fragmented.
In 1965, a limited sample survey was undertaken into the financial and other circumstances of retirement pensioners, but only 9,000 pensioners were actually interviewed. From this sample it is estimated that 360,000 people would like, but are not at the moment getting, the meals on wheels service, and that 350,000 people would like, but have not got home helps. A frightening article in the November-December issue of the Royal Society of Health Journal estimated that 30 per cent. of older citizens suffer from malnutrition. In the past month, in my constituency, where there is much happy co-operation, I am glad to say, between town and gown, a group of students from the university did a sample survey which highlighted the difficult situation in which many elderly people live today.
This is not merely a question of cash. Many people, particularly men who lose their wives in the late sixties or seventies, resort to the frying-pan, and cease to have balanced meals even when they can afford them. I should be the last person to wish to compel any elderly persons to disclose their whereabouts, or even their need, to anyone against their wishes, because I am passionately opposed to prying into other people's lives. I know many old people, especially in the north, are very proud of their independence and do not wish for help from anyone. On the other hand, there are very many people who simply do not know of the help that is available to them while, conversely, many who wish to help simply cannot locate those in need. There should be some simple means whereby all elderly people who wish it can be put in touch with the services that are available to them.
The need is urgent—very urgent. The old people's welfare committee in one Lancashire town has compiled a register 568 of all elderly people in need of or wanting visits, help or meals on wheels. This has been done with the unofficial help of the local office of the Ministry of Health and Social Security, and I am sure that many more local offices would be more than happy to co-operate in this sort of thing with the full consent of every individual concerned if they were officially allowed to do so.
It would be a simple matter for my right hon. Friend the Secretary of State for Social Services to ask all his local offices to co-operate with the local welfare organisations or, indeed, with the accredited local voluntary services, in obtaining the whereabouts of anyone wishing any of the services which either the local authority or the voluntary organisations can supply. This could be done by means of a prepaid postcard given to all new pensioners—including, of course, the over-80s when, in the very near future they get their pensions—and to all pensioners when there is a general review of pensions. There is no shortage of people willing to help if only they know who needs help and what to do for them. Accurate information, nationally and locally, is the first and vital essential in enabling us to organise our resources and to ensure a happy old age for those who have so richly earned it by their past labour.
I thank the House for its gracious, kind and quiet reception of this speech.
§ 7.21 p.m.
§ Mr. Gerald Kaufman (Manchester, Ardwick)
It is with singular trepidation that I ask the indulgence of the House this evening because for the past five-and-a-half years it has been my lot to earn my livelihood in this Palace and I am particularly conscious of the high standards expected of an hon. Member. Like the hon. Member for Lancaster (Mrs. Kellett), the compassion and eloquence of whose speech I greatly admired and envied, I have sought election to this House for many years. Therefore the fact that I have now achieved it is for me a signal and great honour.
It will be understood when I say that that great honour conferred on me also involved for me a sense of loss because, since 1964, I have worked in this building in the Press Gallery premises which enabled me to share a friendship and camaraderie unique in journalism. In 569 experiencing that loss I have a consciousness of having gained something through fellowship and friendship of people whose services to this House and services to Parliament are as great as those of anyone else who works in this building.
I come here as the representative of the Ardwick Division and I succeed in that representation Alderman Leslie Lever, who gave the citizens of Ardwick fine service in this House for 20 years. In the House of Commons Leslie Lever was a familiar character, greeted with affection on both sides of the House. That was in this House, but in Manchester Leslie Lever is something very much more. In Manchester, and particularly in Ardwick, he is a legend. Go down any street in the Ardwick constituency and one will hear a dozen affectionate stories of the way in which he discharged his political duties. Go down any street in the Ardwick division and one will hear about other activities given less publicity, activities on behalf of the very many people who came to him with their problems, people to whom he gave very great service. Few hon. Members, I think it true to say, have been so deeply loved in their constituencies as Leslie Lever has been. He no longer has a place in this House, but he has a permanent place in the hearts of those he served for 20 years.
The Ardwick division which I come here to represent is in my view one of the most interesting constituencies in Britain. It is a hard-working constituency. Historically it has been a railway constituency and today it is intersected and bisected from one end to the other by inter-city railway lines. Perhaps hon. Members may not know that it is a constituency of considerable architectural distinction. It is very richly endowed with places of worship for many denominations and people of many religions. The places of worship range from the elegance of the early Victorian Anglican Church of Holy Trinity, Platt Lane—one of only three churches in this country built of terra cotta—to the modern Roman Catholic St. Roberts, Longsight, which has just been opened by the Bishop of Salford, which is striking in its modernity but very moving in its religious atmosphere.
Ardwick provides not only spiritual sustenance but bodily sustenance to those 570 who visit and live in it. It has a number of restaurants of national standard. Among those is an oriental restaurant, the Manzil, described in the Good Food Guide as the best in the provinces. It contains Belle Vue, the most popular amusement centre in the north of England. It contains Manchester Grammar School. But the constituency also has some of the worst housing conditions in the whole country. I am sorry to say that if there were a Top Twenty list of constituencies of England with housing most unfit to live in, Ardwick would qualify in that top twenty.
The 1966 census showed that in Ardwick 21 per cent. of the homes had no hot water tap, 31 per cent. had no fixed bath and 46 per cent. had only an outside water closet, while only 41 per cent. had exclusive use of a water tap, a fixed bath and an outside water closet. These are cold statistics. For the human reality behind them I shall describe what life is like there today, 7th July, 1970, for one family in Great Nelson Street, West Gorton, Manchester. This family's home consists downstairs of a front room and kitchenette, and upstairs of two bedrooms. It has an outside lavatory in a tumbledown decrepit backyard and, almost needless to say, it has no bathroom.
In the back bedroom sleep the householder and his wife. In the front bedroom in six narrow beds seven children sleep, six boys and a girl, whose ages range from 14 to 2½. Also in that bedroom sleeps those children's grandmother who lives in another part of Great Nelson Street in a house which is unfit to sleep in. Downstairs in the front room there is a bed settee used for sleeping in by the householder's sister-in-law and her husband who also live in another part of Great Nelson Street and whose home is unfit to sleep in. This house provides daytime accommodation for nine people and sleeping accommodation for 12. But overcrowding is only one of the problems of this house in Great Nelson Street. It is not simply damp, but so riddled with water that it is sodden. One of the ceilings sags alarmingly and paper hangs in strips from the walls and peels from the ceilings of the various rooms.
The housewife is a house-proud woman. Not long ago she spent £30 on buying a 571 new carpet and that carpet is already ruined. Last year she went to some expense decorating the front bedroom. It is impossible to believe that it was done this century. The colour scheme now consists of huge, livid, virulent blotches on the walls and it looks like a room in a plague house. In a sense it is a plague house for it has suffered in recent weeks from infestations of rats and cockroaches. In the narrow back alley behind the house are piled quantities of garbage. When the local authority sent dustmen to see whether this could be taken away, its appearance and nature turned their stomachs.
In 1870 such living conditions would have been unacceptable; in 1970 they are an abomination. Yet the lady who lives in this house has no idea when she will be rehoused. I have been in touch with Manchester Corporation and have asked when it hopes to rehouse her, but I have had no reply at all. I regret to say that under its present control Manchester's rehousing programme has been painfully slow and inadequate. There is little prospect of many thousands of my constituents having a decent home for a long time to come. In the first five months of this year in the great city of Manchester only 344 new homes were completed. We note with great attention and concern the passage in the Gracious Speech which saysMy Ministers will pursue a vigorous housing policy with the principal aim of improving the position of the homeless and the badly housed.We trust that this will compel Manchester Corporation greatly to improve its performance and to provide decent homes for my constituents, but we also wait with apprehension the effect of another passage in the Gracious Speech:housing subsidies will be refashioned so as to give more help to those in greatest need.In Manchester those who have been lucky enough to be rehoused are having to pay rents which are already far too high and which many of them cannot afford. A further increase is already scheduled for this autumn. It was postponed from earlier this year, for reasons which it would be inappropriate to mention in a maiden speech.
Earlier today the Chancellor of the Exchequer spoke about the need to con- 572 tain price rises. I suggest to him that there are two ways in which he can deal with a particular price rise. The first is by taking his hands right off the housing subsidies, because the record Labour housing subsidies have still not stopped Manchester Corporation and other corporations from increasing their rents. The second is by continuing the legislation regarding the control of increases in rent which the Labour Government brought in and which is now under threat.
The Ardwick constituency has many other problems and many other interests in addition to those to which I have referred. There is the wider question of amenity to which the Rusholme and Fallowfield Civic Society has directed its attention. There is the grave menace of strife in Ireland, which is of the greatest concern to many thousands of my constituents who were either born in Ireland or who have relatives in Ireland. In future debates I hope to have an opportunity of discussing these other important matters.
But today, on the first occasion on which I have the honour of addressing the House, I thought it right to address myself to the problem which has overriding importance in the minds of thousands of those who sent me here to represent them—the problem of how to live decent lives in decent homes in decent conditions for themselves and their families.
§ 7.31 p.m.
§ Mr. John Hall (Wycombe)
It is one of the more delightful traditions of the House that it affords me on this occasion the opportunity of paying a compliment to two maiden speakers. It is one of the very rare occasions when I can venture to speak with the approval of the whole House and say that we compliment them both very highly on the quality and the content of their speeches.
My hon. Friend the Member for Lancaster (Mrs. Kellett) is no stranger to me. Indeed, on previous occasions I have appeared on the same platform as herself, which probably accounts for the fact that she has been rather longer in getting to this place than would otherwise have been the case. Now that she is here we welcome her very much. I know that the whole House listened 573 with great attention to what she said about the serious and difficult problems of the elderly. We look forward to hearing her on this and on other subjects in the future.
The hon. Member for Manchester, Ardwick (Mr. Kaufman) spoke with a fluency which I confess that I envy. I am sure that the whole House will wish me to congratulate him both on his fluency and on what he had to say about the problems which affect his constituency. The hon. Gentleman highlighted, as he was right to do, the failure of the previous housing policy. I hope that under the present Government we shall be able to do very much more to solve some of the problems that affect his constituency.
I rarely like referring to past speeches of my own. I never find them of such a quality that I necessarily want to recall them. However, I may be forgiven on this occasion, when we have been in effect putting past and present balance sheets before the country, if I refer to a speech that I made on 4th November, 1964 in a debate on the Gracious Speech and on a day when, as today, we were discussing economic affairs.
On that occasion I had the privilege of winding up the debate from the Opposition Front Bench. We were discussing then, as we discussed again in 1966, and as we discussed during the recent General Election, the question of the deficit that was supposed to have been left by the 1964 Tory Administration. I said that over the months that were to follow in 1964 and 1965 the rate of imports would fall and the rate of exports would rise and that without the Government doing anything to remedy affairs the situation to a very large extent would put itself right.
Hon. Members on both sides will remember that the deficit was made up, roughly speaking, of two parts, half of which was on capital account and half on current account. I remember that my statement was received with great scepticism by the Government Front Bench. In fact, by the early part of 1965 the current account was in balance.
I thought it worth while bringing that to mind, particularly as quite recently a memorandum has been issued by the Economic Research Council which 574 stresses that the Labour Government, over the last five and a half years were concentrating on tackling what the Council describes as a non-problem. I do not want the present Government to fall into the same error. The memorandum points out—it is worth while bearing this in mind—that, if Government transactions are excluded, the private sector overseas trade, including invisibles, always remains in long-term equilibrium, although it may, as it does, oscillate narrowly between surplus and deficit over a period; in other words, it follows closely the cyclical rhythm of world trade from which it is impossible for British trade to isolate itself.
The real problem which this memorandum underlines is that the Government have persistently spent overseas more than the private sector has earned. It is to this aspect of the problem that I hope that the present Government will direct attention.
As a number of speakers still wish to speak, I shall cut out much of my speech.
The immediate problem which the Government have to face is that of slowing down the rate of inflation. Several speakers have already referred to this problem. It is a very difficult problem—one which presents difficulty to any Government. The most recent forecasts of cost increases which are likely to take place in 1970 and 1971 estimate a rise in labour costs per unit in 1970 of 61 per cent. and a 3 per cent. rise in cost per unit on import prices. That gives a combined estimated cost per unit increase of 6½ per cent. I believe that this is probably an under-estimate rather than an overestimate.
The hon. Member for Ashton-under-Lyme (Mr. Sheldon), in his interesting if rather long speech, pointed out that the increases in wages which we have been facing recently are likely to remain with us. This is a problem we shall face, not only during this year, but next year as well. It is unrealistic to believe that we can tackle this by any form of wage or price control, whether voluntary or compulsory. We have tried this in various ways in the past and, except for very short periods, it has not worked.
The methods used over recent years—using monetary policy, using credit restrictions, using forced loans in the 575 shape of import deposits, which have the double effect of reducing liquidity and reducing imports—do not work either. In the very short term they might have to be applied, in the same way as a tourniquet is applied to stop bleeding, but if a tourniquet is kept on for too long, lasting and irreparable damage is done. If restrictions of this type are kept on for too long, long-term damage is done to industrial expansion. Judging from the speeches to which we have been listening, this is something which hon. Members opposite do not want. The emphasis throughout the speeches made by hon. Members opposite has been on growth—not that they are in a very good position to lecture us on growth when they have not been able to achieve the modest rate of growth which they set themselves for their period of five years.
§ Mr. Heffer
Have not those hon. Members who have spoken this afternoon and who have called for growth been making that call for the last four and a half years?
§ Mr. Hall
I agree. I would be the first to acknowledge that hon. Members who had spoken this afternoon had been in a sense out of tune with their Front Bench over the whole period of time and have been advocating policies to a very large extent which their Front Bench has not followed. Perhaps if those hon. Members had changed places during that period of five and a half years the results would have been different—they might have been worse; I do not know. I readily agree that those hon. Members have advocated growth. From the tone of their remarks it seems as though we were being lectured on a subject about which we know rather more and have been more effective than hon. Members opposite.
It is true that one of the ways in which it is suggested that we shall be able to carry out the programme which has been put before the country and which was pledged again by the Chancellor of the Exchequer in his speech is by examining very critically and reducing Government expenditure, where it can properly be reduced. I merely want to utter a word of warning about this because although it is a necessary and desirable target at which to aim, it will be a little more difficult to achieve than perhaps any of 576 us believe on either side of the House. It will be difficult even to contain Government expenditure where it is, much less reduce it. This has to be borne in mind when we are looking at the problem.
I wish to come quickly to one or two other points. The first is the contribution that we can make to tackling inflation by the encouragement of saving. This is not an original thought. Several hon. Members have mentioned it. But it must be emphasised the whole time. One of the problems from which we suffer today is that fewer people wish to save because they do not trust the £. They do not believe that money which they put away today will have anything like the same value when they take it out some years later and use it. There is this fear of continuing inflation which drives people to turn their cash into goods of some kind or another.
We have to restore in the minds of the people as a whole the confidence in the value of our currency. To do that there are two things which must be done in order to give an incentive to saving. We have got to have the kind of saving which enables people to put money away out of tax-free income. In other words, they should be able to put away so much a year out of a gross income which does not bear tax. This would be by far the best encouragement to savings. The amount that could be saved in this way would, of course, have to be limited, perhaps severely, but it would enable people in all tax brackets to put away a certain amount of money which they would have to hold for a certain period of years but which could be saved free of tax.
Secondly, there would have to be in such a scheme a built-in hedge against inflation so that when savers drew out their money some premium would be paid to help meet the inflation that is inevitable, whatever system one adopts, over a period of years. We have always lived in a period of inflation, but over the years it has been a very slow rate and it has been possible to absorb it. It is that rate of inflation which must be hedged against in any scheme of this kind.
I am not proposing to put before the House the many methods which could be adopted. My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) mentioned one method. My hon. Friend the Member for Worcestershire, South 577 (Sir G. Nabarro) mentioned a number of methods in the course of his interesting, if provocative, speech. There are any number of methods by which saving can be encouraged, but one of the first matters to which the Chancellor should turn his attention is the necessity to get saving. Not only does it reduce pressure on consumer spending but it also provides funds for industrial expansion.
There is an absolute necessity to increase industrial expansion. I agree with the hon. Member for Ashton-under-Lyne that we must go for growth, even if it means sacrificing some cherished objectives in order to achieve that growth. I am sure that whatever may be the short-term difficulties, in the end to go for growth is right.
I should have liked to dilate at length upon a number of tax proposals, but I do not propose to do so. I need only refer the Chancellor of the Exchequer to a speech that I made in the Budget on 15th April, 1970, when I listed a number of changes which I should like to see in the tax system, and I directed those remarks at the next Chancellor of the Exchequer who, I was sure, would be my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). Indeed, my prophecy turned out to be accurate. Therefore, I am certain that he will read my speech with great attention, and I look forward with interest to see most if not all of those suggestions that I made on that occasion implemented at the next available opportunity, either in the autumn or spring Budget.
There are two points, however, to which I wish to draw particular attention. One is the impact of National Insurance contributions. I am opposed to this form of taxation. It is a poll tax which bears heavily on the people who can lead afford to pay it, and the sooner we find ways of raising the necessary money for this service by methods other than National Insurance, perhaps through some form of negative income tax, the better for the country.
The second point I wish to stress is the regional employment premium. We have heard several speakers, including maiden speakers, on the subject of regional development. I do not dissent from the need to help the under-developed areas wherever this is necessary and is likely 578 to be effective. However, I do not think that the regional employment premium is effective. It goes largely to firms already in the areas, which do not use it for the purpose for which it is intended but use it as an additional form of revenue. It is largely unproductive and does not do the job that it is intended to do. It would be far better to use that kind of money for improving the services and amenities in the areas, such as the docks, railways and roads, which can attract industry and people to those areas. I recognise that the regional employment premium has to continue for a few more years yet, but it should be ended as soon as the Act comes to an end and it should not be restarted.
I listened to the Chancellor of the Exchequer with great attention because I regarded his speech as an important introduction to the first period of office of our new Government. His speech convinced me, as I feel it must have convinced the whole House, that we intend to implement to the full the promises that we made in our manifesto and in our speeches during the election. As my hon. Friend the Member for Worcestershire, South said, it is the first time that a Chancellor of the Exchequer has quoted the promises made in his party's manifesto, on which the election was fought, and has stood by them. It is a very rash man, or else a very honest man, who is prepared to do that at the outset of a new Parliament, and that makes me feel certain that not only is my right hon. Friend determined to carry out the pledges, but, as in the case of previous Conservative Administrations, will do so, and do so successfully.
§ 7.47 p.m.
§ Mr. Austen Albu (Edmonton)
Mr. Deputy Speaker, as this is the first occasion on which I have spoken since you were elected to your new office, may I congratulate you on your appointment.
May I also join in congratulating the two previous maiden speakers, who made two of the most interesting and well informed speeches that I have ever heard. The hon. Lady the Member for Lancaster (Mrs. Kellett) made a compassionate and informed speech, and my hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman), with perhaps rather more experience in this place, though not actually in the Chamber, made a speech 579 which astonished the House with its extreme polish as well as its compassion. We look forward to hearing both hon. Members on many occasions in the future.
The last time the party opposite was in office the right hon. Member for Barnet (Mr. Maudling), now the Home Secretary, expanded home demand at a rapid rate and achieved a considerably higher rate of growth. In fact, it was those years which gave rise to the average rate of growth which the Chancellor of the Exchequer quoted this afternoon, but he achieved this at the cost of a very severe balance of payments deficit. It was not just that one deficit. It was the third of a series of deficits which were occurring every two or three years, of which that was the worst.
The present Government came into office promising economic growth. My hon. Friends the Members for Heywood and Royton (Mr. Barnett) and Ashton-under-Lyne (Mr. Sheldon) have supported this idea. I also support the idea of economic growth. Indeed, I have always done so, but if, as my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) said this afternoon, inflation is a sin and that he is against it, growth is a virtue and we are all for it. Unfortunately, nobody in this country knows how to resist inflation or how to get growth. It is no good pretending that we know how to get it, because it has eluded everybody since the end of the war, except at the cost of a severe balance of payments crisis.
The Chancellor of the Exchequer and his party have come into office having made a good many promises, promises which, as the hon. Gentleman the Member for Wycombe said, were strongly confirmed by the right hon. Gentleman this afternoon, promises about the reduction of taxation, including the abolition of £600 million worth of selective employment tax, and reduction of income tax, and about the lowering of prices. It is impossible to forecast the way events will go over the next four or five years, but it may be that, at the end of that period, those things will have been done, but if the Chancellor should try—and, even worse, if he should succeed—to do both of them immediately, he will create a raging boom in home demand.
580 Perhaps I may interject here a comment on what the right hon. Gentleman said about the nationalised industries. I hope that there will be no going back on the increasing rationality of the financing of the nationalised industries. I am in favour of subsidising the social services provided by those industries, which was done by the Labour Government, but I am not in favour of using them as a back-door way of inflating the economy, which would be extremely dangerous and lead to irrational results. The Chancellor said, back-tracking somewhat on what was said during the election, I thought, that what would happen was that proposed price increases would be severely examined, or words to that effect. As I remember it—I have had some experience in this matter—they were severely examined during the past five or six years, and recently they were referred to the Prices and Incomes Board. Perhaps the Minister of State will tell us whether, in future, price increases will be referred to the Prices and Incomes Board, or, if not, who else will severely examine any proposed increases?
If a raging boom in home demand were created, to the current cost inflation, which seems likely to be parallelled by a substantial rise in consumer expenditure this year—the first figures are beginning to show—there would be added a severe demand inflation, and this would lead fairly quickly to another balance of payments crisis. This could be cured only by rapidly reducing home demand again and by making exports much more competitive. There are, perhaps, only two ways of doing that: one is deflation of a kind which we have not seen since the end of the war, and the other is a further devaluation.
I take seriously the present inflationary trends. It is true that they are going on in every modern industrial country, but I agree that, with what the Chancellor said, ours is more serious. For example, Germany, as she apparently intends, can afford to deflate somewhat from its present level of economic activity and not significantly reduce its great rate of economic growth, whereas ours would be reduced pretty well to zero.
It seems to me that we are witnessing in all the industrial countries of the world, and particularly in the West, almost a sea-change in personal economic 581 behaviour. This is partly the result of the substantial social changes which have taken place in this century, and since the war in particular, which have raised the level of aspiration of the masses of the people so that they think that they are now entitled, as indeed they are, to have the goods which only a few people had before. But the levels of their expectation and their expenditure are continually titivated by advertising and such media as commercial television, for which the party opposite was responsible, which, I believe, is a quite substantial factor in increasing the rate of inflation. However, once people begin to realise that this is taking place, a sort of vicious circle is set up and, as the hon. Member for Wycombe said, people then try to run ahead of inflation, trying to keep their incomes rising that much faster. This creates substantial new problems for economic management.
If the Government have truly set their face against any form of prices and incomes policy, voluntary or otherwise, it seems to me that they will be powerless to avoid, sooner or later, either severe deflation or a further devaluation. At the time of the election, I made clear that I stood for a return, and believed that we should have to return, to a voluntary prices and incomes policy. I welcomed the suggestions made in this regard by Mr. Vic Feather of the T.U.C.
§ Mr. John Hall
Does the hon. Gentleman think that the previous one worked?
§ Mr. Albu
The previous one was never tried. What happened was that, as an alternative to devaluation, we tried to hold down wage increases by statutory means, first by the delaying period and then by the actual freeze. I think that that was a mistake and it failed. Mr. George Brown, with whom I was working at the time, never took the view that it was right to have a statutory policy, and he always understood that such changes of habit and long traditional behaviour would take quite a long time. If we had gone about it more slowly and devalued a little earlier, in three or four years we might have found ourselves in a situation in which both sides of industry understood much better what we were trying to achieve and how inflation could be avoided.
582 Inflation can be of no advantage to the manual workers represented by the trade unions to which my hon. Friends and I belong. We can see that the white-collar workers all the way up the scale will always be able to maintain their differentials, especially, it seems, with a Conservative Government in office. I refer anyone interested in this question to what was said some years ago in a book on wages written by my noble Friend Baroness Wootton.
If inflation goes on, it will not only produce an extremely unfair distribution of incomes but, in the end, very little will be left over for the social services in which we on this side at least believe. We shall create—I believe that we are beginning to create it—a very selfish society. Without going into the actual words and the question whether Mr. Macmillan really used the expression, "Never had it so good" and so on, I believe that this selfish society had been encouraged in one way or another—commercial television is playing its part, and betting shops may have been another influence—by what was done during the last years of the previous Tory Administration.
Moreover, inflation, if it goes on too fast, has serious social and political consequences as well as bad economic consequences. It creates a psychology of insecurity and leads to movements of political irrationality. It is exactly movements of this sort which play into the hands of the right hon. Gentleman the Member for Wolverhampton, South-West (Mr. Powell). His speeches during the election campaign were examples of just that sort of paranoid demagogy, with appeals to irrational fears, references to unnamed traitors in Government, and invisible enemies organising our destruction. That is the kind of paranoid demagogy which feeds on insecurity. We have seen it all before, and we know that it cannot reap any reward save at times of deep crisis.
If there were a runaway inflation, this could lead to just that sort of crisis. Therefore, apart from the economic advantages of restraining inflation, we all have a social and political interest in developing more rational ways of distributing our national output and stopping the present acceleration of costs.
583 It would be much easier to achieve the control of inflation and to keep costs down if we had a higher rate of growth. In this country, with our present relatively stagnant working population, this means a higher rate of productivity. However, I do not find it easy to see a solution. I have been interested in these matters ever since I came into the House. Before I was in Government, I was more interested in micro-economic matters than ever I was in macro-economic matters, and I still believe that the solution probably lies in the micro-economic field. There are some deep structural causes in this country today preventing us from achieving a higher rate of productivity and, therefore, higher growth.
It may be that the Government will be lucky and will reap the benefits of the many measures taken by the Labour Government to improve the competitiveness of British industry and its productivity. I hope that it is not the Government's intention to destroy the I.R.C., a body which has already made a substantial contribution towards this improvement. I was sorry to see it being put in chains, even if only temporarily, and I hope that the chains will be taken away fairly soon. I have so far seen no other policies proposed by the present Government by which they could achieve the necessary improvement in the competitiveness of the individual firm.
On the other hand, the Government may not succeed, our costs may again become uncompetitive, and our personal consumption at home, public and private, may be too high. In that case, I agree with my hon. Friends in saying that we must not be tied too rigidly to the current rate of exchange. The only alternative to another devaluation in these circumstances would be utter stagnation. Meanwhile, I hope that the Chancellor and the Government will continue and intensify the discussions within the international financial organisations to develop a more flexible exchange rate system. I wonder whether the Minister could tell us whether the story published in The Times Business News today is true, that the Americans are now much more interested in this and are putting forward proposals for such changes. I do not know whether the Minister of State heard what I said, but I would like an answer to the question. I know that he has not been in office 584 very long, but I am asking him a serious question, whether the Government intend to pursue more actively discussions in the international financial organisations to develop more flexible exchange rate systems, and whether the story in today's Press is true that the Americans have put forward further proposals on those lines.
It is always possible that the right hon. Gentleman and his Friends may wish to revalue. If so, that will no doubt be because of the substantial changes in the competitiveness of British industry brought about by the Labour Government. But whether the Government devalue or revalue we must never again be committed to a rigidly fixed rate of exchange, which is one of the greatest inhibitors of economic growth.
At the same time I would also issue a warning that although devaluation may sometimes be necessary it is very far from painless. Its purpose is to increase the proportion of our gross national product that goes to exports and lower the proportion consumed at home. Devaluation partly does this automatically, by raising home prices, but it must be accompanied by other deflationary measures at home, so by all means I hope that we shall be able to avoid it. It is not a pleasant, painless or easy policy. It is the last resort, but it is a better resort than utter stagnation. In general I believe that international monetary world needs more flexible methods of changing its rates of exchange. Liquidity is an important matter, but I have always thought, and still feel, that flexible exchange rates are even more important than increased international liquidity.
I was glad, and not surprised, to detect a more cautious approach by the Chancellor than we might have expected from some of his election speeches. I do not agree with those people who attack the Treasury. The interesting thing is that there is very little real difference between the outside commentators' and the Treasury's forecasts. They are matters of fractional fine tuning and nobody is capable of really judging what is right.
The truth is that when it comes to the real issue, how to get a higher rate of growth without getting into balance of payments difficulties, no one has the answer so far. We shall be watching the 585 right hon. Gentleman and his colleagues on this matter. I am sure that there is no short or rapid cut to higher economic growth, but if the right hon. Gentleman can find any new ones no one will be more pleased than I shall.
§ 8.3 p.m.
§ Mr. Peter Hordern (Horsham)
I am very happy to follow the hon. Member for Edmonton (Mr. Albu). I could not say that he is always a prophet of joy, but I thought his speech most interesting. I was inclined to feel rather as though I had been invited to a temperance party and then been told that the lemonade was off. I hope that he will forgive me, but he did not exactly fill me with joy in his talk about the prospects for growth. He seemed to find a link between inflation and advertising which I have not seen established in any study of the question of inflation. I should like to return to some of his remarks about the I.R.C. and the exchange rates during my speech.
The House and the country should be grateful to the Leader of the Opposition for holding the election when he did. We were able to fight a campaign in glorious summer weather and to fight it on one central theme of the then Prime Minister's own choosing. That was an invitation to have five more years of the same—the same Government, the same record and the same Prime Minister—an invitation issued in a summer garden at Downing Street. All we missed then was the music of Delius. We were invited to take them all at face value, and the people did just that and rejected them all in the most decisive way.
I do not believe that things can ever be the same again, not just for the opinion polls, for whom I feel no sense of distress that they should have been proved wrong, but for all the so-called opinion-formers and for the media. The Leader of the Opposition was in love with them and they were in love with him. Nothing was too trivial for their attention, no gimmick too small for him to provide. It was like one of those perfect little courts in miniature, of one of those principalities of 18th-century Germany whose brilliance was matched only by its fatuity. Now the music has stopped, the courtiers are packing their bags, the party is over and the dawn has broken.
The sun, we hope, is up on a new scene altogether, where instant decisions and 586 instant opinions do not have to be provided to catch the evening papers, where serious issues do not have to be mixed up with the trivial for the covenience of a television programme. There is a chance now that serious issues will be properly considered and that people will feel that Britain has a serious rôle to play. If the election means anything, it is that people want to take that chance.
The Government are now taking a look at the books. We have been promised action and not words. I hope that that does not mean that we shall be carrying out our business in total silence. I hope above all that the Leader of the Opposition will not be allowed to get away with that nonsense about my right hon. Friend's taking over the strongest economic position in living memory. The very reverse is the truth. I am not talking about stagnant production, high unemployment and faltering investment, to which my right hon. Friend the Chancellor referred. Everybody knows about them. They are what people expect of a Labour Government. What they want to know, and are entitled to know, is what short-term debts the Labour Government left behind. That is the test.
The truth is that we are not in surplus, that there is no surplus in anything but the most limited and formal sense of the word. We have heard today that the short- and medium-term indebtedness is £1,461 million. What is not generally known is that we have to start repaying that debt as soon as next June; we need to start repaying the International Monetary Fund, to whom we owe over £990 million, next June. So far from this being the most favourable position, the truth is that the figures demonstrate the worst deficit in any real sense of the term, the worst short-term indebtedness, this country has shown within living memory. Never in English history has so much been owed by so few to so many. Therefore, I trust that we shall not all accept the rôle of Trappist Monks, on this issue, at least.
The difficulty is that my right hon. Friends—both the Prime Minister and the Chancellor—are taking over at a time when things are not only difficult at home but becoming increasingly difficult abroad. I was much encouraged to read in The Times today, as was the hon. Member for Edmonton, about a United States 587 initiative for widening currency margins to 3 per cent. either side of parity. The Times also reported that the United States was interested in pursuing a policy of temporary floating rates. It said that the West Germans were enthusiastic about such a policy of floating rates—indeed, they have floated the Mark themselves for a period—but that the French were hostile. I do not know why the French should be so hostile. They have devalued so many times that their currency is best described as a falling peg.
The problem of the dollar is a major one. It is the most important international monetary issue that concerns us at present. Therefore, we should welcome this first move towards free currency movements. I hope that my right hon. Friend will support it when the time comes at the International Monetary Fund meeting in September. This is a very useful initiative.
As everybody knows, however, the situation at home is most depressing. We have had riproaring inflation; we have had stagnant production and investment is both relatively and absolutely low. The figures for investment in the first quarter of this year were lower than in the preceding two quarters, and in its survey the other day the Financial Times showed that fewer firms were planning to increase their capital commitments. The facts are that, as a proportion of the gross national product, the United Kingdom invests only 17.4 per cent. compared with nearly 25 per cent. in West Germany and more than 33 per cent. in Japan.
So we appear to be in an ugly, non-growth situation, higher prices chasing higher costs, high unemployment and low investment. There seem in these circumstances to be two courses which we can pursue. The first is roughly more of the same medicine in the hope that other countries will inflate faster than us. This is a pretty dismal prospect, because we are up against severe competition. The Financial Times today mentioned that West Germany was about to have a very thorough deflationary policy when its prices had risen by 6 per cent., and on the same day it was reporting that prices in the United Kingdom had risen by 8 per cent. We are up against competition 588 if we are in a race to keep down prices by deflation, and I see no great joy in that score.
The alternative policy is to try forcibly to break the cycle of costs and prices and wages rising all the time, and this is the course which we must pursue. I am not a member of what I would term the boom and bust brigade, that is to say, those who advocate pumping money into the economy, and I do not think that industry would follow it anyway. I believe that industry, however many pounds passed, is not likely to be easily led astray, and I do not think that it would follow the form of encouragement if it were simply applied by pumping money into the economy—we have had too many false starts.
It is my belief that in practice we have had a consensus of opinion ever since the war, for 25 years, of the rôle of the State compared with that of industry and that of the individual. There have been differences in emphasis, of course, in the degree of influence which Governments have taken on expenditure, but the process has been continuing under Governments of both political complexions. We must have a substantial reduction in Government expenditure, if we are to gain the growth in the economy which all of us wish to see, and there are no prizes for suggesting what those reductions should be.
We have referred during the months past to the abolition of investment cash grants and I sincerely hope that we shall be able to make substantial savings in what is essentially a rather wasteful form of investment incentive. But I do not believe that the mere change of the system of investment cash grants to one of allowances, or even of reducing it and at the same time reducing the level of corporation tax, would necessarily, or of itself, do enough to provide the incentives which we need for growth. We have to consider the debilitating effect of corporation tax, which has been raised over the last two years from 35 per cent. to 45 per cent., and the effect of the credit squeeze on companies both large and small.
Companies have literally been forced into the arms of the Government, and I am not referring only to companies like Cammell Laird but to some of the most prestigious names, such as Rolls-Royce. Some of those companies have so far got 589 themselves into the pockets of the Government that in a real sense they have put themselves above the market altogether. The market could not satisfy demands of companies of the kind of Rolls-Royce for the projects which they have in mind, the market, that is, as at present constituted.
§ Mr. Anthony Wedgwood Benn (Bristol, South-East)
I am listening to the hon. Gentleman with great interest. Is he suggesting that with the new Government's policy of tax reduction it will be possible for Rolls-Royce to manage without any launching aid for its major projects?
§ Mr. Hordern
I was not suggesting that. If the right hon. Gentleman will allow me to proceed with my speech, he will grasp the suggestion which I shall make.
It is not only a question of prestigious companies like Rolls-Royce or the central companies in the aircraft industry, but the Government have a finger in every pie, in computers, in micro-circuitry and in nuclear development besides the aircraft industry. It is time that we had a rational look at all this expenditure en masse.
I do not believe that anybody is doing this job. I am not referring to the public expenditure programmes and their rolling forward for five years at a time, but there is nobody who has to my knowledge ever made any rational analysis of what is the best field to pursue in scientific or in technological development, given the whole basis of expansion, expansion in facilities and expenditure, both in this country and abroad—what is the best field to pursue, whether it is with our European partners or in isolation.
As the right hon. Member for Bristol, South-East (Mr. Benn) knows only too well, the level of research expenditure in the United States exceeds £20,000 million a year, while the level of research and development in this country is about £1,000 million a year. By the nature of things, it is bound to be the case that in some fields at any rate expenditure of this kind will have a larger effect than we can try to obtain ourselves by spreading our expenditure over every aspect.
The argument is not that with which the right hon. Gentleman always concerns 590 himself—whether the private sector or the State can best make this expenditure. With or without our European partners, there is no chance, if we try to cover the whole field, of covering every aspect of it. In this respect, therefore, the argument which the Labour Party always puts about the State undertaking these affairs is not realistic, because it fails on the first test, which is simply whether there is enough money to be able to pursue all these objectives in any case.
It is a sensible policy to continue to encourage European co-operation and to see what developments are being encouraged, particularly in the United States, and to try to form some rational policy about which developments we should encourage and which not. Having done so, let us proceed as quickly as we may with cutting down State agencies such as the I.R.C.
I was very glad to see that at Question Time yesterday it was said that no further commitments were to be made by the I.R.C. without consultation. My right hon. Friend the Prime Minister was absolutely right when, at a Press conference as recently as 11th June, he said:What is left to firms? Only to go to the Government cap in hand and get large subsidies. Then the Government puts directors on the board. Then of course the boards have to refer back to the department in Whitehall for all their decisions. Then the Government gets control of the industry. This is Socialism in practice, and this is what we are so deeply opposed to. You cannot have healthy enterprise, a free competitive enterprise, under a Socialist Government.If those remarks mean anything, they mean the abolition of the I.R.C.
I look forward to a rational basis for the investigations of the whole of public expenditure. I look forward to the reduction in taxation which we have been promised today on the basis of our election manifesto, a reduction in taxation for both companies and individuals.
I have referred to the subject of negative income tax on several occasions in these economic debates. I urge once again that the Government enter into an open inquiry, or at least set up a special commission, to study the merits of a negative income tax.
As a party that believes in subsidies going to those who stand in real need 591 surely this is one way of achieving that aim. I have hope that we shall do all we can to encourage the development of overseas investment and of overseas investment in the United Kingdom. Invisibles have been our salvation and we ought to do all we can to encourage the earnings from services and invisibles generally. The best incentive of all is a high return on capital. For years we have not questioned the rôle of the State. We have accepted an ever-diminishing rôle for the individual. What we hope for from the Government is that we shall get a higher return for effort expended. Let us break this cycle of pessimism and despair and let energy and confidence flood in once again.
§ 8.21 p.m.
§ Mr. David Marquand (Ashfield)
At this stage in the evening, when one of my hon. Friends still wishes to speak, I am obliged to be as brief as possible and I hope that the hon. Member for Horsham (Mr. Hordern) will forgive me if I do not comment on his remarks. One aspect of the Gracious Speech discussed earlier this afternoon, but not very much recently, is the paragraph dealing with regional development policy. My constituency, although not in a development area, is in an intermediate area. I am sorry to have to tell the Financial Secretary that in my constituency, heavily dependent on coal mining, the advent to power of a Conservative Government has been greeted with a great deal of alarm and despondency in view of what people fear may be the effect of Conservative policy on the mining industry.
Since the hon. Gentleman happens to be the Government spokesman at present—and I congratulate him in personal terms on his accession to office—I should like to ask one question about a statement which he made in the House three years ago when he was on the Opposition Front Bench. In a debate on the Finance Bill the hon. Gentleman said that it was the policy of the Conservative Party to abolish the fuel oil tax. This was, he said, a tax which should be abolished sooner or later and sooner rather than later. Can he say whether this is still his policy and the policy of the Treasury Bench which he now adorns? The abolition of the fuel oil tax would lead 592 to the virtual disruption overnight of the mining industry in my constituency. It is of the greatest importance that we should have a categoric pledge from the new Government that in that regard, at any rate, the promise they made before the Election will not be carried out.
Secondly, I should like to probe some of the Government's intentions over grants and financial assistance to intermediate areas such as my constituency. I appreciate the desirability of not having instant government and of the new Government taking their time before making up their mind. That is reasonable, but the fact is that local authorities in my constituency are embarking on plans based on the assumption that the financial assistance to intermediate areas undertaken by the last Government will continue. It is clearly extremely detrimental to the interests of my constituents and the whole of the Erewash Valley intermediate area if we are to be left in a state of uncertainty whether this financial assistance will continue under the present Government.
Earlier this week we had an assurance from the Minister of Technology that it would continue to be the case that in intermediate areas there would be no need to have industrial development certificates. That was the only statement we have had about the Government's intentions over intermediate areas. It is of the utmost importance that we should know soon whether they intend to continue financial aid to bring new industry into areas such as my constituency. I should like a firm statement from the Financial Secretary on that point, this evening if possible. If that is not possible, let us be sure that we have a statement before the Summer Recess.
Having dealt with those points of particular concern to my constituency I should like to refer briefly to what appears to be the underlying strategy of the Government over public expenditure. I strongly endorse a point made earlier by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). The Chancellor of the Exchequer, when in opposition, committed himself to accepting the need for very much more effective scrutiny by this House through a reformed committee system of public expenditure projections, both in White Papers and in the detailed projections of spending 593 departments. This was recommended by the Select Committee on Procedure in the last Session.
I urge the new Government as soon as possible to set up a committee such as was proposed by the Select Committee. Again this is an area in which we could legitimately expect action by the Summer Recess. If we could get the committee structure, accepted by the Chancellor when in opposition, into operation by the autumn, we could then have the White Paper which will set out the Government's intentions on public expenditure subjected to committee scrutiny. We could set in motion the whole process which the Conservative Party accepted when in opposition and which I hope they will now agree will contribute to more efficient government as well as to more effective Parliamentary scrutiny.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
It might be helpful to the hon. Member and the House to know that my right hon. Friend the Leader of the House will be adverting to this very question when he winds up this debate the day after tomorrow.
§ Mr. Marquand
This is extremely good news—one of the few areas in which I can applaud, I hope, what the new Government intend to do. I cannot applaud the assumptions which underlay the speech of the Chancellor this afternoon and which underlay the Gracious Speech with regard to policy decisions on public expenditure. It seems that this is a fundamental contradiction in the policies of the new Government. I believe that they will soon discover that their hope of achieving a higher rate of growth and escaping from the problems that beset us will be falsified by their inability to carry out their promises on public expenditure.
The Chancellor of the Exchequer is now engaged in the review of public expenditure which normally takes place at this time of the year. He told us today that the latest estimates showed that the levels of public expenditure at the end of the five-year period into the early 1970s were higher than those expected by the last Government. Presumably that means higher than those foreshadowed in the White Paper published 594 last January by my right hon. Friends. That does not surprise me. Public expenditure—and the Government will discover this—is bound inexorably to increase at a more rapid rate than the rate set out in that White Paper simply because of the pressure of demand in the country for higher standards and because of the change in the structure of the population without improving standards in the public sector. Simply in order to stay in the same place it is necessary for the public sector to run faster. This is an inescapable fact about the society in which we live.
It is easy to make "phoney" cuts in public expenditure which are nothing more than bookkeeping transactions. But real cuts in public expenditure which have an effect on the use of resources cannot possibly be undertaken without lowering already inadequate standards. There is no escape from this because the structure of our population is such that over the next decade the proportion of the population over retirement age and the proportion of the population below working age will increase. These are people who make exceptional demands on the public sector. For that reason alone, demands on the public sector are bound to increase and simply to stay in the same place it will be necessary to spend more money on it. If the Government are to make genuine as opposed to "phoney" cuts in public expenditure, if they are to make cuts in public expenditure which mean a reduction in the use of resources in the public sector, they can do it only by lowering the standards in the public sector.
We know that, by some quaint convention, if charges are made in the social services, in education or in the Health Service they can be presented as a cut in public expenditure. But in fact they are nothing of the kind. Imposing extra charges in the social services is a "phoney" cut in public expenditure. They are simply a new form of taxation, not a cut in public expenditure in the real sense. Real cuts in public expenditure can mean only a reduction in inadequate standards.
The areas of the public expenditure programme for 1972–73 and 1973–74 which are expanding most rapidly are the areas in which the Conservative Party are pledged to improve standards and to 595 spend more money. One of the most rapidly growing areas of public expenditure revealed in the White Paper published by my right hon. Friends is roads and public lighting. Will the Government make real cuts in this field in 1973–74? Another of the most rapidly growing public expenditure areas is law and order on which the Conservative Party, at one time at any rate, wished to campaign in the General Election. Will the Government cut provision for law and order in the mid-1970s?
Education and health and welfare are enormously large and rapidly growing items of public expenditure. In the debate on the White Paper last January, the Conservative Party spokesman committed his party to an increase in expenditure on education in the mid-1970s over and above what was laid down in the Labour Government's White Paper. Will the Government turn their back on that commitment and cut expenditure on education? Will they cut provision for health and welfare in the mid-1970s? Will that be their way out of the dilemma? I do not believe so. I do not believe that they can cut that provision. I believe, for similar reasons to those advanced in another connection by my hon. Friend the Member for Heywood and Royton (Mr. Barnett), that political factors, apart from anything else, will force them to abandon the hope of cutting public expenditure in these areas. But these are the areas where real cuts in resources using public expenditure can be made.
I think that back benchers opposite, who are at the moment in a heady and enthusiastic frame of mind, will be sadly disillusioned when in 1972 and 1973 they find that their Government have not been able to carry out this commitment, because no Government in a democracy can carry out such a commitment without provoking severe social unrest.
There has been a lot of talk in the debate about inflation—this was one of the main themes in the election campaign—and the need for more rapid growth. The assumption by the Conservative Party that cutting down on public expenditure will in some way lead to more growth is not only incorrect—
§ Mr. Marquand
If the hon. Gentleman will allow me to develop my argument he will be able to say whether he agrees or not when I have finished.
Any fool can produce a sudden spurt in the rate of growth. It would be the easiest thing in the world to do that and land ourselves back in the kind of crises through which we have been in the past. We need long-term sustainable growth—we all know that—but it is not given to man to achieve that aim in a modern society without some form of incomes restraint, incomes policy, call it what you will. This is a harsh fact of life in our mixed society—
§ Mr. Bruce-Gardyne
§ Mr. Marquand
It will be better, because of the time factor, if I do not give way.
It is not possible for any Government to get the co-operation of the work people involved without maintaining the social services and, indeed, improving them. To try to cut down the inadequate levels which prevail in social services, which the Government will be forced to do if they wish to carry out their pledge to cut down public expenditure, would destroy the hope of getting any kind of co-operation from the trade unions and work people in any form of incomes policy. That, sooner or later, will consign us back to the impasse we have reached so many times in the past. For that reason also, I believe and predict that the Government will be unable to carry out their pledge to cut public expenditure. If they attempt to do so, they will find themselves in a disastrous crisis.
§ 8.39 p.m.
§ Mr. Michael Shaw (Scarborough and Whitby)
I will not follow the hon. Member for Ashfield (Mr. Marquand) in detail as time is getting on, but in certain respects I regard his attitude on the cutting of public expenditure as a policy of despair. It seemed to indicate that all Government or all public expenditure was sacrosanct. Frankly, I cannot accept that.
I accept that there are pressures for increased expenditure, because of the ageing population and other factors mentioned by the hon. Gentleman. But this merely adds to my view about the necessity for pursuing an expansionist 597 programme. I, too, believe that we should try to get better growth into the economy so that, without increasing rates of taxation, but out of increased revenue from the expanding economy, we can meet these enlarged needs for the ageing population and other social services.
It is essential that we should move forward as quickly as possible to a period of expansion. I believe that it is ideal that we had a June election. It gives the Government plenty of time to assess the books and to find a solution to some of the problems which face them so that by the autumn they will be ready to come up with the first of what I trust will be many constructive proposals for getting the country moving again.
What struck me as the most noticeable feature to be found everywhere on the day after the election was the feeling that a great cloud had been blown away and that a shadow had gone from the land. This feeling was epitomised by what happened to me when I was clearing away the mumbo-jumbo from my car in front of my hotel. A young man came across, wrung me by the hand and congratulated me, and told me that the previous week he had applied for emigration papers but now, because of the result, which he freely confessed he had not expected, he was writing to ask for his application to be withdrawn.
I believe that that epitomised the new optimism which everybody felt at the fact that there had been a change of Government. There is a new hope and new confidence, but one thing that is certain is that the problems still remain. All that has changed is the Government, but I believe that this feeling gives us an opportunity which should not be under-estimated—an opportunity to cash in on the confidence that rests in the new Administration. I believe that this is the big lesson which ought to be learned from the results of the 1964 election. Never have a Government come into office with more good will than did the 1964 Government, and never was good will dissipated more quickly than by the Socialist Administration.
At the time an experiment was being conducted by the present Home Secretary to try to break out of the stop—go cycle with a period of expansion. We shall 598 never know whether that experiment would have been successful—[An HON. MEMBER: "An expensive experiment."]—It was not an expensive experiment. In fact, it was criticised from the benches opposite before the 1964 election on the ground that my right hon. Friend was not carrying out a sufficiently large experiment, and it was only after the election, and because of the smallness of the majority and the realisation that there would have to be another election, that the difficulties were then exaggerated for purely political purposes.
The fact is that until the results of the 1964 election became known the rest of the world was watching that experiment with perfect confidence. The present Home Secretary had made arrangements to support the £, and the point which must be emphasised is that it was not until confidence in the new Government had gone, and the then Prime Minister, now the Leader of the Opposition, confessed in a moment of unwonted candour that a new lack of confidence situation had arisen that the experiment began to fail.
Whatever happens in Government, one of the most important factors is that of continuing confidence. Economic affairs are perhaps a most important single item for Government, because it is on this that all else depends. In addition to the need for continuing confidence in the Government, there is a need for various forms of incentive. People must be able to feel that not too much of what they earn by extra effort is taken away from them. There is a need for them to feel that if they take risks in business their reward for being successful is worthwhile. This need for incentives is vital in a private enterprise society.
Finally, there is a need for expansion. A healthy economy is an expanding economy. An expanding economy may not always be a healthy economy, but if there is a healthy economy it is an expanding one. Having identified those three things—confidence, incentives and expansion—I go on to say that it is not usually possible to isolate them; they go together.
That fact is not always realised. It certainly was not realised by the former Government. I agree that they poured far more money into the development areas than we did when we were in 599 office, but the harsh fact remains that in both Scarborough and Whitby, in my constituency, which is in a development area, the unemployment situation last winter was worse than it had been for many years. The answer is that people will not move into development areas—people will not build new factories, or put money into buildings which have been erected for them—just because they are given grants. Grants may help, but the basic question that determines whether firms go to development areas is the question whether they wish to expand; whether they see, at the end of the expenditure of new capital, the equipping of their factory and their training of labour, a profitable market for the goods that they will manufacture.
Whatever regional policy we pursue it is essential to see that it overlays a strong expansionist policy throughout the rest of the economy. Only when the rest of the economy is expanding, and when people are seeking new places to set up factories, are the efforts made to attract industries into regions effective. If people are not on the move and firms are not expanding it is very much more difficult to attract them into the regions.
A point was made about the regional employment premiums and about how much of that money is wasted. Curiously enough, I believe that it has not been wasted, because the essential fact of regional employment premiums is that they provide a continuing incentive to keep open factories in development areas, as distinct from keeping factories going outside development area. The policy of regional employment premiums is essentially a defensive policy, designed to cover a period of long stagnant trading conditions. I agree that the premium would no longer be necessary—indeed, it would be wasteful—in a strong and expanding economy, and with market conditions in which people were not continually having to decide whether to close this factory or the other.
I want to deal with certain aspects of the incentive side of my argument. Because of the time factor I will restrict my remarks to the question of incentives for smaller companies. It is vital for the trading health of the country that a healthy, vigorous and growing private company situation should exist.
600 I am glad that, at long last, the anomalies regarding directors' remuneration have been swept away, but there are other distortions still acting to the detriment of the smaller private company. For example, I still do not like the new onus of proof in the matter of adequate distribution which now rests on the company rather than on the Inland Revenue. Second—this is particularly hard on private companies—the cost of dividends paid to shareholders is far too heavy, with not only corporation tax but the withholding tax having to be paid. If there is to be reduction in corporation taxation, I would prefer it initially—the overall effect would be the same—on the withholding tax from dividends.
Incidentally, the difference between the remuneration paid to director-shareholders and the dividends paid to other shareholders is at present far too great. It is unfair and undesirable. In the case of directors' remuneration, where the shareholders can be made directors or given some other official capacity, they get the benefit of earned income relief and the very wide differential with regard to the starting of surtax and their remuneration is allowed for corporation tax. In the old days, the differences were not nearly so great.
I have given the example before of a private company in which the directors, because they also held shares—this was not an isolated case by any means before the war—used to take modest salaries and take the rest along with the other shareholders by a high rate of dividend. That arrangement is no longer possible, because of the artificial differences which have been created by the tax situation. The difference between income on investments and income by way of remuneration has in many ways gone too far, and I should like to see it reduced.
I am glad that the Gracious Speech referred to company law, which can also provide better information and make companies more efficient. While there is a strong case for sharpening the disclosure requirements in certain cases, I believe, as I said in our debates on the Companies Act, 1967, that there is a case for saying, particularly with regard to the small unquoted company, that the work required in preparing a declaration is out of all proportion to what may be required by the shareholders. In these 601 cases there are good grounds for reconsideration to see whether in those companies we do not ask for more information than is necessary.
I am amazed how much my own constituency is affected by the Gracious Speech. The changes proposed in agriculture will, I hope, substantially improve the incomes of the farming community. I am glad that, already, we have made a move towards assisting the over-80s. Many people retire to my constituency, and I have been appalled by the amount of loneliness and hidden poverty that there is among many of those old retired people—on the face of it, still well-to-do. Only when one looks into their personal circumstances does one realise the loneliness and hardship they endure and how beneficial this legislation will be.
I am one of the few hon. Members who sincerely regrets the sentence in the Gracious Speech dealing with the Boundary Commissions, because if changes are made in accordance with the original proposals, my lovely constituency will be cut in half, and I shall be sorry to lose either half.
I look forward, as a result of the Gracious Speech in general, to a year of constructive and well-considered Government. I do not believe that we can do more than make a start in this first year, but I am convinced that during the lifetime of this Parliament the Government will make a profound difference to the attitudes and prospects of everybody in this country.
§ 8.56 p.m.
§ Mr. Eric S. Heffer (Liverpool, Walton)
In the few minutes available to me, I shall comment briefly on the speech of the right hon. Gentleman the Chancellor of the Exchequer and fire a few shots across the bows of the Government on the question of industrial relations, a topic which, although not strictly within the terms of the debate, must be considered in relation to the Gracious Speech in general.
As always, I found the speech of the right hon. Gentleman extremely interesting and accomplished. However, he failed to provide any constructive policy whatever. Indeed, I was amazed by his remarks. Here we have a new Government with what is said to be a great burst of enthusiasm which, we are informed, 602 will prove how the economy can be got moving at a faster rate. Against that background, I was amazed to hear the Chancellor say that while demand and activity was sluggish, unemployment was high, wages and prices were rising and so on, "It is premature to take action to stimulate demand". After telling us what was wrong, I expected the punch line—of how the Government would solve these problems—but it was sadly missing.
I have heard all this before. It is a record which in the past I have heard playing. I thought that this new Government would show us what should be done. Instead, we find the dead hand of the Treasury already, like an iron fist, clamped on to the occupants of the Treasury Bench, even before they are able to get any policies off the ground. Is this the sort of Government we are to have?
I suppose that what has happened is inevitable. We had numerous election pledges, but they do not add up to anything. As my right hon. Friend the Leader of the Opposition said, we will wait and see precisely what is to happen. I have a feeling that when hon. Gentlemen opposite realise that there are no miracles to come from this supposedly young and enthusiastic Government—young and enthusiastic not in age but supposedly in effort—there will be a furious row. Hon. Gentlemen opposite will turn on their Front Bench and the scenes in this House will be nothing short of amazing. At least my hon. Friends and I will enjoy them.
We are told that hon. Gentlemen opposite are loyal to the Government, but some of them are not all that loyal. Indeed, some of those who have not been here during the last few days have probably been at home sharpening their knives ready for the batte when it comes.
The Government's policy on industrial relations is outlined in the Gracious Speech, in their election documents, and in "Fair Deal at Work". Before I go any further, let me say that the Government would be most wise to forget some of their proposals, because those proposals will not work and, in any case, are a recipe for industrial chaos. Let us look at one or two of these proposals in depth.
603 First, we have the proposed 60-day cooling-off period. We have heard of that one before. It was in a White Paper, certain aspects of which made some of us not very happy. The 60-day cooling-off period operates at present in the United States of America. It is part of the Taft-Hartley Act. The only possible reason that hon. Members opposite could argue for this cooling-off period would be that it stopped strikes or, when strikes were threatened, had the effect of making certain that they were brought to an early conclusion.
The experience in the United States proves that the cooling-off period does nothing of the sort; that its effect is very much the opposite. In the United States they have more strikes than we have here, and certainly more per thousand days lost than we have. If hon. Members opposite do not believe me, let them read Professor Turner's book, "Is Britain really Strike-Prone?". They will see there the various statistics, and the conclusions that Professor Turner draws from the situation in the United States of America.
In America they have had, of course, 60-day cooling-off periods which have been successful, but in very special circumstances. That has been when they have had what is known as a sort of Presidential seizure of the control of a particular industry at a particular moment when it appeared as though the economy of the country was threatened. The occasions when the Government there have taken over industries in those circumstances have been very rare.
That is not what is proposed by hon. Members opposite. They want instead the straightforward Taft-Hartley line. I warn them that our trade union movement did not accept certain ideas contained in "In Place of Strife", and it will not accept this proposal for the 60-day cooling-off period. We shall fight—I might as well tell them that now. We shall fight that Bill, if it is brought in, line by line. The Government can put the Guillotine on it, but they might as well face the fact that they will get a real opposition.
Another proposal is that of the secret ballot. A secret ballot has already been mentioned today—a secret ballot in 604 which the majority of the workers voted in favour of a strike. Hon. Members opposite think that this is a marvellous idea, but let them think again. In the first place, it is an interference with the rules of a trade union to decide that that union shall or shall not have a secret ballot. Secondly, if there is a secret ballot in which the majority decide that there shall be a strike, how do we call it off? Do we say at the end of a period, "The workers must now vote to see whether they will call off the strike"? If so, where does that put the trade union negotiators—the responsible leaders of whom hon. Members opposite always talk? If they thought seriously about it for five minutes hon. Members opposite would see that the secret ballot proposal can mean in some cases the prolongation of a strike, not bringing a strike to an end at an early moment.
I am absolutely confused about the phrase concerning contracts being legally binding. In "Fair Deal at Work" the Government say that we shall have legally binding contracts agreed by the trade unions and the employers. During the election campaign speeches were made which seemed to suggest that only one side would have to agree. I take it that would be the employer's side. Is that the position? Everyone in this House would like to know precisely the Government's policy on this question. They are having talks with the Trades Union Congress. I wish them the best of luck, but if the Trades Union Congress was not prepared to accept the proposals of "In Place of Strife", why should it have a change of heart now that there is a Conservative Government? Why should it see a blinding light from Heaven and believe that it is all right under the Conservatives but would not be all right under a Labour Government? It should be clearly understood that these things will not be allowed to happen.
I am very perturbed that we have had no detailed proposals from the Chancellor this afternoon in relation to the building industry. Hon. Members on both sides of the House know that what I am saying now is not new. I probably upset those on my own Front Bench on this question as much as I upset Front Bench Members opposite. I shall ask questions about what is being done for the building industry until the Government start doing 605 something about it. The industry and building workers are in a chronic position. Highly skilled workers in the industry are unemployed. They should be building homes which are needed by the people. I want them to be put to work, and at the earliest possible moment. I thought we were to have detailed proposals from the Government on this, but all we had was "It is premature to take action to stimulate demand." It is not premature to take action to stimulate demand in the building industry. I should like to know when we are to have a reduction of unemployment in that industry and the development of building homes which are required.
What are the Government to do about the future of Cammell Laird's? Cammell Laird's got into an unholy mess under private enterprise and the Government had to bail it out. Certain things were done through the I.R.C. I heard an hon. Member say that it was time we abolished the I.R.C. It is a jolly good thing that the I.R.C. was in existence and could safeguard the job of workers at Cammell Laird's. Many of them work and live in my constituency. Are their jobs to be guaranteed and are the Government to give them support although they abandon this position? I am deeply concerned about the future of those workers on Merseyside.
§ 9.9 p.m.
§ Mr. Anthony Wedgwood Benn (Bristol, South-East)
Mr. Deputy-Speaker, I want first to congratulate you on your appointment and to say to the Chancellor of the Exchequer how graceful it was of him to begin his speech by referring to those warriors who had spoken in these debates in past years and who had now left the House.
I add my congratulations to no fewer than six newcomer maiden speakers who have spoken in this debate. If the Chancellor had heard the whole debate—he has heard a lot of it—he would know, and if he reads the rest of it he will find, that much of what has been said today from both sides has constituted an appeal for a greater amount of intervention by government in the affairs of the community. His hon. Friend the Member for Lancaster (Mrs. Kellett) spoke about the problems of the elderly. Two others from his own side—the hon. Members for Esher (Mr. Mather) and Southampton, Test (Mr. James Hill)—spoke about the need for 606 substantial government support for the aircraft industry.
Two maiden speakers on this side of the House—my hon. Friends the Members for Sedgefield (Mr. D. Reed) and Whitehaven (Dr. John Cunningham)—drew attention to the value of the development area policies. My hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) spoke very movingly about the social problems in his own constituency.
If a debate on economics begins to give a Member the feel of the House, there certainly was not exactly a majority for the sort of tax cuts and cuts in public expenditure which the Chancellor has promised us in the autumn. My experience as a candidate—this is said not in the heat of an election and during my ordinary Parliamentary work; I am sure that it is true of many hon. Members—is that the consequences of industrial change are such that there is growing pressure for more Government help, assistance or support of one kind and another.
The debate opened with a very interesting exchange in which my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) disposed entirely of the idea that there was an economic crisis and that this was the reason the Conservative Party won the election. The Chancellor read out some words which he had used on the B.B.C., very skilfully prepared no doubt to protect himself from this charge after the election. He left the Prime Minister completely out on a limb in speaking about a national emergency and the probability of devaluation. Indeed, the Chancellor himself, having coined the phrase "stagflation", which he evidently likes, announced that this horse was one that he intended to run himself, at any rate for some months ahead. There was in the debate today the beginning of the awakening by the public to the fact that the campaign upon which the election was won, at any rate as concerns economic policy, did not stand close examination.
I turn to another aspect of the Gracious Speech, this time in respect of industrial policy, and deal with some of the consequences which might flow from the words used in the Speech about that. I cannot do this without congratulating the Minister of Technology and the Minister of State, Treasury, who is to wind 607 up the debate, and all the other Ministers who will be operating in the industrial sphere.
We have a new Government; we have new Ministers; we have a new House. The only thing that is the same are the problems. It is to the problems that I want to direct the attention of the House. The task of maintaining a surplus, of securing growth, of achieving full employment, of combining this with stable prices, and of maintaining the necessary level of social spending, is a very difficult task which no Government of either party have consistently been able to achieve in any period of their stewardship since the war. My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) spoke as if it were simply the dead hand of the Treasury. If it were as simple as that, somebody would have moved the Treasury, or those whose dead hands it was that were preventing these problems from being solved, into the morgue.
It is more than a question of economic management. It is a question of industrial performance against some stiff competition from other countries. It is in this area of the Gracious Speech that I come to the words which had a ringing tone and which remind one of an election manifesto—liberating industry from unnecessary intervention by Governmentandvigorous competition is the best safeguard for the consumer".If I may go back—I hope that it is not considered unfair—to the literature provided during the election campaign—the words I read are these:The Conservative Party believes wholeheartedly in free enterprise and in the market economy".Any Conservative candidate elected on that slogan will have now to turn his mind to the problems which will confront the Government when they try to apply the principles of the market economy. If I do justice to the Government's argument—we had it many times when they were in opposition—it was that if only the Government could get off the backs of industry, reduce taxation and diminish the connections between Government and industry, this marvellous price mechanism would produce the desired result. The right hon. Member 608 for Leeds, North-East (Sir K. Joseph), who was widely tipped to become Minister of Technology but who, no doubt, partly because of his speeches, had to be diverted elsewhere, described it as civilised capitalism in which competition converted business men into public servants. Let us apply this to one or two of the problems which will confront the Government.
I turn, first of all, to the development areas. There is to be a debate on this subject on Thursday and I do not want to pre-empt speeches which will be made then, except to say that the problems of the development areas are a classic example of non-intervention and the forces of competition. It is exactly because competition knocked out the older industries in the development areas that we have a problem there at all. It would be quite ludicrous for anyone seriously to suggest that the remedy for the development areas is for the Government to get off their backs. The truth is that if the problems had been anticipated rather earlier than they were, this very difficult problem of persistent unemployment in the development areas might have been averted.
§ Mr. Dan Jones (Burnley)
And the intermediate areas.
§ Mr. Benn
And the intermediate areas. However, I do not wish to anticipate the full debate on this subject. I am coming on to the aspects of development area policy which will need to be announced by the Government. We were told that the I.D.C. policy was to be reviewed. Our analysis of this is that about 300,000 jobs were created by the application of the I.D.C. policy in the development areas from 1965 to 1969. If a review of the I.D.C. policy does lead to a weakening of their application, the problems of unemployment in the development areas will become a great deal worse. If the policy of the advance factories—not referred to in the Gracious Speech and, I think I am right in saying, not referred to in the manifesto either—were to be abandoned, for it is a form of intervention, the opportunities for new job creation in the development areas would diminish, too.
Indeed, if the Chancellor, who has announced that he is looking for substantial savings in public expenditure by the 609 autumn, were to decide to reduce the £300 million spent on development area policy to anything like the level at which it was left by the previous Conservative Government, of £34 million—about one-tenth of the level which it had reached under us—he would be striking a blow at the principle, which also received mention in the Gracious Speech, of maintaining full employment. [Interruption.] The right hon. Gentleman, in his opening speech, said that there would have to be severe pruning of public expenditure, and we shall want to see whether this makes any difference to development area expenditure.
§ Mr. Patrick Jenkin
I am sorry that the right hon. Gentleman still indulges in that wholly false comparison in the figures that he quoted. He left out of account the tax reliefs which were operating before 1964 in the development areas.
§ Mr. Benn
The figure is still enormously greater. I say this to the right hon. Gentleman: if he says that the support given to the development areas does not count as public expenditure, why does he put in the manifesto the statement that the Labour Government were spending large amounts with very little regard to the practical effect? Why have leaders of the Conservative Party been round the development areas describing investment grants in a way in which they were not described when they took the form of investment allowances? It is true—we have debated this in the last few months—that the problem of unemployment in the development areas is not solved. But, far from being a case of a reduction in Government assistance, this may well be a case for the greater strengthening of the effort.
I underline what was said by my hon. Friend the Member for Sedgefield about the importance of confidence in respect of development area incentives, and this point was taken up by the hon. Member for Scarborough and Whitby (Mr. Michael Shaw), who made the fair point that unless the general expansion were combined with the development area incentives, we could not get the full benefit of them. But if, at the very moment when expansion is beginning—albeit slowly, but beginning,—confidence is shaken in the development area discrimination incentives, all the good work 610 done in building up these policies over the years can be destroyed overnight. I hope that the Government will have this consideration of speed very much in mind when they consider the review of regional policy announced yesterday by the Minister of Technology. From our side, we shall watch with vigilance and, if there is any reduction in the support, we shall be the first to draw it to the attention of the House.
I turn to another aspect of Government relations with industry, to which little reference has been made today but which is of great importance. I refer to the type of intervention necessary when one is dealing with an older industry affected by technical change. I could give many examples, but I shall confine myself to two. I take, first, the coal mining industry, an industry which has experienced a rapid rundown because of the competition of new fuels, and, in part, because successive Governments have decided to make a special point of the development of nuclear power. The discovery of North Sea gas also has played some part in it.
The problems of the coal industry, which affect many tens, if not hundreds, of thousands of miners and their families, are the product of the market economy to which the Government have declared their adherence. It is a matter of essential national policy that, where an industry like the coal industry is badly hit by technical change, the Government should assume responsibility for softening the effect on the people concerned.
In the first day of the debate on the Address, my right hon. Friend the Leader of the Opposition asked the Prime Minister whether the Coal Industry Bill would be presented to the House in the present Session. It was referred to again by my right hon. Friend the Member for Birmingham, Stechford today. It was a Bill presented by the previous Government, not opposed in the House, which would provide for support after next March for the social costs and to carry redundancy payments forward. I hope that we shall have a clear statement from the Government about that Bill before very long.
§ Sir G. Nabarro
The Bill to which the right hon. Gentleman refers was presented to the House at the end of March this year. It had a Second Reading on 9th April.There were seven weeks 611 between 9th April and 29th May. It was an agreed Measure. It could have been taken through by the previous Government in 48 hours. Why was it not taken through if it were so important?
§ Mr. Benn
The problem was simply one of getting it through the Committees of the House. If the hon. Gentleman says that it was a wholly non-controversial Measure, why do his Front Bench have difficulty in announcing their support for it? I am seeking only a reaffirmation from the Conservative Party, now in power, that the Coal Bill will come forward as an agreed Measure. I make no more of it than that, except that I cite it as an example of intervention.
Exactly the same applies to the shipbuilding industry. My hon. Friend the Member for Walton, referred to Cammell Laird. I could refer to Palmers Yard at Jarrow on the ship-repairing side. My right hon. Friend the Member for Stechford referred to Upper Clyde Shipbuilders. Here is an industry which certainly did not run into difficulties because of Government intervention. Practically nothing was done for the shipbuilding industry until the Geddes Report was published in 1966. Here is an industry in which it is possible, by good management and industrial reorganisation—this has been proved to be so—to achieve an improved performance in export markets and a general strengthening at home. It could not have been done without Government support. If one takes the crude view that, whenever an old industry runs into difficulty, the best thing to do is to cut one's losses, that is to leave out of account that the Government have a creative part to play in cases of that kind.
It is not really a question of Government intervening in industry in those two cases. What actually happens—and the Minister of Technology will discover this if he has not already done so—is that industrial problems intervene in Government, that the Minister finds himself confronted with a changed situation. The latest is ship-repairing, where the question which he has to decide is whether he will brush it aside and say, "Let competition play its part", or whether he intends to play a creative part.
612 It is not only with old industries that intervention of this kind is necessary. The Minister of Technology has some very difficult decisions awaiting him on the aircraft industry side, because without Government intervention we should have no aircraft industry in this country to speak of. The reason is very well known. The aircraft industry of every country in the world is sustained either by its defence spending or direct or indirect support from foreign governments. What the Government have to decide here is which criteria they should apply in trying to make sense of these very difficult decisions.
The hon. Member for Horsham (Mr. Hordern) said that what is required is a rational central decision about which areas we should move into. I beg him not to follow that line. The truth is that Government should support in the aircraft industry only those projects with a reasonable prospect of winning a share of the world market, and should not themselves pre-empt a decision as to what industry should do. Some of the least successful examples of Government intervention have been those which flowed exactly from the principle the hon. Gentleman stated, that Government should decide what should be done and then tell industry to get on with it.
§ Mr. Hordern
If the right hon. Gentleman reads my remarks in HANSARD he will see that I was not confining them to the aircraft industry. I was referring to total Government expenditure over the whole field, whether support for the consumer industry, micro-circuitry or nuclear energy—the whole thing.
§ Mr. Benn
My arguments apply over the whole field. The question of a nuclear merchant ship has come up. A very careful study has been made of this. A statement was made by the Joint Parliamentary Secretary to the Ministry of Technology, the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), the other day, with which I entirely agreed, that to build a nuclear merchant ship as a conscious act of policy when there is no reason to believe that it would be economic does not make sense of intervention.
The point which I am making is that whether we are dealing with the older or the newer industries Government can be 613 effective in working with industries only if they are working either on the basis of old skills which can be preserved and put to better use or on the basis of support for a project that is likely to succeed. There was certainly no interest on our part in providing money that might have been available from other sources. One of the things which gave me greatest pleasure occurred when we were asked to support a very big computer-leasing project. It came to us because no other source of finance was available. When we examined it and said that we would support it, immediately the resources from the City became available to take on that responsibility, because the City knew that the idea had been properly vetted by us.
It is certainly no part of the object of intervention that Government should assume responsibility for financing the whole of development. But I would say to the House—and this is what makes nonsense of the phrase "liberating industry from unnecessary intervention"—that it is impossible for a modem industrial society to adjust to the changes made necessary by technical change unless it has some instruments available to assist with restructuring, as has occurred in the motor industry or the electrical industry, to bring about a partnership between the public and private sector, as is occurring in atomic energy, or to deal with some of those extremely difficult issues which involve major foreign investment.
It is exactly here that I.R.C. has a rôle to play. I am very sceptical about the idea of bringing businessmen in to run Governent Departments, as if that were somehow the right way of handling the matter. The truth is that the skills of the industrialists are best applied in dealing with the problems of industry. What we have succeeded in doing through the advisory committees, and even more through the Shipbuilding Industry Board or the I.R.C., is to get the very best advantage out of the industrial skill available to us in handling those industrial negotiations that are an essential part of the Government relationship with industry. It would be a great mistake to suppose that the answer lies in bringing in industrialists to do the work of civil servants, just as it would be wrong, for the reasons I have given, for civil servants to be pre-empting decisions 614 which ought properly to be taken in industry.
I move to one or two other areas in which Government intervention, if that is the word that we have to use, is necessary. I am thinking particularly of economic planning. This, I know, is a matter of some controversy between the parties. Writing about the Japanese economy, the Economist had this to say:the ultimate responsibility for industrial planning, for deciding in which new direcshould try to go, and for fostering and protecting business as it moves in these directions lies with the government".—that is, the Japanese Government.
In a remarkable article about the operations of the Japanese economy, the economy of one of our major industrial competitors, the Scientific American in a recent edition made it clear that one of the reasons for the success of the Japanese economy was the very close relationship between industry and government in Japan. It would be very foolish if the Tory Party, which has often argued that trade unions should abandon the cloth cap image and the idea that there is a permanent and irrevocable hostility between the two sides of industry, were to foster the idea that there is an absolutely ineradicable hostility between management and government in economic planning. All the evidence—and this comes from all the work, starting at N.E.D.C. right to the level of co-operation in industry itself—suggests that the problems of running a modern economy are so complex that it is essential to provide the basis of a genuine partnership between the two sides of industry and Government.
There is a marked contrast between the words of the Gracious Speech and its attitude towards relations between the Government and industry, or even the attitude to competition, and the attitude which comes from certain modern management experts who write and lecture on these subjects. I was struck by one in the Financial Times a couple of months ago, 12th March to be exact. The head of Professional Development and Education Operation in General Electric in the United States, speaking about the modern approach to management, said thatthe old criteria, based on the assumption that hard work must reap its own reward, or that American society thrived on competition, would be replaced by new ethics and new 615 management able to deal with the conflict and fully aware of the social and political factors.Reading the words of the Gracious Speech, one is constantly struck by the fact that it is still based on the old idea that the less the Government have to do with industry the better, and that any linkage is undesirable. In practice, this cannot be done and this Administration, like any other Administration facing its responsibilities, is bound to look again at the attitude which it expressed in its manifesto.
For example, it is inconceivable today that the trade union movement should be left entirely in the position of being the people with whom one dealt about industrial disputes instead of about the whole range of industrial policy. The rôle of the Government in stimulating exports, either through the work of the Board of Trade or through technological agreements in which the C.B.I. and the Government work closely together, is an exercise in partnership. The rôle of the Government in monitoring and supervising international companies, now so big and powerful that they tower over national Governments, involves a degree of intervention which hitherto has never been thought necessary by any party in this House. Relations between individuals and industry on the environment, which constitutes a major re-statement by human beings of what they require from industry in terms of a cleaner environment and less congestion, is another example. All these things involve a participation by Government in industrial policy-making that is well beyond anything alluded to in the Gracious Speech. The Government, as a customer, as a supervisor, as a manager of research, have an enormous rôle to play in shaping the development of industry and we shall watch with great interest to see how the Government interpret the phrase in the Gracious Speech.
May I conclude by saying that if we are to make sense of the period of industrial and technical change which is going on far more rapidly than at any other time in our history, the Government will have to do better than to use the old language of Adam Smith and will have to try to build up a partnership with management, with trade unions and with science, to provide the basis for growth 616 not only in the development areas but in the economy as a whole. Even if they dismiss my arguments, they will in the end be judged by the public according to whether they are capable of achieving that partnership.
§ 9.35 p.m.
§ The Minister of State, Treasury (Mr. Terence Higgins)
May I first express my personal thanks to the right hon. Member for Bristol, South-East (Mr. Benn) for the congratulations which he was kind enough to extend to me. I believe it is true that economic turning points are of two kinds, those which can only be discerned over a long lapse of time by careful statistical analysis and, on the other hand, those which even at the time can be seen to reflect a fundamental change in policy. It is perhaps true to say that the debate marks a turning point of the second kind.
It is not surprising that the House has perhaps found some difficulty in its change of rôles and that there has been a natural tendency for hon. and right hon. Gentlemen opposite sometimes to make the kind of speeches that they have been making in government in recent years. This is something which we must understand for the moment. Certainly the right hon. Gentleman's speech was very similar to many which we have heard him make in recent times, and we must appreciate that it reflects very plainly a fundamental difference in approach between the two sides of the House, with which I shall seek to deal in a few moments.
First, it is my pleasant task to join with the right hon. Gentleman in extending our congratulations to no less than six hon. Members who have made their maiden speeches today. They all spoke with enviable fluency, they all expressed deep concern for the impact which economic policy inevitably has upon their constituencies. The hon. Member for Sedgefield (Mr. D. Reed) and the hon. Member for Whitehaven (Dr. John A. Cunningham) stressed the importance of regional policy about which we are deeply concerned. My hon. Friend the Member for Esher (Mr. Mather) stressed the impact of economic policy on the environment as it was reflected through social costs in the problem of aircraft noise. The hon. Member for Southampton, Test 617 (Mr. James Hill) stressed the need for concern about social problems, and my hon. Friend the Member for Lancaster (Mrs. Kellett), in an admirable speech, stressed the concern which we ought to have for the elderly. The hon. Member for Manchester, Ardwick (Mr. Kaufman) was concerned equally about housing problems.
It is right and proper that these points should be stressed, because they reflect the fact that the solution of these problems must depend fundamentally upon our economic performance. The whole question of economic policy is therefore central to all the social and environmental problems which they raised. It is therefore important that we should concentrate on the central problem, and that is what I would like to do in my remarks tonight, although I should add that there are hon. Members opposite, particularly the hon. Member for Heywood and Royton (Mr. Barnett), the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Member for Liverpool, Walton (Mr. Heffer), who continue to make exactly the same speeches as they have made for the last five years. I hope that they will continue to do so, because I think, with respect, that they make a major contribution to the thought about what is the right policy. It is true to say that the essential economic policy with which we ought to concern ourselves is that of achieving our basic economic objectives. The right hon. Member for Bristol, South-East raised a number of issues which more fairly fall to be answered in the debate on Thursday when we shall discuss the Opposition's Amendment. This is a continuing debate and I want to preoccupy myself with some of the points which the right hon. Gentleman raised, particularly the point of economic strategy.
The debate opened today with the crucial question of analysis of the economic situation in which we find ourselves. There is a fundamental difference between the two sides of the House. The other day the Leader of the Opposition quoted his own remarks and maintained that my right hon. Friend the Prime Minister found himself in the strongest position economically that any Prime Minister in living memory has taken over. However, my right hon. Friend the Chancellor of the Exchequer was 618 right in pointing out that we have inherited some very serious economic problems. If we are properly to appraise the present situation, we must look at all the economic indicators and not select one or two, as right hon. and hon. Members opposite have tended to do.
Our economic objectives must be, first, to achieve a high rate of economic growth; secondly, to maintain a high level of employment; thirdly, to control inflation while maintaining free collective bargaining; and, finally, to achieve a satisfactory balance of payments. Taking all these objectives, it is surely true to say that we have grave cause for concern.
Let us look at the matter in historical context. We pointed out following devaluation that there was considerable procrastination before effective measures were taken to back it up. Earlier today, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) said that he had had to take over after only 18 hours as against 18 days; but nothing effective was done to back up devaluation for a very considerable time, and in some ways we are still suffering from the consequences.
Speaking in the debate on the Address last year, my right hon. Friend the Prime Minister compared the then Chancellor of the Exchequer to a juggler who had five plates in the air, representing the objectives which I mentioned a few moments ago. He pointed out that the Labour Government's performance on all of them was extremely poor. They had achieved an effective improvement in the balance of payments one year in three. There were over ½ million people out of work for 25 out of 26 months. Prices were up 23 per cent. Free collective bargaining had been jeopardised as a result of their prices and incomes policy. Economic growth was half what it had been for the corresponding four years when we were in office.
However, since then there have been fundamental changes, and I want to look at the present picture. Since the last Queen's Speech we have suffered fundamentally from what has been described as the wages and prices explosion. We have a strong balance of payments, and we fully recognise the advantage of it. But the other economic indicators must be taken into account. The right hon. Member for Stechford today was 619 inclined to gloss over the other questions with which we must inevitably be concerned and with which the electorate clearly was deeply concerned during the recent campaign. The right hon. Gentleman rather skated over the fact that the level of unemployment is the highest for 30 years, with all that that means in human unhappiness and wasted resources. It is not enough for him to say, "The level is too high, but we should not be seriously concerned about it". That is indeed a serious matter which it is important to tackle.
Secondly, I believe that it is right and proper that we should be concerned about economic growth, because we have found that between the second half of 1968 and the second half of 1969 G.D.P. in real terms has risen by only 2 per cent. My right hon. Friend the Chancellor of the Exchequer pointed out that this compares unfavourably with the previous rate of economic growth, so that certainly we ought to be deeply concerned about it. It is our intention to improve that situation by adopting positive policies, with which I shall deal in a few moments.
Another point which we must stress strongly is that, for reasons which we spelt out in the debates on the Budget this year, the average rate of increase of wages and prices has been over 5 per cent., with a further rise in the first five months of this year of over 3½ per cent. Clearly we cannot regard this situation as satisfactory. It must inevitably give grave cause for concern.
This is to look at the picture at a moment of time. This is, so to speak, to take a still photograph of the situation. If we are truly to appraise the situation, we must look at it dynamically. What is worrying at present is the rapid rate of increase of wages and prices which clearly follow from the previous Administration's policies.
I thought it rather extraordinary in many ways that the former Chancellor of the Exchequer should seek now to attack the proposals which we are making when it was a matter for comment during the Budget debates that he had failed to make any serious analysis of the change in our economic structure which appeared to have been brought about by the Government's policies so that we were suffering from severe cost inflation. This re- 620 fleeted what I can only call a complacent attitude by the right hon. Gentleman during his period in office. We on this side of the House cannot regard that as a matter which can be left unanalysed.
In the debates on the Budget we sought to analyse precisely what had happened. I referred then to the basic problem which seemed to have arisen because there had been some change in the structure of the economy on the relationship between unemployment on the one hand and prices and wages on the other. I described it at that time as a disappearing Phillips curve, a curve which in the past has shown what this relationship is. That being so, we need to look carefully at the situation and we ought to put forward proposals related to the dynamic situation in which we find ourselves. But I do not believe for a moment that we can look at this situation now and say that it ought not to give us cause for concern. Therefore, we put forward proposals which are clearly referred to in the Gracious Speech.
I fully endorse what was pointed out by my right hon. Friend: that fiscal and monetary measures must march hand-inhand. My right hon. Friend referred to the previous Government's statement as a blinding glimpse of the obvious. [Interruption.] The hon. Gentleman says that this is obvious, but it was not obvious to the previous Administration for a considerable period. Indeed, I am sure that many of our problems are a direct result of the previous Administration having failed to get that blinding glimpse of the obvious early enough, despite the fact that we brought it to their attention on many occasions.
We must bring together those two aspects of policy, but we must also pay particular attention, as my right hon. Friend the Chancellor said, to the situation in the public sector. This is not a question which can be looked at in such a way as to say that we must discriminate. We have made it clear that the Government have a responsibility in this area, and I find it extraordinary that both before the election and subsequently right hon. and hon. Gentlemen opposite seemed to be implying at times that the Government do not have responsibility for what happens in the public sector. We are sure that we have a responsibility there, and we are determined to discharge it. If we take these three aspects of policy together, I believe that they present 621 serious proposals which we can put forward to help us to achieve the objectives which I stated earlier.
The next matter to which I come is that during the course of the campaign some reference was made by many right hon. and hon. Gentlemen opposite to the fact that it was impossible effectively both to cut taxation and to maintain the level of public expenditure. Many of them were inclined to say that the sums which we were putting forward were not going to add up. In this respect it is important to look at the situation which arose between 1951 and 1964. During that period we cut tax rates by £2,000 million, and at the same time we more than doubled public expenditure. What we have done before in this respect I have no doubt we can do again. Unfortunately, we have to do it again because during the period of the previous Administration tax rates went up by about £3,000 million, and it was perhaps significant that the right hon. Member for Stechford did not seek to deal with the question of the level of taxation. We on this side of the House believe that this again is a matter about which we ought to be concerned. We are convinced that by the adoption of positive policies it will be possible for us to do again what we did before.
It is a triad of policies that we need to pursue in this respect. First, we are convinced—and this reflects the difference between the two sides of the House—that if we are to get the economy going again the first priority must be to reduce direct taxation and to restore incentives to the people of this country. This is so both for individual and for companies. If we do this, I am sure that we shall achieve the rate of economic growth which hon. Gentlemen on both sides of the House, and particularly perhaps those on the third row above the Front Bench opposite, have asked us to do. It is essential that we should do this, and in order to give us sufficient headroom in this respect it is important that we should carry out the review of public expenditure which my right hon. Friend the Chancellor of the Exchequer has already initiated. This is the first plank on the platform.
Second, we are convinced, as we were between 1951 and 1964, that it is essential to encourage savings. Many of my 622 hon. Friends have stressed the importance of savings for finance for investment in the private sector. We are convinced that it is important to do this because, as has been said many times in the House, if one can put forward positive proposals and create a climate which will encourage saving, this is a voluntary postponement of consumption, and it releases real resources for investment. The policy of the previous Government all along the line was to increase taxation rather than encourage savings. The figures over the years demonstrate this very clearly, and it is likely that the reductions in direct taxation will also help us achieve our objective. Finally, as we have pointed out, if we are to achieve our objectives it is vital to attain a more rapid rate of economic growth.
As was clearly reflected in the speech of the right hon. Member for Bristol, South-East there is a fundamental gulf in policy between the two sides of the House. The party opposite has a policy of higher and higher taxation and more and more Government intervention, with the Government taking more and more resources into their own hands and deciding which individuals or industries should be given a hand-out, as against our policy of reducing the level of direct taxation—
§ Mr. Benn
How fundamental is the divide? Will the Government do anything to help the shipbuilding industry, the development areas, the aircraft industry or other industries whose problems are brought to the Government because of rapid changes?
§ Mr. Higgins
We have made our regional policy quite clear. It was clear from the right hon. Gentleman's speech that he was dealing with the Amendment that will be debated next Thursday. It is right that individual items should be dealt with by my right hon. Friend when he replies to that debate. But there is a tremendous gulf between the two sides. We do not accept the criterion that the right hon. Gentleman is now suddenly putting forward that we must be concerned with historical trends and the question whether projects make a profit.
The classic case of intervention by the right hon. Gentleman was the case of the Beagle aircraft, when he backed his commercial judgment against the judgment 623 of the market, with the result that a substantial sum of public money was wasted. That was because he believed that he knew better than the market. We debated this matter at length. This is a clear case of the kind of operation that the right hon. Gentleman seeks to put before us as something we should support. We do not believe that this is the right approach. We fully accept the need for a regional policy, and we always have done. My right hon. Friend the Prime Minister has continually stressed his commitment to it.
§ Mr. Benn
Without the Government's rÔle in the cases of Shorts, Harland and Wolff there would have been a major tragedy in Northern Ireland. Is that the sort of Government intervention that the hon. Gentleman would oppose?
§ Mr. Higgins
That is a detailed point, which should be dealt with in the subsequent debate. The right hon. Gentleman has been speaking to his Amendment. On the overall point, we have no doubt that the continual increase in taxation that the party opposite promoted for the last five years, combined with its interventionism, has resulted in the overall economic position of the country suffering. We have no doubt about that. We fully recognise the need for the Government to intervene in the overall management of the economy. The crucial thing is that we should set a framework within which private enterprise can operate, invest and contribute to the growth of the economy.
I fully appreciate that this is the difference between the two sides of the House. As my right hon. Friend said in opening the debate, we are prepared to be judged on the results. There is an ever-greater tendency on the part of hon. Members opposite to expect us to announce our policies immediately. A few days ago the Leader of the Opposition seemed to imply that we would implement our entire manifesto proposals almost instantaneously; indeed, not only instantaneously but simultaneously. The fact is that this will carry us through the life of a Parliament. We are convinced that the difference in principle between the two sides will be clearly reflected in our economic performance, in terms of unemployment, the cost of living and economic growth.
624 On that basis, in the light of the proposals put forward in the Queen's Speech, and on the basis that my right hon. Friend adopted in putting forward specific extracts from our manifesto as firm commitments, I have no doubt that when the time comes for us to be judged on our performance we shall find a radical improvement in the level of achievement experienced under the last Administration.
§ Debate adjourned.—[Mr. Hawkins.]
§ Debate to be resumed Tomorrow.