§ 3.6 p.m.
§ LORD DRUMALBYN rose to call attention to the suggestions and recommendations for Government action contained in the Report of the National Economic Development Council on imported Manufactures; and to move for Papers. The noble Lord said: My Lords, this Motion has been on the Order Paper for some time, and the interval has given the Government time to take action on some of the recommendations; and, indeed, in some cases they have done so. The purpose of this Motion is to give the Government an opportunity of stating which of the recommendations they have accepted and implemented; which they have accepted but not implemented, and which they reject, and why. There are many of them, and I cannot hope to deal with them all.
§ In one way this debate has come at an awkward time. The figures for overall exports and imports have been published, and it is a relief to know that our exports have increased by more than our imports in the past year, a trend which certainly needs to be maintained. But before the Government, or anybody else, take too much credit for this, it is as well to remind them that since October, 1964, the terms of trade, according to the Financial Times of December 28, have turned no less than 5 per cent. in our favour, representing a difference of £250 million in the balance of payments. The final figures for the various classes of exports and imports were not available in time for me to quote them, and I shall be using earlier figures.
§ In every other way, however, this is an appropriate time for a debate on this subject. The import surcharge came to an end at the close of November. The remaining duties on imports from EFTA countries were finally removed at the end of last year. There is moderate hope of progress being made with the Kennedy Round; the Prime Minister and the Foreign Secretary are seeing what can be done to accelerate our entry into the E.E.C., and this is a suitable moment for suggesting action which might be taken in the coming Budget.
§ May I first say a word about the "Neddy" (if I may call it so) Report? 123 In the tradition of the Victorian novel, it has a dual title: Imported Manufactures: An Inquiry into Competitiveness. It was prompted by the sharp rise of imports of manufactures in 1960 and in 1964—both years of increasing economic activity in this country—coupled with a tendency for imports of manufactures to increase proportionately more than imports as a whole, and proportionately more than exports of manufactures. As the Report showed, imports of manufactures rose in value by 38 per cent. in 1960 and by 26 per cent. in 1964, while over the ten years1954 to 1964 they more than trebled in value and rose by 174 per cent. in volume, as against 63 per cent. for all imports. What is more significant for a country which depends on its exports of manufactures to enable it to pay for the food and raw materials which it must perforce import, while in 1954 imports amounted to 24 per cent. of exports of manufactures, in 1964 they amounted to one half.
§ For a nation which lives by international trade, the more trade we do, of course, the better. I for one would not dispute that the policy of trade liberalisation was right for this country, both for economic and for political reasons. The tendency towards specialisation in international trade is bound to mean an increase in certain kinds of imports. There is nothing wrong about imports rising. What is wrong is their rising disproportionately in relation to exports. It would be illogical for this country at one and the same time to develop its participation in free trade areas and to seek to widen them by entry into the E.E.C. on the one hand, and on the other hand to take action designed to restrict the British market to home produced goods. The object of the Report presented to N.E.D.C. in June, 1965, was rather to try to see to what extent and why, despite the present tariff structure, we were importing more and more manufactures of a kind which we could very well make for ourselves. If we cannot compete in our own home market in such products, we have little chance of increasing our exports of them. History shows that a country which accepts an excessive proportion of imports will gradually find itself more and more unable to compete in exports and to pay its way.
124§ I do not intend to discuss the effects of the surcharge, which was designed to cut back imports, according to the Chancellor of the Exchequer's Budget speech in November, 1964, by nearly £300 million in the first year. I would only say that, according to the Sunday Times of November 14 last, the import statistics for the first nine months of 1966, in comparison with 1964, showed that those for machinery were 33 per cent. up, electrical plant 28 per cent. up, chemicals 20 per cent. up, manufactures 5 per cent. up, and other surcharge able goods 13 per cent. up. I mention this only to show how formidable the problem still is. If a surcharge which Customs and Excise estimated added over £320 million to the gross cost of imports while it lasted, had no more effect than this, there clearly is a need to take this matter still more seriously.
§ If I were to go into the Report in detail and also to cover the follow-up Reports which some of the E.D.C.'s have made, and also follow up other Reports such as the Ministry of Technology's Report on Machine Tool Orders, I should make a very long speech indeed. Therefore I shall confine myself to the chief recommendations made for Government action. Even so, there is a good deal to say. As there are no other speeches, apart from the noble Lord, the Government Chief Whip, perhaps the House will allow me a little more longitude than usual.
§ However liberal a policy may be, it is common sense that a nation should itself supply a substantial proportion of its basic manufactures. Every sizable country does so. We learned our lesson in regard to agriculture, and in consequence our agricultural industry is as efficient as any in the world and helps us to keep in the forefront in the international market for farm vehicles and equipment. However, in the supply of textiles we have been in danger of forgetting this lesson. The E.E.C. imports only 5 per cent., and the United States of America 7 per cent. of their cotton fabrics from the underdeveloped countries. On the other hand, we import 30 per cent. plus 10 per cent. from other more developed nations. At the time of the Report the cotton industry envisaged a five year period for reorganisation, with imports stabilised over that period. I want to ask whether the Government accept that? Secondly, are 125 the Government prepared to use the safeguards in the Japanese Treaty to ensure that our market is not flooded with woollen textiles from Japan? Also, are they prepared to do the same with regard to imports from Japan in the consumer electronics field?
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I turn now to the question of tariffs and dumping. Several E.D.C.s asked for an improvement in the legislation dealing with dumping—the Customs Duties (Imports and Subsidies) Act 1957. The need for an improvement can perhaps best be illustrated in the iron and steel and chemicals industries. In paragraph 50, the Report claims, after mentioning that since 1960 the dominating factor has been the surplus of steel capacity in the world as a Whole, that
the prices of imports into the United Kingdom arc well below home prices in the exporting countries
Apart from ferro-alloys and certain special qualities of steel, at least £40 million of imports could be replaced by home supplies. Yet in the first 11 months of 1966 iron and steel imports increased in volume by nearly 12 per cent. I doubt whether, apart from ourselves, any other major country in the world would tolerate this. It is in marked contrast to the treatment of imports of coal. Of course it is true that some buyers like to maintain their links with foreign suppliers as a kind of insurance against prolonged strikes in this country. But it is not possible to give guarantees, accepted by all concerned, that such interruption of home supplies do not take place?
§ Turning to chemicals, there the position is somewhat different. Imports increased by over 50 per cent. in 1963 and 1964, and there was a further increase of 12 per cent. in 1965, despite the surcharge. There is an enormous number of chemicals, many of which, for a variety of reasons, must be imported. But this is not true of organics and plastics. Yet imports of these have been growing faster than exports, and faster than imports of chemicals as a whole. The main reason seems to have been shortages of capacity to meet home demand. Starting in 1963, a great many new plants have been laid down, and some of them have come, or are coming, into operation. These plants are expected to supersede £35 to £40 million of imports. For example, it was reported last week that a new plant near 126 Scunthorpe to process caprolactam for nylon will come into operation next April—a joint Anglo-Dutch venture which it is estimated will save £4 million worth of imports. It is good to read that we may shortly once again be a net exporter of organic Chemicals, which we ceased to be in 1959, and this of course is due to the provision of additional capacity.
§ There are reports not only of delays in construction, but of reductions in investment resulting from the economic climate, both at home and abroad. Unless it is possible to export profitably, it is often not economic to install new plant. Probably the most serious deterrent to plant construction in this country is in the field of plastics. Plastics and organics are made in plant which for the most part runs continuously. The temptation to dispose of surplus production by dumping is irresistible. In organics we have at least a 33⅓ per cent. tariff to surmount. But in plastics our tariff is only 10 per cent., as compared with anything from about 20 per cent. in the E.E.C. to 72 per cent. in the U.S.A. In consequence, Britain is the favourite dumping ground in the world for plastics. This is something which could be looked at in the Kennedy Round.
§ The combined effect of the difference between the tariffs on the one hand, and the difference between Customs methods in dealing with dumped goods on the other, has caused a profound feeling of insecurity among manufacturers in Britain and has deterred them from producing as much capacity as they would have liked. Lack of home capacity in turn has driven home users to buy chemicals from abroad. It is a vicious circle. I believe that the tariff is too low. Semi-manufactured plastics ought from the start to have been subject to the 33⅓ per cent. tariff, like other chemicals. Secondly, I believe that it must be made quite clear to our representatives abroad that it is their duty to report the prices at which goods particularly liable to dumping are sold on their home market. They must not necessarily look to the importers to establish those prices; it is often quite impossible for them to do so. The list need not be long. But goods on these lists exported at less than these prices should be automatically subject to dumping duties. If our representatives abroad cannot get the information, then we must 127 insist on the Customs documents disclosing the home market prices, with very severe penalties for false statements in cases of doubt. Customs and Excise should have the power and the duty to hold the goods pending investigation, as in the United States of America.
§ The Chemicals E.D.C. are absolutely right to insist that there should be harmonisation both of tariffs and of the treatment of imports in the various countries concerned. I hope the noble Lord will be able to tell us that the Government have insisted on this, and that the Government propose to take action under the 1957 Act or to amend it if necessary. The Paper and Board E.D.C. did not specifically complain about dumping but called for a review of foreign competitors' trade practices with a view to ensuring fair conditions of international co-operation. I should like to ask the noble Lord whether this has been done.
§ I turn now to another subject of a recommendation by the Report, the prices of electricity and oil. One point that was made by several E.D.C.s, including those of the Chemicals and Paper and Board, was the higher cost of electricity and oil in this country as compared with its cost to our main competitors. There is the question of hydroelectric works, which may enable some countries to produce electricity more cheaply. All the same, will the Government look very carefully at this matter? Surely it ought not to cost more in this country for heat, light and power for industry than it does elsewhere. As for electricity, there has always been a strong suspicion that the amount by which the charges to domestic users exceed those to industrial users is not nearly as great as it ought to be on the basis of the relative cost of maintaining a service, and that there is an element of subsidy to the domestic consumer at the expense of the industrial user. This ought not to be a matter purely for the Electricity Boards. The Report recommends that the Government should review the charges to industry and, if necessary, that there should be a general directive given by the Minister that as nearly as possible the different sectors—industrial, commercial, institutional and domestic—should pay the true cost of the power they consume. Now 128 that rating relief for industry has been done away with, electricity relief for consumers should, I think, be done away with too.
§ I turn now to engineering. Imports of mechanical and electrical engineering goods increased nearly threefold in value between 1958 and 1964, and fivefold between 1954 and 1964. In1954 imports amounted to 18 per cent, of exports; in 1965 they amounted to 40 per cent. Our exports, on the other hand, between 1954 and 1964 doubled in value. While the balance of trade in our favour actually rose, the increase probably did little more than reflect the rise in prices. The share held by imports on the British market is surprisingly high in some fields: 29 per cent. in machine tools; 40 per cent. in textile machinery; over 50 per cent. in computers, though in computers foreign predominance is mainly due to their sophistication in "software".
§ Two facts of importance which seem to be connected are worth mentioning. First, for the United States and Germany the ratio between exports of engineering goods to advanced countries and imports from them is twice as high as for Britain; they export twice as much as Britain does. Secondly, a far greater proportion of our imports than of our exports are of high value—more than twice as high a proportion of our imports exceed £2,000 per ton in value of our exports—which means, of course, that we tend to import more sophisticated machinery than we export. The Report states that our more advanced firms tend to buy more of their textile machinery and machine tools from abroad—in some cases as much as 70 per cent. They say that they do so because of superior performance and design characteristics, a consideration which, as the Report says, "outweighs quite large differences in price".
§ According to the Mechanical Engineering E.D.C., the major structural weakness is continual shortage of supply capacity. This is something running right through the Report. This has resulted in lengthening order books and delivery dates and has caused customers to place orders overseas. The shortage is attributed to unwillingness on the part of manufacturers to invest in expensive production plant which may stand unused 129 for months during a period of "stop". The Report listed 13 points for action by manufacturers of machine tools to remedy the present trend, in some of which the Government have an important part to play. These included increasing capacity; employing more qualified engineers; identifying imported machine tools which could be produced here; holding larger stocks, and the greater use of selling consortia. I do not propose to deal with the 13 points except in so far as Government action is required, and that is the subject of the Motion. The Mechanical Engineering, Electronics and Electrical Engineering E.D.C.s made similar points in their own ways.
§ In the final chapter of the Report, N.E.D.C. sets out a summary of its conclusions, including a section on "the field for Government action—internal and external". The recommendations for Government action were these: first of all, general measures to encourage efficiency and technological advance, including a review of incentives to investment; special tax incentives for current expenditure on research and development; and innovation grants for the first users of a new machine or installation. Second, management of demand. Third, improvement of official statistics. Fourth, review of the pricing policies of nationalised industries, particularly of electricity and other fuels, to which I have already referred. Fifth, the use of Government purchases and development contracts to stimulate the development, production and use of the most advanced equipment. Sixth, review of the system of remission of duty on mechanical and electrical engineering equipment—which has been done. Seventh, further encouragement to international companies to manufacture and to set up design and development teams in this country. Eighth, review of anti-dumping legislation, to which I have also referred. Ninth, tariff revisions and quota protection where necessary.
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I would say a word about official statistics. N.E.D.C. and the "little Neddies" evidently found themselves handicapped by the limitations on the amount of official information available about imports. The Mechanical Engineering "Neddy" said in its progress report last year:
The Government should make detailed information available regularly about imports of plant and machinery. This information is
130
essential to a more effective effort to compete with imports and will be a major consideration at maker-user discussions.
§ In the Companies Bill now before the House the main object of Part I is to require greater disclosure. Surely the Government should be prepared to play their part in the national interest and make greater disclosure in regard to imports. I recognise that this will not be universally popular, especially with importers and with manufacturers who are on to a good thing in a particular foreign machine and want to retain their advantage. But it is difficult to see how progress can be made in helping British manufacturers to match and improve on imported machinery if they do not know what are the types and characteristics of machinery which are being imported. Nor is it possible for manufacturers here to spot dumping and draw it to the Government's attention unless the Customs Department is willing to give prompt and regular information in much more detail than in the past. Perhaps the Customs should study more closely the methods of the North American and Japanese Customs Departments with a view to removing the disadvantages in export and import under which British industry and commerce have had to operate. Has not the time come for the Customs Department to seize upon this fact: that they have their part to play in the battle for the economic survival of this country in other ways than just putting money into the till of the Exchequer?
§ This leads me to the relationship between British makers and British users of machinery, to which the Mechanical Engineering E.D.C. gives pride of place. They commented that "technical patriotism" is an attitude which appears to be much less marked in this country than with some of our main competitors. Their ideas on this subject are in line with—in the E.D.C. Report it is described as the First Secretary's invitation, I think it was the Foreign Secretary's invitation, to at least one of the E.D.C.s to promote import substitution by cooperative action within the industry. If the Government really want this, will they not have to ask Parliament to amend the Restrictive Practices Act? I do not quarrel with the Foreign Secretary's intention—far from it—but it is unusual, though certainly not unprecedented in 131 recent months, for Ministers to invite citizens to take action about which a court would subsequently have to decide whether it was legal for them to do so or not.
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The maker-user relationship is nowhere more important than where the user is the Government or a nationalised industry, if only because they are in total such large buyers. The Report makes it clear that N.E.D.C. does not expect the Government to buy British irrespective of quality and price, but rather to
take the initiative in pressing their suppliers to produce goods for them which compete effectively with imports in terms of technical quality and design",
and to encourage standardisation where this can reduce costs.
Specifications"—
the Report says—
should be influenced strongly by the aim of increasing exports.
§ The Report also makes two other suggestions: first, that more research and development contracts should be given, and that, where practicable, production contracts should be awarded to those who have carried out the research and development on the particular product and are in a position to export. Second, that innovation grants should be made towards the cost of a first installation, where it can be shown that a genuine technical advance has been made, in order to encourage users to accept the risk of trying it out. A grant of 25 per cent. is suggested. Alternatively, it has been suggested that the Government might purchase prototypes and arrange for them to be tried out. I understand that the Ministry of Technology have a scheme for placing orders for pre-production models of advanced machines and for making numerically controlled tools available to users chosen by N.E.D.C. for a trial period. I hope that the noble Lord will be able to tell us whether these schemes have got off the ground and how they are working.
§ Finally, I come to the two most important ways in which Government action affects supply and competitiveness; namely, managing demand and establishing the right climate for investment. We need not spend time on investment incentives. The Government did review 132 them, though we on this side did not think that the conclusions they reached were the right ones. Having fixed them, they subsequently increased them as a temporary stimulus. Whether this was right or not is a matter for argument, but not, I suggest, to-day. There are too many other points to discuss. But your Lordships would, I am sure, be glad to hear anything the noble Lord can tell us about the way in which incentives for current expenditure on research and development are being improved, and how they are working.
§ At the time the Report was presented, manufacturers had almost been persuaded, in many cases against their better judgment, that, in the words of the Report, future economic growth would be a reasonably steady process. But they have been rudely disappointed. For my part, I think that the emphasis should be on the word "reasonably". That still must be the aim. There are bound to be ups and downs, simply because confidence cannot be sustained indefinitely in a world full of error and uncertainty, not least on the part of Governments, and especially in a country so dependent on international trade and so deficient in reserves of raw materials as ours.
§ The trouble in the past has been that the effects of such fluctuations have fallen with special severity on certain industries as a result of Government action to curb demand sharply in them. Surely these industries are also entitled to share in reasonably steady progress. Surely, too, home supplies should not be disrupted from countries where supply exceeds demand. The right climate for investment depends partly on this expectation of a reasonably steady growth; partly on the recognition that without investment in new and up-to-date processes a manufacturer will not be able to hold his own in the long run, and partly on the expectation that the right kind of staff, in the widest sense, with the right skills will be forthcoming and can be economically used. But most of all it depends on the availability of finance—in part retained profits, in part raised on the market—and the expectation that its investment will be remunerative. One after another of the E.D.C.s has made this point.
133§ It is, above all, in the economic use of manpower and in the failure to generate confidence in future profitability that the Government are failing at present. Until they can improve on their performance we shall not achieve as much new capacity or as much competitiveness as we need. It is certain that the percentage of our national product which is devoted to investment ought to be increased. But it is folly to pretend that this can be done wholly at the expense of distributed profits. Increased investment needs inducement, not so much, if at all, in the form of subsidy as in the reasonable prospect of profit.
§ In conclusion, my Lords, I should like not only to pay my humble tribute to the authors of the Report and the various E.D.C.s upon whose work it is based, but also to remind the Government how fortunate they were to find the eight E.D.C.s who participated in the Report already established when they came into office in 1964. I hope the noble Lord will agree that they have continued to do good work, and indeed, have in many cases followed up, and amplified, the recommendations contained in the Report. I trust that the noble Lord will be able to indicate that many of their recommendations, if not most of them, have been accepted and are being implemented; and I trust that he is fully briefed to deal with those relating to Government action. My Lords, I beg to move for Papers.