§ 2.46 p.m.
§ LORD ALDINGTON rose to draw attention to the Report of the Committee on Invisible Exports (B.N.E.C.); and to move for Papers. The noble Lord said: My Lords, I come to this unusual position at the Box at the request of my noble friends behind me, and with their permission, to draw attention to the Report of the Committee on Invisible Exports and to move for Papers. In moving this Motion I seek to raise the question of our general attitude towards the country's invisible earnings, as well as to discuss certain of the points made by the Committee on Invisible Exports in their Report. I believe this debate to be an important debate and to be timely. I am here thinking of the longer term, and not of the current reports of interchange and pleasantries between City and Government, though these cannot, I fear, be excluded from our thoughts.
§ I should like to say two things in introduction: first, that success in capturing a day for this debate is due not to me but to the noble Lord, Lord Rhodes. This, I may say, is not a sign of coalition, nor even a sign of coalition between Lancashire and London; it is, I think, a sign of our mutual respect. Why then is the Motion in my name and not in the name of my noble friend? It is because he thought that so soon after assuming the Lieutenancy in Lancashire, on which all his friends and admirers have congratulated him, his first duty should be to present a Motion to your Lordships on the North West. He therefore asked me to take over responsibility for this debate from him.
§ My second point in introduction is to pay my small tribute to the first Chairman of the Committee on Invisible 513 Exports, the late Sir Thomas Bland, who in the last months of his life put so much effort and devotion into this very important work. The Study, the Report and the Committee owe a great debt to the wisdom and driving force of Sir Thomas, and as he himself wrote in the preface to the Report, the Report broke new ground and paved the way to further inquiry, but was also a Report which may be regarded in its own right as a unique work of reference on a remarkably complex sector of our economy. Mr. William Clarke, the Director of the Study is rightly to be congratulated.
§ My Lords, what are invisible earnings? This is part of the strange jargon of the economists and statisticians that enslaves us. Invisible earnings are the earnings that the people of Britain produce year by year by offering a whole variety of services, such as financing and such as overseas investments, including oil, insurance, merchanting, commodities, marketing, Stock Exchange, shipping, travel and services connected with entertainment and arts and so on. These services play a far more important part in our national economy than is ordinarily understood, and a very important part, too, even when compared with visible exports.
§ I see that the noble Lord, Lord Brown, is to reply to the debate, and I do not think he will accuse me of being unconcerned with visible exports any more than he is. I do not think anybody here, certainly not any of us who are connected with industry, is going to seek to write down in any way the national good that comes from the work done in creating exports of manufactured goods. Exports and re-exports in that field earned the equivalent of £5,023 million in 1967. In the same year, 1967, what are called gross private invisible receipts—that is, the receipts from services performed by the private sector—amounted to a total of £3,089 million in value. That means that, taking all receipts from overseas together, visible and invisible, the invisible receipts in 1967 were around 37½ per cent. of the total.
§ There is quite a simple reason why such a large figure for invisibles will be a surprise to many, here and outside. It is because the statistics of our balance of payments which we are normally allowed to see give only the net figure for invisibles, 514 whereas they give the gross figures on the visible account. We are, for example, accustomed to seeing the value of our exports, month by month and year by year, as well as those rather daunting figures of our imports; but the invisible account which we see normally gives a statement of the difference between the receipts from the various services performed for the people overseas and the payments for those services to overseas. A net, but highly respectable figure, always in credit, but much smaller than the gross figure is the outcome of this.
§ That is not the only difference between the way in which we treat visible and invisible accounts, for in the Balance of Payments Statement before striking the balance between the receipts and pay-merits on invisible account a deduction is made for Government expenditure overseas. That, as your Lordships will know, has been a growing figure and is now a very large figure of £430 million or thereabouts. This, as I regard it, bad practice both hides the success of those responsible for the invisible earnings of our country, and also may falsify trends.
§ I will try to give some examples of what I mean. The latest adjusted figures show that the net invisible balance, private and Government, in 1964 was £138 million; but the true balance on private account was £570 million. In 1967—that is, three years later—the true balance on the private account in the private sector had grown by another £100 million to £687 million, and is expected to have grown to over £700 million this year. But because Government expenditure overseas has been deducted, the figure that we shall hear talked about and we shall see usually as the balance on invisible account is only around £230 million.
§ I said that this bad practice may falsify the trends. Let me give an example of that. If you go back into history e little, say ten years, you will find a much larger net expenditure on invisible account, after deducting Government expenditure, of £307 million, which may lead you to conclude that the co repetitiveness of invisible services in Britain was falling. In fact, in that year, 1958, the private invisible balance was £526 million; and ten years later, this year, it is expected to be nearly £200 million 515 higher. The difference, of course, is the growth in the Government expenditure overseas.
§ This balance between invisible receipts and invisible payments in the private sector has been of vital importance to our country, not only recently, since the last war, but for 175 years or more. In fact, in only seven out of those 175 years has there been a surplus on our visible trade (that is, in exports and imports) but throughout all those years there has been a continuous surplus on invisible account. We have had a surplus on visible trade, exports and imports, in two years since the war, but only in two years—that is, in 1956 and 1958—and as the Report we are considering to-day shows, there have been few other years, and no extended period in all this time of 175 years in which there has been a surplus on exports and imports.
§ This is at once some measure of the achievement required to-day of modern British industry, and also a measure of the importance to us of these invisible earnings. We as a country are trying now to produce a steady surplus on visible trade account, year by year, so that our total combined current account surplus can be £500 million or more. I believe it will have to be more. We shall not easily achieve this figure of £500 million surplus unless we also achieve an increase in our invisible surplus. It is right to add that the Report itself states that over the whole period of 175 years the invisible surplus has always been big enough to offset the deficit on visible trade if, but only if, Government spending abroad has been excluded from the figures.
§ These are the facts. I am not one of those who argue that the Government should not spend abroad, either for defence purposes or on Embassies or on overseas aid. But when our performance overseas is compared with that of other countries, seldom is enough account taken of the recent growth in British Government expenditure overseas. It is not, I think, so much the efficiency of our invisible earners, or the efficiency of our visible trade earners, that is the true cause of our problem here, as the failure of Government to make room for more overseas earnings to cover their higher 516 expenditure overseas by taking proper measures at home, including a reduction in their own expenditure.
§ There is in Chapter 3 of this Report an interesting analysis of how important these invisible earnings are in relation to world trade invisibles as a whole. Over the years 1952 to 1964, which are covered in some detail here, world trade in invisibles rose faster than visible trade. This may be a surprise to many of your Lordships, as it was to me when I first read about it. The United Kingdom share of the total world trade in invisibles has been dropping, as indeed has that of the United States of America. That is not really surprising because of the growth of the trade in invisibles in other countries, particularly in the travel sector.
§ But there is one rather important exception to the statement that our share of the total has been dropping. Receipts from the United Kingdom investment income overseas have until quite recently been growing faster than the world total. Overseas investment income is the only sphere in our overseas earnings in which we have this most creditable achievement. The Balance of Payments White Paper (the latest one, I think, was in March) shows, however, in Table 16, that since 1965 the net earnings from interest, profits and dividends have fallen from £450 million to under £300 million. Portfolio investment earnings in particular have fallen, as if the Government had planned that they should. It is a salutary thought that net investment earnings were built up from a level of £280 million in the early 1950s to £450 million in 1965—and how fortunate we are that that was so! Is it really sensible to try to reverse that trend, or even to allow it to be reversed?
§ I have given these bits of statistical information at some length because they must form the background to the debate and to the points that many noble Lords may wish to urge upon the Government for their consideration in this important debate. I should like to join with the Committee in pressing on the Government the importance of simple and accurate information being available for those who study Britain's economy and have to make decisions about it concerning the performance of various sectors who contribute to the invisible account, and also about the trends both at home and in 517 the world. To borrow a phrase from a former Prime Minister, the Bradshaw must be kept up to date.
§ One must say a word of special welcome to-day to the study of the City's overseas earnings, published in to-day's issue of the Bank of England's Quarterly Bulletin. This shows that an average of £235 million surplus has been achieved each year in the course of the last three years, and that is no mean achievement, whether it is the achievement of "gnomes", "goblins" or even of ordinary men and women.
§ Now what are the conclusions, or some of them, which we ought to draw from these statistics and the points that I have so far made? The first, I think, is a fairly obvious conclusion: that if we are to treat each of these activities which contribute so much to receipts of foreign exchange in the United Kingdom as of the very first importance, we must understand more about them. We should be making a mistake if we assumed that automatically a large surplus in one sector would continue over the years. History gives us plenty of warning in this regard. Shipping is an example. Our shipping receipts were £63 million more on an average each year than payments in the three years before 1914, and this was £63 million in a much higher valued pound. Though these receipts have now grown 12-fold the payments have grown by much more, and the balance was only £29 million in 1965. Even net overseas investment income, to which I have referred before, which is still the most important element in the surplus on invisibles, has not kept pace in real terms with the changes since 1913; only £451 million in 1965 instead of £188 million, in a higher valued pound, in 1913. Yet, as I have said, between 1952 and 1965 it was this item which was the only item in which the United Kingdom has increased its share of world trade overseas. For the future let us be warned that investment income cannot be expected to grow as fast as in the past if there is to be a limit on the outflow of funds for overseas investment.
§ My second suggested conclusion is that we must avoid being complacent. Though it is a fact that over the decade 1956 to 1965 the gross earnings on invisible account grew faster than visible exports and re-exports—they grew by 54 per cent. 518 as opposed to 41 per cent.—there is no certainty that that will be repeated There is another reason, in my submission, for not being too complacent with the figures that we are reading to-day. The figures that we normally see, and that I have given, of invisible earnings are given in sterling, but the true worth of the value of our invisible exports is not to be found in sterling terms but in terms of the foreign currency that we earn, bettor seen in terms of the dollar. If you compare the invisible credits for the first half of 1968 with those for the first half of 1967, there is not the large increase which you will find in sterling terms, but a very small increase of 10 million dollars from 4,082 million to 4,092 million dollars. If you compare the net position after deducting payments, in foreign currency terms there was actually a decrease from 1,022 million dollars to 934 million dollars.
§ I should like to pause for a moment here and emphasise the importance of looking at these matters against the dollar figures. They give the real position of our progress year by year. The sterling figures are inflated by devaluation. They flatter, but they delude us. We have been congratulating ourselves; on a large increase in our visible trade exports and re-exports this year as compared with last, but in fact and in dollars we did not do as well in the first half of this year as we did in 1967. In the first half of this year, so far as my calculations go, we earned from exports and re-exports in dollar terms 7,157 million dollars compared with 7,498 million dollars the year before.
§ Not only do these figures challenge complacency, indeed they should eliminate it. But they give, alas! much support—and no comfort at all—to those of us who have always been sceptical of the phrase "benefits from devaluation". There are high hopes now, we read today, of better export figures for November. I hope that these hopes are fulfilled, but let us see these figures expressed in dollars before we begin taking too much comfort. Nevertheless, let us take some joy in these troubled times in every improvement that there and before we get too depressed let us remember that even to-day most of the basic costs of living and of product on in our country are lower than most of our 519 competitors' costs. If growing efficiency in the private sector were not offset by too swollen a public sector we could, I believe, honestly say that the pound is greatly undervalued to-day. But meanwhile we face a threat, as we know, of a flight from money which we have never known before.
§ If we are to avoid complacency about our invisible earnings future we must, I think, understand the elements which have in the past made for these earnings. Now what does an analysis of present day affairs indicate are the vital factors? This Report gives us a very good guide to enable us to answer these questions. The first essential is the efficiency not just of those men and women who take part in these businesses, but the efficiency of the system as a whole. It was this efficiency, the efficiency of the system as well as of the individuals, which brought the business to London in the first place. It is comforting, in these times of challenge to sterling and the sterling system, to realise that it was the efficiency of businessmen and of the system which was more important than the development of the sterling system and the sterling area. But if the system grew up, as it has, to such success, it grew up in a very different world from that which now pertains. Exchange controls do not help the system. A wobbly and weak pound positively hinders it Rising costs, both of living and of doing business, must impair competitiveness. National attitudes of envy and malice towards those who are successful in this field can become—I do not say they are already—debilitating, even in a society like ours with our sense of humour and our sense of tolerance.
§ Last week-end's comments and outbursts of indignation against some nameless person who has been described as a "gnome" for an untapped telephone call to Germany would make one laugh, if the frame of mind of some Government supporters did not make one so sad. I really am horrified by the terms of emotion I have seen reported in another place. Incidentally, I should just like to add this thought: it seems to me extraordinarily arrogant of some members of the Government to assume that 520 a rumour that they were about to resign is likely to weaken the pound.
Next in my conclusions I come to the part that the Government should seek to play. Here I must quote from paragraph 504 of this Report:
The post war record is all the more impressive when it is realised that over the period visible exports have had continued support from the government.
Here, in fact, we are talking about successive Governments, in case there is any confusion about this. The Report goes on:
Virtually every sector of the service trades giving evidence to the committee contrasted the facilities and encouragement provided for visible exporters with the lack of support (and often understanding) given to invisible exporters.
§ There are, of course, very real difficulties in providing equal support for invisible exports. Personally, I would not argue that either in the short run, or in the long run, invisible earnings would gain if the Government were to featherbed any of these businesses in any way. That, of course, is not what successive Governments have sought to do in the case of exports of the manufacturing industry. They have, as I understand it, sought to put exporters in the same position as their competitors overseas and to help them with problems of world trade by insurance through E.C.G.D. and information, and so on.
§ The fields in which Government help can be given for invisible exports are, I think, these. First, taxation—and I am glad to hear that the Committee on Invisible Exports, now under the chairmanship of Mr. Cyril Kleinwort, with Sir Richard Powell as Deputy Chairman, are investigatng in some detail what the Government can or might do to help in taxation. It is a very strange thing, at first sight, that those responsible for these massive earnings from overseas should be subjected to a discriminatory selective employment tax. If the costs of industry are important to exports—and of course they are—the cost of banking and insurance and many other businesses engaged in securing overseas earnings are at least as important. If the Government's argument is that the tax has not yet shown any sign of reducing competitiveness, let me beseech them to beware of such an argument and let me say that they cannot possibly prove the negative 521 —that earnings would not have been higher had costs not been artificially increased in this way. I would add that even if it were proved, as I think is quite impossible, that the absolute increase in cost here is not of real importance, such a clear and positive discrimination against this type of business is and must be discouraging and tends to create a false national attitude to those who engage in business in this way.
§ There is in paragraph 289 of the Report a long list of alterations in tax and other law which would help portfolio investment, the receipts from which have been decreasing recently from £149 million in 1965 to £136 million in 1967. I must say that I am filled with gloom by the story in The Times Business Section to-day that there are threats of further obstacles to this excellent way of supplementing our income from overseas.
§ THE MINISTER OF STATE, BOARD OF TRADE (LORD BROWN)
My Lords, could the noble Lord, if he is going to quote The Times, say what it says, because I personally have given up reading it?
§ LORD ALDINGTON
My Lords, it always seems to me to have the great advantage that it is contributed to by the son of one of the noble Lord's former colleagues and the son-in-law of one of his present colleagues, so I have always assumed that it was very well-informed. But the noble Lord will have plenty of time to think of the answer, and if I could have that put right I should be much less depressed than I am at present. The noble Lord knows me well enough to know that I am always an optimist at heart, so I will await his answer, and look forward to it.
Then there is the way that corporation tax falls on those who draw earnings from overseas countries with a higher rate of tax overall than the current rate of corporation tax, but an overall rate of tax which is lower than the combination of corporation tax here and the income tax on dividends.
§ LORD BROWN
My Lords, the noble Lord still has not told me the reference which he mentioned in The Times. I merely want to know what I am expected 522 to answer. If he does not say what The Times has said, I can scarcely answer the point which he is making.
§ LORD ALDINGTON
My Lords, it is important not to delay your Lordships too long, but if the noble Lord will kindly look on the front page to the middle headlines of the Business Section to-day, he will see exactly what I mean. If he does not, I will present it to him at teatime; I have not got it with me at the moment. I thought that this report was good enough material. To return to what I was saying, I hope that the noble Lord heard me about corporation, tax on direct earnings, because that is very important to his Department.
Corning to the situation at home, I would point out that our hotels are crying out for help, or at least for equal treatment with industry. How can we sustain our travel and tourist income if new hotels are not built—not just in London and other cities but in the holiday resorts? I should like to remind your Lordships that for 16 years I represented in another place the great resort of Blackpool. There I learned of the resilience and spirit of adventure of the hotel industry, large and small. But let the Government ask themselves why no new hotel has been built in Blackpool since before the war, even with the massive receipts it must get from the Labour Party Conference and others which are held there. In all these cases, nice-sounding arguments can be adduced to maintain the present position. I think I heard somebody mutter, "The noble Lord was once a Minister himselfs." It may be that I made the same mistake but that is no reason why noble Lords opposite should not try to correct it.
My plea would be that the Government should apply the same sympathy and encouragement to the invisible exporter as they have rightly given to the visible exporter in recent years. If they do that, then I am quite clear that they will alter both the S.E.T. and the incidence of corporation tax; and they will help hotel owners and will probably wish to help shipowners and others, too.
I should like to say a word about exchange control, the second field at which one must look. In every twist of our balance-of-payments situation it has 523 seemed to be desirable, for one reason or another, to close some new door to the movement of funds from this country. We have had the limitation of overseas investment; we have had restrictions on travel expenditure. More recently we have had restriction on the use of sterling for financing third country trade, and there are other ways, known to your Lordships who are expert in this matter, in which exchange control obstructs legitimate business which has earned good overseas currency for this country. It is not a wise thing to starve the goose that lays the golden egg because other farmyard animals are eating too much. This would be a dangerous metaphor to use in another place or on a political platform outside this House, but I hope that noble Lords will not misunderstand what I have said.
There are serious dangers for the future if we allow ourselves to take refuge in exchange control cuts on private overseas investment year after year, instead of the Government first pruning their own expenditure. The recently published Reddaway Report shows that if 10 or 11 years ago the then Government had imposed the kind of restrictions on overseas investment which have operated under the present Labour Government we should be worse off now than we are. This follows from Mr. Reddaway's conclusion that the period before the balance of payment starts to benefit from overseas investment on the assumptions which he sets out in his report is only 11 years. After that time the short-term cost, including the cost of the initial investment, is overtaken by the gains from it. So we know that 11 years on we shall be worse off than we need to be. Nobody would argue that invisibles, or visibles for that matter, should have absolute priority in taxation or exchange control over all other considerations of Government policy. But I would argue, and I do argue before your Lordships' that much more attention should be given by the Government to measures needed for the maintenance and future growth of our invisible earnings. And they must seek to avoid putting obstacles in the way of those who make those earnings.
The third field for Government help is in their general policies which set the 524 climate and govern the infrastructure for the financial and other services. The encouragement of an international as opposed to a nationalistic approach to the provision of services of all kinds is as important as it is to the movement of goods and money, and so far as I know Her Majesty's present Government agree about this. In a more practical way efficiency of the most modern kind in our telecommunications system is absolutely vital to London's position as a central world market. Lastly, the Government can help or hinder in this matter by the lead they give to the encouragement of this kind of earning and to the encouragement of all the efficiency and ingenuity which lies behind it.
It is no use talking to most noble Lords opposite about the effect of high taxation on personal incentive. All of us know the arguments; and in our hearts we know them to be true. But we are not going to get much reduction in personal taxation just now, now that we have the Government we have. But there will be other ways in which the Government could encourage ingenuity and encourage enterprise and efficiency. The case for extending the Queen's Award in this field is well argued in the Report. Whether it would be right to extend the Queen's Award in this way, I am frankly doubtful. To spread this great Award too wide might destroy its value. That is my view. But I am in no doubt at all that the Government would be wise to show some practical sign of their appreciation of the work done for Britain by bankers, insurers, financiers, shippers, shipping people, hoteliers and others, who so massively contribute to our country's ability to buy the imports which really govern our standard of living.
So, my Lords, may I, with great humility, say to the Government, and particularly to the Lord President of the Council, that "Government versus the City" is as bad a slogan as "the City versus the Government". It is one of the many virtues of this Report we are discussing to-day that it proves beyond doubt the true value to our economy of the invisible earners in the City and elsewhere, as it points to the opportunities which a wise Government can seize to help increase that value. My Lords, I beg to move for Papers.
§ 3.21 p.m.
§ LORD BESWICK
My Lords, we shall all want to thank the noble Lord, Lord Aldington, for bringing this Motion before us. Apart from other reasons—and there are other good reasons—it gives this House an opportunity of congratulating the Committee on Invisible Exports and Mr. William Clarke, the Director of the Study, on what is a quite outstandingly valuable and interesting Report. We shall all wish to echo, a little sadly, the noble Lord's tribute to the late Sir Thomas Bland. In many aspects of this field this Report will surely become the accepted text book, and its clarity of expression throws a most revealing light on the whole subject. The noble Lord is quite right in emphasising the importance of invisible exports to the British economy. Just how important they are I doubt whether many non-specialists who have not read this Report will have realised. The historical perspective and balanced judgment of this Report is of especial value at this point of time when we see an extraordinarily crude attempt, by what used to be thought Britain's outstanding newspaper, to foster an economic crisis for political ends.
I have learned to respect over the years, the noble Lord's sense of fairness, and he opened this discussion in the good spirit I expected. But he did refer to relations between the Government and what is called collectively "the City", and I shall make one observation on this which, in any case, I had intended to make. We had a debate last Thursday in this House on economic affairs. Most observers thought it went reasonably well for the Government. The two official Opposition speakers were not unduly critical; the Liberal spokesman showed understanding and was constructive; the noble Lord, Lord Boothby, from the Cross-Benches was good enough to say he thought my own contribution was convincing, the noble Lord, Lord Hankey, was also constructive. I say nothing of speakers on this side, but I should have thought the views of my noble friends Lord Shackleton and Lord Balogh were worth reporting; and then we had two sour speeches from noble Lords with City affiliations.
That debate was given prominence on the front pages of the next day's Times. Around 12 column inches were prominently 526 devoted to it. Not a word, not a single word, by any speaker, save these two Peers who fitted in with the Times campaign. I trust that the noble Lord and others will accept that pleasantness or unpleasantness with the City is not always of Government making. Had the noble Lord, Lord Shawcross, found it possible to get here this afternoon—and I should add that I spoke to him on the telephone and he has an important business commitment which prevents his attendance—I should have dealt with what he said. But it was comical, to say the least, that he, a director of The Times newspaper, should have complained of selectivity from this side of the House.
It is worth while to restate the facts which the Report sets out. The noble Lord and I have chosen much the same figures. I hope he will agree that they bear emphasis. Since 1796 until the present day, in only seven years—1797, 1802, 1816, 1821, 1822, 1956 and 1958—according to the Committee's method of assessment, have we in this country achieved a trading surplus. For over 170 years, therefore, we have been dependent upon our invisible exports to pay our way. The gap has been filled by currency income from the service trades, shipping, brokerage, merchanting, commission agenting, financial services and earnings from investments held overseas. Probably it is not altogether surprising. After all, apart from coal, we have not been over-endowed with raw materials. Of course, as the noble Lord said, we have done immense things—and I pay tribute to what he himself is doing—in manufacturing industry, but it is still true, and it is greatly to our credit, that we have contrived to build up the present standard of living by putting our native skills and capacity for judgment at the disposal of others.
There is one other factor which emerges clearly from the Committee's analysis of our trading position, and I was glad the noble Lord seized upon it for it is highly relevant to the current controversy. The volume of invisible receipts has put us fairly near the top of the international league table in this particular field. While the United States' share of world invisible trade was close to double that of the United Kingdom, nevertheless our share, as second in the league table, was more 527 than double that of Italy, the third ranking country. That is for the gross receipts. Then we come to the point which the noble Lord touched upon. The total net receipts, as against the net receipts of the private trade, disclose a different picture. The net balance of invisible private trade is shown to be very substantial and fairly stable, at any rate in money terms—£609 million in 1965 and £549 million in 1966. The figures could be better—and, indeed, have improved in subsequent years—but nevertheless they are good.
What reduced the net invisible balance down to £92 million in 1966—or, as I understand it, £151 million by another calculation—was the remorseless growth in Government spending overseas. So much has been said about Government spending generally, and such a vicious campaign has been mounted, that it is justifiable to emphasise these overseas figures. They rose from £61 million in 1952 to £457 million in 1966. That was in the period during which the noble Lord opposite had some responsibility. The growth did not take place under the present Administration. In fact, the spending has been held since 1964: indeed, in real terms it is possible to claim that it has been reduced. The increase in Government expenditure overseas took place in the period of the Conservative Administration, from £61 million when they took office, to £433 million when they left office. That is the Government spending which is at the core of our difficulties.
More than half of it was on military expenditure. Here are to be found the white elephants about which the noble Lord, Lord Crowther, spoke in his non-controversial maiden speech last Thursday. The roads, swimming pools, shops, houses, churches, parks and wonderful garden cities, all part of the East of Suez defence facilities built by successive Conservative Governments—those are the items which should be under criticism, instead of the social services for our people here at home. Her Majesty's Government, as distinct from Her Majesty's Opposition, have accepted that this military expenditure East of Suez must be reduced, and to the extent that this is done then the private earnings can again make an effective contribution to a growing net invisible balance.
528 The question is: what can be done to give additional encouragement and help to those engaged in all the various activities which go to make up invisible trade? As it is only a year since the Report was published, it is perhaps not surprising that none of its recommendations can be said to have been implemented to a point at which invisible earnings have been significantly improved. The official estimates of balance-of-payments earnings so far this year show a marked increase, though of course the increased sterling value following devaluation must account for a large part of this. At present it is not possible to say whether income from non-oil services has grown in real terms. Nevertheless, it is true to say that there is a much greater awareness on the part of the general public of the important contribution to be made to the United Kingdom's balance of payments by invisible earnings, and I have no doubt that this debate will add to that awareness.
Now, my Lords, what has been done? The initial Report recommended that there should be establishedsome permanent organisation responsible for keeping a continuing watch on the whole field of invisibles with a view to suggesting means of further promoting invisible earnings at home and abroad".That organisation has now been established, under the chairmanship of Mr. C. H. Kleinwort. It has a very powerful Committee, and is fortunate to have retained the services of Mr. W. M. Clarke as Director. I understand that the Committee so far has produced three papers. One of these, produced by the Central Statistical Office, in consultation with the Board of Trade and the Bank of England, is on the action in hand, or proposed, for improving statistics of invisibles in the context of the Report's recommendations. I doubt whether anyone can say that we have as yet got that Bradshaw of which the noble Lord spoke, or the machinery for assembling the statistics which go to make it up; but I am glad to think that there is a growing recognition of the value of these statistics.
On the general point of public relations and public recognition of the work of companies and individuals in this field, there is substance in what the noble Lord, Lord Aldington, said: that up to comparatively recently, at any rate, they 529 have not been given the recognition which they deserve. In many cases—let us face it—the tendency has been to treat some of these people as if they were economic parasites on productive enterprise. They have not had the sense of purpose which someone directly responsible for visible exports has been able to achieve. An export order for some thousands of motor cars or hundreds of aeroplanes has usually been accorded much more publicity than the day-to-day work of those whose efforts have yielded us at the end of the year some hundreds of millions of pounds in overseas currency. In this connection, it may well be that the Queen's Award, which has not hitherto been available to invisible, as against visible, exports, might be considered. I will not add to that, save to say that there are obvious difficulties, and the point has not gone unnoticed.
One direction in which I hope it will be thought we have made some progress is in the hotel industry, about which we shall perhaps hear something from the noble Lord, Lord Crowther. Substantial financial assistance for the hotel industry is intended to be made available from the Hotel Development Incentives Scheme, for which enabling legislation will be brought before Parliament in this Session. As the President of the Board of Trade indicated in his Statement in the House of Commons on November 13, this legislation will also embrace proposals for a new statutory organisation which will not only carry out the existing functions of the British Travel Association but administer the incentive scheme, and which will have powers to give selective financial aid to particular tourist projects.
Hotels in certain rural parts of development areas may now obtain refunds of selective employment tax, and since February of this year the Development Commission's activities have been extended to enable it to make loans to small hotels, guest houses, and similar establishments in rural parts of development areas. I should like to add, especially as I see that the noble Lord, Lord Geddes, is here, a tribute to the work done by the voluntary British Travel Association. It is hoped, and expected, that this selective capital assistance will modify the impact of selective employment tax on the hotel trade as a whole.
530 My Lords, as I have now mentioned taxation, maybe I ought now to make some comment on what has been said, and what no doubt will be said throughout our discussions. Inevitably, many individual service industries, and especially the financial ones, conceive the major impediments to the ultimate goal of increased invisible earnings as stemming from taxation policies and exchange control.To tax and to please",I think it was Edmund Burke who said,is not given to man",and certainly not to the Chancellor of the Exchequer. I shall not try to acid more to the controversial issue of selective employment tax. The C.I.E. itself set up a special sub-committee on this fiscal aspect of its affairs and, I know, was asked to make "constructive proposals". I gather that the sub-committee has now assembled a good deal of material, with the assistance of Professor Alan Peacock, on the effects of S.E.T. on invisible earnings, and when the Reddaway Inquiry is ready t o receive evidence this will be presented. It is better, I think, that we leave it there this afternoon, although of course any proposals put forward during this discussion will be considered by Her Majesty's Government.
The C.I.E., in considering what might be done to increase the invisible earnings of banks, suggested that third country credit facilities might be extended. In fact, of course, they have been restricted. I can understand the disappointment. The Committee, however, were wise enough to qualify their recommendation. They suggested that it should not be done—and I quote:if there is a specific balance of payments danger in such a restoration".In the present circumstances the danger is so apparent that I cannot see how any fair-minded person can challenge the action which the Government have taken. It is estimated that the withdrawal of the sterling credit facilities should bring the greater part of £50 million into the reserves as the outstanding credits are unwound over the next six months. The best estimate that can be made suggests that the value of the invisible earnings, if set against this drain of £50 million, is of the order of £4 million. Surely at a 531 time when we are as a nation needing to borrow extensively abroad to replenish our reserves, it is only elementary prudence temporarily to restrict these third-country credits.
Then we have the criticism about Her Majesty's Government's overseas investment policy. Here again, the Government do not oppose overseas investment as such. They readily acknowledge that direct overseas investment can bring benefits, not only to the investing company but to the economy as a whole, in the form of invisible earnings. But in present circumstances, when we are not earning a surplus, it really does seem absurd to facilitate overseas capital investment. On a previous occasion I ventured to quote Mrs. Becton in this context. Before cooking a hare, she said:First, catch your hare".Before we resume uninhibited overseas capital investment, surely we must earn the surplus to invest. In 1964 and 1965, the deficit on private capital flows accounted for more than one-third of the overall deficit on current and long-term capital transactions. In 1966 and 1967, it accounted for less than one-sixth. But this year has seen a substantial further capital out-flow and I suggest that it would plainly be wrong to relax our control until the balance-of-payments position is secure.
The Reddaway Report, to which the noble Lord referred, has much to say about the long-term advantages of direct investment abroad. But there is nothing in that Report to detract from the view that restriction is necessary and desirable at a time of balance-of-payments difficulties. Reddaway suggests that in this situation policies should be adopted which would encourage companies to raise finance abroad and which would select those projects whose profit and export potential was greatest. These are facets of the Government's present overseas investment policy.
No doubt the figures given in the C.I.E. Report about earnings on foreign investments will be quoted again throughout the debate. They are, no doubt, as the noble Lord said, extremely valuable in our present situation; but he should pay some attention to the cost at which these returns were secured. Over the 532 period of, say, 1952 to 1964 when our current net balance was only £753 million—that is to say, over that period of time when we had a current surplus altogether of only £753 million—the capital outflow was no less than £3,524 million; that is to say, when we earned only £700 million-odd we invested overseas £3,500 million-odd. Clearly, we cannot contemplate at present buying long-term assistance at such a high immediate cost. Incidentally, there was the very relevant point made by my noble friend Lord Balogh last week which was never answered: that at a time when investment overseas was at its greatest, industry at home was being starved of up-to-date capital equipment.
My Lords, over the greater part of what the noble Lord, Lord Aldington, has said, there is nothing between him and Her Majesty's Government; there is no difference at all as to the objectives. I agree with him that there is some cause for gratification and absolutely none for complacency. I assure those noble Lords who are to follow me that any further constructive proposals that we hear this afternoon to attain those objectives will be given the fullest consideration by Her Majesty's Government.