Orders of the Day — Budget Proposals and Economic Survey

Part of the debate – in the House of Commons at 12:00 am on 8th April 1948.

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Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire 12:00 am, 8th April 1948

With most of what my hon. Friend the Member for North Blackpool (Mr. Low) has said I entirely agree, and I shall refer to one or two of the points with which he has dealt in the course of my remarks.

If we look back over the Budget Debates that we have had in this Parliament up to now, we find that the Opposition has had four main themes throughout. First, we have complained that the national accounting was dishonest, and that no true picture was being presented to the country. Secondly, we have always said that there was a large uncovered inflationary gap. Thirdly, we have said it was most doubtful whether in the long run it would be possible to sustain a level of national expenditure such as we now have and at the same time maintain stable prices. The fourth general theme has been that in this period of inflation the policy of hyper-cheap money, pursued by the right hon. Member for Bishop Auckland (Mr. Dalton), was wrong, and would make all these other errors even more disastrous than they otherwise would have been.

So far as the first two criticisms are concerned, those of dishonest accounting and the uncovered inflationary gap, both are fully admitted by the Economic Survey and by the present Chancellor of the Exchequer. He said yesterday that, instead of having a real surplus in the last Budget, the Government were putting back into circulation all the money which they had withdrawn in taxation. So far as the inflationary gap goes, the extent of the gap, and how it should be met, is the main subject of the Economic Survey, and the main subject of the speech of the present Chancellor the day before yesterday.

I shall deal with the level of expenditure at the end of my remarks, but in view of what the right hon. Member for Bishop Auckland said yesterday, I think I must say something now upon the subject of cheap money. The right hon. Gentleman was good enough to accuse hon. and right hon. Members on this side of the Committee, and in particular myself, of entering into a conspiracy with financial journalists and the holders of gilt-edged securities to depress the prices in the gilt-edged market—"A conspiracy in the broad sense" I think were the words he used.

The last time that cheap money was extensively debated in the House was exactly a year ago, and what I and many of my hon. Friends said then, and always have said, was this. There is nothing new about the cheap money policy. It has been pursued for 17 years and, until the right hon. Gentleman got in, with complete success. Secondly, we cannot, when we have a debt of 24,000 million, let money rates rip. A control of money rate of interest is perhaps the most important control we have in our hands. The Economic Secretary to the Treasury last night put up the old straw bogy about 6 per cent. interest, which no one has ever suggested and which he had, therefore, very little difficulty in knocking down.

What we said, as the right hon. Member for the Scottish Universities (Sir J. Anderson) emphasised today, is this. In a period of great inflationary pressure it is quite wrong and foolish, and will lead to disaster, to attempt to force the longterm rate of interest from 3 to 2½ per cent. There is only one way in which interest can be forced down against the natural reaction of the market, that is, by the unlimited creation of credit, and in the right hon. Gentleman's euphoria period, which I reckon to be the last nine months of 1946, the level of bank deposits increased by 40 per cent of all bank deposits outstanding at the beginning of the war. They increased by over £1,000 million. The reason gilt-edged prices went up was simply because there was Government buying, vast credit expansion, and the banks were forced to buy.

Why have prices gone down? Not because of a bankers' ramp; bankers' investments have slightly increased in that period of decline. It was not that issue of Transport Stock. There has been a considerable further fall in prices since the issue of the Transport Stock. Prices have gone down because when credit was expanded beyond a certain point it was not possible to go on without losing the confidence of the whole world and the confidence of everybody here. To talk of the level of interest rates as if that were the same as national credit is nonsense. National credit is measured by whether people are prepared to hold one's currency. I need not expand upon that.

The policy has been broken simply because the nerve of the Treasury broke, and they were not prepared to go on with it. What has the result of the right hon. Gentleman's policy been? It has been that gilt-edged prices are now lower than when he took over; the credit which he created in order to boost prices is still outstanding; and further, the confidence built up over many years, the last 17 years, among investors in gilt-edged securities, has now very largely gone. The confidence that people had that the Treasury were not likely to turn the gilt-edged market into a casino, and chat there would not be very violent moves in prices, and that on the whole, over a long period, there would be slightly falling interest rates has been broken. After all, 2½ per cent. Treasury bonds issued by the right hon. Gentleman on what he described as a proud day for patriots now stand at 24 discount. If anyone likes to work out how many years it would take, if one saved the whole of one's income less tax, to make up the whole of that loss they would find that it was a large slice of anybody's lifetime. It is not unnatural that confidence has been lost.

The advice we have given all the way through is that one should not try to force the pace. If that advice had been taken, gilt-edged prices would be just about where they were when the right hon. Gentleman took over, which is higher than they are now. There would not have been this great expansion of credit outstanding and the confidence of the country in the Treasury would have been maintained. None of these things has happened. It is for giving this good advice, neglected by the right hon. Gentleman, it is because he is annoyed by that, and by his own failure, that he now accuses us of conspiracy. When that was resented he said that we were thin-skinned. That is not an affliction from which the right hon. Gentleman has ever suffered. That is his first reason, to excuse his own failure. He put forward all this argument in his apologia pro vita sua in the "New Statesman."

The second reason is that it is a cover plan for an attack on his right hon. and learned Friend the Chancellor of the ExchequerWilling to wound, and yet afraid to strike, Just hint a fault, and hesitate dislike; What did the right hon. Gentleman's speech contain. His patronising tribute was, "Not too bad for a beginner." He then kicked the "once only" stool from under the right hon. and learned Gentleman that he was much relying upon to support him, and then attacked his policy of abandoning the hyper-cheap money course pursued by the right hon. Gentleman himself. The Chancellor has, in fact, led the conspiracy against this policy. He and I are in the conspiracy together. Prices have gone down precisely because he has abandoned the right hon. Gentleman's policy. He has abandoned the policy of forcing down the interest rates at the cost of unlimited creation of credit. That is what has happened. So much for the cheap money policy.

The effects of this long-continued inflationary gap and of the size of the Budget, have been precisely what my hon. Friends have always predicted. The first effect has been a foreign exchange crisis. It is worth remembering that last year on current account alone, quite apart from the question of sterling balances, we had a debit balance of £675 million. That is equivalent to a week for a man and wife and two children. We have got through during the past year and now we are told not only that we shall have complete disaster unless we get further American loans, but that even if we do get them our reserves have now run so low that it is impossible for us to get sufficient raw materials to keep our industry running at full stretch. That is by far the most terrible disclosure in the Economic Survey. It makes total nonsense of "ten per cent. more will turn the tide," because only certain people can possibly do ten per cent. more.

We have, first, this appalling disaster of our balance of payments. Then we have the distortion produced in our economy because we are producing the wrong things and labour is maldistributed. We have this tremendous decline in public morality which is bound to be occasioned by an inflationary policy suppressed by controls. Then we have the tremendous rise in prices and costs which ultimately may make it impossible for us to sell abroad. The rise in prices has a close connection with this expansion of £1,000 million in bankers' deposits. We are now landed in this appalling position, dependent upon foreign charity, with insufficient resources to make our industry run properly, with a decline in public morality, and with our economy distorted. All these things are set out and admitted in the Economic Survey for 1948. The right hon. Gentleman the Member for Bishop Auckland says that he wants a statue. I would say to him si monumentum requiris circumspice.

I turn to a less unsavoury and more serious topic. I will consider for a few moments the Budget proposed by the present Chancellor. It is aways de rigueur to start with a compliment. We can, at any rate, say that he has attempted some reasonably honest accounting. Anyway, it is a great improvement on what we had before. He has also faced up to what is the real budgetary problem. Surely, the real budgetary problem is whether the amount of money withdrawn from private people by taxation and through savings is going to be sufficient to cover Government expenditure and capital expenditure. That is the equation which has, somehow or other, to be balanced. That this is the problem, my hon. and right hon. Friends have been urging all the way through this Parliament, but we never got an answer from the right hon. Member for Bishop Auckland. He ignored it completely, nor did the Financial Secretary reply. The Financial Secretary, when he is replying, sometimes reminds me of an old parrot, who scratches his head with his claws and says, "Pretty Dalton." I very much hope, for his sake, that he has got his new words correctly.

Anyway, we have got better accounting, and the actual problem has been faced. Are we, in fact, in balance? Personally, I rather doubt it. There are two factors to which, perhaps, full weight has not been given. First of all, we have the deflationary effect of Marshall aid, though we do not know yet what it is, and, secondly, we have the considerable deflationary effect produced by the liquidation of our assets in Argentina. That is a "once only"; we know that for certain. Once only is more doubtful when we come to the capital levy.

There are two things I want to say about that. The first is that it is not deflationary at all, and so it amounts to one-third of the expected surplus, I think the surplus is a bit bogus. Secondly, it is absolutely certain to discourage savings, and, if that is so, it would be definitely inflationary. Would anybody believe that it is "once only"? We have had a pledge from the right hon. and learned Gentleman that it is "once only." I ask my hon. and right hon. Friends to consider what is the greatest breach of faith so far committed by this Government in this Parliament? I do not doubt myself what it is. The greatest breach of faith has been the overriding of the Boundary Commission's work in the Representation of the People Bill—a truly dishonourable fraud. Who induced the Government to do that? The right hon. Gentleman the Member for Bishop Auckland. He is now saying that this should only be a small start. If the Government are willing to break faith once, they will break it again, and I do not think myself that anyone will pay very much attention to their pledges.

That brings me to the question which is the deepest question we have to solve. Supposing, theoretically, there was a balance in our economy. Can we really balance our economy by deflation with the present level of expenditure? Is it really possible, with the present level of expenditure? I personally very much doubt if that is possible. The whole of history is against the Government. The whole of history shows that, when you get taxation which amounts to over 30 per cent, of the national income, then prices rise. I cannot help feeling that the right hon. and learned Gentleman himself knows what is going to happen, but he is holding on like a man trying to stop the steam b coming from a boiling kettle by holding one hand over the spout and another on the lid. The result is unsatisfactory; and the level of taxation is not only going to drive up prices, but is also gradually killing the will of the people to thrift and to hard work.

The hon. Member for North Croydon (Mr. F. Harris) was talking in his very able speech on this particular subject, and I do not think any of us can believe in the success of what the Government are doing. The Government are saying, "We have cut the chicken in half, and we will roast one half, while the other half will lay the, eggs." There are anatomical difficulties.

How could we meet our problems, because unless expenditure is reduced I am quite certain prices will rise. There are a number of things I am quite certain we could do. First, as the hon. Member for North Blackpool (Mr. Low) said, I am quite certain we could have just as good or better Armed Forces for a very much smaller price if we had reasonably able Ministers dealing with them. Secondly I am quite certain that if at any time we had had a reasonable policy over Germany, Germany could have kept herself. It is not true, as was said yesterday, that our expenditure on Germany had greatly decreased because we have cut down our expenditure. It has greatly decreased because the Americans are paying, not because we are doing anything about it. If we had realised two and a half years ago that our task was to make Germany keep herself, we would have saved many millions.

Turning to other Ministries, I do not believe that, the Ministry of Supply is really earning its keep. I believe enormous cuts could be made there. I would draw the attention of the Committee to this: following the Economic White Paper, the right hon. and learned Gentleman the Chancellor of the Exchequer in his speech is not budgeting for any decrease in the number of people employed in these various controls. If he really thinks he has closed the inflationary gap, is it not rather odd that he does not budget for a decrease, because these controllers have been made necessary by the fact that we were running a large gap between aggregate demand and aggregate supply? If the gap is closed, and if aggregate demand is equal to aggregate supply, surely most of these people ought to go. But I suspect that the right hon. and learned Gentleman, if he is honest, knows that he has not done that.

The last point I wish to make is on the question of food subsidies, about which the right hon. Member for the Scottish Universities (Sir J. Anderson) and the hon. Member for Monmouth (Mr. P. Thorneycroft) said a word. Of course, we cannot take the whole thing away at one blow. Of course, we have got to keep milk subsidies and compensate to a certain extent, but I find it is very terrible that no start is being made in reducing them. I believe food subsidies are our old man of the sea. They are cloying our whole economy. The latest Transport House pamphlet on the subject of food subsidies, showing the usual honesty, says that food subsidies are paid by the Government. Of course, everybody knows in fact they are paid by a simple conjuring trick by which money is taken out of one pocket and put into the other. That is a sort of two-card trick by which the quickness of the hand does not deceive the eye. The trouble about the whole thing is that this process has a very strong disincentive effect and I do not believe in the long run it can be maintained.

I have only one moment left and I would like to end by saying this: Hon. Gentlemen opposite so often pose the question of the level of expenditure as if it were a question of "whether you would rather have the thing to spend the money on or whether you would rather not have it," but surely that is not really the choice at all. The choice is, "Are you prepared to live within your means, or are you prepared to become an American pensioner, to have great unemployment, to have a long-term lowering of your standard of living, to lose your place in the world, and to see the death of a free society". That really is the choice before us. I cannot believe that any patriot can take any other choice than to say, "Whatever it may cause me in suffering, I will see my country lives within its means".

The White Paper says this is a year of transition, which is what the right hon. Gentleman, the Member for Bishop Auckland, said in his first Budget speech—this is a year of transition—but I believe, Major Milner, this is a year of destiny.