No, I cannot give way as there are others who wish to speak.
The Board of Inland Revenue and the Chancellor of the Exchequer have to make very rough-and-ready guesses for their own guidance, and all that is very good for themselves but it is impossible to try to treat the future as an exact map. [Interruption.] If the hon. Member for Keighley (Mr. Hobson) would put up his head and put down his feet, he might understand what I am saying. I was saying that it was the duty of my right hon. Friend and the Board of Inland Revenue to estimate the figures of revenue and expenditure, but it is not their duty or even within their power to estimate what millions of unknown merchants, manufacturers and consumers are going to do 12 months ahead. I say that in that sense planning is bunk and no sure foundation for any economic policy. I am not in the least sorry that once again, as in previous years, it has proved to be entirely fallacious.
If it is true, then, that so many of the figures in the Survey have gone adrift, how is it that in the year which is just closed the Chancellor's general strategy has been so overwhelmingly justified? I will take the liberty of reminding the Committee of the debate we had on the Budget proposals of last year when I pointed out at the time how precarious the figures were. I think I can sum up the situation I am trying to develop tonight by reading a couple of sentences from that speech. I said:
I would sum up the position by saying that this Budget stands or falls by the rise in the Bank rate. Personally, I believe the Chancellor of the Exchequer has done probably just about enough to make the situation manageable, provided the Bank rate is allowed to fulfil its old functions."—[OFFICIAL REPORT. 13th March, 1952; Vol. 497, c. 1690.]
That is exactly what happened. The prognostications were wrong, but for the first time since the war we had a Chancellor who had the courage to do an extremely unpopular thing, a thing which all the intellectuals said was quite out of date but which our Victorian ancestors, when building up our Empire, had found by experience to be right, namely, if we wanted to stop inflation it happened if the Bank rate was put up. The Chancellor put it up, and he has killed inflation.
It is not very difficult to see why, in these circumstances, it did work. First of all it made a completely different situation in the foreign appreciations of our position. Instead of trying to get their money away from us, people either left their money here or brought it here. It also stopped the re-stocking which was taking place. Hon. Gentlemen opposite are inclined to think that the only increase of stocks in 1951 was of those under Government control, but everybody all over England was hoarding stocks in that inflationary condition, which had all sorts of other disadvantages, quite apart from the effect on our balance of payments.
The Bank rate change caused people in the City, merchants and others who knew by experience—whatever the pundits on the other side of the Committee may say —to cease hoarding stocks. The right hon. Member for Leeds, South (Mr. Gaitskell) is continually endeavouring to confuse the country as to the difference between stopping the increase and actually reducing the stocks and he has finally succeeded in confusing himself. He wrote a letter to "The Times" in which he was £400 million wrong in this way and it took him a week to discover his mistake. I repeat it was not only that the Government stopped increasing stocks, but that everybody else stopped doing so, too.
I was very glad to hear the remarks made by the Economic Secretary to the Treasury on the question of the terms of trade, on a point which I have often made myself. [Laughter.] It is unwise of hon. Gentlemen opposite to laugh. It is clear that the general financial policy of Her Majesty's Government, carried out not only here but, as the result of the Commonwealth Conference, in other parts of the Empire, had an immediate effect upon the terms of trade. I want to be much more generous and fair than hon. Gentlemen opposite. I am not going to claim, and I am sure that the Minister would not do so, that the whole improvement in the terms of trade is due to that. They were, in fact, moving in our favour in the summer of the year before we came to office, but while the whole is not due to us, a substantial part of it is.
We may take it, therefore, as proved that the decision which the Chancellor made soon after coming into office to set at work the old and well-tried monetary machine for stopping the inflation which was ruining us succeeded in the course of the year, although it has left anxieties of its own. After having been saved from drowning, we do not grumble at still having a slight cold. It is necessary for me to go further and point out what a frightful Budget we should have had if the Chancellor had not succeeded in that way.
Before the present reliefs were given in this Budget, my right hon. Friend had to budget for about £270 million surplus above the line and about £540 million deficit below the line. In other words, he had to find about £270 million. If we had still been in an inflationary position he, as an honest man, just as Sir Stafford Cripps was honest, would have had to cover the whole £270 million by new taxation. It would not have been a question of knocking 6d. off the Income Tax but more like putting 1s. on.
That would not have been the end of it. My right hon. Friend would not only have had to find £270 million by extra taxation, but if he had not already made a saving on the Civil Estimates of about £250 million—every bit of which saving was bitterly fought on the other side of the Committee—he would have had to find that extra £250 million by taxation too. I leave it to the Committee and the country to imagine the kind of Budget we should be facing now if the inflation had not been squeezed out of the system by the monetary policy of Her Majesty's Government in the last 12 months.
However, we must not go from one extreme to the other. We shall face quite an anxious Budgetary situation in the next two years. The reliefs already given in the Budget will pile up to about another £400 million. In addition to that, there is at least one major new liability falling upon us by the automatic increase in the Budgetary claims of the National Insurance Fund. That is one of the most serious things hanging over Budgets in future years. To find it we have only about £100 million surplus left above the line. Even on the assumption that we can go on covering the whole below-the-line expenditure outside the Budget, we shall have to find in the next year or two something like £400 million.
Maybe a saving will by then be possible on defence, and some more from the naturally increasing buoyancy of the Revenue. Income Tax has been increasing in the order of £100 million, and something substantial will come from that. The moral of the figures which I have just given is that the search for further savings in Government expenditure must be ruthlessly carried on. How these savings are to be found is a matter for legitimate difference of opinion, but no responsible person in any part of the Committee can differ from the proposition that a reduction in some way or another in Government expenditure over the next few years is an absolutely inescapable necessity.
I shall not go over the various other points raised by the Budget, although I should like to have made one or two observations on such subjects as the Excess Profits Levy. My right hon. Friend may remember that I made some very tentative observations on that subject a year ago. I would say here and now that we could not fairly have expected anything more from the Chancellor of the Exchequer in this direction than he has done. I am sure that he has taken a sensible course in not getting rid of E.P.L. this year but of fixing a time-limit, and for having had the courage to get rid next year of this unstable gargoyle on the fiscal edifice.
I would make one short comment on the extent to which this is an incentive Budget. Industry will cordially welcome the broad outline of the changes made this year, but we must not run away with the idea that they are a huge gift to industry which will have immediate and spectacular results. I am sure the Chancellor does not think of them in that way. The changes in last year's Budget in Profits Tax and E.P.L. together mean that next year industry would have to pay about £64 million less. On the assumption that about half the Income Tax is paid by industry, that would cost industry an additional £84 million. Together these would have meant a £20 million greater burden of tax on industry. This year's change in Income Tax —on the assumption that half of Income Tax is so paid—will reduce the burden on industry by about £58 million. Adding £3 million for various miscellaneous items, the total reduction in the burden on industry this year is thus of the order of £61 million.
By the latest figures, industry is paying £893 million. In other words, the Chancellor has taken about 5 per cent. of the burden off industry, or about 1s. in the £. Industry is grateful, but it is no good giving ourselves the impression that the Budget proposals will be so immediately and spectacularly successful that they will lighten the burden on industry immediately. It is a good beginning and we are most grateful for it, but it must be carried further.
Now I want to take up a point raised by the right hon. and learned Gentleman the Member for Montgomery and also by my right hon. Friend the Member for Blackburn, West (Mr. Assheton), the financing of the overall deficit, because it is a point of fundamental importance. Last year the fundamental point was the initiating of a change in our monetary policy. That has had the good effects referred to during this debate. But what has been the effect on Government debt? In the year which has just passed, we have added about £450 million in Treasury bills which we have used to build houses. That is putting it crudely, but it is not far wrong. This year, assuming that all is going according to Cocker, the same thing will happen— £450 million of extra Treasury bills will be added to Government debt and will be used for below-the-line capital expenditure.
No one will accuse me of not being a strong supporter of the use of the Bank rate and its effectiveness, but I hope the Chancellor will not overwork the willing horse. The success of his general monetary policy has been remarkable this year, in spite of the fact that all the time he has had to work against an ever-increasing overall budgetary deficit. My right hon. Friend is hoping to do the same this current year and, as far as one can estimate, he will probably get away with it. However, we cannot go on hoping indefinitely to have an overall budgetary deficit running into hundreds of millions without falling into one of two dangerous situations.
Either it will make the present Bank rate policy ineffective and we shall start the inflation again—in other words, 1953 will lay the foundations of the balance of payments crisis of 1955 and that will be the end of us—or, alternatively—and this is a danger which I think will appeal to hon. Members opposite—we shall reach this position: the classical prescription, which has been applied, for killing inflation is indeed dearer money, but it has to be short and sharp. We have not been very sharp and the result is that we may not be very short, and if one keeps dear money on for a long time many of the objections to it which have been urged from the benches opposite become true, as they are not true when it is used as a remedy for desperate diseases and is not kept on too long.
I feel that the fundamental financial problem before Her Majesty's Government in this year is the successful floating of a loan to the general public to mop up the increasing short-term loans which are the inevitable, temporary result of the Budgetary outcome of last year and the Budgetary intentions of this. It is impossible to be dogmatic on such a subject, and it would be presumptuous for a private Member to tender any advice. It is only the Chancellor and those in his most intimate circle who can test the time and the terms of such an undertaking.
I only beg and implore him if, as I feel must be the case, in this coming year a substantial funding operation is to be undertaken, not to try to be too clever, not to try and buck the market. The great thing is to get the money. Even if it turned out that he might have got it a little cheaper, it is not worth taking the risk. Anything would be better than either leaving ourselves where we have to put on even a higher Bank rate or keep it on longer than we need or, alternatively, if we did not get the money, find ourselves running into an inflationary situation.
In the light of informed opinion in the country and the general reaction of the public, I cannot feel that there will not be general agreement that in the last year we have come triumphantly through a grave crisis, aided by a little luck—but, Heaven knows, we deserve some luck in this country—though, by and large, by the sensible application of well-tried remedies. We now have to face the danger which those remedies themselves have introduced into the system.
I have every confidence that we shall surmount those problems as we have in the past and that we may say that, under the guidance of my right hon. Friend, far from following the advice tendered to us in the previous speech, of going back to the dreary prospect of more and more controls and restrictions, we shall give our countrymen the chance to earn the rewards of skill by taking the risks of freedom.