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What has most impressed me about this varied debate has been the complacency of the Chancellor of the Exchequer, equalled only by the flippancy of the Financial Secretary. The Chancellor's complacency is rather frightening as well as surprising. Sir Stafford Cripps, whether one agreed with him or not, at least strove to tell the country the facts. But the present Chancellor has spent a great deal of time in building up a glow of synthetic sunshine which, I fear, is beginning to mislead him as well as the rest of the public.
What have been the real facts of the economic life of this country in the last year or so, as they have emerged from this three days' debate? I think there are three that stand out. They are not quite the same ones as the Economic Secretary mentioned earlier today. There is first the fall in production; second, the swing round in the balance of payments; and third, the fall in the volume of our exports. The public are a bit puzzled to understand how our overseas balance has recovered when production and exports have both been falling. It should surely have been the Chancellor's job to have given the answer to that question, but that answer has emerged clearly not from his speech but from the speeches of my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) and my right hon. Friend the Member for Huyton (Mr. H. Wilson).
The first cause was the physical cut in imports made by the Chancellor with our support, and, indeed, on a plan prepared by the previous Government, as I think he will agree, before he actually got to the Treasury. I fully agree that in that respect we should have done exactly the same thing ourselves. [An HON. MEMBER: "Why did they not then?"] The second reason has been the sharp recovery of the terms of trade which gave us a windfall of about £350 million. The Economic Secretary produced a new argument today in which he tried to maintain that that was somehow due to the action of the present Government. He said the fall in world prices was somehow caused by the Chancellor's policy. Surely the hon. Gentleman will agree that nowadays it is not the British market, but the United States economy, which dominates almost entirely the movements of world prices. So I do not really think we can accept that argument.
The next and, I think, most significant cause of all was the cessation of stock building in 1951 and the drop of £100 million of stocks in the pipeline in 1952, which is recorded in the Economic Survey. I do hope that the Committee will note the crucial importance of linking these movements of stocks with the
changes, for better or worse, in the balance of payments. My right hon. Friend the Member for Leeds, South gave the Committee some figures about that yesterday. But in case the Committee does not accept them from him, I would ask hon. Members to look at an article in the District Bank Review recently by Professor Paish. Professor Paish shows that, in the three years 1950, 1951 and 1952, stocks rose while the balance of payments was worsening and fell when it was improving. Professor Paish draws this conclusion about the present outlook:
While the fall in stocks has provided a relief from the immediate balance of payments crisis the cure is essentially temporary and cannot be relied on to solve the problem permanently, or, perhaps, even in 1953.
That, I believe, is sound, but it is not quite what the country would have grasped from the Chancellor's Budget speech. In saying, to use his own words, that stocks in the United Kingdom had not fallen in 1952, the Chancellor seemed to me to be carrying verbal conjuring tricks rather too far; just as it seems to us he is when in his speeches and in the balance of payments White Papers he counts American defence aid as being equivalent to a British export. So much for the balance of payments.
Now why is it that in 1952 our production fell by 3 per cent. and the volume of exports by 6 per cent.? Surely that is one of the vital questions we ought to try to answer. Today the Economic Secretary rather minimised the fall in production, but I hope the Committee realises that it is at this moment 10 per cent. below what it would have been if in the last two years it had continued at the rate of the four or five years before. That is a loss on our national income of certainly more than £500 million, or very many times more than the total tax cuts which the Chancellor has given in this Budget. Why did that reduction occur? I think it is true that production fell last year, partly because of the decline in stocks induced by the Government's own credit policy, but mainly because exports themselves were falling owing to a fall in the demand for them. Why, then, was it that last year our exports fell for the first time for five years or more?
In this debate a year ago there was a controversy between the two sides of the Committee about the effects on production and exports of the Chancellor's Income Tax concessions and cuts in subsidies. We on this side said that the subsidy cuts would inflate costs and so make exports harder to sell. The Chancellor said that his tax cuts would in some magical way boost or stimulate production and exports. One can always tell when the present Chancellor has no rational argument, because he takes refuge in rather woolly and vague metaphors of this kind—lightening the ship, flexibility, and all the rest of it.
Perhaps I might quote just one sentence from what I said in this debate a year ago:
I believe—and the coming months will show, one way or the other—that the Chancellor delivered last week"—
that is to say in his Budget speech then—
a really wounding blow at the prospects of our export trade."—[OFFICIAL REPORT, 17th March, 1952; Vol. 497, c. 1945.]
In point of fact, those months did show —and I am reading the lesson of experience—a 6 to 10 per cent. fall in the volume of our exports. Hon. Members may say, very naturally, that that was all due to a falling off in world demand; what they call the disappearance of the sellers' market. Incidentally, that admits straight away that it is mainly demand, as of course it is, which determines production and exports, and not some rather inexplicable effect of altering the Income Tax and so giving an incentive to those who produce something they may not be able to sell. That is an interesting admission straight away. I suggest the evidence establishes that the fall in exports was by no means wholly due to those changes in the outside world. The subsidy cuts here led to a rise in our cost of living relatively to that in other countries last year.
If hon. Members look at the United Nations' World Economic Report for 1952, which has already been quoted today, they will find that it says this about the world as a whole:
The cost of living increased less from 1951–52 than from 1950–51 in all countries except the United Kingdom.
That means that we were relatively worse off in 1952. Naturally, therefore, while our exports were falling other countries' exports were rising, and that is what in fact occurred.
The U.N.O. Report says, for instance, that in the first nine months of 1952 the total of all O.E.E.C. countries' exports was 6 per cent. in volume above 1950 and the United Kingdom volume was 5 per cent. below it. If the Committee want further evidence, let them read the article by Professor Austin Robinson who, I am sure, the Chancellor will respect as an ornament of Cambridge, in the Three Banks Review for March of this year. He gives provisional figures which show that the United Kingdom's share in the world export of manufactures fell actually from 22.2 in 1951 to 18.4 in the third quarter of 1952. That really does not justify complacency.
The truth is that world production was rising last year while United Kingdom production was falling. World production actually, according to the U.N.O. figures, went up by 2 per cent. and production in what that Report calls the Western industrialised countries, including North America, also went up by 2 per cent. while it fell here by 3 per cent. That, I believe, should rouse us to action rather than to self-congratulation.
This evidence surely proves that it was a fatal and damaging mistake to force up living costs artificially in the Budget of last year, just when world competition was growing more acute. I am delighted that the Chancellor of the Exchequer in deciding not to sweep away the remaining food subsidies has now admitted, in fact, that on this we were right last year and he was wrong.
He said on Tuesday, in his usual rather sly fashion:
I must try to avoid increasing living costs by this Budget."—[OFFICIAL REPORT. 14th April, 1953; Vol. 514, c. 52.]
Note the words "by this Budget." There we have the Chancellor's admission, first, that he did raise the cost of living by his Budget of a year ago and, second, that he was wrong to do so.
Now when we look below the financial crust to the real facts of our economic life, last year was really not very much to boast about. I suppose that the purpose of economic policy is to see that production, investment and exports go up and that unemployment and prices are kept down. But in 1952, on the evidence of the Chancellor's own Economic Survey, the volume of production, exports, productivity, investment, stocks, con- sumption, employment and real wages all went down. And prices and unemployment went up.
Yet the Economic Survey tells us:
Thus the changes in the economy during 1952 were broadly in line with the main objectives of Government policy.
Indeed, the Chancellor of the Exchequer himself said in his speech on Tuesday that the "developments of 1952 had vindicated the strategy of the last Budget." If he really meant that I must say, heaven help the British people in 1953.
It was, of course, because the previous Budget had hampered export and stock-building, and so created under-employment, that the Chancellor felt able to give his tax remissions this year. It is a little dangerous to encourage the public to think that if we push down production one year, we can make tax concessions the next; at least, it is dangerous unless you clearly explain that to depress exports one year by raising costs, and to increase home demand a year afterwards, is the surest way of getting back again into a balance of payments deficit.
There are several financial aspects of the Budget which the Committee ought to note but which the Chancellor did not bring out quite clearly. First of all, the real deficit of all expenditure over all revenue for which the Chancellor is budgeting is £440 million—the highest deficit in any year since 1945. Strangely enough, we do not even find that figure in the Financial Statement.
Secondly, the Chancellor, rather slyly again, boasted of a reduction of £60 million in civil supply expenditure this year, but he did not tell the Committee —if I am wrong I am sure the Government will contradict this on Monday— that that reduction is almost entirely represented by the abandonment of the holding of stocks by the Ministry of Food, which is, of course, a once-for-all operation, and will mean a rise of £60 million or so again in the subsequent year.
Thirdly, many of the tax reliefs for which the Chancellor is now claiming political credit will have to be paid for in cash by whoever is Chancellor next year and in the years after that. That is true of the abolition of the E.P.L. and of the restoration of the initial allowance. Therefore, we should note that the financial foundation is built up in more ways than one by borrowing on the future. Indeed, in addition to that there is no provision in the figures for the new liability of perhaps £100 million which will arise, if the Bonn Agreements are ratified, for extra defence expenditure in Germany.
Still granting the Economic Secretary's argument that tax cuts of £170 million can in the circumstances be justified, none of the Treasury spokesmen seem to me yet to have produced a shred of defence for the extraordinarily inequitable manner in which they have been framed. The Financial Secretary admitted that he had no serious arguments by taking refuge entirely in frivolity on this point. These questions of social justice in taxation are, in my view, serious and deserve our serious consideration.
The leading feature of the Budget— this is a hard statistical fact—is the huge bonus given to both profits and unearned income. Strangely enough, that is done in a year when the Economic Survey has shown that companies had a large sum— the Economic Secretary prefers to make it £600 million instead of £800 million, and I willingly accept that figure—over and above what they needed for taxation, dividends and investment.
On top of all this, the Income Tax cut is so framed as to benefit unearned incomes most of all. Working people and old age pensioners will not join with the Financial Secretary in regarding this as little more than a joke. Why should it be, for instance, that at the £500 level a single man gets £7 a year out of the Budget if his income is earned, and about £9 10s. if it is unearned? What is the purpose of this? Do hon. Gentlemen opposite really regard it as an incentive to work? This is the change the Chancellor has in fact made. We ought to know the reason.
Why again—and we have had no answer to this—give the biggest relief to those with the biggest incomes? Take a very ordinary case, a married couple with two children, an average family. At £500 a year, which is a normal level of income, the earner gets 4s. 6d. out of this Budget, whereas at a level of £50,000 the benefit is £1,200 a year. The right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) and the Economic Secretary tried to argue that this could not be helped, that it was an inevitable effect of the change in Income Tax. If they really think that, they are remarkably ignorant of the structure of Income Tax. By altering the allowances almost anything can be done in Income Tax.