Budget Proposals

Part of the debate – in the House of Commons at 12:00 am on 20th April 1953.

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Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth 12:00 am, 20th April 1953

The right hon. Gentleman will have an opportunity of addressing the Committee later. I understand that he will make a cool and dispassionate analysis of our economic position. I hope that during the course of it he will describe to the Committee his view of this situation and explain how one can maintain taxation over long periods at 9s. 6d. in the £ at the standard rate without discouraging investment in productive industry. If he wishes to do that, I am sure that hon. Members will be very ready to listen. We regard the right hon. Gentleman's economic judgment with some little suspicion. After all, his attitude towards private enterprise and investment is well known. He regards it as a miasma which is poisoning the whole nationalised sector of the community. If one holds that view perhaps it tends a little to prejudice one's judgment.

As I was about to say, there is another way of running the country, and that is the method whereby the Government themselves do virtually all the saving and pre-determine the direction of investment and exercise over-riding control on all foreign transactions. That is the way that it is done in the Soviet Union. The right hon. Gentleman the Member for Batter-sea, North (Mr. Jay) said that in some respects it was done with some success.

But what seems to be clear is than one cannot run a country in which one depends upon a thriving private sector of the community while denying it the savings, the capital and the incentive and all those things which are an essential feature of the running of any private sector. It is like running a motor car without petrol. It runs all right down hill but at the moment when one comes up against a slope—and I must say that we are coming up against a considerable hill at present—the whole thing breaks down.

This Budget is primarily an industrial Budget. Its purpose is to help industry, and it is none the worse for that. If we help industry in a Budget we help everybody, rich and poor alike. If we continue rates of taxes which injure industry we do not injure just a few rich or idle shareholders; we injure the whole national fabric and the means of production upon which everybody's standard of life depends.

I recognise that hon. Gentlemen opposite hold a different view, but I think that one of the reasons why they argue against a reduction in the standard rate of Income Tax is that they themselves would have found the greatest difficulty in offering to the country any tax reductions whatever. Let us look at what they are committed to on the side of expenditure. I was reading the other day in the "Daily Herald," a journal which I study closely, an article by the right hon. Gentleman the Member for Bradford, Central (Mr. Webb), who is the ex-Minister of Food. He says: I say frankly that we must declare beyond all doubt that we will restore the subsidies. And we must say we will not be restricted in their operation by any artificial, so-called 'ceiling'. Is that the policy? If it is not the policy, I hope the right hon. Gentleman opposite will correct me, and I will willingly give way. If, in fact, it is the policy of the right hon. Gentleman opposite to restore all the food subsidies—in the exuberance of opposition, he asks that it should be without limit, but assuming that he might be persuaded by his right hon. Friend to have something in the nature of a ceiling—the cost would, of course, wipe away more than all the concessions that are made in this Budget So we must regard the suggestion which the right hon. Gentleman was making about tax relief as of a somewhat academic character, and not one which would readily fit into the general pattern of the policy outlined by his right hon. Friend.

Our case, at any rate, is that taxation has been too high too long, that it is time it was reduced, and that its reduction will be a great help to British industry. I should like to turn now to the performance of Her Majesty's Government in the new economic situation of the past year. I do not propose to rehearse again in detail the long list of events, which has been given many times, but I should like to deal with the arguments of the right hon. Gentleman the Member for Leeds, South, which have been repeated today by the right hon. Gentleman who preceded me, that all the benefits were fortuitous, that there was nothing which the British people had by their own efforts done during the year, and that there were no actions of the Government which led to these same ends. [Interruption.] If that was not the argument, let me read what the right hon. Gentleman said, taken from column 220 of his speech: One must therefore conclude … that there has been no effort and sacrifice as a whole in 1952 and that the improvement in the balance of payments position has come wholly from the favourable terms of trade and from the fall in investment."—[OFFICIAL REPORT, 15th April, 1953; Vol. 514, c. 220.] It seems to me that that is a wholly inaccurate way of stating our affairs. Perhaps the fairest thing to say about the right hon. Gentleman's case is that it is part truth and part falsity, and I want to deal with both. What is true is that the change in the terms of trade was the largest external factor assisting us in closing the trade gap. That is an assertion which is beyond challenge, and, indeed, it has not been challenged. The prices of what we bought declined in relation to the prices of the goods we sold, and, after the adverse movements of 1950 and 1951, which added very much to the difficulties of the right hon. Gentleman at that time—which I readily concede—I think that, frankly, we as a nation did deserve to have that change in our fortunes.

If the source of that benefit is emphasised, let it not be forgotten that we paid a penalty as well. The very circumstances which were associated with the change in terms of trade in our favour at the same time also swung the market conditions very heavily against us, and if hon. Gentlemen opposite deny us credit for the one, they really must refrain from blaming us for the other. So much for the right hon. Gentleman's assertion that outside events affected our position. They did; they always have, and they always will. What I say is that we should have the whole truth, and not a part of it which happens to suit the arguments of the right hon. Gentleman opposite.

Now for the falsity. Though the terms of trade played a part, we should not be in the position we are in today if we had simply relied upon them. Hon. Gentlemen opposite seem to have too simple a faith in the play of blind economic forces. We were left in late 1951 upon the rocks. We could not just hope to drift away from them; we got a favourable slant of wind, it is true, but what we really can claim is that we took full advantage of it. The truth is that, within a few weeks, we were using both import cuts and monetary and credit policy in order to achieve both an external and internal balance, and we can claim without fear of contradiction that inflation was checked, the external account was balanced, and confidence was restored to sterling.

It is true that the criticism is made—and it is made with great clarity and force—that we have balanced at a lower figure than we would have wished, that, broadly speaking, we are paying for our imports with exports, but that both are smaller than we would like. These assertions are very proper, very fair and to the point, but I am bound to say that they come somewhat oddly from the benches opposite, and particularly from a right hon. Gentleman who has held the office of Chancellor of the Exchequer. Right hon. Gentlemen opposite are really comparing our present levels of trade with what they were spending, not with what they were earning. The actual earnings from our exports in 1952 were slightly more than in 1950 or 1951.

The right hon. Gentleman reminds me a little of a somewhat exuberant rake, happily now removed from control of his finances, comparing the earnings of the establishment with what he was spending in the heyday of his extravagance. The first essential, after all, is to balance—at a high level if we can, but, at any rate, to balance—and both right hon. Gentlemen will forgive me if I do rub into them the homely virtue of trying to make both ends meet. It does seem to me, after all, that it is the harsh preliminary to the more rewarding and enterprising policy initiated by this Budget.

May I therefore take one example to illustrate my case? I take it in the field of external trade—the liberalisation measures which I announced in the House, and which my right hon. Friend announced a few weeks ago in Paris. I believe that the initiative which the Government then took was of immense value to us and will be of immense value to European trade. We, more than any other country, benefit from liberal trade policies abroad, and it is our major interest to remove barriers, particularly quota barriers against our own exports.

But, as many hon. Gentlemen have pointed out, we cannot expect others to remove barriers against us unless we put ourselves in the position of removing the barriers against them. It seems to me that the conditions which make the removal of our own import quotas possible are not altogether generally understood. The essential preliminary to liberalising trade abroad is to get rid of inflation at home. To do the one without the other is to lead to the very balance of payments crises in which right hon. Gentlemen opposite continually found themselves.

That brings me to the speech delivered in Thursday's debate by the right hon. Gentleman the Member for Dundee, West (Mr. Strachey), who seemed to me to state with admirable clarity and precision exactly what I took to be the Socialist position on this aspect of the economy. He said: Last year the Government, partly in their Budget, but more importantly in their monetary policy, undertook a considerable programme of disinflation, deflation, or whatever you like to call it. In other words they reduced total demand, and by reducing total demand incidentally reduced the demand for imports as well. That seems to us the nub of the question, whether that is the right thing to do. Our criticism is essentially that that must be a most terribly indiscriminating way of reducing the demand for imports. He went on to say: … they set their face against controls at what, to my mind, is the critical point, controls over foreign transactions … either we have to push the Chancellor's line far further than he has pushed it now, or we must take a far more drastic measure of control over imports and foreign payments—that is the key point."—[OFFICIAL REPORT, 16th April, 1953: Vol. 514, c. 431–9.] I think it is, too; I think the right hon. Gentleman stated with absolute clarity the difference which exists between us and right hon. and hon. Members opposite, and I take this opportunity of saying how wrong I think his policy is, and how damaging it would be to our economy if pursued. As President of the Board of Trade, I have, of course, been the Minister principally responsible for the administration of the import cuts. For the past 18 months I have had a very good opportunity of studying in practice the working of that particular system. To my mind, any attempt to solve a balance of payments crisis by import control alone must inevitably fail, unless it also takes fiscal and monetary measures to get rid of inflation at home. It cannot be done by import control alone, and I hope I can persuade hon. and right hon. Gentlemen opposite of this.

What happens if one tries to do it by that method alone? When one puts down a prohibition over part of the field, the demand, though transferred, is still there. The goods still flow in—different goods perhaps—round the corner of the dam. What the right hon. Gentleman would then do would be to extend the dam, but, of course, the wider the import control, the greater the degree of retaliation would become, and therefore the fewer exports one would manage to sell. Meanwhile nothing whatever is done to remove the basic cause of the unbalance. Moreover, hon. Gentlemen who advocate these policies under-estimate the blunt-ness of the weapon of import control.