Budget Proposals and Economic Situation

– in the House of Commons at 12:00 am on 28th October 1955.

Alert me about debates like this

11.5 a.m.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

With one remark, at any rate, of the Financial Secretary to the Treasury I think all of us would feel in agreement, and that was his compliments and congratulations last night to the three maiden speakers who intervened in the debate yesterday. In a week in which, I think, it is more than usually difficult for any Member of the party opposite to feel like making a speech, I think we should want to compliment them on both their courage and on their ability.

We have heard three Ministerial speeches in this brief debate, but nothing has been said from the Front Bench opposite which in any way purports to acquit the Chancellor of the Exchequer of the charge which my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) made yesterday of misleading the country on the eve of the General Election. The Chancellor has been active in recent weeks in denying that the £ is to be devalued. Whatever the position of the £, it is certainly true that the Chancellor himself has been devalued, and devalued to the point where there is no longer the necessary confidence in his fitness to run the financial affairs of the country.

Nothing in the speech of the President of the Board of Trade, attempting to deal with this, has shown in any way what has changed since April—what has been the change in the situation which justified the Chancellor's speech of this week. There has certainly been, as my right hon. Friend said, no change in the external economic position since April.

My right hon. Friend referred to 1947. In 1949 when there was an autumn crisis in sterling there were serious and rapid developments in the external position. There was the recession in the United States of America. There was the effect on sterling of the unfortunate statement by the American Secretary to the Treasury. Once he had said that sterling would be devalued it was extremely difficult to hold the situation. In 1951 again there was a rapid change in the external situation due to the collapse in the prices of raw materials in the United States.

However, in this year, in 1955. since the Chancellor's Budget statement of April, the external factors, if anything, have improved. For instance, export markets are booming all over the world, especially in the United States, and one must put it to the Chancellor, if we get this crisis now with a boom in the United States, what would be the position if there were a serious downturn in the North American market?

A second favourable factor has been that certain key sterling area market prices have risen since April. Rubber has been at a higher level. It has fallen recently, but certainly our earnings from the sales of sterling area rubber have been a favourable factor in the situation. A third factor is that the terms of trade have been more favourable in the last few months than they were up to April. So, if there has been no worsening in the external position, what is it that has worsened since April?

Is it the trade gap? For the first four months of the year, as we pointed out in the previous Budget debate, the visible trade gap at that time was £33 million a month worse than in the same period of 1954. In the first nine months of the year the gap has been £28 million a month worse, not £33 million, and so the gravity of the trade gap was already known to the Chancellor and to the House in April. Again, in the first four months of the year, whereas exports were 10 per cent. above those in the same period of 1954, imports were up 20 per cent.

The President of the Board of Trade gave the figures yesterday. Taking the first nine months exports have been 6 per cent. up and imports 15 per cent. up. Again, on the export-import trend the position was fully known on the basis of Government official figures in April. That is why we ask why the Chancellor showed this sudden turn of optimism in April.

Yesterday, the Chancellor was complaining about lack of evidence. Let us remind the right hon. Gentleman of his Election broadcast —the broadcast which was widely heard at the time of the Election. He used these words: Well, we have restored the national solvency. That was his claim in May. That was the claim by which the right hon. Gentleman boasted before the Election. He referred to the measures taken on 24th February and said: We are beginning to sec the first effects. Our trade figures are better and we are once again holding the position of our reserves. But since May those gold and dollar reserves have fallen by 340 million dollars. Why was it that in April he showed this optimism? Surely he was not misled by a single month's record of the gold and dollar figures. If he were tempted to be so misled he would not perhaps have come along with this Budget, as the September trade figures were better and in October the gold and dollar position has improved. I am sure the Chancellor would agree that we must not be misled by a single month's turnover in the trade figures or of gold and dollar reserves. The basic problem which the Committee is facing is the same as in April and February, the trade gap. We warned him about it in April and he laughed at our fears.

Yesterday the President of the Board of Trade intervened in the debate. We wondered whether he would offer any hope in regard to the export-import situation and we got nothing but his usual passionate lectures on the economic situation and his usual inflated peroration. "The Hangman of Lancashire" they have christened him. Ever ready as I am to rush to the defence of the right hon. Gentleman when under attack, I think that that is unfair. I do not think he is the Hangman of Lancashire. I do not think he has struck the fatal blow against the cotton industry. It is rare that he does anything as positive as that. I think that the indictment of the right hon. Gentleman is that he just stands there watching Lancashire bleed to death. Occasionally he makes speeches telling the industry it is not as ill as it feels, and even if it is there are other industries which are in rude health and cotton must not complain. Meanwhile, mills are closing down; is it 50 that have closed this year under his stewardship?

I am not suggesting, of course, that the right hon. Gentleman is entirely guiltless. We have had a number of Government policies affecting the cotton industry. There was the Japanese Trade Agreement. The President of the Board of Trade and the present Minister of Supply defended that when we debated it in February this year. Japan was short of sterling and, we were told, we had to do all sorts of things, which opened the colonial market in an unplanned way to Japanese textiles. Now the President tells us that the Japanese situation is completely transformed, there is a surplus of sterling now and we are going cap in hand asking them to buy more British goods. When we debated the Agreement we said that, obviously, the Japanese had pulled a fast one over our Ministerial negotiators. They saw the Minister of Supply coming and acted accordingly.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

Is it not a fact that the Japanese have adopted the very measures which the Chancellor adopted by raising the Bank Rate, the only difference being that they raised it more than did my right hon. Friend?

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I think that the reason for the improvement in their sterling balance of payments is that they stopped buying from this country, and were given an open door to buy in British colonial markets.

The second thing the President of the Board of Trade did was to engage in the charade of opening the Liverpool Cotton Market. No one has suggested that that is working now. We were told that it was to give stability to Lancashire in the matter of raw material prices but, as the Chancellor complains, the biggest problem of Lancashire today is uncertainty about American prices. The President refuses to go to America and talk to the American Government about it, but, as we have said before, in these conditions the Liverpool Cotton Market has become a bad joke and it is extremely damaging to the Lancashire cotton industry.

Yesterday, the President told us that the proposals to abolish the D scheme will help Lancashire. For some years we have been calling for the abolition of Purchase Tax on textiles and clothing and it is two years since we drew the attention of the President to the necessity for cutting it on quality goods which we needed for the export trade. I hope he does not think it will solve the problems of Lancashire. Let me remind him that it was the cheaper end of the trade, the end which is more affected by imports of Indian and Hong Kong cloth which has to bear this additional Purchase Tax, and that will not make the position easier.

I hope we shall have a chance of debating the broader, more damaging and regressive effects of these proposals when we have the Finance Bill before us. What the Government have now done is to end the position we had under the Utility scheme. In 1952, they put the taxation on about half the Utility scheme—the more expensive half—of what had been Utility goods. Now taxation will be paid on the whole range, including the lowest priced goods.

The Chancellor has pleased someone with it. Last night my hon. Friend the Member for Kilmarnock (Mr. Ross) drew attention to an interesting article in the "Evening Standard," which pointed out that a fully embroidered ball gown which cost £260 before Wednesday can now be bought for £230. So the Chancellor has given relief to one suffering part of the community.

What hope did the President of the Board of Trade yesterday offer on exports? The increase in the Purchase Tax on cars, we were told, was to lead to an increase in the export of motor cars. May I put to the Government that that is not the way to do it? It will not have that effect at all. Motor car shares went up yesterday. What we should do is exactly what Sir Stafford Cripps did.

Viscount Hinehingbrooke:

Back to that again?

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Oh, yes. Sir Stafford Cripps told the motor car industry in 1945 that it must export 50 per cent. of its output. He was howled down, as sonic of us were at similar dinners in the City during the time of the Labour Government, and that was backed up by the then Leader of the Opposition the right hon. Member for Woodford (Sir W. Churchill). Within two or three years the industry was exporting, not 50 per cent., but 75 per cent., and doing very well out of it. What I suggest the Government should do—they do not need any control with which to do it—is to say to the trade, "You are exporting 48 per cent., or whatever the figure is; we want to see that raised to 60 per cent." We are spending large sums in dollars to import the sheet steel to make these motor cars and if we were to tie it to export performance the Government would get the increase in motor car exports.

Of course, the heart of the President of the Board of Trade is not really in exports at all. He proved that to us as recently as last June in the debate on the Address, when he used these words: What about consumption? Do not let us be too afraid of our people consuming things. Sometimes, to hear the right hon. Gentleman, one would think that it was terribly shocking for our people to be consuming things which ought to be all going into the export market."—[OFFICIAL REPORT, 10th June, 1955; Vol. 324, c. 162.] That was what he was saying as recently as 10th June. From this Government we have had no plans at all for increasing exports except vaguely to reduce consumption, or, at any rate, reduce consumption of one section of the population, and exhortation.

The Government seem to be relying on speeches to tell business men that it is their national duty to export more. Are they relying on that? I want to warn the Committee that in cases like this, when profits and the national interest come into conflict, it is invariably the national interest which suffers. The Chancellor will no doubt be a regular reader of that excellent publication of the Institute of Exports. He goes to its dinners sometimes and no doubt reads its monthly publication called "Export." This is what it said in a reference to the Chancellor in July: When Profit and Patriotism collide the latter suffers—the corollary to which cynicism being, of course, that no 'sensible' manufacturer is prepared to incur expenses upon any of the things which are essential to success in selling goods overseas until he finds that sales in the home market do not

  1. (a) absorb the logical output of his plant and
  2. (b) enable an adequate return to be passed upon his capital.
All the exhortation in the world will not convert him from this … viewpoint. So we need something more than exhortation to get exports.

What about imports? We have had an alarming increase in imports, especially from the dollar area. But this did not just happen by accident. It is a practical result of Government policies and, indeed, of policies on which the President of the Board of Trade invariably preens himself whenever he makes a speech in the House. The Government have freed commodity markets and animal feeding stuffs imported from the dollar areas rose from 9 per cent. to 23 per cent. of all imports in the first nine months of the year. The Government re-established the Liverpool Cotton Market. We warned them what would happen to colonial cotton and said that this would increase the dependence of Lancashire on American cotton. This year the proportion of American-grown cotton as a proportion of our total imports has risen from 29 per cent. to 41 per cent.

The Government freed the metal market. Let me remind the Chancellor of a comment in the columns of "The Times," a few weeks ago: Some dollar copper, too, has to be imported at high prices to meet sales against sterling to the Continent via the London Metal Exchange. That is the Chancellor's doing, and as a result he comes along with all these proposals about housing and says that somebody else must pay the price. Manufactured goods were liberalised and have risen by 32 per cent. in the first eight months of the year. The dollar goods in the categories that were freed have risen by 86 per cent. and dollar manufactured goods have risen from 24 per cent. to 34 per cent. of imports from all sources. The Board of Trade is directly responsible for the worsening in the visible trade account and nothing that the President of the Board of Trade said yesterday gave us any indication at all that he had any policy, any plans for increasing exports or dealing with some of these inessential imports.

One of the troubles which the Government has to face is that, like his predecessor, the Prime Minister treats the Board of Trade and industry generally with contempt. A few months ago we had appointed as Parliamentary Secretary to the Board of Trade the hon. Member for Leeds, North-West (Mr. Kaberry), almost the first appointment to the Board of Trade in the last four years which showed any glimmering of common sense. There was some hope that he might rise above some of the standards of the other appointments. Within a few weeks he was taken out and made Vice-Chairman of the Conservative Party organisation. I will make no comments on his successor, whom we congratulate and with whom we sympathise on his appointment. Yesterday, the President of the Board of Trade was asking for concrete proposals from the Opposition. I will make one to the Prime Minister and it is that instead of sending the Parliamentary Secretary to the Conservative Central Office he should send the President of the Board of Trade. That would not only give an enormous fillip to our export trade, not only give hope to the cotton industry in Lancashire, but probably, if his record of competence continued there, have desirable effects in terms of party organisation for the next Election.

So far, I have been referring to exports and imports. What about invisible accounts? The White Paper shows some very serious developments in invisible earnings. We were told time and time again when the Government freed the commodity markets, when they made these stumbling advances towards convertibility and all the rest of it, that they would help invisible earnings and perhaps earn hundreds of millions of pounds of foreign exchange by these manoeuvres. What has happened? In the first half of 1954 invisible earnings were £264 million; in the first half of 1955 they were £201 million, a worsening in a single year of £63 million for a period of six months in the two years. I hope that the Chancellor will tell us what hopes he has of any improvement in invisible earnings. because, at present, particularly with the development in freight rates, it does not look as though we can expect any improvement in invisible earnings.

I want now to deal with the internal situation. The Prime Minister recently complained in a speech in his constituency that as a nation we were doing too much. Some of us have been saying that for some time, but we have not yet had any proposals from the Government about cuts in defence expenditure. We have had no proposals from the Government that mean anything about National Service. But there are other sectors of the national economic position where cuts could reasonably be made. I remember drawing the attention of the President of the Board of Trade last June to the vast amount of inessential building which has been going on since decontrol took place. I mentioned petrol stations and this offended the President's doctrinaire views. He said: Is it a world in which we shall have to share scarcity, or one in which we shall be able to share abundance? If we are to share scarcity, of course we must go round saying do not put up a petrol station; we cannot possibly afford it. Do not let us have any luxury goods. We have to do something else.' That is typical of the kind of decision forced upon a Government in time of war, but which, if it is at all possible, should be avoided in time of peace. …The programme which we are discussing is unashamedly designed to secure abundance, and to see that all our people can share very fully in it."—[OFFICIAL REPORT 10th June. 1955; Vol. 542. c. 160.] All our people?

Now the Chancellor comes along and complains that there is not enough port and over-ripe pheasant to go round. From what the President said it would apparently be an economic sin to stop this building of petrol stations—I give it as an example—so the Chancellor comes along and stops house building instead. It is precisely because he refuses to cut inessential building in the private sector that he comes along and imposes a savage double cut on the social services and nationalised industries; because of the petrol stations and the pubs and the Odeon cinemas—and this Government is always very tender to Mr. Rank—council houses have to be cut.

I had a letter yesterday—perhaps other hon. Members did—which was quite unsolicited, advertising a vast, new motor showroom in North London which was built since licensing was ended. Because that sort of thing is going on, hospitals have to be cut. City offices are mushrooming now. but schools have to be cut —[Horn. MEMBERS: "Oh."] I am referring to the Chancellor's speech the other day.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

The right hon. Member might at least stick to accuracy, unlike some of his predecessors who have spoken from the Dispatch Box, and thereby maintain the level of our debates. I have said that the hospital programme is going on as announced. I have made no statement that hospitals will be cut.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The Chancellor's statement is on record and he made it very plain that the hospital authorities are asked to review capital expenditure. He said that the other day

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I am referring to the hospital building programme. May I say that no new hospitals have been built since the war. It has been a source of pride to us that we have been able to keep our undertaking to maintain the education programme and also to start on a modest new hospital programme, which will be a very good thing for the country.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

That was in the programme announced in March and April. A lot of things have happened since March and April. If the Chancellor will give an assurance that there will be no cut in National Health Service expenditure, or on capital investment in hospital building, then I will withdraw what I said.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I will adhere to the statement I made on 26th July and the statement I made in the course of my Budget speech. As I have said, the Minister of Health has communicated with regional hospital boards about capital expenditure which is not of the first priority—[Hors. MEMBERS: "Ah!"] Hon. Members opposite need not be so amused about a man who attempts to stick—as I have done—to honest statements. [HON. MEMBERS: "Oh!"] I think it is high time that we reverted to a little respect for each other's personal honour.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I should have thought that consistency would have been the last thing the Chancellor would claim credit for. He must realise that it is no good quoting a speech made on 26th July. Our big difficulty is to keep up with the changes in what the Chancellor has said. Now the tale that he appears to be going on, and what he said on Wednesday, is: … we are asking the hospital boards to ensure that only those works are undertaken which are of the most urgent and necessary character."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 218.] I want to ask this of the Chancellor; he has just repeated that the programme is going on—[Interruption.] May I finish? The right hon. Gentleman has told us what he said before, that the hospital building programme is going on—

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I am trying to tell the Committee what the right hon. Gentleman has just said. He is asking the hospital boards to review the expenditure only this week, and to indicate that of the most urgent and necessary character. I ask the Chancellor, and I hope he will answer this—

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

The right hon. Gentleman was saying that I was going back on hospital building, which is simply not true, and the right hon. Gentleman and his friends should try to have a little more regard for decency and honesty.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Is the Chancellor now telling us that there will be no cuts in hospital building?

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I have read it. [HON. MEMBERS: "Read the rest of it."] I am asking the right hon. Gentleman to give us an assurance that there will be no cuts in the hospital service building expenditure. The right hon. Gentleman said on Wednesday: … we are not reducing the programmes which have already been announced but, subject to this, we are asking the hospital boards to ensure that only those works are undertaken which are of the most urgent and necessary character."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 217–8.] I want to know from the right hon. Gentleman: does he really think it a higher priority to be building petrol stations and public houses—[Horn. MEMBERS: "Nonsense!"]—than hospitals at the present time? It is not nonsense; they are going up today. Hon. Gentlemen opposite are not going to get away from it. They can go out into the main highways and see this completely inessential and luxury building going on.

The Government say, of course—I will fairly give the Chancellor's argument—that whereas he made cuts in the public sector, it is the duty of the credit squeeze to make cuts in the private sector. I think that that is fairly representing what the Chancellor has said. But, of course, the credit squeeze does not bite on anyone who has reserves. The oil companies have vast reserves, and they are not going to hold off from building petrol stations. The real estate companies have plenty of reserves, and they will go on building offices in the City of London. The breweries have plenty of reserves, and so they are building the "pubs," and, of course. cinemas are being built as well.

I want to put this proposal to the Chancellor. If he really wants to "blow off the froth"—and we were asked to say what would be our policy—the Government should reintroduce building licensing and cut out the inessential building which is going on today so that essential building can take priority. Their refusal to do this is a completely doctrinaire attitude and so, instead, we get cuts in housing; in the road programme and in the nationalised industries. The right hon. Gentleman has cut down productive investment in the National Coal Board —not in coal production, though I dare-say it will not be long before we hear of one or two moves in that direction—but he is making no cuts at all in private building.

The right hon. Gentleman is cutting promotional expenditure in the gas and electricity industries, but we find that private advertising is booming at record level. I am not only referring to independent television. In 1948, Sir Stafford Cripps introduced a proposal which would have inhibited 50 per cent. of advertising expenditure as being a legitimate business expenditure to be calculated for Income Tax. In the end he was given an assurance that there would be no increase in advertising expenditure and he withdrew the proposal.

Since then, expenditure on advertising in this country has much more than doubled and I submit that it is a wasteful use of national economic resources at the present time. Government spokesmen sometimes say that advertising creates a mass market which lowers production costs. This may sometimes be true, but to a large extent it is a bogus argument. Mass advertising today is either undertaken for prestige purposes, or because of a scramble for a limited market. It is defensive advertising.

I was watching commercial television the other evening and saw an advertisement for toothpaste. Does anyone think that this advertising will increase the consumption of toothpaste, or that, as a result, toothpaste, which is mass produced, will be cheaper to the consumer? Of course not. One manufacturer starts it and all the others have to do it out of self-defence— and it is the consumer who pays. Similarly with petrol advertising. That does not increase the market for petrol. It is simply an attempt to share out the available market. If we are to have competition, let us have price competition, which would be far more effective.

I suggest that the Chancellor deals with this waste of resources by reintroducing the proposal of Sir Stafford Cripps. But he dare not do that because of the advertising interests on his own back benches. The same group that forced through commercial television in 1952 will not let him do it. The right hon. Gentleman seems to think that all the necessary control of the private sector will be done by the credit squeeze.

The President of the Board of Trade referred yesterday to controls. He talked about "restrictionism." What is the credit squeeze if it is not restrictionism? It is a system of control. But, instead of decisions about priorities being taken by Crown servants under the direction of a Minister responsible to this House, that invidious task is left to the unfortunate bank managers. They have to do the Chancellor's dirty work for him, because he has not the courage to introduce the direct controls which are necessary. The "Banker," which was quoted by my right hon. Friend the Member for Leeds, South yesterday, referred to the bankers' intolerable rôle of having to act as planners for a Government that regards planning as impossible. That is what the "Banker" says.

The credit squeeze is a blunt and brutal instrument. It does not select between essential and inessential investment. The results are unpredictable and incalculable. I will give the Chancellor two examples. One relates to education. In my constituency there is a vast new housing estate where the majority of schools which have to be built are denominational schools. That is agreed by the Lancashire County Council. A month ago it looked as though all the school building in this area was going to stop, because the bank refused to grant the necessary overdraft. The Minister of Education, when I approached him, acted with great energy in this matter. He does not always do so, but he did on this occasion, and he managed to find a provision allowing him to grant a loan to the managers of these particular schools. But that is completely opposed to the Government's own policy. I am glad the Minister did it, but that is one result of the credit squeeze which I do not think the Chancellor could have foreseen.

Another example is exports. The whole purpose of the credit squeeze and the Government's financial policy is to encourage exports, but it is now inhibiting exports. A week ago I heard of a case where negotiations had been going on for nearly 18 months to secure a large and exciting order of nearly £2 million for a great new British engineering development. That is the kind of contract which, if it were secured, the Chancellor would make great speeches about, and he would be right to do so. But I say that if it is secured, it will be secured in spite of the Chancellor and not because of him.

I received a letter from the head of the firm concerned in which he stated: We have discussed the transactions with the"— so-and-so banking company— and have been informed that the credit squeeze will make it difficult to finance the project. According to the Chancellor of the Exchequer's instructions, no banks are authorised to extend their credit facilities unless approved by the Treasury. There we have a case where the credit squeeze was stopping, or was in danger of stopping, a very important export order worth £2 million to this country. That is one of the results of the squeeze, although I do not think that the Chancellor foresaw it when he introduced the squeeze. I am sure that the Chancellor did not have this in mind and that he would want priority to be given to exports.

This business man went to the Board of Trade and saw some very high and competent officials there. This is what he wrote to me: According to the officials concerned"— he named them, but I will not— the Chancellor of the Exchequer left it entirely to the discretion of the banks to make their decisions and he did not stipulate whether the credit squeeze should be applied to home trade only. I ask the Chancellor, what lunacy is this? It may not be what he intended, but it is what is happening. There may have been a mistake somewhere along the line, but this is endangering our export trade. I am sure that the right hon. Gentleman will take steps to put this case right, but in how many other cases are people being inhibited and will say, "I will not bother about exports, but will go back to the lush pastures of the home market"?

Yesterday the President of the Board of Trade referred to high interest rates and stated the case for dear money. Of course, he did not say how it affected Government expenditure. This Government was elected on a pledge to reduce expenditure by £700 million a year. That was the proposal of the present Minister of Education, endorsed by the former Prime Minister, but, in fact, over the last four years Government expenditure has gone up by more than £1,000 million.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

That course was not endorsed by the party it was not official policy.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

We learn a lot of things after an Election. Will the right hon. Gentleman say why it was that the right hon. Member for Woodford (Sir W. Churchill)—and this was about the 25th or 26th September, 1951—on reading the speech made by the right hon. Gentleman who is now Minister of Education, was so impressed with it that he directed that copies of it should be sent to every Conservative candidate in the country?

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I will give the right hon. Gentleman the answer. The first case was a letter written, no doubt in all sincerity, by the present Minister of Education to "The Times" before the Election, on the subject of expenditure. The second case was a speech made by the present Minister of Education in the West Country. The two were separate issues. The second happened to be a very good speech which the late Prime Minister circulated to the party.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

And now the right hon. Gentleman is telling us that it was not party policy, but was circulated by the Leader at that time of the party opposite.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

Perhaps the right hon. Gentleman will apply his mind to the facts. These were two separate instances. In the second case, the speech, which was of a lively and imaginative character, was circulated to the party by my right hon. Friend the former Prime Minister, but it was not the same instance as the one suggesting that public expenditure should be cut by between £600 million and £700 million, which appeared in "The Times" during the Election before last. I happen to know these facts.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I am beginning to understand that when the Prime Minister circulates these things before an Election, it is something which we do not take too seriously.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

If this is the level of the accuracy of the right hon. Gentleman's remarks we cannot take them too seriously.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

All I would say to the right hon. Gentleman is that whatever happened in this instance—and this has been raised many times, and we have never had any suggestion of this kind before—it was certainly overshadowed by all the events of the 1955 Election.

I hope that the Chancellor will tell us this afternoon the real effect of his dear money policy on overseas expenditure. Last year the White Paper showed an increase of £80 million compared with 1951 in interest paid on sterling balances and other loans in this country. In July, the Chancellor told us that he thought the increases this year would add a further £30 million to our interest burdens overseas. Will the right hon. Gentleman say whether he still stands by that estimate. because here we have a commitment of £110 million a year for which we get nothing at all?

The Chancellor will appreciate that the arguments for dear money at a time when we were world creditors are very different now that we have become world debtors. One result of a dear money policy in a debtor position is, of course, a loss of £110 million a year over foreign exchange. The trouble that we are facing at present has arisen, of course, because the Chancellor has thrown away any control over the international economic situation as it affects this country. We have seen the shufflings and wobblings about the position of sterling.

My right hon. Friend referred to the Chancellor's misleading account of what happened in Paris. and this week the Chancellor claimed credit for the speech which he made at Istanbul. The trouble is that the right hon. Gentleman has been reduced to a kind of double-talk. It is a crisis, and it is not a crisis. He has to impress the Stock Exchange and, he hopes, the T.U.C. with the idea that there is a crisis. At the same time, he has to impress the international monetary speculators with confidence that there is not a crisis likely to affect sterling. So we get this two-faced Chancellor scowling at the Stock Exchange at one moment and smiling at the foreign exchange market at another, and these facial contortions are producing the painful effects we have seen this week. With low reserves and the danger of a crisis of confidence, the right hon. Gentleman has to go to extraordinary lengths to impress the foreign speculators.

"The Times" says this morning that the Budget has pleased the foreign operators. Of course it has. The foreign market is now dictating the Chancellor's economic and social policy on the home front and every time he comes along and carves off another hunk of flesh from the Welfare State and throws it to the wolves to buy time for a few months. He did it with food subsidies in 1952, and he did it again this week, but it does not solve the basic problem.

There is not time to deal with the social effects of the Budget or with the statement of the Minister of Housing and Local Government, the most evil pronouncement in a week of evil pronouncements. We all know only too well from our own constituencies, from our "surgeries," that by far the greatest number of people who come to see us are housing cases—urgent cases of hardship, broken marriages, grave injury to health. In my constituency we have some of the worst examples of overcrowding in the country. The most generous of housing authorities in my area does not allow people to be considered for a house unless they have been married for three years, and in another area the condition is that applicants must have lived in the area for five years.

There is a fine new housing estate on the outskirts of Liverpool. It is a beautiful estate, fine houses. But the people who come to my "surgeries" say that they cannot pay rents of 32s. and 34s. a week, plus travelling expenses. Some ask to go back to Liverpool, and others to go back even to the slums, because of the existing level of rents.

A Budget, we submit, must be judged not only by what it does, but by what it fails to do. Nothing has been done at this critical time for the old-age pensioners. The Chancellor said at Bournemouth: it will be, and must be, the first aim of our Government to look after those on fixed incomes. It is clear that of what he gave away in April, not a penny went to the old-age pensioners and those living on National Assistance. All they have had is 2s. 6d. extra a week since April, 1952, at a time when prices have been rapidly rising. especially of the goods which old-age pensioners and others on National Assistance have to buy.

The Chancellor knows—and I hope that he will not deny it this afternoon—that we are now seeing, after the Election, the naked Tory policy which some of us warned our constituents to expect if the Tories won the Election. That Election was fought on the thesis that Tory freedom works. This debate is taking place upon the thesis that Tory freedom has broken down. The Chancellor knows only too well that if the Government went to the country now they would lose—and lose heavily. He knows also—I do not think he will deny it—that if he had given the country, last May, any idea of the steps that have been announced this week, his party would have lost. He stands before the Committee and the country today devalued, and with his policies discredited.

But that is not the worst thing. There is one very serious aspect which has become clear this week—concerning not merely the personal policy of the Chancellor. The only cheers we heard this week from the benches opposite were for the statement of the Minister of Housing and Local Government yesterday. The Chancellor's party wanted him to go further. If he has no friend in the Tory Party today, it is because he has not gone as far as it wanted him to.

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

They are all his friends.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The hon. Gentleman does not seem to be getting much support for that proposition.

The Tory Press and financial interests are baying for more attacks upon the Welfare State. They are disappointed with his Budget. [Interruption.] Let hon. Members read the "Recorder," the "Daily Telegraph," or "The Times." How much further will the Government go? At any rate, one Election legend has gone—the Tories' pretence that they have accepted the Welfare State and intend to preserve it.

What we have in this Budget, and in the financial and social policies of the Government, is a manifest failure to deal with the economic problem and, in its place, a class policy, a two-nations policy. which will bring immeasurable hardship upon the people who can least defend themselves: which will intensify inflation and, at a time of national crisis, create unrest, disputes and bitterness, and divide the nation. It is upon those grounds that not only the Chancellor but the Government as a whole and, indeed, the whole Tory Party, stand condemned.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

On a point of order. We are dealing with a United Kingdom Measure of the gravest importance to Scotland. Not a single Scottish Minister is sitting on the Front Bench. Ought not someone to be sent to wake up at least one of them?

11.51 a.m.

Photo of Sir Ian Horobin Sir Ian Horobin , Oldham East

I am glad to have the opportunity of following the right hon. Member for Huyton (Mr. H. Wilson), partly because I owe him a deep debt of gratitude. If he had not turned up in Lancashire with that hilarious document called "Labour's Policy for Cotton" it is doubtful whether I should have retained my marginal seat. They know a great deal about cotton in Lancashire. They took one look at his policy and then, although they may not have liked me, they returned me.

This is not a Lancashire debate, and we have to consider many other matters of general Government policy, but before I pass to them I want to make some observations upon two other matters. One is purely a Lancashire cotton matter. It is time somebody told us where the Opposition stands in this connection. There was not a great deal in the document to which I have referred which commended itself to anybody, but there was one sentence which I should like to recall to the attention of the right hon. Gentleman. It says: Thirdly, we will review the operation of the D' scheme as it affects textile goods and clothing, with a view to assisting the export trade. We were never told the result of that review during the Election campaign. The party opposite has had six months since then, but they have not yet told us the result of the review. They have spoken at length about cotton today and they have not told us. I should like to know where they stand in the matter. Do they or do they not accept what all instructed opinion in Lancashire has accepted for a long time—that both the original Utility scheme and the slightly better D scheme, and, indeed, high rates of Purchase Tax generally, had a disastrous effect upon quality goods and quality exports?

If they do not take that view, I find it extremely difficult to understand their attitude. Perhaps they will explain to us at some convenient future occasion why it was a Socialist Chancellor who took the step of halving the Purchase Tax on Rolls Royce cars. Is it now the Socialists' doctrine that the young married couple of whom they are so fond ought, when they have got tired of looking at their silver and cut glass, to go for a drive in their Rolls Royce, in order to relieve the monotony?

It is obvious to anybody who knows anything about the Lancashire cotton industry that this measure—unexpected as it is—is an extremely valuable help to the industry. The longer the late Chancellor of the Exchequer and the right hon. Member for Huyton maintain their delight for complicated instructions to the industry as to exactly what kind of cloth it can make, and interfere in every level, as they did both with the Utility scheme and the D scheme, the longer they will sit upon those benches.

There is another advantage in what the Government have done. Not only will it have its effect upon quality; one of the curses of this detestable tax—which the party opposite put up time and time again, and which we have progressively decreased—is that for months before the Budget the effect of the tax upon certain articles has been sufficiently great to dry up all buying, because of the uncertainty of what was going to be done in the Budget. The present to the cotton textile industry of a small sales tax, spread over the whole range of goods, will make the tax so small in relation to any one article that we may hope that we have at last got over the appalling difficulty which has bedevilled the industry every year, when for about three months before the Budget nobody has been willing to buy.

I propose to leave the question of cotton there, although I would repeat once again that it is time that the promised review by the party opposite was concluded, so that we could be told quite definitely whether it still holds the opinion that some kind of D scheme should be continued.

I now turn to a matter of much greater general importance.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The hon. Member seems to think that the various proposals of the Government will help, and have been helping, the cotton industry. Will he tell the Committee how many mills within five miles of his Tory office in Oldham have closed down this year— and how many he thinks will re-open as a result of the Government's proposals? Further, can he say how it is that, under this beneficent Government, exports of cotton cloth, which last year were already the lowest for 120 years, have fallen still further this year?

Photo of Sir Ian Horobin Sir Ian Horobin , Oldham East

I should be delighted to follow the right hon. Gentleman into the whole of that argument, but we are supposed to be discussing Purchase Tax proposals, and not merely the cotton industry. Nobody can accuse me of waiting until after the General Election before I raised that matter; I discussed it at the Election and I was re-elected. I must ask for the indulgence of the Committee, and pass on. I have dealt with a specific relevant point about Purchase Tax, and I repeat that it is about time hon. Members opposite came off the fence. It will need more than a hangman to keep them on it much longer; they will need tying to it.

I now turn to a very much more important matter, namely, the effect of the Budget proposals upon local government. This is a matter which I think has not been sufficiently ventilated. There are two points to which I should like to draw the attention of the Committee. One, although technical, is of major importance, and the other is concrete and substantial. Whatever we think of this Budget, I think we should all agree that. rightly or wrongly, it is designed only as a subsidiary reinforcement to the major measure which the Government are continuing to use—the Bank Rate and the monetary mechanism. We are all agreed upon that, and, if so, it is quite right that the monetary mechanism should be able to work quickly.

If the Committee will forgive me, I will draw its attention to some figures in this connection, taken from the latest financial statement which has been issued. It was expected that loans to local authorities, which in the actual turnout of the last financial year amounted to £353 million below the line, would fall to £320 million. As about half the financial year is over, one would expect a fall of the order of £10 or £15 million in the amount issued to date. In the corresponding period, 1st April to 18th September, 1954, the amount of that £353 million which had, in fact, been issued was £124 million. One would therefore expect, if things were going right, that something like £110 million would have been issued.

What are the facts? In the corresponding period of this year not £110 million or thereabouts but £198 million—very nearly double—has been issued. In other words, a very serious hindrance to the effective working of the major Government weapon has been in operation. Hon. and right hon. Gentlemen opposite spent a large part of their administration in endeavouring to invest a deficit, and most of their troubles stemmed from it at home and abroad. We must certainly not fall into the same error. The Government have loaned this money to local authorities by borrowing and they in turn have had to borrow it, and they have borrowed on Treasury bills. A very serious contributory cause of the comparative slowness of operation of the monetary weapon this year has been this purely technical but extremely important matter. The Government are to be congratulated upon dealing with this most serious situation as part of their local government proposals.

Before we leave this part of the subject we must remind ourselves how remarkably effective the Bank Rate method has been. In the crisis from the middle of 1951 to the middle of 1952 our reserves fell by more than half. What have been the recent figures, since things began to go not so well recently? In the last half of 1954 the reserves fell by under £100 million, of which £75 million was due to counterbalancing repayments voluntarily advanced to the I.M.F. and the E.P.U. That means the real deterioration amounted to only some £30 million in the first six months. In the following six months, in the first half of this year, there was only another £30 million fall, although the United Kingdom itself was actually in surplus. We must not go from one extreme to the other. It is clear from those figures that there was nothing comparable to the crisis which we found when we came into power in 1951, although it was not nearly good enough. The situation in the first half of this year had deteriorated although we were still in surplus, in comparison with the corresponding half-year of 1954. by about £160 million.

Here I want to answer the accusation that all this ought to have been known, by saying that half of the deterioration was due directly to the appalling export figures of May and June, resulting from the dock strike. Hon. and right hon. Gentlemen opposite are not doing themselves justice when they endeavour to suggest that that was neither an important contribution to our problem nor something which they ought to defend. Responsible trade-union officials did everything in their power—to do them justice—to stop that disastrous and unofficial strike. It remains true that in the first six months, in which May and June are included, this was a very substantial aggravation of the problem, but the position was nothing like comparable to real crisis conditions to which we became accustomed in the previous administrations. In short, the Bank Rate method, while it saved us from very serious crisis conditions, did not work fast enough.

It is against that background that I would ask hon. Members on both sides of the Committee to apply their minds fairly to one or two figures in the situation, in which the effective but too slowly-working monetary mechanism prevented serious crisis but not a serious deterioration which could not be allowed to continue. Local authority gross capital formation amounts, taking one year with another, to about £600 million a year. By a curious coincidence that figure is almost the same as that of the gross capital formation of the whole of private manufacturing industry. If we take Government, local government and nationalised industry together, about half the gross capital formation is in those sectors.

How can it honestly be advanced that any attempt to control the economy of the country by any method can work without attention being paid to those huge amounts? On this side of the Committee we simply do not accept the view that any expenditure by any local authority at any time has an automatic and sacrosanct priority against capital expenditure by private individuals or private industry. It is not true—it is an exaggeration, which I regret has been expressed in this debate by hon. and right hon. Gentlemen opposite, for whom I hope we have and may be able to continue to have great respect —that we are engaged in an unnecessary attack upon local authority or social service capital and general expenditure. On the basis of those figures alone it is impossible to isolate and insulate from all restriction and pressure those sectors of the economy which cannot directly be controlled by the Government by means of the Bank Rate.

Two other aspects of these proposals should command themselves to the Committee and to the country. First, I would say a word on general increases in taxation, including Purchase Tax. My support of these proposals is by no means unreserved on that issue. It is ironical that my right hon. Friend the Chancellor, who has got himself recently into what I have thought at times were unworthy personal attacks, should do so by resorting to weapons which were persistently advocated and executed by hon. and right hon. Gentlemen opposite, who ought to be the last people to complain of them. There are hon. Gentlemen on these Government benches who, while firm in their determination to support the Chancellor in these proposals, do so with a certain anxiety in this lurch back to Daltonism.

I speak not primarily as a minor financier but as a life-long social worker in saying that I am by no means convinced that it is necessarily right, while trying to cut back as we must on the private sectors, to attack cash purchases of such things as pots, pans and brushes, without a further and much more drastic attack on hire purchase. If we must stop people spending money, surely it is better to stop them spending money they have not yet earned and mortgaging their earnings years ahead as many people do who buy on the "never-never," rather than stop people spending money which they have already earned and have in their pockets.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I do not think that the hon. Gentleman is quite doing justice to history in describing the re-imposition of Purchase Tax upon mops, kitchen utensils and so on as "a lurch back to Daltonism." It was I who cleared all those objects off Purchase Tax.

Photo of Sir Ian Horobin Sir Ian Horobin , Oldham East

I apologise. I was assuming—quite wrongly it would appear that there was an element of Cabinet responsibility applying to it. However. we will not quarrel about a word.

The point is that if one has to cut expenditure on current account in the private sector, to do it by way of increased taxation is by no means universely accepted on this side of the Committee. I very much hope that before the debate finishes we shall be told that a very close eye will be kept on hire purchase, which has got out of all reason. I shall not elaborate it but, from a purely social point of view, there is a very strong case for considering—certainly at a time like this—making hire purchase less widespread and less attractive. But—and this is the point that I want to make—it has to be done one way or the other, and hon. Gentlemen opposite do not want to do it either way. When we have put cuts on hire purchase they have attacked us, and now they attack us again. Do they or do they not feel that there is any way in which any Government can get rid of what is agreed by all instructed opinion to be an over-flux of monetary power, which is causing inflation?

The second reservation I want to make to the right hon. Gentleman in this debate is that, on this side of the Committee, we by no means accept the view that the opportunities for cuts in Government expenditure are exhausted, and I will give just one very flagrant example. More than £400 million a year are being pumped into the purchasing power of private individuals by subsidies; and it really is becoming farcical that we tax more and more the very same people. We take money from them on their mops and dustbins and give it back to them in a subsidy. The whole business of Government subsidy is becoming increasingly due for fundamental revision.

Photo of Mr Henry Hynd Mr Henry Hynd , Accrington

Is the hon. Member relating the subsidy to farmers to the tax on mops and brushes? Is it not a fact that the subsidies are going to different people altogether?

Photo of Sir Ian Horobin Sir Ian Horobin , Oldham East

Increasingly the people who are having to pay are the same people who, in one way or another, get subsidies, and it is highly and urgently necessary that the Government should explore this whole realm of subsidies, with a view to its reduction.

I apologise for keeping the Committee, but I conclude with this. There has been a serious attack on the Government's policy and on us, and it is up to us on this side to show that we, by and large, support the Government. I would put it to the Committee and to the country that our policy, with all its faults—whatever they may be thought to be—holds the field. There is no alternative policy effectively before the people for reducing inflation. The whole Socialist policy is wildly inflationary. I would put it that the primary and most important duty of any Government at any time—and I will be perfectly candid and say it is a duty which neither hon. and right hon. Gentlemen opposite nor ourselves have so far succeeded in fulfilling —is to stop debasing the currency.

I hope the time will come so that, when there is an appeal to the country, the simple people everywhere will have reached the stage when—it does not matter whether the suggestion is for more houses. more hospitals, more education or whatever it may be—they will say "Thank you for nothing. If our savings and earnings are being remorselessly whittled away year by year you have failed in your primary duty."

The party opposite never succeeded in fulfilling that duty. It is sometimes forgotten how near we were to success. From the middle of 1953 to the middle of last year—for the first time since the war—prices were absolutely stable. They began to run away from us again in the middle of last year. When the time comes, this policy of the Government will be measured not by what hon. and right hon. Gentlemen said in 1950 or what was or was not written to "The Times" in 1951. What will determine whether this Government gets or deserves the support of the country will be whether they have or have not made reasonable progress with their overwhelming duty of overcoming this problem—which has bedevilled the whole economics of the country since the war—of keeping the £ honest.

12.15 p.m.

Photo of Mr Fred Blackburn Mr Fred Blackburn , Stalybridge and Hyde

So far as the Conservative Government is concerned, I think that the answer to the last question of the hon. Member for Oldham, East (Sir I. Horobin) is, no. Perhaps, as the representative of a textile constituency, I should make some reference to his synthetic excitement about the cotton industry and the policy of the Labour Party. I should like, first, to correct him, and to inform him that the D scheme was not introduced by a Labour Government but by his own. It was a matter of considerable amusement to us last night to hear the Financial Secretary to the Treasury objecting to the D scheme with the very arguments that we put forward some years ago.

If the hon. Member for Oldham, East had been present during our debates on cotton during the past year or two, he would know that the policy of the Labour Party has been the abolition of Purchase Tax on all textile goods. Personally, I admit that I am very pleased at the abolition of the D level, because I think that it will be of some advantage to the Lancashire cotton industry in relation to quality manufacture. But that does not mean that I therefore welcome the imposition of a sales tax as an alternative.

There are other matters with which the hon. Member has dealt on which I shall comment a little later—particularly on his remarks on Government expenditure—but I want, first, to make some reference to the indignation and resentment which has been expressed by the other side at the strictures of my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) in his criticism of the Chancellor of the Exchequer. There has been resentment and indignation, but there has been no attempt by any speaker to answer the charge made against the Chancellor and against the Tory Party. Indeed, it would appear that hon. Members opposite are trying to ignore the fact that the Tory Party is on trial, morally and politically. and that the Chancellor is on trial—that his reputation is at stake and his political integrity in question.

The facts are quite clear, and it is a tragedy for British politics if it can be stated that a Chancellor of the Exchequer is considered to have used his position for party political purposes and has put party before the general interests of the country. If we turn to what the Chancellor had to say in February, we find that he used very much the same words as he used on Wednesday of this week. He then said: What is needed—and what the Government now propose—are steps to moderate excessive internal demand …"—[OFFICIAL REPORT. 24th February, 1955: Vol. 537. c. 1453.] This week, we have to … moderate the pull of home demand."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 209.] Exactly the same thing.

In February last we were not surprised when the Chancellor came to the House, because for some time we had realised that things had not been going too well. He then said that internal demand must be moderated. A few weeks later, before any change had taken place—if anything the position had deteriorated—he came to the House and liberated a further £134 million spending money, which surely must increase the amount of internal demand. That was in April, a few weeks afterwards, and we said at the time that it was entirely unjustified.

That position has not been explained. Before any policy which the Chancellor introduced in February of this year could have had a chance of taking effect, he gave concessions to the extent of £134 million. Now he comes along to reduce the spending power of the people, but those who are having to pay are not the ones who received the benefits in April.

What exactly has the Chancellor done in his attempts either in February, in April or in July, to deal with the problem facing us here? He has relied, in the main, on the Bank Rate; that is, he has put on to the bankers the decision as to what capital investment shall take place. Referring to the question of import controls, the Chancellor said: We shall not fall back on physical import cuts, which, so far from correcting inflation, may aggravate it still further, and, in any case, can be effective only if they are reinforced by rationing, allocation and controls."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 210.] I am not going to argue about physical import controls, but merely want to ask the question how it is that a Conservative Government in Australia is able to impose import cuts without this necessary rationing and controls, to which the Chancellor referred.

This question of capital investment, and particularly of industrial re-equipment, is vitally important to us. It seems to me that any Government dealing with the economic situation will try to increase internal production and should also be trying to bring down the cost of living. As far as internal production goes, we are cutting down capital investment, which, of course, will have the contrary effect. As for bringing down the cost of living, we are increasing Purchase Tax, which will send up the cost of living.

The trouble is that the Treasury has no idea of the amount of capital investment and re-equipment which the country can afford. In a previous debate, I said that I thought it was important that we should make up our minds exactly what we can afford in capital re-equipment and then take a further risk, because it is so important to our future development.

There is one point about capital investment which is of concern to me from the textile industry point of view. The leaders of the cotton industry are at last firmly convinced that they have nothing to hope for from a Conservative Government, and that anything which is done must be in the nature of self-help. I have never been one who thought that any Government could solve all the problems of the cotton industry, but I have said that it is the duty of any Government to try to create the climate whereby the cotton industry can compete fairly with its rivals.

Anyway, some of the textile trade unions have stated that they are prepared to undertake shift working, provided that the mills are re-equipped. If a firm is prepared to equip a mill with automatic looms, what is the position regarding the money for that capital investment? Who will decide whether that firm shall be allowed to do so or not? Not the Government. They are not going to say that it is in the interests of the country that the money should be allowed. They will not make the decision.

The decision has been left to the bankers. What sort of a decision will the bankers make? They will look at the matter purely from the financial point of view, and will ask "How safe is it?" Therefore, the interests of the industry and of the country as a whole will not be taken into consideration, but this matter of capital investment in the cotton industry is a very important one.

A good deal has been said about a reduction in Government spending. The hon. Member for Oldham, East has referred to it, and has taken the main line of argument of a good many Conservatives, particularly outside the House of Commons—because, generally, Conservatives outside are not quite so politically astute as those inside the House. The hon. Member has referred to their main line of argument as the cutting of subsidies, and he wondered whether we were also interested in the reduction of Government spending. I can tell him that we are. We should like to see a remarkable reduction in the amount of money which is being spent on the armaments programme. We should like to see a considerable reduction in the amount of money spent at present unnecessarily on National Service.

As a matter of fact, I was rather anticipating that there would be an announcement about a reduction in the armaments programme, because, without any warning at all, a firm in my constituency received a message from the Ministry that a certain order was slashed practically by 100 per cent., and this has thrown about 100 men out of work.

While we can all welcome and rejoice about any reduction in the armaments programme, the trouble is that some plans should have been made to deal with it, but I am quite certain that a Conservative Government will be rather worried about any real disarmament, because they ought to have some plans ready for turning industry over to more peaceful uses, and, of course, a Conservative Government does not believe in planning.

To turn to Government spending, I believe that a good many Conservatives are under the impression that the Chancellor of the Exchequer has not been very successful. I think we have to look under the leaves to find the nuts. In the first place, it is no use the Government saying they will not alter the road programme if there is to be a reduction in the speed at which that programme is to be put into effect, because that is the equivalent of a reduction. What is the difference?

Then, with regard to hospitals, about which the Chancellor this morning seemed to be rather touchy, it is no use the Government saying they are not going to cut the hospital programme if they say that they are not reducing the programme already announced, but simply asking the authorities not to carry it out. Anyone who knows anything about hospitals knows that there is a good deal of essential work which must be done.

Recently, I had some problems—in fact, four cases in two months—all of the same nature—inability to find hospital accommodation for mentally defective children. It just is not there. These are all very distressing and urgent cases. In fact, in one of them, the mother is expecting another child. It was at her own doctor's request that I suggested that it was urgently important that she should have relief, but it is impossible for the hospital board to find any accommodation, even of a temporary nature, for a mentally defective child. It is useless for the Chancellor of the Exchequer to become indignant and say, "We are not cutting it down" when he has asked the hospitals to reduce all expenditure except that of the most urgent nature.

The Chancellor of the Exchequer said that he is not cutting down the educational programme. As a matter of fact, the Minister of Education yesterday stated in this House that the educational programme would go forward. But what about this letter which the Chancellor of the Exchequer has sent to the local authorities? He writes: on behalf of the Government to ask you to undertake an immediate review of your capital expenditure for the period from now to 31st March. 1957. He also says that this may result in the postponement of improvements which local authorities would like to make in the standards of their services. Surely the building of new schools is affected by the reduction in capital expenditure, and it is dishonest to say that it will have no effect upon the educational programme. Obviously, local authorities reviewing their capital expenditure will be obliged to reduce the number of schools which they have been intending to build. We are already in sufficient difficulty in the educational field because of the shortage of accommodation, over-large classes, and so on.

I wish to say a word about the housing situation. I shall not say very much because a good deal has already been said on this subject. I often wonder why a Conservative Government seems to hate the local authorities so much. Why do the Government make it so much more difficult for the local authorities to perform their job? Suppose the local authorities build as many houses this year as they built last year. There is the reduction in the subsidy which has been brought about by the Government, but there is still surely the same overall expenditure. I do not see how in that way the total expenditure is reduced.

Do the Government really think that the local authorities will be able to continue building the houses, or is it the desire of the Tory Government that municipal house building should now cease or taper off? Having had this great splash about 300,000 houses a year and having achieved that objective, is it now their policy to say, "We have done that, and now we do not want any more building"? It will become quite impossible for local authorities to erect houses in which the ordinary worker can afford to live. I already know of one or two local authorities who have said, "We simply cannot go ahead." Whether that is the desire of this Government I do not know. but that is the effect of their proposal.

I should like to make a brief reference to Purchase Tax. I have already made some reference to the cotton industry. As I said earlier, the people who are being called upon to bear the burden of this Budget are not those who got any benefits under the previous Budget in April of this year. Yesterday, the right hon. and gallant Member for Leicester. South-East (Captain Waterhouse) made light of the effects of Purchase Tax on household goods. He kept referring to ½d. Why he selected a ½d I do not know. But when he dealt with Profits Tax he asked whether we realised that an increase of 5 per cent. was equivalent to Is. in the £.

I wonder whether the right hon. and gallant Gentleman realises that the ½d. on household goods will mean far more to the old-age pensioner than the 1s. in the £ will mean to the industrial establishments which, of course, are already being well subsidised by the Government. It will mean far more to the old-age pensioner. Having increased the old-age pension to £2 a week during this period of constantly increasing prices, when the Government themselves are taking deliberate steps to increase prices, if they think that the old-age pensioners are satisfied, they will have a great surprise.

I do not know whether others have had letters this week from old-age pensioners' associations, as I have, but I can tell the Government that the fight is going on and will be renewed with greater vigour. Let us stop all this nonsense of saying, in the case of Purchase Tax, that the increase is equivalent to only a ½d., and then, in the case of Profits Tax, saying "Do you realise that it means 1s. in the £?" Perhaps hon. Members opposite need not worry very much about the Profits Tax, for a negligible amount will be received this year from the increase in this tax. Of course, if conditions improve —and I understand that the terms of trade are turning in our favour—by next April when we have another Budget this increase can easily be removed, no harm will have been done, and industry will not have paid its share.

I should like to refer once again to the two main points that I have made. I would expect any Government to want to increase production. The Government are reducing capital expenditure and are making it more difficult to increase production. I would expect any Government to try to reduce the cost of living, but this Government are taking deliberate action to increase it. We would also expect any Government to try and share out the burdens more equitably.

In conclusion, I should like to refer to something which was said by the Chancellor, and I should like to ask whether it applies to the present Budget. He said: … however firmly and wisely the Government act, it is only if their measures are recognised by public opinion as being taken in the best interests of the country as a whole that the economy will be restored to full health."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 210.] It is certain that the Chancellor of the Exchequer has not convinced the country as a whole. If he thinks that by the measures which he has taken in this Budget he will cure inflation and stop the spiral of wages chasing prices, he has already had evidence of the failure of his policy. Already, further wage claims are being considered, and in the very near future he will get more and more claims from the unions.

12.39 p.m.

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

The hon. Member for Stalybridge and Hyde (Mr. Blackburn) will, I am sure, forgive me if I do not follow in detail the path which he has taken. particularly as respects Lancashire, of which I have no desire to speak. I would rather for a moment concentrate on some remarks made by the right hon. Member for Huyton (Mr. H. Wilson).

I think the right hon. Member's main thought was crystallised when he said that he desired the decisions to be taken by Crown servants responsible to a Minister. That is the former President of the Board of Trade saying in rather more diplomatic language what has been said on other occasions from the Socialist benches—"The gentlemen in Whitehall know best".

Having made that suggestion, the right hon. Gentleman put forward two proposals in which decisions should and could be taken by these Crown servants to whom he referred. He desired the reintroduction of building licences in order to eliminate three kinds of building —petrol stations, cinemas, and office buildings. It may be desirable to eliminate the building of petrol stations, but it would involve bringing in an enormous machine if we were to introduce licensing solely to stop the building of additional petrol stations. Office buildings would also be subject to licensing. But why are people moving? Why are new offices being built? Largely because employers desire to provide better, more efficient and more comfortable office accommodation in which to transact their business.

Photo of Mr John Hynd Mr John Hynd , Sheffield, Attercliffe

Why not the Coal Board and the nationalised industries?

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

If the hon. Member rose from his seat before interrupting it would be more in keeping with the traditions of the House.

Photo of Mr John Hynd Mr John Hynd , Sheffield, Attercliffe

I welcome the hon. Gentleman's suggestion. What I cannot understand—and perhaps he would explain it to me—is this: if it is for the good and efficiency of the country that private firms should build better accommodation for their staff, why is that not equally the case for the Government and the nationalised industries? Why does the Chancellor find it necessary to stop building already in progress at the foundations?

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

I hope to deal with that later. The Chancellor is exercising the decision in the field for which he is responsible. In any case, this does not involve the introduction of licensing.

I am discussing the proposal of the right hon. Member for Huyton to introduce a system of building licences, action which I believe would transfer the whole burden of decision from the field of ordinary people, with full knowledge of the needs of their own business, their staff and their economic resources, to Crown servants who, admirable, efficient, competent and hard working as they are, are not trained for, and have not the full knowledge on which to make, these decisions.

The right hon. Gentleman then made an attack on expenditure on advertising. He failed to realise that the money expended and charged against tax as an expenditure on advertising in one firm's account is a receipt in another firm's account, and it would be a new principle of Income Tax law, which he advocates, to introduce some disallowance of normal working expenditure. If there were to be any disallowance, he has chosen entirely the wrong thing. The thing to disallow is expenses incurred in needlessly handling material, which wastes valuable man-hours and adds to the cost of production. That is where much of the difficulty and expense of British industry lies.

To some extent this has been a political debate, partly anticipating the debate which we may have on Monday. I do not want to give it too much of a political character.

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

I cannot give way. Other hon. Members wish to speak and it would not be right for me to give way again.

I am afraid that the trouble with which the country is faced at present arises from a distortion, for various reasons, of the whole of its economy. I applaud the Chancellor's courage in introducing this supplementary Budget. It is right that the moment we think things are going wrong the responsible financial Ministers should come forward with their proposals. The more the Committee of Ways and Means can exclude political controversy in such circumstances and concentrate on some of the facts from their own experience, the better.

The trouble with the economy is that it is distorted in several directions. One of the principal ways is the excessive demand made by the Government as a whole oil the country's resources. We were happy to learn from the Chancellor that the percentage has dropped from 29 per cent. to 26 per cent., but that is not enough, for if the ship is still over-weighted it will have difficulty in making a smooth passage through the water.

I believe that Government decisions must be made to ensure that further calls on the national economy are diminished by Government action. I know that this will require policy decisions, but policy decisions will be required in every household where they find that the income coming into the home is not adequate to cover the potential demand for expenditure. The family sitting round the breakfast table has to weigh mother's new hat against father's visit to the football match and the little girl's purchase of tennis balls. That sort of decision is being made in countless families. Each of those expenses would be perfectly legitimate.

In Government expenditure there are always many desirable things which we wish to see done, but the Government, too, must marshal their priorities and accept the fact that many desirable and admirable things may have to be postponed for the present. It is easy for hon. Members opposite to say that decisions should be left to Crown servants. That is the sort of statement which everyone thinks is sound, but when we see how it works in practice we find that it is not so sound.

I hope the Committee will forgive me if I refer, as an example, to the provision of maternity beds in Spalding. The people of Spalding have been sending maternity cases by car, often in the fog and along snowy roads, to Holbeach or Boston. Tired of this, prior to the establishment of the National Health Service, they had advanced their plans about eight years ago, and secured a substantial sum of money. We are now told by the planners of these services, the Sheffield Regional Hospital Board, that although they are doing all they can, 1957 or 1958 is perhaps the earliest the services can be provided. They say the needs of the area as a whole are so great. That is planning in action. Had it been left to the people of Spalding, in the old hospital days, the beds would have been provided and occupied by now. If we weigh up the advantages of Government control we find that they are very few. Let us equally weigh up the disadvantages.

I like what was said by the hon. Member for Oldham, East (Sir I. Horobin) about getting rid of the subsidies, for I believe they distort the economy to an amazing extent. We are at present subsidising the loaf of bread and taxing the knife with which it is cut. That does not seem sensible to me. The policy of our economy now should be to require everybody, within their means, to pay for the services which they enjoy and the goods which they consume; secondly, to ensure that those goods and services are available at the lowest possible price; and, thirdly, to make sure that nobody is denied the necessities of a decent life by misfortune.

Mr. Charles Hoyle:

The hon. Member comes from an agricultural constituency. Is he advocating the abolition of the subsidies for the agricultural industry?

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

I knew that that question would be asked and I will answer it straight away. A virile and prosperous agriculture must have its place in the national economy. The worst way of securing it is by the way of subsidies. On that line, discussions should take place between the Government and agriculture to find alternative and better methods which in no way hamper the achievement of the object we all have in mind.

Mr. Hoyle:

I am happy to hear the hon. Gentleman say that.

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

Housing subsidies, I believe, have also distorted the economy to an amazing degree, as have rent restrictions and controls. The subsidies were originally introduced to make sure that nobody was without a decent home because of low income and family needs, but because of the loss of houses through enemy action and the increase in the number of separate family units desiring accommodation, housing subsidies and housing allocation have moved further and further apart.

Subsidies have followed the house, but the house has gone to the man with the greatest housing need and we then have the position—and no one is really to blame—that a local authority who wants to bring into its area an assistant sanitary inspector or an assistant town clerk promises him a council house. He comes in and occupies it, and it is carrying a subsidy, but he is quite able and willing to pay a fair and proper rent for the house which he occupies.

Photo of Mr Charles Gibson Mr Charles Gibson , Wandsworth Clapham

Mr. C. W. Gibson (Clapham)rose

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

I am sorry that I cannot give way, because there are many others who want to take part in the debate.

Rent control, on the other hand, has operated in such a way as to keep in large houses people who would like to move into a smaller house but cannot find it at the same rent, or the right rent. At the same time, it has prevented people moving from one part of the country to another in search of a job and a higher rate of wage, because they are not satisfied that, after allowing for increased Income Tax and the increased rent payable, they would be in any way better off by moving.

I view with some regret the proposals to increase Purchase Tax. I believe that there is no middle-course between a controlled economy—that is, for decisions to be made by Ministers and Government servants at lengthy intervals, and for all of us faithfully to carry out the decisions they make—and the flexible, speedy and rapid adjustment which takes place under a truly free economy.

I believe that changes in Purchase Tax are of definite disadvantage to industry. Let me give two examples from my own knowledge. Some two years ago there was lively anticipation that Purchase Tax on a particular group of articles would be reduced. Immediately the Christmas trade was over, orders were received in dribs and drabs by the firm concerned. A large number of orders came through for delivery immediately after the Budget announcement had been made. As a result, the firm found it difficult to keep its workers fully employed up to the time of the Budget. While short time was not worked, the minimum amount of full time was worked. The moment the Budget was announced, the dispatch department went into overtime, and they were five weeks behind in delivery.

What is happening now? I was talking to a director of a firm of washing-machine manufacturers, and he said, "You would be amazed at the number of orders we have had in for delivery prior to the Budget. We have been working every hour that the men would work overtime, and hiring lorries all over the place to get the goods delivered into the shops at the pre-Budget price. What will happen with the Budget out of the way, I do not know. Our washing machines were going out at pre-Budget price. We have depleted our stockroom, and we shall have an awful job to keep our men happily and fully employed." Such decisions of a Government Department distort the national economy. I do not feel that this increase in Purchase Tax is the appropriate way to deal with the difficulties which we are experiencing from an abounding, full and prosperous economy.

I feel that one thing which we must do is to ensure that the £ maintains its value. I also feel that nobody is going to feel assured that that will happen until we have stopped the rise in the cost of living. I believe that we ought to tackle all distortions at one time, cut out the subsidies, and work forward from that.

There are substantial cuts which could be made in the field of Government expenditure, with the resulting economies which would be derived by the nation. That would not be popular; it would be unpopular. It is an unpopularity for which the Chancellor has certainly the courage to ask us, as he has demonstrated already, and I am equally sure that we have the courage to carry the unpopularity. Having made these cuts in Government expenditure, I believe that they should be passed on to the people by reducing that kind of taxation which adds to the cost of living.

Petrol tax, for example, is one that I have very readily in mind. Everyone thinks about motoring for pleasure, but nearly five-sixths or more of the petrol consumed is used in the distribution of goods, for the carrying of people, or in agriculture. If any reductions in Government expenditure, in the way that I have advocated, can be counter-balanced by reductions in that field of taxation, which adds to the cost of living, I believe that we should reverse the spiral.

I do not wish to take up a moment longer than I need do, or that the Committee will tolerate. I think that I have trespassed already very heavily on that toleration. But I must say that this credit squeeze is largely imposed as a result of distortion, of high Income Tax, of Surtax and Profits Tax. What does it matter to a man who is paying Income Tax and Surtax at a comparatively high rate if the charge for interest is increased by I per cent. on a few hundred or a few thousand pounds? It goes almost entirely out of the pocket of the Chancellor.

I have never understood why the credit squeeze has worked in the way it has. Nothing was launched in a more unfortunate manner. I believe that the banks have been lacking in courage to go to the Chancellor and say, "You must give us rather more specific instructions." Far too much has been left to the individual decision of the banks. Again, I repeat that there is no alternative between rigid direction and the completely free judgment of the individual making his choice. There is no halfway house between the two. For my part, I believe that all these matters should be left entirely to the free judgment of the individual, the Government using taxation to diminish, damp down and restrict such prosperity as is likely to bubble over.

I have tried to give the Committee my thoughts on these matters. I am one who hopes that, having introduced his autumn Budget courageously as an interim Budget, the Chancellor will accept the unpopularity which will certainly flow from it, but will be prepared to accept an equal amount of unpopularity in the spring of next year. Let us clear the whole of the national economy up at one go, re-establish the value of the £, terminate this steady rise in the cost of living, maintain full employment, recoup and maintain and build our social services on a standard which we can afford.

12.59 p.m.

Photo of Mr Reginald Moss Mr Reginald Moss , Meriden

I take a sentence from a policy statement called "United for Peace and Progress." It says: Under Conservative administration we have broken away at long last from the regular cycle of crises. I shall want to say something about that. I next take a sentence from "British Industrial Future," published by the British Employers' Confederation, in which the Prime Minister is quoted as saying: What we have to do is to increase production to sell more abroad and to do battle with inflation. I want to say something about inflation.

In 1951 every Conservative broadcaster, with the exception of the right hon. Gentleman the Member for Woodford (Sir Winston Churchill), promised to end inflation, to restore the value of the £ and to bring down prices. They have completely failed to solve the problem of the gap, and they have completely failed to solve the problem of inflation. Every four years. it appears, there is a serious crisis in our balance of payments. In 1947 the deficit was over £400 million. In 1951—the post-Korean crisis—the deficit was again £400 million. In 1955 we have the third of the four-yearly crises. I take it, therefore, that in 1959 there will be another, and that we may expect an Election in 1958. or in the early months of 1959.

The Economic Survey for 1955 indicated that in the second half of 1954 there was a deterioration in the over-all British balance of payments by no less than £184 million. For the sterling area as a whole the deterioration was £335 million. The balance of the rest of the sterling area with the non-sterling world worsened by £110 million. The improvement in the gold and dollar reserves in the first half of 1954 was matched by an equal deterioration in the second half of 1954.

Those are the facts given in the Economic Survey for 1955, and those facts, of course, were the danger signals which the Chancellor of the Exchequer understood. They were the red light which showed that there was an economic decline taking place, and so in February the Chancellor took steps to moderate excessive internal demand. In his Budget speech in April he congratulated himself with the words: Thank goodness that we took action in time."—[OFFICIAL REPORT, 19th April 1955: Vol. 540, c. 39.] In that Budget he gave money away, and the Chancellor must bear responsibility for what has happened this year.

The "Manchester Guardian" on 26th July said: If anyone is to be blamed, then Mr. Butler is clearly the guilty party. In his Budget last April he took a calculated risk, and one about which many people felt misgivings … This risk was justifiable only on the assumption that the Chancellor would adhere strictly to the rules. He has not done so, and the consequences have come home to roost. The "Manchester Guardian" went on: This is the consequence of leaving things too late and trusting too much to luck. Mr. Oscar Hobson, City Editor of the "News Chronicle," writing on 26th July, said: It can now be seen that Mr. Butler should never have reduced the Income Tax in his Budget. The White Paper on the United Kingdom Balance of Payments indicates that the United Kingdom's balance of payments with the non-sterling world has worsened, when the first half of 1955 is compared with the first half of 1954, by £167 million. The sterling area's balance with the non-sterling world has deteriorated by £222 million. The gold and dollar reserves, which rose by £179 million in the first half of 1954, fell by £29 million in the first half of 1955.

I suggest to the Committee that this problem of the gap in our balance of payments is extremely serious and can be solved only by radical measures. I hope that the Government succeed in solving this problem. I do not wish the people of this country to be subject to periodic crises in the balance of payments. We have yet to sustain the full impact of the coal situation, which would be worse now but for the extremely fine summer we have enjoyed. The fact that we are now having to import coal will in itself swing the balance of payments against us by about £100 million in a full year. We have yet to feel the impact of the import cuts in Australia and New Zealand. The second half of 1955 will be worse than the first half of 1955, and we know that the gold and dollar reserves have fallen since the end of June by about £150 million.

The Chancellor said that he hoped for a surplus every year of about £300 million. He has never had that surplus. Now he is facing precisely the same problem in 1955 as we have had to face since the end of the war. The Chancellor must accept his share of respon- sibility for this grave situation. He has dillied and dallied, as can be expected of a person whose eyes are looking in different directions. The Chancellor's cross-eyed approach to this problem this year has been due to the fact that he had one eye glued on 26th May and the other, somewhat vaguely, on the edge of the precipice.

Inflation continues unabated. On 23rd July the "Economist" stated: We do not live in an inflationary world. We live in an inflationary country. On 26th July the "Daily Mail" stated: Inflation is becoming more menacing in this country than it is almost anywhere else. "Britain's Industrial Future," in which the British employers state their views, laments the fact, which an hon. Member opposite denied the other day, that inflation creates a mistaken sense of prosperity and well-being. This inflation, of course, belies the Tory promises of 1951. I want the Committee to understand that I do not support dishonest proposals or promises whether by the party opposite or by my own side. I believe in political integrity, and I believe that one way of overcoming the cynicism which exists in this country about politics is for us to be honest in what we think and say. If we make mistakes, let them be honest mistakes.

This inflation is the parent of other troubles, including the hardships suffered by pensioners whose allowances are being made obsolete by rising prices. I think the Government should turn their attention now, after the announcements we have had this week, to the problem of pensions, not forgetting the amount which a pensioner may earn without having his pension reduced. Many widows are getting into difficulties because of that at this moment. I understand that the Government have these questions under review. The sooner a statement is made the better.

Rising prices are also connected with industrial unrest. The Government passed the 2 million mark of working days lost in 1953. They will pass the 3 million mark in 1955. Goodness knows whether the proposals at present before us will be justified by the industrial consequences which will ensue. It seems that we are facing the prospect of rising industrial unrest. I do not know what I shall be able to tell the miners in my constituency, with whom I have been at the coal face, about the proposals before us now. I am afraid they will regard them as an attack on their standard of living in the coalmining villages.

This is the second grave problem which any British Government would have to face in the twentieth century—the problem of rising prices. It seems that exports are not going abroad in sufficient quantities and very little is being done to see that they do go abroad. Exports which are being sold abroad are very often sold in the wrong places. The first task of a Chancellor, therefore, is to promote exports in general and to promote exports to dollar markets in particular. How does this supplementary Budget help solve that problem? A friend of mine who has a market in Canada is being refused money by the banks to develop his exports there. I think that is absurd at any time.

The second duty of a modern British Government is to lessen our dependence upon overseas supplies and the first way to do that is by the adoption of a successful fuel and power policy. In particular, production of coal must be increased. We cannot expect to be saved by a fine summer every year and there must be economy in the use of coal. I regret to tell the Committee that the country will no longer benefit from the coal which my father produced, as he retired a fortnight ago.

I would point out to the Committee that coal output will be down by 4 million tons by the end of this year, whilst imports are running at 12 million tons in a full year. Great improvements are necessary in the coal industry if manpower is to be attracted to the mines. In the first nine months of this year manpower in the coal industry, according to an Answer I received the other day, has fallen by 6,000. Our labour power, therefore, cannot be said to be in the right places. If it is the policy of the Government to attract manpower to where it should go, the conditions under which miners work must be very greatly improved.

There is unrest in the coal industry, unrest because the conditions under which miners work are not satisfactory. I am glad to see that in the coal industry the recommendations of the Fleck Committee are being applied. Perhaps we may hope for some improvement from that fact. The Government can help by having a policy for economy in the use of coal.

I Very careful attention should be directed to the development of British agriculture. The whole purpose of subsidies should be considered in relation to the production of home supplies of food in the greatest possible quantities, for this is a great saver of foreign currency, and of dollars in particular. But in British agriculture, I regret to say, alarm and despondency are spreading and will spread still more if too many hon. Members on the Government benches start attacking subsidies which enable farmers to produce food under modern conditions.

I very much regret to say that I do not think the proposals introduced this week will help to solve the problems we are facing—the problem of the gap and the problem of inflation. It is no use trying to guide Britain through this twentieth century world by the use of traditional devices, since the world today, and particularly Britain's position in it, are vastly different even from the pre-war world of 1939. In the long run it will become necessary for the country to strip for action under the guidance of a strong Government which takes a positive view of its responsibilities. I, for one, would like to see British prosperity founded upon the security of the basic industries—thus reversing the tendencies of a generation—with the British workers confident of their future employment and wellbeing.

1.17 p.m.

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , South Dorset

I believe that the duty of this Government and this Parliament is to restore the classical economy within the framework of the Welfare State. My right hon. Friend the President of the Board of Trade, in an admirable speech, talked yesterday about that as full employment in a free society. I imagine that that is the same idea and the same purpose. Besides that concept at home there is the parallel concept of a much more liberal system of trade and payments overseas and a freer £.

Therefore, I find it possible to congratulate the Chancellor of the Exchequer on the extra-budgetary measures he has taken and is proposing to take. I join in support of my hon. Friends on this side of the Committee who have pleaded for a rectification of the economy towards sanity and sense, the elimination of subsidies, and the substitution of economic prices and lowered taxation. May I say one thing about taxation in general? Here I include the Profits Tax. I would have voted against the Profits Tax as well two days' ago, but it would have been rather ludicrous for my hon. and gallant Friend the Member for the Isle of Ely (Major Legge-Bourke) and myself to stand as Tellers to an empty Lobby, and we decided not to do so.

So far as general taxation is concerned, I think that more and more people are coming to the conclusion that it is now per se inflationary. During the 'twenties and 'thirties the doctrine was steadily built up that in times of boom you must tax high in order to correct the boom and, conversely—this was the real doctrine of Keynes—that in times of slump you must reduce your taxation and pump Government money into the economy. I have a feeling, and I think much more research ought to be done about it—I do not think there has been any thinking in the Treasury on the subject—that when we achieve a situation of full employment we, as it were, pass through a sound barrier, when all the physical properties and characteristics are changed and what was true before is no longer true. Therefore, we have had all this evidence during the war and since the war that full employment with additive taxation produces greater and greater degrees of inflation. That was why I was so profoundly disappointed when my right hon. Friend the Chancellor of the Exchequer added to the Profits Tax and to Purchase Tax.

We should now look back to old-fashioned times when the Government took what money they needed in the fairest way possible out of the economy for the sake of defending the country and providing for social justice, however that is defined. We should turn our backs on taxation as a compulsive instrument of policy. Purchase Tax is even more dirigiste than direct taxation. I use the French term because it is more expressive than the English term. "collectivism." Dirigisme gives the true picture of the State using the weapon of taxation in particular and selective ways in order to achieve a social result. The Purchase Tax is more dirigiste than any other tax.

It is not a concept which I wholly admire that our Conservative Government should be looking at the private economy and saying that it is singling out certain things as being undesirable for a number of reasons and applying Purchase Tax to them in great measure to suppress sales, or whatever the case may be. As well as being selective and unfair, Purchase Tax is actively promoting inflation. Let hon. Members ask every consumer of goods subject to Purchase Tax what they do about it. It will be found that they pay the tax in the end and go on buying the goods.

There is a generally accepted standard of living which people are compelled to adopt in peace-time. In war it is a different thing, and if we are subject to physical controls we are unable to do it. But when there are no physical controls and there is no moral obligation to do without, the generality of people will continue to live at the standard which they think they can attain and whatever the price, they will pay it. They will formulate increased wage demands, or go to their firms and demand increased salaries. The vehemence of their determination in the end works back to the source of the grant and they are given the increase they want. At once, inflation occurs. I know of no consumer who, when a particular article has Customs and Excise Duty, or Purchase Tax, applied to it, goes without that article. The Government are mistaken on that count.

It is the manufacturers' experience as well. What manufacturer will rise with his hand on his heart and say, "I admit that the Dalton Purchase Tax, the Cripps Purchase Tax, the Purchase Tax of the present Chancellor of the Exchequer is forcing me to sell my goods abroad?" If they sell their goods abroad, it is because they have good contacts abroad and because they have a satisfactory home market to take the overhead costs of the firm or industry. They do not take their goods abroad because Purchase Tax is applied. If they do, I should like to know the manufacturer who says that that is what he is doing.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

May I remind the hon. Gentleman that there are plenty of manufacturers in the textile trade who say that the incidence of Purchase Tax prevents them from selling good quality goods at home?

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , South Dorset

Certainly, but I should like to know what manufacturer would say that because of Purchase Tax he has established an export market. If the hon. Member can produce evidence to that end, I would be most grateful for it.

Photo of Mr Moss Turner-Samuels Mr Moss Turner-Samuels , Gloucester

In this particular context, quite a number of these goods are necessary. People have to have them.

Photo of Sir Rhys Morris Sir Rhys Morris , Carmarthen

Order. A large number of hon. Members wish to speak and hon. Members should limit their interventions as much as possible.

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , South Dorset

I will be as brief as I possibly can, Sir Rhys.

I want now to turn to the question of the degree of this crisis. It is painted as a crisis. I believe that some fundamental changes ought to be made and I praise the Chancellor for what he has done and is proposing to do; but, to the extent that there is a crisis on international account, I am extremely puzzled. I have here the last White Paper on the subject with the last range of dates available for the United Kingdom balance of payment figures, namely, for the first six months of 1955. I find, in page 26, that there are large sums, debits which represent our imports and various invisibles, of £2,091 million and against that are credits of £2,075 million, and that there is a tiny adverse balance of £16 million to the national balance of payments in that six months.

That is a gap and it has worsened slightly since then, but not very significantly. When we have a gap we look at it as though it were something absolutely terrifying, as if it were a precipice, a gorge, separating Lazarus from Abraham.

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , South Dorset

I am much obliged to my hon. Friend for that correction. Lazarus and Abraham were very close.

But that gap, of course, is filled in in the next page, page 27, and hon. and right hon. Members will see how it is done. There was an increase of £22 million in the balance of investment and borrowing. Could we not have borrowed a little more? Was there any difficulty from some of these overseas countries and institutions from which we did the borrowing about getting any more? Did they represent that this was a terrible thing and that we must close the gap in some other way? I would like to know.

Look again at the White Paper. There was a change in sterling liabilities, a decrease of £86 million. Could we not have decreased those liabilities a little less and so filled the gap? Who objected to that and then forced us to draw on gold and dollar reserves to the extent of the £29 million mentioned? These gaps are automatically filled by international adjustments and a crisis cannot be said to exist until one is faced with serious difficulties in filling the gap of these overseas adjustments. We have not had a word on that subject from the Chancellor of the Exchequer.

I want now to refer to the strengthening of the £. My right hon. Friend the Chancellor made great play in his Budget speech, and during speeches in the country this summer and autumn, about the need to strengthen the £. There were no metaphors about it this time and I should like to introduce one. It seems to me that he is treating the £ as if he were trying to plant the Union Jack on the white cliffs of Dover and to hold it there at the highest level and over the largest possible area.

What is the purpose of all this? Why do we need to have a strong £ at the moment? The stronger the £ the more difficult it is to export, and the easier it is to import—which is just the wrong solution for our internal difficulties. If we are to have a strengthened £ for the purposes of reaching a point where we are to convert the £, what is the purpose of putting the £ at any particular figure? After converting the £—and I am told that we are on the edge of convertibility—the £ will find its ordinary level, and all our previous processes of trying to push the £ to a particular value will be nullified. I should like to hear a more about that subject.

I do not wish to make an over-long speech today, but just to offer some explanation to the Committee, and to my constituents, for the action I took the night before last, and for the action— unless there is a more satisfactory explanation of some of these things—that I may take again before long.

I just wish to say this, therefore, in conclusion. I think that we have passed over a watershed in the last six months, just as we did in 1945, after the war, when the Labour Party got into power. The Labour Party proceeded to implement the Welfare State, at some cost to the free society. We are not going back to a policy of revenge about that, as some right hon. and hon. Gentlemen opposite seem to think. We have, I hope, a nobler ideal, that is, to hold to the Welfare State; to buttress it in so far as lies within our power to do. There is also another thing of great consequence, and that is to restore freedom, full freedom, to the trading community and to the individual.

Therefore, I do not like the evidence appearing of what I call compulsive planning from our Government at present, because I think it is inappropriate to the age into which we have moved. I do not like the imposition of Purchase Tax and Profits Tax. I do not like the credit squeeze, because that is using the banking machinery to carry out the purposes of State; and that is not what the banking machinery was created to do. I do not like compulsive action with regard to new towns, and overspill. I regret also very much the omission from this Budget of measures designed to help the very hard-pressed middle and professional classes. We ought to have seen in this Budget something to assist them, to raise their spirits to new levels of enthusiasm in order to carry out the great designs that are on hand.

If this country and this Government and Parliament can, in the next four to five years, lay the foundations of a society in which the classical economy can be regenerated alongside the Welfare State, it will be doing something the like of which the world has never seen, and will raise again the fortunes and prestige of our country as a world leader.

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

There is only an hour-and-a-quarter before the winding up speeches and there are a great many hon. Members who have sat in the Chamber both yesterday and today and who wish to speak. I should like to enable them to do so, but I can do that only if speeches are curtailed and I appeal to hon. Gentlemen to help me.

1.34 p.m.

Photo of Mr Moss Turner-Samuels Mr Moss Turner-Samuels , Gloucester

The first thing that I should like to do is to congratulate the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) on the courage which he displayed the other day in declaring in the Lobby what he thought of the Chancellor's Budget. I do not propose to refer to what he has said today, because I must admit that I like his actions better than his words. What he said was a mixture of praise for the Chancellor on the one hand and threats of what he might carry out in certain circumstances on the other.

One thing has been obvious during this week, at least to hon. Members on this side of the Committee. It is that there are uneasy heads on the Government Front Bench, and that in due course they will be seen to be rolling in the political dust. The worst feature to which I wish especially to call the attention of the Committee is that, unfortunately, this Budget is calculated to sow the seeds of class discrimination.

Before I come to that, I would like to refer to an intervention by the Chancellor of the Exchequer during the speech of my right hon. Friend the Member for Huyton (Mr. H. Wilson) this morning. My right hon. Friend twitted, and properly twitted, the Chancellor with the promise which he had made in pre-Election days to bring down Government expenditure; whereas, by distinction, as my right hon. Friend pointed out, in fact the sum had been increased to more than double during the period of the present Government.

Then the Chancellor did something that I was sorry to see. He must have known that it was completely uncandid, and I can only imagine that he did it in a mind which is sorely troubled because of the shabby events to which he has had to be a partner. He said that that was a statement of his—and, I suppose, as such, a statement of the Government—but it was not agreed to by the Conservative Party. That is a grossly misleading statement by a person of the highest responsibility in the Government. He knows, as everyone in the country knows and as every hon. Member of this Committee must know, that it is not the Con- servative Party that makes policy at all, but the Leader of the Conservative Party. Therefore, it was rather pathetic to see the Chancellor of the Exchequer putting forward an argument of that kind.

There is another point to which I would like to refer and that is an observation made by the hon. Member for Holland with Boston (Sir H. Butcher). He said a very trenchant thing. He said that subsidies distort the economy. The point he was trying to make was that you ought not to put your hand into the pocket of the Exchequer and pay out money from it to favoured or special sections of society. He said that distorts the economy.

What the hon. Gentleman did not mention was the distinction, the difference—the deplorable difference—that one is constantly finding in this country between people of different classes. We have people who are rich and wealthy—as they are entitled to be and I do not object to that—and we have people who have large incomes without the need to work—and I do not even object to that. On the other hand, we have people who have to work hard and who are enabled to make sufficient money in order to keep themselves and their families only by working overtime. I do object to that. That not only distorts, but discredits our economy.

In his speech yesterday, the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse) referred to strikes. I have much sympathy with his point of view if he means that it is unfortunate that we should have to have strikes because, of course, strikes can do no good to those who strike, to the economy of the country, to industry or to anything else. But the time sometimes comes when a strike is inevitable. The right hon. and gallant Gentleman would have got much nearer the mark if, instead of trying to suggest that the dock strike or any other strike was wholly or even partially responsible for the difficulties with which we are faced, he had occupied himself with the causes that bring about strikes.

This topic is very relevant to the Budget, because the Budget will foster all the elements that lead to industrial conflict which is the forerunner of strikes. In the first place, it will lead to a demand for higher wages, a matter to which I will refer further in a moment. It will raise the cost of living which, in itself, is the lever that releases fresh demands for higher wages, and it certainly will affect the standard of living. All these things are now receiving a fresh impetus from the Budget, and that is what is so serious about it. The Budget is an incitement to wage claims and to industrial unrest.

The Minister of Labour, who is a very moderate-minded person, a man really without any definite political allegiance at all, and a man who is anxious to hold the scales fairly and to do what is right, yesterday made an appeal for the co-operation of the unions in order to try to attain industrial peace and economic welfare. Referring to the Budget, the right hon. and learned Gentleman said that what the Chancellor had tried to do was to get "the burdens justly balanced." That observation would appear to indicate that the right hon. and learned Gentleman might not have heard or studied the Chancellor's Budget proposals. How can it be said that the burdens are being justly balanced when the £150 million which was given away in the April Budget to the well-to-do is now, through this new Budget, being recovered from the less well-to-do?

Photo of Mr Henry Brooke Mr Henry Brooke , Hampstead

The hon. and learned Gentleman says that £150 million was given away to the well-to-do. Am I to understand that had he been the Chancellor of the Exchequer he would not this year have relieved 2½ million of the smaller Income Tax payers from paying tax?

Photo of Mr Moss Turner-Samuels Mr Moss Turner-Samuels , Gloucester

The Financial Secretary is dealing with an old bird at crossing swords. I do not intend to be diverted by quibbles of that kind. The fact is that, in a transfer from the Exchequer to a certain privileged section of the community, the sum of £150 million was given away. Conversely, now that the Chancellor is faced with the situation in which he is forced to get back that £150 million, he is not making the well-to-do to whom he gave it pay it back, but is making the less well-to-do repay it.

I will illustrate why I say that. Who will have to pay it? It is the housewife who will now have to pay increased Purchase Tax upon daily necessities. The noble Lord the Member for Dorset, South, who preceded me in this debate, referred to Purchase Tax and said that he had never been able to see how that tax could help us either in exports or otherwise. But the matter comes much nearer home than that, so far as the housewife is concerned, because the Chancellor is now going out of his way in this shabby, scraping Budget, in which he is trying to get pickings all over the place, to make housewives pay on articles of absolutely daily necessity. The right hon. Gentleman has bad to push his way into the kitchen in order to recover some of the money which he gave last April to the drawing-rooms.

Take another instance. The right hon. Gentleman is now putting the burden upon the tenant. He is going to make the tenant pay more rent by the withdrawal of the housing subsidy, quite apart from rent restriction, a matter about which I shall say something in a moment. Taking Purchase Tax as a whole, and without picking out a special application of it here and there, everyone knows that it is an inflationary tax of the highest kind. That is a fact which ought to be repeated again and again.

The Chancellor is doing nothing to check the great problem of the spiral which has been going on for so long, and which really is the basic problem. Instead, he is activating it. The essential thing is to stabilise prices. By his Budget proposals, the Chancellor has given the raising of prices a further fillip.

There is another matter which I must point out, and I hope that the Financial Secretary who was so ready to intervene about who received the money in April and who are now to pay it back, will say something about this.

What the Chancellor is now doing, industrially, is playing with fire. It is absolutely impossible to get any remission of our rising cost of living unless the Chancellor does something to bring it down, and the Budget, far from doing anything to bring it down, has deliberately taken steps which will send it up. An immediate illustration of that came yesterday. The National Union of Railwaymen and the miners both looked at the provisions of the Budget, and their first reaction was one of indignation and utter antagonism. They said that it was bound to have the effect of provoking steeper wage demands. It is elementary that this Budget is nothing more or less than the operation of inflation on top of inflation.

What a sad and pitiable picture all this makes of pensioners and people whose sole incomes are derived from investments—people who are not so well off. It is not so much a question of the sum involved in the imposition that is being placed upon them; it is the fact that the Chancellor appears to be completely insensitive to the effect of the low purchasing power of these people. It is all very well for the Chancellor. The next time he buys a suit of clothes he will pay £3 less, but the pensioners and other people who are not so well off will have to pay more for almost all they have to buy. It really is a callous and cynical thing for the Chancellor to do. It is almost as callous as the remark made by Marie Antoinette when the poor people of Paris said that they could not afford to buy bread, and she said, "Let them buy cake."

The Government's decision on housing subsidies is really an eye-opener. We now see that all the Tory show and trumpeting about the building of houses was nothing more or less than a sham and a pretence. The true Tory purpose has now been revealed in the first moment of their power. They are emasculating the power of local authorities to provide houses to let.

That brings me to the question of rent restrictions, about which, as a lawyer, I have had some experience. Rent Restrictions Acts are now a major part of our social structure. They have become so deeply fixed in everyone's daily life that it really is a revolutionary operation to interfere with them. Not a word was said about this matter during the General Election. Nobody on the Government side even hinted either before or during the Election campaign that there was a likelihood of rent restrictions being repealed. The Government received no mandate whatsoever for doing what they now propose. Therefore, how such an act can be carried out with any show of honesty is very difficult to understand.

The truth is that the Government have thrown all restraint to the wind, and propose to let the landlords loose upon the tenant community. In addition, they are putting an end to the subsidies. That means the end of houses to let; it means that the only new houses will be those built for sale by private enterprise, and it means rent increases for all houses. The tenants will be bound hand and foot, because they must either pay the increases or get out into the streets. That is clearly political action gone drunk.

I do not want to occupy any more time, because many of my hon. Friends and others want to speak. I merely say, in conclusion, that I am, in a sense, sorry for the Chancellor of the Exchequer. I march with him to a certain extent in his desire not to do anything which might weaken the power of business and private enterprise, in order to help us along the road to prosperity. I am not one of those people who think that we should constantly be putting our hands into the pockets of companies. I realise that unless we leave these great commercial concerns with the necessary resources to carry on they will not be able to do so, and a great part of our commercial activity will be undermined.

On the other hand, although I have always had the greatest admiration for the Chancellor—I believe that he is a very astute man and I have thought, up till now, that he was anxious to do the fair and open thing—he cannot get away from the dilemma in which he is placed. If he had been honest and had told the truth before the General Election, the Tory Party would not have been in power today.

I quarrel with him because he took a very wrong and irregular course. He was the one man in the country who knew every detail of the financial situation of the Exchequer. He knew our position abroad and at home; he knew the truth about our cost of living, our dollar and gold position, and all the other matters about which we are so seriously concerned, yet he allowed the British electorate to be gulled. Instead of uttering words of warning he uttered misleading words. That is why the chickens are now coming home to roost. Assuredly, the Government will find that the trick which they played will eventually go heavily against them.

2.0 p.m.

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

In view of your injunction, Sir Charles, as to time, I hope I may be forgiven if I do not go very much into the observations which we have just heard from the hon. and learned Member for Gloucester (Mr. Turner-Samuels), except in one respect. I have listened to a considerable part of this debate, and I am convinced that, whatever criticisms may or may not be levelled against the Budget, those directed, like the criticisms which we have just heard, to attacks upon the personal integrity of the Chancellor of the Exchequer will be treated with contempt by the large bulk of the nation and will eventually recoil upon the heads of those who made them.

Perhaps some latitude may be allowed to the hon. and learned Member, but that sort of attack comes particularly ill from a right hon. Gentleman who has himself held the high and responsible position of Chancellor of the Exchequer; and especially so from one whose own tenure of office is not generally recognised as having added to his reputation for courageous and constructive statesmanship. It was highly regrettable that a former Chancellor of the Exchequer should incite the less responsible elements in his own party to follow that particular line of attack.

Apart from that, the Chancellor of the Exchequer has been subjected to a welter of conflicting advice on what he ought to do. I have the greatest personal admiration and respect for a great many Liberals, but when I listened to advice tendered from the Liberal benches I felt that there was something, after all, in the saying that Liberalism is "in theory a pestilential heresy and in practice a typical illusion."

There has been a general measure of agreement on the great danger of inflation. The hon. and learned Member for Gloucester indicated that, in his view, that danger was very real. In so far as the Budget represents a determined attack upon that problem of internal inflation it ought to be welcomed by every section of the community, even though there may be differences of opinion on the merits of particular parts of the proposals.

I particularly welcome the decision to subject the public sector of the economy to the same monetary discipline as has already been imposed upon the private sector. The measures which the Chancellor has proposed are both salutary and realistic. I agree entirely with what he had to say about the way in which too many critics concentrate their attack upon current expenditure. This can always be reviewed, but the field for economy there on the part of local authorities and other public bodies is inevitably restricted if existing standards of public service are to be maintained.

We ought to welcome the way in which the Chancellor has emphasised that it is the policy of the Government to maintain that existing standard. We can always have economy of current expenditure on a day-to-day basis. Not a sufficient number of speakers has given recognition to the importance of the Chancellor's declaration that there has been over a period of four years a gratifying reduction of 3 per cent. in the Government's share of gross national production.

I particularly welcome the recognition which the Budget gives to the need for rigid control of public capital expenditure which, once it is incurred, means that you cannot ever again avoid the resulting annual charges for repayments and maintenance. Too few people understand the way in which local authorities have been pushing ahead ever since the war with capital expenditure projects which are far beyond their ultimate financial resources.

Latest figures show that the annual capital expenditure of local authorities is nearly £600 million a year. The authorities are saddled with a loan debt of more than £3,500 million. Left unchecked, this process would result in their expenditure absorbing an ever increasing proportion of the total investment resources of the nation. My hon. Friend the Member for Oldham, East (Sir I. Horobin) indicated that this factor has become increasingly significant, even since the April Budget. The measures of my right hon. Friend the Chancellor of the Exchequer have not yet succeeded in impressing upon local authorities generally the need to curb capital expenditure. They are behaving exactly like a man with an income of £500 a year who wants to buy a £10,000 house.

What is happening today? Suppose an old building comes into the market. On the face of it the price is reasonable. In the knowledge that there will be a 60-year loan the expenditure is approved by the local authority. The costs of alteration and the ultimate cost of staffing or heating are not adequately gone into, or perhaps even the number of people who can be accommodated. The local authority may buy a place with extensive gardens and grounds, which represent, not a large capital expenditure but a large potential maintenance expenditure. They may buy a building the water and drainage system of which is wholly inadequate for the new purpose. [HON. MEMBERS: "Give an example."] Hon. Members will know, from their own experience of local authorities, that that sort of thing happens.

Photo of Mr William Warbey Mr William Warbey , Ashfield

Will the hon. Member tell us where it happens?

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

I know of one case in which a country mansion in Sussex was bought at very low initial cost. Everyone thought it was a splendid scheme. In the ultimate result, after all the alterations were carried out and amended estimates approved, the cost of adapting that small country house inside for housing 55 children came to more than £55,000, which represented £1,000 a place. What is even more serious is that the building was unsuitable in the first instance, so that maintenance costs may prove to be unreasonably high.

Photo of Mr John Hynd Mr John Hynd , Sheffield, Attercliffe

This argument is extremely interesting. The hon. Gentleman has cited one case of a building in Sussex bought, I suppose, by one of the Conservative local authorities there. May I ask the hon. Gentleman whether he can cite any large city or borough which has done this sort of thing? Sheffield, which is a not inconsiderable city, has not bought a single room since the war although many buildings have been going up for petrol companies and other organisations.

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

The local authority to which I was referring is the London County Council, which is perhaps even larger than Sheffield and perhaps even more extravagant. I was giving a small-scale example, and we can no doubt think of others from our own experience. Even more important is the need to curb the enormous capital expenditure of local authorities in implementing their various development plans.

Let me take again the example of the London County Council. At present prices, the cost of implementing the London development plan in the first 20 years will be about £540 million. I believe that figure to be unrealistic. Quite apart from the obvious advantages, from a budgetary point of view, of reducing the below-the-line surplus, it is clearly desirable, as the Chancellor of the Exchequer said, that public bodies, like private individuals, should be subjected to the discipline of price and that their borrowing should in future bear some proper relationship to their credit and to their long-term financial resources. It should not be carried, as hitherto, almost entirely upon Exchequer credit.

It is equally important that a sense of realism should be brought to bear upon the housing subsidies. It is absurd to talk of the Conservative policy of building 300,000 houses a year as "a sham and a pretext." Three hundred thousand houses and more have been built each year and a programme for building at much the same rate is to be maintained. Why the statement of the Minister is important is that it recognises that this total public bill has been rising steadily, and that at the present rate of subsidy—assuming, as we are, that building continues more or less at the same rate—that bill would amount to £100 million a year in 1960.

I am sure that we all know that in too many cases the subsidy is applied quite indiscriminately and without reference to financial need, instead of being pooled as the Housing Acts originally envisaged, and still envisage that it should be pooled. A number of local authorities are responding to the Minister's appeal to restore equity in housing finance by making up their minds, in the Minister's words … to charge rents more in line with current wages and the present-day value of money …"—[OFFICIAL REPORT, 27th October, 1955; Vol. 545, c. 381.] and by the introduction of differential rent schemes. Unfortunately, we now know that there are a number of others who are not likely to follow suit until some pressure is brought to bear upon them.

While we have to deal with this problem of swollen housing subsidies which are not going to those who should be receiving them, we must also remember that the 3,000,000 council house tenants are by no means alone in having their accommodation subsidised. The community confers a similar privilege on some 7,000,000 tenants of rent-restricted dwellings who are subsidised by their landlords. I very often feel that those ordinary ratepayers who are most vigorous in their condemnation of the subsidy on council houses should remember that they themselves are not in any position to protest.

Photo of Mr George Lindgren Mr George Lindgren , Wellingborough

The hon. Gentleman is making extravagant statements, but would he not also agree that those who are purchasing their own houses are subsidised by Income Tax reliefs, which they get on mortgage and interest repayments?

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

I think that that is so to some extent; it is a matter of public policy to encourage people to undertake their own house purchase, but the advantage gained by those concerned is very much less than that afforded to council tenants, and the community is being relieved of the burden of the capital expenditure which would be incurred in putting up a house.

Photo of Mr George Lindgren Mr George Lindgren , Wellingborough

Would the hon. Member say that if a man is purchasing a house for £2,500 he is not getting a subsidy in Income Tax rebate of more than £20?

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

I cannot, while I am addressing the Committee, check those mathematics, but council-house tenants in many cases—certainly in London—are getting more than the statutory rate subsidy. In order to reach a realistic situation, that subsidy should be brought into line with the current level of wages and the value of the £. My argument is that some pressure ought, in fairness, to be applied to tenants of rent-restricted houses, not only on a basis of equity in rent but on a social basis, so as to ensure the proper maintenance of those premises.

It has been suggested by the hon. and learned Member for Gloucester that there was never a hint in the course of the Election that such was the Conservative view. I should have thought that it had been recognised for a considerable time that there is need to overhaul what has been judicially described as a welter of chaotic verbiage. Even many Socialist pamphlets have recognised that there is some need for revision of the Rent Restrictions Acts. It is, therefore, outrageous to suggest that it is something which was hidden up the Government's sleeve until after the Election had taken place.

Reference was made by my hon. and noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) to the crisis which we now have to meet. Again, I feel that we should all welcome the Government's proposals in so far as they are designed to strengthen sterling and to improve our international trade position. At the same time it is very important that the fact that measures have to be taken from time to time to maintain the stability of our national economy should not give rise to undue pessimism. I share some of my hon. and noble Friend's sentiments about the degree of crisis from which we are now suffering. The Chancellor himself has emphasised that there is nothing in the nature of a serious economic crisis.

Fluctuations in our gold and dollar reserves, resulting from unfounded misapprehensions about the prospect of sterling convertibility, are not a sign of economic weakness; nor are the returns and monthly statistics which reflect the effect of the dock strikes, not only of June, 1955, but of October, 1954. It may be economic heresy but—speaking not as an economist—I must confess that I am somewhat doubtful about the value of some of the statistics published—and so frequently misinterpreted. They always relate to past events and conditions, and some of those who form their opinions solely on the basis of the monthly returns, and change their economic opinions accordingly, are in the unhappy position of people who have their noses so close to the grindstone that they do not see the wheel going round. As our export figures relate to the orders and imports of eighteen months or two years previously, and the import figures relate to current orders and future production. I think we might have more to worry about if our export figures were too considerably in excess of our import figures, because that might mean that orders were falling off, that production would fall and that unemployment would rise.

Apart from that aspect, I feel, as I think most hon. Members on both sides have felt, that the fundamental problem is that of internal inflation. We all recog- nise that wages and dividends unrelated to greater effort or more efficient production not only tend to force us out of competitive world markets but bring little benefit to those who receive them, and do great injury to those who do not.

I do not want to say much about the increased Purchase Tax and Profits Tax. I regard the Purchase Tax as valuable not merely as a means of syphoning off purchasing power but because it will direct more of our production—particularly of craft goods like silverware and cut glass—to the export markets. Since the Chancellor does not need that additional revenue to maintain a financial surplus, the fairest thing to do in the present circumstances would be to use the additional revenue to assist those who have been left at the bottom of the spiral of wages and prices. I certainly hope that the Government contemplate some early legislation, whether by means of a new Pensions (Increase) Act or otherwise, to help those people. At present, there are, in my own constituency, many who are undoubtedly suffering hardship.

Photo of Mr George Lindgren Mr George Lindgren , Wellingborough

I did not want to interrupt the hon. Member too much, especially as I came in while he was speaking, but he made reference to a building in Sussex, purchased by the London County Council. Would he not agree that that was a building which was purchased in order to house handicapped children? Does he say that no local authority should purchase buildings for the training of handicapped children?

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

Certainly not, but I suggest that when a local authority has to carry out some important social purpose it should be made to recognise, more than at present, the importance of the capital expenditure involved.

2.20 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

We have listened with interest to the speech by the hon. Member for Norwich, South (Mr. Rippon), who, however, mistakes our view if he suggests that we do not welcome Government action to check inflation. We do. What we complain about is that the action taken by the Chancellor is belated, and that the situation was seriously aggravated by the pre-Election Budget, followed by very misleading electoral propaganda.

There is no doubt that the pre-Election Budget, followed by the sort of propaganda we saw during the Election. created an inflationary state of mind throughout the country, and that is why the people of Britain are so shocked that, unawares apparently, we have got into a situation of some crisis in which these salutary measures are necessary.

In our debates, I think we run some risk of using a lot of misleading jargon. Yesterday, I thought the password for entry into the debate was "Realism" and that, if one was stopped by the sentry at the door and asked what sort of realism it was, one said "Economic price". Today, we had to add to that and say that we are "anti-distortionist." The references made to realism and distortion of the economy are only catchwords and they are seriously misleading in our debates. If one lives in a subsidised house, is that unrealism? If the price of an article is artificially lowered by a subsidy, and we call that unrealism, what about artificial increases in prices through Purchase Tax? Is that realism or is it not?

If we are to talk about subsidies, why have we heard no mention throughout this debate of industrial derating? We have not heard one word. If the principle to be adopted in the continuance of housing subsidies is the need of a person to receive State aid in housing accommodation, why do prosperous businesses and industries continue to have the advantage of this substantial relief from rates?

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Norwich South

I should have thought that the hon. Member for Sowerby (Mr. Houghton) knew better than anyone else that it is quite impossible to consider a general review of the rating system until we know the effects of the revaluation which begins next year.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I realise the difficulty of immediate steps to abolish the derating provisions, but the Government have already foreshadowed a review of rent control and other measures by which they hope to take the unrealism out of the economy. If the Government had said that in their programme there was a review of the derating provisions of the 1929 Act, we should at least have understood that they were making their survey over the whole field.

My real concern about this Budget is its possible consequences on industrial peace. We are already seeing the first signs of industrial discontent. The trade unions are going to ask how much of these proposals are necessary to deal with the current crisis, and to what extent have the fellow-travellers of this Budget been brought in under the cloak of economic difficulties. We have good reason for believing that a good deal of what the Chancellor and the Government are proposing is merely the introduction of the Tory philosophy and economic and social policy, and that, if they can hang that on the peg of the balance of payments crisis, they think they will get by more easily than if they had introduced it in the normal way.

All the measures which have been introduced so far have the avowed object of sending up the cost of living. That is their avowed purpose, and the Government are saying to the people, "You have too much money to spend; if we put up the prices, you will spend less." That is the sum total of the proposal which has been put before the Committee.

Many trade unionists will regard this as equivalent to a cut in wages. After all, if the purchasing power of wages is reduced, by whatever means, that is equivalent to a cut in wages. The Purchase Tax, which is intended to take money out of the pockets of the wage and salary earners, will automatically reduce the amount of money which can be spent over the same area of goods and services as before. I know that, in theory, none of this money loses its value until it is spent, but we cannot live without spending, even if it is only on scrubbing brushes, and the Chancellor has said that the proposals which he has put before the Committee are intended to touch everyone.

I do not myself believe that the Budget by itself provides legitimate grounds for pay claims, but I do not suppose for a moment that that will stop them being made. I believe that politically inspired wage claims are a bad thing. The basis of wage claims should be the profitability of industry, a rise in the national income, a demand for an increased share in higher production and so on, and, from a theoretical point of view, there are no more grounds for pay increases in higher taxation than there are grounds for pay cuts following reductions of taxation, but it is doubtful how far that economic theory will prevail among the trade unionists. I forecast that the trade union leaders will have a very thankless time in the very near future, and some of them a very rough time.

I want to make a practical proposal to the Chancellor. It is that he should invite the Trades Union Congress to see him, and that there should be a frank exchange of views about this situation. The T.U.C. has no direct influence over the pay claims of its constituent members, but the T.U.C. has, in a long tradition now, expressed itself on current economic and social questions. There is to be a meeting of the Economic Committee of the General Council of the T.U.C. next Tuesday morning, and that Committee has been empowered to make a statement on behalf of the T.U.C. It is very desirable, in the interests of the trade union movement and of the country, that the T.U.C. should at least understand frankly and fully what are the aims of the Chancellor and what hopes he holds out that the restraint that he is asking for in the measures now proposed will bring beneficial results.

That is the great doubt overhanging the situation today. Will these measures be productive of a slackening of the pressure of home demand? Will they bring about the result which the Chancellor and all of us desire of taking inflation out of the economy. The trade union movement naturally fears in present circumstances that this is the beginning of an attack upon standards of life, and its members naturally react very sharply and quickly and want to take defensive action. It matters not to them whether the money is taken out of the pockets by the Government or whether other influences cause a rise in the cost of living. Their reaction is the same either way, even though the capacity of the employer to concede wages claims may be reduced by action taken by the Government.

I am very anxious indeed about the maintenance of industrial peace, because there is no doubt, say what we like, that the docks strike, which was not an official but an inter-union dispute, was a very lamentable occurrence and did serious damage to our economic affairs. We do not want that kind of thing to happen in the future. I am one of the few trade unionists in active life today who were present at the declaration of the General Strike at the Memorial Hall, Farringdon Street, in April, 1926. That was a grave turning point in trade union history. If we are to have misunderstandings about Government policy, if there is to be a growing hostility between the trade union movement and the Government, there is no doubt that industrial trouble will follow.

In the interests of the whole country it is desirable that that should be averted if at all possible. I sincerely hope that the Chancellor will regard the trade union movement as a very important factor in the methods that he is adopting in the economic field. I dissent completely from the Chancellor's methods for dealing with this immediate situation, although largely his hands have been tied by the folly of the earlier part of the year. Had he not given tax reliefs in April, he would have been able to use direct taxation as one of the weapons in hand to deal with the present situation. I have no doubt that the political inhibition of eating one's words completely and going back on one's tracks prevented him from adopting such a method. Also it is difficult to impose increased taxation half way through the fiscal year.

It is significant, however, to remember that the tax reliefs which were given to industry in the Budget of this year have not even yet begun to be felt by industry. Industry will get its first relief next January. We therefore have the extraordinary contradiction of the Chancellor levying additional taxation over wide areas of consumer goods at a time when substantial tax reliefs still lie ahead for industry, trade and business.

The only people who have begun to feel the relief of the tax concessions given last spring are those who are paying tax under Pay-As-You-Earn. More tax is still paid on profits and gains under Schedule D than is paid under Pay-As-You-Earn under Schedule E. The major part of the tax reliefs conceded last April have still to come, and that strikes one as making a very strange contradiction in the present circumstances.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

Is not it a fact that a limited company or a trading firm actually reserves out of its profits a certain amount for the tax which it will pay at the beginning of 1956, and those profits will be in respect of the year ending on 31st December last?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I have no doubt that some companies have already begun to spend the money which they will save in tax next January. I am not suggesting that they are all holding it against January and that all expenditure arising from reduced taxation will take place after that date, but a considerable amount of it undoubtedly will.

That is my main point, that when rumblings are already being heard in industry it is the plain duty of the Chancellor of the Exchequer in present circumstances to get on the best terms that he can with the trade union movement, and give some encouragement and hope that there is not in the Government's mind a long-term attack upon working-class standards. If that fear persists, undoubtedly we shall get a disturbance of industrial peace which, despite all the setbacks we have had, has been a great influence in British recovery since the war.

2.35 p.m.

Photo of Mr John Biggs-Davison Mr John Biggs-Davison , Chigwell

The integrity and high reputation of my right hon. Friend the Chancellor of the Exchequer remain unimpaired despite the petty, personal and sometimes sanctimonious attacks which have been made upon him from the benches opposite. I believe that the country will respond well to the measures which my right hon. Friend has proposed, always provided that people are convinced that these measures will do something to cure the national malady and not merely treat some of the symptoms.

My hon. Friend the Member for Oldham, East (Sir I. Horobin), in his brilliant speech, referred to the Budgetary Resolutions as a subsidiary reinforcement to the Chancellor's monetary measures. There is one point only which I will concede to the right hon. Member for Huyton (Mr. H. Wilson), and it is this. The credit squeeze—metaphors have been very popular in this debate on both sides of the Committee—and the monetary mechanism in general is a blunt weapon rather than a sharp one, a bludgeon rather than a rapier. My hon. Friend the Member for Oldham, East spoke of technical difficulties which had been encountered in using this weapon, and the Governor of the Bank of England, in a recent and revealing statement, indicated that perhaps we do not know quite everything about it. I very much hope that the Committee and the country will be reassured that the monetary mechanism, while it curbs consumption at present, may not have the effect of curbing production a little later on.

Economic ideas and economic measures lag behind events. The Committee had the spectacle yesterday of witnessing one hon. Member catching up with Keynes. Experts in the Treasury sometimes err. Even bankers have been known to blunder. I have, moreover, great sympathy with the hon. Member for Dunbartonshire, East (Mr. Bence), who spoke yesterday of the failure of all Governments to find a proper relationship between the money which is in circulation and the goods which are produced and are available for consumption. No Administration has yet found that proper relationship. The Chancellor and the Treasury are very heavily burdened, and I wonder whether my right hon. Friend has considered or will consider the desirability of having a disinterested and expert body to consider all these intricate and highly technical questions, perhaps on the lines of the Macmillan Committee, which, as hon. Members who have been in the House of Commons much longer than I have been will recall, did extremely useful service.

If this idea seems quite preposterous to Her Majesty's Government, it k worth remembering that Her Majesty's Government in New Zealand have seen fit to set up a monetary commission, and a Royal Commission working on rather similar lines is also at work in the Dominion of Canada.

But, as the Chancellor made absolutely clear, the crux of our national problem lies in the balance of payments. This country has had a rising import bill and a diminishing share of the world's exports of manufactures. It follows that we shall have to grow more food and feeding stuffs at home, and I am grateful for what the Chancellor said about feeding stuffs in his Budget speech. Home food production has become as vital as it was in the days of war and blockade.

Secondly, we need to shape our trading policy so that we import from the Commonwealth, sterling, and other countries which are willing to trade with us in proper balance, as much as possible of what we must import. It will become more essential to recognise this fact as we feel, in the future, the full fury of competition from countries with low standards of living and, therefore, low cost production and from the two highly protected Continental systems of the world.

Hon. Members may object that I am calling in question the principles which were embodied in the Geneva Treaty to which the Labour Government set their hands, a treaty which, I believe, was one of the reasons the Labour Government failed so miserably to master our economic difficulties. I am also calling in question the most-favoured-nation principle, which derives from an earlier decade when we were a great creditor nation and the financial, industrial and commercial masters of the world. That is not our position today. Nondiscrimination and full convertibility, unless buttressed by protective measures of other kinds, are not a British interest.

I am sometimes afraid lest the Tory Party, by trying to play the part of the Liberal Party in the twentieth century, may be surrendering the future to the Socialist Party, with their policies of controls and restrictions. The Chancellor has shown great courage against the personal accusations and Oxford Union debating points from the other side of the Committee. I believe that we should ask him and the Government to show the greater courage of ridding us of the fallacies of a decade, and that courage of that kind will be rewarded; for the contentment of the British people is more important than the consistency of politicians.

2.43 p.m.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I listened with interest to the speech of the hon. Member for Chigwell (Mr. Biggs-Davison) and I was particularly entertained to hear him say, in a disparaging way, that the attacks from this side of the Committee on the Chancellor had been framed in Oxford Union style. I first knew the hon. Member when he was a prominent ornament of Oxford University politics, although in those days he took an attitude much too far to the left for me. Since then I have changed very little but he has changed a great deal, and I was highly amused to hear him attacking the Chancellor for leading a Liberal Party and not a Tory Party at all.

In that respect he carried on what has been the general tone of the debate, because throughout the debate there has been very little from which the Chancellor can take comfort. Throughout the whole of our three-day debate, I think, nobody has deployed a case in support of the Chancellor's behaviour over the past year. Last night the Financial Secretary to the Treasury said that the Chancellor was taking measures which he hoped would be in time. The President of the Board of Trade tried to answer the charges made against the Chancellor by throwing everything back to hon. Members on this side of the Committee. He said that if my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) had introduced an autumn Budget in 1951, that would have saved us a great deal of foreign exchange.

In my view there are at least three points which ought to be made about that. First, I think it is extremely doubtful whether a Budget was called for in the autumn of 1951, for this very important reason: our trouble in 1951 came almost entirely from outside these islands, whereas our trouble in 1955 comes almost entirely from things within the country and within the Government's control. That is one of our great charges against the Chancellor and the Government.

It is now 28th October. The Budget was introduced two days ago. The present Ministers took office on 28th October, 1951. If they thought at the time that an autumn Budget was vitally necessary, they had time to introduce it. Six months passed, during which the gold reserves continued to run out, but they did nothing in a Budgetary direction.

The third and perhaps the most important point is that if a Budget had been introduced, either by the Conservative Government or by the Labour Government, in the autumn of 1951, that Budget would broadly have sought to carry further the restrictive measures introduced by my right hon. Friend in his spring Budget of 1951, whereas this Budget reverses completely the measures introduced by the Chancellor in the spring of this year. There is a great difference between, on the one hand, a situation in the autumn—and this occurred on one occasion when my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) was Chancellor—in which we go a little further than we went in the spring because we then made a slight arithmetical misjudgment owing to changed circumstances, and, on the other hand, a situation in which we completely reverse the direction we are facing, not because we are a little out quantitatively but because we are completely wrong qualitatively and because, although the signs told us to go in a careful and restrictive direction, in fact, for a variety of reasons, on which comment has been made in the debate, we went in precisely the opposite direction.

In his attempt at a debating speech the President of the Board of Trade also suggested that my right hon. Friend the Member for Leeds, South went much further in advocating taxation concessions in April than did the Chancellor. That is a complete distortion and misreading or what happened in that debate. What my right hon. Friend said was that, given the fact that the Chancellor had decided, for reasons wise or unwise, to give away £150 million in taxation concessions, there were many other candidates for the concessions who were at least as worthy as those he had chosen to help. That is a very different picture.

What does the Chancellor himself say about the present situation? First, he asks us to congratulate him upon the effect of his Istanbul speech. The Chancellor is always asking us to congratulate him on something. Certainly he is not willing to restrict his own demands for congratulations. But why should we congratulate him on his Istanbul speech? The most that his Istanbul speech did was to repair the damage which he had done in Paris three months previously.

I really cannot understand the logic of his present position on this question of the run against sterling, which took place during the summer of this year. In our debate, in July, we had a long interchange on this precise point, and the Chancellor of the Exchequer was at great pains to make clear to the House that, whatever else had caused the run against sterling, it was nothing he had done or said at the O.E.E.C. meetings in Paris.

If, in fact—and nobody can be absolutely certain on a matter of this sort—the run against sterling occurred not because of any policy that the Chancellor had hinted at, and not because of any fears of the Chancellor's future policy, but because of certain underlying facts in the situation, how is it possible that a denial by the Chancellor at Istanbul that he was going to change his policy could have all the beneficial effects he now says it has had?

It is only on the assumption that rumours, largely stimulated by himself, of a change in British exchange rate policy had spread out from that Paris conference that it is possible that a firm denial at Istanbul could have done the good that he says has been done by that speech. I believe, and I think the Chancellor knows, that that is the correct assumption, and it would have been better had he admitted it in July.

There is no reason why we should congratulate him on having repaired, after an interval of three months, the grave harm which he himself did three months previously, particularly since, during the course of that three months, the loss of gold reserves to the sterling area was no less than 335 million dollars.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

Surely it was the fact that the Bank Rate was not working out as the Chancellor thought which caused international financial feeling to move against us. At Istanbul the Chancellor said we were going to take other measures, and then international feeling moved in our favour. The earlier movement was not because of what the Chancellor said at Paris.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

That raises a number of very complicated points. As I understand the hon. Member's argument, it is this: that there was difficulty during the summer because the credit policy—and let us remember that the credit policy is still the chosen weapon of hon. Members opposite—was working so ineffectively that nobody abroad had any confidence at all in its ability to deal with our difficulties in this country.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

It was not what the Chancellor said at Paris: it was the Bank Rate.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

The Bank Rate has been unchanged since 24th February. If the trouble has been due to the Bank Rate, why has the Bank Rate caused this run on the £ between July and September and then this improvement, on which the Chancellor asked us to congratulate him, since September?

I understand the hon. Member's point of view that what his right hon. Friend says never matters. After the speeches which we have had from him during the summer, I can well understand anybody who takes that point of view, but it is not a point of view to which I myself subscribe.

The credit policy has been constant, and what has changed is that in the summer the Chancellor was giving ground for a good deal of feeling that there was to be a change in the exchange policy, and at Istanbul—three months too late—he corrected substantially the false impression which he had given earlier. That was three months too late, and during those three months we lost 335 million dollars of our gold reserves. That does not seem to me to be a matter for congratulation of the Chancellor. If the Chancellor wants to intervene I will gladly give way.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I have every confidence that my hon. Friend the Economic Secretary will handle this matter with absolute accuracy when he replies to the debate.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

The Chancellor has been muttering a good deal throughout this debate. He seems to be muttering more than usual today. I thought that if he wished to say something to the Committee, it would be better that I should let him do so.

What else did the Chancellor say about what has happened during this summer? He said that the credit squeeze, the monetary policy, has not worked as quickly and as successfully as he anticipated that it would at the time of the Budget. I think that this is a very interesting and important admission, and two comments must be made upon it. The first is this.

At the time of the Budget, in April, the Chancellor told us that already the measures which he had taken on 24th February were having a very substantial, although not perhaps complete, effect, and that justified him in the switch of policy which there was between the restrictions of 24th February and the give-away Budget in the middle of April. That was his justification in April. Now, in late October, we were told that because this policy, which by April was supposed to be already producing results, had not worked properly, we had to have another Budget in October.

We are used to the Chancellor's mixed metaphors, cloudy language and often, we are beginning to think, confusion of thought, but this insertion in his Budget analysis of facts which existed only in his own imagination is surely something new so far as the Chancellor, who has responsibility for the financial affairs of the country, is concerned.

I think that there is another point to be made about the credit squeeze and the monetary policy. The Chancellor himself, the hon. Baronet who is to reply to the debate, and other hon. Members on that side of the Committee have always defended the monetary weapon on the ground that it was an immensely precise, flexible and accurate weapon which worked very much more smoothly than any of the crude and rough physical controls which produced great upheavals and changes in the economy.

This year is the year since the war when we have depended more on the monetary weapon than in any other year. Yet, during this year in which we have depended on this precise, flexible and accurate weapon, we have had two Budgets in which the second one was in a diametrically opposite direction from the first. This credit weapon appears about as accurate and reliable as a blunderbuss. Either it is not a precise weapon at all, or the Chancellor's hand is too unsteady to use it properly.

I should like to turn to some of the more detailed provisions of the Budget. My right hon. Friend the Member for Leeds, South in his speech yesterday pointed out that the amount of money clawed back at the present time was almost exactly equivalent to that which was given away in the April Budget. I think one can go on to draw some other comparisons.

One might get the impression from some of the things which the Chancellor has said that companies were being singled out to bear a particularly heavy share of the burden. It is important, however, to remember that companies are having taken back from them no more —indeed, a little less—than that which they received in the April Budget. After all, the Chancellor told us himself that his cut in the standard rate of Income Tax would give to companies rather more than £40 million. He is now taking back rather less than £40 million—about £38 million. Therefore, do not let us, as a result of this double action, fall into the error of thinking that the net result of the Chancellor's 1955 operations is to impose any new burden whatsoever upon companies. They are rather better off, slightly better off, than they would have been if both of the Budgets had been standstill Budgets.

Therefore, it is not surprising, perhaps, though I cannot think it can be very gratifying to the Chancellor, that the Stock Exchange should have reacted yesterday as it did to this Budget. The "Financial Times" index of ordinary share prices bounded up by no less than 5 points. The Chancellor has had this on the one hand, and he has had on the other hand the extremely natural but, surely, from the point of view of the Government, very disturbing reaction of the trade unions to certain other aspects of the Budget. The "Financial Times" in its leading article this morning starts by saying: The first reactions to the Budget have been distinctly unfortunate. The Government cannot be happy either with the way that the Stock Exchange has taken the increase in company taxation or with the way that the trade unions have taken the additional taxes on consumer spending. Of course, there is no reason at all why either the unions should regard this company taxation as being a particularly important measure or why the Stock Exchange should not have bounded up again after the Chancellor's mild proposals in precisely the way that it did. If we make perfectly clear the balance there is, in what has happened to companies in the two Budgets, and if we see that what was given in the one is almost exactly cancelled out in the latter, with a slight advantage in favour of the companies, what are we then left with? We are then left with the fact that in a full year the Chancellor gave away to individuals through his Income Tax changes in the April Budget £110 million and that almost exactly that amount is now to be paid for by the combination of the Pur- chase Tax increases and the new Post Office charges.

When we pointed out in April that the way in which the Income Tax concessions were distributed was extremely regressive—300,000 people at one end of the scale getting more than 8½ million at the other end of the scale—the Government's answer, put, perhaps, most eloquently and persuasively by the Minister of Supply on that occasion, was that this was inevitably the result of a situation in which we reduced taxation. If we reduce taxation, he said, of course it is the case that those who pay more taxes generally tend to get more benefit than those who pay less tax. That argument, I do not think, had quite as much force even on that occasion as the Minister of Supply gave it; but, of course, it has far more force in a situation in which we were dealing only with tax concessions than in the situation in which we now have the tax concessions of April almost exactly balanced by new taxation in October. We are now in a position in which we are imposing heavy new Purchase Tax, heavy additional Post Office charges, to pay for, and to almost the exact extent, those very unfairly distributed direct taxation benefits given out by the Chancellor in April.

I doubt whether any Conservative Chancellor, certainly not the present one, would have dared to have introduced these two things together in one Budget. I doubt very much whether, if he had decided on a standstill Budget in April, as, of course, he ought to have done, as he knows perfectly well now, he would conic to the House now and say, "I am going to give away to individuals £110 million in taxation, largely to 300,000 people at the top of the scale, and I am going to pay for it by bringing household goods into Purchase Tax at the rate of 30 per cent." That is leaving completely alone for the moment the question of company taxation. Yet that is what has happened during this year and we should bear this in mind in discussing the important effects of the Budget.

We know that this Budget, considered in conjunction with the last Budget, is a very regressive Budget. I think, however, that we ought to have a little more information and I should like the Economic Secretary to the Treasury to tell us if he can how the £75 million to be raised in additional Purchase Tax is being distributed; in other words, how much is to come from the household goods which are to go up to 30 per cent., having had no tax on them previously, how much from the range which is to go up from 25 per cent. to 30 per cent., how much in the range from 50 per cent. to 60 per cent., and how much from the range which carried 75 per cent. and is now going up to 90 per cent. We have so much information at the time of the Budget that perhaps someone has given it somewhere, but I have not seen it and that is a most vital piece of information by which to judge how these Purchase Tax changes will fall. It is information which we ought to have at present.

What ought the Chancellor to have done? In the first place, as I think it has been made absolutely clear from this side of the Committee, he ought not to have introduced the April Budget in anything like the form it then took. He ought not to have swept aside all the import controls so rashly as he has done over the past year or so. When one looks at the figures of the way in which imports have increased, one sees that while we are suffering difficulties by the incidence of the undeniably inflationary situation at home, that situation is producing far more difficulties from the point of view of the balance of payments, particularly the dollar balance, than it would if the right hon. Gentleman had not been so rash in sweeping away these controls. Beyond that, he certainly ought not in Paris in June to have been talking about convertibility with or without flexible exchange rates. Mr. Roy Harrod, who, I believe, once taught the hon. Baronet the Economic Secretary to the Treasury, is a distinguished Oxford economist, more acceptable to the Conservative Party than some other Oxford economists. In his article in the "Financial Times" this morning Mr. Harrod said: If baneful words had not circulated in and emanated from London a little later"— that is after the April Budget— … about flexible sterling a second Budget might never have been called for. That may have been the case, but we have to accept that all these mistakes have been made, that the April Budget—the give-away Budget—was introduced in circumstances which called for a completely different sort of Budget. With the import controls largely gone the Chancellor went to Paris and made these unfortunate statements. We have to accept that and, that being so, what at present ought to be done? [Interruption.] The Chancellor knows that we have had all this a great number of times before. It is clear that he was thinking at Paris in terms of a change of policy and if the fears did not come from a change of policy his denials at Istanbul could not have corrected them.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

If the hon. Member thinks I made mis-statements perhaps he will quote them. I shall be very glad to hear them.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

The Chancellor knows perfectly well that what happened was that there were O.E.E.C. meetings in which the future exchange policies of the different countries were discussed. Of course, there were no statements—no public statements were made—but he knows equally well that all informed opinion and all informed comment got the impression as the result of that Paris Conference, and as a direct result of the Conference, that something was about to happen to sterling convertibility and exchange rates and that our impression has cost us at least 100 million dollars and probably a great deal more. There is no real doubt about that at all and I do not think that the Chancellor can produce a single financial commentator who would in any way run counter to the interpretation I have given.

However, that was not the point I was discussing. It was that, given that these mistakes had been made, what should now be done? I think that it would be far better for the Chancellor frankly to admit that he was dangerously wrong in April and to go back to the position as it existed before April. That would certainly be a far fairer distribution of taxation; but, of course, he is not prepared to do that. The Chancellor is not prepared to admit that he was wrong when he obviously was wrong. I know he feels that this debate has been bitter. I think that the basis of the bitterness in the debate is due to the Chancellor's self-righteousness, his self-determination to hold the belief he has been right all along the line, when it is clear that he has not been right all along the line.

The people who will pay the additional Purchase Tax and Post Office charges without having got any benefit. or very little benefit from the previous Budget, and additional rents—most important of all—are in fact paying through their own pockets for the Chancellor's self-righteous refusal to admit that he was wrong and to go back to the previous position. It is the case, as has been widely mentioned by commentators on the Budget, that the new policy on local government capital expenditure will be more important, in its social and economic consequences, than the taxation changes which the Chancellor has announced.

Everyone will be very concerned about how these matters will work out. The Economic Secretary represents a constituency in Birmingham, as I do. It might be thought that Birmingham would be more fortunately placed under the new arrangements than would many other places. It has a fairly large stock of pre-war municipal houses and for the future it is greatly concerned with the problem of overspill. But it is certainly the view of the leader of the Birmingham City Council, to whom I was able to speak on these matters this morning, that the prospects for Birmingham, more fortunately placed than some places, are extremely dismal.

Let us take the overspill problem. The subsidy will still be paid in this case, but small local authorities will have to borrow to build houses and provide services, and big cities like Birmingham, under the new arrangement, will be dependent on the credit standard of a whole range of small local authorities around it. And where Birmingham attempts to solve its overspill problem by itself, building outside its own boundaries, as it has already done in some cases, it will not be helped at all. Furthermore, there is no possibility of getting on with slum clearance in Birmingham until the overspill problem is being satisfactorily solved, because there is no room in which to do so.

I should like the Economic Secretary to turn his attention to this for a moment and say, as a Birmingham Member, what he feels about the prospect of solving the overspill problem and offering relief to the 55,000 people who are still on the general waiting list in Birmingham.

I wish in conclusion to turn to more general considerations. The Chancellor has not been in his happiest mood during this debate. One has only to turn back and read the debate on the Budget in April to be struck, not merely by the contrast between the substance of his proposals then and the substance of his proposals now, but, even more forcibly, by the contrast between the good-humoured banter with which he introduced his proposals then, and the sullen bad temper in which he now replies to our criticisms.

The Chancellor is really striking in the wrong direction. What should be worrying him is not that he has lost the confidence of my right hon. and hon. Friends, because he never had it. What should be worrying him is that he has lost the confidence of his hon. Friends. [HON. MEMBERS: "Nonsense."] This morning he was saying, "Wait till Monday"—

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

The reason I said, "Wait till Monday" was because the right hon. Member for Huyton (Mr. H. Wilson), who has had the courtesy to tell me that he will not be here on Monday, said on at least three occasions that I was answering the debate today. As a matter of fact, I am not answering, I am taking part in the debate on Monday. Therefore, I thought it advisable to say, "Wait till Monday," and I assure the hon. Member that I shall then be in a very good humour.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am glad to see that the Chancellor is in a better humour this afternoon, but when he made the remark, "Wait till Monday," he was pointing very menacingly at my right hon. Friend the Member for Leeds, South.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I was hoping that the right hon. Gentleman would not also be away on Monday, because I felt that he would miss something.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

We have had a great experience recently of hearing the Chancellor making a speech with one metaphor and having to explain it away with about four different glosses in the future. In a small way we are having a similar experience in this matter—

Photo of Mr George Lindgren Mr George Lindgren , Wellingborough

Port and pheasant for lunch!

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

It is indeed the case that the Chancellor is in a difficult position. I have a certain amount of sympathy for him, because what we are in fact seeing is the end of a period, which has lasted four years, over which, so far as our economic affairs are concerned, he has presided. What has happened in those four years is that the Chancellor has tried to be all things to all men. He has tried—and to some extent he has succeeded in the short-run—to put forward a policy of full employment, and to maintain certainly the main basis of the Welfare State, combined with large reductions in direct taxation and a steady sweeping away of controls.

He has been able to do that because of the benefits of the terms of trade—[HON. MEMBERS: "No."]—which floated him along from 1952 to 1954. That changed towards the end of 1954, and the mistake which the Chancellor made—a very difficult mistake to avoid making—was that when that change occurred shortly before the Election he did not say, "Circumstances are more difficult now." He tried over the Election period to behave as if the beneficial terms of trade were still floating him along.

Hon. Members opposite have no reason to complain about him, because the right hon. Gentleman did a great deal to win the Election for them by carrying that on for three or six months longer than he ought to have done. It is now impossible any longer to continue riding these incompatible horses at the same time, and this is the real difficulty of the Chancellor's position. If one adopts the attitude, which was, I think, genuinely adopted by the Chancellor, of trying to do all these things, it is impossible to have a clear-cut, forceful policy.

One saw a symbolic expression of this yesterday: the Chancellor looking, for him, rather weak and confused, and the Minister of Housing and Local Government, who represented a willingness to make a choice, looking a lot more confident. The Minister of Housing and Local Government represents the policy of the future now that the Election has been won for the Conservative Party; the Chancellor represents the policy of the past which he has tried to carry on for too long and over the Election period. I very much doubt whether we shall have another Budget from the right hon. Gentleman, because I do not think that his policy in the more difficult circumstances of today is a feasible policy for any Chancellor to pursue, or that the Conservative Party will allow him in these new circumstances to make the choice which we should like him to make.

3.20 p.m.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I am very sure that my right hon. Friend the Chancellor, in his state of "sullen bad temper," is indeed grateful for the sympathy which he has just received from the hon. Member for Stechford (Mr. Roy Jenkins). I doubt whether ever in our history a Chancellor has shown consistently greater courtesy to hon. Members on all sides than has my right hon. Friend during his four year period of office. It is something worth remembering that never once in our Budget debates during the whole of the last Parliament did my right hon. Friend use the Closure.

The hon. Member for Stechford repeated again today that my right hon. Friend had made a damaging statement in Paris, and he then went on to say that my right hon. Friend corrected that statement at Istanbul. Neither of those statements is true. I was at Paris with my right hon. Friend. He made no statement at all about rate policy during that conference. Nor did he say anything new about rate policy at Istanbul. He merely repeated, word for word, in his Istanbul speech what he said in this House on 26th July. I will willingly send the hon. Member for Stechford a copy of the Istanbul speech, which I have here. if he would like to read it.

What my right hon. Friend said at Istanbul which was new was this. He made it absolutely plain that he was prepared to introduce new internal measures into the British economy in order to secure that we earned a good surplus. I will quote what my right hon. Friend said at Istanbul that was new. He said: We are engaged in examining the whole field of public expenditure (Central Government, local government and nationalised industries) with a view to limiting the demands on our labour and resources. We shall also take whatever steps are necessary to free the goods to meet export demands. He went on to say: It is not by physical controls that we intend to solve our difficulties, … We shall deal with the disease, rather than the symptoms, by getting to the heart of the matter—the balance of supply and demand for labour and materials at home. It is because my right hon. Friend made that forthright statement at Istanbul that the position of the £ in the exchange markets and the drain on our gold and dollar reserves stopped abruptly from the time he made it.

Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South

Was the Economic Secretary quoting from what the Chancellor said at the press conference at Istanbul? He will recall that yesterday I read a passage from "The Banker" which was about what the Chancellor said at the press conference. It was that to which we were referring, and not his main statement. Perhaps the hon. Gentleman would like to comment on what I read out?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

What my right hon. Friend said at the press conference was exactly the same as what he said in the discussion of the Fund Report.

Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South

Does that mean that the hon. Gentleman denies absolutely what his right hon. Friend is reported to have said in "The Banker"?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

Certainly I deny what was said in "The Banker" so far as that suggests that my right hon. Friend made any reference to rate policy at Paris, or any new statement at Istanbul about rate policy, in different terms from what he said on 26th July. I deny that categorically.

Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South

Let us see what "The Banker" says next month.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

All right. I am sorry, but I deny that categorically, and I stand by every word of what I have just said.

The hon. Member for Stechford asked me about Purchase Tax. I cannot give any figures in addition to those which my right hon. Friend the Financial Secretary gave last night. The household goods tax will bring in £15 million, and the rest of the Purchase Tax changes, £60 million. The break-up between the 25 per cent., 50 per cent. and 75 per cent. categories is not available at the moment.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I take it that we will have those figures when we debate the Finance Bill. They are most important.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I shall certainly take note of what the hon. Member says before we debate the Finance Bill.

The hon. Member also said that in his view we made a mistake in dismantling import controls so quickly and, as I understand, he said that he would like to make a greater use of them now. I noticed that in his speech yesterday his right hon. Friend—I think for the first time for a long while—did not refer at all to import controls. There can be no doubt that we could make no substantial impact upon the balance of payments by import controls without affecting imports of foods, and, as my right hon. Friend the Minister of Supply said in the House last April, any attempt to control imports of food must result in some return to allocation and rationing, It seems strange that in a debate in which hon. Members opposite have constantly referred to the difficulties of the housewife, they should be advocating a policy which would mean some return to allocation and rationing.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Would the hon. Member tell us exactly what rationing would be involved if he were to start buying more colonial cotton instead of American cotton, and went back on this policy of the liberalisation of American manufactured goods?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I do not want to be unreasonable, but I answered the right hon. Gentleman's point about cotton last time I wound up a debate, and I have nothing new to add to what I said on that occasion.

This debate has not been specially distinguished either by modesty or moderation in regard to some of the points raised from the Opposition Front Bench. Perhaps the lowest point of the debate was reached this morning, when the right hon. Member for Huyton (Mr. H. Wilson) asserted that we were making a cut in the hospital programme, and would not, until my hon. Friends had challenged nim for about five minutes, read one single, simple sentence from my right hon. Friend's speech, in which he said: In the hospitals, as in the local authority services, we are not reducing the programmes which have already been announced …"—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 217.]

Hon. Members:

Read on.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

We had it all this morning. This was particularly strange in a debate in which hon. Members opposite were accusing us of a lack of candour. I could not help being reminded of the famous remark of Huey Long, of America, who said, "It is the easiest thing in the world to set up a Fascist party. You have only to call it an anti-Fascist party."

I now pass to the speech that we heard yesterday from the right hon. Member for Leeds, South (Mr. Gaitskell). I shall have something to say about his personal attack about my right hon. Friend later in my speech, but I first want to say that the right hon. Member for Leeds, South has enjoyed the position of chief critic in this Committee for four years now. I suggest that before he addresses the Committee again it might be useful if we were to remind ourselves what actually happened when he was in charge of our finances in 1951. In April, 1951, he introduced a Budget which we. on the Opposition benches in those days, honestly thought, and said, was an inflationary one.

Whether we were right or not, by the end of July it was perfectly clear that we were facing severe economic trouble. The trade deficit was running at the rate of about £100 million a month, and the right hon. Gentleman himself told us, on 26th July, of that year, that our gold and dollar reserves would show a substantial deficit for the third quarter. He thought that the fourth quarter's result would be better but that we were unlikely to have a surplus. Faced with that situation, the right hon. Gentleman took virtually no measures at all, as I informed the House shortly before the General Election. He did make a small cut in the imports of cheese and introduced a White Paper on dividends in which the only things worked out fully were the penalties.

On that occasion not only did we have no autumn Budget but no effort was made at all to tell the public the truth during the Election campaign. The Leader of the Opposition shakes his head. I will say this to him: this morning, I re-read his party political broadcast, delivered just before polling day in October, 1951. Not one reference to the economic crisis do I find in that broadcast. I do not think that that was altogether surprising, because I am not sure that the right hon. Member for Leeds, South really knew all that was going on. He said himself in the House, in an intervention on 7th December, 1954, in a speech by my hon.

and gallant Friend the Member for New Forest (Colonel Crosthwaite-Eyre): I was not informed of the exact position from day to day. I was travelling all over the country, as a matter of fact."—[OFFICIAL REPORT, 7th December, 1954; Vol. 535, c. 883.] The only public statement of the right hon. Gentleman at that time was when he said that it was wrong to pretend that a serious problem does not exist for the sterling area. That was at the Mansion House. It certainly did. The loss of gold and dollars for October, 1951, was some 320 million dollars, and for the last quarter of that year some 940 million dollars. The United Kingdom deficit on the balance of payments as a whole was some £400 million in 1951, and between June, 1951, and March, 1952, our gold and dollar reserves fell by a total amount equal to £774 million. I hope that the right hon. Member for Leeds, South will understand that it is no discourtesy on our part if we sometimes accept his air of somewhat schoolmasterly infallibility with a slight pinch of salt.

I want to be quite fair about this. I know exactly what the right hon. Gentleman would like to say on this point, because he has said it many times before. He would like to say—it is perfectly true, and I do not dispute it—that the terms of trade turned more rapidly against us than anyone could have foreseen in 1951. If he wishes to make this point let me say, first that not only did the price of our imports rise very sharply during 1951, but also their volume rose by 14 per cent.; and, secondly, that I have yet to hear him admit the full effect on our economy of the devaluation of the £.

Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South

The effect was to give us a handsome margin on exports which has helped the present Chancellor of the Exchequer considerably in the last three years.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

There can be no doubt that the devaluation of the £ had a much more severe effect than was realised in the first stages after the devaluation took place.

The most serious point I want to make is that, listening yesterday to the right hon. Member for Leeds, South, I felt that in one important respect he has not learned anything since his term of office. I thought that the first ten minutes of his speech was all directed to one lesson, which was, "Wait for the crisis to come, and then act on it." That is the great difference between hon. and right hon. Gentlemen opposite and on this side of the Committee. We believe in taking the necessary action in time. It does not worry us in the very least if this necessary action is described by hon. and right hon. Gentlemen opposite as "deceiving the people." [HON. MEMBERS: "What about the April Budget?"] The right hon. Gentleman the Member for Leeds, South will remember that on very many occasions during the Budget debates earlier this year my right hon. Friend said, and I said too, that that Budget was designed to strengthen the economy, and we still stand by that.

Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South

If that is the case, may I ask why we do not have another Budget exactly like that in order to strengthen the economy again?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

That Budget was designed to strengthen the economy and we do not in any way apologise for the measures taken then.

Here we come to the great difference between the two sides of the Committee. Whereas Socialists are content to drift from one crisis to another we, on this side, are pursuing a long-term policy. In the first place, it is our policy to strengthen sterling in the exchange markets of the world. May I at this point say that we on this side are certainly not prepared to acquiesce in the idea that a steadily depreciating sterling is an essential feature of the modern economic world? On the contrary, the strengthening and stability of sterling remains the prime object of our policy.

Secondly, we wish to work all the time for a large surplus on our overseas payments. We need this surplus to repay debt and for Commonwealth development, and also to enable us to do more overseas investment. We also want to advance to a freer system of trade and payments.

I must say that I was interested this morning to hear the right hon. Gentleman the Member for Huyton make what I would call a cri de coeur for a return to the old days of Crippsian economy.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

That was the right hon. Gentleman's clear implication and we reject it completely.

I should like to put this point to him—and he certainly will not deny the relevance of this to what he said. Does he really believe that a trading nation such as ours can neglect overseas opinion about sterling? I do not think we can, and when I heard him complaining about the influence of foreign opinion on the conduct of our own policy I could not help but feel that his speech was one of the worst examples of the isolationist snobbery of Socialism that I have ever heard.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

No one would deny the importance of foreign opinion about sterling, but that will not be reassured by the steps taken by the Chancellor which buy time for a while and then fail. Since the hon. Gentleman refers to what I said about the late Sir Stafford Cripps, he will remember that what I said was that it would require no control at all. I suggested that he should send for the motor car industry and ask them to increase their exports. There was no reference to Sir Stafford Cripps' "siege" policy there.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I thought the right hon. Gentleman's speech was reactionary in the truest sense of the word. It was harking back to the spirit of how we were conducting affairs in earlier post-war years.

I want now to come to the Government's measures and to say something about their importance. First, as I see it, by far the most important of the Government's measures is that combination of measures relating to housing and local government borrowing. There is certainly no dispute between the two sides of the Committee that this constitutes a major change of policy. There is no dispute about that—and I hope that it will be fully realised outside the House as well. [HON. MEMBERS: "It will be."] I hope it will be.

Let me make it perfectly plain that we, on this side, do not in any way intend to be on the defensive about these measures. On the contrary, the burden of proof lies overwhelmingly on the side of those who are asserting that it is really necessary to keep on a general need subsidy at the present time, with a full employment and with the level of earnings so great. That is the side that has to prove its case, not ours.

I need not say very much about local government borrowing, because this was covered this morning in an admirable speech by my hon. Friend the Member for Oldham, East (Sir I. Horobin), who put the point with complete lucidity and, I think, quite unanswerably. At a time when interest rates have been rising, local authorities have chosen to concentrate their borrowing on the Public Works Loan Board, as a result of which the Exchequer has had to raise large sums by increasing the floating debt, which has thus made the management of our monetary policy more difficult. I would advise hon. Members who were not lucky enough to hear it to read the overwhelming case made by my hon. Friend this morning.

One word about the Profits Tax, to which many hon. Members have referred. I was a little surprised to hear the very niggardly attitude of the hon. Member for Stechford to this tax, because I think that the distributed profits tax is now exactly at the rate for which he used to campaign during the debates on the Finance Bill of 1952.

I should also like to refer to the point raised by my hon. Friend the Member for Kidderminster (Mr. Nabarro), in a very helpful speech the other night. My hon. Friend voiced the feelings of those who would like to make still lower, or do away with altogether, the rate on undistributed profits, while making that on distributions higher still. That is exactly the opposite point of view to that which was expressed by the Royal Commission, and I would honestly ask any hon. Member who holds that point of view to look at the difficulties very carefully.

A very high rate of tax on distributed profits does bear very heavily on companies with a capital structure so geared that it has to provide for a high proportion of preference shares or fixed interest stock, and there are real technical difficulties here. Having studied the views of my hon. Friend the Member for Kidderminster on the one side and of the Royal Commission on the other, I think that the middle way of my right hon. Friend has a very great deal to commend it.

I should now like to say something about the Purchase Tax. First, I have absolutely no doubt at all that this in- crease in Purchase Tax will, in fact, help our export trade. [HON. MEMBERS: "Why?"] It is not always easy, in economic matters, to establish an absolutely precise connection for everybody to see. but there is an overwhelmingly wide body of opinion which is sure that some increase in Purchase Tax over the whole field must result in benefit to our export trade. [HON. MEMBERS: "Why?"] Secondly, we have at the moment such a booming economy that we tend to outpace our resources of manpower and raw materials. As a matter of fact, the boom at present is even more an investment boom than a consumption boom.

I do not know whether any hon. Member saw the article in "The Economist" last week entitled, "Investment Still Growing." To the best of my knowledge, the facts contained there are correct: I am sure that it is necessary that we should try to restrain and control this boom by limiting demand over the whole field, and that is the justification for my right hon. Friend's proposals.

I am glad to see that that view received some support in "The Economist" this week, because there is a reference to my right hon. Friend's "commendable decision" to raise rates right across the board, and not to hit discriminately at those items that appear to be in most inconveniently high demand, or at luxuries that appear to be politically uninvidious. I think that that is very true.

Do not let us ignore the very heavy burden on the metal-using industries at the present time. They have to provide a great deal for the defence programme, for the export programme and for home investment, and the large group of household goods on which tax has been re-imposed includes very many products of the metal-using industries.

Do not let us over-rate the burden which this increased tax will throw on the housewife. After all, one is not buying saucepans and pails every single week. I have always understood from my constituency, and I think hon. Members will have had the same experience, that when people talk about the cost of living, more than anything else it is the cost of food which they have in mind. I noticed with some interest that this point was taken up in a forthright and agreeable speech by the hon. Member for West Ham North (Mr. Lewis) on Wednesday night, in which he said: It is true that one can quote one figure against another, but what we and the housewife are interested in are the day-to-day commodities which the housewife has to purchase and put on the table for her husband and her children."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 300.] That is very true. I would ask hon. Members, when considering these proposals, not to over-rate the burden which they will put on the housewife. After all, the whole of these Purchase Tax changes will add only one point to the cost-of-living index which hon. Members opposite originally established.

Before I come to my closing remarks I want to say one word about credit policy. I want to make it absolutely plain, as I did when I addressed the House in July, that we intend quite firmly to go on with our credit policy. I should like to say this to hon. Members who think that our credit policy has been a failure. I do not believe, as the right hon. Member for Leeds, South seems to believe, that favourable terms of trade are things that drop, like manna from Heaven, on the Tory Party. I do not believe it is a coincidence that in 1952 when we put up the Bank Rate to 4 per cent. and this year when we put up the Bank Rate to 4½ per cent., on each occasion there has been a fairly sharp movement in the terms of trade in our favour. I know that this is a point on which my predecessor, the present Minister of Supply, felt strongly, and I agree with him. I do not believe it is a coincidence.

I would remind the Committee of this in particular. This has been a year when, as I think the right hon. Member for Huyton said this morning, the sterling area earnings for primary commodities have tended to rise. It has also been a year in which there has been a boom in industrial products for the country as a whole. The fact that this year none the less the terms of trade have turned fairly sharply in our favour is one consequence of having used credit policy and of increasing the Bank Rate to 4½ per cent.

In conclusion, I should like to say a word about the personal attack which the right hon. Member for Leeds, South made on my right hon. Friend the Chancellor of the Exchequer yesterday afternoon. Of course, we all realise on this side of the Committee that the right hon. Gentleman is an aspirant for an extremely high posi- tion. We all realise that he has got to keep on-side. But I would say this. I have myself been privileged this year to attend a number of international conferences, and I have been very struck at all these conferences by the transcendant position of my right hon. Friend because of his wisdom and integrity. His reputation with those people with whom I talked matters very much more than his reputation with the right hon. Gentleman.

We propose on this side of the Committee resolutely to pursue our policies of defending the £ and ensuring that we in the United Kingdom pay our way and earn a good surplus; and we are not going to be deterred from these policies by any gibes which may be thrown at us from the benches opposite.

Question put and agreed to.

Resolved, That the Income Tax Acts shall be amended in the following respects—

  1. (a) provision shall be made with respect to the computation of the profits or gains or losses of trades comprising dealings in securities in cases where dividends on shares are received which are to be regarded as paid to any extent out of profits accumulated before the shares were acquired, or out of other past profits, and with respect to the restriction of any right to claim exemption from tax on dividends in cases where the dividends are to be regarded as paid to any extent out of past profits;
  2. (b) the amounts which Lloyd's and other underwriters may pay into special reserve funds shall be increased;
And this Resolution shall authorise the making of provisions supplementary to the foregoing amendments, and the imposition of any charge to income tax or the profits tax arising out of those amendments, including charges for past years of assessment or past chargeable accounting periods.

Resolution to be reported.

Report to be received upon Monday next; Committee to sit again upon Monday next.