We are debating today the economic consequences of the Lord Privy Seal. Indeed, we can well understand, since hearing the present Chancellor's speech on Friday, why it was that the previous Chancellor was so anxious to hurry away from the Treasury before Christmas. The decisions of the new Chancellor seem to us fully worthy to rank, in their utter misunderstanding of the situation facing the country, with the extraordinary blunders of the present Lord Privy Seal last year.
First of all, the new Chancellor's measures are monstrously unfair; secondly, in my view, they are a breach of faith by the party opposite with the old-age pensioners of this country; thirdly, they are likely to make the balance of payments crisis worse and not better; and, finally, these measures should not have been necessary at all. First, they are unfair because they press hardest at every point on those least able to make sacrifices. It is almost incredible, even for a Tory Government, that having given tax concessions of £200 million to profits in the last few years, having given £150 million to Income Tax reliefs, mainly to the larger incomes and profits, in the April Budget of last year, having imposed a £100 million increase in insurance contributions on the wage earners last summer, and, in addition, an extra £40 million Purchase Tax burden on the housewife in October, the Government are now going to load this extra £38 million in taxes on bread and milk on the wage earners and housewives.
A rise in the price of bread is the most extremely reactionary and regressive measure which any Government can take, because, of course, the very poor spend not merely a higher proportion of their incomes, but a higher absolute amount, on bread than people who are better off. I calculate altogether that, in the past 12 months, after allowing for the 2 per cent. or so rise in Treasury bill interest in that period, which goes largely to the wealthy lending institutions, the poorer section of the community have borne an extra burden of about £150 million a year, and that the wealthier section have enjoyed a net gain of just about the same amount. That, of course, is a purely reactionary transfer of the national income inspired—if by anything—by class prejudice; and it has nothing to do with the crisis at all.
Secondly, it is surely a breach of faith with the old-age pensioners for the Chancellor to come to this House and deliberately raise the prices of bread and milk, without any compensatory rises in retirement pensions, National Assistance or Family Allowances. The official Tory Party Election manifesto called, "This is the Road," issued in 1950, said this:
In any approach to the problem of food subsidies, made necessary by the urgent need to improve the purchasing power of the £"—
whatever that may mean—
we should be bound by this pledge. There will be no reduction which might influence the price of food without compensating increases to those most affected. These compensations will take the form, on the one hand, of larger Family Allowances, pensions and other social benefits, and, on the other hand, reductions of taxation…
That pledge was repeated in the 1951 manifesto. At least, the previous Chancellor, in his 1952 Budget, when he made the first cut in the food subsidies, made some pretence of honouring at least half of his words. The country will note with interest that the present Chancellor has, so far, not even attempted to do that.
Thirdly, in our view, this policy will not work, because the organised wage earners of today will not tolerate being treated as they were treated by Tory Governments before 1939. On the one hand, luxury building and imports are to go on; on the other, exports, so far from being encouraged, will be held back still further by these measures. According to Boyle's law, about which we have heard so much lately, the idea is that the rise in the price of bread and milk is to prevent poorer people buying other things like shoes, clothes and furniture.
But the trouble is that Boyle's law, unhappily for the present Government, does not work in the conditions of the post-war world, for this reason. The additional one point rise in living costs, added to the rise of last autumn, will certainly raise wages, export costs and prices at a very critical moment in a very competitive world. I would say that the most important single lesson in economic policy in our post-war history is this: it is the Government's job to keep the cost of living stable; and, if it does that, then the unions and industry can play their parts. But this Government, utterly disregarding that lesson, comes along and raises food prices.
The Chancellor yesterday made what sounded to me a rather mock heroic appeal to industry for general restraint. But the tragedy is that the Government's grossly reactionary policy in the past two years, and, above all, its huge and gratuitous tax reliefs to the wealthy sections of the country in last April's Budget, have taken all moral force out of that appeal.
I ask hon. Members opposite whether, after this budgetary action last year, they expect the wage earners to accept a cut in their real wages? Do the Government expect that or not? If they do not expect it, is not the rise in food prices absolutely bound to increase the cost of our exports? I think that the only reasonable expectation is that, in the face of the Lord Privy Seal's policy over the past year, a further rise in money wages is now inevitable. Indeed, there is nothing immoral in our saying that, because in certain industries, such as steel, the rise in wage rates is automatic and follows the cost of living.
I believe that there are nearly 2 million workers whose wage rates will be automatically raised following the action the Government took last week; and, of course, there will be rises as the result of collective bargaining in other industries. I must say that, after the last two Budgets, and after this further cut in the food subsidies, the whole responsibility for the consequences will rest with this Government, who have now thrown away all vestiges of collective restraint.
That is the main reason why, in my view, these proposals will not work. But another reason is this Government's pathetic and almost superstitious belief in the Bank Rate as a cure-all for all our ills, and their doctrinaire refusal even now, when some of their own supporters are urging it, to use any key physical controls at all. I believe that the Bank Rate has a part to play in disinflation, if it is used intelligently and backed up by other weapons, both monetary and physical. But, used as the Lord Privy Seal used it in the last few years, as a sort of magic fetish, which neither he nor anybody else is supposed to try to understand, I see three heavy objections to it.
First, it is ruinously expensive. Does the House realise that the rise of 4i- per cent. in Treasury bill interest since 1951 has meant an increase in Government expenditure of nearly £250 million a year, and that the total expenditure on the debt interests—the Economic Secretary to the Treasury can correct me if I am wrong—must now be about £700 million; and that that is more than the total of the Health Service, the Exchequer contribution to National Insurance and National Assistance together?
I wonder whether the Chancellor realises that the decision last week to raise the Bank Rate by 1 per cent. will add nearly £50 million a year to Government expenditure, or substantially more than the whole saving gained by cutting the milk and bread subsidies? I think that puts it in perspective. In addition, perhaps a third of this debt interests bill is a burden on the balance of payments as well as on the Budget. This ever-increasing Treasury bill rate is the real reason why Government expenditure has been increasing twice as fast under this Tory Government as it did under the Labour Government.
What do we get in return for this fearful burden? I must say that the banks, in spite of the huge receipts they get themselves, have been extremely slow to make any cut in advances or any cut in deposits as a result. I ask the Government, if they really believe in the credit squeeze as the great panacea for all our ills, why they do not make it effective, for instance, by sales of Government securities or by changes in reserve ratios as was recommended by an hon. Gentleman opposite only last week? After all, the Americans do both those things successfully, and if we are to rely on dear money I do not see why we should not imitate them in that respect.
My second objection to dear money policy on its own is that, if it works, all it does is to cut down investment and leave consumption largely unchanged. Indeed, the main trend of the previous Chancellor's policy last year, with his £150 million Income Tax cut, simultaneously with a high Bank Rate, was to expand consumption and to depress investment. What a disastrous and deplorable policy that is! One of our main charges against the Government today is that, in this eleventh year after the war, when the United States and Russia and many other countries are far outstripping us in technical development, we are driven by the sheer incompetence of the Government's policy to cut down investment in order to get out of a balance of payments crisis in the middle of a world boom.
Thirdly, it is also a serious defect of the credit squeeze that it has almost entirely failed to do the one thing that it was designed to achieve; that is, either to limit imports or to encourage exports. It may conceivably have tempted some foreign money here, or reduced our holding of imported stocks. But that really is what the Chancellor yesterday called attacking the symptoms and ignoring the cause—and. I think he also said, rubbing out the spots in order to cure the chicken pox. It merely conceals the trouble instead of curing it.
I say that these measures are both unfair and ineffective. We also believe that none of them would have been necessary in 1956, but for the blunders of the previous Chancellor last year. I propose to back up that charge with chapter and verse, and to trace the crescendo of errors which have brought the country to its present critical situation. We have now had ten years' experience of facing our post-war economic problem of trying to achieve together full employment, price stability and a surplus on our balance of payments; and it is right for us in this House to make a serious effort in this debate to learn some of the lessons of that experiment.