Wages are up, and who will deny that high wages are a pleasant thing? Indeed, the economy of this country is, and will remain, a high wage economy.
Not only wages, but social advances have been made in recent years in which we can all take a delight. We can all take pride in the number of new houses which have been built, and my right hon. Friend the Chancellor of the Exchequer played some part in that in the days when he was a "poacher" rather than a "gamekeeper." Not only the houses which have been built, but the number of things which are in those houses—the new automatic washing machines, television sets and refrigerators which have been put into them over the past few years. Whatever else we say, this is not a picture of a nation sunk in the depths of an economic crisis. It is a picture which, at first sight, is one of exuberant prosperity.
However, there are two problems which mar the beauty of that scene. First, the suspicion for which, alas, there is statistical support, that we have been expanding faster, at any rate a little faster, than our real resources will permit. Secondly, there is a section of the community, that rather ill-defined but still recognisable section, which is called the middle-classes, which has not shared in this increased prosperity—indeed, rather the reverse—and has certainly suffered as much, perhaps more, than other classes by the process of inflation.
The difficulty confronting us here is very obvious. It is the fact that we cannot do a lot to solve the second problem of how to help the middle classes until we have solved, or gone a long way towards solving, the first problem of how to deal with the inflation. The middle classes do not live on the sale of capital. Few have much capital left. If any have a few savings left, they readily sell them to support the education of their children. The increase in the value of wages and salaries to which I referred earlier—40 per cent. in real value since 1938—has passed them by, particularly after taxation has taken its toll. The real value of any dividends they receive, has savagely declined, even before taxation. Those who live on small, fixed incomes have, like others in that class, been hard hit by rising prices.
Historically, these people have been associated with thrift and independence. Many have preferred—irrespective of their political opinions, because they fall into all sorts of political opinions—to make their own provision for the future rather than to rely upon State organised arrangements. They miss, in the main, the capital appreciation which goes with inflation or the increased earnings associated with membership of powerful trade unions. Yet it is to this central section of the community to whom we must look in the future, as in the past, for the main contribution towards solving many of our problems. They provide, in large measure, the leaders, the managers, the creators, the technicians, the scientists and the teachers. The solution to their problem is a long-term process. It starts when encouragement to savings can be fortified by incentives to skill and effort.
The proposals which we are considering here make a contribution—albeit a modest one—in direct measures to help in the field of Income Tax allowances for pension schemes for the self-employed. But in another sense the whole Budget and the measures which preceded it—calculated to restrain inflation and encourage savings—directly serve the interests of our middle classes. It is rising prices and the other consequences of inflation which strike with particular harshness at this sector, and the greatest help which can be given to the holder of a small fixed income—the pensioner, the saver and the professional man or woman—is to contain the inflation which threatens us. This is the object of the measures which have been taken not only here, but in recent months.
I want to say a few words about the effect of those measures. It is relevant to our discussion to see how far they are working and how far they may be expected to work in future. In judging the effect of Government policy, it is necessary to make clear what is required. To attain our objective it is not necessary to force a sharp reversal in industrial activity as a whole. It is necessary to moderate or, at times, to halt the increase in demand so that it does not outpace our available resources or leave no room for an increase in exports. Our wealth is our production per head of population. Between 1946 and 1955 we increased production by 30 per cent., and we are that much better off. But we paid ourselves 90 per cent. more money for doing it, and that did not increase our real wealth. It simply meant that prices moved upwards and the pressure upon our resources began to become intolerable.
The latest situation appears to be as follows: so far, clearly, there can have been no dramatic consequences following the measures of last February. Certainly, there are no signs of the development of the dangerous deflationary conditions which have sometimes been supposed to have occurred. There is some evidence of a halt or postponement of private industrial development, in a few cases. There are indications of a more cautious attitude on the part of industry. The very rapid rise in expenditure upon cars and other durable goods has come to an end and, in some cases, given way to an actual but perhaps temporary fall.
At the end of February, for the first time for at least 16 months, order books of steel companies showed a slight falling off. That is important, because they are a reliable indicator in this field. In the first quarter of 1956 there is some sign that consumer expenditure at constant prices has steadied. There is some easing in the labour situation, and a few more vacancies are being filled, but as yet there is no sign of a marked switch into industries which are particularly short of labour. The hire-purchase figures dealing with household goods, which will be published shortly, will show that since October, month by month there has been a steady fall. But I would warn the Committee that October, for various reasons, was an artificially high month, and that that fact should be taken into account in judging these figures.
In the case of motor cars, short time working has decreased to about 7 per cent. and there has been some decline in car production. In most regions there has been a noticeable increase in the inquiries to our regional controllers about export possibilities in various markets, which indicates a possible fairly widespread interest in the need to take up any slack at home in increased exports, which, after all, is the purpose of the measures we have adopted.
To sum up, there is no case whatsoever for dropping or mitigating the measures which we have introduced. It is our belief that they are beginning to work, and we intend that they should do so. If men are to change from one job to another there must at some stage be some redundancy somewhere, and we should not be shocked at our own success in this aspect of economic policy. In truth, long delivery dates are still a large—perhaps the largest—problem for the British export trade, and the men and materials must be made available for them.
This brings me to the question of exports. The test of policy must be seen, to a substantial extent, in its effect upon our external balance and, in particular, upon our exports. No one who studies the figures could doubt the need for the measures which we have adopted to discourage imports and encourage exports. In favourable trading conditions, what was probably a real increase in volume of 4 or 5 per cent. in 1955 over 1954 was insufficient to pay for our increased imports, and, as the right hon. Gentleman very fairly said, must be judged against a fall in the proportion of world trade.
The trade was there to be got. We failed, for a number of reasons, to get it. When one has examined all the reasons—and there are some quite good ones—and has admitted the advantages which others enjoyed; for example, the limited defence expenditure by Germany, and the fact that some who did better started at a lower level—