I am sorry that throughout the whole of this debate we have not caught even a glimpse of the Chancellor of the Exchequer. We on this side of the House know that it may well be that he would not wish to speak in this debate, but we should have liked to have seen something of him here. I think one must place on record the fact that throughout this fresh burst of economic difficulty recently we have received remarkably little from the right hon. Gentleman in the way of general economic guidance. We have on general economic subjects had one statement and one very short speech from the right hon. Gentleman.
The statement occasioned a certain amount of favourable comment because it was remarkable that among recent Government statements it contained no obvious misstatements of fact and comparatively little tendentious matter. The speech was extremely short. It began at twenty minutes to ten and finished at five minutes to ten on one day during the debate on the Address. It was much more of a fragment of autobiography than an exposé of the economic situation. We should like to see a little more of the Chancellor and hear a little more from him of these very difficult economic circumstances in which the policy of himself, or perhaps to a greater extent of his right hon. Friend the Prime Minister, has placed us at the present time.
I will begin by saying a few words bout the subject of our gold reserves on which my right hon. Friend the Member for Battersea, North (Mr. Jay) spoke earlier in the debate. I think there are four points about the present position of the reserves with which one must deal. The first is, of course, that what we are suffering from at the present time is not merely the fact that we had a very rapid drain on our reserves during November, but also the fact that that drain began with the reserves extremely low—quite unjustifiably low—because we had previously been through a period of eighteen months—from June, 1954—in which our reserves fell by 900 million dollars while the reserves of the other O.E.E.C. countries went up in aggregate by 2,400 million dollars, a very sharp contrast between the position elsewhere and the position in this country. Of course, it was in the middle of this period of eighteen months when our reserves were falling so disturbingly in sharp contrast to what they should have been doing, that is, moving in accordance with the general pattern of Western Europe, that we had the Lord Privy Seal's famous Budget of 1955.
The second point which I think must be made is that, without question, the drain on our reserves during November and, indeed, recent drains generally have been greatly increased by the Government's decision taken about eighteen months ago, I think, to maintain the rate for transferable sterling at only a small discount compared with the official rate. In other words, to introduce very quietly convertibility of sterling for everybody except the residents of the United Kingdom.
There is no doubt at all that we have recently been paying a very heavy price indeed for that decision and that a very large part of the drain during November is to be attributed to our attempt to maintain that transferable rate. A few days ago, on 15th December, there was a very remarkable leading article in the Financial Times from which I should like to give the House a short quotation. The Financial Times said:
There are two questions"—
about the future of sterling—
which have to be settled The first is whether the extent of Britain's banking commitments through sterling is not excessive in comparison to the country's real economic power and resources. The second is whether British economic policy is not now too much influenced by attempts to calculate the reactions of foreign exchange dealers to British policy. For instance, the increase in the petrol tax was defended by some by the need to impress those who are referred to collectively as 'the bankers of Zurich.'
That is a very remarkable quotation from a leading article in the leading financial paper of this country. Whose fault is it that this is so? It is the fault very largely of Her Majesty's Government for paying excessive attention to the demands of the City of London.
Without question, part of our difficulty at the present time is the policy which has been pursued for many years, to a greater extent under the Lord Privy Seal than under the present Chancellor, of progressively dismantling exchange control and making it far mere vulnerable to the shifts of opinion taking place in Zurich and other financial centres about the future of sterling. We undoubtedly last month paid a very heavy price for this position. The Financial Times went on quite rightly to say that what was much more important for the future of this country than the opinions of the bankers of Zurich was the rate of investment. I will come back to that point a little later on.
The third point about the reserves is that, in so far as the strength of sterling has imporved since the Chancellor's statement of a fortnight ago, it is because he has been able to borrow on a massive scale. Let there be no doubt about that at all. I would hazard the guess that the Government "lave been able to borrow, largely through the good offices of the United States Secretary to the Treasury, from the Monetary Fund on a larger scale than the Chancellor believed possible when he made the statement. From that point of view, the position is temporarily satisfactory. But whether the solution is compatible with the dignity of Conservative Members, in view of the attitude which large sections of them have recently taken up towards the United States, is another matter.
I would ask Government supporters—I wish there were more of them here to ask, but I will ask this of those who are here to be asked—what they think would be the state of sterling on world markets today, and the prospect of avoiding devaluation, if the United States had persisted in being as unfriendly as some Government supporters try to pretend it was being, towards this country? I know there are some hon. Members who take the view that we would have been much better off economically and in very way if, on 6th November, we had gone on to occupy the whole Canal. Where do they think sterling would be today if we had gone on and not subsequently withdrawn? There is no doubt that what has improved sterling has been the changed attitude of the United States in giving us massive aid and enabling us to borrow on a massive scale. That was dependent upon certain political decisions that the Government took very reluctantly.
What is the future? We have to remember that the recent crisis in our reserves, as the Government has quite rightly reminded us, was accompanied by a moderately healthy underlying balance of payments position. That balance of payments position, even on the Chancellor's own estimate, will get worse. It will be rather worse in the first six months of 1957 than in either the first or the second six months of the current. Therefore, we are in the position that, having had a reserves crisis with comparatively healthy underlying trade figures, we are now moving into a half-year in which we are certainly to have rather worse trade figures. We should not therefore be too complacent about the prospects.
The Minister of Labour, in opening the debate, had some things to say about the motor industry, which is not alone among British industries in being very hard hit by recent economic developments, but which certainly stands out as one of those in the greatest difficulty. He announced a small concession, in itself welcome, but certainly not adequate to solve all the problems. I thought that in general he was rather complacent about this industry.
The Minister of Labour combines a, rather gloomy manner with an occasional ability to make extraordinarily complacent statements. At one stage I understood him to say that one of the bright spots in the industry's present position is that the export proportion was rising, although within a falling total of production. I take it that this, in fact, means that we have now reached a position in which home sales are falling even faster than export sales. It is not a position from which one can draw a great deal of comfort, or, indeed, any comfort at all, about the future of the industry.
While I certainly would not, for ore moment, take the view that our motor industry itself has not committed many faults and is not to blame for some of its own difficulties, I think that it has really been treated pretty badly in the last few years by Her Majesty's Government. It has been allowed, indeed encouraged, to engage in a vast programme of expansion. Of course, one must have investment in this industry as in others, but what it needs is intensive rather than extensive investment.
The motor industry needed and still needs investment to make it able more efficiently to produce a limited number of cars, not a vast programme of general expansion of productive capacity. However, as I say, this industry was allowed—encouraged—to go ahead with a very large programme of expansion, and has since been badly hit by a series of measures under Government control, and has not, as far as I know, at any stage been given any guidance whatever as to what the Government consider to be its future reasonable size.
During one of the Chancellor's appearances in the House, not on a general economic question but on a more specific question, he made a speech about the European common market and our proposed attachment to it. That is a proposal with which, in general, I agree, but it is clear that if this proposal goes through the motor industry will then be one of those most affected by these changes.
I do not think that the Government have set a very good example of how they will help and guide industries which will be adversely affected by this general change in trading conditions over the next twelve years in the European common market by the way in which they have treated this industry. They have not made it any easier for that or any of the other industries to accept the sort of changes which it is desirable that they should accept.
I turn next to what, I think, is, and has been for some time, the crux of our economic problem; that is, the rate of investment. Last week we had a very frank statement on this from the Chancellor of the Exchequer at the N.A.T.O. meeting in Paris. He said that we have the lowest rate of internal investment of all the N.A.T.O. countries. He might have added that, in comparison with most of the non-N.A.T.O. countries in Europe, it would be lower still.
Undoubtedly, the position is, as the Chancellor there recognises, that our rate of investment is low and unsatisfactory. That point of view which the Chancellor put forward in Paris contrasts with that sometimes put forward by Government spokesmen in this House. It contrasts somewhat with that of the Economic Secretary who, at Question Time the other day, was not able to tell us whether he wanted the rate to go up or whether he wanted it to go down at the present time. There is a certain amount of conflict between what the Chancellor and his predecessor have been saying in this House about the rate of investment, and what the Chancellor said in Paris last week.
Indeed, I think that one of the most engaging things about the Chancellor is that, even more than most people, he regards facts not so much as statements of objective reality but as weapons to be used in the particular dialectical battle in which he is currently engaged. When we were urging upon him the undesirability of abolishing the investment allowance, we had painted for us by the Government Front Bench a picture of an investment boom in this country which was bearly controllable, but when in Paris it is a question—and a worthy question—of frying to get the Germans to pay some more defence costs, we are told that we are down at the bottom of the investment table.
Unfortunately, the truth lies with the latter statement and not with the former, or even between the two. The rate of investment is appallingly and disturbingly low in this country, and indeed even the much publicised—by the Government—1955 investment boom was really of very modest proportions. Fixed investment went up in 1955 by £150 million over the figure at which it was in the previous year. But that was a smaller increase than the rate of increase in stock building, and of course a very much smaller rate of increase than the increase in consumption during that period. Yet it was investment which received the major portion of the blame for the inflationary situation which had developed by last winter, and it was investment which had the main punitive measures taken against it.
What is the outlook in this investment field? I do not doubt that the Government, by a combination of the credit squeeze, by the abolition of investment allowances, by the general atmosphere of gloom and uncertainty in industry which their Suez policy produced, have knocked the investment boom of 1955 pretty thoroughly on the head. I do not say that the rate of investment is suddenly going to collapse in the next month or so, but I think that without doubt the fatal blow has been delivered, even though it may be some time before it is fully effective. We can already see in the figures for new factory building approvals that there is a prospect of a pretty sharp decline in the future.
Of course, the damaging thing about doing anything to limit the rate of investment—because we are in a particularly difficult situation—is that in the first place measures only become fully effective a year or two later, so that they are not effective from the point of view of dealing with the crisis but they are effective and dangerous from the point of view of damaging our prospects of a better rate of investment several years in the future.
The danger at the present time is that we are damaging not merely the rate of investment for 1957 but that for 1958 and 1959 by the measures which we have taken and by the policy which is being pursued at the present time. We are certainly losing all prospect for some time to come under present Government policy of effecting that transition from a low to a high investment economy which is absolutely essential for this country's economic future.
What ought to be done about this? What ought to be done on the investment front? There is, first of all, the sector of the economy which from an investment and other points of view is under Government control. I am very glad that that sector exists. I am glad that it covers, for instance, the field of nuclear energy at the present time. I am bound to say that, in view of recent announcements, I wish that it still covered the steel industry, because in view of the Government's alleged anti-inflationary policy, we have had a most extraordinary announcement about steel prices during the last week.
What is the position? The position is that the steel industry has announced an increase in prices over and above that which would be justified by any increase in costs, in order deliberately to increase the profitability of the industry in the hope of attracting more funds into the industry and thus possibly getting the expansion in investment which is obviously and clearly necessary.
Is this a very sensible way of running an investment programme in an industry like the steel industry, particularly if one is trying at the same time to introduce a little stability into British costs and prices? The steel industry was not a notably unprofitable industry even before this increase. The average yield on steel ordinary shares was about 6½ per cent., and the dividend in most cases was covered four or five times.
It really is an extraordinary example of the sort of bribes which the Government consider have to be given to private industry in order to get it to invest if profitability has to be increased over and above those figures, even though, by so doing, we gravely damage our export and competitive position in the hope of getting a little additional investment in the future. That is the position in the part of industry which, at any rate, ought to be under Government control.
As regards the private sector of industry, I have no doubt that, paradoxically as it may seem to certain hon. Members opposite, we can effectively move to a much higher rate of investment in private industry only by means of some controls, by means of building licencing accompanied by the re-introduction of an investment allowance on a discriminatory basis. These measures would be, and would be intended to be, discriminatory. Why are they needed?
I do not myself take the view that investment in what are generally regarded as frivolous activities—coffee bars, petrol stations or cinemas, for instance—is in itself necessarily undesirable. It is very desirable to make coffee bars and the distribution of petrol, when there is petrol, and the showing of films more efficient. I am not against investment of that sort. On the other hand, one must have discriminatory measures, for this reason. There is no doubt at all that one can effectively change the rate of investment only if, at a certain stage when one has the rate of investment going forward in an upsurge, as we hope may be possible in a year or two, and when one has the beginnings of an inflationary situation, one is then prepared to let consumption take the brunt of the burden and not investment.
One can do that and present it to people in a tolerable form only if the investment for which they are being asked to make sacrifices is obviously essential. It is impossible for any Government effectively to ask people to restrict their consumption for frivolous investment. That is the argument in favour of a discriminatory approach to the investment problem.