Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 12th February 1957.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 12th February 1957

I beg to move, That this House, realising that the policy of Her Majesty's Government has forced up prices and rents, endangered the maintenance of full employment and depleted the nation's gold and dollar reserves, calls upon Her Majesty's Ministers to formulate new and appropriate policies designed to rebuild our reserves, increase production and capital investment, assure full employment, stabilise prices and improve the position of old-age pensioners and others living on small fixed incomes. The House will observe that the Chancellor of the Exchequer is not here. I, for one, would have liked to congratulate him on his appointment and to sympathise with him on the legacy he has inherited from his predecessor. He is, of course. in Paris, and the President of the Board of Trade is with him. I am sure that we all regret this absence.

A year ago I promised the previous Chancellor, in response to an appeal he made to us, that we would not treat him as his party treated Sir Stafford Cripps. In view of that pledge I will not regale hon. Members with all the lectures that the right hon. Member for Woodford (Sir W. Churchill) used to give Sir Stafford Cripps on similar occasions, about his first duty being to the House of Commons.

Certainly, the treatment by the Government of recent debates—the very perfunctory speech we had from the Prime Minister in the economic debate in November, and the much greater enthusiasm the Government showed for debating the European common market—suggests that the Government attach much more importance to a proposal which will not be implemented for ten to seventeen years than to a discussion of the economic problems and the survival of this country in the next ten to seventeen months.

It is a year ago this week—it was, in fact, just two days after certain hon. Members scraped in for Taunton, Gains-borough and Hereford—that the then Chancellor of the Exchequer made a very grave statement on the economic situation, in the course of which he summarised the records of his predecessor the Lord Privy Seal in those imperishable words which by now are well known to the House, that inflation in 1955 had … held back our exports, swollen our imports, forced us into balance of payments deficit, helped to reduce our reserves by a quarter, and driven up our domestic price level."—[OFFICIAL REPORT, 17th February, 1956; Vol. 548, c. 2666–7.] That was what the late Chancellor said about the Lord Privy Seal. As the present Chancellor is not here to give us an equally frank verdict on his predecessor it falls to my lot to attempt one.

The Prime Minister was not, of course, Chancellor of the Exchequer for very long. We were told, on his selection as Prime Minister, that he was well fitted to be Prime Minister because he had held so many high offices of State. The trouble is that he has hardly held any of his recent ones long enough for us completely to find him out. In banking terms, the right hon. Gentleman has a very high velocity of circulation.

But twelve months at the Treasury is long enough for us to form a judgment, and perhaps it might help the House if I went over one or two of the salient facts. First, gold reserves. The former Chancellor said that under the Lord Privy Seal our gold reserves declined by a quarter. Under the present Prime Minister, when he was Chancellor, ignoring his borrowings, they fell over a third in a year. At the end of January, a year ago, the reserves were 2,149 million dollars. Today, they are 2,084 million dollars, 65 million dollars down; but, of course, in that year we had the special help of 177 million dollars from the former Chancellor's master stroke, when he sold the Trinidad Oil Company; and then he borrowed and placed in the reserves no less than 561 million dollars from the much-maligned International Monetary Fund, as well as 30 million dollars from the sale of United States Government bonds in November, making a total of special aid to the reserves of 768 million dollars in a year. Even then they fell by 65 million dollars.

It will, therefore, be clear to hon. Members that but for this special aid and special borrowing and the sale of the Trinidad Oil assets, the gold reserves today would be 1,316 million dollars, which is less than they were at the time of the 1949 devaluation and is a fall of nearly 40 per cent. over a year.

What about production? Under the right hon. Gentleman production remained completely stagnant, as it has been now for eighteen months. It was constant for so long that some observers feared that rigor mortis was beginning to set in. In the past two or three months, however, it has shown some movement—downwards; and it has been below that for the same period of 1955. With production booming all over the world, Britain, under Toryism, continues to lag behind.

Exports are up by 6 per cent. by volume over last year, but we are still a very long way behind our industrial rivals. I should like to remind the House of the figures for 1955 compared with those for 1950. Over that period, West Germany increased her exports by 158 per cent.; the Netherlands by 80 per cent.; France by 37 per cent.; Italy by 35 per cent.; and Britain under Toryism by 6 per cent.

I grant the right hon. Gentleman that imports were held fairly steady for the greater part of last year. At a price, At the price of stagnation in production. The country is being given the impression under the present Government that the only way in which exports and imports can be brought into anything like balance is by holding down production. We must ask them what happens if we get the long-awaited increase in production. Is there to be another upsurge of imports of raw materials and semi-manufactures, such as we had under the Lord Privy Seal in 1955, and another payments crisis?

Yesterday, we had the January trade figures, which I think the whole House will agree were very alarming. The trade gap of last month's visible trading between imports and exports rose to £1036 million in a single month. Those are the worst figures since July, 1955, when, as we know, there was a big pile-up of imports following the dock strikes of that year. They are the worst figures for eighteen months.

I know that no hon. Member would want to base any argument, particularly a gloomy one, on the figures for a single month, although since right hon. Gentlemen opposite have been getting very complacent about the gold and dollar figures for a single month in January, I hope they will realise that, taking the three months as a whole, November, December and January, the balance of our trade has worsened very considerably indeed.

What about capital investment? When he was Chancellor of the Exchequer the Prime Minister succeeded in this objective: he lowered the nation's capital investment. He set out to do it and he achieved it. United Nations figures show that in the second quarter of last year new industrial building authorisation fell by 52 per cent. in this country compared with the same period of the previous year, whereas in Western Germany the figures rose by 20 per cent. It was, I think, the Prime Minister himself who, at the N.A.T.O. conference in December, said that capital investment in this country was the lowest of all the N.A.T.O. countries. Is that another thing about which the Prime Minister is proud?

What about capital investment abroad? The Treasury Bulletin last week, referring to the closure of the Canal and of the pipeline and the economic effects of those events, said: … instead of the desired surplus of £300 to £350 million a year, the most realistic forecast at the moment is a rough balance in the twelve months to mid-1957. There we have the cost of Suez; instead of a surplus of £300 million we have just a rough balance in the twelve months.

I know that hon. Members opposite are trying to tell us that the cost-of-living index is stationary. Even if it is, it is about the only thing which is. In fact, it rose by 3½ per cent. over the year. If that lady in the Minister of Housing's constituency had gone shopping last Saturday morning, and if he had asked her what she thought of food prices, then what she said and what he said and what they both said would have been most instructive. It is true that some prices are falling, at any rate in certain shops, but in the main they are not the prices which mainly affect the least well-to-do families. There are falls in the prices of buttter, bacon, eggs and poultry. How much butter and poultry and how many eggs can the average old-age pensioner afford in this country—or how much bacon for that matter?

The prices of those goods which were in the Chancellor's control he forced up—bread, milk and council house rents. We say to him that he missed a very great chance, at a time when world prices are favourable, to bring real stability into the cost of living in this country. At the time of his announcement in December, when I said that we should support the Government in any appropriate measures to strengthen sterling, I suggested to him, I must admit not with very great hope, that the first appropriate measure would be to withdraw the Rent Bill. The Government are, however, pushing on with that,' and they must realise the effects on the cost of living and ultimately on the wage-price spiral of this decision.

Since we are still examining the former Chancellor's record, what about his Budget prospects? Last April he budgeted for the biggest-ever Budget surplus—£460 million. He then told us that this must be increased, and he said he proposed to fortify it. He said: With the full approval of my right hon. Friend the Prime Minister and of my colleagues, I can say that we are determined that this economy drive should bring us, over the whole field, savings amounting to not less than £100 million in this current year …"— [OFFICIAL REPORT, 17th April, 1956; Vol. 551. c. 883.] That would have raised his Budget surplus to £560 million in all.

The House will remember that in the Budget debate we on this side of the House were very dubious about the Chancellor's prospects. We were very doubtful whether he would succeed where, as he made it all too plain, he thought the Lord Privy Seal had failed.

In June we had the first slice of the economies, and in the debate which followed we showed that they were a complete "phoney," with the running-down of stocks, once-for-all savings and all the rest of it. We showed that such real decreases as could be shown were already outweighed by salary increases and by such increases as the German support costs.

Last week the speech of the Secretary of State for War on the Supplementary Estimates showed how right our suspicions were. He told us that the economies of the War Office were planned on the basis of slowing up the rate of delivery of certain military items, but that the manufacturers had let them down and delivered those items in the present financial year, so that the economies had disappeared. That is why I must throw a little doubt on what the Financial Secretary said this afternoon, that they had saved the whole £100 million and that if it had not been for the saving of the whole £100 million we should be even worse off than we are.

It is true, of course, that some savings were achieved by the running down of military stocks. That should not be too difficult as we can see from the Report of the Estimates Committee, issued last week. Apparently we have still in this country ten years' supply of blanco at the current rate of consumption; we have 347,000 chairs in the War Office in addition to those in use in military establishments—347,000 not in use. We have 7,000 heavy duty bicycles, bought for the Home Guard, no doubt, when the Prime Minister was Minister of Defence. Clearly, the military strategy in those days was based on middle-aged gentlemen riding round the country on heavy duty bicycles throwing chairs at the enemy.

Then, of course, we have enough aircraft spares to fight the last war all over again, provided that we can ensure that we stick to the types of aircraft that were used in the last war. This should have made economies not too difficult to achieve, but even with these aids to economy what has happened? The economy campaign has utterly failed. The £100 million cuts have given place to more than £100 million in the Supplementary Estimates. "Mac the Knife" has turned out to be a very blunt instrument. [An HON. MEMBER: "A boomerang."] I would not call him a "boomerang".

If we look at Government expenditure for the first ten months of this year we find that it has been running at about £337 million above the same period last year. The above-the-line position shows a worsening of £285 million. The former Chancellor of the Exchequer was planning for an increased surplus of about £63 million, but, instead of the surplus for which he was planning, there is now a worsening of about £285 million. Over the year as a whole it looks like being £300 million or £400 million. That is presumably what he means when he said in his Budget speech: It is easy to err—it is human to err; but I confess that I would rather err on the safe side. A misjudgment on the side of overoptimism might have the gravest results."—[OFFICIAL, REPORT, 17th April. 1956; Vol. 551. c. 873.] I know that the right hon. Gentleman will tell us that the worsening above-the-line on income account was offset by improvement below-the-line on capital account. But I think that there is a danger of the right hon. Gentleman misleading himself here. There have been very serious cuts in public capital expenditure, especially by local authorities, but the saving below-the-line has not been saving of real resources; in the main, it has been a diversion, as local authorities have been driven to borrow at expensive rates, in the mortgage market, from insurance companies, and so on. It has not been a saving in terms of real resources.

There we have the record of the former Chancellor of the Exchequer: gold reserves down by over one-third; production stagnant; exports up less than our trading rivals; imports temporarily held at the price of industrial production; capital investment the lowest in N.A.T.O.; a prospective balance of payments surplus utterly destroyed by Suez; a golden opportunity missed to stabilise the cost of living; and a Budget prospect which suggests the most monumental miscalculations. I think that compared with that the record even of the Lord Privy Seal was a shining example. The trouble is, as we warned the last Chancellor of the Exchequer a year ago that he tried to solve the economic problems of the country not by principles or radical solutions, but by gimmicks and gadgets and stunts. I have referred to the stunt of the £100 million cuts.

What of Premium Savings Bonds? In November there was a mad scramble, by Surtax payers in the main, and we had £46 million invested in the bonds. In December, even including all the Christmas presents which, I am sure, hon. Members opposite gave so lavishly to their relatives, it was only £6 million. For the last full week of January, before the usual end-month up-turn, it was only £400,000: yet the administrative cost of this is running at 30,000 a week and, on top of this, we have the high tax-free interest percentage which is awarded. So if we are getting, as the Financial Secretary said, some very useful savings by these means we are certainly paying a very high price for getting them.

What is the economic position today? During the debate on the Gracious Speech, on 12th November, we debated the economic situation then. I gave what I thought were some fairly serious warnings about the economic effects of Suez. We had no information from the Government. The then Chancellor hardly took the trouble to reply at all, and the Minister of Supply, now the Paymaster-General, thought that I was too gloomy. But it soon became clear from the very-grave statement of the then Chancellor, on 4th December, that my forecasts had not been too gloomy at all; if anything, they had been rather on the rosy side. In fact, we lost 313 million dollars from our gold and dollar reserves in a single month. In December, it was a little better. In the five months we had lost 869 million dollars—there again we have the price of Suez.

There was talk of devaluation in the air and it was as well that we frankly faced it. The House will agree that if we had been forced into devaluation by all that was going on it would have been a tragedy not only for Britain, not only, indeed, for the sterling area, but for at least the half of the world that does its trade in sterling. I must repeat our view—and I am sure that it is the view of hon. Members in all parts of the House; and it must be repeated with all possible emphasis—that the £ is not overvalued: weaknesses in our trading position arise from quite other factors.

The former Chancellor mobilised these hidden reserves, especially the International Monetary Fund, and he was right to do that. We think—and I know that some hon. Members opposite think—that his appeal for the waiver of the Washington loan was a much more dubious procedure. So we had the 561 million dollars from the International Monetary Fund and we had an agreement with the Export-Import Bank for the loan of 500 million dollars and we had the right to make further drawings, and we had the sale of securities. This was enough to stop all talk of immediate devaluation. The bear speculators who had been very active ran for cover. The £ recovered. For a moment it just touched parity because the speculative tide had turned the other way.

I am sure that the House will agree that this is no ground at all for complacency, such as we saw in the speech of the new Chancellor to the United States Chamber of Commerce in January. I think that the position was well summed up by the Manchester Guardian soon after the Prime Minister's statement of 4th December, when it said: The Chancellor talked about 'measures' he was taking to save sterling. He has done nothing of the kind. He has merely been saved by an institution hitherto regarded as an enemy. He still has to adjust his financial policy to the realities of our economic position which have been shown up by the Suez affair … it would be too tragic if the opportunity were missed and the support fund was used up because the Government lacked the courage to draw conclusions. These words are still as true today, two months afterwards, as they were when they were written.

The former Chancellor threw everything in. He pawned the silver; he pledged the family heirlooms; and by this means he stopped the run on sterling. But he cannot do it twice. The tragedy is that these national treasures had to go to pay for the follies of Suez, when they should have been kept as a reserve against a possible worsening of the world's economic climate which has been very favourable for some years.

I am not saying that in the disastrous position we were in he was wrong to pledge these hidden reserves. Of course he had to do it. He was in the position of a family man who has had a wild gamble and lost, and who can only avoid having his house and belongings sold over his head by throwing in the savings he was putting aside for his old age. Obviously, such a man has no choice. Where he went wrong was his reckless gamble, and the same is true of the Chancellor and the Government.

But even though the right hon. Gentleman did this, even though there has been this improvement in the rate of the £, there is certainly nothing in the foreign exchange position now to justify any complacency. In January, our gold and dollar reserves went down by another 33 million dollars—in what should have been the best period of the year. January is usually favourable. And this was at a time when sterling was being helped by a sharp reaction against the November-December speculation and the tide was coming in as far as it had gone out.

This was at a time when the rise in the sterling area surplus was favourable. For instance, Australia had a surplus of £100 million in the second half of last year, compared with a deficit of £27 million in the same period in 1955. All these things were helping the £. We were helped, too, by large sales of Russian gold. It is not the first time that this Government have been kept afloat with Red gold. I think it was Mr. Khrushchev who said, last April, that he would be a Conservative. I am sure that it will be agreed that there is no ground for any complacency.

Let us face the facts. The Chancellor avoided devalution by a once-for-all operation. We are living on borrowed time and, because it is borrowed, time is not on our side. Everything depends on using the time we have—perhaps a year, perhaps less—to put the country on a firm economic basis; to give us freedom from the crises that have still been dogging us nearly twelve years after the war and in the easiest world conditions we have known for a generation.

What does this mean? It means two things. It means, first, that we must not dissipate the resources we have borrowed either on sops to consumption and easier living—as in the Lord Privy Seal's Election Budget—or on economic frivolities such as were shown during that same period by the inessential building and expansion of totally inessential industries that was going on. Under the rule of right hon. Gentlemen opposite we have had available to us both increased production, such as it was, and a windfall in the terms of trade, yet nearly all of it has been thrown into consumption and far too little has gone to investment.

The second thing which we must do is to use this year to begin to restore the reserves and to build up our capital investment. That is why our Motion calls for … new and appropriate policies designed to rebuild our reserves, increase production and capital investment, assure full employment, stabilise prices and improve the position of old-age pensioners … Do these priorities need any arguing? I think that the need for rebuilding our reserves is the obvious No. 1 priority. I have given the figures of increased production. The Chancellor recently said, of course, that since 1948 productivity had increased in Britain more than it had in the United States. He said that here there had been a bigger increase since 1938 than in any other European country. He forgot to point out that this happened mainly under a Labour Government. Under a Labour Government, production rose by an average of 6·9 per cent. per annum; under the Conservatives, it rose by an average of 3·4 per cent. per annum —less than one half.