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 Arthur Holt Mr Arthur Holt , Bolton West 12:00 am, 12th February 1957

I would say to the hon. Member for Pembroke (Mr. Donnelly) that what people have to do is to earn their own living and that the best thing the Government can do is to allow them to do that with as little restriction as possible. The less we have of exhortation by this Government, or any other, the better. But I do not wish at the start of my speech to create the impression that I am in disagreement with what has been said. I cannot remember any economic debate in which I found myself more in agreement with speakers from both Front Benches. We are getting along, I agree —perhaps the right hon. Gentlemen on both Front Benches are at last learning the value of sound Liberal doctrine.

I agreed with the right hon. Member for Huyton (Mr. H. Wilson) until about 4.30, and by that time I thought he had given a most entertaining and extremely accurate review of the past, without recourse to any of those figures which are apt to mislead and which, I am afraid, the right hon. Gentleman sometimes uses. It was a fair and extremely interesting review of the past. But, as was pointed out by the Economic Secretary, the right hon. Gentleman then sprang upon us the old, "corny" fallacy of Socialist selective controls which have been tried in the past and proved failures. I have a reference in my notes to the fact that in ten years, under Socialist and Tory Governments, Britain has staggered from one economic crisis to another. I was glad to notice that confirmed by the right hon. Member for Huyton. If I remember his words correctly, he said that we must take these steps which he recommended to free us from the crises which have been dogging us ever since the war. It is time that an end was put to this.

The House knows why we have had these crises and what is the answer. No one has yet been prepared to face it. As soon as someone starts to take serious steps to deal with the situation someone else looks at the unemployment figures and says, "This will lead to great unemployment, and we know we must not have more than 200,000 unemployed"—or 300,000, or whatever is the favourite figure of the speaker. That time is past. I do not pretend to know at what figure the economy is stabilised, whether it is at 300,000 unemployed or 400,000 or even more; or, if we became skilful in the handling of the economy for the first time since the war, whether it might be achieved at an even lower figure. It seems to me that it would be well to leave that out of the argument for the time being or, at any rate, to put it lower down in the scale.

Above all, it is important to stop inflation. This is the constant theme that prices are going up—it is in the Labour Party Amendment—that the situation is deplorable; that prices must not he allowed to go up, and that we cannot hold them until we have stopped inflation. I do not know whether we have actually stopped inflation yet or not. There are indications that we have gone some way towards doing so. But I think that the note issue must be a signal, for it is about £120 million higher than a year ago. Nevertheless, if we assume that we are somewhere near holding inflation now, it is obvious that we have to go through a transitional period where, in fact, we kill inflation for good, and great benefits will be obtained for the people of this country when that is done.

Most observers would agree that over the last twelve months the Government have practically halted inflation, not only by the use of monetary weapons, by the Bank Rate, but also by two or three more direct controls of a financial nature; the directives to the clearing banks against lending, the alterations regarding hire purchase and the directions to the Capital Issues Committee.

These have reduced the ability of people to get hold of the extra purchasing power still in the economy. It has been isolated in the banks, but as yet the bank deposits have not been reduced. I was interested when the Economic Secretary talked about recent funding activities. There may have been such activities through the open market operations of the Bank of England, but in fact the credit base is no smaller now than it was a year ago. Therefore, the chief job of the Government in the next twelve months is to reduce that credit base probably by £500 million. Then, without this extra purchasing power, these other financial directives may be done away with one by one. Interference with bank lending will no longer be necessary once the banks have not the surplus to lend. The same applies to hire-purchase restrictions in relation to cars and other things. They could be relaxed as the credit is mopped up by funding operations, and the same goes for those most objectionable controls of the Capital Issues Committee.

I was interested when the Economic Secretary, referring to funding operations, said that this type of thing, credit and monetary matters, was his subject. He will be busy this year. There is about £900 million of Government securities maturing this year which will have to be replaced. There is to be an overall deficit on the Budget which must be offset by long-term lending. There is also the Government funding of about £500 million of bank deposits. So this will be a considerable operation which I do not imagine can be done in less than a year.

This is going to be a year of transition. I suggest that what the Government have to do is to make up their mind that that is going to happen and that it is worth while, even if production stays as it is in a so-called stagnant condition—I do not agree with the use of that word —certainly the index of production figures are unlikely to go up if the Government pursue a policy of transition for this year. By the end of the year we shall have taken out of the economy any elements which would create inflation. I think that then the country would be ready for another spurt ahead in production based on a genuine increase of production and not on uneconomic increases due to excessive overtime, working on Sundays often at very high rates in a very uneconomical manner.

I do not take the view that we have any reason to worry about the size of our investment programme. Probably this year it will be slightly larger than it was last year, and last year, as Dr. Barna showed in a recent paper to the Royal Statistical Society, the gross capital formation increased in 1955 by 5 per cent., which he reckoned was the largest this century. People can prove so many things by figures, and I certainly am not in a position to question that, but, if it is so, it does not seem to me that at this moment we have any particular reason to be concerned about our capital investment programme.

So much for monetary policy. But what is the main object of all this? Here I entirely agree with the speeches made from the two Front Benches. The main object of all this must be to build up the balance of payments. We put everything in to back the £ last December. This position must be retrieved, and must be retrieved this year. I agree that we should have a target of something like £500 million for balance of payments. That overrides anything else we can afford in our home market.