Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 10th April 1957.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 10th April 1957

I will deal with the hon. Gentleman's interruption in a moment.

Did the Prime Minister say something about nearly one-third of the reserves? It was his policy that was responsible.

Also, due to come are the £75 million of Adenauer aid which the Chancellor has negotiated, if it is not withheld now that Dr. Adenauer has read the White Paper on Defence. This, of course, is an advance of ten years' instalments of the repayments of the debt incurred by the West Germans. When Labour was in power we used to hear a lot from right hon. and hon. Gentlemen opposite about unrequited exports in those days, but they have been very glad to have this money paid by Germany in advance repayment.

Further, in case of disaster, we have the second line of I.M.F. stand-by credit, and so far we have not touched the United States Export-Import loan of 500 million dollars. I take it that that is still true.

Then, of course, some hon. Members opposite will have noticed with mixed feelings that some, at least, of the American tobacco which Her Majesty's Ministers seem to prefer to Commonwealth varieties will now be paid for not in dollars but by the erection of houses for some of the gentlemen coming over here from the United States to fix our rockets for us.

Against those possibly favourable factors I must warn the Committee of a new and ominous development, the changing economic position of the sterling area. I hope that we shall spend some time upon debating this change in the sterling area, because it is extremely serious for our economic future. In 1955, the worsening of the sterling area's position and balance of payments was entirely due to the worsening of the United Kingdom's position. In 1956, the improvement in the United Kingdom's balance of payments was still marked by a run on the reserves, and it was not all speculation. There was considerable leakage and, in view of the change in the sterling area position, I think it is fair to say that the rest of the sterling area can perhaps no longer be relied on as a net dollar earner on the same scale in future as it has been in the past. Therefore, the United Kingdom must have an even bigger dollar surplus on current account than it has been having.

Because of all the factors which are on our side, and which I have mentioned, I certainly am not suggesting that we are facing an immediate dollar crisis. Of course we are not. The sum total of mobilisation of all the second line reserves and special payments, borrowing or living on future income, means that sterling should be safe for this year, at any rate.

Time and time again I have said—we all have said—that sterling is not a party asset or only a national asset, but is a world asset, and we have said, what is obvious, that not only would devaluation be a tragedy but, also, that it is quite uncalled for. Sterling is not overvalued. I do not think that can be too strongly emphasised or repeated.

But the reprieve may be only for a matter of months. We are living, as I have said many times, on borrowed money and on borrowed time. When The Times said, a week ago, that The battle of Britain 1957 will be the battle to build up the reserves it was not, in my view, over dramatising the situation. Britain's fighting spirit and bearing this year, and the paramount need for leadership capable of bringing forth the efforts that are required, may well be as decisive for our economic future—indeed, our survival as a nation —as that earlier Battle of Britain in 1940 was for the outcome of the war and our national freedom.

We have, therefore, a few months— at most a year; not much more—in which to build up our economic strength, to increase our exports, to restrain our imports to what we can pay for, to hold back personal consumption, and, as a means to those ends, to resume increased production of the things we most need to produce and to fortify the industrial base on which we rely by increased and purposive capital investment. That is the criterion by which all our efforts, all our policies, all our statesmanship, must be judged in this year of decision.

Take this opportunity now—and it is not yet too late, despite the wasted years and the lunacies of the past few months —and we can win through to fortune. Miss the tide, as the Chancellor, I believe, missed it in his speech, and for this generation and, perhaps, generations to come All the voyage of their lifeIs bound in shallows and in miseries. What does this mean? It means that just as, ten years ago, Sir Stafford Cripps resisted the claims of home consumption, of inessential investment, of easy living, of private interests, and the claims of political popularity, to build up our exports and our essential investment, so we must once again, in the changed but still critical days of 1957, refashion a system of priorities that will put national survival first and all private and partial interests second. The Chancellor, in his speech yesterday, showed no sense of urgency and no awareness of the need to do this.

Let me now follow him in what he said about exports. He thinks that we may do well, that we may exceed or fall short of last year's 6 per cent.: not a word about the way we are limping behind our competitors. Let him look at the figures since 1953. Western Germany has increased her exports by 58 per cent.; Austria by 54 per cent.; Italy by 39 per cent.; Norway by 30 per cent.; the Netherlands, Belgium and Luxembourg by 28 per cent.; Sweden by 22 per cent; Switzerland and Finland both by 21 per cent.; Portugal by 20 per cent.; Denmark and France by 17 per cent.— the United Kingdom by 16 per cent. Ireland, Spain and Turkey, I concede to the Government, may be lower.

I refer the Chancellor, also—I am sure that he must have studied it—to the Board of Trade Working Party Report, recently published, which shows that we have fallen behind our main competitors in all groups except metals and metal manufacturers, and our record there has been maintained by arms exports during the post-Korean boom. That, again, is falling away. So, here again, in the most vital of league tables of economic solvency, Britain is near the foot. I hate to remind right hon. and hon. Gentlemen opposite that under Labour we led Europe in the exports league.

Is this change an accident? Is there no connection between these figures and the reckless scrapping of controls, the free for all, the irresponsible inflation? We must ask the Chancellor, when replying to the debate, to tell us: has he no policy for exports except standing on the touch-line, or, alternatively, cheering and booing British industry?

What we need is this: negatively, to restrain competing demands by anti-inflationary measures—yes, and by controls, too; and, positively we need to expand investment in those sectors which can most readily expand exports or which provide the industrial base for the export industries. The Chancellor is taking neither negative nor positive measures but is leaving it to chance, discouraging investment in total while he hopes that what investment there is will be of the right kind.

I think that the most dangerously complacent passage in the Economic Survey is the one right at the end, which speaks optimistically of the export situation and says: The very heavy investment of the last two or three years has improved our industrial efficiency and expanded our capacity.… Thus our equipment for a further export drive has been considerably strengthened. That is all wrong. It has not been the exporting industries which have been expanding during this investment boom. The Economic Survey itself points out that Since 1954 … the greatest expansion has been in manufacturing industry and in the distributive and other services; investment in both these groups increased by more than a quarter between 1954 and 1956. The volume of expenditure in vehicles and in paper and printing in 1956 was about double the 1952 level. This is all very nice. It is nice to have such a pretty packaging of the goods we buy in the shops. It is nice to have all these delivery vans blocking our streets, and nice to have such pretty advertising brochures and detergent "puffs". But what have all these to do with our economic survival?

What we ought to be expanding is the machine-tool industry. There was a very important and significant article in the Manchester Guardian about it last week. It said that this capacity is increasing by only 3½ per cent. per year, yet order books are long and orders have been lost. Similarly, the steel industry should have expanded more rapidly over the past years. It has always been too conservative in relation to demand. On the Government's own showing, investment has been wantonly misdirected, and we are losing ground to Germany, America and the Soviet Union.

The Chancellor shows the same complacency about production. Last year, it fell by 2 points—between 1 per cent. and 2 per cent. The Chancellor now admits, as I have always thought, that this cut in production last year was deliberate. The former Economic Secretary to the Treasury, now the Parliamentary Secretary to the Ministry of Education, told us last year that it was not. I kept asking the Prime Minister whether he expected production to rise or fall. He would not answer, but the hon. Gentleman said: We shall, of course, achieve an appreciable increase in production this year."—[OFFICIAL REPORT, 23rd April, 1956; Vol. 551, c. 1472.] I asked the Prime Minister, then Chancellor of the Exchequer, if he agreed. He said that he was sure that whatever the then Economic Secretary said was very wise. Wise or not, we are now told that the Government set out to cut production—and they succeeded.

Has the Chancellor calculated the effect of industrial stagnation? Under Labour, industrial production rose by 6·9 per cent. per annum. Under the Conservatives, it increased by 3·4 per cent. We have lost, in all, £1,500 million to £1,700 million of production through this slowing up, and this loss is growing at the rate of £700 million to £750 million a year. Just think what the Chancellor could do with that production in terms of more exports, more investment, and in the social services.

The Chancellor told us that 1956 was a year not of stagnation but of "vitally needed redeployment." We warned him last year that negative policies were not enough and that merely to squeeze workers out of inessential industries does not get them into the right ones. Last year, the manufacturing industry lost 125,000 workers, many of them women who went out of industry altogether. But the number employed in distribution went up by 20,000, and professional, financial and miscellaneous workers increased by 19,000. Over the last two years, since the Lord Privy Seal began to disinflate, employment in distribution has gone up by 78,000 and in the professional, financial and miscellaneous category by 64,000.

Do the Government consider this to be redeployment? Will the Chancellor get more production this year? He tells us that he hopes so. In his interesting broadcast last night he said: I think there is room for some increase in production now and I think it will take place because there is every indication that consumers are going to consume rather more this year than they did last. When the right hon. Gentleman was asked whether this consumption would compete with exports he said that he hoped it will be a bigger cake. Instead of a positive increase in production and in investment, in exports and in the vital sectors of the economy, the right hon. Gentleman hopes that an increased production will be called for by increased consumption and that, somehow, this will not compete with his exports or push up imports from abroad.

In our view, the Chancellor is facing a grim dilemma. Last year, we held imports back because production was held down, but what happens if production goes up, as the right hon. Gentleman hopes? What guarantee is there that we shall not run into the import boom and the balance of payments crisis of two years ago? Let the right hon. Gentleman be warned by the fate of the Lord Privy Seal. From 1954 to 1955 the gross domestic product rose by 3 per cent., whereas imports rose by 9 per cent. Comparing 1955 with 1952, the gross domestic product rose by 12 per cent., and imports by 21 per cent. Therefore, we are very vulnerable on any increase in production to a more substantial increase in imports.

I must warn the Committee that, under the present Administration, an import boom is heavily concentrated on American goods. In the Lord Privy Seal's boom of 1954–55, imports from the sterling area rose by 2 per cent. and from the dollar area by 30 per cent. It was the result of dollar trade liberalisation and the reversal of Labour policies of Commonwealth development and reduced dependence on dollar sources of supply.

There are hon. Members opposite who needed to get cross with Mr. Dulles's Suez policy before they saw the wisdom of what we on this side of the Committee have been urging upon them—the need to replace dollar sources by Commonwealth sources of supply. But I frankly acknowledge that over the last few months they have shown commendable enthusiasm for these policies of Commonwealth development.

I should like to commend to hon. Members opposite figures recently extracted from the Economic Secretary. Between 1948 and 1952, that is, during our period of office, imports from the sterling area were up by 25 per cent., while imports from the dollar area were down by 6 per cent. We cut dollar imports and increased sterling area imports. From 1953 to 1956, under right hon. Gentlemen opposite, imports from the sterling area fell by 2 per cent. and imports from the dollar area rose by 30 per cent. Is that a coincidence? We welcome the support of the converts opposite to our point of view about this, but we must tell them that if they will the end they must will the means. Sterling area trade cannot be increased and dollar dependence cannot be reduced by free commodity markets and a free for all. We shall need bulk buying and long-term contracts.

The Chancellor turned, next, to inflation and the credit squeeze. I do not propose to follow him in those remarks, because some of my hon. and right hon. Friends will be dealing with them, but I cannot refer to the credit squeeze and the "gently sloping plateau", which the right hon. Gentleman discovered yesterday, without referring to the serious situation in the minds of all of us—the problem of industrial relations at present. It is not the business of any hon. Member to prejudice the work of the Industrial Courts which are now sitting, or to add to the difficulties of either side of industry, but the Minister of Labour said last week: … there will be many matters which, when the dust has settled, it would be right for the country to look at very closely indeed."— [OFFICIAL REPORT. 2nd April, 1957; Vol. 568. c. 240.] The right hon. Gentleman is right. There are. And one of them is the responsibility of the Government for the present state of industrial relations.

The main purpose of the plateau speech and the credit squeeze was to force a degree of wage stability that the former Chancellor of the Exchequer had failed to get voluntarily because of his policies. There was talk of a showdown in industry last year, and there was talk of a showdown on wages. I believe that Ministers encouraged that talk and I am not alone in believing that. It is all very well for the Minister of Labour to flit from room to room in his Department like a little ministerial cupid, but he bears heavy responsibility, as a member of the Cabinet, for the state of industrial relations from which the nation has been suffering over the past few months. Time and time again we warned the Government that a policy which, on the one hand, forces prices up and, on the other, seeks to make it impossible for industry to pay more wages could lead only to industrial strife.

In November, I quoted the menacing words of the Deputy Chief Government Whip—[An HON. MEMBER: "Who is he?"] He is a Treasury Minister officially—in a speech which he made in his constituency on the Saturday after the T.U.C. rejected wage restraint. Even in this divided Government it is impossible to think that a Deputy Chief Whip could make a speech on a matter of such importance without consulting the Chancellor or the Minister of Labour. This is what he said: The trade unions arc too late because the position of employers has changed, as a result of deliberate Government policies. The trade unions will find one thing—the atmosphere of negotiation when they come to employers will be very different from what it has been during the years since the war. In November, I called that government by ultimatum. Those words have not been repudiated by any senior Minister, so now the Government cannot be surprised at the strikes that have occurred. It is nauseating to hear some of their sanctimonious utterances about their responsibility for them, because there is the man—the Prime Minister—who, more than any other, is responsible for our present industrial troubles.

It is now clear that the Government are no longer going to light inflation. They are ready for a consumption boom. I must ask the Chancellor what will be the effect on the trade union movement, and on industrial relations, of the sweeping concessions to Surtax payers that he announced yesterday. I want him to answer that question. I believe that the right hon. Gentleman has made the task of responsible trade leaders a great deal more difficult by the Budget.

Now I will turn, as the Chancellor did, to his revenue position and the tax changes. I have referred to last year's out-turn above the line, and I have also referred to the monumental miscalculations of the previous Chancellor. I feel that the present Chancellor is far too complacent when he suggests that the worsening above the line was offset by an improvement below the line of some £182 million. It is due, as he said, to local authorities borrowing £111 million less from the Treasury than was even expected.

But this is not a saving. This is not disinflation. This is not a cut in capital expenditure. It simply means that the local authorities have been driven to the market for their borrowing. The figures show that while the borrowing from the central Government fell for 1955–56 from £413 million to £88 million, other borrowing net rose from minus £8 million to £332 million. So there has been no saving in terms of the real call on our national economic resources, and it is extremely dangerous for the Chancellor to argue in this way; that just because he shifts the responsibility for the local authorities on to the market, with all the difficulties that has caused for them, that is in any way disinflationary. That is a complete fallacy.

The Chancellor rightly paid tribute to increased savings, which we all welcome, but one-third of these was the reduction of debt, largely hire-purchase debt, and also saving to put down the higher hire-purchase deposits. It is noteworthy that consumption is now rising again, probably because of the changing hire-purchase position, and the fact that hire-purchase debt has been reduced.

Then there are the Premiums Bonds. Well, of course, two-thirds of the investment, if that is the right word—I think that is used by the football pools—was represented by the initial November scramble, mainly of Surtax payers, and it is doubtful whether we can expect the same amount of investment in Premium Bonds in the future.

Turning to 1957–58, the Chancellor bases what he calls his room for manoeuvre on a prospective surplus of £560 million, but this improvement in the surplus compared with that actually achieved last year is almost entirely due to an inflationary rise in the revenue. We have argued before that there is nothing disinflationary in accepting a situation of inflation in the public revenue, and then proceeding to ride it. The Manchester Guardian made the same point this morning, when it said: One must be careful not to confuse the impact of monetary depreciation on the Exchequer accounts as proof of sound finance. That is a fair point. I hope that the Chancellor will think carefully about this; that, in fact, his surplus is largely due to inflation, and the bigger the inflation the bigger his surplus will be. Would he then say that, now his surplus is so big, he can give more tax concessions? He may do that, but he will not fight inflation by doing it.

However, the Chancellor decided to cut the prospective surplus to £462 million this year by tax concessions of about £100 million, and I will spend a few minutes in dealing with these. As regards Entertainments Duty, I have said that this was obvious and long overdue. I think we are bound to say to the right hon. Gentleman that we do not see anything very unfair in the proposed impost on television. There is a point he might consider, however. There are special cases of old age pensioners, bed-ridden people, and so on, who have been provided with a television set by some means or another. Perhaps he might look sympathetically at their problem?

The Chancellor could, in fact, get a lot more from television if he were to reduce the amount by which advertising qualifies as tax free deduction for Income Tax and Profits Tax. Let no one say that we are not proposing means of fortifying the revenue.

Coming now to overseas trade corporations, this, as the right hon. Gentleman said, is a complicated subject on which there will be a rather lengthy Clause in the Finance Bill. We shall want to look at it. I must say, however, that on what he has so far told us, and what we know of the Report of the Royal Commission, we view this proposal with some suspicion. Relief by the pioneer tax concession was the subject of Amendments which we debated on last year's Finance Bill. There is a great deal to be said for this special relief in relation to the double taxation agreements. Indeed, we had an Amendment on the Notice Paper to give effect to that concession.

As regards the proposal for overseas trade corporations, which makes it easier for companies to escape the tax jurisdiction, and possibly to open the door to all kinds of "fiddles" about the prices which British firms charge their overseas sales agencies, or the prices which overseas raw material procurement subsidiaries charge the main company in this country, I think that the Chancellor will lay in store for himself some very difficult problems.

Now I come to Purchase Tax and the concession for pots and pans, linoleum and carpets. I do not need to say that we welcome this. We kept the Lord Privy Seal up five days and five nights fighting his autumn Budget in 1955. We remember all the arguments he then used. We remember the arguments of the then Economic Secretary, especially "Boyle's Law." We remember the arguments of the then Financial Secretary, now the Minister of Housing and Local Government, about his yawning gap in taxation. Time after time those Ministers stated that these high taxes were necessary to fight inflation. We said that they would create inflation.

Does this mean that the Chancellor now agrees with us and disagrees with the Lord Privy Seal on that argument, or does it mean that he is ceasing to fight inflation? Is "Boyle's Law" repealed or half repealed? If the Chancellor accepts our argument on this—and I can well understand that he might do so— I suggest to him that he now goes the whole way and entirely removes the kitchen tax, as we suggested. And if the right hon. Gentleman is expecting any trouble from the Lord Privy Seal, or from the Parliamentary Secretary to the Ministry of Education, we can promise the Chancellor our full support in the Division Lobby.

As for the removal of the petrol tax, this is simply a concession to sense, justice and Her Majesty's Opposition. We voted against the imposition of the tax, whereas hon. Gentlemen opposite voted for it, as recently as 10th December last. It is good to know that the Chancellor has at last decided to remove it. We would like to ask him what will happen now about fares, about the provisions in the Hydrocarbon Oil Duties (Temporary Increase) Bill? Are we now to expect fares to remain at the present level, or are they to come down, as was envisaged in the Bill? There again, we should like to know what the great oil companies will do. They had their profits guaranteed throughout this period—an allegedly difficult period. Will they now remove their special surcharge, which resulted from the reduction in the amount of oil available for distribution?

I turn now to the investment allowances. In my view, and in the view of all of us on this side of the Committee, the Chancellor missed a great opportunity in not restoring the investment allowances. We need the investment, because it is falling away, and the Board of Trade figures for the first quarter of 1957 show that industrial building authorisations were 13½ million square feet against 21·7 million square feet in the same quarter of 1956. They are, in fact, the lowest since the beginning of 1954.

I suggest that the Chancellor should have restored the investment allowances, if possible, on a selective basis, but, if that is not possible, and I know it is debatable, what he should have done was to provide a general incentive to more investment by restoring the allowances, and be prepared, by building licences or other means to hold back the inessential building which might have resulted, and so give the green light to the essential factory building which we so much need.

I do not want to say much about the further concessions to the shipping industry, because we can debate that on the Finance Bill as well. If the aim is to stop British shipping from passing under other flags, his first task is to end the present confusion in the chartering market and the impossible position in which British shipowners are placed, and the sooner the Government can extricate themselves from the shipping consequences of their action over the Canal the better it will be for the industry.

Now I turn to the reliefs proposed in direct taxation. The relief for the aged we welcome, but this, once again, only goes to emphasise the contrast between those old-age pensioners who pay tax and those who are below the tax level, including the 1·6 million on National Assistance. What about the child allowance? I think that the Chancellor was right, as the Royal Commission recommended, to concentrate the reliefs on families rather than on single persons, and I agree that the method which he has chosen of greater allowances for older children, which is a suggestion which I think he took from the Economist, is better than the scheme proposed by the Royal Commission, which would have given a greater child allowance as income rose, which would have been difficult to defend.

On the other hand, and I am sure the Chancellor will be the first to realise this, by this proposal, which does help very many families, he does not help the millions of lower income parents who pay no tax at all, and that is why we as a party are pledged to a system of State maintenance grants. But when the Chancellor talks of incentives and about helping the middle classes, the only ones who get help in this Budget, right up to the £2,000 a year limit, are those with children over 12. The family with young children gets no help at all up to the Surtax level.

I turn, lastly, to Surtax. It is true that the Chancellor can make a case for extending the child allowances into the Surtax range. The Royal Commission suggested that this should be done, and that it should be paid for by reducing the starting point for Surtax-paying bachelors down to £1,500. The Chancellor has increased the child allowances, but did not reduce the starting point for bachelors, so that, net, the Surtax payers, as a group, gained from the concession, which was not the proposal of the Royal Commission.

But this gain for the Surtax payers pales into insignificance when compared with the earned income relief right up the Surtax range to £10,000 a year. The Chancellor can make a case based on historical arguments for raising the starting point for Surtax, or, better, by extending the earned income relief beyond the £2,025 ceiling. Many of us expected him to raise the ceiling for earned income relief perhaps to £2,500, and, certainly, we on this side of the Committee could have accepted such a proposal if it had been part of a socially just Budget which gave the biggest relief to those in the greatest need—the old-age pensioners and others on small fixed incomes—and if it had been part of a Budget which tackled the evils of tax avoidance, capital gains, and the rest. But to make this one concession and do nothing for the old-age pensioners, is, in our view, a monstrous perversion of social justice.

What did the Chancellor do? I have said that the young scientist or technician, even with three young children, gets nothing up to £2,000 a year—and how many of these young scientists, designers, supervisors, superintendents, foremen, craftsmen and others, earn more than £2,000 a year today? The greatest frustration in this country is at the level of £600, £700 or £800 up to £2,000, not beyond it. But the £5,000 a year man with three young children gets a tax relief of £324, or £6 a week. The £10,000 a year man with three young children gets £617 10s. a year, or £12 a week, under this Budget, and the £10,000 a year man with three older children gets £681 back, or £13 a week. Even the single man, who, we must presume, has no dependants, who is earning £10,000 a year, gets a relief under this Budget of £467 a year, or nearly £9 a week. So this Budget is not entirely a family Budget.

When we get these vast tax concessions, we wonder what the Chancellor meant when, in his broadcast last night, he referred to "belated justice to the heavy taxpayer." We wonder what he really meant when he said that he "aimed to ease the taxes where the shoe was pinching worst," because this is what he said in his broadcast. The Committee should remember that the upper income ranges are those which benefit most sumptuously from the Top Hat superannuation schemes, or in the case of the professional or self-employed man, from the extensive superannuation concessions which were made, with the agreement of the whole House, last year in the Finance Bill. In fact, the State contributes more to their superannuation in tax relief than it contributes to the National Insurance Fund. There is a Welfare State for the rich which costs in terms of taxation more than the Welfare State in terms of insurance. They are the people who, in addition, have most opportunities for business expenses and for tax-free capital gains. The Chancellor looks surprised, but he will find the figures in HANSARD for last March.

How does the Chancellor justify these concessions? In one word—"incentive" the last refuge of an unjust Chancellor. There must always be room at the top, he told us yesterday.