In his interesting speech on Wednesday last, my hon. Friend the Member for Edmonton (Mr. Albu) welcomed the lack of metaphors and cliché s in the Budget speech of the Chancellor of the Exchequer. As to cliché s, I did not detect a great reduction in the number. As to metaphors, I confess that I have a feeling of mild nostalgia for the days of the Lord Privy Seal. I recall the captain of the ship in the stormy sea, battling against difficult weather, turning the ship hard to port at one point, encouraging the crew, waving us all on; and then the Everest team, struggling up the last col to what we must now, I suppose, describe as the plateau beyond.
But the best of all, and the one that I miss most was the horse. The Committee will remember that the horse ate too much oats, or smelt the oats rather too strongly and got out of hand altogether. Then there was the further country metaphor, the gentle one, that of the gardener busily pruning his roses so that they did not produce too many blooms.
The Prime Minister cannot rival this, even with his weekend speech about kissing and squeezing. The Committee
may have seen reports of the speech. The right hon. Gentleman said:
Investment without saving"—
in a bold effort to try to humanise economic terminology—
is like a kiss without a squeeze.
The right hon. Gentleman continued, to his 3,000 audience:
So now you know why, when I was Chancellor, I squeezed you— it was because I loved you so.
I do not believe that even a Tory audience can have been tremendously convinced by that particular metaphor.
But I hope that the Chancellor will think again about the possibility of introducing a few metaphors. He will need a rather light touch to get all this legislation through in the Finance Bill. I promise that if he does we shall riot make too much fun of him. The right hon. Gentleman need not worry, either, if he supposes that the metaphors of the Lord Privy Seal were really the cause of his downfall. It was not the metaphors. It was just the way that the horse behaved. He eventually threw his rider with a rather loud crash and the rider had no clear idea how to control him.
The new Chancellor, with his controls, is much more careful than was the Lord Privy Seal. He has begun an inquiry into monetary policy. When I recall all that was said about the wonderful instrument of the Bank Rate, how flexible it was, how one could turn it this way and that and produce exactly the effects that one wanted in the economy, and how it was the counterweight, in 1955, to the Budget give-away just before the Election and, therefore, would offset any adverse consequence that Budget may have had, I cannot help being slightly entertained by the fact that at last there is to be an inquiry and by how differently the Chancellor speaks about monetary policy today.
The right hon. Gentleman told us, referring to arrangements about control of credit, that this was
… evidence that the monetary machine is working under great difficulties.
Then, after speaking about the objectives of monetary policy, the right hon. Gentleman said:
This country stands determined to maintain a fixed and stable exchange rate. The primary requisite for this is that we shall be able and
determined to avoid inflation at home. Equally, it is also agreed policy to avoid slumps and severe unemployment, if these perils should again confront us.
That is quite unimpeachable.
But the right hon. Gentleman added:
These objectives are not open to question. But there are the widest differences of opinion among those best qualified in this difficult field about how to attain them."— [OFFICIAL REPORT, 9th April, 1957; Vol. 568, c. 985.]
That is now the latest view about the Government's chosen instrument of monetary policy which they introduced with such pride a few years ago.
The Financial Times is perhaps even more severe in speaking of the inquiry. It says:
This should provide the Government with an opportunity to correct such mistakes as the decision to rely upon steep increases in short-term interest rates as one of its main disinflationary weapons— a decision which has seriously aggravated the country's external payment difficulties and imposed major additional stresses on the internal budgetary situation without bringing worth-while advantages in other directions.
I am delighted to see the Financial Times taking this line.
How right it is and how right we were in drawing attention to this time and time again in earlier Budget debates. For, of course, it is true that this policy since 1951 has involved an increase of no less than £200 million a year in interest on the National Debt— an additional burden of that amount on the Budget. It is, of course, true that this policy has also involved a very considerable increase— I would not give an exact figure— of the amount we have to pay abroad to foreigners who happen to own English bonds or Treasury bills, perhaps £70 million to £100 million.
At least, it is a good thing that the Government have realised the problem and are investigating it. Let us hope that the committee of inquiry will be a genuinely impartial one. Let us hope that it will contain among its members people of different views, and that they will not all be entirely of one political persuasion.
Having made this point, I must go on to say, in all fairness, that at the cost of these things the policy of the Government has achieved, at any rate, one of the objects which it set out to achieve: it has produced stagnant production. Of
course, I know that the Government do not like the word "stagnant". The Treasury Bulletin for March says, in its headline, "Steady but not Stagnant," and the Chancellor himself said:
It is a story not of stagnation, but of immense variety."— [OFFICIAL REPORT, 9th April, 1957; Vol. 568, c. 967.]
I think that perhaps one can detect in these niceties the activities of the Chancellor of the Duchy of Lancaster. I have no doubt that he was on the telephone to the Chancellor. No doubt he will have said, "Now, old boy, what about 'stagnation'? That is a dangerous word to use. Cannot you think of something else?" And the Chancellor said, "Yes, I see the point. I will call it steady'— no, I think 'variety' will make an appeal to the public."
But these verbal niceties and qualifications of the Chancellor do not hide the facts which were presented in that devastating speech made by my right hon. Friend the Member for Huyton (Mr. H. Wilson), that last year, while industrial production in France rose by 10 per cent in Germany by 8 per cent., in Italy by 8 per cent., in Belgium by 6 per cent., and in Holland by 5 per cent., industrial production here fell by about 1 per cent.
It is true that as a result of this policy, as a result of holding down production through the credit squeeze, the hire-purchase restrictions and other things, imports have also been held back and exports on a buoyant world market have gone up by 6 per cent. That is all perfectly true, but do not let us overlook the cost which is involved. For this is not a matter of just losing what we had to lose anyhow when we had an excess of imports over exports— that is to say, doing without some of the imports and doing without other things which had to be exported; this is a matter of losing far more than that— of losing the actual increase in output which we might otherwise have had.
My right hon. Friend rightly pointed out that this amounts in terms of the increase in production which we might reasonably expect to, say, £1,500 million worth of goods and services at the rate of £750 million a year. That is not something which one can simply shrug off on the ground that we were engaged on a consolidation operation, and if it goes on very much longer it will, indeed, become a very serious loss to the country.
However, I do not intend to argue about the past. It is true we believe that with a less hasty removal of controls, with a judicious use— a reimposition— of some of them, with much swifter budgetary action, much of this could have been avoided. But I think that the question of whether the price is worth while, on the basis of the Government's own philosophy, really depends now on what emerges from the stagnation of the last two years, and that is the acid test of the Budget.
I think I shall carry the Committee with me if I say that we need to aim at three things. First, we have to get the surplus on our foreign balances at a reasonable level, sufficient to protect and to increase our gold reserves. Secondly, we have to increase investment. Thirdly, we have to stop inflation. I think all of us realise that those are the three cardinal problems which face the country today. To begin with, I should like to say a little more about the gold reserves and the foreign balances
First, I wish to endorse what my right hon. Friend said about our attitude to sterling and the importance of maintaining the exchange rate. However, I do not think that we can be satisfied, despite the improvement on current account to a surplus of £230 million, that this is at present sufficient to achieve the objects we have in mind. It is not enough to take care of the strain on capital account, which comes out very plainly in the Balance of Payments White Paper.
This strain consists of three things: First, the need to repay debt, in particular to the United States and Canada; secondly, to carry the burden, because it is a burden on the balance of payments, of overseas investment; thirdly, to enable us to repay sterling balances held by foreign countries here— their withdrawal and conversion. In addition to these three things, we have to try to build up our reserves.
The plain fact is that even when meeting the claims of the first three items— that is to say, the repayment of debt, the financing of overseas investment and the meeting of the withdrawal of sterling balances— we needed a surplus of £430 million last year. That is quite apart from any increase in the gold reserves. Of course, we could not achieve that surplus, and because we could not achieve it we had to close the gap by borrowing, as we did, £200 million from the International Monetary Fund.
Looking ahead, with the best will in the world, it is difficult to be particularly cheerful about this prospect. First, there is the fact that the sterling balances owned by Colonial Territories, which have steadily increased over the past ten years until they now total just under £1,300 million, are almost certain to be drawn down in the course of the next few years as Ghana and Malaya wish to draw their funds down for their own development. The Committee will agree that we have an obligation to see that those debts are met. In fact, in these recent years we have been to some extent, certainly as far as our dollar position is concerned, living on the willingness of the colonial peoples to accumulate balances here.
The second point that arises is with regard to overseas investment, because if we have to meet the withdrawal of sterling balances, and. at the same time, to finance a large amount of overseas investment, the strain will be very great indeed unless we can contemplate a balance of payments surplus on current account of, say, £500 million. But that, I think the Chancellor will agree, is an extremely difficult task to achieve. We have only once touched the £300 million mark, and that was in 1950 and I add at once that it was in a year when we were running down stocks at home. So far since then we have never been able to get higher than a little above £200 million.
That leads me to make a comment on the proposal to give tax concessions to companies operating overseas. There can be no doubt that one effect of this tax concession is to encourage overseas investment. The point is brought out very clearly in the discussion of the subject in the Report of the Royal Commission on the Taxation of Profits and Income. I question, therefore, whether this was quite the right moment to encourage overseas investment still further when, without any encouragement, it is already running, and has been for some years, at a level which it is extremely hard for us to sustain through our balance of payments surplus. That is a matter which we shall no doubt return to during our debates on the Finance Bill.
As I have said, with all this we face great difficulties in building up our reserves. Yet if there is one lesson that I think every Government has learned from the experience of the past decade it is the tremendous handicap from which we suffer because of the absolutely low level of our gold and dollar reserves. So long as those reserves are low then the slightest deterioration in the current position, or some change in capital movements, can very easily create an exchange crisis.
It has another effect, as well. It means that the Chancellor of the Exchequer is apt to have to be exceptionally cautious in his budgetary policy lest, by going slightly beyond the level at which the right balance of payments surplus would be achieved, he runs into another exchange crisis. It has been suggested by the Press that the Chancellor chose to give away no more than £100 million this year, not because he thought that was all that was needed to stimulate the economy to full employment again, but because he was afraid that if he went beyond that there would be another sterling exchange crisis.
If that is so, it raises a very serious problem for all of us, because it points to the difficulty that, on account of the weakness of sterling and, in a sense, independent of our own balance of payments surplus, we may have to hold down our production and employment here because of the dangers in the City of London. These are matters which can probably be discussed more fully and appropriately in another debate, and I hope there will be an opportunity of doing so before long, because they are ultimately matters of very great importance to all of us.
I turn to investment, the second aim which any Chancellor must have in mind. This year, to the surprise of most of us, investment has been treated not as the goose that lays the golden eggs, but as the Cinderella. Nothing whatever has been done to encourage it; rightly or wrongly, the Chancellor appears to feel not only that it is not necessary, but that it is positively dangerous.
I want to detain the Committee for a few moments on what, in many ways, is the most unsatisfactory feature of the Chancellor's Budget decisions from the economic point of view. As he points out, investment has risen steadily since 1946, but it was very low at the end of the war and, measured as a proportion of the national income, it is still well below that of our major competitors, Germany and the United States. I know that there are difficulties in making the exact international comparisons here, but I do not think that the Chancellor will deny that we are still quite a long way behind those two countries and several others, too, I think, in Europe.
A further point which we cannot ignore is that only half the increase in investment at home since 1952 has been in industry; only £287 million out of the total of £526 million. The rest of it is in distribution, housing and other matters of that kind.