Orders of the Day — Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 25th July 1957.

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Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth 12:00 am, 25th July 1957

The right hon. Member for Huyton (Mr. H. Wilson)has ranged fairly widely over the problem and touched on one or two of the panaceas that have been offered. I do not propose to follow his speech in detail, because I would rather devote myself to getting straight down to what I think the problem is and where the solutions may lie.

If I say something about the nature of the problem, I hope nobody will accuse me of mere diagnosis. It is, after all, worth while identifying the disease before we specify the cure. Before I sit down, I certainly intend to say what policies we are pursuing and intend to pursue and to deal with one or two of those referred to by the right hon. Gentleman which are, perhaps, somewhat inapt to the problem which confronts us.

I start with the paradox which makes things so fatally easy for the critic—the paradox of prosperity, on the one hand, and a decline in the internal value of the currency, on the other hand. With that paradox before us, it is easy to make a cheap criticism of almost any comprehensive statement on this subject. I repeat, therefore, that the immediate and urgent problem which confronts us is not something like the balance of payments problem which confronted us in 1951, when internal demand was holding back exports and sucking in imports—far from it. The external outlook is good.

Exports are up, £85 million higher in the first half of 1957 than in the first half of 1956, and they have been rising faster than the imports. The reserves are up, an increase of £88 million in the first six months of this year. Invisible earnings are moving upwards and production is going up. At one time, it was thought that on external current account from mid-1956 to mid-1957 we might just about break even. Now, we expect, we will prove to have had a surplus over the period of £125 million or more. There is no reason whatever why in the coming year we should not do better still.

All these benefits are against the background of prosperity in this country, probably—indeed, I think, certainly—greater and more widespread than ever before. Look where we will. There is a vast change from a quarter of a century ago. The cause for concern is neither industrial stagnation nor a balance of payments crisis. There is cause for concern because these great advances have been matched at home by a steady depreciation in the internal value of our money, and that process has gone steadily on for twelve years. It has been going on virtually without interruption, under all Governments, since the war.

The first thing I ought to say about it is this. I make no apology whatever for having stated in two recent speeches that this is an evil thing, that it does us damage economically and socially and that it should be our joint purpose to bring it to an end. I was, and I am, quite well aware that if a Chancellor of the Exchequer calls attention to any economic ill in the system, particularly one the cure of which has proved particularly intractable, some measure of criticism will follow and some markets will be affected. I say frankly, however, that I am not in the least dismayed by that criticism or those effects.

What would be far more damaging in the long run would be to ignore the facts or pretend either that they were different or that they did not exist, or even to pretend, as some would have me do, that there is some slick economic solution which the Government can apply which will obviate any effort from anybody else. This is a problem, unlike some others, in which public discussion is essential, for while the Government have their part to play—and I shall describe it—there is not, as some appear to think, a neat tap inside the Treasury by which we can regulate the movement of prices as we wish.

If inflation is to be checked, the first essential is to have a country which really wants to check it and is prepared to accept the discomfort of any cures that may be involved. Until quite recently, I very much doubt whether this has been the case. The truth is that too many people have seen the benefits of inflation without observing any of its dangers or its disadvantages. Wage earners have enjoyed their wage increases and employers have enjoyed their bigger profits, but many have regarded these things as manna from heaven and as having no connection with the fall in the value of money, which they dislike as much as anybody else.

It is not an easy thing to cure people of a disease which they do not recognise. I begin, then, on the assumption that it is our joint aim, on all sides of the House, to halt inflation and that, while we may differ as to the means, we all recognise that we are not likely to find a simple painless solution.

One more thing which I should like to say before I speak of policy is that many other people suffer from inflation too. The same sort of debate as is raging in this country is raging in America and in France, Italy, Sweden and many other places. Indeed, this is in some ways fortunate for us, for it helps to preserve the relative external value of the £. It is not, however, an excuse for failing to tackle it ourselves. The social injustices of inflation are no less evil because they are being suffered by other people as well as by ourselves.

Furthermore, to those who take comfort from what is happening elsewhere, I would say this. We are a great industrial country depending for our very life on imports. We are international bankers and investors, with responsibilities to other countries as well as to ourselves. Therefore, we have much more severe limitations in our room for manoeuvre. We must be competitive if we are to pay for our imports. We must always strive to ensure that nobody, at home or abroad, loses confidence in our ability to manage and sustain a currency which is so widely held.

I want to divide what I have to say about policy into two parts. I want, first, to say something about certain forms of action, which are sometimes thought of or spoken of as cures for inflation, which, in my judgment, are either harmful or irrelevant or, at least, inapt for the problem which confronts us. I want to get them out of the way—some of them were referred to by the right hon., Gentleman—so that I can concentrate on what I conceive to be the real issues. Secondly. I wish to describe a policy or group of policies which, if pursued with vigour and good sense, will, in my judgment, control or radically check the growth of inflation.

I start, then, with the polices which, in this connection at least, seem to me to be of little help. First, import restriction. I mention it because it has been referred to many times. From time to time, hon. Members have said that they would rather like to see it adopted. In my judgment it would be irrelevant and harmful in the context of inflation. It would make it worse and not better. It would decrease the amount of goods without decreasing the amount of money. It would hamper production at home, it would decrease competition and it would raise prices. I therefore reject it.

I now want to say something about controls in general. Controls in general, which were referred to in a fairly detailed manner by the right hon. Gentleman, tend to deal not with the causes of inflation but with their effects. To depend upon them is rather like stoking up the fire beneath the boiler and sitting on the safety valve. That was the disaster which happened to the right hon. Gentleman in 1951. There are two types of control which are, in general, particularly referred to. The right hon. Gentleman referred to them in his speech, and I should now like to answer what he said.

First, there is price control. It seems to me that price control is no answer whatsoever. I do not believe it ever was. I saw it in operation six years ago when I was first appointed to the Board of Trade. Prices had risen steadily under a system of price control in the preceding years. They had risen not because the right hon. Gentleman wanted them to rise but because this system of price control does not, in fact, control prices. If one presses it home it drives the goods off the market, and that means rationing, and if one does not press it home, as generally happens, it is merely a dangerous illusion.

Secondly, there is building control. About building control I would say, "Do not do by controls what you can do by other means." If one wishes to stop building in the public sector, then the answer is not to put up the schools or the hospitals, or not to put up so many of them. If one wishes to reduce the impetus of house building, one can remove the subsidy. In the private sector one can make use of credit restrictions. I admit that one could by bringing in the whole apparatus of building control stop probably a few cinemas or one or two blocks of offices or some of the garages which were referred to the other day, but it would be a great effort for very little purpose. It would have no identifiable effect upon a cost inflation, and it would be dealing with the effects and not the causes.

Another possibility sometimes mooted in the Press is what I might call the "little Budget" technique. We could introduce further cuts in consumption, put up the Income Tax or restrain particular industries, have a little more Purchase Tax or another tightening of the hire-purchase regulations. If the trouble was that our expansion was going on too fast and we thought it might get out of hand, such measures would be appropriate, and at time in the past they have been appropriate, but, like import or building controls, I think they would be irrelevant in the present situation. Frankly, I am not attracted by the idea of trying to tackle what is in the main a wage-cost inflation by taking marginal amounts out of the housewives. They suffer quite enough from inflation already without adding to their burdens.

Then there is what I might call the "tranquilliser school," the belief that one can do it quite painlessly so far as the majority are concerned, that one can adopt some such device as limiting the note issue or taxing the rich. One does not stop inflation by refusing to print bank notes any more than one cures a fever by trying to hold down the mercury in the thermometer. Nor do I suppose there are many people left, except the right hon. Member for Battersea, North (Mr. Jay), who seriously imagine that the bulk of the purchasing power in this country is in the hands of those with incomes over £2,000 a year. All these methods or policies, some of which I am sometimes asked to adopt, seem to me to obscure the realities of the picture which confronts us, and most of them deal with the effects and not the causes.