Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 30th October 1957.

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Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth 12:00 am, 30th October 1957

A number of hon. Members have referred to the dangers of a world recession. Indeed, the hon. Member for Stechford (Mr. Roy Jenkins) really said that inflation had ceased to be the problem and that it was the recession which should be exercising us. I hope we will keep some sense of proportion in that. There is not a world recession yet. Do not let us start talking ourselves into one. In the United Kingdom, we have a rising production and very full employment. Production in Germany is high and expanding. There is a high level of output and employment in America. Primary products, it is true, are cheaper, but at one time they were very dear. No one can say that they are at a very low level, still less that they are at a disaster level, at the present time.

Nevertheless, it is right to draw attention to these problems which lie ahead of us. Indeed, I devoted a great deal of my time at the International Monetary Fund to discussing precisely this problem. I emphasised that world trade has increased since 1937 twice as much as the world's reserves and I rubbed in the dangers. I said that the outward flow of money, in one form or another and by one means or another, from the creditor countries is an absolute prerequisite to the continuation of liberal trading policies in the world outside.

As I have just said to my hon. Friend the Member for Aberdeenshire, East, the record of the United States in this matter is a good one. Until recently, the Americans have pumped the dollars out and I cannot believe that they would be so nationalistically-minded as to ignore the perils of reversing this trend.

The real remedy, however, for an international recession is not to pursue inflationary policies in a debtor country. It would lead to ruin if we were to inflate in a deflationary world. If a recession took place, the real remedy is to concert action with the other countries concerned.

There is no need to set up a new organisation for this matter. There are plenty of organisations already—for example, the 0.E.E.C., from which I have just returned, in Europe; the G.A.T.T., which my right hon. Friend the President of the Board of Trade is at present attending; the International Monetary Fund; N.A.T.O. and all the rest. Whether formally on the agenda or, as hon. Members know, more often informally and outside the agenda, most of the discussions centre upon these great problems of international illiquidity, the nature of the reserves and the levels of demand in the creditor countries.

That brings me back to our own policy. Our voice is already stronger from the measures we have taken. If we flinch from these measures, we would appear at those organisations as a debtor and as a suppliant, and not as a particularly deserving one, but if we push these measures through we can command a strong position and a very sympathetic hearing.

A number of hon. Members, including my hon. Friend the Member for Aberdeenshire, East and the hon. Member for Stechford, questioned the economic soundness of the policies that we have been pursuing or even the hypothesis upon which they are based, and there has been a good deal of talk about the velocity of circulation and the activation of inert balances. The idea that when money travels faster it has the same effect as if more of it is about is no startling novelty to the Treasury. These thoughts have crossed our minds from time to time. When we talk about the supply of money we mean the amount of money which is available, whether adding to the existing stock or using it more rapidly. In any event, there is a limit to the increased velocity. There already is a credit squeeze and most of the liquid reserves with which we ended the war are now in use. Moreover, the argument is self-defeating, at least from the point of view of the Opposition. If they believe that it is possible to contract out of the Government's measures by the money moving faster, they cannot really say at the same time that they are as harsh as all that and a declaration of war upon anyone. Anyway, I believe that the technical difficulties can be overstressed. Much of it turns on what men in fact believe. If they are persuaded of the Government's determination in these matters, that in itself is an important method of damping inflationary pressure.

In any event, we have not the slightest intention of being beaten by technical difficulties. There is no technical difficulty which does not have a technical solution. For my part, I believe that the measures that we have announced and the policies we have declared are adequate. We are determined to succeed, determined to hold the £, and we shall take all necessary measures for that purpose.

The only other main topic that I should like to deal with is one which the right hon. Member for Huyton, the right hon. Member for Battersea, North and others have raised—the question whether we should be more selective and use more controls. Incidentally, of our method of selection in the field of public investment I have heard not one word of criticism in the debate today from start to finish. I can only take it that it is broadly accepted in its priorities.

As to selective controls generally, no one can say that they have not been tried. In 1945 the Labour Party inherited the lot. It had every administrative device of fiscal control inherited from the armoury of a great war. It used the lot, first, appropriately in the aftermath of war and, later, in the control of the economy in peace—price control, building control; it had the lot. Prices rose steadily during that period. They went up 40 per cent. I emphasised that they did not deliberately put prices up, but despite price control prices steadily rose by 40 per cent. A building boom developed. Despite these controls, the Labour Party had the devaluation of the £ and a major balance of payments crisis. I cannot see that these are a very powerful argument for their reintroduction.

Nevertheless I have been thinking about the matter. I had even pondered whether one should not try to do something to meet their point of view—I have these weaknesses from time to time—in the spirit not of its importance to the economy but in a general spirit of friendliness and co-operation. I am bound to say that I cannot find one that makes any sense. That is my only difficulty.

I have no doctrinaire objection to any of it. Building control is the most popular, but it is difficult to see what we would all gain by it. What would it control? The banks control advances, the Government control the public sector, the Capital Issues Commitment controls borrowing from other people. I think that the only effect would be upon those who are spending their own money. There are some who are building in this way but if we are going to introduce it one has to recognise that it is a very big machine and has to be established on a national basis and on a regional basis. We could not always have people coming up to London. It would mean hundreds of civil servants being employed. If we did it at top level, above say £50,000, we might stop a few blocks of offices going up. If we did it on the basis that is usually used in political discussion we should need a vast army of control. What should we stop? Hotels? Not hotels, because we are trying to encourage the tourist industry. Should we stop shops in the new towns, or the warehouses which we are using for the export trade? We might stop a few offices, but I cannot regard offices as a mere frivolity in these days. They really serve a purpose in our economy. We should be left with a few alleged trivialities like petrol stations. Should we stop churches or recreation grounds or something of that kind?

I say that I have considered these matters. I do not reject the idea on doctrinaire lines at all. If I thought any physical controls would help in these matters I would be happy to include them. It is utterly wrong to think that we can deal with the kind of problem that confronts us by stopping someone from putting up a few petrol-filling stations.

Inflation is our enemy and it has got to be beaten. We are not going to be deflected by talk either of a slump or of the technical difficulties of action. A declining currency is an intolerable burden to this country and to the people of this country, including our housewives, who see their money constantly depreciating. On all sides of the House we tell people to go in for National Savings, but the best incentive to save is not simply the interest rates but the knowledge that the savings will retain their value.

With regard to the fixed-income groups, we do not accept that inflation does not matter. We believe that the fixed-income groups have had a very hard time, and we intend to safeguard their interests and the interests of the wage earners as well.

As to the Government, any Government with a declining currency will be increasingly faced with an almost intolerable problem of debt management and investment in the public sector. No Government could tolerate that situation for long. Outside this country are other people, above all the members of the British Commonwealth. They share our problem; our reserves serve their economics as well as they serve us. If we are interested in safeguarding the interests of the Commonwealth we should all go into the Lobby wholeheartedly behind the Government's policy.