The right hon. Gentleman the Leader of the Opposition began his speech by referring to the speakers who are to take part in this debate from this Front Bench. As I believe is traditional on the last day of the debate on the Address, it will be wound up by my right hon. Friend the Leader of the House. I cannot myself claim to be a Treasury Minister in the sense to which the right hon. Gentleman referred, though I can inform him that when one becomes Paymaster-General the first thing one receives is a Minute from the Treasury saying, in effect: "It must be clearly understood that the business of your office is run by the Treasury, and you had better keep out of it."
This Amendment is quite clearly designed as a Motion of censure on the Government's economic policies. I will treat it as such, and try to follow in detail, and, if I can, in sequence, the arguments advanced by the right hon. Gentleman, which were, as is usual with him, weighty ones.
Perhaps I may first just refer to one or two things he said about my right hon. Friends. He referred to my right hon. Friend the Chancellor and talked of errors of judgment—and "lack of candour" was a phrase he used when comparing the situation of the spring and summer with the crisis of this autumn. I do not remember that at the time of the Budget this year the right hon. Gentleman was very forward in suggesting further measures of deflation. In fact, all the proposals coming from that side were pressing on for inflation. I must remind him—because he referred to my right hon. Friend and talked of a lack of candour—that before the crisis of 1951 when he was Chancellor, although I have searched the records, I have found no record of any publicly announced policy to deal with the impending balance of payments crisis other than a small reduction in imports of dollar cheese.
Moreover, the right hon. Gentleman referred to my right hon. Friend the Home Secretary and asked why it was that he never thought of the idea of using the volume of money as a way of dealing with the spiral of costs in a balance of payments crisis. In the winter of 1951–52 my right hon. Friend used precisely the methods of the Bank Rate and the methods of a very large funding operation to deal with the crisis left behind by the right hon. Gentleman himself.
I want to turn to the arguments put forward by the right hon. Gentleman on the general economic policy of the Government. First, may I start by restating our objectives, because the right hon. Gentleman talked in terms, as he said himself, of diagnoses and remedies and he challenged us on both these points. What are our objectives? They are twofold—first, to resist a speculative attack on the £, and that is a phrase used commonly on both sides, and in resisting that attack my right hon. Friend has already had considerable success; and our second and simultaneous objective is to call a halt to the steady and almost automatic decline in the value of the £ which has been taking place for many years under succeeding Governments.
These two things are linked because the strength of sterling abroad is linked to the strength of sterling at home. The external value of the £ is based entirely on its internal value. I do not think there is any quarrel about this, because I see that the right hon. Gentleman himself on 25th July this year said:
If those who own the sterling balances begin to feel that the value of the is going to fall continually, we may be quite sure that they will wish to withdraw their money."—[OFFICIAL REPORT, 25th July, 1957; Vol. 574, c. 712.]
In other words, there was a direct link, although he appeared to be denying it, between any capital movement against sterling and the prospects for the internal purchasing power of the money. Therefore, I do not think there can be any quarrel about our objectives here, which are to stabilise the value of the £ for internal and external reasons alike.
The argument from the Opposition must be that our methods are wrong—which has been explained in some detail by the right hon. Gentleman—and that the methods of the party opposite would be better. I did not hear much explanation of what their methods would be or why they would be better.
What I should like to do would be to examine both those propositions. First, may I make an analysis of the present problem, following what the right hon. Gentleman said. We have a dual source of external difficulties. First, in our position as traders, we may lose our competitive position if costs rise; and secondly, in our position as bankers, money may be drawn out of this country in the form of capital movements, although we may have a strong balance of payments situation.
The right hon. Gentleman said that we have at the moment a substantial current account surplus, yet we have had a balance of payments problem of considerable size, largely because of capital movements. This, as he pointed out, stems largely from our position as bankers for the sterling area. There are arguments that can be advanced, and often are canvassed, about the relevant advantages and disadvantages of our position as bankers to the sterling area, and as the country whose currency is used so widely throughout world trade. There are immense advantages that investment income brings to us, such as access to cheap raw materials. On the other hand, there are distinct disadvantages. We have to carry the stress of the sterling area's dollar requirements, and, indeed, in a world where dollars and hard currencies are getting scarcer, as they are at the moment and have been for some time, the United Kingdom currency has to carry the burden of almost the whole world's shortage of dollars.
One may discuss as an academic exercise whether this a good position to be in. The fact is that we are in it and cannot get out of it even if we wished to do so, for two overwhelming reasons; first, because the sterling area system is now a central part of the whole cement of the Commonwealth, and secondly, because the sterling balances represent moneys invested in the United Kingdom economy and which cannot be withdrawn from that economy without disastrous consequences. Therefore, we are in a position where we must face the sterling area problem, accept its advantages and try to deal with its difficulties.
I would suggest that what the right hon. Gentleman said about the sterling area was of very great significance indeed. He was talking about the Kuwait gap. I understood him to say that the reason why money could flow from this country out of the sterling area through Kuwait was because of some change in the exchange control regulations which we had introduced. I do not think he will find that is so. It has always been possible for sterling to move freely within the sterling area, throughout the sterling area, and there have never been controls upon such movement.
The right hon. Gentleman was suggesting that. He was suggesting that there should for the first time be introduced exchange controls to control capital movements within the sterling area. There may be a case for that, but that is a very big suggestion indeed, and the right hon. Gentleman should ponder both the possible advantages and the very great possible disadvantages of a measure which might undermine the whole strength of the sterling area with all that it means to us. It is because these capital movements and current trade movements interlock to some extent that, for both reasons, we must do all we can to maintain the internal value of our currency.
There was talk of foreign exchange control. One cannot protect an international currency like sterling by wrapping it up in the cotton wool of exchange controls. One cannot force people outside this country to hold sterling if they do not want to. They will only hold sterling if they think it is worth holding. If they are asked to hold sterling they will think of its future value and, quite rightly, its future value relative to other currencies. But in assessing the value of sterling they will look at Government policies and they will assess to what extent they believe the Government intend fully to carry out their declared policy, despite the criticisms and difficulties involved. There will also—and I should mention this fact, because it is of importance—be the effect upon foreign holders of sterling, particularly as an election advances—of policy declarations by a possible alternative Government.
I do not wish to question in any way—I know him far too well—the sincerity of the right hon. Gentleman for saying that he will always do all he can to maintain the strength of sterling, but I would say to him that foreign holders of sterling will look behind what he says to the policies of his party, and, in so far as those policies are or appear to be of an inflationary character, it must reflect upon the judgment of foreign holders of sterling. That is a point which is fair to make and a very true point in present circumstances.
I believe the main lesson that we have learned in our economy since 1945 is that we cannot run this economy flat out all the time. If we try to run the whole machine flat out all the time it will overrun and we shall get into trouble. This has been apparent ever since the right hon. Member for Bishop Auckland (Mr. Dalton) used his famous phrase about "lubricating the economy with a sufficiency of purchasing power." Unfortunately, the result of the lubrication was all that followed in 1947 and in 1949.