Orders of the Day — Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 16th April 1958.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 16th April 1958

I join with my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) in congratulating the Chancellor—perhaps this message will be passed to him—on the clarity with which he introduced his Budget yesterday. Indeed, his manner was such that at times he made even a flat and dull Budget such as this appear quite interesting.

It is the fourth Budget which we have had in two-and-a-half years and the fourth Chancellor we have had in two-and-a-half years, and the economic position is worse now than when the Lord Privy Seal introduced his autumn Budget two-and-a-half years ago. I notice that the Chancellor has now arrived. I make it clear that any reference I make in my remarks to the "late" Chancellor are a reference to the right hon. Member for Monmouth (Mr. P. Thorneycroft).

Yesterday's Budget presented the Chancellor with a challenging opportunity, and in our view he muffed it. He has produced this pathetic little mouse of a Budget. As the Financial Times said this morning, This is a Budget which will not be long remembered. Even the Daily Sketch, which usually supports hon. Members opposite, refers to it as Crumbs! Daredevil Derick has a go! I do not intend to weary the House with comments on all the fiscal minutia which the Chancellor introduced into his speech, because there will be plenty of time for them on the Finance Bill. If I say nothing about irrevocable settlements, or the quick succession duty, or the enlargement of life interests, or methyl alcohol, or tithe redemption annuities or the Treasury Chest Fund, I hope that I shall not be taken as failing to show a proper appreciation of the painstaking way in which the Chancellor has been burrowing in the dusty pigeonholes of the Boards of Inland Revenue and Customs and Excise.

I should like to welcome the right hon. Gentleman's belated recognition of the needs of the cinemas and, in particular, his acceptance of the principle of the Amendment which we have moved year by year indicating that the cinemas with the lowest-priced seats were most in need of relief. On building societies, too, although he has not gone the whole way, he has accepted the argument put forward in the Amendment moved in Committee by the hon. Member for Hudders-field, West (Mr. Wade) and by ourselves on Report last year. This is welcome.

On dividend stripping, I see from the right hon. Gentleman's speech that, as we feared, the moles of the tax avoidance industry have burrowed underneath the barricades erected by the Lord Privy Seal in his autumn Budget, two-and-a-half years ago. We told him they would. At that time I asked the then Financial Secretary, now Minister of Housing and Local Government—although there seems to be some doubt about that this afternoon—for an assurance that the Government would deal retrospectively with any new and devious means that were discovered.

I am glad that the Chancellor has had the courage to introduce these retrospective provisions into his proposals, but if he thinks that he has now dealt with all the problems of dividend stripping and bond washing and everything else which we once put under the generic heading of "scrip teasing", he under-rates the intelligence and devotion of the members of the tax avoidance profession.

The Stamp Duty changes, the relief for older taxpayers, and the dependent relative allowance are things which, of course, we welcome and the right hon. Gentleman can be sure that we shall be ready to make constructive proposals to add to and improve what he is doing about Purchase Tax He has streamlined and simplified the chaotic Purchase Tax tangle which he inherited from his predecessors and has reduced the seven rates of tax to four rates. In 1951, when the Lord Privy Seal took over, there were only three rates and I should say that my right hon. Friends managed to achieve that without any help from Kidderminster.

While the Chancellor has carried out one or two suggestions which we have made, for instance, about domestic heaters and about wool cloth, he has failed to take the most important step of all, a step which we have been urging upon him, to remove from the tax schedules the household essentials which were exempt in 1951 and which were made taxable by the Lord Privy Seal. Now the right hon. Gentleman is imposing a tax even on housewives' baskets and I should warn him that he can certainly expect strong opposition from this side of the Committee to his proposal to tax miners' protective clothing. Perhaps I may leave my comments on his proposals about the initial allowance and about Profits Tax until I come to the question of industrial investment later in my speech.

It has been my painful duty year by year in these debates to give the Committee an objective and factual appraisal of the previous year's economic achievements. Not since the Prime Minister's brutal epitaph on the Lord Privy Seal has this been done from the Treasury Bench, so I will endeavour, once again, to repair the Chancellor's omission.

First, our gold reserves. Recent figures have been good, although they provide no ground for complacency, much less for self-satisfaction. It was obvious that this improvement would take place. In the crisis debate last autumn, we forecast that it would take place because, we said, we were moving into a seasonally favourable period for sterling and because of the inevitable reversal of the speculative tide once the International Monetary Fund meetings were over, and it was clear that there was to be no alteration in exchange rates.

The improvement has been due, in the main, to those two factors as well as to an influx of hot money taking advantage of high interest rates, and funds for the Shell Oil Company issue. Indeed, the Banker, in its March issue, attributed sterling strength primarily to favourable seasonal influence, the covering of short accounts and a notable foreign demand for United Kingdom securities including not only the new Shell Company issue, but the new Government loans, because funding stock has the attraction of being tax-free to non-residents.

Our gold reserves are 560 million dollars higher than a year ago, but 250 million dollars was the Export-Import Bank loan and if we take account of the other external aid—sterling area I.M.F borrowings, the American loan waiver, and the special German advance debt payment—we have had, over the year, special subventions of 809 million dollars; so that the net position is about 250 million down over the year

While this is a great deal better than the disastrous loss which we suffered in the year which followed the Prime Minister's one and—thank heaven—only Budget, there is certainly no ground for any complacency. I put it to the Committee that if we look at the gold and dollar position over the past three years, since the last General Election, allowing for all the borrowings, Adenauer aid and all the rest, there has been a net loss since the Election of 1,650 million dollars. If it had not been for all the borrowings and aid, our reserves today, thirteen years after the war, even with the recent improvement, would be barely 1,000 million dollars, very much lower than the level at which they stood when Sir Stafford Cripps was forced to devalue the £ just four years after the end of the war.

Our export figures, too, give no ground for complacency. Last year's Economic Survey took a very rosy view of the prospects. Referring to the increase in industrial capacity, it said: …our equipment for a further export drive has been considerably strengthened. With good prospects for world trade, and with a record of rising exports, the external conditions for a successful year are already present. Internally, high savings and all possible restraint in Government expenditure should create a situation favourable to the export effort.… Those are the words of the right hon. Gentleman the Member for Monmouth.

What of the event? The Economic Survey this year tells the export story tucked away in an appendix. This is what it says: The increase in volume was just over 2 per cent., the lowest since 1953. There was a marked change of trend in the fourth quarter of 1957 when, even after allowing for disturbances to shipping movements in 1956, United Kingdom exports were no higher in volume than at, the fourth quarter of 1956; without this allowance they were 2 per cent. lower than a year earlier. All the Government's policies, deflation, stagnation, 7 per cent. Bank Rate, wages squeeze and all the rest, were directed to increasing exports, and what happened? They fell and they are still falling.

It is not that the markets were not there. Taking the figures for Western Europe and comparing 1957 with 1956, when we were already lagging behind the rest of Europe, as we did in 1955, in 1954 and 1953, the exports of Greece were up by 24 per cent., Ireland, 23 per cent.; Austria, 15 per cent.; West Germany, 13 per cent.; France, 10 per cent.; Denmark, 9 per cent.; Finland, 8 per cent.; Italy, Sweden and Switzerland, 7 per cent.; the Netherlands, 5 per cent.; Portugal and Britain, 2 per cent. Only Spain, Norway and Belgium did worse. If we were to take the figures over the whole of the six years, we should see an even more dismal record of achievement in this country, but I will spare hon. Members the embarrassment.

The improvement in our balance of payments was, therefore, not due to our efforts in the export markets. It was due to the collapse in import prices. Over the year as a whole, from January to January, import prices fell by 10 per cent. and the latest figures are now 12 per cent. below the level for last April. If everything else remained the same, this would represent a windfall of nearly £500 million a year to our balance of payments this year, but, of course, things do not remain the same.

The very factor which has cheapened our imports, the collapse in commodity prices, has greatly reduced the ability of our principal customers to buy our exports. This, again, could have been foreseen many months ago. In the economic debate last October, I said that we must expect three stages. The first would be an improvement in our paper surplus on the balance of payments accounts, and I said that Ministers would no doubt get very complacent because of that and so they have. I said, secondly, that we must expect a falling off in our sterling area dollar earnings and, thirdly, growing difficulties in our export trade. All three stages are now at work.

A few days ago we had the Balance of Payments White Paper, which is a very revealing document. We all remember that two or three years ago the Prime Minister said that he intended to improve the speed and efficiency of our economic statistics. He said that we could not continue to look up trains in last year's Bradshaw and we all thought how amusing that was. We have Bradshaw now and it shows that the Government were entirely wrong in their assessment of the crisis last autumn. They told us that it was all a question of confidence in sterling because of inflation and expected wage claims, the economic consequences of Mr. Cousins. So we had the 7 per cent. Bank Rate and deflation and the decision to force a showdown with the unions and all the rest of it.

Now we have been able to look up the White Paper we can see what really happened. The whole of the non-sterling drain over the second half of the year was explained by the running down of Commonwealth countries' sterling balances, partly for development and partly through the loss of earnings through the commodity recession. So it was not Mr. Cousins, after all. I am sure, however, that the Committee will agree that even at this late stage it is useful to have last year's Bradshaw in order to see which train we missed.

It is when we turn to the production figures that we see how costly have been the Government's misdirected policies. Two years ago the Prime Minister set out to hold down production—and he succeeded. We then had the right hon. Member for Monmouth who, in a moment of clear-sightedness last July, suddenly discovered that the right way of dealing with inflation was to increase production. Unfortunately, he panicked in September and embarked upon a policy of deflation. Production today is exactly where it was in the autumn of 1955—four Budgets and four Chancellors ago.

Time and time again in these debates we have exposed this basic Tory fallacy that the right way to get prices down is to hold down production. Any factory manager will tell us that restricted production is the way to higher and not lower unit costs, as well as being a direct incentive to restrictive practices on both sides of industry. The Committee has had proof of this in the figures of international comparisons that we have given year by year in these debates. We have just had the latest figures from the United Nations publications. Taking 1953 as the base, out of 17 countries Britain comes sixteenth in the rate of economic growth, only Ireland being below us—for what comfort that is to the Treasury Bench.

But if we consider the cost-of-living index, taking the same 17 countries we find that we are third highest, only Greece and Denmark being above us. Do hon. Members opposite seriously maintain that this is a coincidence—especially when they bear in mind that from 1946 to 1951 we led Europe in industrial production and recorded almost the lowest increase in prices?

Ministers today are very complacent about the price level, though last year, from January to January, it rose by 31 per cent., despite a fall in import prices of 10 per cent. and in food prices of 9 per cent. Falling import prices should mean a lower and not higher cost of living. The public should be told where the difference is going, just as figures should be produced to explain the enormous widening, over the past two years, in the gap between farm prices in this country and the prices which the housewife has to pay in the shops. This year, in the easiest world price conditions that we have known for twenty years—as the Survey makes clear—the Government will be guilty of the most grotesque mismanagement if they fail to stabilise and, indeed, reduce, the cost of living.

Turning from this somewhat dismal record of 1957 to the present position, we see that the main crisis that we are facing is the stagnation of production. I have given the figures, and I have given the humiliating international comparisons. I wonder whether hon. Members opposite realise what they mean in terms of the great problems that we are facing. Under the Labour Government, production rose by 6·8 per cent. per annum. In the last six years it has risen, on the average, by only 3 per cent.—and over the past two-and-a-half to three years there has been no increase. and production is now falling. If, in the past six years, production had risen as much each year as it did when we were responsible for the nation's affairs, our total industrial production last year would have been £3,700 million more than the £19,000 million actually recorded.

I wonder whether hon. Members realise what could be done with an additional £3,700 million of real production. It would be enough to solve all our problems of exports and investment, to make a major contribution to world development, and to conquer inflation. If hon. Members opposite are having any difficulty about this kind of concept let me put it in terms which they will understand. The loss of this £3,700 million potential output in a year is about equal to the total cost of 100 groundnut schemes every year; that is about two a week.