The right hon. Member for Battersea, North (Mr. Jay) has discharged some heavy broadsides in the general direction of the Government. Some of his shots have fallen in the target area, some seemed to me to fall distinctly short and some ricocheted off harmlessly in a number of different directions. It seemed to me that he was directing his fire less against the specific taxation proposals in the Budget than against the general economic policies of the Government.
That is fair enough, because the Budget speech and the debate should deal broadly with the national economic situation. I thought it a novel idea that the right hon. Member for Huyton (Mr. H. Wilson) put forward the other day that we needed two debates, one on the Budget and one on the economic situation in general. I thought that suggestion had little merit or precedent behind it. The general theme of the right hon. Member and hon. Members opposite has been that this Budget is a cautious, timid affair, not bold and imaginative and, in the words of the right hon. Member for Huyton, "a pathetic little mouse". It is possible, I suppose, that the tax changes conceivably, by themselves, to some degree could justify those epithets. But one has to remember that in the aggregate I have proposed tax reductions of £108 million in a full year. Even in this modern age that is quite a lot of money.
I explained on Tuesday last why larger remissions, I felt, were not justified this year. My impression is that the country as a whole, and certainly the bulk of the Press, has thought the reasons I gave valid. I certainly do not feel disconcerted by the kind of description that hon. Gentlemen opposite have applied to this Budget. The quality of the Budget, I think, surely cannot be judged solely by the tax changes proposed. The hon. Member for Gloucester (Mr. Diamond), when he spoke the other day, seemed rather to think that it could be. But surely the action which a Chancellor takes in his Budget should be the action which he judges necessary to keep the whole national economy in balance and in a condition in which it can give the best account of itself. It may well be that at particular moments little immediate adjustment is required. In such circumstances, the best Budget, I suppose, would be the Budget making no changes at all.
It is always easy to be bold and imaginative, in the common interpretation of those words, with other people's money. Sometimes I think that a scrutiny of the charts, even a scrutiny with the utmost vision and imagination, might well lead to the conclusion that the course the ship is on is about right. If that is the conclusion, it would not be a prudent navigator who would make changes merely for the sake of making them. To change the metaphor, if one is suffering from high blood pressure, a treatment which is designed to lower the pressure a little may be more appropriate than a major operation.
The gravamen of the criticisms which the right hon. Gentleman has launched centred on what is, I agree, a very substantial difference at the present moment between the economic policies we are following and those which right hon. Gentlemen opposite recommend. The right hon. Gentleman and his hon. Friends recommend maximum production as top priority. Our top priority in present circumstances is the maintenance of the strength of sterling and a stable price level. The right hon. Member for Huyton said that he and his colleagues also place the maintenance of sterling first, and I accept that that is sincerely their whole aim.
I was very glad to hear what he said about this at the end of his speech on Wednesday, but I hope he will discourage his hon. Friend the Member for Stechford (Mr. Roy Jenkins) from criticising, as he did in the House of Commons the other day, what he called the myth of sterling as a world currency. What we do take leave to doubt is whether the policies that hon. and right hon. Gentlemen opposite are recommending could conceivably attain that end. We think they would have precisely the opposite effect, to a point that would bring on ale most serious inflation and a balance of payments crisis again.
The kind of controls that right hon. Gentlemen opposite are proposing, after all, would be in themselves inflationary, and I cannot see any reason to think that they would be any more effective than they were when they tried them before. Hon. Gentlemen opposite must not forget that they had all the controls they needed in 1951 and that they used them, and that wages and prices rushed ahead and that gold and dollars poured away at a rate which would have exhausted the reserves in eight months. After all, the declared policy of the Socialist Party is greatly increased public expenditure, high taxation and low interest rates, and I simply cannot imagine a better recipe for wild inflation and a balance of payments crisis.
As to the reserves, I am sure that we must remember that if people overseas have confidence in our economic management and feel that they will be free to take their money away if and when they want to they will send it here, but not otherwise.
I apologise to the Committee if I am sermonising, because I am aware that I have been in my present post only for about three months and have no right to do that. It may be that I have become a little over-confident since, a fortnight ago, I had my measurements taken for my effigy for Madame Tussaud's. That sort of thing, perhaps, goes to one's head slightly. I hasten to add that I was assured that none of my predecessors is to be removed to make place for me.
I am sure that the whole Committee is sad to have heard the last speech that we shall hear, at any rate for some time, from—as I think I must refer to him, Sir Charles—Mr. Angus Maude. We all have a great respect for his mental qualities. I do not know how many persons I shall be called upon to appoint to the Chiltern Hundreds, but I shall never appoint anyone with greater regret than I did him.
A great deal has been said about production, and about what the right hon. Gentleman the Member for Huyton called the policy of stagnation. I have made my views about this pretty clear in my Budget speech, but as the matter is of very great interest and importance I shall try to say what I believe we on this side have in common with the right hon. Gentleman and his friends, and where we differ, as we clearly do, both in our judgment of the situation, and in the action we would take if our judgments were the same.
I have said that strategic expansion is our aim, and we mean to encourage resumption at a steady rate as soon as we safely can. There is no difference between us about expansion as the fundamental aim. We are also in full agreement about the importance of defending and strengthening sterling, and I freely acknowledge that the right hon. Gentleman the Leader of the Opposition has constantly made that point.
I think that we are agreed also that stable prices are necessary. not only to maintain the strength of sterling but also because of the disruptive social and economic effects that follow internally when prices go on rising, particularly when it is believed that the Government are not out to check the process. The hon. and learned Gentleman the Member for Northampton (Mr. Paget) came out today as a convinced inflationist. He was clearly not in agreement with me there.
My hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) quoted the Leader of the Opposition as having said:
If incomes go up more than production goes up, then prices will rise. The truth is as simple as that.
I could not have put it more succinctly myself, but I find it difficult to reconcile those words with the policies that the right hon. Gentleman now recommends.
We are also agreed, I think, as I said in my speech, that the economy is at present capable of meeting a higher level of demand than is likely to be made on it at the moment. In fact, it would be strange were that not so, considering that, under the present Government, capital investment has been growing steadily, and is now running at an all-time record level.
I also said, and this is a point of disagreement in our judgment of the situation, that I did not think we were yet strong enough deliberately to encourage further expansion at the moment. As I understood him, the right hon. Gentleman thought, not only that we were strong enough but strong enough to increase it to the order of £3,700 million a year. He became rather imaginative at that point, and referred to this as the equivalent of 100 groundnut schemes. I agree that that was a graphic, if irrelevant, comparison. It conjures up the startling and, I thought, rather terrifying composite—almost nightmare—picture of the concerted efforts of the right hon. Gentleman the Member for Dundee, West (Mr. Strachey) and the hon. Member for Deptford (Sir L. Plummer) expanded 100 times.
To return to the figure of £3,700 million a year, that sum is 20 per cent. more than our current output. I think that the right hon. Gentleman later lowered his sights to £2,000 million, and the right hon. Gentleman the Member for Battersea, North has lowered them again to £1,500 million. I really do not know what that additional output that he visualised would consist of, or what effect it would have on our balance of payments. My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) rightly referred to that. But even at £2,000 million extra, such an expansion would add about £400 million at present to our import bill, and how much would it take off our exports? Whatever the Government are doing, we are not discouraging exports, and it is impossible to believe that such an enormous stimulus to home demand as that would not also give a sharp stimulus to the pull against exports.
At present unemployment is 2 per cent. of the working force. At the end of March the operatives on short-time in manufacturing establishments were about 1·7 per cent. and for overtime the figure was about the same as this time last year. All this talk about stagnation and the impression of an enormous increase in output that could be secured by a kind of wave of an unspecified wand in possession of right hon. Gentlemen opposite is very misleading indeed. It is true that output has risen only slightly during the last two years, but I have often thought how odd it is that right hon. Gentlemen opposite are so apt to concentrate their whole attention on one point to the exclusion of everything else and to the detriment of their ultimate judgment.
Investment, which I think we all agree is the key to our future economic strength, has continued to grow to record levels. It is now running at over 40 per cent. higher than in the last year of the Labour Government. Let us not forget, too, that the object of industrial investment—and there are many objectives—is not only increased volume, but also an increase in economic production as well. Today we have an absolute record level of personal saving and investment. Employment continues high. Our balance of payments is strong. The reserves are rising. Our liabilities have decreased considerably and are still decreasing, and consumer expenditure has also risen. I feel that it is a serious misuse of words to call that stagnation.
The other point of difference between us is about the relative dangers, on the one hand, of the period of consolidation and, on the other, the peril to sterling and the price level from running the economy absolutely flat out at present. If the right hon. Member for Huyton ever stands at the place that I now occupy he will have to weigh these considerations himself. He made great play about controls, but, as was pointed out by my right hon. Friends the President of the Board of Trade and the Paymaster-General, import controls are really not likely to increase confidence in sterling. In addition, for a country which imports its food and raw materials and exports manufactures I do not think it is likely that we would gain by encouraging a movement towards import controls.
The prescriptions of the right hon. Gentleman are really an invitation to roaring inflation and the collapse of our economy. I believe my right hon. Friend the President of the Board of Trade was entirely justified in pointing this out the other day. Hon. Members opposite, when they consider causes and consequences, seem to me so often to make entirely the wrong deductions from their examinations. They remind me of the three research workers who set out to discover the cause of drunkenness. They met together on the first evening and drank gin and water and became intoxicated. The next evening they drank whisky and water with the same deplorable results. On the third occasion they drank rum and water, and the same thing happened. Their unanimous report was that water must be the cause of drunkenness. We are as convinced as hon. Gentlemen opposite that expansion must be our permanent aim, but we differ profoundly about the foundations needed for that expansion. If that is caution, then I am content to be labelled a cautious man.
In the event of an incipient recession, our priorities in stimulating demand will be, first, action to assist exports; second, action to stimulate private and public investment; third, if necessary, direct encouragement to bigger consumer expenditure. As regards the first, I indicated last Tuesday certain action which we felt could be justified in finance and credit for exports. As regards the second, I emphasised that arrangements for holding bank credit, hire-purchase and the raising of capital are extremely flexible and can be modified or removed at any time. The same applies, of course, to interest rates. Looking ahead, I judged that some modest encouragement would be appropriate for industrial investment, and from that arose the proposal for an increase in the initial allowance, amounting to £23 million in a full year. Public investment control is also completely flexible. Half our investment, directly or indirectly, is under Government control. Our programmes, which were fixed last year, are being continued and should help to maintain the level of investment generally at its present level which, as I said, is an all-time record. If justified, we could certainly allow these programmes to expand.
I regard investment generally and the problem connected therewith as one of securing steady progress within our long-term resources rather than turning taps on and off frequently. But one must remember, in this context, that these programmes consist of two different kinds of investment, being partly long-term, large-scale projects which are slow to begin and do not come to maturity for two or three years, by which time economic conditions may be different, and partly—these are much more relevant to the present situation—short-term schemes which can be started quickly and completed within a year or eighteen months. I am glad to say that, within the investment programmes in the public sector, there is a substantial volume of such short-term work.
If it comes to the direct stimulation of consumer expenditure, though any prudent Chancellor will be very chary of admitting that there is any room for such manœuvres, there are things which may be done. If I were to attempt to go into detail now about what could be done in many ways, I should certainly risk creating more uncertainty than I should do good. Much of what could be said would sound more like a cookery book listing possibilities rather than the actual menu to be served on a given occasion. I can assure right hon. and hon. Gentlemen that a great deal of consideration has been given to possible situations which might arise, and we do not think that we shall be caught napping.
I was glad that many hon. Members referred to the problem of long-term financial liquidity. I was interested to hear the hon. Member for Orkney and Shetland (Mr. Grimond) recognise the importance of this and put forward a number of suggestions. My hon. Friend the Member for Eastleigh (Mr. D. Price) agreed and referred to Sir Oliver Franks' recent speech, to which, I am sure, many hon. Members will have given thought. My hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby) explained the world's liquidity problems in his usual forthright, lucid, and agreeable fashion.
We have had some discussion at official level with the American Government about this and other problems. In a few weeks, there will be an important meeting with Commonwealth officials which, we hope, will carry the matter somewhat further. There are a number of possible solutions and they all involve some expansion in the scale of existing international co-operation. The discussions which we shall continue with the Commonwealth and with the United States Government will, I hope, point the way to solutions which will give a greater degree of confidence to the world in the future of international trade and in the soundness of international currency arrangements. I am strongly of opinion that the time is now approaching, if it has not already arrived, for another forward move in international economic co-operation.
I agreed with much of the wide-looking speech made by the right hon. Gentleman the Member for Easington (Mr. Shinwell). He said he was venturing into this field for the first time, and he was not quite sure whether the price of gold ought to go down or go up. He is not here. I had a word from him explaining that he would not be here at this moment. I should like to ask the right hon. Gentleman, if he is going to come into this arena to help us, to use all his powerful influence to see that, between those alternatives, the price of gold should go up. The right hon. Gentleman seemed to be in very vigorous form this evening.
I listened with great attention as I always do to the speech made by the right hon. Gentleman the Member for Blyth (Mr. Robens). He mentioned one very important aspect and aim of our policies, which must be to maintain a high level of employment, but he said little or nothing at all about stable prices. I must say that listening to him it was very difficult to realise that this country, as it is today, is enjoying the highest standard of living it has ever had in its history.
The right hon. Gentleman the Member for Huyton asked, I think in an interruption, from what date the Stamp Duty concession would apply. It is 1st August.
I should like to say a brief word about dividend stripping, in particular the matter of retrospection. I would say straight away that I have as strong a dislike of retrospective legislation as I believe anyone here has. I have always felt it needs very unusual circumstances indeed to justify it. The question is whether such circumstances exist in this case or not.
There are special considerations here. First, the practice of dividend stripping is tax avoidance pure and simple. It is just not a case of carrying on a business in a way which avoids unnecessary payment of tax. In this case business is carried on for the sole purpose of getting back the tax and no other purpose at all. The second consideration is the clear warning which was given. I do not suggest that warning of this sort has any constitutional validity; but, in view of the suggestions which have been made in the past week that there was something improper in this warning, perhaps it is worth saying that so far as I am aware no complaint at all was then heard.
For these reasons it seemed to me drastic action was justified. Many hon. Gentlemen not only on this side of the Committee have taken a different view. I have naturally listened with care to what they have said. I am glad to see that no one has contested the view that dividend stripping as such must be stopped. The only question arises in the matter of retrospection.
I must say that I do not find this is at all an easy question. It has never been the accepted view that in no circumstances whatever can retrospection of tax legislation be justified. It is not a question here of legality but of whether the income in question should be subject to tax. That is rather a different thing. On several occasions, I understand, retrospection has been applied in this kind of circumstance for the benefit of the taxpayer.
As I have said, there are strong arguments for retrospection in this case, but I agree that one would have to be quite sure that the warning given in 1955 was specific enough to cover all the devices, the new ones as well as the ones that were particularly before us at that time. These points must be considered against the background of the very sound and important principle that retrospection is in general highly undesirable. I propose to give further thought to this difficult but important question before the Finance Bill.
The right hon. Member for Bishop Auckland (Mr. Dalton) made a bold proposal to raise another £150 or £200 million from tobacco and cigarettes. I should be interested to know whether the Shadow Cabinet set the seal of its approval on that.